CBP Reiterates Commitment to Drawback Simplification in ACE, but Contentious Regulatory Issues Remain

AUSTIN, Texas -- CBP remains committed to implementing drawback changes in ACE by the Trade Facilitation and Trade Enforcement Act’s February 2018 deadline, but contentious issues remain as the agency considers concurrent regulatory changes to its drawback program that are required by the same date, government officials and industry representatives said at the American Association of Exporters and Importers (AAEI) annual conference on June 21.

“We’re on it,” CBP Commissioner Kevin McAleenan said of the ACE programming changes, adding that CBP is “committed” to meeting TFTEA’s Feb. 24 deadline. Though drawback may be “the most complex commercial program we administer,” CBP has its “top folks in the room” working on the changes, he said. CBP has heard the trade industry’s concerns that it won’t meet the deadline and will “follow them up aggressively,” he said. CBP reportedly said funding issues would prevent the agency from meeting the February deadline (see 1705090022), before pledging it would find a way to program the changes (see 1705260007).

CBP recently began its first “sprint” of TFTEA drawback programming, said David Corn of C.J. Holt, who with other AAEI representatives met with McAleenan in mid-May to discuss their drawback concerns. CBP also now has a “contingency plan in place” to allow simplified drawback filing under TFTEA even if the ACE programming isn’t complete, though Corn doesn’t expect it will be needed, he said, speaking during a panel discussion separate from McAleenan’s remarks.

Work continues on concurrent changes to CBP’s drawback regulations to implement TFTEA’s simplified drawback provisions, CBP Newark Acting Assistant Port Director Maryanne Carney said during the same panel discussion. The agency’s legal staff has been “working tirelessly since January” to have the regulations ready by February 2018, though a draft has yet to circulate, Carney said. The draft should be available by late summer, she said. The trade community will have the opportunity to comment on the regulations once CBP issues its proposed rule, which Carney expects will fully explain “a lot of the new procedures and calculation methodology that’s going to be used under the new drawback law.”

Many of the regulatory changes will address provisions that are now outdated because of intervening statutory changes and court decisions, Bobby Waid of Charter Brokerage said. For example, the drawback regulations still say a merchandise processing fee cannot be claimed, even though that provision was subsequently reversed in court. CBP’s name will be updated throughout the regulations, Waid said. “At the end of the day, most changes are not controversial.”

The “main issue of contention” with CBP was how unused merchandise drawback claims are calculated, Waid said, which Congress in TFTEA left up to CBP’s implementing regulations. Faced with a choice of either using entry summary line item averages, which allow for automation, or detailed data from commercial invoices, which CBP can’t automate, CBP has floated a “hybrid” solution. For substitution drawback, claimants would be able use the line item average. But due to concerns that claimants could “game the system” by boosting the line average, CBP would require the commercial invoice-level detail for direct identification claims, he said.

The “pain point,” according to Waid, is that claimants would have to choose a single method for the entire entry line. For example, if a claimant has 100 units on an entry line, 10 of which are Canadian origin that are designated for direct identification drawback and require invoice-level data, the remaining 90 units could not be claimed for substitution drawback using the line item average method, he said. Waid and his AAEI associates argued against the change, but CBP has not yet given their “final verdict,” he said.

It’s a “big issue,” Michael Cerny of Sandler Travis said. CBP still has to submit a report to Congress on the cost of its drawback changes, and based on polling many claimants would stand to “lose drawback” if CBP makes the change. The trade industry will also be able to comment when and if the hybrid method is finalized, Cerny said. Even if CBP adopts the “hybrid” method, the elimination of NAFTA drawback restrictions could tamp down its impact by allowing more use of substitution drawback for imports from Canada and Mexico. But imports falling under residual “other other” tariff schedule subheadings and goods entered under the U.S.-Chile Free Trade Agreement would still feel the effects, Cerny said.

Meanwhile, additional issues surrounding the ACE transition lurk behind the scenes. The biggest issue within CBP right now is how to handle the large inventory of drawback claims sitting in the agency’s files, Carney said. CBP is preparing a “data dump” of the approximately 15,000 claims, currently residing in the Automated Commercial System, into ACE once the new system goes live, but the transfer won’t be “comprehensive because right now we only have header data in ACS,” Carney said. “So we’re really not sure what we’re going to get in ACE.” CBP plans to shut off ACS before the end of the year, but most of the claims sitting in the legacy system can’t yet be processed because liquidation of the underlying entries has been suspended for various reasons, including antidumping and countervailing duty cases. “That is a big concern,” Carney said.

CBP also has yet to see through plans for electronic proof of export, Carney said. The agency still hasn’t connected its drawback systems to the Automated Export System. CBP will initially validate against export data elements that will be required in ACE drawback transmissions. If CBP needs to see a claimant’s bill of lading or manifest, the agency will request it through the document imaging system (DIS), Carney said. “But at this point, we don’t have a true electronic connection to our export system within CBP.”