Drawback

SUMMARY: This document proposes to revise the Customs Regulations

regarding drawback. The document proposes to revise the regulations to

implement the extensive and significant changes to the drawback law

contained in the Customs modernization portion of the North American

Free Trade Agreement Implementation Act; to change some administrative

procedures involving manufacturing and unused merchandise drawback, for

the purpose of expediting the filing and processing of drawback claims

thereunder, while maintaining effective Customs enforcement and control

over the drawback program; and to generally simplify and improve the

editorial clarity of the regulations.

DATE: Comments must be received on or before March 24, 1997.

ADDRESS: Comments (preferably in triplicate) must be submitted to U.S.

Customs Service, ATTN: Regulations Branch, Franklin Court, 1301

Constitution Avenue, NW., Washington, DC 20229, and may be inspected at

the Regulations Branch, 1099 14th Street, NW., Suite 4000, Washington,

DC.

FOR FURTHER INFORMATION CONTACT:

Operational aspects: Maryanne Carney, Chief, Drawback and Records

Branch, New York, (212-466-4575)

Legal aspects: Paul Hegland, Office of Regulations and Rulings, (202-

482-7040)

SUPPLEMENTARY INFORMATION:

Background

Drawback is a refund or remission, in whole or in part, of a

Customs duty, internal revenue tax, or fee. There are a number of

different kinds of drawback authorized under law, including

manufacturing and unused merchandise drawback. The statute providing

for specific types of drawback is 19 U.S.C. 1313, the implementing

regulations for which are contained in part 191, Customs Regulations

(19 CFR part 191).

The North American Free Trade Agreement Implementation Act, Pub. L.

103-182 (December 8, 1993), specifically Title VI thereof, popularly

known as the Customs Modernization Act, significantly amended certain

Customs laws. In particular, section 632 of Title VI effected extensive

and major amendments to the drawback law, 19 U.S.C. 1313. Also, section

622 of Title VI authorized the establishment of a ``Drawback Compliance

Program'' as well as specific civil monetary penalties for false

drawback claims.

Public Law 103-182 also approved and implemented the North American

Free Trade Agreement (NAFTA). Section 203 of the Public Law provides

special drawback provisions for exports to NAFTA countries. NAFTA

drawback is separately provided for in part 181 of the Customs

Regulations (19 CFR part 181). Drawback and other duty-deferral

programs are addressed in subpart E of part 181. General drawback

provisions under part 191 and the NAFTA drawback regulations in part

181 contain substantial differences (e.g., the ``lesser of''

calculation versus full drawback, same condition versus unused

merchandise drawback, etc.) Separate claims are required for drawback

claims governed by NAFTA (see 19 CFR 181.46 and 191.0a).

Accordingly, this document proposes regulatory revisions

principally to part 191 in implementation of the statutory changes. In

addition, this document proposes to generally rearrange and revise part

191 largely in an effort to further simplify and improve the editorial

clarity of those regulatory procedures primarily dealing with the

manufacturing and unused merchandise provisions, these being the most

commonly used types of drawback. Several administrative changes are

being proposed as well with respect to the regulatory procedures

governing these provisions, for the purpose of expediting the filing

and processing of drawback claims thereunder, while ensuring that

Customs has the necessary enforcement information to maintain effective

administrative oversight over the drawback program. Also, minor

conforming changes occasioned by the general reorganization of part 191

are made with respect to other parts of the Customs Regulations (19 CFR

parts 7, 10, 145, 173, 174 and 181).

Specifically, with regard to part 173, a minor change is proposed

whereby a party requesting the reliquidation of a consumption entry

pursuant to 19 U.S.C. 1520(c)(1) would be required to state whether to

the best of such party's knowledge, the entry is the subject of a

drawback claim, or whether such entry was referenced on a certificate

of delivery or a certificate of manufacture and delivery and thus could

be made the subject of drawback. Likewise, a change is proposed to part

174 whereby a party filing a protest must state whether, to the best of

such party's knowledge, the consumption entry whose liquidation is

protested is the subject of a drawback claim, or whether it was

referenced on a certificate of delivery or a certificate of manufacture

and delivery and thus could be the subject of a drawback claim. A

corresponding change is also proposed in part 191, whereby a drawback

claimant would be required to state whether, to the best of such

claimant's knowledge, any consumption entry identified or designated as

a basis for drawback is either under protest or the subject of a

request for reliquidation (19 U.S.C. 1520(c)(1)). In this regard, when

accelerated payment of drawback has been paid to a claimant on the

basis of an entry of imported merchandise which has not been finally

liquidated, and the duties on the import entry are increased or

decreased in such final liquidation, drawback must be increased or

reduced accordingly on liquidation of the drawback entry.

Proposed changes to part 191 other than the major changes described

below include the addition of new definitions for purposes of part 191

in the section listing such definitions. New definitions for the

following terms are set forth in the proposed regulations: Certificate

of delivery; Certificate of manufacture and delivery; Act; Commercially

interchangeable merchandise; Designated merchandise; Destruction;

Exported article; Exportation; General manufacturing drawback ruling;

Manufacture or production; Possession; Relative value; Specific

manufacturing drawback ruling; and Substituted merchandise. Most of

these definitions incorporate into the regulations terms which are used

for drawback. The definition of commercially interchangeable

merchandise is necessary because of the change (described elsewhere in

this background) from fungibility as the standard for substitution to

commercial interchangeability in the former same condition substitution

drawback law (now unused substitution drawback law, in 19 U.S.C.

1313(j)(2)). Similarly, the definition of possession is added because

possession of the exported merchandise is a requirement for drawback

under section 1313(j)(2) and because the statute includes defining

language. The definition of exportation is based on the definition of

that term currently in 19 CFR 101.1(k), but notice is also given that

an exportation may be deemed to have occurred: (1) Under the

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Foreign Trade Zones Act (see 19 U.S.C. 81c(a)) when zone-restricted

status is taken; (2) or under 19 U.S.C. 1309, if goods subject to

drawback are used for certain aircraft or vessel supplies. The

definition of manufacture or production is based on court cases and

administrative rulings interpreting that phrase (see Anheuser-Busch

Brewing Association v. The United States, 207 U.S. 556 (1908); United

States v. International Paint Co., Inc., 35 CCPA 87 (1948); et al.). In

regard to the latter case, it is noted that a manufacture or

production, for drawback purposes, occurs even if the processing

operation does not change the general use for which the merchandise may

be used (e.g., as paint) but does change the particular use for which

the merchandise may be used (e.g., as anti-fouling paint designed for

preventing marine growth on the bottom of ships).

In addition, two current definitions, those of fungible merchandise

and substitution drawback, are modified. In the case of the former, the

modification makes it clear that the definition applies to both

merchandise and articles, but does not change the definition of

fungibility. In the case of the latter, instead of defining

substitution drawback (referring only to substitution manufacturing

drawback), as is currently true, the definition defines substituted

merchandise, and does so for purposes of each of the subsections of 19

U.S.C. 1313 authorizing such substitution.

In regard to the definition of fungibility, for drawback purposes

``merchandise'' is that which is imported, or substituted when

substitution is permitted, and an ``article'' is that which is

manufactured or produced, as provided for in the drawback law, from

merchandise. Also in regard to the definition of fungibility, although

the standard for substitution under unused (formerly same condition)

drawback (19 U.S.C. 1313(j)(2)) is no longer fungibility (it is now

commercial interchangeability, as discussed below), the definition of

fungibility is retained in the proposed regulations because fungibility

continues to be a significant concept in the proposed regulations

(i.e., when merchandise or articles are identified by accounting

method; see proposed Sec. 191.14). The definition of fungibility was

first added to the Customs drawback regulations for this purpose and

before enactment of the substitution provision for 19 U.S.C. 1313(j)(2)

(see T.D. 83-212, 19 CFR 191.2(l)).

Also related to definitions for drawback purposes, the current

regulations (Sec. 191.3) provide that duties subject to drawback

include all ordinary Customs duties and marking duties assessed under

19 U.S.C. 1304(c). It is proposed to define ``ordinary Customs

duties'', as used in this provision, to include finally liquidated

duties paid on an entry, or withdrawal from warehouse, for consumption

and estimated duties paid on such an entry or warehouse, provided that

the application and waiver currently provided for in Sec. 191.71 are

filed. Also defined as such ``ordinary Customs duties'' would be

voluntary tenders of the unpaid amount of lawful ordinary Customs

duties and any other payment of duties related to an entry, or

withdrawal from warehouse, for consumption, such as payment of a demand

for duties under 19 U.S.C. 1592(d), under certain enumerated

conditions. This latter proposed addition to the definition of

``ordinary Customs duties'' is consistent with Customs current

administrative practice (see Customs Service Decision 85-50 (1985)).

The enumerated conditions referred to are that liquidation of the

import entry or withdrawal must have become final prior to the payment

to Customs, that the payment must be specifically identified as being

of duties for a specific entry or withdrawal, and that the drawback

entry in which the import entry or withdrawal is designated may not

itself have been finally liquidated. In the case of voluntary tenders

and other payments of duty, procedures are proposed for a written

request and waiver by the drawback claimant and any other party

responsible for the other payments of duties similar to the current

procedures for the payment of drawback on estimated duties.

Other minor proposed changes are that a named officer or any other

individual legally authorized to bind a corporation may sign drawback

documents, instead of only those named officers. This is consistent

with current regulations regarding Customs business (see 19 CFR 111.3;

see also 19 U.S.C. 1641(b)(1)). Correspondingly, the regulations on so-

called (in the current regulations) general or specific ``contracts''

are proposed to be changed so that only the names of the persons who

are authorized by regulation to sign drawback documents and who will

sign such documents are listed.

(In regard to the above-referenced general or specific drawback

``contracts'', as discussed in detail below, it is proposed to change

the terminology for these procedures, from ``specific drawback

contracts'' to ``specific manufacturing drawback rulings'' and from

``general drawback contracts'' to ``general manufacturing drawback

rulings'' and to set out the formats for applying for the specific

manufacturing drawback rulings, and the general manufacturing drawback

rulings, in Appendices to part 191 of the Customs Regulations. The

remainder of the background to this document uses the proposed new

terms (i.e., ``specific manufacturing drawback ruling'' is used instead

of ``specific drawback contract'' and ``general manufacturing drawback

ruling'' is used instead of ``general drawback contract'').)

Also in regard to general manufacturing drawback rulings, it is

proposed to require that a description of the merchandise and articles

covered by the ruling be submitted with the information required for

letters of notification of intent to operate under a general ruling,

unless such information is specifically provided in the particular

general manufacturing drawback ruling. It is proposed to modify the

regulations for both general and specific rulings for manufacturing

drawback so that, consistent with Customs treatment of corporations for

drawback purposes (see Moberly v. United States, 4 Cust. Ct. 91, C.D.

294 (1940), and C.S.D. 89-12 (1989)), when a separately-incorporated

subsidiary of a parent corporation is engaged in manufacture or

production for drawback, the subsidiary is the proper party to give

notice of its intent to operate under, or apply for, the general or

specific ruling and cannot operate under any ruling issued in favor of

the parent corporation. Finally, in regard to general and specific

rulings for manufacturing drawback, it is proposed to provide that they

will remain in effect indefinitely, unless no drawback claim or

certificate of manufacture and delivery is filed under the ruling for a

period of 5 years. If no such drawback claim or certificate is filed

for 5 years, the ruling would automatically terminate following the

publication of a notice to that effect in the Customs Bulletin.

Currently, a drawback ``contract'' may remain in effect for 15 years

unless a written request is filed to renew the ``contract''. This

change would reduce unnecessary paperwork for drawback claimants and

Customs.

Also among changes to part 191 not listed below are proposed

modifications to the subpart of part 191 regarding drawback on supplies

for certain vessels and aircraft (current subpart I; proposed subpart

K). It is proposed to add to the regulation regarding a composite

(monthly) notice of lading of fuel laden on vessels or aircraft as

supplies that the fuel included in such a notice includes fuel laden

for flights or voyages between the contiguous U.S. and Hawaii, Alaska,

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or any U.S. possessions, consistent with the applicability of the

underlying statute (19 U.S.C. 1309). Also, consistent with the changes

to the Exporter's Summary Procedure (ESP) (i.e., to make that procedure

an alternative, instead of a privilege; see below) and an April 17,

1978, administrative ruling, it is proposed to modify these regulations

to make it clear that the ESP may be used for drawback under this

subpart and that if the ESP is used, the applicable requirements must

be complied with.

The major changes to part 191 necessitated by statute are addressed

below, following which the major administrative changes made to part

191 are outlined.

Manufacturing Drawback

Under the direct identification manufacturing drawback law, 19

U.S.C. 1313(a), upon the exportation of articles manufactured or

produced with the use of imported, duty-paid merchandise, 99% of the

duty so paid may be refunded as drawback. Under substitution

manufacturing drawback, 19 U.S.C. 1313(b), if imported, duty-paid

merchandise and any other merchandise (whether imported or domestic) of

the same kind and quality are used in the manufacture or production of

articles, then upon the exportation of such articles, 99% of the duty

so paid on the imported merchandise may be refunded as drawback,

notwithstanding that none of the exported articles was manufactured

with the imported merchandise.

Section 632 of the Customs Modernization Act (hereinafter section

632) amended section 1313 (a) and (b) to permit drawback on articles

destroyed under Customs supervision, in lieu of being exported. In

addition, it is made clear that for drawback to accrue, the articles

manufactured or produced cannot be used in the United States prior to

their exportation or destruction.

The proposed regulations provide for a contract between the

principal and agent when such a relationship is claimed to exist for

purposes of substitution manufacturing drawback. The person who asserts

that it is the manufacturer or producer by virtue of a principal-agency

agreement under this section must establish that there was a contract

between the principal and agent specifying the items in

Sec. 191.9(c)(1) (i) through (vi). The person asserting this

relationship has the burden of providing satisfactory evidence to

establish the above. The question of the existence of such a contract

is an evidentiary question. Of course, the terms of a written contract

are always easier to establish than those of an oral contract.

Principal-agency principles, in the drawback context, are used for

drawback purposes to meet the ``one manufacturer'' requirement in 19

U.S.C. 1313(b) (i.e., the requirement that the imported merchandise and

the substituted merchandise must be used in a manufacture or production

by the same person). With the use of principal-agency principles for

drawback, the principal in such a relationship is treated as the

manufacturer or producer when the agent performs that function as agent

of the principal. The principal does not complete a certificate of

delivery for merchandise transferred to the agent (because the

principal, in effect, would be treated as transferring the merchandise

to itself). The agent would be required to furnish a certificate of

manufacture and delivery for the manufactured articles, relating to the

designated or substituted merchandise and identifying the owner for

whom the processing was conducted (i.e., to document the manufacturing

or processing operation). However, such a certificate of manufacture

and delivery would not assign the potential drawback rights to the

principal (because, by virtue of the relationship, the agent would not

have those rights to transfer; the rights would have remained in the

principal).

Rejected Merchandise Drawback

Section 632 also amended the rejected merchandise drawback law, 19

U.S.C. 1313(c). Under section 1313(c), drawback is allowable upon the

exportation of merchandise which is found not to conform to sample or

specifications, or which is shipped without the consent of the

consignee. Such merchandise previously had to be returned to Customs

custody prior to exportation, generally within 90 days after its

release from Government custody unless Customs extended this period.

As amended by section 632, section 1313(c) extends the period for

the return of merchandise to Customs custody to 3 years, permits

destruction of the merchandise under Customs supervision in lieu of

exportation, and allows drawback if the merchandise is determined to

have been defective at the time of its importation without reference to

purchase specifications or samples.

Unused Merchandise Drawback

Formerly, under 19 U.S.C. 1313(j)(1), drawback was allowable on the

exportation, or destruction under Customs supervision, of imported

merchandise which was not used in the United States before exportation

or destruction, and which was in the same condition at the time of

exportation or destruction as it was when imported. Under the

substitution provision, 19 U.S.C. 1313(j)(2), a similar drawback was

allowable if other (fungible) merchandise was instead exported, or

destroyed under Customs supervision, provided that before exportation

or destruction, the fungible merchandise was not used in the United

States, was in the possession of the party claiming drawback, and was

in the same condition at the time of exportation or destruction as was

the imported merchandise when imported.

Section 632 liberalized these provisions in a number of ways.

First, the requirement has been eliminated that the exported or

destroyed merchandise be in the same condition as the imported

merchandise when imported. Now it only must have been unused. For

example, chemicals which deteriorated after importation are not in the

same condition as the imported merchandise when imported and were not

eligible for ``same condition'' drawback. Now such goods would be

eligible for drawback under section 1313(j) as ``unused''. Second, the

provision interpreting the restriction on ``use'' has been changed.

Formerly, this provision provided that the performing of certain

incidental operations on imported or substituted merchandise which did

not amount to a manufacture or production for drawback purposes was not

a ``use''. The new provision provides that the performing of any

operations or combination of operations not amounting to a manufacture

or production for drawback purposes on the imported or substituted

merchandise is not a ``use''. The list of examples of the operations

involved was expanded to include, but is not limited to: testing,

cleaning, repacking, inspecting, sorting, refurbishing, freezing,

blending, repairing, reworking, cutting, slitting, adjusting, replacing

components, relabeling, disassembling, and unpacking, provided that

they do not amount to manufacture or production for drawback purposes.

In addition to the foregoing, a number of additional statutory

changes were made by section 632 with respect to the substitution

provision, 19 U.S.C. 1313(j)(2). The substituted merchandise exported

or destroyed for drawback need no longer be fungible (commercially

identical) with the imported merchandise. Instead the imported and

substituted merchandise must be commercially interchangeable. The

legislative history of section 632

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states that in determining whether merchandise is ``commercially

interchangeable'', Customs should consider, but not be limited to, such

factors as Governmental and recognized industrial standards, part

numbers, tariff classification and values. Such merchandise, to be

commercially interchangeable, need not be interchangeable in all

situations.

The proposed regulations would require a determination of

``commercial interchangeability'' for all claims filed under 19 U.S.C.

1313(j)(2). This determination can be obtained in one of three ways:

(1) A formal binding ruling from the Entry and Carrier Rulings Branch,

Office of Regulations and Rulings, (2) a nonbinding predetermination

request sent directly to the appropriate drawback office, or (3)

submission of all the required documentation necessary to make a

commercial interchangeability determination with each individual

drawback claim filed. The details for the documentation needed are

outlined in the regulations. In the interest of administrative

efficiency and because commercial interchangeability is no more

restrictive than fungibility, all prior unrevoked rulings finding

merchandise to be fungible may continue to be relied upon to establish

commercial interchangeability and reapplication is unnecessary for the

same merchandise.

Moreover, the party entitled to claim drawback under section

1313(j)(2), as amended by section 632, has now been more precisely

defined. Such party must either be the importer of the imported

merchandise, or must have received, directly or indirectly, from the

importer the imported merchandise, commercially interchangeable

merchandise, or any combination thereof. Thus, the proposed regulations

allow for multiple transfers of imported or substituted merchandise,

but do not permit multiple substitutions (see 19 U.S.C.

1313(j)(2)(C)(ii)). Such transfers must be documented by a certificate

of delivery. For example, it would be permissible for party A to import

merchandise, transfer to party B commercially interchangeable

merchandise documented by a Certificate of Delivery, and for party B to

transfer the commercially interchangeable merchandise to party C

documented by a Certificate of Delivery. If party C exports the

merchandise, then party C is entitled to claim drawback, or to assign

the right to claim drawback back through the chain of possession. To be

entitled to claim drawback, the claimant must have been in possession

of the specific substituted merchandise which is exported or destroyed

with drawback. In this latter respect, the concept of possession under

section 1313(j)(2), as amended by section 632, is further elucidated,

to expressly include ownership while in bailment, in leased facilities,

in transit to, or in any manner under the operational control of, the

party claiming drawback.

Substitution of Finished Petroleum Derivatives

As amended by section 632, drawback is payable under section

1313(p) (19 U.S.C. 1313(p)), upon the timely exportation of an article

which is of the same kind and quality as a qualified article. A

qualified article is essentially either an imported, duty-paid article,

or a manufactured article that would be eligible for drawback under 19

U.S.C. 1313 (a) or (b), should such qualified article itself be

exported; furthermore, the qualified article, to be such, must be

described in headings 2707, 2708, 2710-2715, 2901, and 2902, or in

headings 3901-3914 (to the extent that these latter headings apply to

liquids, pastes, powders, granules and flakes), of the Harmonized

Tariff Schedule of the United States (HTSUS).

Also, for drawback to accrue under section 1313(p), the exporter of

the exported article must have imported the qualified article or have

manufactured it under section 1313 (a) or (b); or have purchased or

exchanged, directly or indirectly, the qualified article from an

importer, or from a refinery or facility which produced the article

under section 1313 (a) or (b). In any event, the qualified article must

have been manufactured, imported, or acquired by the exporter in the

aforementioned manner, in a quantity at least as great as the quantity

of the exported article. In addition, the exported article must be

exported during the period in which the qualified article is

manufactured or produced under section 1313 (a) or (b), or within 180

days after the close of such period; or within 180 days after the date

of entry of a qualified imported article.

To be of the same kind and quality as the qualified article (solely

for the purpose of section 1313(p)), the exported article must fall

within the same 8-digit HTSUS tariff classification as, or be

commercially interchangeable with, the qualified article. The drawback

payable pursuant to section 1313(p) is 99% of the duty attributable to

the qualified article when the qualified article is a manufactured

article that would be eligible for drawback under 19 U.S.C. 1313 (a) or

(b) and 100% of the duty attributable to the qualified article when the

qualified article is an imported, duty-paid article and no such

manufacture or production under section 1313 (a) or (b) is involved (19

U.S.C. 1313(p)(4)).

Packaging Material

Section 632 also amended 19 U.S.C. 1313(j)(4), recodifying this

provision as 19 U.S.C. 1313(q), to allow drawback on imported material

used to package or repackage goods that are exported or destroyed under

Customs supervision and are eligible for drawback under the

manufacturing, rejected or unused merchandise drawback provisions (19

U.S.C. 1313 (a), (b), (c), or (j)). Drawback is payable under the

particular provision to which the packaged goods themselves are

subject. The duty refund on the packaging material is, of course, based

on the particular tariff provision under which the packaging material

itself was entered.

Filing Under Wrong Subsection

Section 632 also amended the drawback law to provide that if a

claimant files for drawback under one provision of section 1313, and

Customs believes that drawback is more properly allowable under another

provision thereof, the claim may simply be deemed filed under such

other provision and processed with drawback accordingly.

The legislative history to this provision makes it clear that this

provision is not intended to require Customs to investigate all

alternatives in addition to the claimed basis before liquidating a

drawback claim as presented. That is, the burden of bringing to Customs

attention the possible applicability of the alternative subsection is

on the claimant, not Customs. Claimants who are denied drawback under

the provision claimed may raise alternative claims under another

provision by protest under section 514 of the Tariff Act of 1930, as

amended (19 U.S.C. 1514) (see 19 CFR part 174).

Since section 1313(r)(2) specifically requires that the claim be

allowable under such other subsection (i.e., not the subsection under

which the claim was originally filed), the requirements in the law for

drawback under the other subsection must be met. For example, if the

original claim is under subsection (a) or (b) and the other provision

is subsection (j), exportation or destruction would have to be within 3

years of importation, not 5 years; if the original claim was under

subsection (j) and the other provision was subsection (c), the

merchandise would have to be timely returned to Customs custody for

exportation or destruction. These are

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statutory requirements, and cannot be waived.

Successorship Under 19 U.S.C. 1313 (b) and (j)(2)

Under substitution manufacturing drawback, 19 U.S.C. 1313(b), the

party manufacturing the articles on which drawback is claimed also must

have used in manufacture the imported, duty-paid merchandise which

forms the basis for the claim. Similarly, under the substitution unused

merchandise provision, 19 U.S.C. 1313(j)(2), in pertinent part, the

drawback claimant must have either imported the duty-paid merchandise,

or received from the importer the imported merchandise, commercially

interchangeable merchandise, or any combination thereof (in addition to

possessing the exported or destroyed merchandise on which drawback is

claimed).

Section 632 adds a new provision, codified as 19 U.S.C. 1313(s),

which, under certain conditions, authorizes a business entity (the

successor) to obtain the pre-existing drawback rights, whether vested

or contingent, of another party (the predecessor) in the course of

either acquiring all or substantially all of the rights and liabilities

of such party, or acquiring the assets and business interests of a

single plant, division or other business unit of such party, provided,

in the case of the latter, that the value of the transferred property

(real and personal) as well as intangibles, exceeds the value of the

drawback rights.

As a result, in manufacturing drawback, section 1313(b), this

enables a company to satisfy the ``one manufacturer'' requirement.

Duty-paid merchandise used in manufacture by the predecessor before the

date of acquisition (the succession) may thus form a basis for drawback

on articles manufactured by the successor after the date of succession.

The use of the duty-paid merchandise by the predecessor is imputed to

the successor.

Likewise, in substitution unused merchandise drawback, section

1313(j)(2), under the general circumstances outlined above, duty-paid

merchandise imported by the predecessor before the date of succession

may form a basis for drawback on exported or destroyed merchandise

possessed by the successor after the date of succession. The

importation of the duty-paid merchandise is implicitly ascribed to the

successor.

Similarly, commercially interchangeable merchandise received by a

predecessor before the date of succession (19 U.S.C. 1313(s)(2)(B))

could become the basis for drawback on substituted merchandise received

by the successor after the date of succession.

Agricultural Products Subject to Drawback

Section 404(e)(5) of the Uruguay Round Agreements Act (URAA) (Pub.

L. 103-465), codified as 19 U.S.C. 1313(w)(1), states that no drawback

shall be available with respect to an agricultural product subject to

an over-quota rate of duty established under a tariff-rate quota,

except pursuant to 19 U.S.C. 1313(j)(1) (direct identification unused

merchandise drawback). In addition, section 422(d) of the URAA,

codified as 19 U.S.C. 1313(w)(2), provides that drawback shall be

available under 19 U.S.C. 1313(a) (direct identification manufacturing)

on any tobacco recognized as an agricultural product that is subject to

an over-quota rate of duty established under a tariff-rate quota.

Because this statute precludes the availability of drawback ``with

respect'' to a described agricultural product, the proposed regulations

provide that no drawback will be available when either the designated

imported merchandise or the substituted merchandise, if substitution

drawback is claimed, is such an agricultural product. Additionally,

based on the legislative history to this provision of the URAA, which

makes it clear that the limitation on drawback applies only to

merchandise for which the over-quota tariff must be paid (i.e., only

that exceeding the quantity provided for in the tariff rate quota), the

proposed regulations make clear that the restriction applies to

merchandise or articles to which the over-quota tariff rate is

applicable.

Major Administrative Changes

The proposed revision of part 191 also presents several

administrative changes and additions to the regulatory procedures

principally governing the manufacturing and unused merchandise

provisions (19 U.S.C. 1313 (a), (b), and (j)).

Manufacturing Drawback ``Contracts''

Under the current regulations, Customs requires manufacturers or

producers of articles intended for exportation with drawback to apply

for a so-called ``specific drawback contract'' (see subpart B of part

191) or a so-called ``general drawback contract'' (see subpart D of

part 191).

In the case of the former, manufacturers or producers are currently

required to file with the appropriate Customs office a proposal

describing the manufacturing operation fully and the method of

compliance with all requirements of the drawback law and regulations,

to make a statement as to the records which will be maintained, and to

agree to follow the methods and keep records concerning drawback

procedures. Currently, Customs makes available sample proposals to

prospective drawback applicants who request them. Customs reviews

proposals submitted by manufacturers or producers and, if the proposals

comply with the law and regulations, approves the proposals by means of

a letter of approval to the applicant and publication in the Customs

Bulletin of a synopsis of the approved proposal.

In the case of the latter, Customs currently publishes in the

Customs Bulletin an offer for a ``general drawback contract'' in

situations where numerous manufacturers or producers have similar

operations and wish to claim drawback. Any manufacturer or producer who

can comply with the terms and conditions of the published offer may

adhere to it by simply notifying a drawback office in writing of its

acceptance and providing certain identifying information, after which

the appropriate drawback office acknowledges, in writing, the letter of

adherence.

After thorough review and consideration of these procedures,

changes to the current terminology for these procedures are proposed.

In the case of ``specific drawback contracts'', what actually is

involved is the request, by a prospective drawback claimant, for a

ruling, in a special format described by Customs in the ``sample

proposals'' referred to in the current regulations. Customs reviews the

request and, if it complies with the law and regulations (e.g., if the

specifications proposed for same-kind-and-quality substitution under 19

U.S.C. 1313(b) meet the requirements for such substitution), Customs

grants approval of the proposal. This is basically the procedure under

which administrative rulings are obtained under part 177 of the Customs

Regulations, with the addition for drawback of the special format

described in the ``sample proposals''. Accordingly, it is proposed to

substitute for the ``specific drawback contracts'' provided for in the

current regulations the term ``specific manufacturing drawback

rulings''.

As is true in the current regulations, it is proposed that unless

operating under a general manufacturing drawback ruling (currently, a

``general drawback contract''; see discussion below), each manufacturer

or producer

[[Page 3087]]

of articles intended to be claimed for drawback will be required to

apply for a specific manufacturing drawback ruling. Sample formats for

applications (combined application under 19 U.S.C. 1313(a) and (b);

application under 19 U.S.C. 1313(b); application under 19 U.S.C.

1313(b) for petroleum drawback (T.D. 84-49); application under 19

U.S.C. 1313(d); and application under 19 U.S.C. 1313(g)) are contained

in Appendix B of proposed part 191. Except for the described changes to

the terminology and conforming changes necessitated by the proposed

changes to the regulations, as described in this document, the sample

formats for applications for specific manufacturing drawback rulings

contained in appendix B are the same as the corresponding sample

``specific drawback contracts'' currently made available by Customs to

persons requesting them.

Also as is currently true in regard to ``specific drawback

contracts'', it is proposed that an application for a specific

manufacturing drawback ruling be submitted to Customs Headquarters

which will review it for consistency with the law and regulations and,

based upon such review, approve or disapprove the application. If

approved, a letter of approval will be issued to the applicant and a

synopsis of the ruling will be published in the Customs Bulletin. If

disapproved, the applicant will be promptly notified, with notification

of the specific reason(s) for disapproval. A disapproved application

may be resubmitted with modifications and/or explanations addressing

the reasons given for disapproval, or the disapproval may be appealed

to another office in Customs Headquarters.

In the case of ``general drawback contracts'', what actually is

involved is the publication by Customs, as a Treasury Decision, of the

requirements and specific interpretations for a particular kind of

operation (for example, certain manufactures involving orange juice

(T.D. 85-110) or steel (T.D. 81-74)). The operation is one used by

numerous manufacturers or producers. A manufacturer or producer using

one of these operations may, basically merely by giving Customs notice,

claim drawback using the procedures in a ``general drawback contract''.

Thus, these procedures are basically a publication of a general ruling.

It is proposed to substitute for the ``general drawback contracts''

provided for in the current regulations the term ``general

manufacturing drawback rulings''.

As is true in the current regulations, it is proposed that a

manufacturer or producer engaged in an operation that falls within a

published general manufacturing drawback ruling may submit a letter of

notification to give Customs notice of the manufacturer's or producer's

intent to operate under the general ruling. The current general rulings

(for manufacturing under 19 U.S.C. 1313(a) (T.D.s 81-234 and 83-123);

manufacturing under 19 U.S.C. 1313(b) for agents (T.D. 81-181);

manufacturing under 19 U.S.C. 1313(b) for orange juice (T.D. 85-110);

manufacturing under 19 U.S.C. 1313(b) for steel (T.D. 81-74);

manufacturing under 19 U.S.C. 1313(b) for refined sugar (T.D. 81-92);

and manufacturing under 19 U.S.C. 1313(b) for raw sugar (T.D. 83-59))

are contained in Appendix A of proposed part 191. Customs proposes to

update this Appendix whenever new general manufacturing drawback

rulings are issued or any such existing T.D.s are revised. Except for

the described changes to the terminology and conforming changes

necessitated by the proposed changes to the regulations, as described

in this document, the general manufacturing drawback rulings contained

in Appendix A are the same as the corresponding ``general drawback

contracts'' published in the existing referenced Treasury Decisions.

Also as is currently true in regard to ``general drawback

contracts'', the letter of notification of intent to operate under a

general ruling will be submitted to the drawback office where drawback

claims are intended to be filed, and will contain certain identifying

information. The drawback office is required to acknowledge, in

writing, this letter of notification, after which no further action is

required before drawback claims may be filed on the basis of the

general manufacturing drawback ruling.

These required procedures (i.e., notification and acknowledgement)

are intended to facilitate Customs administrative processing of

manufacturing drawback claims to be filed.

Completion of Drawback Claims

In order to better ensure consistency and uniformity of practice,

the section of the regulations dealing with the completion of drawback

claims has been rewritten to clarify what documents constitute a

complete drawback claim. The claim will be considered to be complete if

all the required documentation is present with all the basic

information provided.

In regard to certificates of manufacture and delivery, which are a

required part of a complete claim when the claim is based on such a

certificate, it is recognized that a certificate of manufacture and

delivery may relate to articles which are the subject of more than one

drawback claim. In such an instance, only one certificate of

manufacture and delivery is required and the proposed regulations

specifically provide that certificates of manufacture and delivery

applicable to a claim must be filed with the claim, unless previously

filed with Customs (if previously filed, the certificates must be

referenced in the claim).

In cases in which there is some minor change or addition needed,

such as a missing signature, numbers added incorrectly, information

placed in the wrong part of the form, etc., the claim will be accepted

and the 3-year time period to file a complete drawback claim after the

date of exportation will be met although the claim must be corrected.

However, if documentation is missing or the claim contains major

inaccuracies and inconsistencies, the claim will be rejected and

returned to the claimant for correction. The claim will not be

considered to have been ac-cepted by Customs and the 3-year time period

will not be consid-ered to have been met by the filing of such an

incomplete claim. Proposed rules have also been included to allow

Customs to require claimants to restructure drawback claims in order to

improve administrative efficiency, as long as the restructuring is not

shown to be impossible or impractical for the claimant.

The regulations also differentiate between ``perfecting'' and

``amending'' a claim which has been accepted. The claim is

``perfected'' when the claimant, in response to a request from Customs,

makes minor changes to the claim or provides documentation in support

of the claim. The claim is ``amended'' when a major change must be made

to the claim such as the designation of a different import entry or the

claiming of a different export.

Privileges

The proposed regulation establishes Waiver of Prior Notice to

Export or Destroy Unused Merchandise (WPN) (Sec. 191.91) and

Accelerated Payment (AP) (Sec. 191.92) as special privileges that may

be requested by formal application. The Exporters' Summary Procedure

(ESP) is no longer a special privilege because of the changes in the

filing requirements. ESP is now available to all claimants as an option

for establishing exportation. The application requirements for

privileges are designed to address key internal controls identified by

the Treasury Inspector General by providing Customs: (1) Reasonable

assurance of the accuracy of drawback claims; and (2) a sufficient

basis to appropriately

[[Page 3088]]

verify the validity of drawback claims. These key internal controls are

applicable when the issue is whether to grant a privilege. Claim

sufficiency would be determined on an assessment of past facts.

Customs will allow claimants or exporters who hold existing

privileges to continue utilizing these privileges for a period of one

year after the effective date of the new drawback regulations. Those

who want to continue these privileges must reapply prior to the

conclusion of the one-year period under the requirements of the new

regulations. Privileges will be revoked unless the claimant reapplies.

This revocation would apply to all exportations subsequent to the

revocation.

Claimants may continue with their privileges once the new

application has been submitted and received by Customs, unless Customs

denies the new application. The one-year period provides a reasonable

opportunity for applicants to assemble and submit the required

material.

Customs will act on the application within 90 days of submission or

notify the applicant in writing regarding the reasons for requiring a

longer time for acting on the application. Customs objective is to use

the application process as an opportunity to promote informed

compliance in the drawback process.

If applications for privileges are received by Customs prior to the

date of publication (not effective date) of the final rule in the

Federal Register, Customs will process these applications based on the

current drawback procedures and regulations in place. Claimants must

understand that even though the applications will be processed under

the drawback regulations and procedures in place at the time of receipt

of the applications, they will still be required to reapply for these

privileges within one year from the effective date of the new drawback

regulations. Therefore, Customs would encourage new applicants to

prepare their applications under the guidelines of the new regulations.

Notice of Intent to Export or Destroy

Claimants filing a claim under 19 U.S.C. 1313 (j) or (c) must

notify Customs prior to exportation or destruction (notice of

destruction procedures also are applicable to drawback under 19 U.S.C.

1313 (a) and (b)). This notice should be filed at the port of intended

examination or destruction. It must provide the information needed by

Customs to determine if the merchandise should be examined. Under

section 1313(c), the merchandise must always be returned to Customs

custody. Customs intends to make this determination in an expedited

manner and it will notify the party designated on the Notice of Intent

to Export or Destroy of its decision. It is the responsibility of the

filer to deliver the goods in a prompt manner once the filer receives

notice of Customs decision to examine the merchandise. Customs will

work with the claimant if a problem arises on how promptly the

merchandise should be presented to Customs, but it should be done as

promptly as is reasonably possible.

The terms ``present'', ``presented'', and ``presentation'', as used

in proposed Sec. 191.35 (c) and (d) and in proposed

Sec. 191.91(c)(1)(iv), mean the actual transporting of the merchandise

to a location where Customs can examine it. Such transporting of the

merchandise, however, is to take place only after Customs has notified

the exporter or claimant of Customs decision to examine the

merchandise.

There are two different situations which are envisioned here. The

first is a situation in which examination takes place at the premises

of the claimant or exporter. The second is a situation in which the

exporter or claimant transports the merchandise to a Customs designated

location. In either of these situations, arrangements must be made

mutually between Customs and the exporter or claimant.

For exports that occur on or after the effective date of the

regulations, a Notice of Intent to Export or Destroy must be filed with

Customs, unless the exportation is covered by an existing waiver of

prior notice. For destructions, a Notice of Intent to Export or Destroy

must continue to be filed with Customs in all cases.

In addition, the notice of exportation form (Customs Form 7511)

would be eliminated, and the drawback entry forms would be consolidated

into one form (Customs Form 331). Furthermore, a new form would be

devised on which a party would give advance notice of intent to export

or destroy merchandise or articles for drawback purposes.

In recognition of the realities of the marketplace, it is further

proposed to reduce the time frame from the current period of 5 working

days to 2 working days from the date of intended exportation, within

which prior notice of intent to export, unless waived, must be given to

Customs for unused merchandise drawback, 19 U.S.C. 1313(j). A new

Customs form (not a drawback entry form) will be devised on which prior

notice would be given. Unless the claimant should be advised by Customs

to the contrary during this 2-day period, the subject merchandise could

thereafter be exported without delay. A drawback entry would later be

filed with Customs.

The proposed regulations allow a drawback claim to be filed for

qualifying merchandise which has been destroyed under Customs

supervision. However, if a drawback claimant has not filed the Notice

of Intent to Export/Destroy at least 7 working days prior to the

intended destruction of the merchandise, the Customs Service must

reject the drawback claim.

Once the Notice of Intent to Export or Destroy has been filed, the

Customs Service has four working days to advise the party filing the

notice as to whether Customs will witness the destruction. If the party

is not so notified within four working days, the merchandise may be

destroyed without delay and the destruction will be deemed to have

occurred under Customs supervision.

Evidence of destruction must be included with the drawback claim.

For multiple or continuous drawback destructions other prearranged

procedures may be developed with the applicable drawback office to

foster administrative efficiency.

Retroactive Waiver of Notice of Intent to Export

The proposed regulations eliminate the retroactive waiver practice

which was reported as a significant internal control weakness by the

Treasury Inspector General. However, the proposed regulations allow a

one-time opportunity for drawback claims under 19 U.S.C. 1313(j) on

merchandise which a party exported or destroyed without having provided

Customs with prior notice. This was included to: (1) Provide a

reasonable method for first time claimants or exporters who were not

aware of the requirement for prior notice of intent to export to obtain

such drawback; and (2) make potential claimants aware of the waiver

privilege and how to apply for it.

More than one claim may be included in this one-time opportunity,

subject to the time requirements for filing complete claims (three

years from the date of export). This would enable claimants to file for

unused merchandise drawback on exportations which occur before the

claimant may have known of the requirement for prior notice of intent

to export.

Waiver of Notice of Intent to Export

Claimants and exporters may apply for a waiver of the requirement

(under proposed Sec. 191.35) to notify Customs of intent to export

unused merchandise. The proposed regulations require that

[[Page 3089]]

applications include sufficient information about merchandise, export

activities and recordkeeping to provide Customs reasonable assurance

that merchandise subject to drawback claims will be unused and

exported. The information will also give Customs a sufficient basis for

verifying unused merchandise drawback claims.

When applying for the waiver or the one-time application to file

drawback claims on past exports, as provided for in proposed

Sec. 191.36 of the regulations, a certification by the claimant is

required. The claimant must certify the ability to support with

business, laboratory or inventory records (prepared in the ordinary

course of business) that the imported and exported or substituted

merchandise (as applicable) was not used in the United States and, if

substituted, was commercially interchangeable with the imported

merchandise. The certification must also state that documentary

evidence establishing compliance with all other applicable drawback

requirements is likewise available. What is generally referred to is

evidence (when applicable):

1. Of possession of the substituted merchandise within statutory

time periods.

2. That the export and import transactions upon which the claim is

based are within statutory time periods.

3. That the exportation is bonafide.

4. That Certificates of Delivery, when necessary, are in the

possession of the claimant.

5. That any waivers or assignments from one party to another, when

necessary, are in the possession of the claimant.

6. That any facts or conditions to complete the claim can be

supported, such as those for successorship.

It is proposed that Customs approval of an application for the

waiver of prior notice privilege would be conditioned from the outset

on the agency's right to immediately stay the privilege holder's

operation under the privilege, for a specified reasonable period,

should the agency desire for any reason to examine the merchandise

being exported with drawback for purposes of verification. This key

proposed limitation on the grant of approval of the privilege would not

be an adverse action, suspension, or other form of sanction against the

privilege or privilege holder. Rather, it is a proposed restriction on

the grant of the privilege itself. See, e.g., Atlantic Richfield Co. v.

United States, 774 F.2d 1193, 1201 (D.C. Cir. 1985). The Customs

Service believes this limited privilege structure would best protect

the revenue and the public interest in sound administration of the

drawback program. Accordingly, the agency proposes to provide the

privilege holder a letter notifying it of any stay, specifying the

reason(s) therefor, and the period in which the stay will remain in

effect. The stay would expire at the end of the period specified in the

agency's letter, or such earlier date as the agency notifies the

privilege holder in writing that the reason for the stay has been

satisfied. After the stay is lifted, operation under the privilege

could resume. The mere lifting of a stay is not tantamount to a

certification of compliance; it simply reactivates the agency's

predictive judgment in granting the privilege in the first place.

Accelerated Payment of Drawback

As is true under the current regulations, accelerated (i.e., before

liquidation) payment of drawback claims is available for drawback

claims under the manufacturing, rejected, or unused merchandise law, as

well as claims under the law for substitution of finished petroleum

derivatives. The proposed regulations require that applications for

this privilege include sufficient information about the applicant and

its drawback program, including specific information about the bond

coverage that the applicant intends to use to cover accelerated payment

of drawback, to provide Customs reasonable assurance against losses to

the revenue when accelerated payments of drawback are made. The

proposed regulations also require a certification by the applicant that

all applicable statutory and regulatory requirements for drawback will

be met and a description (with sample documents) of how the applicant

will ensure compliance with these requirements. The detail required in

this description will vary, depending on the size and complexity of the

applicant's accelerated drawback program. To assist applicants, Customs

will make available a sample format for requests for accelerated

payment of drawback.

It is proposed that Customs would review and verify the information

submitted in and with the application and, based on that information

(and any additional information relating to the application requested

by Customs), and the applicant's record of transactions with Customs,

Customs would approve or deny the application. Criteria for Customs

action, including the presence or absence of unresolved Customs

charges, the accuracy of the claimant's past claims, and whether any

previously approved drawback privilege was revoked or suspended, are

specifically set forth in the proposed regulation.

If an applicant is approved for accelerated payment of drawback,

the applicant would be required to furnish a properly executed bond in

an amount sufficient to cover the estimated amount of drawback to be

claimed during the term of the bond, subject to increase if the amount

of the bond is exceeded. Drawback claims for which accelerated payment

of drawback was requested and approved would be certified for payment

within 3 weeks after filing, if a component for electronic filing of

drawback claims, records, or entries which has been implemented under

the National Customs Automation Program (NCAP) (19 U.S.C. 1411-1414) is

used, and within 3 months after filing otherwise. In regard to

electronic filing of drawback claims, currently procedures exist for

electronic filing of certain ``coding sheet'' data as a part of

drawback claims. The agency is working on the development of the

drawback components under NCAP, in accordance with its responsibilities

under the cited statutory provisions. It is anticipated that by the

effective date of a Final Rule, a component for electronic filing under

NCAP will have been properly implemented so that participants will be

able to take advantage of the 3-week time period in the proposed

regulations.

As is true of waiver of prior notice (see above), approval of the

accelerated payment drawback privilege would be conditioned from the

outset on the agency's right to immediately stay operation of that

privilege, for a specified reasonable period, should the agency desire

for any reason to examine compliance with the drawback law and

regulations for purposes of verification. Claims filed in the absence

of a privilege, or during the effect of a stay, would be paid in the

normal manner--upon liquidation of the associated drawback entry(ies).

However, if an accelerated payment privilege is granted, or reactivated

after a stay, payment could proceed according to such privilege

notwithstanding that the claim was filed in absence of such privilege

or during a stay.

Harmonized Tariff Schedule or Schedule B Numbers

A fundamental requirement for drawback is that there be a duty-paid

importation and an exportation and that the claimant have evidence to

prove each. Under the laws and regulations governing dutiable entries

for consumption (see 19 U.S.C. 1484, 1498 and 19 CFR parts 141, 142,

and 143), the tariff classification is required from the importer of

record of the merchandise. Such tariff classification is required to be

shown on the entry summary and

[[Page 3090]]

other documentation, including the invoice for the merchandise (19 CFR

141.61(e), 19 CFR 141.90(b)). Under 19 CFR 141.61(e), the statistical

reporting number required by the General Statistical Notes (GSN's) of

the Harmonized Tariff Schedule of the United States (HTSUS) (10-digit

number, see GSN 3), is required to be shown on the entry summary and

other entry documentation. These documents (i.e., entry summaries and

other entry documentation, such as invoices) comprise evidence which is

used to establish duty-paid importation of imported merchandise for

drawback purposes.

The correct commodity number from Schedule B, Statistical

Classification of Domestic and Foreign Commodities Exported from the

United States, is required by the Census Bureau to be provided for

exported merchandise. This Schedule B commodity number is required to

be entered in the space provided on the Shipper's Export Declaration

(SED) form (15 CFR 30.7(l)) (for most exports to Canada, no SED is

required (see 15 CFR 30.58; see also Department of Commerce Final Rule

published in the Federal Rgister on November 30, 1990 (55 FR 49613))).

Under GSN 5 of the HTSUS, as well as in the ``Notice to Exporters''

following GSN 5 of the HTSUS, the HTSUS statistical reporting numbers

referred to in the preceding paragraph may, with certain exceptions, be

substituted on the SED in place of comparable Schedule B numbers. The

SED, with other documentation, comprises evidence which is used to

establish exportation for drawback purposes.

In regard to imports, the proposed regulations would require

claimants to provide on all drawback claims they submit the HTSUS

number, to the six-digit level, for the designated imported

merchandise. When such claimants are importers of record, the HTSUS

number would be provided from the entry summary(s) and other entry

documentation under which the merchandise originally entered the

country. When such claimants are not importers of record (and thus

would have received a Certificate of Delivery or a Certificate of

Manufacture and Delivery for the imported merchandise (or substituted

merchandise in certain cases; see below)), the HTSUS number would be

provided from such Certificate (see below).

Also in regard to imports, the proposed regulations would require

importers of record and any other party(ies) preparing Certificates of

Delivery and Certificates of Manufacture and Delivery to provide the

HTSUS number for the imported merchandise, to the six-digit level, on

such Certificates. Any intermediate party(ies) receiving merchandise on

a Certificate of Delivery would be required to transfer it to another

party using such a Certificate. If the party preparing the Certificates

is the importer of record, the HTSUS number would be from the entry

summary(s) and other entry documentation under which the merchandise

originally entered the country. If the party preparing the Certificates

is another party (e.g., an intermediate party), the HTSUS number would

be from the Certificate on which that party received the merchandise,

and thus ultimately be derived from the entry summary(s) and other

entry documentation.

The requirement for the HTSUS number on the Certificates of

Delivery and Certificates of Manufacture and Delivery is necessary

because, under the proposed regulations, these Certificates would no

longer be part of the drawback entry form, as is currently true. In the

case of Certificates of Delivery, those Certificates will not be filed

with a claim; they will be required to be in the possession of the

claimant at the time that a claim is filed. Therefore, for Certificates

of Delivery, the HTSUS number must be on both the Certificates and the

claim (so that the claim preparer can derive the HTSUS number,

ultimately, from the entry summary(s) and other entry documentation and

so that that HTSUS number is on the drawback claim filed with Customs).

In the case of Certificates of Manufacture and Delivery, such

Certificates are required to be filed with a claim or to have been

previously filed with Customs and are necessary parts of a complete

claim. Therefore, providing the HTSUS number on the Certificates, if a

claim is based on such certificates, satisfies the requirement for

providing the HTSUS number on the claim (i.e., if a claim is based on

Certificate(s) of Manufacture and Delivery filed with the claim or

previously filed with Customs, the HTSUS number need only be on the

Certificate(s) and not the drawback entry form).

In addition, in the case of the transfer of merchandise substituted

for the imported merchandise under 19 U.S.C. 1313(j)(2) or 19 U.S.C.

1313(p), the proposed regulations would require the claim and any

Certificate of Delivery or Certificate of Manufacture and Delivery (see

above) to bear the tariff numbers, to the six-digit level, for the

substituted merchandise. This additional information proposed to be

required for substituted merchandise is necessary to establish

compliance with the drawback statute (i.e., either as one of the

criteria to establish commercial interchangeability for purposes of

section 1313(j)(2), see House Report No. 103-361, supra, page 131, and

Senate Report No. 103-189, supra, page 83, or to establish same kind

and quality for purposes of section 1313(p), per the explicit language

in that subsection itself).

In regard to exports, the proposed regulations would require all

drawback claimants to provide on all drawback claims they submit the

Schedule B numbers, or HTSUS numbers substituted therefor, for the

exported merchandise or articles upon which the claims are based. These

numbers would be provided from the SED(s) for such exported merchandise

or articles, when an SED is required. If no SED is required (e.g., for

certain exports to Canada (15 CFR 30.58)), the claimant is required to

provide the Schedule B commodity number(s) or HTSUS number(s), to the

6-digit level, that the exporter would have set forth on the SED, but

for the exemption from the requirement for an SED.

Consistent with the stated intent of both the House Committee on

Ways and Means and the Senate Committee on Finance, although the

amended drawback law will allow claimants to make greater use of

drawback, Customs will be able to ensure greater compliance through the

use of enhanced penalty and automated drawback selectively programs

authorized elsewhere in the NAFTA Implementation Act (see 19 U.S.C.

1593a, and its legislative history in House Report No. 103-361, supra,

page 130, and Senate Report No. 103-189, supra, page 81). Customs

intends the above-described proposed requirements, incorporating

already required HTSUS and Schedule B commodity numbers into the

drawback claim itself, to directly serve those specified means for

achieving greater compliance. More generally, the above-described

proposed requirements also serve the basic automation goals behind

Title VI (Customs Modernization) of the NAFTA Implementation Act. These

proposed requirements will result in numerical descriptions of

merchandise or articles instead of narrative descriptions, which are

far more amenable to electronic processing and automation. That is,

since HTSUS and commodity numbers are the basic terms of reference for

imports and exports of merchandise, inclusion of this information in

drawback claims is necessary for Customs to be able to offer the

enhanced electronic processing, uniformity, and automation Congress

intended (see,

[[Page 3091]]

House Report No. 103-361, supra, pages 106-107; Senate Report No. 103-

189, supra, pages 63-64).

For imports, the proposed requirement will go into effect for

merchandise entered, or withdrawn from warehouse, for consumption on or

after the effective date of the regulations. For exports, the proposed

requirement will go into effect for exported merchandise or articles

exported one year after the effective date of the regulations.

Procedures to Evidence Exportation

It is the obligation of the claimant to have adequate evidence of

export to support his drawback claim. There may be cases where the

consignee shown on the bill of lading is not the ultimate consignee, or

where, to retain commercial confidentiality, the identity of the

ultimate consignee is not known to the claimant. The current practice

in such a situation is for the exporter to either cut out or blank out

the name of the ultimate consignee from the proof of export submitted

to the claimant.

As noted above in this background, under ``Privileges'', the

Exporter's Summary Procedure (ESP) would no longer be a special

privilege, but would be available to all claimants as an option for

establishing exportation. It is proposed to revise the current subpart

regarding evidence of exportation (subpart E) accordingly. That is, the

proposed regulations would list the alternative procedures for

establishing exportation (actual evidence of exportation, export

summary, certified export invoice for mail shipments, notice of lading

for supplies for certain vessels or aircraft, and notice of transfer

for articles manufactured or produced in the United States which are

transferred to a foreign trade zone). The actual evidence of

exportation alternative is modified to make it clear that the

documentary evidence listed therein consists of originals of the listed

documents, or certified copies thereof (the current regulations omit

the word ``original''). In addition, the ``Chronological Summary of

Exports'', provided for in the ESP regulations, is proposed to be

simplified to list only necessary information (date of export, unique

export identifier (explained in a footnote) description, net quantity,

Schedule B number or HTSUS number (see discussion of Harmonized Tariff

Schedule or Schedule B Numbers in this background), and destination).

Selectivity

The U.S. Customs Service has had an electronic selectivity program

in operation for its National Drawback Program since 1994. The present

system is a random statistical sampling whose methodology is based on

the drawback claimant's overall history with Customs. This selectivity

system will be further expanded in late 1996 to become a two-tier

system whereby rules and criteria elements such as tariff

classification numbers of the subject merchandise and articles, import

and export locations, etc., would be used to evaluate risk and

designate the level of Customs review of the claim. After this initial

review, a random statistical targeting based on the claimant and the

claimant's overall history with Customs would also be run (see Item 4

under discussion of liquidation, below).

Drawback Compliance Program

The drawback compliance program is designed to allow Customs to

review claims in a post audit mode on an account basis rather than

transaction by transaction. Any person, corporation or business may be

certified as a participant in the drawback compliance program. Under 19

U.S.C. 1593a(e), claimants and other parties in interest may

participate. A ``party'' is considered to include any person or company

who is involved in providing data on which a drawback claim may be

based or who is the drawback claimant. This would include importers,

intermediary parties and drawback claimants. Therefore, any party that

provides information or documentation to one who intends to file a

drawback claim is encouraged to participate in the drawback compliance

program.

Customs will be publishing another regulatory package in the

Federal Register concerning penalties. That package, which will be

subject to public comment, will set forth mitigation guidelines.

In evaluating a drawback compliance application package, Customs

will consider the following factors:

--Size of the company;

--Nature of the business;

--Type of drawback claims being filed;

--Number of claims being filed.

In addition, depending on the complexity of the applicant's actual

drawback program, Customs may request additional information or details

before making its decision.

It is anticipated that the initial number of requests will make it

difficult to approve applicants within a specified time period.

For corporations that have various business units and divisions,

are decentralized or use several brokers to administer all or part of

their drawback program, each entity may apply separately for the

drawback compliance program.

Identification By Accounting Methods

For those situations in which the statute does not allow

substitution of merchandise or articles (see above), and in which a

company is not able to specifically identify merchandise or articles

(e.g., by serial number), accounting methods may be used to determine

the identity thereof. Such identification may be made on the basis of a

company's records, rather than on the basis of the actual physical

movement of the inventory. Previous regulations and rulings required

that merchandise or articles be commingled in the same inventory

location in order for a company to use an accounting method to identify

the merchandise or articles. The proposed regulations clarify that such

commingling is allowed, but not mandated, and that a company's records

will be the determining factor in the employment of an accounting

method.

Four accounting methods are approved for use in the proposed

revision of part 191: first-in, first-out (FIFO), last-in, first-out

(LIFO), low-to-high, and weighted average. Provision is also made for

Customs to approve either a modification of one of these methods, or a

different method. These proposed regulations reflect Customs position

that a properly established turn-over period may be used to establish

timely use in manufacture or production of the imported designated and

other (substituted) merchandise under 19 U.S.C. 1313(b), and the

manufacture or production of the finished articles under 19 U.S.C. 1313

(a) and (b). These proposed regulations also incorporate the criteria

set forth in T.D. 95-61, 60 FR 40995 (August 11, 1995), and are

designed to provide a greater degree of predictability in the

accounting methods that may be approved for drawback purposes.

Recordkeeping

Records are required to be kept to establish compliance with the

requirements in the drawback law and the regulations issued under that

law. Individual records are identified and described in the proposed

revision of part 191 at the point where the requirements underlying

those records are found.

Records supporting the information contained in any document

required for filing a drawback claim would have to be maintained by the

claimant or by the responsible party (e.g., importer, exporter,

possessor). If deficiencies are revealed in the underlying records on

[[Page 3092]]

which a drawback claim is based, the payment of the claim would, of

course, to this extent be adversely affected, notwithstanding that such

records were generated and maintained by persons other than the

claimant. Regarding the retention period for records kept by parties

other than the claimant, it is the responsibility of such parties to

communicate with the claimant to determine when a related claim for

drawback has been filed and paid by Customs. The retention period for

certificates of delivery begins upon their issuance (19 U.S.C.

1313(t)). In addition, the retention period for records generally,

including that for certificates of delivery, ends 3 years after the

date of payment of the related claim. Notwithstanding the recordkeeping

retention requirements, claimants are urged to maintain records that

support the claim until the liquidation of the drawback entry becomes

final. Moreover, records not specifically subject to recordkeeping

retention which are maintained by a claimant, and support a claim,

ought to be maintained until the liquidation of the drawback entry

becomes final.

Redistribution of Drawback Workload

Customs may transfer drawback claims to a location other than where

they were originally filed to ensure the timely and efficient

processing of the claims. This would occur primarily to evenly

distribute the drawback claims or because an office has a particular

expertise with a specific account or product. Customs believes that

this is an internal Customs work management issue which does not

require regulatory action. Therefore, the proposed regulations do not

address this issue. However, Customs recognizes the public's concerns

over the possibility of lost documentation or delays in processing.

Customs will develop procedures to safeguard documents that are mailed

and to monitor the time to process them. Customs believes that, until a

fully-developed selectivity system and compliance program are

operating, quicker, more efficient and more accurate processing of

drawback claims will be the result of transferring claims among

offices. If a claim is transferred for processing, the notice of

liquidation of the associated drawback entry will remain the bulletin

notice of liquidation posted at the port where the drawback claim was

originally filed.

Liquidation of Drawback Entries

The committee reports of both the Senate and House commented on

their expectation that Customs drawback regulations will take into

account the various time frames for recordkeeping, filing claims,

amendments, and clarifications, and for auditing and liquidating

drawback entries. Customs believes that these proposed regulations have

addressed many of the Committees' concerns, specifically in proposed

Secs. 191.25, 191.26, 191.37, 191.51, 191.52, 191.53, 191.61, and

191.62. These proposed regulations do not, however, specify a time

frame for liquidating drawback entries. This is because Customs

believes that, absent statutory language such as the ``deemed

liquidated'' language of 19 U.S.C. 1504, it lacks the authority to

specify a deadline after which the drawback entry is ``deemed

liquidated'' as entered.

Customs is aware of the Congressional and trade interest in

shortening the time between the filing of a drawback entry and the

liquidation of that entry. Customs is pursuing the following actions in

order to reduce the time in which to liquidate drawback entries:

1. Customs has established 11 new positions and filled vacancies in

all 8 drawback offices in order to bring them up to their designated

staffing levels;

2. Customs has developed and delivered standardized, national

training to all drawback specialists (not just the new specialists) in

FYs '95 and '96;

3. Customs has developed automated tools (initially, diskette

filings and ABI transmission of drawback claims) to more quickly

identify, reject and return to filers claims that do not meet minimum

filing standards.

4. Customs has developed and is improving a selectivity system in

ACS which already has reduced the number of designated import entries

that must be physically retrieved by the drawback office, prior to

liquidation of related drawback entries. Enhancements to this system

will eventually lead to virtual ``instant liquidation'' of those

drawback entries not selected by the system for pre-liquidation

scrutiny by the drawback specialists.

5. Through the Drawback Compliance Program, and increased use of

claimant interviews and visits for claimants not in the Drawback

Compliance Program, Customs expects to inform drawback claimants of

their responsibilities with respect to filing and supporting their

claims as well as to learn about claimants' drawback programs,

recordkeeping, and internal controls. In the past, when drawback

specialists questioned the claims, or sought evidence to support the

claim, they often relied upon Regulatory Audit. With better staffing

and training, as well as use of interviews with claimants, Customs

expects that the number of referrals to Regulatory Audit will

significantly decrease.

6. In partnership with trade groups, Customs plans to use meetings,

conferences, publications, satellite meetings and other forums, to

educate and to learn from claimants.

7. The largest single reason for the delays in liquidating drawback

entries is that the designated import entry has not been liquidated.

Approximately 75% of entries withheld from liquidation are because of

suspensions under the antidumping or countervailing duty laws; however,

antidumping and countervailing duties are not subject to drawback. In

recognition of this, Customs announced in the Federal Register on May

17, 1996, a pilot of the reconciliation process provided for in 19

U.S.C. 1484(b) (as amended by section section 637 of the NAFTA

Implementation Act) for entry summaries suspended under the antidumping

or countervailing duty laws. The use of the reconciliation entry

process will allow for the liquidation of the ordinary duty on these

entry summaries, thereby expediting the liquidation of the drawback

entries referencing those import entries.

Customs believes that these actions, taken together, will bring

about faster liquidation of drawback entries, thereby addressing the

Congress's concerns.

Comments

Customs has consulted extensively with the drawback community/trade

in formulating these proposed regulations. Three drafts of the proposed

regulations were made available to the public through Customs Automated

Broker Interface (ABI) and the Customs Electronic Bulletin Board.

Copies were also sent out to interested persons upon request.

Additionally, since January 1992, Customs met 42 times with various

groups representing drawback claimants, exporters, brokers, attorneys,

and consultants to explain and discuss its proposals. In the summer of

1995, the trade expressed its continuing dissatisfaction with the

modifications Customs had made based upon comments to those earlier

drafts.

At the request of the American Association of Exporters and

Importers, Customs agreed to continue these informal rulemaking

consultations with trade groups in a series of meetings. These meetings

were a continuation of the previous informal consultations with the

trade. They were not a negotiation, mediation or a formal rulemaking

procedure as provided for in the Negotiated Rulemaking Act of 1990

(Pub. L. 101-648, codified at 5 U.S.C. 561 et seq.). Other groups that

[[Page 3093]]

participated in these meetings were the National Council on

International Trade Development, the National Customs Brokers and

Forwarders Association of America, and the American Petroleum

Institute. The Customs participants represented the Trade Compliance

program managers at Headquarters, the Office of Regulations and

Rulings, field drawback offices, and Regulatory Audit. In view of

concerns regarding Customs obligations under the Chief Financial

Officer Act of 1990 (Pub. L. 101-576), representatives of the Treasury

Inspector General and the Customs Office of Financial Management also

participated. In addition, comments and recommendations from the

public, the trade and Customs drawback offices were considered in this

process.

These proposed regulations are subject to the requirements of the

Administrative Procedures Act (5 U.S.C. 553), which requires Customs to

give notice and afford interested persons the opportunity to comment on

the proposed rules. Therefore, before adopting this proposal, full

consideration will be given to any written comments (preferably in

triplicate) that are timely submitted to Customs. The comments

submitted will receive full consideration and only Customs staff will

prepare the analysis of the comments submitted in response to this

notice of proposed rulemaking.

In view of Customs extensive consultation with groups of interested

persons, Customs believes that a 60-day comment period is adequate for

review and comment by all interested parties. Interested persons are

encouraged to file their comments within the 60-day period.

All such comments received from the public pursuant to this notice

of proposed rulemaking will be available for public inspection in

accordance with the Freedom of Information Act (5 U.S.C. 552),

Sec. 1.4, Treasury Department Regulations (31 CFR 1.4), and

Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)), during regular

business days between the hours of 9:00 a.m. and 4:30 p.m. at the

Regulations Branch, 1099 14th Street, NW., Suite 4000, Washington, DC.

Regulatory Flexibility Act and Executive Order 12866

The proposed rule would amend the Customs drawback regulations

principally to reflect changes to the law occasioned by the Customs

modernization portion of the NAFTA Implementation Act. The proposed

rule also makes certain administrative changes to the existing

regulations which are essentially intended to simplify and expedite the

filing and processing of claims for the payment of drawback, and it

generally revises and rearranges these regulations to improve their

editorial clarity. As such, under the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that the proposed rule would not

have a significant economic impact on a substantial number of small

entities. Thus, it is not subject to the requirements of 5 U.S.C. 603

or 604, nor would it result in a ``significant regulatory action''

under E.O. 12866.

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has been submitted to the Office of Management and Budget

for review in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3507).

An agency may not conduct or sponsor, and a person is not required

to respond to a collection of information unless the collection of

information displays a valid control number.

The collection of information in this document is in Secs. 191.0-

191.195. This information is necessary and will be used to enforce the

requirements of the drawback law and protect the revenue. The likely

respondents and/or recordkeepers are business and other for-profit

institutions.

Estimated annual reporting and/or recordkeeping burden: 216,650

hours.

Estimated average annual burden per respondent/recordkeeper: one

hour for providing Harmonized Tariff System numbers; 60 hours for

drawback compliance program participation.

Estimated number of respondents and/or recordkeepers: 7000.

Estimated annual frequency of responses: on occasion.

Comments on the collection of information should be sent to the

Office of Management and Budget, Attention: Desk Officer of the

Department of the Treasury, Office of Information and Regulatory

Affairs, Washington, DC 20503. A copy should also be sent to the

Regulations Branch, Office of Regulations and Rulings, U.S. Customs

Service, 1301 Constitution Avenue, NW., Washington, DC 20229. Comments

should be submitted within the time frame that comments are due

regarding the substance of the proposal.

Comments are invited on: (a) Whether the collection of information

is necessary for the proper performance of the functions of the agency,

including whether the information shall have practical utility; (b) the

accuracy of the agency's estimate of the burden of the collection of

the information; (c) ways to enhance the quality, utility, and clarity

of the information to be collected; and (d) ways to minimize the burden

of the collection of information on respondents, including through the

use of automated collection techniques or other forms of information

technology.

Parallel Reference Table

[This table shows the relation of sections in the proposed revision

of part 191 to existing part 191.]

------------------------------------------------------------------------

Revised section Old section

------------------------------------------------------------------------

191.0..................................... 191.0.

191.0a.................................... New.

191.1..................................... 191.1.

191.2(a).................................. 191.2(p).

191.2(b).................................. New.

191.2(c).................................. New.

191.2(d).................................. New.

191.2(e).................................. New.

191.2(f).................................. 191.2(b).

191.2(g).................................. New.

191.2(h).................................. 191.2(j).

191.2(i).................................. 191.2(a).

191.2(j).................................. 191.2(i).

191.2(k).................................. 191.2(h).

191.2(l).................................. 191.2(g).

191.2(m).................................. New.

191.2(n).................................. 191.2(l).

191.2(o).................................. 191.2(f).

191.2(p).................................. New.

191.2(q).................................. New.

191.2(r).................................. New.

191.2(s).................................. 191.2(m).

191.2(t).................................. 191.2(n).

191.2(u).................................. 191.2(e).

191.2(v).................................. 191.2(o).

191.3..................................... 191.3.

191.4..................................... 191.11.

191.5..................................... 191.13.

191.6..................................... 191.6.

191.7(a).................................. 191.41.

191.7(b)(1)............................... 191.42(a).

191.7(b)(2)............................... 191.42(b).

191.7(c).................................. 191.43.

191.7(d).................................. 191.44

191.8(a).................................. 191.21(a).

191.8(b).................................. 191.21(c).

191.8(c).................................. 191.21(b).

191.8(d).................................. 191.21(d); 191.23(a).

191.8(e).................................. 191.23(b).

191.8(f).................................. 191.24.

191.8(g)(1)............................... 191.25 (a)&(b)(1).

191.8(g)(2)............................... 191.25(b)(2).

191.8(g)(3)............................... 191.25(c).

191.8(h).................................. 191.26.

191.9..................................... 191.21(a)(2); 191.34; 191.66

(b), (f).

191.9(a), first sentence.................. New.

191.10(a)................................. 191.65(a).

191.10(b)................................. 191.22(e).

191.10(c)(1).............................. 191.65(b).

191.10(c)(2).............................. 191.66(d).

191.10(d)................................. 191.5; 191.22(e).

191.10(e)................................. New.

191.10(f)................................. 191.65(d).

191.11.................................... 191.27.

191.12.................................... New.

191.13.................................... 191.4(a)(11).

191.14.................................... 191.22(c).

191.21.................................... 191.4(a)(1).

[[Page 3094]]

191.22(a)................................. 191.4(a)(2).

191.22(b)................................. 191.32(c).

191.22(c)................................. 191.32(d).

191.22(d)................................. New.

191.22(e)................................. 191.22(a)(5) & 191.33.

191.23(a)-(c)............................. New.

191.23(d)(1).............................. 191.22(a)(2) & 191.32(b).

191.23(d)(2).............................. 191.22(a)(1)(iv).

191.24(a)................................. 191.66(a).

191.24(b)................................. New.

191.24(c)................................. 191.22(a)(4);

191.62(a)(2)(i).

191.24(d)................................. New.

191.25(a)(1).............................. 191.22(a)(1).

191.25(a)(1)(iii)......................... 191.22(a)(3).

191.25(a)(2).............................. 191.22(b).

191.25(a)(3).............................. 191.22(c).

191.25(b)................................. 191.32(a).

191.25(c)................................. 191.22(a)(2) & 191.32(b).

191.25(d)................................. 191.62(a)(2)(ii).

191.25(e)................................. 191.65(a)&(b).

191.25(f)................................. 191.62(c).

191.25(g)................................. 191.5.

191.26(a)................................. 191.8(a); 191.22(a)(1)(v).

191.26(b)................................. 191.32(a).

191.26(c)................................. 191.23(c).

191.27.................................... New.

191.31(a)................................. 191.4(a)(9); 191.141(a)(1).

191.31(b)................................. 191.8(b); 191.141(a)(2).

191.31(c)................................. 191.141(a)(3).

191.32(a)................................. 191.141(a)(10).

191.32(b)................................. 191.141(h).

191.32(c)................................. New.

191.32(d)................................. 191.141(h).

191.32(e)&(f)............................. New.

191.33.................................... New.

191.34(a)................................. 191.65(a); 191.141 (b) &

(e).

191.34(b)................................. New.

191.34(c)................................. 191.65(d).

191.35.................................... 191.141(b).

191.36.................................... New.

191.37(a)................................. 191.5

191.37(b)................................. 191.22(b).

191.41.................................... 191.142(a)(1).

191.42.................................... 191.142(b).

191.43.................................... 191.142(a)(2).

191.44.................................... New.

191.51(a)................................. 191.62 (a)&(b).

191.51(b), (c) & (d)...................... New.

191.52(a)................................. 191.61.

191.52(b) & (c)........................... 191.64.

191.61.................................... 191.10.

191.62(a)................................. 191.9.

191.62(b)................................. New.

191.71.................................... 191.141(f).

191.72.................................... 191.51.

191.73.................................... 191.53.

191.74.................................... 191.54.

191.75.................................... 191.55.

191.76.................................... 191.67.

191.81.................................... 191.71.

191.82.................................... 191.73(a).

191.83.................................... 191.73(b).

191.84.................................... 191.7.

191.91.................................... 191.141(b)(2)(ii).

191.92.................................... 191.72.

191.93.................................... New.

191.101................................... 191.81.

191.102................................... 191.82.

191.103................................... 191.83.

191.104................................... 191.84.

191.105................................... 191.85.

191.106................................... 191.86.

191.111................................... 191.91.

191.112................................... 191.92; 191.93.

191.121................................... 191.101.

191.122................................... 191.102.

191.123................................... 191.103.

191.131................................... 191.111.

191.132................................... 191.112.

191.133................................... 191.113.

191.141................................... 191.121.

191.142................................... 191.122.

191.143................................... 191.123.

191.144................................... 191.124.

191.151................................... 191.131.

191.151(a)(1)............................. 191.8(c).

191.152................................... 191.132.

191.153................................... 191.133.

191.154................................... 191.134.

191.155................................... 191.135.

191.156................................... 191.136.

191.157................................... 191.137.

191.158................................... 191.138.

191.159................................... 191.139.

191.161................................... 191.151.

191.162................................... 191.152.

191.163................................... 191.153.

191.164................................... 191.154.

191.165................................... 191.155.

191.166................................... 191.156.

191.167................................... 191.157.

191.168................................... 191.158.

191.171................................... New.

191.172................................... New.

191.173................................... New.

191.174................................... New.

191.175................................... New.

191.176................................... New.

191.181................................... 191.161.

191.182................................... 191.162.

191.183................................... 191.163.

191.184................................... 191.164.

191.185................................... 191.165.

191.186................................... 191.166.

191.191................................... New.

191.192................................... New.

191.193................................... New.

191.194................................... New.

191.195................................... New.

------------------------------------------------------------------------

Parallel Reference Table

[This table shows the relation between the sections in existing

part 191 to those in the proposed revision of part 191.]

------------------------------------------------------------------------

Old section Revised section

------------------------------------------------------------------------

191.0..................................... 191.0.

191.1..................................... 191.1.

191.2(a).................................. 191.2(i).

191.2(b).................................. 191.2(f).

191.2(c).................................. Deleted.

191.2(d).................................. Deleted.

191.2(e).................................. 191.2(u).

191.2(f).................................. 191.2(o).

191.2(g).................................. 191.2(l).

191.2(h).................................. 191.2(k).

191.2(i).................................. 191.2(j).

191.2(j).................................. 191.2(h).

191.2(k).................................. Deleted.

191.2(l).................................. 191.2(n).

191.2(m).................................. 191.2(s).

191.2(n).................................. 191.2(t).

191.2(o).................................. 191.2(v).

191.2(p).................................. 191.2(a).

191.3..................................... 191.3

191.4(a)(1)............................... 191.21.

191.4(a)(2)............................... 191.22(a).

191.4(a) (3)-(8).......................... Deleted.

191.4(a)(9)............................... 191.31(a).

191.4(a)(10).............................. 191.32(a).

191.4(a)(11).............................. 191.13.

191.4(a) (12)-(14)........................ Deleted.

191.4(b).................................. Deleted.

191.5..................................... 191.10(d); 191.25(g);

191.37(a).

191.6..................................... 191.6.

191.7..................................... 191.84.

191.8(a).................................. 191.26(a).

191.8(b).................................. 191.31(b).

191.8(c).................................. 191.151(a)(1).

191.9..................................... 191.62(a).

191.10.................................... 191.61.

191.11.................................... 191.4.

191.12.................................... Deleted.

191.13.................................... 191.5.

191.21(a)................................. 191.8(a).

191.21(a)(1).............................. Deleted.

191.21(a)(2).............................. 191.9.

191.21(b)................................. 191.8(c).

191.21(c)................................. 191.8(b).

191.21(d)................................. 191.8(d).

191.21(e)................................. Deleted.

191.22(a)(1).............................. 191.25(a)(1).

191.22(a)(1)(iv).......................... 191.23(d)(2).

191.22(a)(1)(v)........................... 191.26(a).

191.22(a)(2).............................. 191.23(d)(1); 191.25(c).

191.22(a)(3).............................. 191.25(a)(1)(iii).

191.22(a)(4).............................. 191.24(c).

191.22(a)(5).............................. 191.22(e).

191.22(b)................................. 191.25(a)(2).

191.22(c)................................. 191.14.

191.22(d)................................. Deleted.

191.22(e)................................. 191.10 (b) & (d).

191.23(a)................................. 191.8(d).

191.23(b)................................. 191.8(e).

191.23(c)................................. 191.26(c).

191.23(d)................................. Deleted.

191.24.................................... 191.8(f).

191.25(a)................................. 191.8(g)(1).

191.25(b)(1).............................. 191.8(g)(1).

191.25(b)(2).............................. 191.8(g)(2).

191.25(c)................................. 191.8(g)(3).

191.26.................................... 191.8(h).

191.27.................................... 191.11.

191.31.................................... Deleted.

191.32(a)................................. 191.25(b).

191.32(b)................................. 191.25(c).

191.32(c)................................. 191.22(b).

191.32(d)................................. 191.22(c).

191.33.................................... 191.22(e).

191.34.................................... 191.9.

191.41.................................... 191.7(a).

191.42(a)................................. 191.7(b)(1).

191.42(b)................................. 191.7(b)(2).

191.43.................................... 191.7(c).

[[Page 3095]]

191.44.................................... 191.7(d).

191.45.................................... Deleted.

191.51.................................... 191.72.

191.52.................................... Deleted.

191.53.................................... 191.73.

191.54.................................... 191.74.

191.55.................................... 191.75.

191.56.................................... Deleted.

191.57.................................... Deleted.

191.61.................................... 191.52(a).

191.62(a)................................. 191.51(a).

191.62(a)(2)(ii).......................... 191.25(d).

191.62(b)................................. 191.51(a).

191.62(c)................................. 191.25(f).

191.62(d)................................. Deleted.

191.63.................................... Deleted.

191.64.................................... 191.52 (b) & (c).

191.65(a)................................. 191.10(a); 191.25(e).

191.65(b)................................. 191.10(c)(1); 191.25(e).

191.65(c)................................. Deleted.

191.65(d)................................. 191.10(f); 191.34(c).

191.66(a)................................. 191.24(a).

191.66(b)................................. 191.9.

191.66(c)................................. Deleted.

191.66(d)................................. 191.10(c)(2).

191.66(e)................................. Deleted.

191.66(f)................................. 191.9.

191.67.................................... 191.76.

191.71.................................... 191.81.

191.72.................................... 191.92.

191.73(a)................................. 191.82.

191.73(b)................................. 191.83.

191.81.................................... 191.101.

191.82.................................... 191.102.

191.83.................................... 191.103.

191.84.................................... 191.104.

191.85.................................... 191.105.

191.86.................................... 191.106.

191.91.................................... 191.111.

191.92, 191.93............................ 191.112.

191.101................................... 191.121.

191.102................................... 191.122.

191.103................................... 191.123.

191.111................................... 191.131.

191.112................................... 191.132.

191.113................................... 191.133.

191.121................................... 191.141.

191.122................................... 191.142.

191.123................................... 191.143.

191.124................................... 191.144.

191.131................................... 191.151.

191.132................................... 191.152.

191.133................................... 191.153.

191.134................................... 191.154.

191.135................................... 191.155.

191.136................................... 191.156.

191.137................................... 191.157.

191.138................................... 191.158.

191.139................................... 191.159.

191.141(a)(1)............................. 191.31(a).

191.141(a)(2)............................. 191.31(b).

191.141(a)(3)............................. 191.31(c).

191.141(b)................................ 191.34(a); 191.35.

191.141(b)(2)(ii)......................... 191.91.

191.141(c)................................ 191.51.

191.141(d)................................ 191.73.

191.141(e)................................ Deleted.

191.141(f)................................ 191.71.

191.141(g)................................ 191.51; 191.52.

191.141(h)................................ 191.32 (b) & (d).

191.142(a)(1)............................. 191.41.

191.142(a)(2)............................. 191.43.

191.142(b)................................ 191.42.

191.151................................... 191.161.

191.152................................... 191.162.

191.153................................... 191.163.

191.154................................... 191.164.

191.155................................... 191.165.

191.156................................... 191.166.

191.157................................... 191.167.

191.158................................... 191.168.

191.161................................... 191.181.

191.162................................... 191.182.

191.163................................... 191.183.

191.164................................... 191.184.

191.165................................... 191.185.

191.166................................... 191.186.

------------------------------------------------------------------------

List of Subjects

19 CFR Part 7

Customs duties and inspection, Exports, Imports.

19 CFR Part 10

Alterations, Bonds, Customs duties and inspection, Exports,

Imports, Preference programs, Repairs, Reporting and recordkeeping

requirements, Trade agreements.

19 CFR Part 145

Customs duties and inspection, Imports, Postal Service.

19 CFR Part 173

Administrative practice and procedure, Customs duties and

inspection.

19 CFR Part 174

Administrative practice and procedure, Customs duties and

inspection, Reporting and recordkeeping requirements, Trade agreements.

19 CFR Part 181

Administrative practice and procedure, Canada, Customs duties and

inspection, Exports, Imports, Mexico, Reporting and recordkeeping

requirements, Trade agreements (North American Free Trade Agreement).

19 CFR Part 191

Canada, Commerce, Customs duties and inspection, Drawback, Mexico,

Reporting and recordkeeping requirements, Trade agreements.

Proposed Amendments

It is proposed to amend chapter I of title 19, Code of Federal

Regulations (19 CFR chapter I), by amending parts 7, 10, 145, 173, 174,

181 and 191 as set forth below.

PART 7--CUSTOMS RELATIONS WITH INSULAR POSSESSIONS AND GUANTANAMO

BAY NAVAL STATION

1. The general authority for part 7 would be revised to read as

follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1623, 1624; 48 U.S.C. 1406i.

Sec. 7.1 [Amended]

2. It is proposed to amend Sec. 7.1(a) by removing the reference to

``Secs. 191.85 and 191.86'' where appearing therein, and by adding in

place thereof, ``Secs. 191.105 and 191.106''.

PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,

ETC.

1. The general authority citation for part 10 would continue to

read as follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508,

1623, 1624, 3314;

* * * * *

Sec. 10.38 [Amended]

2. It is proposed to amend Sec. 10.38(f) by removing the reference

to ``Sec. 191.10'' where appearing therein, and by adding in place

thereof, ``Sec. 191.61''.

PART 145--MAIL IMPORTATIONS

1. The general authority citation for part 145 would be revised to

read as follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1624;

* * * * *

Sec. 145.72 [Amended]

2. It is proposed to amend Sec. 145.72(e) by removing the reference

to ``Sec. 191.142'' where appearing therein, and by adding in place

thereof, ``Sec. 191.42''.

PART 173--ADMINISTRATIVE REVIEW IN GENERAL

1. The general authority citation for part 173 would continue to

read as follows:

Authority: 19 U.S.C. 66, 1501, 1520, 1624.

2. It is proposed to amend Sec. 173.4 by adding a sentence at the

end of paragraph (c) to read as follows:

[[Page 3096]]

Sec. 173.4 Correction of clerical error, mistake of fact, or

inadvertence.

* * * * *

(c) * * * The party requesting reliquidation under section

520(c)(1), Tariff Act of 1930, as amended (19 U.S.C. 1520(c)(1)) shall

state, to the best of his knowledge, whether the entry for which

correction is requested is the subject of a drawback claim, or whether

the entry has been referenced on a certificate of delivery or

certificate of manufacture and delivery so as to enable a party to make

such entry the subject of drawback (see Secs. 181.50(b) and 191.81(b)

of this chapter).

* * * * *

PART 174--PROTESTS

1. The general authority citation for part 174 would continue to

read as follows:

Authority: 19 U.S.C. 66, 1514, 1515, 1624.

2. It is proposed to amend Sec. 174.13 by adding a new paragraph

(a)(9) to read as follows:

Sec. 174.13 Contents of protest.

(a) Contents, in general. * * *

(9) A declaration, to the best of the protestant's knowledge, as to

whether the entry is the subject of drawback, or whether the entry has

been referenced on a certificate of delivery or certificate of

manufacture and delivery so as to enable a party to make such entry the

subject of drawback (see Secs. 181.50(b) and Sec. 191.81(b) of this

chapter).

* * * * *

PART 181--NORTH AMERICAN FREE TRADE AGREEMENT

1. The general authority citation for part 181 would continue to

read as follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1624, 3314.

Sec. 181.44 [Amended]

2. It is proposed to amend Sec. 181.44(d) by removing the reference

to ``Sec. 191.2(m)'' where appearing therein, and by adding in place

thereof, ``Sec. 191.2(s)''.

3. It is proposed to amend the ``Example'' in Sec. 181.44(f) by

removing the reference to ``Customs Form 7575-A'' where appearing

therein, and by adding in its place, ``Customs Form 331''.

Sec. 181.45 [Amended]

4. It is proposed to amend Sec. 181.45(b)(2)(i) by removing the

reference to ``Sec. 191.141(e)'' where appearing therein, and by adding

in place thereof, ``Sec. 191.14''.

Sec. 181.46 [Amended]

5. It is proposed to amend Sec. 181.46(b) by removing the term

``port(s)'' and where appearing in the first sentence, and adding in

place thereof, ``drawback office(s)''.

Sec. 181.47 [Amended]

6. It is proposed to amend Sec. 181.47(b)(2)(i)(C) by removing the

words ``Exporter's'' and ``exporter's'' where appearing therein, and by

adding in place thereof, ``Export'' and ``export'', respectively.

7. It is proposed to amend Sec. 181.47(b)(2)(ii)(A) by removing

``Customs Form 7539J'', and adding in place thereof, ``Customs Form

331''.

8. It is proposed to amend Sec. 181.47(b)(2)(ii)(D) by removing the

phrase ``The certificate of delivery portion of Customs Form 331''

where appearing therein, and adding in place thereof, ``A certificate

of delivery''.

9. It is proposed to amend Sec. 181.47(b)(2)(ii)(G) by revising the

first two sentences to read:

* * * * *

(b) * * *

(2) * * *

(ii) * * *

(G) Evidence of exportation. Acceptable documentary evidence of

exportation to Canada or Mexico shall include a bill of lading, air

waybill, freight waybill, export ocean bill of lading, Canadian customs

manifest, cargo manifest, or certified copies thereof, issued by the

exporting carrier''. * * *

10. It is proposed to amend Sec. 181.47(b)(2)(iii)(A) by removing

``Customs Form 7539C'' where appearing therein, and by adding in place

thereof, ``Customs Form 331''.

Sec. 181.48 [Amended]

11. It is proposed to amend Sec. 181.47(b)(2)(v) by removing the

reference to ``subpart L'' where appearing therein, and by adding in

place thereof, ``subpart N''.

Sec. 181.49 [Amended]

12. It is proposed to amend Sec. 181.49 by removing the reference

to ``Sec. 191.5'' where appearing therein, and by adding in place

thereof, ``Sec. 191.25(d)''.

Sec. 181.50 [Amended]

13. It is proposed to amend Sec. 181.50(c) by removing the

reference to ``Sec. 191.72'' where appearing therein, and by adding in

place thereof, ``191.92''.

PART 191--DRAWBACK

1. It is proposed to revise part 191 to read as follows:

Sec.

191.0 Scope.

191.0a Claims filed under NAFTA.

Subpart A--General Provisions

191.1 Authority of the Commissioner of Customs.

191.2 Definitions.

191.3 Duties and fees subject or not subject to drawback.

191.4 Merchandise in which a U.S. Government interest exists.

191.5 Guantanamo Bay, insular possessions, trust territories.

191.6 Authority to sign drawback documents.

191.7 General manufacturing drawback ruling.

191.8 Specific manufacturing drawback ruling.

191.9 Agency.

191.10 Certificate of delivery.

191.11 Tradeoff.

191.12 Claim filed under incorrect provision.

191.13 Packaging materials.

191.14 Identification of merchandise or articles by accounting.

Subpart B--Manufacturing drawback

191.21 Direct identification drawback.

191.22 Substitution drawback.

191.23 Methods of claiming drawback.

191.24 Certificate of manufacture and delivery.

191.25 Recordkeeping for manufacturing drawback.

191.26 Time limitations.

191.27 Person entitled to claim drawback.

Subpart C--Unused Merchandise Drawback

191.31 Direct identification.

191.32 Substitution drawback.

191.33 Person entitled to drawback.

191.34 Certificate of delivery required.

191.35 Notice of intent to export; examination of merchandise.

191.36 Failure to file notice of intent to export or destroy

merchandise.

191.37 Records.

Subpart D--Rejected Merchandise

191.41 Rejected merchandise drawback.

191.42 Procedure.

191.43 Unused merchandise claim.

191.44 Destruction under Customs supervision.

Subpart E--Completion of Drawback Claims

191.51 Completion of drawback claims.

191.52 Completing, perfecting or amending claims.

191.53 Restructuring of claims.

Subpart F--Verification of Claims

191.61 Verification of drawback claims.

191.62 Falsification of drawback claims.

[[Page 3097]]

Subpart G--Evidence of Exportation and Destruction

191.71 Drawback on articles destroyed under Customs supervision.

191.72 Alternative procedures for establishing exportation.

191.73 Export summary procedure.

191.74 Certification of exportation by mail.

191.75 Exportation by the Government.

191.76 Landing certificate.

Subpart H--Liquidation and Protest of Drawback Entries

191.81 Liquidation.

191.82 Person entitled to claim drawback.

191.83 Person entitled to receive payment.

191.84 Protests.

Subpart I--Privileges

191.91 Waiver of notice of intent to export.

191.92 Accelerated payment.

191.93 Combined applications.

Subpart J--Internal Revenue Tax on Flavoring Extracts and Medicinal or

Toilet Preparations (Including Perfumery) Manufactured from Domestic

Tax-Paid Alcohol

191.101 Drawback allowance.

191.102 Procedure.

191.103 Additional requirements.

191.104 Alcohol, Tobacco and Firearms certificates.

191.105 Liquidation.

191.106 Amount of drawback.

Subpart K--Supplies for Certain Vessels and Aircraft

191.111 Drawback allowance.

191.112 Procedure.

Subpart L--Meats Cured with Imported Salt

191.121 Drawback allowance.

191.122 Procedure.

191.123 Refund of duties.

Subpart M--Materials for Construction and Equipment of Vessels and

Aircraft Built for Foreign Ownership and Account

191.131 Drawback allowance.

191.132 Procedure.

191.133 Explanation of terms.

Subpart N--Foreign-Built Jet Aircraft Engines Processed in the United

States

191.141 Drawback allowance.

191.142 Procedure.

191.143 Drawback entry.

191.144 Refund of duties.

Subpart O--Merchandise Exported from Continuous Customs Custody

191.151 Drawback allowance.

191.152 Merchandise released from Customs custody.

191.153 Continuous Customs custody.

191.154 Filing the entry.

191.155 Merchandise withdrawn from warehouse for exportation.

191.156 Bill of lading.

191.157 Landing certificates.

191.158 Procedures.

191.159 Amount of drawback.

Subpart P--Distilled Spirits, Wines, or Beer Which Are Unmerchantable

or Do Not Conform to Sample or Specifications

191.161 Refund of taxes.

191.162 Procedure.

191.163 Documentation.

191.164 Return to Customs custody.

191.165 No exportation by mail.

191.166 Destruction of merchandise.

191.167 Liquidation.

191.168 Time limit for exportation or destruction.

Subpart Q--Substitution of Finished Petroleum Derivatives

191.171 General; Drawback allowance.

191.172 Definitions.

191.173 Imported duty-paid derivatives (no manufacture).

191.174 Derivatives manufactured under 19 U.S.C. 1313 (a) or (b).

191.175 Drawback claimant; maintenance of records.

191.176 Procedures for claims filed under 19 U.S.C. 1313(p).

Subpart R--Merchandise Transferred to a Foreign Trade Zone from Customs

Custody

191.181 Drawback allowance.

191.182 Zone-restricted merchandise.

191.183 Articles manufactured or produced in the United States.

191.184 Merchandise transferred from continuous Customs custody.

191.185 Unused merchandise drawback and merchandise not conforming

to sample or specification, shipped without consent of the

consignee, or found to be defective as of the time of importation.

191.186 Person entitled to claim drawback.

Subpart S--Drawback Compliance Program

191.191 Purpose.

191.192 Certification for compliance program.

191.193 Application procedure for compliance program.

191.194 Action on application to participate in compliance program.

191.195 Combined application for Certification in Drawback

Compliance Program and Drawback Privileges.

Appendix A to Part 191--General Manufacturing Drawback Rulings

Appendix B to Part 191--Sample Formats for Applications for Specific

Manufacturing Drawback Ruling Applications

Authority: 5 U.S.C. 301, 19 U.S.C. 66, 1202 (General Note 20,

Harmonized Tariff Schedule of the United States), 1313, 1624.

Sec. 191.62 also issued under 18 U.S.C. 550, 19 U.S.C. 1593a;

Sec. 191.84 also issued under 19 U.S.C. 1514;

Secs. 191.111, 191.112 also issued under 19 U.S.C. 1309;

Secs. 191.151(a)(1), 191.153, 191.157, 191.159 also issued under

19 U.S.C. 1557;

Sec. 191.182-191.186 also issued under 19 U.S.C. 81c;

Secs. 191.191-191.195 also issued under 19 U.S.C. 1593a.

Sec. 191.0 Scope.

This part sets forth general provisions applicable to all drawback

claims and specialized provisions applicable to specific types of

drawback claims. Additional drawback provisions relating to the North

American Free Trade Agreement (NAFTA) are contained in subpart E of

part 181 of this chapter.

Sec. 191.0a Claims filed under NAFTA.

Claims for drawback filed under the provisions of part 181 of this

chapter shall be filed separately from claims filed under the

provisions of this part.

Subpart A--General Provisions

Sec. 191.1 Authority of the Commissioner of Customs.

Pursuant to Treasury Department Order No. 165, Revised (T.D. 53654,

19 FR 7241), as amended, the Commissioner of Customs, with the approval

of the Secretary of the Treasury, shall prescribe rules and regulations

regarding drawback.

Sec. 191.2 Definitions.

For the purposes of this part:

(a) Abstract. ``Abstract'' means the summary of the actual

production records of the manufacturer.

(b) Certificate of delivery. ``Certificate of delivery'' means

Customs Form xxx summarizing information contained in original

documents, establishing:

(1) The delivery of imported merchandise, substituted merchandise

under 19 U.S.C. 1313(j)(2), or drawback product, from one party

(transferor) to another (transferee); and

(2) The assignment of drawback rights for the merchandise

transferred from the transferor to the transferee.

(c) Certificate of manufacture and delivery. ``Certificate of

manufacture and delivery'' means Customs Form xxx summarizing

information contained in original documents, establishing the

manufacture or production of articles under 19 U.S.C. 1313 (a) or (b).

A certificate of manufacture and delivery must contain the information,

and has the effect, set forth in Sec. 191.24 of this part.

(d) Act. ``Act'', unless indicated otherwise, means the Tariff Act

of 1930, as amended.

(e) Commercially interchangeable merchandise. ``Commercially

interchangeable merchandise'' means merchandise which may be

substituted under the substitution unused merchandise drawback law,

section 313(j)(2) of the Act, as amended (19 U.S.C. 1313(j)(2)) (see

Sec. 191.32(b)(2) of this part), or under the provision for the

substitution of finished petroleum derivatives, section 313(p), as

amended (19 U.S.C. 1313(p)).

(f) Designated merchandise. ``Designated merchandise'' means either

[[Page 3098]]

eligible imported duty-paid merchandise or drawback products selected

by the drawback claimant as the basis for a drawback claim under 19

U.S.C. 1313 (b) or (j)(2), as applicable, or qualified articles

selected by the claimant as the basis for drawback under 19 U.S.C.

1313(p).

(g) Destruction. ``Destruction'' means the complete destruction of

articles or merchandise to the extent that they have no commercial

value.

(h) Direct identification drawback. ``Direct identification

drawback'' means drawback authorized either under section 313(a) of the

Act, as amended (19 U.S.C. 1313(a)), on imported merchandise used to

manufacture or produce an article which is either exported or

destroyed, or under section 313(j)(1) of the Act, as amended (19 U.S.C.

1313(j)(1)), on imported merchandise exported, or destroyed under

Customs supervision, without having been used in the United States (see

also sections 313 (c), (e), (f), (g), (h), and (q)).

(i) Drawback. ``Drawback'' means the refund or remission, in whole

or in part, of a customs duty, fee or internal revenue tax which was

imposed on imported merchandise under Federal law because of its

importation, and the refund of internal revenue taxes paid on domestic

alcohol as prescribed in 19 U.S.C. 1313(d).

(j) Drawback claim. ``Drawback claim'' means the drawback entry and

related documents required by regulation which together constitute the

request for drawback payment.

(k) Drawback entry. ``Drawback entry'' means the document

containing a description of, and other required information concerning,

the exported or destroyed article on which drawback is claimed.

Drawback entries are filed on Customs Form 331.

(l) Drawback product. A ``drawback product'' means a product which

is finished, partially finished or wholly manufactured in the United

States under the procedures in this part for manufacturing drawback. A

drawback product may be exported, or destroyed under Customs

supervision with a claim for drawback, or it may be used in the further

manufacture of other drawback products by manufacturers or producers

operating under the procedures in this part for manufacturing drawback,

in which case drawback would be claimed upon exportation or destruction

of the ultimate product. Products manufactured or produced from

substituted merchandise (imported or domestic) also become ``drawback

products'' when applicable substitution provisions of the Act are met.

For purposes of section 313(b) of the Act, as amended (19 U.S.C.

1313(b)), drawback products may be designated as the basis for drawback

or deemed to be substituted merchandise (see section 1313(b)). For a

drawback product to be designated as the basis for drawback, the

product must be associated with a certificate of manufacture and

delivery (see section 191.24 of this part).

(m) Exportation. ``Exportation'' means the severance of goods from

the mass of goods belonging to this country, with the intention of

uniting them with the mass of goods belonging to some foreign country.

An exportation may be deemed to have occurred when goods subject to

drawback are admitted into a foreign trade zone in zone-restricted

status, or are used as aircraft or vessel supplies in accordance with

section 309(b) of the Act, as amended (19 U.S.C. 1309(b)).

(n) Fungible merchandise or articles. ``Fungible merchandise or

articles'' means merchandise or articles which for commercial purposes

are identical and interchangeable in all situations.

(o) General manufacturing drawback ruling. A ``general

manufacturing drawback ruling'' means a description of a manufacturing

or production operation for drawback and the regulatory requirements

and interpretations applicable to that operation which is published in

appendix A of this part. A manufacturer or producer whose operation is

within this description may operate under a particular ``general

manufacturing drawback ruling'' by submitting to the appropriate

drawback office a letter of notification of intent to operate under the

general ruling, in accordance with Sec. 191.7, after which Customs

issues a letter of acknowledgment.

(p) Manufacture or production. ``Manufacture or production'' means:

(1) A process, including, but not limited to, an assembly, by which

merchandise is made into a new and different article having a

distinctive ``name, character or use''; or

(2) A process, including, but not limited to, an assembly, by which

merchandise is made fit for a particular use even though it does not

meet the requirements of paragraph (p)(1) of this section.

(q) Possession. ``Possession'', for purposes of substitution unused

merchandise drawback (19 U.S.C. 1313(j)(2)), means physical or

operational control of the merchandise, including ownership while in

bailment, in leased facilities, in transit to, or in any other manner

under the operational control of, the party claiming drawback.

(r) Relative value. ``Relative value'' means the value of a product

divided by the total value of all products which are necessarily

manufactured or produced concurrently in the same operation. Relative

value is based on the market value, or other value approved by Customs,

of each such product or by-product determined as of the time it is

first separated in the manufacturing or production process. Market

value is generally measured by the selling price, not including any

packaging, transportation, or other identifiable costs, which accrue

after the product itself is processed. Drawback law requires the

apportionment of drawback to each such product or by-product based on

its relative value at the time of separation.

(s) Substituted merchandise. ``Substituted merchandise'' means same

kind and quality merchandise that may be substituted under the

substitution drawback provisions, either section 313(b) or 313(p) of

the Act, as amended (19 U.S.C. 1313 (b) or (p)). Under section 313(b),

substituted merchandise is of the same kind and quality if it is

capable of being used interchangeably in manufacture or production of

exported or destroyed articles with no substantial change in the

manufacturing or production process. Under section 313(p), as amended,

an exported article and a qualified article are of the same kind and

quality if they fall under the same 8-digit Harmonized Tariff Schedule

of the United States (HTSUS) tariff classification as enumerated in

section 313(p)(3)(A)(i) (I) or (II), as amended, or are commercially

interchangeable (see Sec. 191.2(e)). Under section 313(j)(2),

substituted merchandise means merchandise which is commercially

interchangeable with the imported designated merchandise.

(t) Schedule. A ``schedule'' means a document filed by a drawback

claimant, under section 313 (a) or (b), as amended (19 U.S.C. 1313 (a)

or (b)), showing the quantity of imported or substituted merchandise

used in or appearing in each article exported or destroyed for

drawback.

(u) Specific manufacturing drawback ruling. A ``specific

manufacturing drawback ruling'' means an application, in one of the

formats published in appendix B of this part, by a manufacturer or

producer for a ruling on a specific manufacturing or production

operation for drawback, as described in the format used, together with

a letter of approval issued by Customs Headquarters to the applicant in

response to the application in accordance with Sec. 191.8. Synopses of

approved specific manufacturing drawback rulings are published in the

Customs Bulletin with each synopsis

[[Page 3099]]

being published under an identifying Treasury Decision. Specific

manufacturing drawback rulings are subject to the provisions in part

177 of this chapter.

(v) Verification. ``Verification'' means the examination of any and

all records, maintained by the claimant, or any party involved in the

drawback process, which are required by the appropriate Customs officer

to render a meaningful recommendation concerning the drawback

claimant's conformity to the law and regulations and the determination

of supportability, correctness, and validity of the specific claim or

groups of claims being verified.

Sec. 191.3 Duties and fees subject or not subject to drawback.

(a) Duties subject to drawback include:

(1) All ordinary Customs duties, including:

(i) Duties paid on an entry, or withdrawal from warehouse, for

consumption for which liquidation has become final;

(ii) Estimated duties paid on an entry, or withdrawal from

warehouse, for consumption, for which liquidation has not become final

and for which the drawback claimant and any other party responsible for

the payment of liquidated import duties have filed a written request

and waiver under Sec. 191.82(b) of this part;

(iii) Voluntary tenders of the unpaid amount of lawful duties on an

entry, or withdrawal from warehouse, for consumption, provided that the

import entry, or withdrawal from warehouse, for consumption for which

the voluntary tender was made is specifically identified in the

voluntary tender and provided that liquidation of the drawback entry in

which that specifically identified import entry, or withdrawal from

warehouse, for consumption is designated has not become final and that

the drawback claimant and any other party responsible for the payment

of the voluntary tender have filed a written request and waiver under

Sec. 191.82(c) of this part; or

(iv) Any payment of duty for an import entry, or withdrawal from

warehouse, for consumption, such as payment of a demand for duties

under 19 U.S.C. 1592(d), provided that the payment is specifically

identified as duty on a specifically identified import entry, or

withdrawal from warehouse, for consumption the liquidation of which

became final prior to such payment, and provided that liquidation of

the drawback entry in which that specifically identified entry, or

withdrawal from warehouse, for consumption is designated has not become

final and that the drawback claimant and any other party responsible

for the other payments of duties have filed a written request and

waiver under Sec. 191.82(c) of this part;

(2) Marking duties assessed under section 304(c), Tariff Act of

1930, as amended (19 U.S.C. 1304(c)); and,

(3) Internal revenue taxes which attach upon importation (see

Sec. 101.1(i) of this chapter).

(b) Duties and fees not subject to drawback include:

(1) Harbor maintenance fee (see Sec. 24.24 of this chapter);

(2) Merchandise processing fee (see Sec. 24.23 of this chapter);

and

(3) Antidumping and countervailing duties on merchandise entered,

or withdrawn from warehouse, for consumption on or after August 23,

1988.

(c) No drawback shall be allowed when the designated imported

merchandise, or the substituted other merchandise (when applicable),

consists of an agricultural product to which an over-quota rate of duty

established under a tariff-rate quota is applicable, except that:

(1) Agricultural products as described in paragraph (c) of this

section may be eligible for drawback under section 313(j)(1) of the

Act, as amended (19 U.S.C. 1313(j)(1)); and

(2) Tobacco otherwise meeting the description of agricultural

products in paragraph (c) of this section may also be eligible for

drawback under section 313(a) of the Act, as amended (19 U.S.C.

1313(a)).

Sec. 191.4 Merchandise in which a U.S. Government interest exists.

(a) Restricted meaning of Government. A U.S. Government

instrumentality operating with nonappropriated funds is considered a

Government entity within the meaning of this section. Surety on any

drawback bond undertaken by these instrumentalities will not be

required.

(b) Allowance of drawback. If the merchandise was sold to the U.S.

Government, drawback shall be available only to the:

(1) Department, branch, agency, or instrumentality of the U.S.

Government which purchased it; or

(2) Supplier, or any of the parties specified in Sec. 191.82 of

this part, provided the claim is supported by documentation signed by a

proper officer of the department, branch, agency, or instrumentality

concerned certifying that the right to drawback was reserved by the

supplier or other parties with the knowledge and consent of the

department, branch, agency, or instrumentality.

Sec. 191.5 Guantanamo Bay, insular possessions, trust territories.

Guantanamo Bay Naval Station shall be considered foreign territory

for drawback purposes and, accordingly, drawback may be permitted on

articles shipped there. Under 19 U.S.C. 1313, drawback of Customs duty

is not allowed on articles shipped to Puerto Rico, the U.S. Virgin

Islands, American Samoa, Wake Island, Midway Islands, Kingman Reef,

Guam, Canton Island, Enderbury Island, Johnston Island, or Palmyra

Island.

Sec. 191.6 Authority to sign drawback documents.

(a) Documents listed in paragraph (b) of this section shall be

signed only by one of the following:

(1) The president, a vice-president, secretary, treasurer, or any

other individual legally authorized to bind the corporation;

(2) A full partner of a partnership;

(3) The owner of a sole proprietorship;

(4) Any employee of a business entity with a power of attorney;

(5) An individual acting on his or her own behalf; or

(6) A licensed Customs broker with a power of attorney.

(b) The following documents require execution in accordance with

paragraph (a) of this section:

(1) Drawback entries;

(2) Certificates of delivery;

(3) Certificates of manufacture and delivery;

(4) Applications of manufacturers or producers for approval of

specific manufacturing drawback rulings, schedules, and supplemental

schedules;

(5) Letters of notification for general manufacturing drawback

rulings;

(6) Endorsements of exporters on bills of lading or evidence of

exportation; and

(7) Abstracts, schedules and extracts from monthly abstracts if not

included as part of a drawback claim.

Sec. 191.7 General manufacturing drawback ruling.

(a) Purpose; eligibility. General manufacturing drawback rulings

are designed to simplify drawback for certain common manufacturing

operations but do not preclude or limit the use of applications for

specific manufacturing drawback rulings (see Sec. 191.8). A

manufacturer or producer engaged in an operation that falls within a

published general manufacturing drawback ruling may submit a letter of

notification of intent to operate under that general ruling. Where a

separately-

[[Page 3100]]

incorporated subsidiary of a parent corporation is engaged in

manufacture or production for drawback, the subsidiary is the proper

party to submit the letter of notification, and cannot operate under a

letter of notification submitted by the parent corporation.

(b) Procedures--(1) Publication. General manufacturing drawback

rulings are contained in Appendix A to this part. The Appendix will be

updated when new general drawback rulings are issued (as Treasury

Decisions) or existing general drawback rulings are revised.

(2) Submission. Letters of notification of intent to operate under

a general manufacturing drawback ruling shall be submitted in duplicate

to any drawback office where drawback entries will be filed and

liquidated. If claims are to be filed at more than one drawback office,

two additional copies of the letter of notification shall be filed for

each additional office and the drawback office with which the letter of

notification is submitted shall forward the additional copies to such

additional office(s).

(3) Information required. Each manufacturer or producer submitting

a letter of notification of intent to operate under a general

manufacturing drawback ruling under this section must provide the

following specific detailed information:

(i) Name and address of producer or manufacturer (if the

manufacturer or producer is a separately-incorporated subsidiary of a

corporation, the subsidiary corporation must submit a letter of

notification in its own name);

(ii) In the case of a business entity, the names of the persons

listed in Sec. 191.6(a)(1) through (5) who will sign drawback

documents;

(iii) Locations of the factories which will operate under the

letter of notification;

(iv) Description of the merchandise and articles, unless

specifically described in the letter of notification;

(v) Basis of claim used for calculating drawback; and

(vi) IRS (Internal Revenue Service) number of the manufacturer or

producer.

(c) Acknowledgment. The appropriate drawback office shall

acknowledge in writing the receipt of the letter of notification of

intent to operate under the general manufacturing drawback ruling.

(d) Duration. Acknowledged letters of notification under this

section shall remain in effect under the same terms as provided for in

Sec. 191.8(h) for specific manufacturing drawback rulings.

Sec. 191.8 Specific manufacturing drawback ruling.

(a) Proper applicant. Unless operating under a general

manufacturing drawback ruling (see Sec. 191.7), each manufacturer or

producer of articles intended to be claimed for drawback shall apply

for a specific manufacturing drawback ruling. Where a separately-

incorporated subsidiary of a parent corporation is engaged in

manufacture or production for drawback, the subsidiary is the proper

party to apply for a specific manufacturing drawback ruling, and cannot

operate under any specific manufacturing drawback ruling approved in

favor of the parent corporation.

(b) Sample application. Sample formats for applications for

specific manufacturing drawback rulings are contained in Appendix B to

this part.

(c) Content of application. The application of each manufacturer or

producer shall include the following information as applicable:

(1) Name and address of the applicant;

(2) Internal Revenue Service (IRS) number of the applicant;

(3) Description of the type of business in which engaged;

(4) Description of the manufacturing or production process, which

shows how the designated and substituted merchandise are used to make

the article that is to be exported or destroyed;

(5) In the case of a business entity, the names of persons listed

in Sec. 191.6(a)(1) through (5) who will sign drawback documents;

(6) Description of the imported merchandise including

specifications;

(7) Description of the exported article;

(8) Basis of claim for calculating manufacturing drawback;

(9) Summary of the records kept to support claims for drawback; and

(10) Identity and address of the recordkeeper if other than the

claimant.

(d) Submission. An application for a specific manufacturing

drawback ruling shall be submitted, in triplicate, to Customs

Headquarters (Attention: Entry and Carrier Rulings Branch, Office of

Regulations and Rulings). If drawback claims are to be filed under the

ruling at more than one drawback office, two additional copies of the

application shall be filed for each additional office.

(e) Review and action by Customs. Customs Headquarters shall review

the application for a specific manufacturing drawback ruling.

(1) Approval. If consistent with the drawback law and regulations,

Customs Headquarters shall issue a letter of approval to the applicant

and shall forward 2 copies of the application for the specific

manufacturing drawback ruling to the appropriate drawback office(s)

with a copy of the letter of approval. Synopses of approved specific

manufacturing drawback rulings shall be published in the weekly Customs

Bulletin with each synopsis being published under an identifying

Treasury Decision (T.D.). Each approved specific manufacturing drawback

ruling shall be assigned a unique computer-generated manufacturing

contract number which appears in the published synopsis and must be

used when filing manufacturing drawback claims with Customs.

(2) Disapproval. If not consistent with the drawback law and

regulations, Customs Headquarters shall promptly inform the applicant

that the application cannot be approved and shall specifically advise

the applicant why this is so. A disapproved application may be

resubmitted with modifications and/or explanations addressing the

reasons given for disapproval, or the disapproval may be appealed to

Customs Headquarters (Attention: Director, International Trade

Compliance Division).

(f) Schedules and supplemental schedules. When an application for a

specific manufacturing drawback ruling states that drawback is to be

based upon a schedule filed by the manufacturer or producer, the

schedule will be reviewed by Customs Headquarters. The application may

include a request for authorization for the filing of supplemental

schedules with the drawback office where claims are filed.

(g) Procedure to modify a specific manufacturing drawback ruling.--

(1) Supplemental application. Except as provided for limited

modifications in paragraph (g)(2) of this section, a manufacturer or

producer desiring to modify an existing specific manufacturing drawback

ruling shall submit a supplemental application for such a ruling in the

form of the original application to Customs Headquarters (Attention:

Entry and Carrier Rulings Branch, Office of Regulations and Rulings).

Except as specifically provided in this section, such modifications

(not including those provided for in paragraph (g)(2) of this section)

shall be subject to the procedures provided for in part 177 of this

chapter.

(2) Limited modifications. (i) A supplemental application for a

specific manufacturing drawback ruling shall be submitted to the

drawback office(s) where claims are filed if the modifications are

limited to:

(A) The location of a factory, or the addition of one or more

factories where

[[Page 3101]]

the methods followed and records maintained are the same as those at

another factory operating under the existing specific manufacturing

drawback ruling of the manufacturer or producer;

(B) The succession of a sole proprietorship, partnership or

corporation to the operations of a manufacturer or producer;

(C) A change in name of the manufacturer or producer;

(D) A change in the persons who will sign drawback documents in the

case of a business entity; or

(E) Any combination of the foregoing changes.

(ii) A limited modification, as provided for in this paragraph,

shall contain only the modifications to be made, in addition to

identifying the specific manufacturing drawback ruling and being signed

by an authorized person (that is, such a modification need not be in

the form of an original application, as under paragraph (g)(1) of this

section).

(h) Duration. Subject to part 177 of this chapter, an approval of a

specific manufacturing drawback ruling under this section shall remain

in effect indefinitely unless:

(1) No drawback claim or certificate of manufacture and delivery is

filed under the ruling for a period of 5 years and notice of

termination is published in the Customs Bulletin; or

(2) The manufacturer or producer to whom approval of the ruling was

issued files a request to terminate the ruling, in writing, with

Customs Headquarters.

Sec. 191.9 Agency.

(a) Applicability. The principal-agent procedures described in

paragraphs (b) through (e) of this section are applicable only in

substitution manufacturing drawback under 19 U.S.C. 1313(b).

(b) General. An owner of the designated and substituted merchandise

that is used to produce the exported articles may employ another person

to do part, or all, of the work that transforms either the designated

or substituted merchandise into articles for the purpose of 19 U.S.C.

1313(b), or which accomplishes any of the other manufacture or

production processes stated in Sec. 191.2(p). The person who asserts

that it is the manufacturer or producer under 19 U.S.C. 1313(b) must

establish by its manufacturing records, the manufacturing records of

its agent, or the manufacturing records of both parties, that the

designated and substituted merchandise were used in the manufacture or

production of articles.

(c) Requirements.--(1) Contract. The manufacturer must establish

that it is the principal in a contract between it and its agent who

actually does the work on either the designated or substituted

merchandise for the principal. The contract must specify:

(i) Terms of compensation to show that the relationship is an

agency rather than a sale;

(ii) How transfers of merchandise and articles will be recorded by

the principal and its agent;

(iii) The work to be performed on the merchandise by the agent for

the principal;

(iv) The degree of control that is to be exercised by the principal

over the agent's performance of work;

(v) The party who is to bear the risk of loss on the merchandise

while it is in the agent's custody; and

(vi) The period that the contract is in effect.

(2) Ownership of the merchandise by the principal. The records of

the principal and/or the agent must establish that the principal had

legal and equitable title to the merchandise before receipt by the

agent. The right of the agent to assert a lien on the merchandise for

work performed does not derogate the principal's ownership interest for

the purpose of 19 U.S.C. 1313(b).

(3) Sales prohibited. The relationship between the principal and

agent must not be that of a seller and buyer. If the parties' records

show that, with respect to the merchandise that is the subject of the

principal-agent contract, the merchandise is sold to the agent by the

principal, or the articles manufactured by the agent are sold to the

principal by the agent, those records are inadequate to show compliance

with the requirement in 19 U.S.C. 1313(b) that the principal was the

manufacturer or producer of the articles.

(d) Specific manufacturing drawback rulings; general manufacturing

drawback rulings.--(1) Owner. An owner who intends to show that it is

the manufacturer or producer of articles under 19 U.S.C. 1313(b)

through the work of an agent must state that intent in any application

for a specific manufacturing drawback ruling filed under Sec. 191.8.

(2) Agent. Each agent operating under this section must have filed

a letter of notification for the general manufacturing drawback ruling

(see Sec. 191.7), for an agent, covering the articles manufactured or

produced, or have obtained a specific manufacturing drawback ruling

(see Sec. 191.8), as appropriate.

(e) Certificate of manufacture and delivery; drawback entry.--(1)

Agent. Each agent manufacturer conducting operations under this section

shall furnish the principal for whom such agent processed merchandise a

certificate of manufacture and delivery applicable to the operation so

conducted, relating to the substituted or designated merchandise, and

identifying the owner of the articles for whom processing was

conducted. Certificates of Manufacture and Delivery issued to document

the transfer of articles under this section do not assign the potential

right to drawback to the person to whom such certificates are issued.

(2) Principal. The principal for whom processing was conducted

under this section shall complete and file a drawback entry on Customs

Form 331 and attach to it the forms from its agents or agent, if

necessary (see Secs. 191.10(e) and 191.24(c) of this part). The

principal shall not complete a certificate of delivery for merchandise

which it transfers to its agent(s) under the procedures in this

section.

Sec. 191.10 Certificate of delivery.

(a) Purpose; when required. A party who: imports and pays duty on

imported merchandise; receives imported merchandise; in the case of 19

U.S.C. 1313(j)(2), receives imported merchandise, commercially

interchangeable merchandise, or any combination of imported and

commercially interchangeable merchandise; or receives an article

manufactured or produced under 19 U.S.C. 1313 (a) and/or (b): May

transfer such merchandise or manufactured article to another party. The

party shall record this transfer by preparing and issuing in favor of

such other party a certificate of delivery, certified by the importer

or other party through whose possession the merchandise or manufactured

article passed (see paragraph (c) of this section). A certificate of

delivery issued with respect to the delivered merchandise or article:

(1) Documents the transfer of that merchandise or article;

(2) Identifies such merchandise or article as being that to which a

potential right to drawback has attached; and

(3) Assigns such right to the transferee (see Sec. 191.82 of this

part).

(b) Required information. The certificate of delivery must include

the following information:

(1) The party to whom the merchandise or articles are delivered;

(2) Date of delivery;

(3) Import entry number;

[[Page 3102]]

(4) Quantity delivered;

(5) Total duty paid on, or attributable to, the delivered

merchandise;

(6) Date certificate was issued;

(7) Date of importation;

(8) Port where import entry filed;

(9) Person from whom received; and

(10) Description of the merchandise delivered, and if such

merchandise is the designated imported merchandise or merchandise

substituted therefor under 19 U.S.C. 1313(j)(2) or 1313(p), the HTSUS

number with a minimum of 6 digits. (For designated imported

merchandise, such HTSUS number shall be from the entry summary and

other entry documentation for the merchandise unless the issuer of the

certificate of delivery received the merchandise under another

certificate of delivery, in which case such HTSUS number shall be from

the other certificate of delivery.)

(c) Intermediate transfer.--(1) Imported merchandise. If the

imported merchandise was not delivered directly from the importer to

the manufacturer, or from the importer to the exporter (or destroyer),

each intermediate transfer of the imported merchandise shall be

documented by means of a certificate of delivery issued in favor of the

receiving party, and certified by the person through whose possession

the merchandise passed.

(2) Manufactured article. If the article manufactured or produced

under 19 U.S.C. 1313 (a) or (b) is not delivered directly from the

manufacturer to the exporter (or destroyer), each intermediate transfer

of the article shall be documented by means of a certificate of

delivery, issued in favor of the receiving party, and certified by the

person through whose possession the article passed.

(d) Retention period; supporting records. Records supporting the

information required on the certificate(s) of delivery, as listed in

paragraph (b) of this section, must be retained by the issuing party

for 3 years from the date of payment of the related claim.

(e) Submission to Customs; certification. The certificate of

delivery shall be retained by the drawback claimant and, if requested,

submitted to Customs as part of the claim. If the certificate is

requested by Customs, but is not submitted as part of the claim, the

drawback claim dependent on that certificate will be rejected (see

Sec. 191.52 of this part).

(f) Warehouse transfer and withdrawals. The person in whose name

merchandise is withdrawn from a bonded warehouse shall be considered

the importer for drawback purposes. No certificate of delivery is

required covering prior transfers of merchandise while in a bonded

warehouse.

Sec. 191.11 Tradeoff.

(a) Exchanged merchandise. To comply with Secs. 191.21 and 191.22

of this part, the use of domestic merchandise taken in exchange for

imported merchandise of the same kind and quality (as defined in

Sec. 191.2(s) of this part for purposes of 19 U.S.C. 1313(b)) shall be

treated as use of the imported merchandise if no certificate of

delivery is issued covering the transfer of the imported merchandise.

This provision shall be known as tradeoff and is authorized by section

313(k) of the Act, as amended (19 U.S.C. 1313(k)).

(b) Requirements. Tradeoff must occur between two separate legal

entities but it is not necessary that the entity exchanging the

imported merchandise be the importer thereof. In addition, tradeoff

must consist of a straight tradeoff of same kind and quality

merchandise, with no additional payments of any type, including

additional payment in kind.

(c) Application. Each would-be user of tradeoff, except those

operating under an approved specific manufacturing drawback ruling

covering substitution, must apply to the Entry and Carrier Rulings

Branch, Office of Regulations and Rulings, Customs Headquarters, for a

determination of whether the imported and domestic merchandise are of

the same kind and quality. For those users manufacturing under

substitution drawback, this request should be contained in the drawback

application. For those users manufacturing under direct identification

drawback, the request should be made by a separate letter.

Sec. 191.12 Claim filed under incorrect provision.

A drawback claim filed pursuant to any provision of section 313 of

the Act, as amended (19 U.S.C. 1313) may be deemed filed pursuant to

any other provision thereof should the drawback office determine that

drawback is not allowable under the provision as originally filed, but

that it is allowable under such other provision. To be allowable under

such other provision, the claim must meet each of the requirements of

such other provision.

Sec. 191.13 Packaging materials.

Drawback of duties is provided for in section 313(q) of the Act, as

amended (19 U.S.C. 1313(q)), on imported packaging material when used

to package or repackage merchandise or articles exported or destroyed

pursuant to section 313 (a), (b), (c), or (j) of the Act, as amended

(19 U.S.C. 1313 (a), (b), (c), or (j)). Drawback is payable on the

packaging material pursuant to the particular drawback provision to

which the packaged goods themselves are subject. The drawback will be

based on the duty, tax or fee paid on the importation of the packaging

material. The packaging material must be separately identified on the

claim.

Sec. 191.14 Identification of merchandise or articles by accounting

method.

(a) General. This section provides for the identification of

merchandise or articles for drawback purposes by the use of accounting

methods. This section applies to identification of merchandise or

articles in inventory or storage, as well as identification of

merchandise used in manufacture. This section is not applicable to

situations in which the drawback law authorizes substitution (see 19

U.S.C. 1313(b), 1313(j)(2), 1313(k), and 1313(p)). When substitution is

authorized, merchandise or articles may be substituted without

reference to this section, under the criteria and conditions

specifically authorized in the statutory and regulatory provisions

providing for the substitution. This section is not applicable to the

identification of merchandise by accounting procedures for drawback

under 19 U.S.C. 1313(j)(1) for exportations to Canada or Mexico under

the NAFTA (see Sec. 181.45(b)(2)).

(b) Conditions and criteria for identification by accounting

method. Manufacturers, producers, claimants, or other appropriate

persons may identify for drawback purposes lots of merchandise or

articles under this section, subject to each of the following

conditions and criteria:

(1) The lots of merchandise or articles to be so identified must be

fungible (see Sec. 191.2(n) of this part);

(2) The person using the identification method must establish that

inventory records (for example, material control records), prepared and

used in the ordinary course of business, account for the lots of

merchandise or articles to be identified as being received into and

withdrawn from the same inventory. Even if merchandise or articles are

received or withdrawn at different geographical locations, if such

inventory records treat receipts or withdrawals as being from the same

inventory, those inventory records may be used to identify the

merchandise or articles under this section, subject to the conditions

of this section. If any such inventory records (that is, inventory

records prepared and used in the

[[Page 3103]]

ordinary course of business) treat receipts and withdrawals as being

from different inventories, those inventory records must be used and

receipts into or withdrawals from the different inventories may not be

accounted for together. If units of merchandise or articles can be

specifically identified (for example, by serial number), the

merchandise or articles must be specifically identified and may not be

identified by accounting method, unless it is established that

inventory records, prepared and used in the ordinary course of

business, treat the merchandise or articles to be identified as being

received into and withdrawn from the same inventory (subject to the

above conditions);

(3) Unless otherwise provided in this section (see, for example,

paragraph (c)(5) of this section) or specifically approved by Customs

(by a binding ruling under part 177 of this chapter), all receipts (or

inputs) into and all withdrawals from the inventory must be recorded in

the accounting record;

(4) The records which support any identification method under this

section are subject to verification by Customs (see Sec. 191.61 of this

part). If Customs requests such verification, the person using the

identification method must be able to demonstrate how, under generally

accepted accounting procedures, the records which support the

identification method used account for all merchandise or articles in,

and all receipts into and withdrawals from, the inventory, and the

drawback per unit for each receipt and withdrawal; and

(5) Any accounting method which is used by a person for drawback

purposes under this section must be used without variation with other

methods for a period of at least one year, unless approval is given by

Customs for a shorter period.

(c) Approved accounting methods. The following accounting methods

are approved for use in the identification of merchandise or articles

for drawback purposes under this section.

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