CBP Says BMW Doesn't Possess Cars for Substitution Drawback When Acting as FTZ

BMW North America is unable to claim substitution unused merchandise drawback on motor vehicles owned and exported by BMW Manufacturing Co., CBP said in a recently released ruling dated Nov. 30. BMW NA planned to "substitute the exported motor vehicles owned by BMW MC for motor vehicles imported and duty paid by BMW NA" and asked for CBP input on whether that is allowed.

BMW NA specifically wanted CBP to say whether "BMW NA may satisfy the possession requirement under 19 U.S.C. § 1313(j)(2), by virtue of BMW NA being the operator of the [foreign-trade zone (FTZ)] where the motor vehicles owned by BMW MC are stored prior to exportation," it said. As part of the BMW NA request, it asked CBP to revoke a 2016 ruling that found an FTZ operator didn't legally possess jewelry for drawback purposes. Substitution drawback requires the exported merchandise to be "in the possession" of the party claiming drawback.

CBP rulings and legislative history show "that Congress and CBP have consistently held that the requirement that a drawback claimant per 19 U.S.C. § 1313(j)(2) must both own and have control over the substituted goods," the agency said. While BMW NA argued that "physical possession and operational control are two separate and distinct drawback requirements," physical control isn't the same as "possession," the agency said. BMW NA's role as an FTZ operator here is keeping custody of the vehicles, but the company didn't give any evidence it will acquire the vehicle titles, CBP said.

The company also said it "has physical possession over the merchandise when acting in its capacity as FTZ operator, by virtue of its regulatory obligations to CBP and that it has physical control of the merchandise." But, CBP noted, "possession differs from custody" and the "plain language of 19 U.S.C. § 1313(j)(2)(C)(ii) unambiguously requires the claimant to have possession of the merchandise," it said. "A party may have operational control merchandise that is in the custody of another party’s leased facility for storage or bailment and be able to claim that it possesses the merchandise."