DRA 2-2
OT:RR:CTF:ER H107477 PTM
Port Director
U.S. Customs and Border Protection
Chicago Drawback Center
9915 Bryn Mawr Ave., 3rd Floor
Rosemont IL, 60018
ATTN: Martin Auz
Dear Sir,
We are writing in response to your correspondence, dated May 19, 2010, in which you request internal advice concerning the sufficiency of proof of exportation for drawback purposes. Our response follows.
FACTS:
You requested internal advice regarding the sufficiency of the Mexican Customs form, “pedimento,” as proof of export for drawback claims. A pedimento is an official Mexican customs form or application filed with Mexican customs to clear goods for either the importation into, or the exportation out of Mexico. There are two main types of import pedimentos: definite and temporary. A definite import pedimento, which is designated A-1, is used for products that will not be returned to the country of origin. A temporary import pedimento, which is designated H2, is used for products that will be transformed or subjected to a manufacturing process and subsequently returned to the country from which the product was initially imported.
The IMMEX program is sponsored by the government of Mexico and is designed to promote manufacturing operations in Mexico. Authorized companies qualify for tax benefits and are permitted to import merchandise for manufacture duty free. U.S. companies using the program can send merchandise to Mexico on a temporary duty-free basis for manufacture or assembly. After manufacture or assembly, the finished products are returned to the United States. This is known as a “maquiladora” operation. The H2 designation on the Mexican pedimento form indicates that the article will enter Mexico temporarily for processing in a maquiladora under the IMMEX program. In your letter, you request internal advice concerning the use a pedimento with the “H2” or “IN” designation, i.e, temporary entry into Mexico for manufacture, as proof of export from the United States to support a drawback claim.
As a corollary issue, you ask whether the pedimento must be endorsed with stamps by Mexican Customs in order to be sufficient for proof of export. You have observed pedimentos that have been endorsed twice (once with a duty stamp and once with an inspection stamp) by Mexican Customs as proof of exportation. Some drawback claimants state that it is not always possible to receive both stamps from Mexican Customs because not all cargo is inspected upon entry and some merchandise enters duty free. Furthermore, as Mexican Customs modernizes and entries are electronically filed, entries may receive only an electronic stamp. You request guidance regarding the question of whether a pedimento must have both a duty stamp and an inspection stamp in order to be sufficient to support a drawback claim, and whether it is permissible to accept an electronic stamp in lieu of manual stamps.
When Mexican Customs processes a pedimento electronically, the pedimento is not manually endorsed by a Mexican customs official. The box in the top right hand corner of the pedimento contains the electronic printout from the Mexican customs authority containing information regarding that particular entry into Mexico. The “Pago Electronico” field refers to the fact that this was a pedimento that was paid to Mexican customs electronically. The “Banco” field shows the bank that processed the electronic payment. The “OP” field refers to the number of operation. This number allows Mexican customs authorities to match the pedimento with the payment. The “Fecha” field indicates the date of payment. The “Acuse” field identifies the number that the bank assigns to every pedimento so that the importer or exporter can demonstrate that the pedimento was subject to customs process and payment. A printout similar to a cashier receipt is printed that indicates whether an importation has been released or is subject to further inspection. When an import is released from Mexican customs, the printout will read “DESADUANAMIENTO LIBRE,” which means “cleared customs,” or “CUMPLIDO,” which means “completed,” which indicates that the merchandise is no longer subject to inspection and is free to enter Mexico.
You submitted information concerning a particular drawback claim as a representative transaction for our evaluation. In the transaction presented, the claimant imports base meter assemblies into the United States from a supplier in a non-NAFTA
country. The claimant then exports the base meter assemblies to its subsidiary company in Mexico, where they are further assembled into liquid meter registers. The liquid meter registers are imported into the United States, where they are incorporated into finished products that the claimant sells to its customers.
You provided the Mexican pedimento number 06-23-XXXX-XXXX474 (“474”) that was submitted with the representative drawback claim. The pedimento is type H2. Based on the pedimento, certain base meter assemblies were entered into Mexico and duty was paid on July 22, 2006. The Mexican subsidiary of the drawback claimant is listed as the consignee in the DATOS DEL IMPORTADOR field on the pedimento, and corresponds with the sold to party (“vendido a” field) on the accompanying invoice. The Mexican duty rate is located in the field titled “TASA” on the pedimento. The pedimento shows Mexican import duties in the “IMPORTE” field on the pedimento. The electronic receipt code is shown on the “ACUSE DE REGISTRO” field. The pedimento shows that the Mexican duties were paid electronically in the “electronico” field, and lists a bank and transaction number in the “banco” field. The pedimento describes the merchandise as “sub-ensable de registro,” which translates into English as “meter sub-assembly.” The pedimento covers imported merchandise from three separate invoices. The invoice for the base meter assemblies, “FACTURA MPF-XXX32,” is dated July 18, 2006, which corresponds with the date listed on the pedimento. The exporter listed is the drawback claimant and is provided in the “DATOS DEL PROVEEDOR O COMPRADOR” field. The merchandise is listed as “BASE ASSY.” The tariff classification on the invoice is listed as 9028.90.0080 in the Harmonized Tariff Schedule. The pedimento contains the electronic printout reading DESADUANAMIENTO LIBRE” and “CUMPLIDO,” (meaning “cleared customs” and “complete,” respectively).
Two additional pedimentos and accompanying invoices were provided with the claim: pedimentos nos. 06-23-XXXXXXXXX347 (“347”) and 06-23-XXXX-XXXX300 (“300”). Each of these pedimentos shows the payment of import duties to Mexican Customs. Pedimento 347 is type H2, and shows an entry and duty paid date of July 10, 2006. The pedimento lists invoice “FACTURA MPF-XXX24” submitted with the drawback claim. The invoice lists the tariff classification as 9028.90.0080 in the Harmonized Tariff Schedule. The information on the invoice corresponds to the information contained on the pedimento. Pedimento 300 is also type H2, and shows an entry and duty paid date of October 21, 2006. It lists the invoice “FACTURA MPF-XXX82” submitted with the drawback claim. The invoice lists the tariff classification as 9028.90.0080 in the Harmonized Tariff Schedule. The Mexican subsidiary of the drawback claimant is listed as the importer on both pedimentos 347 and 300. Further, each contains an electronic printout reading “DESADUANAMIENTO LIBRE” and “CUMPLIDO.”
The drawback claimant asserts that it is immaterial that the export is temporary so long as the export is for a legitimate commercial purpose. Therefore, if the drawback claimant can demonstrate a legitimate commercial purpose for the export, a pedimento
that on its face shows a temporary export for maquiladora processing may still be used as proof of export to support a drawback claim. Your drawback office has not advanced an official position. Rather, you have forwarded the drawback claimant’s position for our review.
ISSUES:
Whether a Mexican pedimento document with a temporary H2 or IN designation is sufficient proof of exportation under 19 U.S.C. §1313(j)(1).
Whether a pedimento must contain both a duty paid and inspection stamp to be considered to be endorsed by Mexican Customs and accepted as proof of exportation under 19 U.S.C. §1313(j)(1).
LAW AND ANALYSIS:
Use of the H2 / IN Pedimento for Proof of Export of a Drawback Claim
Your first query is whether a pedimento with a temporary H2 or IN designation, which indicates that the import will be further manufactured or processed in a maquiladora operation, is sufficient to satisfy proof of export requirements in drawback claims even though the designation shows that the export is temporary. We have determined that the H2/IN designation on a pedimento does not preclude it from being used as proof of export in a drawback claim.
Pursuant to 19 U.S.C. § 1313(l), drawback is permitted only upon compliance with the CBP regulations concerning drawback, which include the requirement of proof of export. Under the drawback regulations, there are two requirements for proof of export. The first requirement is evidence of intent for the merchandise at issue to unite with “the mass of things belonging to some foreign country.” See 19 C.F.R. § 101.1. The second requirement is evidence that the merchandise exited the United States. See 19 C.F.R. § 191.72. Specifically, 19 C.F.R. § 191.72 requires that “[s]upporting documentary evidence shall establish fully the date and fact of exportation and the identity of the exporter.” (emphasis added). Documents that may be used to establish actual evidence of exportation include but are not limited to an “originally signed bill of lading, air waybill, freight waybill, Canadian Customs manifest, and/or cargo manifest, or certified copies thereof, issued by the exporting carrier... .” 19 C.F.R. § 191.72(a).
In addition to the requirements set forth in 19 C.F.R. § 191.72, allowance of drawback based on exportations to Canada or Mexico, is also subject to the regulations implementing the North American Free Trade (“NAFTA”) Act in 19 C.F.R. Part 181. See North American Free Trade Agreement, Part II, Final Rule, 60 Fed. Reg. 46,334, 46,338 (Sept. 6, 1995) (stating that 19 C.F.R. part 181, subpart E, “covers all exports to Canada or Mexico, whether a claim for preferential tariff treatment is made or not”); HQ 228272 (November 8, 1999) (holding that allowance of drawback based on exportations to Canada and Mexico is subject to both 19 C.F.R. § 191.72 and regulations implementing NAFTA in 19 C.F.R. § 181.47). For 19 U.S.C. § 1313(j)(1) drawback claims like the one at issue here, 19 C.F.R. § 181.47(b)(2)(ii) governs. As noted above, 19 C.F.R. § 101.1 and 19 C.F.R. § 191.72 require proof of: 1) an intent for the merchandise at issue to unite with the mass of things belonging to some foreign country, and 2) the date and fact of exportation and the identity of the exporter. Under 19 C.F.R. § 181.47(b)(2)(ii)(G), there is an additional requirement that supporting documentation must establish the identity and location of the ultimate consignee of the exported goods. Finally, 19 C.F.R. § 181.47(b)(2)(ii)(G) provides the following:
Acceptable documentary evidence of exportation to Canada or Mexico shall include a bill of lading, air waybill, freight waybill, export ocean bill of lading, Canadian customs manifest, cargo manifest, or certified copies thereof, issued by the exporting carrier.
This regulation by its terms does not require a specific form. See, e.g., HQ 228272 (November 8, 1999) (indicating that for drawback claims subject to 19 C.F.R. § 181.47, alternative methods may be used to establish date and fact of export other than those listed at 19 C.F.R. § 191.72(a) through (e) as long as the alternative methods firmly establish date and fact of export). Rather, this regulation, along with 19 C.F.R. § 191.72, describes examples of acceptable documentary evidence.
The Mexican pedimento document is sufficient evidence of exportation, provided that the document includes the information required by the regulation. The regulation does not differentiate between the two types of pedimento designations: temporary and permanent. Thus, this regulation, while permitting use of a pedimento, does not specify whether one that only covers a temporary export is sufficient.
The general definition of “exportation” in the CBP regulations specifically excludes merchandise shipped abroad with the intention of returning it to the United States with a design to circumvent provisions of restriction or limitation in the tariff laws or to secure a benefit accruing to imported merchandise, such as the drawback laws. See 19 C.F.R. § 101.1. According to that definition, no “exportation” occurs if the sole reason for exporting the goods is to recoup duties paid upon the importation of the merchandise.
A temporary export, however, may still qualify as an export for drawback purposes. CBP has previously ruled that a temporary export may still be considered an export for drawback purposes so long as the merchandise was exported for a bona fide commercial purpose. In Headquarters Ruling HQ 229644 (December 17, 2002), CBP determined that the export of medical sutures and needles to the Dominican Republic for further manufacturing constituted an export for drawback purposes even though the goods were subsequently returned to the United States. CBP recognized that “[n]either the statutes or the cases discussed…required that the severance [from the United States] be considered of permanent nature” in order for an export to have taken place for drawback purposes. HQ 229644. See also, HQ 223701 (May 28, 1992) (holding that “temporary exports are eligible for drawback when “the merchandise…was shipped abroad for a legitimate commercial purpose independent of obtaining drawback.”) Consequently, a Mexican pedimento indicating a temporary export may qualify as evidence of an export for drawback purposes, so long as the claimant can demonstrate that the export is for a legitimate commercial purpose.
CBP rulings have interpreted the meaning of the phrase “legitimate commercial purpose” to include an export for manufacturing operations. For example, in HQ 223701, CBP held that manufacturing stainless steel wire into seals was a legitimate commercial purpose. Additionally, CBP held that “further assembly” operations such as threading a suture onto a needle constituted a legitimate commercial purpose. See HQ 229644.
The CBP regulations define "manufacture or production" as a "process, including but not limited to, an assembly, by which merchandise is made into a new and different article having a distinctive ‘name, character or use.’" See 19 C.F.R. § 191.2(q)(1). This language reflects the test for what constitutes a “manufacture” established by the Supreme Court Anheuser-Busch v. United States, 207 U.S. 556 (1907). In that case, the Court held:
Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary . . . . There must be a transformation; a new and different article must emerge, having a different name, character, or use.
207 U.S. 556, 562. Here, the imported product is a base meter assembly, which has no practical use of its own. It is incorporated as a component part in the maquiladora operation into liquid meter registers. Thus, the product changes name from “base meter assembly” to “liquid meter register.” Its character also changes from that of a component part to a finished register that measures liquid flow. The use changes as well, from an item with no initial application to a product that is used to measure liquid flow. Because of the changed name, character and use, the process qualifies as a “manufacture” for the purposes of the CBP regulations.
CBP considers export for manufacture to be a legitimate commercial purpose, and the assembly process described in the representative transaction qualifies as a manufacture as defined by the CBP regulations. Therefore, the export in this instance is for a legitimate commercial purpose. Because the H2 designation shows that the merchandise is admitted for manufacture under the IMMEX program, and as exportation for manufacturing is considered a legitimate commercial purpose, a pedimento with an H2 designation is acceptable for drawback purposes.
Duty Paid and Inspection Stamps / Electronic Pedimento Receipt
In response to your query regarding which stamps are necessary on a pedimento, CBP examines the totality of the evidence submitted for proof of export. The presence or absence of stamps do not, on their own, qualify or disqualify a pedimento as acceptable proof of exportation for drawback purposes.
For drawback claims, CBP looks to the totality of circumstances in evaluating proof of export. See 19 C.F.R. § 181.47(b)(2)(ii)(G). Customs Directive No. 3740-009, Drawback Proof of Export Requirements (May 13, 2002), states that proofs of export must individually or collectively contain all the legal elements required by the CBP regulations. If a pedimento is submitted as the proof of export there must be demonstrable proof that Mexican customs received and processed the pedimento and permitted the importation of the merchandise. Duty paid and inspection stamps are evidence that this has in fact occurred, as they indicate that a Mexican Customs official has collected duty on the import and inspected the merchandise. Some cargo may not be inspected, however, and some items may enter Mexico duty free. Consequently, it may not be possible to acquire both stamps upon exportation to Mexico. In these situations CBP may examine the other documents submitted to establish the date and fact of exportation.
For example, in HQ H228369 (February 1, 2000) CBP denied a drawback claim when, among other things, the pedimento submitted as proof of exportation did not contain an inspection stamp. In that case, however, the information on the pedimento did not match the supporting documentation. Additionally, the pedimento in that case did not describe the merchandise on which drawback was claimed. Therefore, there was no way to corroborate the information provided on the drawback claim with the pedimento or supporting documents. Furthermore, CBP noted that no other documentation was provided to prove that the merchandise was in fact exported to Mexico, such as bills of lading, freight bills and delivery receipts. Id. CBP also held that the duty paid stamp, on its own, was insufficient evidence of exportation as Mexican duties are required to be paid three days prior to the shipment crossing into Mexico by vehicle, and if for any reason the shipment does not cross into Mexico, the duties could be credited to another shipment. Id. Thus, when the inspection stamp is not provided, additional documentation is necessary to substantiate the proof of export.
We applied the proof of exportation requirements of 19 C.F.R. § 191.72 and 19 C.F.R. § 181.47(b)(2)(ii)(G) to the identified representative exports for the drawback claim filed by the claimant. The pedimentos submitted with the claim were processed electronically and do not contain manual stamps. However, all three pedimentos are marked with electronic duty paid and inspection endorsements.
The three pedimentos submitted as proof of export and corresponding documents show the import entry number “numero”, the date of importation “fecha,” tariff classification “fraccion,” rate of duty “tasa,” and the amount of duties paid “importe.” Similarly, the electronic printout corresponding to each pedimento shows that the merchandise cleared Mexican Customs. Therefore, the date and fact of exportation and the identity of the exporter have been provided in accordance with 19 C.F.R. § 191.72. The additional data element mandated by 19 C.F.R. §181.47(b)(2)(ii)(G) is the identity and location of the ultimate consignee. These elements are listed on the “DATOS DEL IMPORTADOR/EXPORTADOR” field on the first page of the pedimento, and are the same as the “sold to” party listed on the invoice. Because all of the proof of export elements required by CBP regulations are present, the documentation submitted with the drawback claim is sufficient to prove proof of export for drawback purposes.
HOLDING:
The designation of a temporary export on a pedimento may be used to support a drawback claim so long as the export was for a legitimate commercial purpose. The regulations do not require any particular stamp on a pedimento submitted as proof of export. However, pedimentos without the inspection stamp must be consistent with supporting documentation to establish the date and fact of export.
Sincerely,
Myles B. Harmon, Director Commercial and Trade Facilitation Division