CBP Drawback Final Rule Mostly Follows Proposed Version; Mixed Claims to Be Allowed

CBP's final rule for drawback regulations includes some changes from the proposed rule, but keeps in place much of the proposal, including the controversial provisions on drawback for excise taxes. The biggest change from the proposed rule is the elimination of limits on "mixed" claims. The final rule is a result of the Trade Facilitation and Trade Enforcement Act and a Court of International Trade decision that found CBP to be taking too long to issue the final regulations (see 1810120055).

The final rule will not prohibit the use of claims that seek substitution-based drawback under the TFTEA regulations for imports "associated with an entry summary where the entry summary had previously been designated as the basis of a claim under the old law," CBP said. Instead, "CBP has decided in this final rule to permit the filing of mixed claims," it said. There was some thought that the restrictions on mixed-use claims would face litigation if finalized (see 1810120031).

Because of differences between the calculations of substitution drawback claims under TFTEA and all pre-TFTEA claims, the processing can't be automated in ACE, CBP said. "Nevertheless, CBP agrees that drawback should be allowed for a claimant who can provide evidence to prove that a TFTEA-Drawback substitution claim does not designate merchandise that is covered by an entry summary line that also contains merchandise that was previously claimed on a drawback claim under the pre-TFTEA drawback law."

CBP also did away with the proposed import bond condition that said for "merchandise imported by the principal, the principal and surety are liable to pay erroneous drawback payments made to a drawback claimant who is not the principal." CBP will also remove a requirement for specific manufacturing drawback rulings to be published in the Customs Bulletin. CBP will also include multiple clarifications and language changes in response to commenters, it said.

CBP uses a big portion of the final rule to respond to objections regarding substitution drawback for excise taxes. That piece of the proposal saw the most negative attention in public comments (see 1809190005) and is seen as potentially facing a court challenge eventually. The issue involves the end to drawback for excise taxes on domestically produced goods that are exported free of excise taxes, a practice CBP refers to "double drawback" and was used by the wine industry for years to the envy of other industries paying excise taxes (see 1708090043).

Some of the concerned commenters seemed to "have conflated double drawback of excise taxes with drawback of duties, or substitution drawback generally," CBP said. "The statute does not prevent substitution drawback, but it does prevent claiming two drawbacks of excise tax, one on the export and one on the import, on the basis of a single export," it said. CBP also pushed back on a recurring complaint that eliminating double drawback defies legislative intent (see 1808210006). CBP notes Congress didn't specifically make "statutory changes that indicate approval of double drawback." Congress also "took no steps in TFTEA to authorize double drawback, despite knowing that CBP was not granting double drawback to distilled spirits, tobacco, beer, and fuel -- all of which are governed by substantially similar drawback regimes as wine."

Most of the regulations will take effect upon publication in the Federal Register on Dec. 18, though the new rules for drawback of excise taxes will take effect on Feb. 19, it said. CBP also released information on processing accelerated payment drawback claims in a CSMS message. "The regulations necessary for CBP to begin processing payments for Accelerated Payment (AP) on TFTEA drawback claims are now effective," it said.

(Federal Register 12/18/18)