Drawback

SUMMARY: This document revises the Customs Regulations regarding

drawback. The document revises 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.

EFFECTIVE DATE: April 6, 1998.

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,

(202-927-1172).

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, Public

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

popularly known as the Customs Modernization Act, significantly amended

certain Customs laws. In particular, Sec. 632 of Title VI effected

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

Also, Sec. 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).

By a document published in the Federal Register on January 21, 1997

(62 FR 3082), Customs proposed regulatory revisions principally to part

191 in implementation of the statutory changes. In addition, the

document proposed 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 were 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 were proposed with respect to

other parts of the Customs Regulations (19 CFR parts 7, 10, 145, 173,

174 and 181).

In formulating the notice of proposed rulemaking, as noted therein,

Customs consulted extensively with the drawback trade community. In

particular, in the summer of 1995, Customs initiated informal

rulemaking consultations in a series of meetings with various trade

groups.

Numerous comments from the public were received in response to the

publication of the notice of proposed rulemaking. A description,

together with Customs analysis, of the comments that were submitted is

set forth below.

Discussion of Comments

General

Comment: Many views were expressed about the process of informal

consultations that were effected through a series of meetings initiated

by Customs with various trade groups, most of these commenters

variously observing that this process was instrumental and effective in

assisting Customs in the preparation of a notice of proposed rulemaking

which would fairly and accurately implement the drawback and related

laws, and their underlying Congressional intent, as well as better

reflect current industry practices and expectations.

Customs Response: Customs agrees that this final rule, based on the

notice of proposed rulemaking which was developed through the

innovative process described, correctly reflects the intent of the

drawback law, as well as current industry concerns, and will improve

drawback processing efficiency.

Comment: It was stated that the paperwork burden which would be

generated by the proposed regulations was underestimated, due in part

to the need to obtain certification in the drawback compliance program,

and to provide Harmonized Tariff Schedule numbers in certain instances.

Customs Response: It should be noted that the information

collection and recordkeeping burden in question contained in the

proposed rule represents an estimated average annual burden. Customs,

in accordance with the Paperwork Reduction Act of 1995, periodically

reviews the accuracy of the information collection estimates required

for compliance with its regulatory provisions. In the course of such

review, changes to an estimated information collection burden will be

made as appropriate.

Comment: The concern was expressed about the new Customs Forms that

would be issued for drawback; it was asked that Customs work closely

with the trade in the development of such forms, with one comment

suggesting that the forms be finalized and included in the final

drawback regulations herein.

Customs Response: Customs has worked closely with the public in

developing new Customs Forms for drawback. The new drawback forms are:

``Drawback Entry'' (Customs Form 7551), ``Delivery Certificate for

Purposes of Drawback'' (Customs Form 7552), and ``Notice of Intent to

Export, Destroy, or Return Merchandise for Purposes of Drawback''

(Customs Form 7553). The titles and numbers of the new forms are

inserted where appropriate in the regulations.

Comment: Questions were raised about the nature and intent

underlying the information contained in the

[[Page 10971]]

``BACKGROUND'' section of the proposed rule.

Customs Response: The ``BACKGROUND'' section of a rulemaking

document presents its regulatory history. The information in this

section is intended to give the specific detail necessary to explain

the basis and purpose of the subject regulatory provisions and to

furnish adequate notice of the issues to be commented on, as required

by the Administrative Procedure Act. This enables a reviewing body,

such as a court of law, to be aware of the legal and factual framework

underlying an agency's action (see, e.g., American Standard, Inc., v.

United States, 602 F. 2d 256, 269 (Ct. Cl. 1979)).

Comment: A comment noted that some general drawback contracts were

not included in Appendix A to part 191 in the proposed rule, along with

the other general contracts.

Customs Response: The comment has merit. Four of the general

manufacturing drawback rulings, as they are now considered,

specifically T.D.s 83-53, 83-77, 83-80, and 83-84, were inadvertently

omitted from Appendix A. They are now included therein. Also, T.D. 84-

49, which required Customs Headquarters approval to obtain petroleum

drawback under 19 U.S.C. 1313(b), was thus included in Appendix B as

``Format for 1313(b) Petroleum Drawback Application''. However, T.D.

84-49 is now included among the general manufacturing drawback rulings

for which a letter of notification of intent to operate must be

submitted to a drawback field office.

Comment: A statement was desired in the ``BACKGROUND'' section of

the final rule that certain existing rulings concerning what

constituted a manufacture or production for drawback purposes would

remain in effect.

Customs Response: No change as to what constitutes a manufacture or

production is intended by these regulations. As to non-revoked rulings

generally, to the extend that such rulings do not materially conflict

with the statute and these regulations, they remain in effect and may

be relied upon to the extent provided in 19 U.S.C. 1625 and 19 CFR part

177.

It is also pointed out that any changes made to the rulings

published in the Appendix to part 191 in this final rule are merely

conforming to these regulations and do not adversely affect the public.

Comment: An objection was made about the planned transfer of

drawback claims from the Customs field office where filed to another

such office having more expertise in the handling of the particular

claims, as was mentioned in the ``BACKGROUND'' section of the proposed

rule.

Customs Response: Customs believes that the planned redistribution

of drawback workload, as described, which, as observed in the proposed

rule, is an internal work management issue not requiring regulatory

action, will result in quicker, more efficient, and more accurate

processing of drawback claims.

Comment: Changes were requested in the drawback and duty-deferral

provisions, related primarily to inventory management procedures and

accounting, that were promulgated in part 181, Customs Regulations (19

CFR part 181) pursuant to the North American Free Trade Agreement

(NAFTA).

Customs Response: The provision in part 181 for accounting for

fungible goods in inventory which are to be exported to Canada or

Mexico in the same condition as imported and for which drawback is

claimed under 19 U.S.C 1313(j)(1) is modified consistent with the

changes to accounting methods for drawback in part 191 (see

Sec. 191.14). Under the amended provision, if all of the goods in a

particular inventory are non-originating goods, the identification of

the goods for purposes of designation for drawback shall be on the

basis of one of the accounting methods authorized in 19 CFR 191.14, as

authorized therein, including first-in first-out (FIFO), last-in, first

out (LIFO), low-to-high (ordinary, with established average inventory

turn-over period, and blanket methods), and average. Fungible

originating and non-originating goods still may be commingled in

inventory. When such originating and non-originating goods are

commingled, the origin of the goods would continue to be determined

according to the inventory methods provided for in the appendix to part

181, see 19 U.S.C. 3333(a)(2)(B). In this situation (i.e., when

originating and non-originating fungible goods are commingled in

inventory), the identification of the goods for purposes of designation

for drawback must also be on the basis of the inventory method from the

appendix to part 181. The reason that one of the accounting methods

authorized in Sec. 191.14 may not be used in the latter instance is

that to do so would make so complicated area that verification by

Customs would be an extreme administrative burden.

Subpart A, Part 191

Comment: It was asked that definitions for ``merchandise'',

``articles'', ``perfecting'', ``restructuring'', and ``stay'' be added

to proposed Sec. 191.2. It was requested that a definition be included

for the term ``operator'' as used in Appendix A, while another comment

suggested adding a definition for the term ``records''.

Customs Response: Customs concludes that definitions for

``merchandise'' and ``articles'' are unnecessary and could prove

confusing, inasmuch as these general terms have different meanings

depending on the particular type of drawback involved. Also, Customs

finds that the terms ``perfecting'', restructuring'', and ``stay'' are

already adequately explained in the specific regulatory sections in

which they appear. Furthermore, no definition of ``operator'' is added,

but any confusion caused by the use of this term in the general

manufacturing drawback rulings in Appendix A is removed by substituting

``Manufacturer or Producer'' therefor.

Customs has, however, determined to include a definition in

Sec. 191.2 for the term ``records'' based on the definition of this

term appearing in 19 U.S.C. 1508. In addition, a definition of

``filing'', based in part on the definition of that term in 19 CFR

141.0a for purposes of the entry of merchandise, is included in

Sec. 191.2 to implement 19 U.S.C. 1313(l), which authorizes regulations

which may include, but need not be limited to, the electronic

submission of drawback entries. These definitions are added to

Sec. 191.2 in appropriate alphabetical order.

Comment: It was suggested that proposed Sec. 191.2(a) defining the

term ``abstract'' be clarified by stating that a certificate of

manufacture and delivery when properly completed may serve as an

abstract.

Customs Response: Customs finds that this is unnecessary. No

reference is made in these regulations to an ``abstract of

manufacturing records'', which is how the term ``abstract'' was

apparently viewed. As used herein, an abstract is simply one of two

methods (the other being the schedule method) by which a manufacturer

may show the amount of merchandise used or appearing in the exported

article. To make this clear, a paragraph (d) is included in

Sec. 191.23.

Comment: The definition for a certificate of delivery in proposed

Sec. 191.2(b) was addressed, with the suggestion being made that the

definition provide for the delivery of the qualified or substituted

article under 19 U.S.C. 1313(p) dealing with the substitution of

finished petroleum products. It was further recommended that the

definition be made consistent with proposed Sec. 191.10, in particular

by

[[Page 10972]]

providing that a certificate of delivery was also used to document

intermediate transfers of merchandise or product.

Customs Response: These comments have merit. The transfer of a

qualified article from a manufacturer, producer or importer, under 19

U.S.C. 1313(p), is added to the definition of a certificate of delivery

in Sec. 191.2(c), as redesignated, and this definition is made

consistent with the meaning and purpose of a certificate of delivery as

set forth in Sec. 191.10.

In the case of certificates of delivery for transfers under 19

U.S.C. 1313(p), a certificate of delivery would be required for a

transfer of the qualified article from the importer to the exporter and

for all intermediate transfers of the qualified article from the

importer to the exporter (Secs. 1313(p)(2)(A)(iv), 1313(p)(2)(F)).

Similarly, a certificate of manufacture and delivery would be required

for a transfer of the qualified article from the manufacturer or

producer to the exporter (intermediate transfers of the qualified

article would require a certificate of delivery)

(Secs. 1313(p)(2)(A)(ii), 1313(p)(2)(F)). Because the exporter of the

exported (substituted) article must itself either have manufactured or

produced or imported the qualified article or have purchased or

exchanged, directly or indirectly, the qualified article from the

manufacturer or producer or the importer (Sec. 1313(p)(2)(A)(i), (ii),

(iii), and (iv)), no certificate or delivery would be used for the

substituted exported article under 19 U.S.C. 1313(p), (i.e., because

the exporter would not transfer the exported article and issue a

certificate of delivery to itself).

Also, proposed Sec. 191.2(d) defining the term ``Act'' is

redesignated as Sec. 191.2(b).

Comment: It was requested that the definition for a certificate of

manufacture and delivery in proposed Sec. 191.2(c) be changed to make

it consistent with proposed Sec. 191.24.

Customs Response: Customs agrees and has modified the definition of

a certificate of manufacture and delivery in Sec. 191.2(d), as

redesignated, to be consistent with the information for this

certificate as set forth in Sec. 191.24. Also, Sec. 191.2(d) adds a

cross-reference to Sec. 191.24.

Comment: The recommendation was made that the definition for

commercially interchangeable merchandise in proposed Sec. 191.2(e)

include a reference to proposed Sec. 191.32(c) dealing with

determinations of commercial interchangeability under the substitution

unused merchandise drawback law. A comment urged that proposed

Sec. 191.32(c) be changed to declare that commercial interchangeability

existed if the governing criteria in this regard were substantially

rather than completely met.

Customs Response: A cross reference to Sec. 191.32(c) is added to

Sec. 191.2(e). However, Customs cannot change Sec. 191.32(c) as

requested. The criteria employed in determining commercial

interchangeability is adopted from the legislative history of the

substitution unused merchandise drawback law. However, to better

implement legislative intent in this regard, Sec. 191.32(c) is changed

to provide that in determining commercial interchangeability, Customs

will evaluate the critical properties of the substituted merchandise.

It is noted that procedures for contesting specific rulings on

commercial interchangeability are found in 19 U.S.C. 1625 and 19 CFR

part 177.

Comment: It was observed that the definition of designated

merchandise appearing in proposed Sec. 191.2(f) to include drawback

products could be misleading in relation to proposed Sec. 191.26(b)(3)

which provided for exportation or destruction ``within 5 years of the

importation of the designated merchandise'', the concern apparently

being that drawback products would not be imported.

Customs Response: Customs agrees, and has appropriately modified

Sec. 191.27(b)(3) as redesignated. No change to the definition of

designated merchandise in Sec. 191.2(f) is warranted.

Comment: It was variously contended that the definition of

destruction in proposed Sec. 191.2(g) should provide for the allowance

of drawback when merchandise was not completely destroyed, had value,

and was partially recovered or recycled.

Customs Response: It is Customs position that the proposal to allow

drawback when complete destruction does not occur (and the resulting

scrap has value) is not within Customs authority to implement by

regulations.

Comment: A suggestion was made that the definition for direct

identification drawback reflect that such identification could be

effected using an approved accounting method provided for in proposed

Sec. 191.14.

Customs Response: Customs agrees. Section 191.2(h) is modified

accordingly.

Comment: A request was made that the definition of drawback in

proposed Sec. 191.2(i) state the amount of the drawback refund and

include a cross reference to proposed Sec. 191.3 concerning the types

of duty which could be the subject of drawback recovery.

Customs Response: A reference to Sec. 191.3 is added to

Sec. 191.2(i). However, the measure of the drawback refund is not

warranted. Customs has reviewed each kind of drawback to ensure that in

situations in which the amount of drawback recovery is 100%, the

applicable regulation specifically so states.

Comment: It was remarked, with respect to the definition for

drawback product in proposed Sec. 191.2(l), that such a product need

not be ``wholly'' manufactured in the United States.

Customs Response: This comment has merit. The reference to a

drawback product as being wholly manufactured in the United States is

deleted.

Comment: The suggestion was put forth that the definition of

exportation in proposed Sec. 191.2(m) be revised to make provision for

the lading of goods on qualifying vessels and aircraft under 19 U.S.C.

1309.

Customs Response: Customs agrees. Section 191.2(m) is revised

consistent with 19 U.S.C. 1309 and reference to 19 CFR 10.59 through

10.65 is added. Also, as already noted, a definition of ``exporter'' is

added to this provision, consistent with the definition of this term in

the regulations of the Bureau of Export Administration, Department of

Commerce (15 CFR part 772).

Consistent with the definition of ``exportation'', the definition

of ``exporter'' provides that for ``deemed exportations'' the exporter

is the person who as the principal party in interest in the transaction

deemed to be an exportation has the power and responsibility for

determining and controlling the transaction (e.g., in the case of

aircraft or vessel supplies under 19 U.S.C. 1309(b), the party who has

the power and responsibility for lading the supplies on the qualifying

aircraft or vessel). Thus, if an aircraft or vessel operator has such

power and responsibility, that aircraft or vessel operator is the

exporter and is entitled to claim drawback or to waive and assign the

right to claim drawback to another authorized party (see Sec. 191.82).

If another party (e.g., a fuel supply company) has such power and

responsibility, that party is the exporter and is entitled to claim

drawback or to waive and assign the right to claim drawback to another

authorized party. This will enable the public, and Customs, to identify

with greater certainty the party responsible for keeping records of

exportation and the party who may claim drawback.

Comment: It was recommended that the term ``general manufacturing

drawback ruling'' in proposed Sec. 191.2(o) be changed to ``general

drawback

[[Page 10973]]

statement''. It was asked that any new general rulings be published

first as Treasury Decisions (T.D.s) and thereafter included in Appendix

A to part 191.

Customs Response: Customs hereby affirms the change from drawback

``contracts'' to ``rulings'', which was occasioned only after thorough

review and consideration, as noted in the proposed rule (see 62 FR

3086). The reasons for this change were thoroughly described in the

proposed rule (see 62 FR 3083 and 3096-3087).

The comment suggesting that new general rulings should first be

published as T.D.s and subsequently added to the Appendix has merit and

is adopted. To this end, the definition for general manufacturing

drawback rulings now appearing in Sec. 191.2(p), as redesignated, is

changed to note that such rulings will be published as T.D.s and in

Appendix A of part 191. This change is also effected in greater detail

in Sec. 191.7 dealing with the procedures for general manufacturing

drawback rulings.

Additionally, the explanation in the definition stating when a

manufacturer or producer may operate under a general manufacturing

drawback ruling and describing the procedures for such rulings is

removed as unnecessary and not a part of the definition. The removed

material is instead provided for in Sec. 191.7.

Comment: The question was asked as to whether the definition of

manufacture or production in proposed Sec. 191.2(p) was intended in any

way to undermine existing precedential rulings or decisions in this

connection.

Customs Response: There is no intent to change the existing

definition of manufacture or production for drawback purposes (now

redesignated as Sec. 191.2(q)). This was made clear in the proposed

rule.

Comment: It was asked that the term ``possession'' in proposed

Sec. 191.2(q) be further defined and explained.

Customs Response: Customs believes that the definition of

possession (now redesignated as Sec. 191.2(s)), which is based on the

language of the statute (19 U.S.C. 1313(j)(2)), is sufficiently clear

as is.

Comment: With respect to proposed Sec. 191.2(r) defining relative

value in situations where multiple products concurrently result in

manufacture, it was suggested that a definition be included in proposed

Sec. 191.2 for multiple products.

Customs Response: Customs agrees. A definition for multiple

products as ``two or more products produced concurrently by a

manufacture or production operation or operations'' is added in

appropriate alphabetical order to Sec. 191.2. The definition for

relative value is redesignated as Sec. 191.2(u), and the reference to

by-product appearing therein is removed.

Comment: Changes were suggested to the definition for substituted

merchandise in proposed Sec. 191.2(s) to provide, respectively, for

substitution under 19 U.S.C. 1313(b), 1313(j)(2), and 1313(p). Also, it

was suggested that this definition be placed in alphabetical order in

proposed Sec. 191.2.

Another comment requested that Customs provide guidance to the

trade as to what constituted a substantial change in manufacture or

production, which would preclude merchandise from being of the ``same

kind and quality'' under 19 U.S.C. 1313(b), the criterion for

permitting substitution for drawback purposes thereunder. This comment

asked that merchandise falling under the same 8-digit harmonized tariff

schedule (HTS) number be accepted as being of the same kind and

quality.

Customs Response: Customs has revised the definition for

substituted merchandise under Sec. 191.2(x), as redesignated, so as to

simplify it. Also, the definitions in Sec. 191.2 have been placed in

alphabetical order.

However, the comment suggesting the inclusion of an explanation as

to what constitutes a substantial change in manufacture or production

which would preclude a finding of same kind and quality under 19 U.S.C.

1313(b) is not adopted, inasmuch as Customs believes that such

determinations are better made on a case-by-case basis. While the use

of the HTS number is expressly recognized for this purpose under 19

U.S.C. 1313(p), no such provision to this effect exists in

Sec. 1313(b).

Comment: Various concerns were expressed over the definition of a

specific manufacturing drawback ruling under proposed Sec. 191.2(u); it

was generally desired that the term ``ruling'' be changed to

``statement'', which would occasion the removal of the reference to the

applicability of 19 CFR part 177 to such rulings. Since a ruling under

part 177 applied to prospective transactions, it was principally asked

whether drawback claims could still be filed prior to issuance of a

general or specific manufacturing drawback ruling, and what type of

confidential treatment would be accorded the manufacturing drawback

ruling request.

Customs Response: As already noted, Customs has determined to

retain the term ``ruling'' in Sec. 191.2(w), as redesignated, rather

than the term ``contract'' or ``statement'', for the reasons amply

explained in the proposed rule. In any event, Sec. 191.27(c) as

redesignated makes it clear that drawback claims may continue to be

filed before a letter of notification of intent to operate under a

general manufacturing drawback ruling is acknowledged or a specific

manufacturing drawback ruling is approved.

Also, the applicability of 19 U.S.C. 1625 and 19 CFR part 177 to a

drawback ruling hereunder will not affect the confidentiality otherwise

accorded under the Freedom of Information Act either to an application

for a specific manufacturing drawback ruling, or to a letter of intent

to operate under a general manufacturing drawback ruling. That is, the

general ``ruling'' is the published T.D. appearing in Appendix A to

part 191. In the case of a specific manufacturing drawback ruling, the

``ruling'' is the letter of approval issued by Customs, which would be

published as a synopsis in the Customs Bulletin. Section 191.2(w) as

redesignated is changed to clarify this.

Comment: With respect to proposed Sec. 191.3(a), clarity was

requested regarding the payment of drawback on voluntary tenders made

in connection with notices of prior disclosure pursuant to 19 U.S.C.

1592(c). Also, it was advocated that proposed Sec. 191.3(a)(1)(iii) set

forth a definition of what comprised voluntary tenders subject to

drawback, in order to avoid confusion.

It was suggested that proposed Sec. 191.3(a)(1) (ii), (iii) and

(iv) be changed to simply reference proposed Sec. 191.81 which would

contain the substantive requirement pertaining to the provisions that a

written request be submitted for the payment of drawback, along with a

waiver of payment under any other provision of law. It was also

suggested that proposed Sec. 191.3(a)(1)(iii) be changed to indicate

that any waiver be conditioned on the refund being received as drawback

and not subject to repayment. A comment asked with reference to

proposed Sec. 191.3(a) (and proposed Sec. 191.81) that the filing of

the written request waiver be allowed at any time prior to final

liquidation of the drawback entry.

In addition, in proposed Sec. 191.3(a)(1) (iii) and (iv), a

question was presented as to the need for a waiver of payment in the

case of warehouse withdrawals whose liquidation had become final.

It was also noted that the references in proposed Sec. 191.3(a)(1)

(ii), (iii), and (iv) to Sec. 191.82 (b) and (c) should be instead to

proposed Sec. 191.81 (b) and (c).

Customs Response: The erroneous citations are duly corrected.

[[Page 10974]]

The comment suggesting a clear definition of ``voluntary tenders''

has merit and is adopted. ``Voluntary tenders'' are thus defined in

Sec. 191.3(a)(1)(iii) for purposes of Sec. 191.3, as a payment of

duties on imported merchandise in excess of the amount of duties

included in the liquidation of the entry, or withdrawal from warehouse,

for consumption, provided that the liquidation has become final and

that the other conditions in the provision and Sec. 191.81 are met.

In response to the comment about what must be waived, it is any

claim to payment or refund limited to the drawback granted. However,

this is provided for in Sec. 191.81(c), not in Sec. 191.3. Also in this

regard, the comment that the written request and waiver may be filed at

any time prior to final liquidation of the drawback entry requires no

change to Sec. 191.81(c) because there is no time limit provided

therein.

The comment suggesting inclusion of tenders made in connection with

a notice of prior disclosure pursuant to 19 U.S.C. 1592 has merit and

is adopted. The adoption of this suggestion is implemented by combining

Sec. 191.3(a)(1) (iii) and (iv), and adding to it tenders of duty made

in connection with notices of prior disclosure under 19 U.S.C.

1592(c)(4), so that there is now one provision (Sec. 191.3(a)(1)(iii))

providing that duties subject to drawback include tenders of duties

after liquidation has become final, such tenders to include voluntary

tenders, including tenders of duty in connection with notices of prior

disclosure under 19 U.S.C. 1592(c)(4), and duties restored under 19

U.S.C. 1592(d).

Insofar as the comment suggesting the removal to Sec. 191.81 of the

requirement for filing a written request and waiver is concerned, this

comment has merit. The provision is being changed to refer to

Sec. 191.81, which will contain the substantive requirement for a

written request and waiver. In answer to the question of why a waiver

would be needed for warehouse withdrawals, the reason such a waiver

would be needed is that the warehouse withdrawal for consumption would

have been liquidated, and liquidation would have become final, after

which the tender upon which drawback is claimed would have been made,

so that a waiver would be desirable to ensure that Customs would not

pay both drawback and a refund of the tender under some other provision

of law.

Comment: The assertion was made, with respect to proposed

Sec. 191.3(b), that harbor maintenance fees should be subject to

drawback. Also, a comment wanted drawback payable on interest paid

pursuant to post-entry assessments.

Customs Response: Customs disagrees that harbor maintenance fees

should be subject to drawback, inasmuch as such fees are imposed in

connection with part use, not importation of merchandise (within the

legal meanings of 19 U.S.C. 1313 and 26 U.S.C. 4462). Likewise,

drawback is not payable on interest.

Comment: A comment asserted that proposed Sec. 191.3(c) needed to

be revised specifically to make clear that products falling within the

tariff-rate quota (but not payable at the over-quota rate of duty) were

eligible for all types of drawback, while products assessed the over-

quota rates of duty were eligible only under 19 U.S.C. 1313(j)(1), with

tobacco being eligible under both 19 U.S.C. 1313(j)(1) and 1313(a).

Customs Response: This comment has merit and is adopted. The

provision is re-drafted accordingly.

Comment: One comment suggested that, in proposed Sec. 191.4(b), the

word ``was'' be changed to ``is''.

Customs Response: The comment has merit and is adopted.

Comment: It was contended that proposed Sec. 191.6 concerning who

may sign drawback documents was in contradiction to proposed Sec. 191.8

dealing with specific manufacturing drawback rulings, as well as 19 CFR

part 177 regarding the submission of requests for rulings. One such

comment noted that the list of persons did not include attorneys who

should have signing authority for their clients at least with respect

to applications for drawback rulings.

Customs Response: These comments have merit, insofar as they raise

questions regarding the applicability of the limitations on who may

conduct ``Customs business'' under 19 U.S.C. 1641 and 19 CFR part 111.

The comments are adopted, and Sec. 191.6 is appropriately redrafted to

add a new paragraph (c), so that the persons listed in paragraph (a)

are the only persons who may sign any of the documents listed in

paragraph (b).

Under new paragraph (c), letters of notification of intent to

operate under a general manufacturing drawback ruling (Sec. 191.7(b))

and applications for a specific manufacturing drawback ruling

(Sec. 191.8), as well as requests for nonbinding predeterminations of

commercial interchangeability (Sec. 191.32(c)(2)), applications for

waiver of prior notice (Sec. 191.91), applications for accelerated

payment (Sec. 191.92), and applications for participation in the

drawback compliance program (subpart S) may be signed by any of the

persons listed in paragraph (a), or any other individual legally

authorized to bind the person (or entity).

Comment: Referring to proposed Sec. 191.6(a)(1), a question was

raised as to who specifically would be ``any other individual legally

authorized to bind the corporation''.

Customs Response: The comment has merit. The word ``individual''

therein is changed to ``employee''.

Comment: With respect to proposed Sec. 191.6(a)(4), it was

suggested that any employee of ``a'' business entity be changed to

``the'' business entity.

Customs Response: The comment has merit and is adopted.

Comment: One comment expressed concern that the authority of an

individual acting on his or her own behalf, as set forth in proposed

Sec. 191.6(a)(5), implied that an unlicensed person might be permitted

to conduct Customs business.

Customs Response: This provision is intended to provide for a

situation in which an individual (e.g., an individual drawback claimant

or exporter) signs documents in his or her own capacity. Since the

provision contains the modifier ``acting on his or her own behalf'',

Customs does not believe that this provision could be interpreted to

allow an unlicensed person to conduct Customs business on behalf of

another (see 19 U.S.C. 1641(a)(2)).

Comment: A question was presented as to whether proposed

Sec. 191.6(b) should include a Notice of Intent to Export, Destroy, or

Return Merchandise for Purposes of Drawback.

Customs Response: The suggestion that Notices of Intent to Export,

Destroy or Return Merchandise for Purposes of Drawback should be listed

as one of the documents that can be signed by the persons in

Sec. 191.6(a) has merit and is adopted.

Comment: A concern was raised about ``endorsements'' of exporters

on bills of lading or evidence of exportation in proposed

Sec. 191.6(b)(6).

Customs Response: The comment appears to be concerned that the

practice of permitting blanket letters of endorsement (which should be

blanket certifications) be provided for in the regulations. This

comment has merit and is adopted; the reference to ``Endorsements'' is

changed to ``Certifications'', and citations to Secs. 191.28 (as

redesignated from proposed Sec. 191.27) and 191.82 are added in

Sec. 191.6(b)(5), as redesignated (proposed Sec. 191.6(b)(7) is also

redesignated as Sec. 191.6(b)(6)). It is noted that Secs. 191.28 as

redesignated and 191.82 are modified to provide for ``blanket''

certifications.

[[Page 10975]]

Comment: As to proposed Sec. 191.7 dealing with general

manufacturing drawback rulings, the recommendation was made in

connection with proposed Sec. 191.2(o) that the term ``rulings'' be

changed to ``statements''.

It was asked that general drawback rulings be published first as

T.D.s, and then subsequently be included in Appendix A to part 191.

Another comment asked how the general rulings in Appendix A would be

identified.

A comment wanted Customs to acknowledge requests for general

rulings within 30 days.

It was stated that approved letters of intent should receive a

unique computer-generated ruling number.

The question was asked as to how modifications of letters of intent

to operate under a general ruling would be handled; a comment wanted

provisions included in proposed Sec. 191.7 concerning the use of

accounting procedures and tradeoff; another comment stated that there

was no provision for transferring a general ruling to another drawback

office.

Customs Response: In regard to the comment suggesting that new

general rulings should first be published as T.D.s and subsequently

added to the Appendix, this comment has merit and is adopted in

Sec. 191.7(b)(1). Furthermore, the general manufacturing drawback

rulings in Appendix A are being identified by their T.D. numbers.

In regard to the change in nomenclature (from ``rulings''), these

comments are not adopted, as previously discussed in reference to

proposed Sec. 191.2(o).

In regard to the suggestion that there should be a time limitation

on acknowledgments by drawback offices of applications and that the

time should be 30 days, Customs is not adopting this suggestion, as

such, but is adding in Sec. 191.7(c) that Customs is required to act

``promptly'' on applications. Because drawback claims may be filed

pending acknowledgment of a letter of notification of intent to operate

under a general drawback ruling or before approval of a specific

manufacturing drawback ruling (see Sec. 191.27(c) as redesignated), it

is Customs' position that a time limit for action is not necessary.

In regard to the comment suggesting a unique electronic ruling

number for each general manufacturing drawback ruling, this comment has

merit and is also added in Sec. 191.7(c).

In regard to the comment asking how modifications to letters of

intent are to be made, because letters of notification of intent are

relatively short and simple, no provision like that appearing in

Sec. 191.8(g) is provided. When the information included in a letter of

notification of intent changes, a new letter of notification of intent

must be filed.

The suggestion relating to a statement regarding the use of a

particular accounting method and the use of tradeoff under the general

manufacturing drawback ruling is not adopted (because application of

those provisions is provided for in the applicable regulations).

In regard to the comment that the regulation does not address how a

change in the drawback office where claims will be filed may be made,

no provision such as that added to Sec. 191.8 is being provided for in

this section (because, as is true of modifications, letters of intent

are relatively short and simple). When the person who submitted the

letter of intent wishes to add a different drawback office, a new

letter of intent (to that drawback office) must be filed.

Comment: The observation was made that the identification of the

general manufacturing drawback rulings was potentially confusing. It

was suggested that the precise general manufacturing drawback ruling

under which the manufacturer proposed to operate should be listed as

one of the requirements in proposed Sec. 191.7(b)(3) and that the

general manufacturing drawback rulings in Appendix A should be

identified by their Treasury Decision numbers (or some other Customs-

assigned number).

Customs Response: This comment has merit and is adopted. Section

191.7 is revised to include a paragraph (b)(3)(iv) to this effect, with

redesignation accordingly. As already noted, the T.D. numbers of the

respective general manufacturing drawback rulings have been included in

Appendix A.

Comment: A comment, with respect to proposed Sec. 191.7(b)(2),

stated that the number of copies of letters of intent required to be

submitted should be limited to only one copy per drawback office.

Customs Response: This comment has merit and is adopted.

Comment: Concerning proposed Sec. 191.7(b)(3)(iv), one comment

asked that a description of the merchandise and articles be included in

the letter of intent under a general ruling, while another comment

wanted to require a description of the manufacturing process. A third

comment asked about the processing of a letter of intent under proposed

Sec. 191.7(c).

Customs Response: Section 191.7(b)(3)(v), as redesignated from

proposed Sec. 191.7(b)(3)(iv), requires that merchandise and articles

be described unless specifically described in the letter of

notification (instead of ``letter of notification'', this should have

read ``general manufacturing drawback ruling'' and is changed

accordingly). There are instances in which the merchandise and articles

are specifically so described (e.g., orange juice (T.D. 85-110, raw

sugar (T.D. 83-59)) and it is in these situations that the merchandise

and articles do not have to be described (because they are already

described in the general manufacturing drawback ruling).

As for the second comment, Sec. 191.7 is changed by adding a

paragraph (b)(3)(vi) (with redesignation accordingly), to provide that

a letter of notification of intent to operate under a general

manufacturing drawback ruling must include a description of the

manufacture, if such a description is not already described in the

general manufacturing drawback ruling.

Additionally, Sec. 191.7(c) is changed to provide that the drawback

office will acknowledge the letter of intent if: (1) the letter of

notification of intent is complete; (2) the general manufacturing

drawback ruling identified by the manufacturer or producer is

applicable to the manufacturing or production process described; (3)

the general manufacturing drawback ruling is followed without

variation; and (4) the manufacturing or production process described

meets the definition of a manufacture or production under Sec. 191.2(q)

(as redesignated).

In this latter regard, as further provided in Sec. 191.7(c), the

letter of acknowledgment from the drawback office will contain specific

authorization to operate under the general manufacturing drawback

ruling, subject to the requirements and conditions of that general

manufacturing drawback ruling and the law and regulations.

In addition, Sec. 191.7(c) is revised to require that the

manufacturer or producer be advised, in writing, if the letter of

intent cannot be acknowledged. To this end, if the letter of

notification of intent to operate under a general manufacturing

drawback ruling includes conditions or terms varying from the general

manufacturing drawback ruling published as a T.D. or in Appendix A, the

drawback office may not acknowledge the letter and will return it to

the manufacturer or producer for modification and resubmission or for

submission to Customs Headquarters as a specific manufacturing drawback

ruling.

Comment: It was commented, with respect to proposed

Sec. 191.7(b)(3)(vi),

[[Page 10976]]

that the requirement of a suffix to the IRS number should be included.

Customs Response: The comment that a suffix to the IRS number

should be stated has merit and is adopted. This provision is

redesignated as Sec. 191.7(b)(3)(viii).

Comment: A comment requested that, rather than terminating a ruling

automatically after 5 years of non-use, proposed Sec. 191.7(d) be

changed to permit a manufacturer a period of time, such as 60 days,

within which to request Customs not to revoke the ruling.

Customs Response: This request is not adopted. This suggestion

would add unnecessarily to the administrative burden of processing

drawback. If a claimant is inactive for 5 years and notice of

termination is published, the claimant may, under the very simple

procedures provided in Sec. 191.7, submit a new notification of intent

to operate under the general manufacturing drawback ruling.

Comment: The statement was made, in relation to proposed Sec. 191.8

addressing the procedures for specific manufacturing drawback rulings,

that the term be changed from ``rulings'' to ``statements'', and that

requests for manufacturing contracts under 19 U.S.C. 1313(a) should

continue to be approvable by local drawback offices.

Customs Response: As already averred, Customs has determined to

retain the change from drawback ``contracts'' or ``statements'' to

``rulings''. Drawback offices would, as proposed and as in this final

rule, acknowledge receipt of letters of notification of intent to

operate under a general manufacturing drawback ruling under 19 U.S.C.

1313(a) (unless the proposal varied from the general manufacturing

drawback ruling, in which case Headquarters approval would be

necessary.) An application for a specific manufacturing drawback ruling

under Sec. 191.8(d) must be submitted to Customs Headquarters.

Comment: A comment suggested that the IRS number required in the

application for a specific ruling in proposed Sec. 191.8(c)(2), include

the suffix.

Customs Response: This comment has merit and is adopted.

Comment: A comment with respect to proposed Sec. 191.8(e)(1)

questioned the use of T.D.s under which to publish approved drawback

rulings. It was noted that the term ``contract'' was inadvertently used

in this provision. Another comment suggested that the Headquarters

approval letter should include the computer-generated ruling number.

Customs Response: Customs is not prepared at this time to eliminate

the use of T.D.s for this purpose. The comment noting the misuse of the

term ``contract'' in this provision is correct; the provision is

changed. The comment that the Headquarters approval letters should

include the computer-generated number has merit and is adopted.

In addition, consistent with the comment and response for

Sec. 191.7(b)(2), only 1 copy of the approved application for the

specific manufacturing drawback ruling is forwarded to the appropriate

drawback office(s). A change to this same effect is made in

Sec. 191.8(d).

Comment: A comment on proposed Sec. 191.8(e)(2) stated that, for

consistency, the notification to an applicant that the application

could not be approved should be in writing. Another comment suggested

that the term ``promptly'' (within which to notify the applicant that

the application could not be approved) should be specifically defined.

Customs Response: The comment suggestion that the notice of

disapproval be in writing has merit and is adopted. However, the

suggestion that ``promptly'' be specifically defined is not adopted.

Comment: Concerning the modification of specific manufacturing

drawback rulings in proposed Sec. 191.8(g), it was variously asked if

changes in corporate officers, changes in factory locations, changes in

the basis of claim, changes in filing location, and changes in brokers

could also be handled by the limited modification procedure, set forth

in proposed Sec. 191.8(g)(2), or were they intended to be made through

Headquarters, as provided in proposed Sec. 191.8(g)(1) which required

the filing of a supplemental application in the form of the original

application.

Another comment asked for which limited modification should the

drawback office notify Headquarters, for which limited modification

should the drawback office notify the claimant in writing of receipt,

and for which limited modification should the ACS (Automated Commercial

Systems) drawback database ruling be revoked and reissued, and when

would an amendment be appropriate.

Customs Response: These comments have some merit and, to the extent

necessary, are adopted in Sec. 191.8(g)(2). It is noted that changes in

factory locations are already covered in Sec. 191.8(g)(2)(i)(A), and

changes in corporate officers and brokers are covered by the provision

for those persons who will sign drawback documents in

Sec. 191.8(g)(2)(i)(D) (corporate officers are no longer required).

Changes in the basis of claim are added in Sec. 191.8(g)(2)(i), as

are changes in the filing location. In addition, changes in the

decision to use or not to use an agent for drawback purposes, and the

identity of an agent if one is used, are made subject to the limited

modification procedures.

In the case of changes in the filing location, Customs is adding to

the regulation a provision (Sec. 191.8(g)(2)(iii)), based on current

practice as shown by a letter of October 19, 1960 (published as Customs

Information Exchange letter (CIE) 1454/60), which permits the change of

the drawback office where claims will be filed.

Under the foregoing provision in Sec. 191.8(g)(2)(iii), the

claimant files, with the new drawback office, a written application to

file claims at that office, with a copy of the application and approval

letter from the drawback office where claims are currently filed. The

claimant is required to provide a copy to the latter drawback office of

the written application to the new drawback office.

Also, Sec. 191.8(g)(2)(ii) is revised to specifically provide

detailed procedures for handling limited modifications (the drawback

office is given notice by the manufacturer or producer operating under

a specific manufacturing drawback ruling, with a copy to Customs

Headquarters, and the drawback office acknowledges acceptance of the

limited modification in writing to the manufacturer or producer (with a

copy to Customs Headquarters) and makes corresponding changes to the

ACS drawback database, as necessary (the latter (changes to the ACS

drawback database) is not provided for in the regulations, as this is

an internal administrative procedure). No revocation in the ACS

drawback database is necessary.

Furthermore, to simplify the process and limit the administrative

burden, the provision for supplemental application procedures in

Sec. 191.8(g)(1) is changed to provide that, at the discretion of the

manufacturer or producer, a supplemental application may be in the form

of an original application or it may include only the provisions in the

specific manufacturing drawback ruling application that are sought to

be modified, and the unchanged provisions, in an existing approved

specific manufacturing drawback ruling, may be incorporated by

reference to the approved ruling.

Comment: It was desired that a successorship under 19 U.S.C.

1313(s) be handled under the limited

[[Page 10977]]

modification procedure of proposed Sec. 191.8(g)(2).

Customs Response: This comment is not adopted. Successorships under

Sec. 1313(s) are subject to the supplemental application procedures.

However, it is noted here that the supplemental application procedures

of Sec. 191.8(g)(1) have been simplified.

Comment: A change was requested in the duration of the approval of

a specific drawback ruling in proposed Sec. 191.8(h). A comment asked

about the effect of these final regulations on existing drawback

contracts.

Customs Response: The comment suggesting a change to the duration

of the approval of a drawback ruling is not adopted. Customs believes

that this suggestion would add unnecessarily to the administrative

burden of processing drawback.

As for the comment questioning the effect of these regulations on

existing drawback ``contracts'' under the prior subparts B and D of

part 191, such existing drawback ``contracts'' may continue to be

relied upon by the manufacturer or producer who applied for or adhered

to the ``contract'', provided that such existing drawback ``contracts''

do not materially conflict with the statute or these regulations.

Existing drawback ``contracts'' which materially conflict with the

statute or these regulations are superseded by the statute or these

regulations effective as follows. A drawback entry based upon existing

drawback ``contract'' which materially conflicts with these regulations

and for which exportation is before the effective date of these

regulations is governed by the existing drawback ``contract'', unless

there is also a necessary material conflict with the amendments to the

statute (19 U.S.C. 1313) made by the NAFTA Implementation Act (Public

Law 103-182, Sec. 632), in which case the effective date of Sec. 632 of

that Act controls.

It is further noted, with respect to Sec. 191.8(h), that the

reference to part 177 in this provision is modified to include a

reference as well to 19 U.S.C. 1625.

Comment: With reference to proposed Sec. 191.9 dealing with the

principal-agent procedure in drawback, one comment opposed limiting the

principal-agent procedure exclusively to substitution manufacturing

drawback under 19 U.S.C. 1313(b), stating that the procedure should be

available as well under 19 U.S.C. 1313(a).

It was said that the terms ``owner'', ``principal'', ``agent'',

``use'' and ``manufacture'', as employed therein, should be more

clearly defined. It was also remarked that the specific provisions

required in the contract between the principal and agent in proposed

Sec. 191.9(c) should be deleted, particularly if such a contract was

required to be in force before there was any transfer of merchandise.

The provision, if retained, should allow for oral contracts. It was

also contended here that legal or equitable title, but not both, to the

merchandise in question should be enough to establish principal status

under the contract.

It was contended that the requirement that the agent provide a

certificate of manufacture and delivery to the principal should be

eliminated or be allowed to be waived in appropriate circumstances.

Customs Response: The intent was to limit this provision to

drawback under 19 U.S.C. 1313(b) where the imported merchandise was

used in manufacture or production by the principal or an agent and the

exported article or drawback product was respectively manufactured or

produced by an agent or the principal, or the imported merchandise was

used in manufacture or production and the exported article or drawback

product was manufactured or produced by different agents.

After further consideration and consistent with Customs current

practice, Customs is now taking the position that the application of

drawback principal-agent principles need not be so limited. The

provision applies to drawback under 19 U.S.C. 1313(b) and 1313(a) and

may be used regardless of whether different parties (agent-principal,

principal-agent, or two agents) are involved. To this end,

Sec. 191.9(a) as proposed is deleted, with the succeeding paragraphs

redesignated accordingly Section 191.9(a), as thus redesignated from

proposed Sec. 191.9(b), is revised as described.

As much as possible, the terms questioned (owner, principal, agent,

and use in manufacture or production) are clarified in Sec. 191.9(a)

and (c) as thus redesignated.

The provision in Sec. 191.9(b), as redesignated from proposed

Sec. 191.9(c), for what the contract (between principal and agent) must

provide, is retained, to provide notice to persons using this provision

of what is required, but rather than mandating that the requirements be

``specified'', the requirements are to be ``included'' in the contract.

As for the comment that a contract should not be required to have

been in force before there was a transfer of merchandise, Sec. 191.6(b)

as redesignated provides the requirements for a principal-agent

drawback relationship. To use the principal-agent procedures in

drawback, these requirements must be met (i.e., for the principal to be

deemed the manufacturer or producer when the agent does the physical

manufacturing or production, the requirements (including those for a

contract) must be met, although there is no requirement that the

contract be in writing).

Regarding the comment that the provision should specifically

authorize oral contracts, redesignated Sec. 191.9(b) does not require

the form that the contract must take; it requires that there be a

contract and what the contract must contain.

As for the comment referring to legal and/or equitable title, the

basic requirement in redesignated Sec. 191.9(b) for assertion of the

principal-agent relationship under the provision is that the principal

be ``[a]n owner'' of the merchandise. It is Customs position here that

the requirement for both legal and equitable title is consistent with

the requirements for assertion of the principal-agent relationship for

drawback purposes.

Consistent with the purpose of a certificate of manufacture and

delivery and with the treatment of the owner-principal as the

manufacturer or producer when an agent performs the manufacturing or

production operations for the principal, no certificate of manufacture

and delivery is required from the agent to the principal. Hence,

Sec. 191.9(d) as redesignated from proposed Sec. 191.9(e) is revised as

described. As such, the comment regarding waiver of the requirement for

certificate of manufacture and delivery from the agent to the principal

is moot.

However, to ensure compliance with the drawback law, while

simplifying drawback procedures where possible, a principal using the

principal-agent procedures for drawback is required to attach to its

drawback entries, or certificates of manufacture and delivery, a

certificate certifying that it can establish certain specific facts,

upon request by Customs. The principal must certify that it can

establish the information that would have otherwise been required in a

certificate of manufacture and delivery. The certificate and

information are specifically provided to be subject to the

recordkeeping requirements in Sec. 191.26 as redesignated (including

the requirement for maintenance of records 3 years from the date of

payment of a drawback claim). Provision is also made for the

certificate to be in ``blanket'' form, covering a particular kind and

quality of merchandise for a stated period.

Comment: In proposed Sec. 191.10, it was asked that transfers under

19 U.S.C. 1313(p) included among the purposes

[[Page 10978]]

for which a certificate of delivery may be used.

It was also suggested that the word ``exists'' instead of ``has

attached'' be used in proposed Sec. 191.10(a)(2). In addition, it was

stated that the term ``if applicable'' should be used for the

information required in proposed Sec. 191.10(b)(3), (7), and (8). It

was also said that it was unclear when the HTSUS would be required for

merchandise under proposed Sec. 191.10(b)(10).

The requirement in proposed Sec. 191.10(b)(5) that the total duty

paid be shown on the certificate of delivery was opposed. It was

advocated that Customs, with its computer access, should itself be able

to identify the duties paid on the imported merchandise on which

drawback was claimed.

It was also contended that certificates of manufacture and delivery

(as opposed to certificates of delivery) should be used in all cases

where the transferred article was manufactured under drawback

conditions, and, as such, that proposed Sec. 191.10(c)(2) be

eliminated. It was suggested that there be a clarification as to the

requirement for a certificate of delivery to transfer articles received

by an intermediate party from a drawback manufacturer or producer.

One comment asked that the recordkeeping requirement in proposed

Sec. 191.10(d) be eliminated. Another comment suggested that a citation

to 19 U.S.C. 1508(c) be added to this provision, indicating the

statutory basis for the record retention requirement here.

With regard to proposed Sec. 191.10(e) relating to the submission

of a certificate of delivery to Customs, concerns were raised about the

language of this provision. In particular, it was stated that the

certificate was not ``part'' of a drawback claim, but that it

``supported'' the claim; and that the claim submitted without the

certificate should not be ``rejected'', but would be ``denied''.

Customs Response: The comment relating to inclusion of transfers

under 19 U.S.C. 1313(p) among the purposes for which a certificate of

delivery may be used is adopted, to the extent provided therein (see

CUSTOMS RESPONSE to the comment on the definition of certificate of

delivery, in proposed Sec. 191.2(b) redesignated as Sec. 191.2(c),

above).

In regard to the comment that the three effects of certificates of

delivery should be included in the regulation, this has been provided

for in Sec. 191.2(c) as redesignated.

The suggestion that the term ``exists'' be used in place of ``has

attached'' in Sec. 191.10(a)(2) is adopted.

As for the requirement in Sec. 191.10(b)(5) that total duty paid be

stated on a certificate of delivery, Customs believes this information

is no more sensitive than other information required on the certificate

(e.g., the HTSUS number and entry number with the person from whom the

merchandise was received (usually the importer)). The procedure

suggested by the comment would be effective in the verification stage,

but would create an untenable administrative burden in Customs

processing of drawback claims and of accelerated payment claims.

The comment that ``if applicable'' should be included for

Sec. 191.10(b)(3), (7), and (8) (information required on a certificate

of delivery includes import entry number, date of importation, and port

where import entry filed), is also not adopted. The requirement for

this information is applicable for all certificates of delivery (there

is always an import number, date of importation, and port of import

entry filing for a drawback claim).

The comment questioning when HTSUS numbers are required for

certificates of delivery has merit, in that it points out a lack of

clarity in the regulation. The provision is modified, by adding

Sec. 191.10(b)(11) and (12), to make it clear that the HTSUS number (to

at least 6 digits) is always required for the designated imported

merchandise on a certificate of delivery and, additionally, when the

certificate of delivery transfers merchandise substituted under 19

U.S.C. 1313(j)(2) for the designated imported merchandise, the HTSUS

number or Schedule B commodity number (to at least 6 digits) is

likewise required for the substituted merchandise. Otherwise (e.g., if

what is transferred is an article manufactured under 19 U.S.C. 1313(a)

or (b) from a party who received the article from the manufacturer or

producer), no such number is required for the article transferred.

In any event, although only the 6-digit HTSUS or Schedule B

commodity number is required on the certificate of delivery for the

transfer of substituted merchandise under 19 U.S.C. 1313(j)(2), full

tariff classification is required to establish commercial

interchangeability under 19 U.S.C. 1313(j)(2) (see Sec. 191.32(c)).

The comment that certificates of manufacture and delivery should be

used in all cases where a manufactured article is being delivered is

inconsistent with the purposes of the two kinds of certificates (of

delivery and of manufacture and delivery). The former is used when the

deliverer did not manufacture or produce the merchandise or article

transferred and the latter is used when the deliverer did manufacture

or produce the article transferred. It is Customs position that this

provision is the most simple for the public to follow and the most

simple for Customs to administer. This comment is not adopted.

The comment suggesting clarification of the requirement for a

certificate of delivery to transfer articles received by an

intermediate party from a manufacturer or producer (under 19 U.S.C.

1313(a) or (b)) has some merit. Section 191.10(c)(2) is changed to make

it clear that the manufacturer or producer transfers the manufactured

or produced article on a certificate of manufacture and delivery and

subsequent non-manufacturers or producers who are intermediate parties

transfer the article on a certificate of delivery (as already stated,

the certificate of delivery for such a transfer would not require the

6-digit HTSUS number for the transferred article).

The requirement for retention of records supporting the information

on certificates of delivery for 3 years after payment of a drawback

claim is statutorily required (see 19 U.S.C. 1508(c)(3)). The comment

suggesting inclusion in the regulation of a citation to 19 U.S.C.

1508(c)(3) has merit and is adopted. In addition, to alert the public

to the general applicability to drawback of the statutory recordkeeping

requirements in 19 U.S.C. 1508, a new Sec. 191.15, based on Sec. 1508,

is added stating those general requirements.

The comment concerning the particular language used in

Sec. 191.10(e) has merit and is adopted. Consistent with Sec. 191.51,

certificates of delivery are not ``part'' of claims but support claims,

so that if Customs requests a certificate of delivery upon which a

drawback claim is dependent and the certificate is not provided, the

claim is not rejected but, instead, is denied.

Since a certificate of delivery is not ``part'' of a complete claim

(as the regulation is modified), providing a certificate of delivery

upon Customs request is in the nature of ``perfecting'' a claim (see

Sec. 191.52 (note the addition of this as one of the instances of

perfection provided in Sec. 191.52(b))) and may be done outside the 3-

year time for filing a complete claim. Denial of a drawback claim for

failure to supply, in response to Customs request, a certificate of

delivery upon which a portion of the claim is dependent is limited to

denial of that portion of the claim dependent on the certificate of

[[Page 10979]]

delivery which is not supplied. The provision is changed to make this

clear.

Also, pursuant to changes to other sections (see Secs. 191.51(a)

and 191.52(b)), certificates of delivery are required to be in the

possession of the party to whom the merchandise covered in the

certificate was delivered, and if that party is not the claimant, the

claimant is required to obtain the certificate and provide it to

Customs, if Customs requests the certificate under the procedures for

``perfecting'' a claim.

Comment: With respect to proposed Sec. 191.11(a), it was requested

that the words ``or drawback product'' be included in the tradeoff

provision. A Customs ruling was cited in support of this request. With

respect to proposed Sec. 191.11(b), it was asserted that additional

payments, including payments in kind, in relation to the exchanged

merchandise, should be permitted. In regard to the problem of how much

drawback should be allowed (when additional payments in kind are made),

it was suggested that language could be inserted to limit drawback to

the amount of duty paid on the imported barrels.

Customs Response: The statute involved (19 U.S.C. 1313(k))

expressly provides only for the use of any domestic merchandise

acquired in exchange for imported merchandise of the same kind and

quality. The Customs ruling cited by the comments held that a drawback

claimant may identify a commercial lot of imported duty-paid

merchandise as domestic merchandise for purposes of substitution

drawback, 19 U.S.C. 1313(b), which is the provision interpreted in the

ruling. This was adopted by Public Law 103-182, for purposes of

Sec. 1313(j) (by providing for the substitution of any other

merchandise (whether imported or domestic) instead of duty-free or

domestic merchandise). No similar change was made to Sec. 1313(k),

however. Accordingly, Customs concludes that no such interpretation was

intended.

The comment relating to Sec. 191.11(b) has merit and is adopted, in

part. Customs must ensure that no more drawback than that attributable

to the imported merchandise may be allowed. Also, the merchandise which

is to be treated as the imported merchandise must be identified.

Accordingly, the second sentence of Sec. 191.11(b) is changed to

provide that the quantity of imported merchandise and domestic

merchandise exchanged under this provision need not be the same, but

that if the quantities are different, the lesser quantity shall be the

quantity available for drawback. If a greater quantity of domestic

merchandise than that of imported merchandise is received, the quantity

identified for drawback shall be the quantity first received.

The restriction on payments other than payments in kind under

Sec. 191.11(b), however, is retained. Section 1313(k) provides for the

use of any domestic merchandise acquired in exchange for imported

merchandise of the same kind and quality, not for the use of domestic

merchandise acquired for imported merchandise and a payment of

something other than domestic merchandise of the same kind and quality.

Further, the use of the term ``exchange'' indicates an intent to

provide for exchange of merchandise only (if the statutory provision

was intended to provide for the ``purchase or exchange'' of the

imported merchandise of the same kind and quality, Congress could have

explicitly so provided (see, e.g., 19 U.S.C. 1313(p)(2)(A)(ii) and

(iv))).

Comment: With reference to proposed Sec. 191.12 dealing with a

claim filed under the wrong subsection of the drawback statute, it was

advocated that this provision be rewritten to require Customs to notify

the claimant as expeditiously as possible that the claim was filed

under the wrong provision; it was also remarked that proposed

Sec. 191.12 was wrong in requiring a drawback claim to have to meet all

the legal requirements of an alternative subsection of the drawback

statute.

It was also pointed out that Sec. 7 of Public Law 104-295, adding

19 U.S.C. 1313(r)(3) to the drawback law, allowing an extension of time

for filing a drawback claim in the case of a major disaster, was not

provided for in the proposed drawback regulations.

Customs Response: The legislative history to the statutory

provision (19 U.S.C. 1313(r)(2)) is that the provision does not impose

a requirement on Customs to investigate all alternatives in addition to

the claimed basis before liquidating a drawback claim as presented (see

H. Rep. 103-361, 103d Cong., 1st Sess. (1993), part I, at 131; Sen.

Rep. 103-189, 103d Cong., 1st Sess. (1993), at 84). Accordingly to the

Senate Report, Sec. 1313(r)(2) was intended to allow a claimant to

raise the alternative subsections by protest under 19 U.S.C. 1514. If

an alternative provision of the drawback law is applicable, and the

claimed provision is not applicable, it is clearly within the

claimant's self-interest to bring to the attention of Customs the

alternative provision (i.e., so that the claimant may be paid

drawback). Therefore, and consistent with the legislative intent stated

in the Senate Report (see above) for Sec. 1313(f)(2), Sec. 191.12 is

modified by the addition of a statement that the claimant may raise

alternative provisions prior to liquidation or by protest. (It is in

the interest of Customs and the public to provide that a claimant may

raise alternative provisions prior to liquidation, as well as by

protest, because this simplifies administration of the provision (by

not requiring the filing and processing of a protest when the

alternative provisions can be raised prior to liquidation).)

As the background to the proposed rule clearly stated, a claimant

seeking to take advantage of this provision must qualify under the

alternative subsection (see the example given in the background to the

proposed rule). Customs may not waive the statutory requirement that a

complete claim be filed within 3 years of export. Compliance with the

alternative subsection is a statutory requirement (see 19 U.S.C.

1313(r)(2)).

It is recommended that claimants who are unsure of the correct

subsection under which to claim drawback should ensure that their

claims are filed promptly to allow compliance with the possible

alternatives, and they should ensure that their claims comply with the

possible alternatives.

Additionally, the comment pointing out that Sec. 7 of Public Law

104-295, adding 19 U.S.C. 1313(r)(3) to the drawback law, is not

implemented in the regulations has merit and is adopted, although in

Sec. 191.51(e)(2), and not in Sec. 191.12.

Comment: It was suggested that proposed Sec. 191.13 relating to

packaging material be revised to make clear that all information

required by the particular drawback provision under which the packaging

material was being claimed had to be furnished for such material.

Customs Response: This suggestion has merit and is adopted, with

the last sentence in Sec. 191.13 being changed with the addition of the

following at the end thereof: ``and all other information and documents

required for the particular drawback provision under which the claim is

made shall be provided for the packaging material''.

Comment: Regarding proposed Sec. 191.14(a), the issue was variously

raised about the applicability of the accounting procedures included in

this section to merchandise exported to Canada or Mexico under the

North American Free Trade Agreement (NAFTA), when the merchandise was

exported in the same condition as imported. It was also requested that

proposed Sec. 191.14(a) make clear that the accounting procedures of

this section

[[Page 10980]]

were not applicable in cases where the drawback law specifically

authorized substitution. It was further asked that a cross reference to

proposed Sec. 191.2(h) defining direct identification drawback be

included in proposed Sec. 191.14(a).

Customs Response: The concerns presented regarding Sec. 191.14(a)

raise questions on the applicability of the accounting procedures

provided for in Sec. 191.14 to exportations to Canada or Mexico, given

the enactment and implementation of NAFTA. In order to avoid confusion

in this matter, the last sentence of Sec. 191.14(a) as proposed,

regarding the applicability of Sec. 191.14 to exportations to Canada or

Mexico under the NAFTA, is deleted. Applicability to such exportations

will be governed by the law (see 19 U.S.C. 3333) and regulations

promulgated thereunder.

The comment that the statement as to when this section is

applicable (not in cases where substitution is permitted, citing

specific subsections of 19 U.S.C. 1313) may be misinterpreted has merit

and is adopted. The third sentence of Sec. 191.14(a) is modified to

make clear that Sec. 191.14 is inapplicable in those situations in the

cited subsections where substitution is allowed, but that the section

does apply to situations in those subsections in which substitution is

not allowed.

As for the comment suggesting a cross-reference to Sec. 191.2(h),

this comment has merit and is adopted. The second sentence of

Sec. 191.14(a) is modified accordingly. Additionally, a cross-reference

to Sec. 191.14 is added to Sec. 191.2(h).

Comment: One comment asked that the words ``is established''

appearing in the last sentence of proposed Sec. 191.14(b)(2) be

modified to read ``can be established''. Otherwise, according to the

comment, the provision might be read that each claimant had to seek a

ruling establishing the inventory requirements contained therein.

Customs Response: The comment requesting the change of language in

Sec. 191.14(b)(2) has merit. However, instead of making the

modification to the last sentence, the first sentence is modified to

provide that ``[t]he person using the identification method must be

able to establish * * *''. The language in the provision following this

first sentence is interpretive and the described change to the first

sentence resolves the problem raised by the comment.

Comment: It was recommended that the parenthetical language

appearing in proposed Sec. 191.14(b)(3) be revised or removed.

Customs Response: Customs agrees. The parenthetical appearing in

Sec. 191.14(b)(3) is deleted as unnecessary.

Comment: As to proposed Sec. 191.14(b)(4), it was asserted that if

the verification of inventory records supporting a drawback

identification method required the ability of the inventory system to

include drawback per unit, this requirement should be removed from the

regulation. It was further declared that this provision presumed that

all acceptable identification methods required accounting for all

inputs and withdrawals from inventory, which was not true.

Customs Response: Regarding the requirement in Sec. 191.14(b)(4)

that the records supporting any identification method employed are

subject to Customs verification, the intent of this requirement is to

provide that the person using the identification method must be able to

demonstrate how the records account for the drawback per unit of each

receipt and withdrawal (in addition to the other things the records

must account for). It is not required that the records themselves

account for, or state, drawback per unit; rather that the person using

the records must be able to demonstrate how drawback per unit can be

established from the records.

It is correct that the low-to-high method with inventory turnover

and the low-to-high blanket method may be used without accounting for

domestic withdrawals; however if the method is subject to verification

by Customs, the person using the method must be able to demonstrate,

under generally accepted accounting procedures, how the records account

for the required elements (including all withdrawals). That is, the

integrity of the accounting method, as used by the person involved, is

subject to verification. It is Customs position that no change to this

provision is necessary.

Comment: Concerning proposed Sec. 191.14(c) (1) and (2) addressing

the first-in, first-out (FIFO), and last-in, first out (LIFO)

accounting methods, it was recommended that after the word

``identified'' in each paragraph, the words ``by recordkeeping'' be

added.

Customs Response: The recommendation that the words ``by

recordkeeping'' be added after ``identified'' is adopted for

Sec. 191.14(c) (1) and (2), and in Sec. 191.14(c) (3) and (4) as well.

Additionally, examples are provided for each of the methods set forth

therein.

Comment: With reference to proposed Sec. 191.14(c)(3), it was

declared that other accounting methods approved under other Customs

rulings could be used if applicable.

One comment believed that direct identification under the unused

merchandise drawback law, 19 U.S.C. 1313(j)(1), was a fiction; that the

law did not require the type of accounting methods that were provided

in this proposed section; and that, at the very least, high-to-low

accounting as allowed in C.S.D. 84-82 should be reinstated.

Another comment suggested that Customs permit industries to submit

proposals for acceptable accounting methods.

It was further asked that accounting methods in addition to low-to-

high with inventory turnover (LIFO and FIFO) permit the claimant to

omit accounting for domestic withdrawals when all receipts into

inventory were of foreign origin.

Customs Response: Section 191.14 is intended to establish the

accounting methods which may be used to identify merchandise or

articles for drawback purposes, and is intended to be consistent with

T.D. 95-61. Rulings issued prior to the effective date of these

regulations may not be resorted to unless consistent with Sec. 191.14

and T.D. 95-61. However, in order to make available to the public as

many options for identification by recordkeeping as possible, while

adhering to the principles of T.D. 95-61, Sec. 191.14(c)(3) is modified

by the addition of the so-called ``blanket'' low-to-high accounting

method.

Under this long-established and used method (see, e.g., 19 CFR

22.4(f) (1982 Customs Regulations) and C.S.D. 80-132), commingled

merchandise or articles are identified first from the lot or lots of

merchandise or articles with the lowest drawback attributable, then

from the lot or lots with the next higher drawback attributable, and so

on from lower to higher until all lots have been accounted for. The

period from which withdrawals for export are identified is the

statutory period for export under the kind of drawback involved (e.g.,

180 days under 19 U.S.C. 1313(p), 3 years under 19 U.S.C. 1313(c) and

1313(j), and 5 years otherwise under 19 U.S.C. 1313(i)). Thus, this

method is similar to the low-to-high method with inventory turn-over

method, except that instead of identifying the merchandise or articles

with the lowest drawback attributable in the established average

inventory period, merchandise or articles with the lowest drawback

attributable in the statutory period for export are identified.

Members of the public should be aware that drawback requirements

are applicable to withdrawn merchandise or

[[Page 10981]]

articles as identified (for example, if the merchandise or articles

identified were attributable to merchandise which had been imported 2

years, 11 months prior to withdrawal and export or destruction did not

occur until 2 months later, drawback under 19 U.S.C. 1313(j) would be

denied (because that provision requires export or destruction within 3

years of import)).

Additionally, language is added to make it clear that, once a

withdrawal for export is made and accounted for under the low-to-high

method with established average inventory turn-over period, or under

the ``blanket'' method, the merchandise or articles so withdrawn are no

longer available for identification under the method.

Also, new examples, more clearly illustrative of the low-to-high

methods (ordinary, with average inventory turn-over period, and

blanket), and comparing the results of those methods, are added to

Sec. 191.14(c)(3).

Customs does have procedures under which industries may obtain from

Customs a ruling, or an approved manufacturing drawback ruling, upon

which it may rely (see 19 CFR part 177, for rulings, and the sample

formats for specific manufacturing drawback rulings in Appendix B).

Regarding the suggestion that the ``high-to-low'' accounting method

should be reinstated as a drawback accounting method, that would be

inconsistent with T.D. 95-61, which revoked the published Customs

ruling (C.S.D 84-82) permitting use of that method.

The requirement in certain of the drawback identification

procedures for accounting for domestic withdrawals (with the exceptions

described) is consistent with T.D. 95-61, in which Customs and Treasury

stated the criteria for accounting methods used for identification of

merchandise or articles for drawback purposes, and it is consistent

with generally accepted accounting procedures.

As for the comment that the description of drawback under 19 U.S.C.

1313(j)(1) as direct identification drawback is a fiction, Customs

disagrees. Under the plain language of this law, the imported

merchandise must be exported or destroyed and drawback is payable on

the amount of duty specifically paid thereon.

Comment: With specific regard to proposed Sec. 191.14(c)(3)(i)

describing the low-to-high inventory accounting method, it was

reiterated that domestic (or nondrawback) input and domestic sales from

inventory should not have to be taken into consideration.

Customs Response: As made clear in the modified regulation, all

receipts and all withdrawals (including domestic withdrawals) must be

accounted for when using the ``ordinary'' low-to-high method (low-to-

high without an established average inventory turn-over period and not

under the ``blanket'' method). Under the low-to-high method with

average inventory turn-over period and the low-to-high blanket method

all receipts into and all withdrawals for export are recorded in the

accounting record and accounted for and domestic withdrawals

(withdrawals for domestic shipment) are not accounted for and do not

affect the available (under the methods) units of merchandise or

articles.

Comment: With specific regard to proposed Sec. 191.14(c)(3)(ii)(B)

concerning the use of low-to-high accounting with an inventory turn-

over period, it was stated that rather than providing that ``the

longest average turn-over period * * * may be used'', this should

provide instead that it ``must'' be used, and asked in this connection

whether users of this method would have an option to choose periods.

Customs Response: This comment has merit and is adopted (although

instead of the change proposed, the provision as redesignated

(Sec. 191.14(c)(3)(iii)(C)) is modified by the addition of a

parenthetical statement to make it clear that users of this method will

have the option of using either the properly established average turn-

over period for the merchandise or articles to be identified, or, if

the person using the method has more than one kind of merchandise or

articles with different inventory turn-over periods, the properly

established average turn-over period which is longest).

Comment: With respect to proposed Sec. 191.14(c)(4) concerning the

average inventory method, a question was raised about the requirement

that claimants wishing to use this inventory method obtain a ruling

under 19 CFR part 177. In particular, it was remarked in this regard

that the use of a weighted average as set forth therein was an

officially recognized method of inventory management. Another comment

asked that a practical example of how this inventory method would work

be included under this provision.

Customs Response: The comment questioning why a ruling is needed

for use of the average method and/or asking that an illustration of the

average method be included in the regulations has merit and is adopted

in Sec. 191.14(c)(4). An example of an average method and provision for

use of the average method, if in compliance with the applicable

requirements of Sec. 191.14 and the example, are included in the

section.

When the average method is used the ratio of each receipt in

inventory to all merchandise in the inventory at the time of the

withdrawal is applied to the withdrawal, so that the withdrawal is

comprised of proportionate quantities of each receipt and each receipt

is correspondingly decremented. The reference to ``weighted averaging''

is removed, because weighting is unnecessary in this method.

As with other methods, when a person proposes a method which

diverts from the methods as provided for in the regulations, a ruling

must be obtained from Headquarters, or approval may be obtained in a

specific manufacturing drawback ruling (see Sec. 191.8 and Appendix B).

Comment: One comment asserted that the requirement in proposed

Sec. 191.14(d)(2)(i) that any accounting system approved by Customs be

``either revenue neutral or favorable to the Government'' was

imprecise, and recommended the addition of the words, ``when compared

to the method of separate storage and specific identification''

following the word ``Government'' in this provision.

Customs Response: Customs disagrees. The phrase, ``either revenue

neutral or favorable to the Government'', was approved after notice and

comment procedures pursuant to T.D. 95-61. The intent here is that the

accounting methods for the identification of merchandise or articles

for drawback purposes must meet the requirements in Sec. 191.14(d)(2),

as demonstrated by the methods provided for in Sec. 191.14 (which now

includes much more illustrative examples).

Subpart B

Comment: It was asked that a reference to drawback products be

included in proposed Sec. 191.21 concerning direct identification

drawback, 19 U.S.C. 1313(a).

Customs Response: This request has merit and is adopted.

Comment: It was stated that proposed Sec. 191.22(d) fell under the

heading of substitution drawback and discussed designation by a

successor; it was stated that this gave the impression that

designations by successors were restricted to substitution claims.

Customs Response: This provision deals with successorship under 19

U.S.C. 1313(s), which concerns only substitution drawback under 19

U.S.C. 1313(b) and 19 U.S.C. 1313(j)(2). The concern raised here is

addressed by making reference in this provision to

[[Page 10982]]

successorship under Sec. 1313(s). Notably, the same change is also made

with respect to Sec. 191.32(f).

Comment: With respect to proposed Sec. 191.22(e), concerning

multiple products, it was advocated that Customs approval should not be

required for manufacturing periods longer than a month. It was also

stated that the use of an alternative to market value in determining

the relative value of multiple products was unnecessary.

Customs Response: These comments are not adopted. As to the length

of the manufacturing period, the provision follows current practice and

provides for ``specific approval of Customs'' for a longer period.

With respect to the determination of relative value, it is provided

in Sec. 191.2(u) (as redesignated) that relative value is based on the

market value of the products, or an alternative value approved by

Customs. In other words, the default value is market value and if

another value is to be used, Customs is to be advised (and such advice

to Customs would be in the specific manufacturing drawback ruling of

the company involved). Otherwise, a claimant would have to establish by

its records that the value used is proper.

It is noted that consistent with the comments and response for

proposed Sec. 191.2(r), the heading for this paragraph is changed from

``By-products'' to ``Multiple products''.

Comment: As to proposed Sec. 191.23(d)(1), it was asserted that the

reference to the ``market value of the merchandise or products used in

manufacture'' was not clear. A clarification of this language was

requested.

Customs Response: The provision is modified to require records to

show the market value of the merchandise or drawback products used to

manufacture the exported or destroyed article, consistent with

Sec. 191.23(c).

It is also noted that a new Sec. 191.23(d) is added providing for

use of the ``abstract'' or ``schedule'' method of showing the quantity

of material used or appearing in the exported or destroyed article.

Thus, Sec. 191.23(d) as proposed is renumbered as Sec. 191.23(e).

Comment: It was requested that proposed Sec. 191.24(a) concerning

the certificate of manufacture and delivery be revised to make clear

that such a certificate was required for each delivery of an article

which had been manufactured or produced.

Customs Response: A certificate of manufacture and delivery is

required for each delivery of an article which has been manufactured or

produced (as defined in Sec. 191.2(q), as redesignated) (this would be

so whether the article has been subject to one or more than one

manufacturing or production operations). The section is modified to

make this clear.

Comment: It was believed that paragraphs (a) and (d) of proposed

Sec. 191.24 were in conflict (one required physical delivery, the other

did not). It was suggested the provisions be reworded for consistency.

Customs Response: This comment has merit and is adopted. Section

191.24 (a) and (d) are revised accordingly.

Comment: Concerning the information required on a certificate of

manufacture and delivery in proposed Sec. 191.24(b), it was asked that

the identity of the transferee and transferor, IRS number, and unique

electronic number assigned to the manufacturing ruling be added.

Customs Response: The identity of the transferee and transferor is

added, consistent with Sec. 191.10, as Sec. 191.24 (b)(1) and (b)(14),

respectively. The comment as to the unique electronic number assigned

to the manufacturing drawback ruling is also adopted in

Sec. 191.24(b)(2), although either the unique electronic number or the

T.D. number may be provided (the latter, if the manufacturer or

producer is operating under a specific manufacturing drawback ruling).

The paragraphs of Sec. 191.24(b) are renumbered accordingly.

Comment: It was stated, with respect to proposed Sec. 191.24(b)(2),

that the section inferred that the HTSUS numbers for designated

merchandise from one certificate of manufacture and delivery should be

transferred to a second certificate of manufacture and delivery. It was

further stated here that, even if known, it would be a useless gesture

to repeat import HTSUS numbers on the second certificate of manufacture

and delivery, as they would not relate to the merchandise designated on

the second certificate. It was asked that the provision clearly state

that HTSUS numbers were not required on a second certificate of

manufacture and delivery.

It was also noted that the language therein to the effect, ``* * *

and applicable duty amounts, if applicable'' appeared redundant.

Customs Response: The reference to the redundancy of ``if

applicable'' has merit. The second ``if applicable'' is deleted from

this provision.

The concerns expressed in relation to HTSUS numbers have merit (in

that the section does not make it clear that the HTSUS numbers required

are those for the imported merchandise, and not for the manufactured or

produced merchandise).

Insofar as the comment suggesting that import HTSUS numbers should

not be repeated on a second certificate of manufacture and delivery,

this comment is not adopted because in many cases involving more than

one certificate of manufacture and delivery for sequential

manufacturing or production operations, the merchandise and/or drawback

products covered by one certificate may not be completely covered by

the other certificate(s).

Comment: It was observed that, in proposed Sec. 191.24(b) (3) and

(4), the words ``if applicable'' did not pertain to this information;

the dates received and used in manufacture should always be supplied.

Customs Response: This comment has merit and is adopted. Customs is

aware of no situation in which the information provided for in the

subsections would not be applicable (particularly in view of the

changes made to the requirement for a certificate of manufacture and

delivery in the principal-agent situation).

Comment: It was stated that proposed Sec. 191.24(c) was unclear

insofar as it required the filing of a certificate of delivery with the

drawback claim unless such certificate was ``previously filed''. The

phrase ``previously filed'' was found to be vague. The previous filing

may be at a different port. It was recommended that information as to

the port and date of filing along with a copy of the certificate be

submitted therewith, if the original certificate was not filed with the

claim.

Customs Response: This comment has merit and is adopted (although

it is adopted in Sec. 191.51(a)(2), and not in this provision).

Comment: With respect to proposed Sec. 191.24(d) concerning the

effect of a certificate of manufacture and delivery, it was asked

whether there would be a place on the certificate of manufacture and

delivery to indicate whether drawback rights were being transferred

and, if not, how an issuer would so indicate on the certificate. It was

also stated that this section should address the ``effect'' of internal

certificates of manufacture and delivery in order to document multiple

manufacturing processes performed by one manufacturer.

Customs Response: The comment regarding the effect of certificates

of manufacture and delivery is addressed by the changes made to the

requirements for a certificate of manufacture and delivery (i.e., such

a certificate is only used when drawback rights are transferred and is

not used in

[[Page 10983]]

a transfer from an agent to the principal).

Therefore, the provision is modified accordingly (i.e., a

certificate of manufacture and delivery establishes the transfer of an

article manufactured or produced under 19 U.S.C. 1313 (a) or (b),

identifies that article as an article to which a potential right to

drawback exists, and assigns the drawback rights for the article from

the transferor to the transferee). For the same reason, the example

referring to principal-agency is removed.

The comment stating that the provision should address the

``effect'' of internal certificates of manufacture and delivery

(internal to the company involved) is not adopted; since certificates

of manufacture and delivery always transfer drawback rights, a

certificate of manufacture and delivery would not be appropriate in

such a situation (because the same legal person transfers and receives

the merchandise).

Comment: With respect to proposed Sec. 191.25(a), it was asked what

would happen if the manufacturer did not want to divulge the abstract

details to the claimant. It was recommended here that the current

practice be followed--i.e., the manufacturer would file the certificate

of manufacture and delivery and advise the claimant of the certificate

number and the port where filed and the claimant could designate

against the certificate.

Customs Response: This comment is not adopted. The procedure

suggested by the comment would create an untenable administrative

burden in Customs processing of drawback claims and of accelerated

payment claims.

(It is noted that Sec. 191.25 as proposed is now redesignated as

Sec. 191.26, due to the addition of a new Sec. 191.25 covering the

destruction of articles manufactured or produced for drawback; and, as

such, Secs. 191.26 and 191.27 as proposed are redesignated as

Secs. 191.27 and 191.28, respectively.)

Comment: Regarding proposed Sec. 191.25(b) addressing recordkeeping

requirements for substitution manufacturing drawback, it was stated

that the requirement that a manufacturer claiming drawback under 19

U.S.C. 1313(b) establish the facts in proposed Sec. 191.25(a)(1) (ii)

and (iii) was incorrect, since under substitution, the manufacturer

only had to provide the quantity and kind of merchandise used or

appearing in the manufactured articles. It was observed that proposed

Sec. 191.25(a)(1) (ii) and (iii) related specifically to drawback under

19 U.S.C. 1313(a), and should be removed from the reference in proposed

Sec. 191.25(b).

Customs Response: This request has merit and is adopted.

Comment: It was observed that the words ``or destroyed'' should be

inserted between the words ``exported'' and ``articles'' in proposed

Sec. 191.25(b)(2). Also, it was noted therein that the term ``(or

appearance in)'' should be ``or appearing in''.

Customs Response: This comment has merit and is adopted.

Comment: Regarding proposed Sec. 191.25(c) dealing with valuable

waste, it was asserted that the statement that ``the quantity of

merchandise identified or designated * * * shall be based on the

quantity of merchandise actually used * * * reduced by the amount of

merchandise which the value of the waste would replace'' was incorrect

and misleading, in that a claimant might think that it need only

designate the reduced quantity (after the waste replacement). It was

recommended that this language be revised.

It was also suggested that it be clarified as to which merchandise

value was subject to reporting and recordkeeping with regard to 19

U.S.C. 1313(a) versus 19 U.S.C. 1313(b).

Customs Response: These comments have merit and are adopted.

Section 191.26(c) as redesignated is revised accordingly.

Comment: Concerning the requirement in proposed Sec. 191.25(e) that

the claimant retain the certificate of delivery if the related

merchandise was not imported by the manufacturer, it was asserted that

this provision would be impossible for the claimant to comply with if

the claimant was a party other than the manufacturer and the

manufacturer was a party other than the importer because the claimant

would never have received the certificate of delivery (the certificate

would be from the importer to the manufacturer). An objection was also

raised here as to the use of the word ``designated'' in the phrase

``designated on a certificate of delivery for manufacturing drawback''

because designation inferred substitution. It was advocated that

proposed Sec. 191.25(e) either be deleted or revised.

Customs Response: The assertion that this provision would be

impossible to comply with when the claimant is a party other than the

manufacturer, and the manufacturer a party other than the importer,

raises a valid concern. The provision is deleted, consistent with the

changes to Secs. 191.10 (c) and (e), 191.51(a), and 191.52(b).

Under the previously cited provisions, certificates of delivery are

required to be in the possession of the party to whom the merchandise

covered in the certificate is delivered, and if that party is not the

claimant, the claimant is required to obtain the certificate and

provide it to Customs, if Customs requests the certificate under the

procedures for ``perfecting'' a claim.

With the deletion of paragraph (e) of Sec. 191.26 as redesignated,

paragraphs (f) and (g) thereof are themselves redesignated as

paragraphs (e) and (f), respectively. Also, the example in

Sec. 191.26(e)(1), as redesignated, is modified, consistent with the

restriction in 19 U.S.C. 1313 (a) and (b) on the use in the United

States after manufacture of articles manufactured or produced under

those provisions.

Comment: In regard to proposed Sec. 191.25(f)(2)(iii) dealing with

the export summary procedure, it was recommended that the clause ``if

known at the time of entry'' be added at the end of the requirement

that ``[e]ach claimant shall identify in the chronological summary the

name of the other claimant(s) and the component product for which each

will independently claim drawback''. It was observed here that one

claimant might be unaware of other claimants and to which component

part they could claim.

Customs Response: The request has merit and is adopted.

Comment: With reference to proposed Sec. 191.25(g) dealing with

recordkeeping requirements for manufacturing drawback, it was observed

that this section provided a reasonable reflection of the various

records required to establish entitlement to the kinds of drawback

involved.

However, the concern was expressed about the possible confusion

resulting from the 3-year (from date of payment) record-retention

period for drawback and the general 5-year record retention period for

other Customs purposes. It was suggested that greater clarity was

needed here, because a drawback claimant could think it could dispose

of records after the 3-year period and be subject to penalties for

disposing of them before the termination of the 5-year general period

(if the records were also subject to the 5-year record retention

period).

It was further recommended that the final rule here should

expressly state whether all drawback-related records had to be retained

for a minimum of 5 years from the date of entry of the imported

merchandise, or 3 years from the date of payment of the related

drawback claim, or, alternatively, a detailed, comprehensive list of

records and the time periods for retaining each one should be provided.

It was also noted that in the background of the proposed rule,

[[Page 10984]]

Customs had stated that drawback records ought to be maintained until

the liquidation of the drawback entry became final. It was asserted in

this regard that if more than 3 years had passed since payment, but the

subject drawback claim was still not finally liquidated, and a question

regarding documents arose, Customs should presume that the claimant

satisfied the drawback documentation requirements as long as the

claimant had been approved under the drawback compliance program.

Furthermore, it was suggested that, in the case of an audit

commenced more than 3 years after payment of a drawback claim, Customs

should not be able to recover any drawback paid, if a relevant

supporting record was no longer in existence.

It was additionally asked that a claimant be permitted to maintain

the required documentation in paper or electronic form, either of which

could be used to satisfy the recordkeeping requirements, and where a

party was unable to produce necessary documentation, including records

that were in the possession of another party or an original signature

from a carrier, Customs should allow that party to present alternative

documentation.

It was stated that a reference to 19 U.S.C. 1508(c)(3) should be

included in proposed Sec. 191.25(g) concerning the time period for the

retention of records.

Customs Response: The comment suggesting more clarity as to the

time period for keeping drawback records (3 years from payment) versus

other records provided for in 19 U.S.C. 1508, which are generally

required to be retained for 5 years from the date of entry, filing of a

reconciliation, or exportation, as appropriate, is adopted. Paragraph

(g) of Sec. 191.25, as proposed (now redesignated as Sec. 191.26(f)),

is modified to clarify that the 3-year time period provided for therein

is for drawback purposes, and that the same records may be required,

for other purposes (with a citation to 19 U.S.C. 1508), to be retained

for a different time period.

In reference to the statement in the background that drawback

records ought to be maintained until liquidation of the drawback entry

becomes final, the comment is correct that the applicable statutory

provision (as well as the regulations based thereon) require retention

for 3 years from the date of payment.

It is Customs position that the effect of a claimant not having

records prior to final liquidation but after termination of the 3-year

period, as well as the effect of an audit commenced after termination

of this period, must be determined on a case-by-case basis.

In regard to the comment that a claimant be permitted to maintain

the required documentation in paper or electronic form, a definition of

``records'' has been added to Sec. 191.2, to the effect that records

include electronically generated or machine readable data normally kept

in the ordinary course of business.

A reference to 19 U.S.C. 1508(c)(3) is added to Sec. 191.26(f) as

thus redesignated.

Comment: It was believed that a conflict was apparent in proposed

Sec. 191.26(b)(3) regarding the phrase ``importation of the designated

merchandise''. It was remarked that there was no date of importation

for a drawback product, which could also be designated for drawback.

Customs Response: The comment has merit. The following phrase is

added at the end of paragraph (b)(3) of this section (Sec. 191.27 as

redesignated): ``, or within 5 years of the earliest date of

importation associated with a drawback product''.

Comment: It was asked if the exporter could waive its right to

drawback in proposed Sec. 191.27 by means of a blanket letter covering

extended time frames.

Customs Response: The comment referring to a ``blanket'' letter for

certification by the exporter (or destroyer) assigning drawback rights

has merit. Section 191.28 as thus redesignated is revised accordingly.

Subpart C

Comment: In proposed Sec. 191.31(c), relating to when merchandise

would be considered to be used for purposes of the unused merchandise

drawback law (19 U.S.C. 1313(j)(1)), it was variously recommended that

the words ``In general'' be deleted from the beginning of the first

sentence thereof, and that the sentence be revised to be more specific,

or be deleted entirely.

Customs Response: The comment concerning the use of the phrase ``In

general'' at the beginning of the first sentence of Sec. 191.31(c) is

addressed by changing the heading of the provision to read ``Operations

performed on imported merchandise.'', by deleting the first sentence,

and by adding to the second sentence as proposed the phrase, ``In cases

in which an operation or operations is or are performed on the imported

merchandise,''. Notably, the same changes are also made with respect to

Sec. 191.32(e).

Further definition of the restriction on ``use'' in 19 U.S.C.

1313(j) will be addressed on a case-by-case basis by ruling.

Comment: In proposed Sec. 191.32(c), concerns were raised

essentially as to how Customs would interpret and apply the four

criteria listed therein in making commercial interchangeability

determinations.

It was stated that by listing the four factors to be used in making

such determinations, Customs was creating a ``bright line'' test in

contravention of the legislative intent underlying the statute.

Customs Response: The criteria used by Customs in making commercial

interchangeability determinations are adopted from the legislative

history of 19 U.S.C. 1313(j)(2). In order to better implement

legislative intent, Sec. 191.32(c) is modified to provide that in

determining commercial interchangeability, Customs shall evaluate the

critical properties of the substituted merchandise, and, pursuant to

that evaluation, Customs consideration will include, but not be limited

to, the factors listed in the legislative history.

Further definition of commercial interchangeability will be on a

case-by-case basis, by obtaining a determination as provided in

Sec. 191.32(c). Procedures for contesting specific rulings are found in

19 U.S.C. 1625 and 19 CFR part 177.

Section 191.32(c) is modified to make it clear that the

determination of commercial interchangeability may be obtained by a

formal ruling or submission of all required documentation with each

individual claim, while the nonbinding predetermination is just that,

nonbinding and a pre-determination, and, therefore, is not sufficient

to obtain a determination of commercial interchangeability. Required

documentation for commercial interchangeability determinations includes

competent evidence of the basis on which the merchandise is claimed to

be exchanged.

For example, if merchandise meeting a range of criteria is claimed

to be exchanged in the industry, contracts evidencing that fact should

be provided.

Comment: As concerns the person entitled to claim drawback set

forth in proposed Sec. 191.33(a), it was suggested that the waiver of

drawback by the exporter be permitted by a blanket letter.

Customs Response: The suggestion regarding a blanket certification

by the exporter (or destroyer) assigning drawback rights is adopted.

Section 191.33(a)(2) is revised accordingly. In addition,

Sec. 191.33(a)(2) is changed to provide that the certification must be

filed at the time of, or prior to, filing of the claim(s) covered by

the certification.

[[Page 10985]]

Comment: It was requested, under proposed Sec. 191.33(b)(2), that

blanket waiver letters also be authorized.

Customs Response: Customs agrees. Section 191.33(b)(2) is revised

accordingly. Furthermore, Sec. 191.33(a)(2) is changed to provide that

the certification must be filed at the time of, or prior to, filing of

the claim(s) covered by the certification.

Comment: In the context of proposed Sec. 191.33(b), it was

extensively argued, citing the statute, its legislative history, as

well as case law, that multiple substitutions of merchandise were

permissible under the substitution unused merchandise drawback

provision, 19 U.S.C. 1313(j)(2). It was contended that, by permitting

an intermediate party to claim drawback in proposed Sec. 191.33(b),

Customs itself provided for multiple substitutions. It was asserted

that multiple substitutions were allowable under Sec. 1313(j)(2), in

the case of a successorship thereunder, pursuant to 19 U.S.C. 1313(s).

One comment said that the matter of multiple substitutions under

Sec. 1313(j)(2) should be specifically addressed in the regulations.

Customs Response: Customs is bound by the current statutory

language in 19 U.S.C. 1313(j)(2). Under the current statute (19 U.S.C.

1313(j)(2)), the other (substituted merchandise) must be commercially

interchangeable with the imported merchandise, exported or destroyed

within 3 years after import of the imported merchandise, and before

exportation or destruction, not be used in the United States and be in

the possession of the drawback claimant.

The drawback claimant (under Sec. 1313(j)(2)(C)(ii)) must be the

importer of the imported merchandise or have received from the importer

(and person who paid any duty) a certificate of delivery transferring

to the claimant the imported merchandise, commercially interchangeable

merchandise, or any combination thereof (and the transferred

merchandise will be treated as the imported merchandise and any

retained merchandise will be treated as domestic merchandise), and upon

exportation or destruction of the other merchandise, drawback shall be

refunded.

In the first case (when the claimant is the importer of the

imported merchandise), no multiple substitutions are authorized by the

statute, since the other merchandise must be in the possession of the

claimant, and it (the other merchandise) must be exported (i.e., no

matter how many transfers or substitutions of the merchandise which

becomes the ``other'' merchandise occur prior to receipt by the

claimant of the merchandise, what is required to be exported is the

``other'' merchandise which the claimant must have possessed).

In the second case (when the claimant receives from the importer

and duty payer a certificate of delivery), no multiple substitutions

are authorized by the statute since the other merchandise must be in

the possession of the claimant and it (the other merchandise) must be

exported (i.e., if the ``other'' merchandise is treated as the imported

merchandise, so that it, or commercially interchangeable merchandise,

could be transferred to another party, the transferror would not be the

importer and duty payer, as required by the statute).

Customs position in this regard is consistent with the legislative

history of the statute (see also Senate Report 103-189, page 182,

declaring that Sec. 1313(j)(2) would allow exporters to claim drawback

on imported merchandise, or other domestic or imported merchandise that

is substituted for the imported merchandise).

As for the contention that Customs, in the proposed provision, by

permitting an intermediate party to claim drawback under

Sec. 1313(j)(2), provides for multiple substitutions, Customs

disagrees. Customs proposed interpretation of the statute, authorizing

multiple transfers and claims by intermediate parties (under the waiver

and assignment, and certification procedures) is based on the provision

in Sec. 1313(j)(1) as to who may claim drawback (the exporter (or

destroyer) or, with endorsement, the importer or any intermediate

party), and the legislative history (H. Rep. 103-361, 103d Cong., 1st

Sess. (1993), part I, at 129; Sen. Rep. 103-189, 103d Cong., 1st Sess.

(1993), at 82, noting that, due to a recent court decision, the

provision also permitted an exporter or destroyer to endorse the right

to claim drawback to the importer or any intermediate party).

Section 1313(j)(2) does not specifically authorize the delivery

``directly or indirectly'' of the certificate of delivery for the

imported merchandise, commercially interchangeable merchandise, or any

combination thereof, so the proposed construction of the statute, based

on the allowance in the regulations for an intermediate party to claim

drawback (with the required waiver and assignment, and certification)

must fail.

As for the comment that 19 U.S.C. 1313(s) permits multiple

substitutions under Sec. 1313(j)(2), Customs disagrees. Under

Sec. 1313(s), in pertinent part, a drawback successor (meeting the

requirements of that section) may designate as the basis for drawback

on merchandise possessed by the drawback successor after the date of

succession imported merchandise, commercially interchangeable

merchandise, or any combination thereof for which the predecessor

received, before the date of succession, from the importer and duty

payer a certificate of delivery transferring to the predecessor such

merchandise.

In other words, under Sec. 1313(s), the predecessor receives a

certificate of delivery for the ``other'' merchandise and the successor

possesses the merchandise. Section 1313(j)(2) requires the party

claiming drawback to both possess the ``other'' merchandise and to have

received from the importer and duty payer a certificate of delivery for

the imported merchandise, commercially interchangeable merchandise, or

any combination thereof. Thus, Sec. 1313(s) allows drawback when these

parties are different and a permitted succession occurs, it does not

allow a further substitution, nor does the legislative history have any

indication of an intent to add such substantive rights in the

successorship situation.

The comment that the restriction on multiple substitutions should

be provided for in the regulations themselves has merit and is adopted.

Section 191.33(b)(1)(iii) is revised accordingly.

Comment: It was suggested, with respect to proposed

Sec. 191.33(b)(1)(ii), that the words ``or destroys'' should be

inserted following the phrase, ``commercially interchangeable

merchandise, and exports'' and before the phrase, ``such transferred

merchandise'', and the words ``or destroyer'' should be inserted

following the phrase, ``that exporter'', and before the phrase, ``shall

be entitled to claim drawback''.

Customs Response: The comment has merit and is adopted.

Comment: It was recommended, in proposed Sec. 191.34(a)(1), that

instead of certifying on the certificate of delivery that the party did

not use ``the exported or destroyed merchandise'', the requirement

should be for a certificate that the party did not use ``the

transferred merchandise''. It was noted that the merchandise, at the

time of the certification, would not yet be exported or destroyed.

Customs Response: The comment has merit and is adopted.

Comment: With respect to proposed Sec. 191.34(a)(2), it was stated

that instead of requiring the drawback claimant to ``retain the

certificate for submission to Customs as part of the claim, if

requested'', the requirement should be

[[Page 10986]]

to ``retain the certificate for submission to Customs when requested''.

Customs Response: Consistent with Sec. 191.51, certificates of

delivery are not ``part'' of claims but support claims, so that if

Customs requests a certificate of delivery upon which a drawback claim

is dependent and the certificate is not provided, the claim is not

rejected but, instead, is denied. Since a certificate of delivery is

not ``part'' of a complete claim (as the regulation is modified),

providing a certificate of delivery upon Customs request is in the

nature of ``perfecting'' a claim. Notably, this is added as one of the

instances of perfection provided in Sec. 191.52(b), and may be done

outside the 3-year time for filing a complete claim.

The denial of a drawback claim for failure to supply, in response

to Customs request, a certificate of delivery upon which part of the

claim is dependent is limited to denial of that portion of the claim

dependent on the certificate of delivery which is not supplied. The

provision is changed to make this clear.

Also, pursuant to changes to other sections (see Secs. 191.51(a)

and 191.52(b)), certificates of delivery are required to be in the

possession of the party to whom the merchandise covered in the

certificate was delivered, and if that party is not the claimant, the

claimant is required to obtain the certificate and provide it to

Customs, if Customs requests the certificate under the procedures for

``perfecting'' a claim. The provision is changed to make this clear.

Comment: With respect to proposed Sec. 191.34 (a) and (b)

generally, it was contended that these provisions imply that a

certificate of delivery which directly identified imported merchandise

could not be used to transfer merchandise to a party who claimed

drawback under 19 U.S.C. 1313(j)(2). It was asserted that the opposite

was true, and that proposed Sec. 191.34(a) should specifically state

that a directly identified certificate of delivery to a party may be

subject to a Sec. 1313(j)(1) or 1313(j)(2) claim by that party.

Customs Response: The intent of these provisions is to make clear

the requirements for and effect of certificates of delivery. Section

191.34(a) does not preclude the use of a certificate of delivery for

the imported merchandise (and not substituted merchandise) which then

may be the subject of a further delivery (under substitution procedures

under 19 U.S.C. 1313(j)(2)), nor does Sec. 191.34(b) preclude transfers

(but not substitutions) before and/or after the substitution-transfer.

The provisions are changed to make this clearer.

Further, the provisions are changed to reflect that the certificate

of delivery is required to be retained by the person to whom the

merchandise was delivered (and is not a ``part'' of a drawback claim),

and must be provided to Customs by the claimant upon a request to

``perfect'' the claim.

Comment: It was observed that proposed Sec. 191.34(b) did not

contain a provision dealing with intermediate transfers.

Customs Response: The comment has merit and is adopted. A sentence

similar to the last sentence of Sec. 191.34(a) is added to

Sec. 191.34(b).

Further, in the penultimate sentence of Sec. 191.34(b) as proposed,

the words ``as imported merchandise for the purpose of manufacturing

drawback'' are deleted and replaced with ``for any other drawback

purposes''.

Comment: It was requested that the procedures for the waiver of

prior notice set forth in proposed Sec. 191.35 for purposes of 19

U.S.C. 1313(j) also be employed for purposes of drawback under 19

U.S.C. 1313(c). It was further suggested that the form referred to here

and in other sections as ``Notice of Intent to Export'' or ``Notice of

Intent to Export or Destroy'' be renamed as the ``Notice of Intent to

Export, Destroy or Return Merchandise to Customs Custody''.

Customs Response: The comment, suggesting that the provision for

waiver of prior notice should be extended to drawback under 19 U.S.C.

1313(c), is not adopted. The statutory provisions are different. Under

Sec. 1313(c) the merchandise is required to be returned to Customs

custody for exportation or destruction under Customs supervision; there

is no such requirement in 19 U.S.C. 1313(j) for the return to Customs

custody. The form for export or destruction or return to Customs

custody, however, is renamed, as stated above.

Comment: It was recommended that the information required on the

notice of intent in proposed Sec. 191.35(b) include, in addition to the

name and telephone number of a contact person, the mailing address, fax

number and, if available, the e-mail address.

Also, it was stated that the phrase, ``* * * the bill of lading

number, if known'', as set forth therein, was unnecessary, since the

bill of lading number would not be known prior to export of the

merchandise (the bill of lading is numbered upon preparation of the

Outward Manifest).

Customs Response: The recommendation that other information

regarding the contact person should be stated has merit and is adopted.

The comment suggesting deletion of the requirement for the bill of

lading number, if known, is not adopted (i.e., the requirement is

subject to the caveat ``if known'').

Comment: It was stated, with respect to proposed Sec. 191.35(c)

that the regulations on the process of filing the notice of intent to

export should provide the ability to file notice to Customs

electronically. Furthermore, it was contended that Customs should be

required to notify the party named in proposed Sec. 191.35(b) by

telephone, within 2 working days, and that a telephone contact should

be required as well.

Customs Response: The comment that the regulations should provide

for electronic filing of the ``Notice of Intent to Export, Destroy, or

Return Merchandise for Purposes of Drawback'' has merit and is adopted.

This is accomplished by the addition of a definition of ``filing'' in

Sec. 191.2. The comment (that the party should be notified by

telephone) is not adopted. Customs believes that the existing

requirements in Sec. 191.35(c) are adequate as regards the examination

of merchandise to be exported or destroyed.

Comment: Referring to the time and place of examination in proposed

Sec. 191.35(d), it was mentioned that, for consistency, the notice of

the decision to examine provided for in this provision should be ``in

writing''.

Customs Response: The suggestion that notice of the decision to

examine should be in writing has merit, although the requirement for

notice in this regard is in Sec. 191.35(c), not (d). Thus, the

requested modification is made to Sec. 191.35(c).

Comment: It was observed that inclusion of a requirement in

proposed Sec. 191.36(a)(1)(i) for the estimated number of claims to be

filed under this procedure, and when they would be filed, would assist

Customs in maintaining control over the filing of the claims under this

provision.

Customs Response: A requirement to this effect is included in

Sec. 191.36(a)(1)(i).

Comment: It was stated that the IRS number (9-digit number plus two

character suffix) was needed in proposed Sec. 191.36(a)(1)(i) (A) and

(B).

Customs Response: The comment has merit and is adopted.

Comment: A question was presented as to the meaning of the phrase,

``Export period covered by this application'' appearing in proposed

Sec. 191.36(a)(1)(i)(C). It was asked

[[Page 10987]]

whether the term ``export period'' included past as well as future

export activity.

Customs Response: ``Export period covered by this application'', as

used in Sec. 191.36(a)(1)(i)(C), means the time beginning with the

first export for which prior notice was not given and ending with the

time of the last export for which such notice was not given. Section

191.36 deals with merchandise which has been exported without the

filing of a notice of intent to do so. This provision, therefore,

covers past transactions.

Comment: There was a recommendation that the words ``and/or'' be

added to proposed Sec. 191.36(a)(1)(iii)(A) (1) and (2), on the basis

that a claimant might not have ``laboratory records'' as such.

Customs Response: The comment has merit and is adopted, with the

additional statement that the requirements for the records are ``as

applicable''.

Comment: It was contended that the restriction, in proposed

Sec. 191.36(a)(2), of retroactivity for waivers of prior notice to a

``one-time'' use by the claimant was unfair and might not be legal.

It was also stated that the one-time restriction should be on a

product basis, because, with the diversification of business today, a

firm could have several business areas that operated independently and

could discover retroactive unused merchandise drawback scenarios at

different times. It was further observed that the phrase ``unless good

cause is shown'' afforded Customs too much discretion and could lead to

capricious judgments.

Customs Response: The one-time restriction is retained in

Sec. 191.36(a)(2). Because this provision may be used for all exports

occurring prior to approval by Customs of the application, a reasonably

prudent drawback claimant should not be harmed (i.e., once aware of the

requirement for prior notice of intent to export or destroy, such

notice should be given, and under this procedure past exports may

qualify for drawback).

It is Customs position that the phrase ``unless good cause is

shown'' as used in Sec. 191.36(a)(2) gives proper discretion to the

Customs officers responsible for administering the provision.

Comment: In relation to proposed Sec. 191.36(c), the suggestion was

made that the words ``receipt of the application of'' should be

inserted immediately after the words ``within 90 days of'', so that the

provision did not require Customs to make its decision to approve or

deny and then inform the applicant within 90 days of that decision. It

was further stated in this regard that Customs should have to justify

and state its reasons for the ``inability to approve, deny or act on

the application''. It was observed that this could be accomplished by

the addition of ``and the reason thereof'' at the end of this section.

Customs Response: The comments have merit and are adopted.

Comment: It was asserted that the second sentence in proposed

Sec. 191.36(e) should be: ``If the applicant seeks waiver of prior

notice under 191.91, reference should be included that application was

submitted under this section and whether or not it was approved.''.

Customs Response: The comment has merit and is adopted (but by a

change to Sec. 191.91(b)(2)(ii) stating that the statement as to action

on previous waiver requests includes one-time waivers under

Sec. 191.36).

Comment: It was believed that proposed Sec. 191.37 provided no

guidance as to the specific document type and format that the claimant

or other recordkeeper had to maintain.

Concern was also expressed here that possible confusion could

result from the 3-year (from date of payment) record-retention period

for drawback, and the general 5-year record retention period for other

Customs purposes. More clarity was requested.

It was further stated that if more than 3 years had passed since

payment but a drawback claim was not finally liquidated and a question

regarding documents arose, Customs should presume that the claimant had

satisfied the drawback documentation requirements as long as the

claimant was approved under the drawback compliance program.

It was additionally suggested that a claimant should be permitted

to maintain the required documentation in paper or electronic form.

Customs Response: Customs plans to make available to the public,

from the field drawback offices, descriptions, with examples, of the

documents referred to in this section (now redesignated as Sec. 191.38,

due to the addition of a Sec. 191.37 regarding destruction).

Section 191.38(a) as redesignated is also modified to make it clear

that the 3-year time period provided for therein is for drawback

purposes, and that the same records may be required, for other

purposes, to be retained for a different time period. To this end, a

citation to 19 U.S.C. 1508 is also added to redesignated

Sec. 191.38(a).

While records must be retained for 3 years from the date of payment

of a drawback claim, it is Customs position, as previously stated, that

the effect of a claimant no longer having records following this period

must be determined on a case-by-case basis, when the related drawback

claim has not yet been finally liquidated.

Concerning the particular format in which records may be kept, as

also previously noted, Customs has determined to include a definition

in Sec. 191.2 for the term ``records'' based on the definition of this

term appearing in 19 U.S.C. 1508.

Comment: It was observed that a reference to the destruction of

merchandise should be included in proposed Sec. 191.37(b)(2), and that

a section should be added to subpart C addressing the destruction of

merchandise.

Customs Response: The comment that Sec. 191.38(b)(2) as

redesignated should also include a reference to destruction has merit

and is adopted. Also, as already noted, a new Sec. 191.37 is added to

subpart C addressing the destruction of unused merchandise under

Customs supervision. A similar section regarding destruction for

manufacturing drawback has likewise been included in subpart B.

Subpart D

Comment: It was asked, with reference to proposed Sec. 191.41,

whether taxes or fees are eligible for drawback on rejected merchandise

under 19 U.S.C. 1313(c).

Customs Response: Section 1313(c)) authorizes drawback on

``duties''. However, this comment indirectly raises the question of the

applicability of 26 U.S.C. 5062(c) (drawback on distilled spirits,

wines, or beer, which are unmerchantable or do not conform to sample or

specifications). To alert the public to the possible application of

that provision, a parenthetical reference to subpart P dealing with

that type of drawback is added to Sec. 191.41.

Comment: It was observed that a close reading of proposed

Sec. 191.42(c), (e), and (f) revealed that the ``Notice of Intent to

Export/Destroy'' form was to be used not only as a notice of intent to

export or destroy merchandise, but also as a notice of intent to return

merchandise to Customs custody. As such, it was suggested that the form

be appropriately renamed.

It was further stated that, by providing, in proposed

Sec. 191.42(e) and (f), certain situations in which merchandise would

``be deemed'' to have been returned to Customs custody, these

provisions indicated that the merchandise might not actually have been

returned to Customs custody. It was advocated that this should be

[[Page 10988]]

reconciled with the wording in proposed Sec. 191.42(a) providing that

the claimant had to return the merchandise to Customs custody.

In addition, for consistency, it was requested here that each time

the terms ``exported'' or ``exportations'' were used in proposed

Sec. 191.42, the terms ``destroyed'' and ``destructions'' should be

added.

Customs Response: The request regarding the use of ``destroyed'' or

``destruction'' with the corresponding exportation terms has merit and

is adopted, and, as previously noted, the form is re-named.

Customs, however, sees no need for any change to Sec. 191.42(a).

Since Sec. 191.42(e) and (f) provide that merchandise is ``deemed'' to

have been returned to Customs custody in the situations provided for,

the requirement for return to Customs custody in Sec. 191.42(a) is met.

Comment: It was requested that the waiver of prior notice and the

one-time retroactive claim procedures provided for unused merchandise

in proposed Sec. 191.36 be made available for drawback under 19 U.S.C.

1313(c) and for destroyed merchandise, and that if this were done,

merchandise exported or destroyed under these procedures should be

``deemed'' to be ``returned to Customs custody'' or destroyed ``under

Customs supervision''.

Customs Response: The comment suggesting that waiver of prior

notice and the one-time waiver procedures be made available for

drawback under 19 U.S.C. 1313(c) is not adopted. In particular, as

previously pointed out, 19 U.S.C. 1313(c) and 1313(j) are different

statutory provisions. Under Sec. 1313(c), there must be a return to

Customs custody for exportation. There is no such requirement in

Sec. 1313(j).

Comment: It was recommended that the information required in the

notice under proposed Sec. 191.42(d) should include, in addition to the

name and telephone number of a contact person, the mailing address, fax

number and, if available, the e-mail address.

Customs Response: Customs agrees, and Sec. 191.42(d) is changed to

provide for this additional information.

Comment: It was asked that the notification given by Customs to

examine merchandise under the first sentence in proposed Sec. 191.42(e)

be in writing.

Customs Response: This comment has merit and is adopted.

Comment: A concern was expressed in relation to proposed

Sec. 191.42(i), in that the provision appeared to require the

exportation of rejected merchandise under Customs supervision.

Customs Response: The comment raises a valid concern. The statute

does not require exportation to be under Customs supervision. The

phrase, ``under Customs supervision'', is thus deleted from this

section. Also, a parenthetical reference to subpart G is added to

Sec. 191.42(i).

Comment: In proposed Sec. 191.44, it was suggested that the

reference to ``Sec. 191.71(a)'' be changed to ``191.71''.

Customs Response: This comment has merit and is adopted.

Subpart E

Comment: It was asserted that, in proposed Sec. 191.51, a complete

claim should contain a calculation sheet.

Customs Response: The provision in Sec. 191.51(b) does require the

correct calculation of drawback due, under which claims exceeding 99%

of the duties will not be paid until corrected, and claims for less

than 99% will be paid as filed, unless the claimant amends the claim.

This provision is modified to provide for those situations when

drawback is 100% of duties.

In addition, it is noted that the provision on the time for filing

a complete claim (in proposed Sec. 191.52(a)(2)) is moved to

Sec. 191.51, as paragraph (e), and titled ``Time of filing''. The

provision in 19 U.S.C. 1313(r)(3), providing for an extension to the

time for filing a drawback claim when a claimant establishes that it

was unable to file the drawback claim because of a major disaster is

also included in Sec. 191.51(e).

Comment: A question was posed, in connection with proposed

Sec. 191.51(a)(1), as to why drawback offices still required a coding

sheet for disk/electronic filings, and would those offices be informed

to eliminate this requirement.

Customs Response: As set forth in Sec. 191.51(a)(1), a coding sheet

is required, unless the data is filed electronically.

Comment: Concern was expressed about the requirement in proposed

Sec. 191.51(a)(2) that certificates of delivery be in the possession of

the claimant at the time of filing the claim.

Customs Response: Certificates of delivery must be in possession of

the party to whom the merchandise is delivered. Section 191.51(a)(2) is

changed to so state.

Comment: A question was presented regarding the statement in

proposed Sec. 191.51(b) that claims for less than 99 percent would be

paid as filed, unless the claimant amended the claim. It was advocated

that Customs make an additional refund in such cases on its own.

Customs Response: Customs recognizes the interest of a claimant in

being able to exercise caution by under-claiming. Also, adoption of the

procedure suggested by the comment would create an untenable

administrative burden for Customs in its processing of drawback claims.

Comment: With respect to proposed Sec. 191.51(c), it was suggested

that the effective dates for providing HTSUS numbers on drawback claims

be included in the regulations themselves. It was also contended that

if a certificate of manufacture and delivery was identified or

designated, the claimant should be exempt from providing the HTSUS

numbers on the related claim. As such, it was requested that the

phrase, ``and/or the certificate of manufacture and delivery'', be

deleted from proposed Sec. 191.51(c).

A concern was also expressed that proposed Sec. 191.51(c) might

imply that for exports, if Schedule B commodity numbers were used, the

entire ten-digit number would be required. It was advocated that it

should be specified here that the Schedule B number was limited to 6-

digits.

A question was raised as to what the effect of incorrect HTSUS

numbers or Schedule B commodity numbers would be when those numbers

were incorrect on the entry documentation or Shipper's Export

Declarations (SEDs) from which they were derived. It was suggested that

``good faith effort'' language, as discussed in prior consultations,

should be incorporated within proposed Sec. 191.51. It was further

suggested that if drawback claims were required to provide the SED

tariff number to the 6-digit level for exports, they should also be

permitted to provide a statement as to any discrepancy between that

number and the actual number that would be reported to Customs at entry

if the merchandise had been imported.

In addition, with reference to the provision in proposed

Sec. 191.51(c) that claimants using certificates of manufacture and

delivery could meet the requirement with the HTSUS number on such a

certificate, it was asked if this meant the HTSUS number of the

imported designated merchandise, or the manufactured article, since the

claimant might be using the previously manufactured article to make a

second product for export.

Customs Response: The comment that the effective dates for when

HTSUS numbers or Schedule B commodity numbers are required should be

included in the regulations has merit and is adopted. Section 191.51(c)

adds a provision in this regard.

[[Page 10989]]

As for the second comment suggesting deletion of the reference to a

certificate of manufacture and delivery, this comment points out a lack

of clarity in the regulation. The provision is modified to make it

clear that the 6-digit HTSUS number is always required for the

designated imported merchandise, and that this number shall be provided

from the entry documentation when the claimant is the importer of

record and from the certificate of delivery and/or certificate of

manufacture and delivery when the claimant is not the importer of

record. Because the certificate of manufacture and delivery is part of

a drawback claim, manufacturing drawback claimants filing claims for

which such a certificate or certificates is or are parts may meet the

requirement for providing the HTSUS number for the imported merchandise

with the HTSUS number(s) on such certificate(s).

In the case of exports, the HTSUS number(s) or Schedule B commodity

number(s) (to the 6-digit level in each instance) are also always

required, and they shall be from the Shipper's Export Declaration(s)

when required, or if not required, the numbers shall be the numbers

that the exporter would have set forth on the SED(s), but for the

exemption from the requirement for an SED.

As provided in Secs. 191.10(b)(12) and 191.24(b), HTSUS numbers

and/or Schedule B commodity number(s) are not required to be included

for the transferred merchandise on certificates of delivery or

certificates of manufacture and delivery unless the transferred

merchandise is the designated imported merchandise or merchandise

substituted therefor under 19 U.S.C. 1313(j)(2).

The comment regarding the possible implication that the 10-digit

HTSUS number is required for Schedule B numbers from an SED is

addressed by making clear in Sec. 191.51(c) that the 6-digit limitation

applies to both HTSUS numbers and/or Schedule B numbers.

As for the comment regarding the effect on drawback of the use of

incorrect HTSUS numbers or Schedule B commodity numbers, when those

numbers were incorrect on the entry documentation and/or SEDs from

which they were derived, the requirement is that the HTSUS numbers for

the designated imported merchandise be from the entry summary and other

entry documentation (Secs. 191.51(c), 191.10(b)(11), 191.24(b)(4)) and

that the HTSUS numbers or Schedule B commodity numbers for the exported

merchandise or articles be from the SED or, if no SED is required, the

numbers that would have been on an SED if required. Thus, in each

instance (except in the case of substituted merchandise under 19 U.S.C.

1313(j)(2), in which, according to the legislative history (see above),

classification is one of the criteria on which commercial

interchangeability is based), the HTSUS or Schedule B commodity numbers

are derived from other documents. That is, no independent

classification is required.

It is true that earlier consultations discussed a ``good faith

effort'' in the HTSUS or Schedule B commodity numbers to be used on

drawback entries and certificates. As stated in the background to the

proposed regulations, the intent of the requirement for HTSUS or

Schedule B commodity numbers was to enable Customs to ensure greater

compliance through the use of enhanced penalty and automated drawback

selectivity programs (62 FR 3090). The change from earlier discussions

under which, instead of requiring independent classification for

drawback, the HTSUS or Schedule B commodity numbers to be provided on

drawback entries and certificates are those already required (except in

the case of substitution under 19 U.S.C. 1313(j)(2), see above),

simplifies drawback procedures in this regard. As stated above, all

that is required is that the HTSUS numbers or Schedule B commodity

numbers from the entry summary and other entry documentation or the SED

be provided.

In view of these changes, Customs sees no need, benefit, or purpose

to be served by some sort of ``good faith effort'' requirement.

However, the current requirement, which merely provides for the source

of the classification number for exports, does not preclude a claimant

from explaining any discrepancy in this number for other drawback

purposes (e.g., commercial interchangeability under 19 U.S.C.

1313(j)(2) or same kind and quality under 19 U.S.C. 1313(p)).

The comment questioning whether the HTSUS number on a certificate

of manufacture and delivery is that for the imported designated

merchandise or the manufactured article raises a valid concern and is

addressed by further clarifying Sec. 191.51(c) in this respect.

Comment: A definition of the term ``perfecting'' was requested in

proposed Sec. 191.52. It was also requested that Customs develop a

formal procedure for tolling or suspending the 3-year claim completion

period during an audit, internal advice request, or other action

initiated by Customs regarding a drawback claim.

It was observed that copies of export bills of lading were

requested in proposed Sec. 191.52(b)(1), but that in proposed

Sec. 191.72(a), the original was required.

It was also asked whether protesting a drawback claim gave the

right to amend the claim even though the 3-year period may have passed.

Customs Response: Customs believes that a specific definition of

the term ``perfecting'' in Sec. 191.52 is unnecessary. The comment that

procedures should be provided for tolling or suspending the 3-year

period for completion of a claim is also not adopted. It is the

claimant's responsibility to file a complete claim; a prudent claimant

would ensure timely filing of a complete claim for all possible

applicable provisions.

The comment regarding copies or originals of bills of lading, in

Sec. 191.52(b)(1), raises a valid concern. Modifications, consistent

Sec. 191.72(a), are made here.

In response to the question of whether protesting a claim may allow

a claimant to amend a claim outside the 3-year time period, the 3-year

time period is statutory, and may not be extended unless specifically

provided for in the statute. As part of protest procedures, a claim may

be perfected, but it may not be amended (insofar as amendment would

result in a complete claim not being filed within the 3-year time

limit).

It is noted that the heading of Sec. 191.52 is changed to

``Rejecting, perfecting or amending claims'', and the heading of

paragraph (a) thereof is changed to ``Rejecting the claim''.

Comment: It was believed that, for consistency, the notification to

the applicant provided for in proposed Sec. 191.52(a)(1) should be ``in

writing.''

Customs Response: This comment has merit and is adopted.

Comment: It was asserted that proposed Sec. 191.52(a)(2) failed to

recognize the retroactive application of 19 U.S.C. 1313(p), in that the

restriction in 19 U.S.C. 1313(r)(1) did not apply to claims under

Sec. 1313(p).

Customs Response: As for the retroactive application of 19 U.S.C.

1313(p), it is Customs position that resolution of the applicability of

Sec. 1313(p) to past drawback claims will be resolved on a case-by-case

basis.

In addition, a reference to 19 U.S.C. 1313(r)(3) is included in

Sec. 191.51(a)(2) as proposed, which, as noted, is redesignated as

Sec. 191.51(e). Additionally, Sec. 191.51(e), as thus redesignated,

which provides the time for filing a completed claim, is further

modified by the addition of the statutory provision that claims not

completed within the 3-year period (unless specifically exempted) shall

be considered abandoned.

[[Page 10990]]

Comment: With reference to proposed Sec. 191.52(b), it was thought

that a new paragraph should be added to include certificates of

delivery requested by Customs among the additional evidence or

information that could be filed more than 3 years after the date of

exportation. It was also suggested that a new paragraph be added to

provide for the submission of other alternative information as approved

by the drawback office, in lieu of that set forth in proposed

Sec. 191.52(b)(1)-(3). In addition, it was mentioned that provision

should be made for a situation when the drawback office decides after

receipt of the claim that the claimant should have its own filer code.

Furthermore, it was recommended that, for consistency, the notification

to the applicant provided for in this provision should be in writing.

Customs Response: The comment suggesting the inclusion of requested

certificates of delivery to perfect a drawback claim has merit and is

adopted. The comment regarding the addition of a paragraph providing

for other alternative information is not adopted, as not necessary.

Section Sec. 191.52(b) already provides that the information described

therein may include, but not be limited to, the information set forth

in paragraphs (b)(1)-(3) thereof, as modified. The comment regarding a

claimant's filer code is not adopted, as unnecessary. The comment that,

for consistency, the notification to the filer should be ``in writing''

has merit and is adopted.

Comment: It was observed, with respect to proposed

Sec. 191.52(b)(2), that if the drawback claimant was not also the

importer, the requirement that the import entry and invoice be

submitted would be difficult to meet. The comment suggests that

providing the entry number and a full description of the imported

merchandise (but not the total duty paid or total value and volume of

the import) should be sufficient for Customs.

Customs Response: Customs believes that the total duty paid is no

more sensitive than the other information required under

Sec. 191.52(b). This comment is not adopted.

Comment: It was suggested that it be specifically set forth in

proposed Sec. 191.52(b)(2) and (3) that other types of data, in lieu of

invoices, would be acceptable.

Customs Response: Customs believes that this is unnecessary. As

previously noted, Sec. 191.52(b) already provides that the information

required may include, but is not limited to, that specifically set

forth thereunder.

Comment: Regarding proposed Sec. 191.52(c), the request was made

that the word ``original'' be added before ``drawback claim'' to avoid

confusion.

Customs Response: The comment that ``original'' should be added

before ``drawback claim'' has merit and is adopted.

Comment: A question was raised about the need for proposed

Sec. 191.53, concerning the ``restructuring'' of claims; it was asked

that this term be defined. The concern was also expressed that drawback

offices might not fairly exercise the discretionary authority given to

them in this section.

Customs Response: The procedures in Sec. 191.53 permit Customs to

require claimants to restructure their drawback claims so as to foster

Customs administrative efficiency, subject to consideration by Customs

of relevant factors (as listed in the provision). To protect the

interests of claimants, a claimant may demonstrate an inability or

impracticability in restructuring, with the criteria for so

demonstrating specifically provided, and may propose a mutually

acceptable alternative. Customs plans to provide training on the

restructuring procedures to the field drawback offices.

Subpart F

Comment: A recommendation was made that a provision be added to

proposed Sec. 191.61 for the amendment of a claimant's specific or

general manufacturing drawback ruling, if verification revealed errors

or deficiencies with respect thereto. Current Sec. 191.10(e) was

referred to here.

Customs Response: Regarding amendments to correct errors or

deficiencies found in verification, Customs agrees that Sec. 191.61

should be appropriately changed to deal with this matter, although not

with inclusion of all of the material currently in Sec. 191.10(e). In

this connection, with the change in terminology from drawback

``contracts'' to specific and general manufacturing drawback rulings,

modification of the rulings and the effect thereof are governed by 19

U.S.C. 1625 and 19 CFR part 177.

As changed, Sec. 191.61 adds a new paragraph (d), to provide that

Customs Headquarters shall be promptly informed of any errors or

deficiencies in a specific manufacturing drawback ruling or a general

manufacturing drawback ruling, the letter of notification of intent to

operate under a general manufacturing drawback ruling, or the

acknowledgment of the letter of notification of intent, and that

Customs Headquarters shall take appropriate action (with a citation to

19 U.S.C. 1625 and 19 CFR part 177).

Comment: It was stated that proposed Sec. 191.61(b) appeared to be

limited to manufacturing claims, and recommended that the language be

expanded to cover the verification of all types of claims.

Customs Response: Customs agrees. Section 191.61 is modified

accordingly.

Comment: With reference to proposed Sec. 191.61(c), even though

firm deadlines were not able to be established in the absence of

``deemed liquidated'' language, it was asked that Customs indicate the

maximum time period it planned to use to liquidate a drawback entry.

Customs Response: This comment is not adopted. It is Customs

position that, as previously set forth, no such time period must be

specified, but claimants can avail themselves of accelerated drawback

provisions to obtain early payment secured by a bond.

Comment: The suggestion was made that if the technical definition

of ``falsification'', as used in proposed Sec. 191.62, meant or implied

fraudulent activity to the exclusion of negligent activity, then, in

order to clarify the subject matter thereof (which included both fraud

and negligence), the title of proposed Sec. 191.62 should be changed.

It was also observed here that a negligent violation was not

necessarily a falsification.

Customs Response: The heading of Sec. 191.62 is changed to

``Penalties''.

Comment: The question was raised in relation to proposed

Sec. 191.62(a) as to why criminal penalties were included therein. It

was believed that Customs had agreed to eliminate the criminal

provisions if civil penalties were included in the Customs

Modernization Act.

Customs Response: Neither the statute nor the legislative history

thereto contains any such provision.

Subpart G

Comment: It was believed that the phrase, ``after receipt'', should

be added after ``4 working days'' in proposed Sec. 191.71(a).

Customs Response: Customs agrees. The provision is changed

accordingly.

Comment: For consistency, it was recommended that advising the

filer, as provided in proposed Sec. 191.71(a), be ``in writing''. It

was also stated that the 7-day period for notice before the intended

date of destruction was too long and that the same 2-day period used

for notice of export should be used.

Customs Response: Customs agrees that advising the filer should be

in

[[Page 10991]]

writing, and this provision is changed accordingly. However, Customs

disagrees that a change in the applicable time period is needed.

Customs does not anticipate undue confusion resulting from the

different time frames for different purposes.

Comment: The view was expressed that proposed Sec. 191.71(b) failed

to provide for the evidence required when the merchandise was

destroyed, in those cases where Customs did not notify the filer within

the time in proposed Sec. 191.71(a). It was believed that the wording

of this provision should be changed from, ``When Customs declines the

opportunity to attend'', to: ``When Customs does not attend (or

witness) the destruction''.

Customs Response: This comment has merit and is adopted, although

the modification of the wording, by the addition of ``(or witness)'' is

not made, as unnecessary. Evidence of destruction must be provided

whether or not Customs declines the opportunity to attend the

destruction, or Customs decides to witness the destruction but does not

do so.

Comment: A rewording of proposed Sec. 191.71(c) was recommended,

concerning the submission of evidence of destruction.

Customs Response: Customs agrees. After destruction the claimant

must provide either the Notice of Intent to Export, Destroy, or Return

Merchandise for Purposes of Drawback, certified by the Customs officer

attending the destruction, or, if Customs has not witnessed the

destruction, the evidence that destruction took place in accordance

with the approved Notice of Intent to Export, Destroy, or Return

Merchandise for Purposes of Drawback. The provision is changed

accordingly.

In addition, the heading of subpart G is changed from ``Evidence of

Exportation and Destruction'' to ``Exportation and Destruction''

because the subpart contains export and destruction provisions on

procedures as well as evidence.

Comment: It was stated that the list of documentation for

establishing exportation in proposed Sec. 191.72(a) through (e) is not

all inclusive. A suggestion was put forth here that the introductory

text of proposed Sec. 191.72 preceding paragraphs (a) through (e)

should be revised to read: ``The procedures for establishing

exportation outlined by this section include, but are not limited

to:''. It was further recommended that the word ``Alternative'' should

be removed from the heading and introductory text. It was also

suggested that the word ``time'' of exportation in the introductory

text be replaced with ``date'' of exportation.

Customs Response: The comment that ``include, but are not limited

to'' should be inserted is adopted. The use of the word ``alternative''

in the heading and introductory text of Sec. 191.72 is superfluous, as

this section contains the exportation procedures in question. The

heading is changed to ``Exportation procedures''. Also, the word

``time'' appearing in the introductory text is changed to ``date''.

Comment: The requirement in proposed Sec. 191.72(a) for an original

bill of lading was said to be inconsistent with industry practice. The

elimination of this requirement was requested.

Customs Response: Customs agrees that the requirement for ``the

original'' bill of lading or other document is inconsistent with actual

practice. The provision is thus changed to provide for ``an originally

signed bill of lading, air waybill, freight waybill, Canadian Customs

manifest, and/or cargo manifest, or copies thereof certified by the

exporting carrier or holder of the original, issued by the exporting

carrier''. This is consistent with C.S.D. 82-59.

Comment: The recommendation was made that a separate column be

added in the sample format for the export summary procedure in proposed

Sec. 191.73, to indicate the exporter's name, if different from the

claimant. Additionally, it was asked if this procedure could be used

for transfers to a foreign trade zone.

It was also noted that the capitalization of Chronological Export

Summary was inconsistent in this provision.

Customs Response: A column is added to the sample format in

Sec. 191.73 to indicate

This text is long and has been trimmed here. Open the source document for the complete record.