CBP: Unit of Measure Can Be Selected for Drawback Claims, With Restrictions

When filing unused merchandise drawback claims, companies can select the unit of measure they want to use for calculating per unit averaging where two units of measure are provided on the entry summary, provided that companies keep two conditions, according to a recent CROSS ruling issued by CBP.

The first condition is that the unit of measure is consistent with the one reported on the entry summary line and is the one required by the applicable Harmonized Tariff Schedule of the U.S. subheading. The second condition is that the claimant tracks the selection of its unit of measure and doesn't change it for purposes of subsequent drawback claims against that entry summary line, CBP said in H341220.

CBP’s ruling, issued on Aug. 30, modifies an earlier ruling, H326262, issued on July 5.

“Because the same unit of measure that is used to report the quantity for the imported merchandise must also be used to report the quantity for the substituted drawback eligible merchandise, the same unit of measure must be used for purposes of calculating drawback eligible merchandise in the [foreign-trade zone (FTZ)] context,” CBP said.

The ruling modification came about after duty drawback company Comstock & Theakston appealed to CBP on behalf of an unnamed company seeking permission to use a requested calculation methodology for claiming unused substituted merchandise drawback.

The items in question are merchandise produced in an FTZ containing domestic status components as well as foreign status components. All the merchandise is classified under HTS subheading 8507.70.00. While the foreign status components are previously imported and not duty paid, the domestic status components are either domestically produced or previously imported and duty paid, CBP said, quoting the company.

The company had initially sought in July 2022 to claim drawback on the finished merchandise. When the company filed its ruling request, it wanted CBP to address two issues. The first was whether it could claim a drawback based on the value of the exported good that did not receive the FTZ benefit against duty-paid imports for the same 8-digit HTSUS. The company had said that CBP explored this question in H305251, dubbed “Mercedes” by the protestant.

The second issue pertained to seeking clarity on the Mercedes ruling because that ruling appeared limited to calculating the drawback claim based upon the value alone. The Mercedes ruling also didn't address the need to decrement quantity as well as value for the drawback calculation, according to the company.

“The Company reiterated their position that drawback claimants should be able to deduct both value and weight of all foreign status components from the total weight of the finished and exported products from the FTZ,” CBP said in the ruling H341220. "The Company asserted that the ruling request was not limited to the HTSUS subheadings at issue in the ruling and drawback claimants should be able to decrement both value and weight no matter the subheading of the merchandise at issue.”

That, in some circumstances, would allow the company to use only some of an entry summary line for drawback purposes, leaving some imports on that line eligible to match up with future exports for drawback.

In response to the company’s questions, CBP determined that the company “cannot deduct the value and weight of foreign status components from the finished exported merchandise classified under subheading 8507.60.00, HTSUS, for purposes of calculating its claim for unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2).”

However, the company appealed CBP’s decision, submitting a formal request for reconsideration Aug. 16. In that request, the company clarified its ruling request in three ways, as characterized by CBP: “First, in seeking to use weight as a unit of measure for a drawback claim (as opposed to ‘number’ or pieces), the unit of quantity for purposes of per unit averaging ‘must have been actually declared on the entry line within the import entry summary.’ Second, ‘after selecting the unit of quantity for this purpose on a given entry line, the importer must not thereafter change the unit of quantity.’ And third, the drawback claimant must be able to demonstrate the ability to track this selection and monitor its compliance in its systems of record.”

The company also argued that H326262 was “unjustified” for five reasons: “First, CBP can only limit per unit averaging for drawback purposes by revising the relevant regulation. Second, General Statistical Note 4(b) of the HTSUS should not limit per unit averaging for drawback purposes. Third, per unit averaging normalizes import price differences, stabilizes drawback claims and defines the unit of measure for designated import entry lines. Fourth, limiting the acceptable unit of measure for per unit averaging constitutes a significant departure from CBP practice. Fifth, there is no compelling rationale for limiting which declared unit of quantity can be used for designation of drawback claims and per unit averaging.”

In response to the company’s arguments, CBP considered two questions: Whether the holding in the Mercedes ruling, H305251, would similarly apply to the prospective drawback claims proposed in the ruling request, and whether, for purposes of calculating substituted unused merchandise drawback, the claimant can choose the unit of measure used in the per unit averaging calculation.

When reviewing the first question, CBP observed that “the Company has now clarified that it does not seek to use weight as a unit of measure under any HTSUS subheading, nor does it allege that any unit of measure is permissible for purposes of accounting for drawback eligibility. Rather, the Company seeks to be able to choose which unit of measure it uses for purposes of calculating its drawback claim when the HTSUS subheading of the imported entered merchandise requires the reporting of more than one unit of measure on the entry summary line. Thus, the Company’s proposed accounting methodology presupposes and is dependent on the HTSUS requiring more than one unit of measure on the entry summary.

“The Company represents that under such circumstances, once it has selected a unit of quantity for this purpose on a given entry summary line, it will not change the unit of quantity for purposes of future drawback claims ‘against’ that entry summary line. Additionally, the Company asserts that it can track this selection and monitor its compliance to the entry line level in its systems of record. These representations are familiar to CBP and drawback claimants because similar restrictions exist in the context of the ‘first-filed’ rule,” CBP continued.

In response to the second question, CBP said its regulations are in place to protect revenue: “If, for example, a claimant made an initial drawback claim using one unit of measure (e.g., piece number) and a second drawback claim using weight (e.g., kilograms), the potential exists for the “manipulation of claims in order to maximize refunds to the detriment of the revenue of the United States” as Congress warned against in promulgating TFTEA and the per unit averaging standards.

However, this concern “is ameliorated by the Company’s representations that once it has selected a unit of quantity for this purpose on a given entry summary line, it will not change the unit of quantity for purposes of future drawback claims ‘against’ that entry summary line. Additionally, the Company will track this selection and monitor its compliance to the entry line level in its systems of record kept in the ordinary course of business. Accordingly, with the limitations represented by the Company, this office finds the proposed methodology permissible under the applicable statutory and regulatory framework.”