04-22599. Merchandise Processing Fees Eligible To Be Claimed as Certain Types of Drawback Based on Substitution of Finished Petroleum Derivatives

AGENCY:

Customs and Border Protection, Homeland Security; Treasury.

ACTION:

Final rule.

SUMMARY:

This document amends the Customs and Border Protection (CBP) Regulations to provide that merchandise processing fees are eligible to be claimed, in limited circumstances, as drawback based on substitution of finished petroleum derivatives. The changes implemented by this document are consistent with a court decision in which merchandise processing fees were found to be eligible to be claimed as unused merchandise drawback. As drawback based on substitution of finished petroleum derivatives is, in limited circumstances, treated in the same manner as unused merchandise drawback, this amendment reflects that merchandise processing fees are also eligible to be claimed as drawback in these circumstances.

DATES:

Effective November 8, 2004.

FOR FURTHER INFORMATION CONTACT:

William G. Rosoff, Chief, Duty and Refund Determinations Branch, Office of Regulations and Rulings, U.S. Customs Service, Tel. [phone].

SUPPLEMENTARY INFORMATION:

Background

Merchandise Processing Fees

Merchandise processing fees are fees the Secretary of the Treasury charges and collects for the processing of merchandise that is formally entered or released into the United States. See 19 U.S.C. 58c(a)(9)(A). Merchandise processing fees are assessed as a percentage of the value of the imported merchandise, as determined under 19 U.S.C. 1401a.

Merchandise Processing Fees Eligible To Be Claimed as Drawback

Section 313 of the Tariff Act of 1930, as amended, (19 U.S.C. 1313), concerns drawback and refunds. Drawback is a refund of certain duties, taxes and fees paid by the importer of record and granted to a drawback claimant under specific conditions.

In Texport Oil v. United States, 185 F.3d 1291 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit (CAFC) held that merchandise processing fees were assessed under Federal law and imposed by reason of importation and therefore eligible to be claimed as unused merchandise drawback pursuant to 19 U.S.C. 1313(j).

Subsection (p) of 19 U.S.C. 1313 authorizes drawback that is based on “substitution of finished petroleum derivatives.” Subsection (p)(4)(B) of 19 U.S.C. 1313, in pertinent part, limits the amount of drawback payable under this subsection to the amount of drawback that would be attributable to the article “if imported under [subsection 1313(p)(2)(A)(iii) or (iv)] had the claim qualified for drawback under subsection (j).” [emphasis added]

Subsection 1313(p)(2)(A)(iii) requires that the exporter of the exported article imported the qualified article in a quantity equal to or greater than the quantity of the exported article. Subsection 1313(p)(2)(A)(iv) requires that the exporter of the exported article purchased or exchanged, directly or indirectly, an imported qualified article from an importer in a quantity equal to or greater than the quantity of the exported article.

The language “had the claim qualified for drawback under subsection (j)” reflects that drawback is payable under 1313(p)(2)(A)(iii) or (iv) pursuant to the same formula set forth in subsection 1313(j), i.e., the amount of drawback payable under 19 U.S.C. 1313(j) is not to exceed 99 percent of any duty, tax, or fee imposed under Federal law because of the imported article's importation. The term “drawback payable” under 19 U.S.C. 1313(p)(2)(A)(iii) and (iv) includes the merchandise processing fee.

Consistent with the determination of the CAFC that merchandise processing fees are eligible to be claimed as drawback pursuant to 19 U.S.C. 1313(j), such fees are also eligible to be claimed as drawback when drawback is based on substitution of finished petroleum derivatives pursuant to 19 U.S.C. 1313(p)(2)(A)(iii) or (iv).

Amendment to CBP Regulations To Reflect the Texport Oil Decision

The Texport Oil decision is reflected in the CBP Regulations at §§ 191.3 and 191.51. See 67 FR 48547 (July 25, 2002), in which a final rule was published amending the CBP Regulations to reflect that merchandise processing fees are eligible to be claimed as unused merchandise drawback pursuant to 19 U.S.C. 1313(j).

On October 2, 2003, CBP published in the Federal Register (68 FR 56804) a proposal to amend §§ 191.3, 191.51 and 191.171 to reflect that the Texport Oil decision is applicable, in limited circumstances, to drawback based on substitution of finished petroleum derivatives.

Comments were solicited on the proposal.

Discussion of Comment

One comment was received in response to the solicitation of public comment in 68 FR 56804. The commenter supported CBP's proposal to reflect the Texport Oil court decision in part 191 of the CBP Regulations as regards drawback based on substitution of finished petroleum derivatives. The commenter noted that the proposed amendments contribute to the goal of offsetting the cost of raw materials.

Conclusion

After review of the one comment received, and upon consideration, CBP has decided to adopt as final the proposed rule published in the Federal Register (68 FR 56804) on October 2, 2003.

The Regulatory Flexibility Act and Executive Order 12866

Because these regulations serve to conform the CBP Regulations to reflect the full scope of a recent decision by the Court of Appeals for the Federal Circuit whereby, in limited circumstances, merchandise processing fees are eligible to be claimed as drawback, it is certified pursuant to the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. that this amendment will not have a significant impact on a substantial number of small entities. Further, this amendment does not meet the criteria for a “significant regulatory action” as specified in Executive Order 12866.

Signing Authority

This document is being issued in accordance with 19 CFR 0.1(a)(1).

Drafting Information

The principal author of this document was Ms. Suzanne Kingsbury, Regulations Branch, Office of Regulations and Rulings, U.S. Customs and Border Protection. However, personnel from other offices participated in its development.

List of Subjects in 19 CFR Part 191

• Claims
• Commerce
• CBP duties and inspection
• Drawback

Amendments to the Regulations

For the reasons stated above, part 191 of the CBP Regulations (19 CFR part 191) is amended as follows:

PART 191 — DRAWBACK

1. The general authority citation for part 191 continues to read as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 23, Harmonized Tariff Schedule of the United States), 1313, 1624.

2. Section 191.3(a)(4) and (b)(2) are revised as follows:

§ 191.3

Duties and fees subject or not subject to drawback.

(a) Duties and fees subject to drawback include:

* * * * *

(4) Merchandise processing fees (see § 24.23 of this chapter) for unused merchandise drawback pursuant to 19 U.S.C. 1313(j), and drawback for substitution of finished petroleum derivatives pursuant to 19 U.S.C. 1313(p)(2)(A)(iii) or (iv).

(b) * * *

(2) Merchandise processing fees (see § 24.23 of this chapter), except where unused merchandise drawback pursuant to 19 U.S.C. 1313(j) or drawback for substitution of finished petroleum derivatives pursuant to 19 U.S.C. 1313(p)(2)(A)(iii) or (iv) is claimed; and

* * * * *

3. In § 191.51, paragraph (b)(2) introductory text is revised to read as follows:

§ 191.51

Completion of drawback claims.

* * * * *

(b) * * *

(2) Merchandise processing fee apportionment calculation. Where a drawback claimant seeks unused merchandise drawback pursuant to 19 U.S.C. 1313(j), or drawback for substitution of finished petroleum derivatives pursuant to 19 U.S.C. 1313(p)(2)(A)(iii) or (iv), for a merchandise processing fee paid pursuant to 19 U.S.C. 58c(a)(9)(A), the claimant is required to correctly apportion the fee to that merchandise that provides the basis for drawback when calculating the amount of drawback requested on the drawback entry. This is determined as follows:

* * * * *

4. In § 191.171, a new paragraph (c) is added to read as follows:

§ 191.171

General; drawback allowance.

* * * * *

(c) Merchandise processing fees. In cases where the requirements of paragraph (b)(1) of this section have been met, merchandise processing fees will be eligible for drawback.

Approved: October 4, 2004.

Robert C. Bonner,

Commissioner, U.S. Customs and Border Protection.

Timothy E. Skud,

Deputy Assistant Secretary of the Treasury.