Electrical Cabinets Eligible for Drawback Despite Being 'Used,' CBP HQ Rules

Electrical cabinets specifically designed to be installed in power control rooms are eligible for drawback, CBP headquarters said in a recently released ruling that CBP issued in September. The ruling followed a request for further review by SMS USA LLC following the denial of its drawback claims.

Between November 2017 and January 2018, SMS imported three entries of electrical cabinets specifically designed to be installed in specific power control rooms located in Texas. The company filed drawback claims on Aug. 3, 2018, saying that its imported electrical cabinets remained “unused” prior to exportation to Mexico. CBP denied the claims, stating that documentation did not reflect that the same goods in unused condition were exported as were imported. SMS filed its protest in January 2019, arguing that it is eligible for unused merchandise drawback because the electrical cabinets were imported from Germany and exported to Mexico without any material alteration.

CBP headquarters found that the electrical cabinets were not "unused" as they were installed into power control rooms. The placement of the electrical cabinets into the control rooms created a new article with a different use and made the power control rooms fit for a particular purpose, CBP said. By bolting the cabinets in place using bolts, nuts and washers, SMS effectively merged the electrical cabinets and the control rooms into one entity.

The operation, although seemingly minor, was "akin to mounting imported tires and tubes onto a wheel and creating a spare tire in an exported vehicle," CBP said. That assembly "constituted a manufacturing or production" that "rendered them impermissibly 'used'" and ineligible for unused merchandise drawback under the “same condition” standard.

However, "used" merchandise may nonetheless be eligible for drawback pursuant to § 1313(a) to the extent that it satisfies the definition of “manufacture or production” under 19 C.F.R. § 191.2(q), which was adopted to ensure sufficient processing was performed on imported articles for purposes of manufacturing drawback. Having already determined that the bolting of the electrical cabinets into the PCRs amounted to the “manufacture or production” in its use analysis, CBP found that SMS is eligible for § 1313(a) manufacturing drawback so long as all other regulatory requirements are met.