House Reauthorization Bills Would Streamline Drawback Process, Revise Drawback Formula

The two customs reauthorization bills recently introduced in the House would both make several changes to the process and rules governing drawback, including a revision to the formula for calculating the drawback amount.

(House Ways and Means Trade Subcommittee Chairman Kevin Brady (R-Texas) introduced a customs reauthorization bill (HR-6642) on Dec. 7. House Ways and Means Committee Ranking Member Sandy Levin (D-Mich.) and Trade Subcommittee Ranking Member Jim McDermott (D-Wash.) introduced their own customs reauthorization bill Dec. 13 (HR-6656). Other than language addressing antidumping/countervailing duty evasion, the two bills are very similar.)

(The bill text of Brady's bill is (here). Descriptions of each section of the bill are (here). A bill summary is (here). A press release on Democrats' bill is (here). Text of the bill is (here).

(Brady's bill, the Customs Trade Facilitation and Enforcement Act of 2012 (HR-6642), is meant to modernize CBP and other customs-related agencies. See ITT's Online Archives 12120728 for news of introduction of the legislation. See ITT's Online Archives 12121023 for summary of the CBP reorganization that would result due to the bill. See ITT's Online Archives 12121115 for summary of the new requirements for brokers. See ITT's Online Archives 12121206 for summary of intellectual property rights provisions. See ITT's Online Archives 12121419 for summary of the Democrats' bill. See future issues of ITT for additional details of the legislation.)

The bills would streamline CBP's duty drawback process by:

• Allowing use of eight-digit HTS classifications for determining eligibility for certain types of drawback claims;
• making most time-frames for filing drawback claims consistent (five years);
• requiring GAO to report on drawback, including determining the revenue impact of moving to eight-digit HTS classification for determining eligibility for claims for unused drawback;
• allowing for a requirement that drawback claims to be filed electronically

Highlights of the revisions the bills would make to 19 USC 1313 on drawback include (partial list):

Drawback

If merchandise is imported into the U.S. and eligible merchandise is then exported, duties, fees, and taxes paid upon entry or importation of the merchandise may be refunded as drawback, less 1 per centum, as calculated below.

Drawback amount. Drawback would be calculated as (A) the total amount of duties, taxes, and fees on the entry summary line item under which imported merchandise is reported divided by the number of units of imported merchandise (B) multiplied by the number of units of imported merchandise claimed for drawback

Substitution rules. Merchandise may be substituted for other merchandise if it can be demonstrated that the merchandise was classifiable under the same eight-digit HTS subheading number as the other merchandise at some point during the five-year period beginning on the date on which the merchandise was imported.

Use of Schedule B for classification. Both bills would allow the Schedule B number to be used for purposes of determining, under the substitution rules, if the merchandise is or has been classifiable under the same eight-digit HTS subheading number as other merchandise.

Requirements for transfer of merchandise. The bills would add some new requirements for transfer of merchandise under the substitution rules.

• Manufacturers and producers: Drawback may be allowed only if the manufacturer or producer of articles has received the imported, duty-paid merchandise or substitute merchandise, directly or indirectly, of imported duty paid merchandise or substitute merchandise.
• Exporters and destroyers: Drawback may be allowed only if the exporter or destroyer of articles has received the manufactured or produced article or substitute article, directly or indirectly, of a substitute article.
• Evidence of transfer: Transfers of merchandise may be evidenced by business records kept in the normal course of business and no additional certificates of transfer or manufacture shall be required.

(The term ‘directly’ means a transfer of merchandise or an article from a person to another person without any intermediate transfer. The term 'indirectly' refers to the transfer from a person to another with on or more intermediate transfers.)

Unused Merchandise Drawback

The bills would add new language for consideration of unused merchandise drawback. For unused merchandise drawback, "merchandise shall be considered to be received directly or indirectly from a person who imported and paid any duty, tax, or fee due on the imported merchandise if the recipient received any imported merchandise, any other merchandise (whether imported or domestic), or any combination of imported merchandise and such other merchandise, from the importer through a transfer directly to the recipient, or a transfer from the importer through one or more intermediate transfers involving one or more parties of any combination of imported merchandise or such other merchandise. Transfers of merchandise may be evidenced by business records kept in the normal course of business and no additional certificates of transfer shall be required.’’.

Claiming Drawback

Proof of exportation. A person claiming drawback would have to submit, as proof of exportation, one of the following:

• The record of exportation entered in the AES or, if the exporter is unable to use that system, evidence of information similar to the information contained in such a record.

Effective Date for Drawback Revisions

The bills' amendments would:

• take effect on the date the legislation is enacted; and
• apply to drawback claims filed with respect to merchandise that enters the U.S. on or after such date (except as provided in the following transition provision).

Two-Year Transition Period

During the two-year period beginning on the effective date described above, a person may elect to file a claim for drawback under (i) 19 USC 1313, as amended by S. 1631; or (ii) 19 USC 1313, prior to its amendment.

GAO Report

The Government Accountability Office would be required to submit to the Senate Finance and House Ways and Means Committees a report that contains (i) a description of the implementation of the legislation; an evaluation of the modernization of drawback and refunds under; an evaluation of extending the modernization of drawback and refunds to unused merchandise drawback.