# Drawback

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URL: https://www.frixlaw.com/law-library/documents/fr%3A97-1048

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** January 21, 1997
- **Citation:** 62 FR 3082

## Text

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

[[Page 3083]]

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,

[[Page 3084]]

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

[[Page 3085]]

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

[[Page 3086]]

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A97-1048. Public record. Not legal advice.