201 Drawback Claims & Duty Refunds

• Fungibility refers to items that are identical or interchangeable.

US Territories and Drawback

• All U.S. territories, except Puerto Rico (PR), are considered outside of the U.S. for drawback purposes.
• Exports to these territories may qualify for drawback claims.

HTS and Schedule B

• The Harmonized Tariff Schedule (HTS) is used for classifying imports.
• Schedule B is the classification system for exports.

Drawback Basics

• Duties are equivalent to tariffs.
• Customs retain 1% of all drawback claims; a maximum of 99% refund is possible.
• Drawback opportunities arise from exportation, destruction, or movement of goods into a Foreign Trade Zone (FTZ).
• Imports not used in U.S. commerce but exported are eligible for drawback.
• Duties include Section 301 duties (25% tariff on Chinese imports), Section 201 duties (solar cells/panels), and Section 232 duties (steel and aluminum).

Duty Types Eligible for Drawback

• Regular duties/tariffs.
• Excise tax (alcohol, tobacco, fuels).
• Marking duties.
• Merchandise Processing Fee (MPF) and Harbor Maintenance Fee (HMF) for all 1313 drawback types.
• Under Quota Agriculture Fee.
• Voluntary Tenders (overpayment of duty due to customs error).

Duty Types Not Eligible for Drawback

• Section 232 tariffs.
• Anti-Dumping duties.
• Countervailing duties.
• Over Quota Agricultural fees.

Customs Drawback Types

• Same Condition (no change to the goods).
• Unused (minor change): Direct Identification [1313J(1)] and Substitution [1313J(2)].
• Manufacturing (changed): Direct Identification [1313(A)] and Substitution [1313(B)].
• Rejected/Returned (typically consumer products): Direct ID and Substitution [1313(C)].
• Petrochemical (refined fuels under same HTS): Always Substitution [1313(P)].
• Always at the HTS level, not all petrochemical derivatives included in this.

Same Condition Merchandise

• Goods must remain unchanged but can be cleaned, repackaged, or tested.
• Only same condition and manufacturing drawback existed pre-NAFTA.
• Goods exported to Canada, Mexico, and Chile must be in "same condition" for unused drawback eligibility.

Unused Merchandise

• Encompasses operations not amounting to manufacturing. Operations include testing, cleaning, repackaging, painting, fixing/changing parts.
• Goods to Canada and Mexico must be untouched to be determined unused.
• Unused Substitution Drawbacks on exports to Canada, Mexico, and Chile are prohibited.

Manufactured Merchandise

• Product altered in a manner that it has a new name, character, or use.
• A tariff shift is not needed to be considered manufactured.
• Substitution occurs at the raw material or component level used in the finished product.

Substitution Drawback

• Only the HTS number is required, disregarding kind, quality, or characteristics.
• Evolution: Fungibility -> Commercially Interchangeable -> Same Kind and Quality -> HTS Level.

Returns

• Risky if the item is not identified, potentially invalidating the entire drawback claim.
• Calculated Rates and compute code "REVIEW," with updated Rate 1 and 2 and compute code.
• Chapter 98: SPECIAL CLASSIFICATIONS (U.S. GOODS RETURNED): Notate (CH 98) and inform the Drawback Account Manager (DA).
• 9801: Already paid duty (value remains the same, no additional duty). Sending the product with the intention to bring it back incurs no additional duty.
• 9802: Repairs (change Rate 1 and 2 to 0). Duty is paid only on the increase in value due to repairs.

Direct Identification (ID)

• Requires lot number, serial number, or another Identification Number. If ID is unavailable, an accounting method is needed.
• Basket Provisions: Direct ID is essential due to USMCA and the "other other" problem.

Petrochemical Drawback

• Chemicals qualify under multiple provisions.
• Always substitution at the HTS level, with the 8th digit HTS substitution for finished petroleum derivatives.
• Not all qualifying HTS numbers are petroleum derivatives; there are other qualifying chemicals.
• All refined fuels fall under the same HTS.
• The maximum timeframe from ENTRY to export is 180 days.
• The "lesser of two values" rule does not apply to petrochemical drawback.
• No "other other" restriction or possession requirement.
• Less administrative burden than J2 due to basket provisions.

Rule Making

• The national management of CBP is located in Washington. CBP offices are in every major/minor seaport.
• The primary focus is on commerce into the U.S. and imports' country of origin due to Section 301 tariffs.
• Order of importance for drawback rules: Constitution, Drawback Laws, Code of Federal Regulations, Customs Rulings.
• To address customs laws, interaction with the Court of International Trade is required.

Federal Laws Relevant to Drawback

• Tariff Act of 1930: Established the framework for drawback provisions, allowing duty refunds on exported imported merchandise.
• Customs Modernization Act (1993): Updated and streamlined customs processes, including drawback, for greater accessibility and efficiency.
• Trade Facilitation and Trade Enforcement Act of 2016: Most recent amendment to the 1930 Tariff Act, simplifying rules, and expanding drawback.
• Automated claim submissions and relieved administrative duties for customs.

Customs Regulations -> 19 CFR part 190

• Title 19 of the Code of Federal Regulations (CFR), Part 191, covers regulations detailing procedures, eligibility, and types of drawback claims.
• Customs writes drawback regulations.
• Regulations cover eligibility, time limits, recordkeeping, proof of export/destruction, substitution standards, refund calculations, audits, penalties, and compliant claim submission.
• For interpretation issues, rulings can be requested for clarification.

Administrative Rules for Drawback

• Claims are filed through the Automated Commercial Environment (ACE) online.
• Filing deadline: 5 years from the import date.
• Claimants must provide documents for proof of import, export, destruction, and certificates of delivery.
• Record retention: Businesses must keep records for at least 3 years after liquidation (claim payment).
• CBP offers accelerated payment, providing quicker refunds before full review.
• CBP audits drawback claims, with potential denial or refund requests for non-compliance.

Customs Internal Procedures

• Customs clearance focuses on classification and valuation based on character, composition, and Country of Origin.
• Classification converts a product's description into a 10-digit HTS number.
• CBP's goal is to calculate and collect duties, tariffs, and fees associated with imported goods.
• Customs reviews paperwork and clears goods into U.S. commerce.

Ruling

• Entry Ruling Branch: A division of CBP responsible for issuing rulings and legal determinations on import aspects.
• Issues binding rulings under 19 CFR Part 177, legally binding on both CBP and the importer.
• Rulings can be requested based on Customs and Border Protection regulations.
• Rulings are published in the Customs Rulings Online Search System (CROSS).
• Multiple rulings can exist for a single claim.

Specific Ruling

• Official CBP decisions provide guidance on customs laws and interpretations.
• Sent to Customs HQ in Washington, involve lab recreation to decide the ruling based on manufacturing.

General Ruling

• Not company-specific.
• A customs-approved template allows for quicker approval for manufacturing drawback.
• Most are outdated due to pre-TFTEA drawback rules.

Manufacturing General Rulings

• TD81-234: The only ruling under 1313a that applies to the current regulations. It is for manufacturing under Direct Identification, must be used when filing under it..
• TD20-07: The only ruling under 1313b that applies to the current regulations. Instead of matching at the part number, component parts are match by HTS. This ruling replaced TD81-300.
• TD81-181: Applies to 1313b. It has to do with principal agency relationships performing manufacturing outside of a company.Agency relationship = Contract manufacturing = Tolling. If you have multiple outside agents you must submit one for each party.

Role of Federal Courts

• Court of International Trade (CIT) addresses customs laws through dialogue with Customs.
• CIT resolves trade disputes.
• Importers can challenge CBP decisions regarding duty, tariff classification, or penalties.
• The Tariff Act/TFTEA/Trade Laws, written by Congress, authorize CBP to create regulations.
• Customs must collaborate with Congress to change regulations.

The Centers of Excellence and Expertise (CEE)

• Streamline the import process by focusing on specific industries.
• Improve compliance and service for businesses via simplified procedures.
• CEE locations specialize in: Agriculture & Prepared Products (Miami, FL), Apparel, Footwear & Textiles (San Francisco, CA), Automotive & Aerospace (Detroit, MI), Base Metals (Chicago, IL), Consumer Products & Mass Merchandising (Atlanta, GA), Electronics (Los Angeles, CA), Industrial & Manufacturing Materials (Buffalo, NY), Machinery (Laredo, TX), Petroleum, Natural Gas & Minerals (Houston, TX), Pharmaceuticals, Health & Chemicals (New York, NY).

Timelines

• Filing deadline: 5 years from the import date; export must follow the import.
• Changes allowed freely within the first 10 days of claim submission.
• Post Summary Correction (PSC) needed after 10 days to liquidation to correct errors.
• Liquidation occurs when the drawback is paid.
• Customs has 1 year from submission to liquidate, extendable by 3 years if review is incomplete.
• Customs can change their minds within 90 days after liquidation (reliquidation) and request money back.
• Claimants can file a protest within 180 days of liquidation.
• Prior disclosure can be submitted after 180 days.
• Records must be maintained for 3 years after liquidation.
• Adverse Liquidation is when the filer messed up according to Customs. If the filer disagrees they can make a protest.

TFTEA Drawback Restrictions

• The "Other Other" Problem (Unused Substitution Drawback): If the HTS description starts with "Other" at the 8th digit, it must match at the 10th digit; if at the 10th digit, substitution is prohibited, requiring Direct ID at the part number level.

• Can petition ITC for a breakout at the 10th digit HTS.

• The First Filed Rule (J1 qualifying as it pertains to USMCA): Mixing direct ID and substitution on the same HTS line is prohibited. Only impacts countries exporting to Canada/Mexico and other countries with HTS numbers for unused substitution (1313J2).

• The Lesser of Two Values (Substitution Drawback): Refund amount cannot exceed the lesser of the export or import value.

• The Lesser of Two Duties (Manufactured drawback and USMCA): A test exists to check if the lesser of two duties can be applied.

Citrus Exception

• Citrus products are exempt from NAFTA/USMCA drawback restrictions.
• Substitution is allowed, and the "lesser of two duties" rule does not apply.

Categories of Recovery

• Internal Drawback: Based on a company's own imports/exports.
• Third-Party Drawback: Involves multiple parties' imports/exports through transactions between companies.
• Drawback Trading: A third party matches imports/exports of unrelated companies.
  • For J2, direct transfer required. Multiple layers of substitution is not allowed.
  • For P, multiple layers of substitution is allowed.

Customs Power of Attorney (POA)

• Authorizes a customs broker to act on an importer's behalf, filing entries, paying duties, and managing documents.
• POAs enable applications for things like accelerated payment, OTW, and WPN.

Alliance Paperwork for Accounts

• Accelerated Payment Application: Applications for Unused and Manufacturing. Qualifying requires a bond.
• One-Time Waiver (OTW): Allows customs to waive exports in the past.
• Waiver of Prior Notice (WPN):Waives telling customs about exports in the future.

Reconciliation

• Finding more information about imports can change the value of the good, and will impact the duty. reconciliations have to be done within 21 months

Customs Bonds

• Agreements ensuring regulatory compliance and duty payment.

• Single Entry Bond: Covers a single shipment for one-time imports.

• Continuous Bond: Covers shipments over a year, used by regular importers.

• Temporary Import Bond: Allows temporary duty-free import for goods intended for export or destruction.

Document Tracing

• Must be matching reference numbers.
• BL trucking paperwork cannot be used.
• Customs needs proof of who, what, when, and where for both import and export.

In's and Outs

• Accounting for import and export movements.
• Consideration of domestic sales and purchases.

Filer Code

• First 3 digits of the broker code. Identifies who entered entries into ACE.

USPPI

• US Principal Party of Interest, responsible for goods in the U.S. FPPI
• Foreign Principal Party of Interest .

NAFTA Drawback

• Same Condition Drawback became Unused Drawback.
• The Court of International Trade was created.

TFTEA

• The Trade Facilitation and Trade Enforcement Act of 2016 (TFTEA) -Most recent amendment to the Tariff Act of 1930.
• TFTEA, aiming to simplify drawback, paradoxically complicated it.
• Section 906 addressed drawback refunds.
• Expanded program, lifted burdens for customs, and automated claim submissions.

USMCA Drawback

• Trade agreement between US, Mexico, and Canada.
• Restrictions apply to exports to Chile.
• Eliminated J2 filing on exports to Canada and Mexico; Direct ID must be used.
• Limited Manufacture drawback to the lesser of either duty.

Antidumping/Countervailing

• Antidumping involves market flooding with low-priced goods.
• Countervailing offsets with an equal counter force.

Excise Tax & Drawback

• Excise tax can be deferred on harmful products, enabling drawback claims.
• J2 on excise tax was initially disallowed but overturned by courts.
• No Manufacturing Drawback if the finished product is duty-free in Canada or Mexico.
• Chile FTA imposes similar drawback restrictions.

Mitigating Tariffs

• Drawback, a concept since 1789, now termed Mitigating Tariffs.
• Strategies: Tariff Classification, Supply Chain Shifts/Tariff Engineering, Foreign Trade Zones.
• Foreign Trade Zone: A space for products not entering U.S. commerce, and is used to avoid paying duties.
• Substitution (1313J2 and 1313B) is a mitigating strategy that allows a gain in drawback and is why its a better strategy then trade zones.
• FTZs can make it so imported component parts can be manufactured and final products brought into U.S. commerce. You can choose to pay duty either on imported parts or the finished product.

Foreign Trade Zone Statuses

• Admission date: the date the good are admitted into the FTZ(important distinction from import and entry date for filing purposes)
• Non-Privileged Foreign (NPF): You can choose to pay the duty on the components or the finished good.
• Privileged Foreign (PF): Duty rates are "locked in" based on the condition of the goods when they enter the FTZ.
• Domestic Status: Domestic goods in an FTZ can be exported or mixed with other foreign goods without additional duties if they remain within the zone.
• Zone-Restricted Status: Goods are imported solely for export or destruction, not for domestic consumption.

Accounting Methods (Direct ID Alternatives)

• Used for Direct ID, 1313J1 and 1313A.
• Does not pertain to 1313J2, 1313B, 1313C, 1313P, and 1313K.
• Alternative to lot/serial numbers to establish fungibility.
• Tracks imports and exports without physical movement.
• Consistency Rule: Accounting method used for at least 1 year.
• Low to High, Last In First Out, and First In First Out: Account for All receipts including domestic sales
• Low to High(Blanket) and Low to High(Inventory Turns) do not account for domestic sales

Basis of Claim

• The stated quantity of imported parts within an export product.
• Claims tied to components in exported finished products, excluding waste.
• Appeared In (components in final product, DI or substiution). If domestic components used you must use substitution
• Used In (components in final product, but can't be seen).
• Used In Less Valuable Waste (claim needs adjustment).

Free Trade Agreements

• Reduced or zero tariffs.
• Most Favored Nation: Lower tarrifs extended to all WTO members.
• Generalized System of Preference: To specific developing countries designated by the U.S..

Substantial Transformation

• Determines a product's origin for customs, tariffs, and trade agreements.
• FTAs rely on substantial transformation.

Routed vs Non Routed Transactions

• Routed Transaction: A transaction in which the FPPI authorizes a U.S. agent to facilitate the export of items from the United States and to prepare and file EEI.
• Non Routed Transaction: Shipment sent from one USPPI to one consignee located in a single country of destination.
• Ocean and Air Bill if Ladings, commercial invoice, packing list, & proof of delivery = Proof of Exportation.
• Whoever is the shipper on the Bill of lading is considered the exporter and has first right to claim drawback.