Customs Reauthorization Summary: Drawback, De Minimis, Reliquidation

The Trade Facilitation and Trade Enforcement Act of 2015 (here), signed into law Feb. 24, includes an overhaul of current law on drawback, including provisions for substitute drawback at the eight-digit level and a uniform five-year deadline for claims. It also increases the de minimis limit to $800, exempts container residue from duties, and eliminates an exemption from import bans on goods produced with forced labor. Finally, the law holds CBP to stricter reliquidation timelines, and fixes legislation enacted last year that would have resulted in higher tariffs on recreational performance outerwear.

(NOTE: This is the fourth and final part of International Trade Today’s summary of customs reauthorization. See 1602170074 for part one, 1602230080 for part two and 1602240071 for part three.)

CBP Legally Authorized (Secs. 801-819)

The Trade Facilitation and Trade Enforcement Act formally gives legal authorization to CBP as an agency within the Department of Homeland Security. It sets the duties of the agency, its structure, and operational procedures. The law also formally authorizes CBP preclearance operations. DHS Secretary Jeh Johnson praised these provisions after the law’s enactment, noting they give CBP its "first comprehensive authorization" since DHS was created in 2003 (see 1602250021).

De Minimis Increased to $800 (Sec. 901)

The law includes a much-anticipated increase in the de minimis level, below which imports are not dutiable, from $200 to $800. The increase takes effect March 10. CBP has said the de minimis increase is the agency’s top priority for regulatory updates prompted by customs reauthorization legislation (see 1602260049).

CBP Consultation on Policy Changes (Sec. 902)

CBP is required to consult with the trade community, including the Commercial Operations Advisory Committee, on any policy changes or actions that will affect trade, 30 days after proposing and 30 days before finalizing the policy change or action. It must also consult with Congress both 60 days before proposing and 60 days before finalizing such a change or action.

Acts of Terror by Customs Brokers (Sec. 903)

Committing or conspiring to commit and act of terrorism is now subject to customs broker penalties under 19 USC 1641.

Amendments to HTS Chapter 98 for Goods Returned (Sec. 904)

Chapter 98 of the tariff schedule is amended so articles returned after repair under subheadings 9802.00.40 and 9802.00.50 can be commingled, and the origin, value and classification of such articles may be accounted for using an “inventory management” method. The new law also amends the article description for subheading 9801.00.10 so that it includes “any other products when returned within 3 years after having been exported,” and inserts a new subheading providing duty-free treatment for certain U.S. government property returned to the United States. These provisions take effect April 24.

Container Residue Exempt From Duties (Sec. 905)

General Note 3(e) of the HTS is amended so that it includes “residue of bulk cargo contained in instruments of international traffic” previously exported from the U.S., exempting residue from duties. The bill would define residue as not exceeding 7 percent of the bulk cargo, with no or de minimis value. The exemption takes effect for containers imported on or after Feb. 24.

Drawback (Sec. 906)

The Trade Facilitation and Trade Enforcement Act of 2015 includes several important updates to drawback, including substitution drawback at the eight-digit level, an extension of the deadline for drawback claims to five years, and changes to how drawback is calculated. The drawback provisions take effect two years after enactment, i.e., Feb. 24, 2018, and allow for an additional grace period of one year, until Feb. 24, 2019, during which drawback claims may either be made under the old or the new statute.

Eight-digit substitution drawback. Substitution drawback, including both manufacturing and unused merchandise, will be allowed for domestic merchandise and imported merchandise classifiable at the same eight-digit level of the HTS. Drawback laws had previously provided for the vague “same kind and quality” or “commercially interchangeable” standard.

Except ‘other’ HTS provisions. For unused merchandise drawback, the eight-digit rule only applies if the applicable tariff terms do not begin with the word “other.” If that is the case, substitution is allowed at the 10-digit level, again provided the 10-digit tariff term does not begin with the word “other.” If both the applicable eight-digit and 10-digit subheadings begin with the word “other,” substitution drawback is not available.

Claim deadline of five years. The Trade Facilitation and Trade Enforcement Act of 2015 creates a uniform deadline for drawback claims of five years after the date of importation. Under the previous law, claims were generally due three years after the date of export, with exportation required within three years of importation.

Amount of drawback available. The new law requires that CBP issue regulations providing for drawback “equal to 99 percent” of duties, taxes and fees on the imported article (or the amount of duties, taxes, and fees. Drawback provisions had previously said amounts “shall not exceed 99 percent.”

Lesser of actual duties paid or dutiable value. Unused merchandise drawback refunds on exported articles will equal 99 percent of the lesser of (i) the duties, taxes and fees paid on the imported merchandise or (ii) the amount of duties, taxes, and fees that would apply to the exported or destroyed article if the exported or destroyed article were imported. A similar rule applies to substitution manufacturing drawback with regard to the value of substitute merchandise, with CBP basing drawback on the lesser of the designated import or the substitute component. These provisions do not apply to substitution unused merchandise drawback for wine, and are subject to restrictions for drawback on finished petroleum derivatives.

CBP may require average per unit. CBP may require claims for manufacturing drawback be based upon the average per unit of duties, taxes, and fees for the entry line item.

More manufacturing drawback. Manufacturing drawback will be available on 99 percent of duties, taxes and fees, not just duties.

Joint and several liability. The importer and any person filing a drawback claim on behalf of the importer will together be liable up to the full amount of the drawback claimed, though the importer will only be liable up to the amount it authorized for the claim.

Electronic drawback claims required after two years. By February 2018, all drawback claims must be filed electronically.

Recordkeeping. Records for drawback claims will have to be kept for three years after the date the claim liquidated, rather than the date the claim was paid.

Documentation. The new law allows normal business records to be kept as proof of exportation, transfer of merchandise -- transfer “certificate” requirements are eliminated – and eight-digit equivalency for the purposes of substitution manufacturing drawback. Proof of export may also be established through an electronic system, such as the Automated Export System.

‘Consumptive Demand’ Exemption Eliminated for Import Ban on Forced Labor Goods (Sec. 910)

The Trade Facilitation and Trade Enforcement Act of 2015 eliminates the “consumptive demand” exemption from the ban on imports of goods produced by convict, forced and/or indentured labor under penal sanctions. Previously, the ban was not applicable if such goods are not “mined, produced, or manufactured in such quantities in the United States as to meet the consumptive demands of the United States.” Under current CBP regulations, CBP may accept “submissions on belief ‘that goods are being, or are likely to be, imported in violation of the Customs forced labor statute,’ and the agency may issue “withhold release orders,” if reasonable evidence is submitted, a CBP spokeswoman has said (see 1602260049). Termination of the exemption takes effect March 10.

CBP to Held to Strict Reliquidation Deadlines (Sec. 911)

The law provides that the CBP may only reliquidate within 90 days of the actual date of liquidation. Previous statute under 19 USC 1501 had allowed CBP to reliquidate an entry within 90 days of the date the notice of liquidation is provided by the importer. CBP has recently issued several rulings finding it could reliquidate entries, sometimes years after deemed liquidation occurred, by sending an importer notice (see 14061818 and 14080712), a policy the Court of International Trade found technically permissible in October (see 1410200053). Customs lawyers have argued the policy removes finality from the entry process by allowing CBP a mulligan.

Fixes to Tariffs on Recreational Performance Outerwear (Sec. 912)

The Trade Facilitation and Trade Enforcement Act of 2015 corrects errors in tariff provisions passed by Congress last year that would have increased duties on recreational performance outwear if they had been allowed to take effect. A section of the Trade Preferences Extension Act, enacted June 2015, created new HTS subheadings for recreational performance outerwear, but specified the wrong duty rates for the new tariff lines (see 1508080003). Subheadings are removed and new subheadings for “recreational performance outerwear” are added under headings 6201, 6202, 6203, 6204, 6210 and 6211. Also added are new definitions for “recreational performance outerwear” and other related tariff terms. Importers will have to keep records to demonstrate merchandise entered as “recreational performance outwear” is eligible for that classification.

Trade Preferences for Nepal (Sec. 915)

The new law authorizes the president to provide preferential tariff treatment to certain goods from Nepal of HTS headings 4202, 4203, 5701, 5702, 5703, 5705, 6117, 6214, 6216, 6217, 6301, 6308, 6604, 6605 and 6606, subject to certain conditions.

Marking of Certain Castings (Sec. 917)

The new law requires country of origin marking by means of die stamping, cast-in-mold lettering, etching, engraving, or an equally permanent method of marking, visible after installation, for inlet frames, tree and trench grates, lampposts, lamppost bases, cast utility poles, bollards, hydrants, and utility boxes.

‘Sense of Congress' on Miscellaneous Tariff Bill (Sec. 919)

The Trade Facilitation and Trade Enforcement Act of 2015 conveys “the sense of Congress that, to remove the competitive disadvantage to United States manufacturers and consumers resulting from the imposition of such duties and to promote the competitiveness of United States manufacturers, the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives are urged to advance, as soon as possible, after consultation with the public and Members of the Senate and the House of Representatives, a regular and predictable legislative process for the temporary suspension and reduction of duties that is consistent with the rules of the Senate and the House.”

Other Provisions

CBP is required to submit reports to Congress when it enters into private sector partnerships, preclearance agreements and reimbursable services agreements (Sec. 907). The agency is now authorized to perform overtime services for charter air carriers (Sec. 908). Countering the Arab League boycott of Israel is now a principal negotiating objective of the U.S., and U.S. courts are prohibited from enforcing Israel boycott-related judgments in foreign courts against U.S. nationals and companies (Sec. 909). Technical corrections are made to legislation passed this summer to provide for staged reductions in duties for protective active footwear (Sec. 913). Trade agreement negotiating objectives are added on immigration, greenhouse gas emissions and fisheries, and language is modified on human trafficking provisions of Trade Promotion Authority (Sec. 914). Expedited procedures are allowed for implementing the Asia-Pacific Economic Cooperation (APEC) environmental goods agreement (Sec. 916). Certain additional information must be submitted to Congress for nominations of deputy U.S. Trade Representatives (Sec. 918). Authorization for collection of certain customs user fees is extended by a short period (Sec. 920).