| M E M O R A N D U M | |
| TO: | Clients and Friends of the Firm |
| FROM: | Neville Peterson LLP |
| RE: | Synopsis of H.R. 1047, the Miscellaneous Trade and Technical Corrections Act of 2003 |
I. INTRODUCTION
The House of Representative recently passed H.R. 1047, the Miscellaneous Trade and Technical Corrections Act of 2003 ("MTTCA"). Composed largely of legislation "carried over" from the 107th Congress, the MTTCA would suspend tariffs on a wide range of imported goods, and would enact a number of changes to the Customs laws which, while technical, will be extremely useful and important to importers and exporters.
In particular, the MTTCA contains some significant amendments to the duty drawback statute [19 U.S.C. Section 1303], and will create some money-saving opportunities for drawback claimants.
The Senate is considering companion legislation, and it is expected that the MTTCA will be enacted in substantially its current form. This Memorandum describes the major features of the new legislation, and discusses steps which companies may wish to take to prepare for its enactment.
II. DUTY SUSPENSIONS AND REDUCTIONS
New Temporary Duty Suspensions and Reductions
Title I, Subtitle A of H.R. 1047 would enact "new" temporary duty suspensions or reductions for hundreds of imported products. The text of the bill, identifying the various products covered by duty suspension, is available on the GPO website.
As is customary for legislation of this kind, most of the products whose tariffs will be suspended are chemicals, drugs, pigments, and similar products (many of which are proprietary or enjoy patent monopoly protection). However, the law would also suspend tariffs for a diverse range of other products, such as acrylic fiber tow, certain children's products, machines used in the manufacture of tires, certain artichokes, textile production machinery, rubber riding boots, certain tire cord fabric, laboratory glassware, night vision devices and automotive sensor magnets.
Extension of Existing Duty Suspensions and Reductions
In addition, Section 1501 of H.R. 1047 would also extend, through December 31, 2005, certain existing duty suspensions covering a variety of products, mostly chemicals. These duty suspensions expired at the end of 2002.
Unlike other parts of H.R. 1047, the changes made by Section 1501 of the bill would apply to "goods entered, or withdrawn from warehouse for consumption, on or after January 1, 2003", thereby ensuring continuous that the existing duty suspensions are not interrupted.
III. PROVISIONS DIRECTING THE "RELIQUIDATION" OF CERTAIN ENTRIES
Liquidation or Reliquidation of Certain Entries
H.R. 1047 also contains a number of provisions directing the Customs Service to reliquidate certain specified entries of merchandise, generally to assess a reduced duty thereon. Typically, these types of "reliquidation" statutes are targeted at the activities of specific importers, and generally provide relief to such importer – for example, in cases where the importer failed to timely file a meritorious protest challenging a duty assessment.
Products covered by the Act's "reliquidation" provisions include certain tramway cars, a Liberty Bell replica, certain cotton gloves, posters, 13-inch televisions, neoprene synchronous timing belts and certain other entries of unspecified merchandise alleged to have been "prematurely liquidated in error".
Reliquidation of Certain Apparel Articles from Caribbean Countries
Section 1608 of H.R. 1047 provides a procedure whereby an importer may petition the United States Customs Service to liquidate or reliquidate, free of duty and free of any quota restrictions, certain articles made in Caribbean countries and entered into the United States on or after October 1, 2000. The covered products are:
(1) Entries of apparel articles (other than socks provided for in Heading 6115 of the Harmonized Tariff Schedule of the United States) that meet the requirements of Section 213(b)(2)(A) of the Caribbean Basin Economic Recovery Act. . . ; and
(2) Entries of apparel articles that meet the requirements of Section 112(b) of the African Growth and Opportunity Act. . . .
An importer seeking reliquidation of qualifying apparel products must file an application for such liquidation or reliquidation no later than ninety (90) days of enactment of H.R. 1047.
IV. CHANGES TO THE DUTY DRAWBACK LAWS
The MTTCA's most long-reaching impact is likely to result from its provisions making important substantive and procedural changes to the duty drawback statute, Section 313 of the Tariff Act of 1930, as amended, [19 U.S.C. Section 1313].
The drawback changes provide special opportunities for exporters and drawback claimants, since they do not merely apply to future transactions, but also apply to any drawback claim filed before the new law is enacted, "if the liquidation of the entry is not final on that date".
Drawback claimants can preserve their right to possible additional drawback refunds by filing claims as promptly as possible – even if the claim would not otherwise be allowable until the new amendments enter into force.
Articles Shipped to U.S. Insular Possessions
Historically, the shipment of goods from the United States to U.S. insular possessions has not been considered an "exportation" for drawback purposes, since the goods are not united with the commerce of a foreign country.
Section 1706 of the MTTCA adds a new subsection 313(y) to the Tariff Act of 1930 which would provide that imported, duty-paid goods which are exported to a U.S. insular possession will be eligible for drawback under the direct identification unused merchandise drawback statute, 19 U.S.C. Section 1313(j)(1). 1 The new section, in its entirely, identifies the U.S. insular possessions which are covered by the legislation:
(y) ARTICLES SHIPPED TO THE UNITED STATES INSULAR POSSESSIONS. - Articles described in subsection (j)(1) shall be eligible for drawback under this section if duty was paid on the merchandise upon importation into the United States and the person claiming the drawback demonstrates that the merchandise has entered the Customs territory of the United States Virgin Islands, American Samoa, Wake Island, Midway Islands, Kingman Reef, Guam, Canton Island, Enderbury Island, Johnston Island, or Palmyra Island.
Drawback of Harbor Maintenance Tax (HMT); Unused Merchandise Drawback Claims
While the manufacturing drawback statute provides only for drawback of duty, the unused merchandise drawback statute, 19 U.S.C. Section 1313(j), provides for drawback of any "duty, tax, or fee imposed under Federal Law" on imported merchandise "because of its importation". In Texport Oil Co. v. United States, 185 F.3d. 1291 (Fed. Cir. 1999), 2 the Court of Appeals of the Federal Circuit ruled that while merchandise processing user fees (MPFs) were "fees" eligible for drawback under this provision, the Harbor Maintenance Tax (HMT), imposed on waterborne imports at the rate of 0.125% ad valorem, was not. The Federal Circuit reasoned that the HMT was not imposed on imported goods "because of its importation" since the tax applied to all cargoes moved by water to a United States port, including domestic movements.
Section 1707 of the proposed MTTCA would make the import HMT eligible for unused merchandise duty drawback by amending the statutory requirement to pay drawback of any "tax or fee imposed under Federal law because of its importation" to a requirement to pay drawback with respect to "any duty, tax or fee imposed under Federal law upon entry".
This provision creates another significant drawback expansion opportunity for firms filing 19 U.S.C. Section 1313(j) "unused merchandise" drawback claims, since the new rule would apply prospectively, and to any past drawback claim which has not become final as of the date of enactment of the new statute. Claimants who have filed past drawback claims under 19 U.S.C. Section 1313(j) should file protests, or otherwise prevent their drawback claims from becoming liquidated and final, pending enactment of the MTTCA.
The HMT drawback provision will also apply, by statutory reference, to drawback claims filed under the petroleum substitution provisions, 19 U.S.C. Section 1313(p).
Expansion of "Rejected Merchandise" Drawback [19 U.S.C. Section 1313(c)]
The MTTCA will overhaul Section 313(c) of the Tariff Act of 1930, which provides for "rejected merchandise" drawback. At present, this statute allows a drawback where imported goods are shipped without the consent of the consignee, or are determined at the time of importation to be defective or not in accordance with specifications.
Section 1713(a) of H.R. 1047 would expand Section 313(c) to allow rejected merchandise drawback where the imported goods are "ultimately sold at retail by the importer, or the person who received the merchandise from the importer under a certificate of delivery, and for any reason returned to and accepted by the importer, or the person who received the merchandise from the importer under a certificate of delivery". This relieves the drawback claimant of its current burden of demonstrating that the goods were defective at the time of entry. It will also expand opportunities for purchasers of imported goods, retailers and others to claim this type of drawback in cases where they acquire defective goods which are subsequently exported or destroyed under Customs supervision.
Domestic Merchandise Acquired in Exchange for Imported Merchandise
Subsection (k) of 19 U.S.C. Section 1313 provides that, in the case of manufacturing drawback [19 U.S.C. Sections 1313(a), (b)], the use in manufacture of domestic merchandise acquired in exchange for imported merchandise of the "same class or kind" will be treated as a use of the imported merchandise for drawback purposes -- provided, that no Certificate of Delivery (CD) is issued for the imported merchandise.
The MTTCA creates a new form of permissible substitution, allowing the use, for purposes of 19 U.S.C. Section 1313(a) and (b) "of any domestic merchandise acquired in exchange for a drawback product of the same kind and quality. Here again, no Certificate of Delivery (CD) or Certificate of Manufacture and Delivery (CMD) may be issued with respect to the "drawback product" acquired.
Drawback on Packaging Material
The circumstances under which drawback may be claimed with respect to exported packaging materials have been problematic. Section 1713(d) of the MTTCA would amend Section 1313(q) of the Tariff Act to clarify the situations under which packaging material may be claimed for drawback.
Section 1313(q)(1) would specify that, for purposes of the unused merchandise drawback law [19 U.S.C. Section 1313(j)] imported duty-paid packaging material may be exported and claimed for drawback. Section 1313(q)(2) would provide that packaging material manufactured under drawback procedures will qualify for manufacturing drawback upon exportation.
Section 313(q)(3) would specify that the packaging materials described above would remain eligible for drawback whether exported empty or with contents, and whether or not any articles or merchandise they contain are eligible for drawback.
Moreover, Section 313(q)(4) specifies the use of any packaging material for its intended purpose prior to exportation will not be treated as a "use" of such material prior to exportation for purposes of the manufacturing, rejected merchandise or unused merchandise drawback laws.
"Automatic Liquidation" of Drawback Claims
At present, while import entries may be "deemed liquidated" 1 year after the date of entry (unless liquidation is extended by Customs or suspended by operation of law), there is no limitation on the liquidation of drawback claims. It is not unusual for Customs to allow drawback claims to remain unliquidated for between 5 and 10 years.
Now, however, Section 1713(e) of the MTTCA will establish a 1 year "deemed liquidation" period for drawback claims. The new law would add a new subsection (a)(2) to Section 504(a) of the Tariff Act, providing that, unless an entry or claim for drawback is extended or suspended as required by law or Court order, "an entry or claim for drawback not liquidated within 1 year from the date of entry or claim shall be deemed liquidated at the drawback amount asserted by the claimant at the time of entry or claim". Customs need not provide notice of any such "automatic liquidation".
However, there are some exceptions to the "automatic liquidation" of drawback claims.
A drawback claim whose designated or identified entries have not been liquidated and have not become final within 1 year after the filing of a drawback claim will be deemed liquidated upon the deposit of estimated duties on the unliquidated imported merchandise, upon the filing with Customs of a written request for the liquidation of the drawback entry or claim. Such a request must include a waiver of any right to payment or refund under any other provision of law.
In, addition, liquidation of a drawback claim may be extended beyond the one-year period, upon notice to the importer of record or drawback claimant, as the case may be, and its surety, if Customs requires additional information concerning the proper appraisement or classification of imported or withdrawn merchandise, or if Customs requires additional time to determine the correct drawback amount or to ensure compliance with applicable law. Liquidation of a drawback claim may also be extended upon a request of the importer of record or the drawback claimant, for good cause shown.
As in the case of import entries, a four (4) year maximum period for the extension of liquidation of drawback claims is established by the statute.
The MTTCA also provides that a drawback claim filed before the enactment of H.R. 1047, whose liquidation is not final as of the date the law is enacted, shall be deemed liquidated on the date that is 1 year after the date the law is enacted, at the drawback amount asserted by the claimant at the time of entry or claim. This means that, unless Customs begins more timely liquidation of drawback claims, there are likely to be a large number of "deemed liquidations" one year after H.R. 1047 is enacted into law. Drawback claimants will need to be careful to ensure that timely protests, if necessary, are filed against such liquidations.
The law further provides that refund of duties will be made to the importer or record or drawback claimant, not later than 90 days after liquidation of the drawback claim.
V. OTHER MISCELLANEOUS PROVISIONS
Expansion of CBERA Benefits for Certain Footwear
Section 1708 of the Act will extend duty-free treatment under Caribbean Basin Economy Recovery Act (CBERA) to certain types of footwear manufacture in certain beneficiary countries.
The footwear which will require for this treatment are certain leather footwear provided for in HTS subheadings 6403.50.60, 6403.91.30, and 6403.99.60. In order to qualify for CBERA treatment, footwear is so classifiable must satisfy the requirements of CBERA ("substantial transformation, 35% value-content limit, direct importation, etc.), and must be a good of a country which is a beneficiary of the Caribbean Basin Trade Preference Act (CBTPA).
The new provision appears to favor a fairly specific group of leather footwear produced in certain Caribbean nation and imported in the United States 3
New Tariff Provisions
H.R. 1047 establishes new tariff provisions covering certain hair clippers, tractor body parts, flexible magnets and goods containing flexible merchandise and certain hand-knotted or hand-woven carpets.
Integrated Border Inspection Areas (IBEAs) on U.S.-Canada Borders
The MTTCA would also authorize the Secretary of the Treasury to work with the Canada Customs and Revenue Agency (CCRA) to establish "Integrated Border Inspection Areas" These areas would be staffed by Customs officials of both countries, and would inspect conveyances before they gain access to certain border infrastructure, such as bridges and tunnels.
In addition, the MTTCA empowers the Secretary to permit the posting in the United States of Customs and agriculture inspection officials from foreign countries, provided the foreign countries extend reciprocal rights to the United States.
Other Provisions
The MTTCA would also extend permanent nondiscriminatory tariff status to Serbia and Montenegro, require a new study of Customs user fees and the rates at which they are charged, and make a number of other technical amendments.
VI. CONCLUSION
The Senate is currently considering companion legislation to H.R. 1047. Since the measure is largely a carry-over from the last Congress and most of its provisions have been thoroughly vetted through the appropriate Congressional committees and Executive Branch agencies, enactment of the law is expected relatively quickly. We will monitor Customs' progress concerning this bill, and will advise clients of any developments concerning its enactment.
In the meantime, companies which may be affected by the provisions of the bill should consider how they might best prepare for its enactment. We stand ready to furnish any assistance which importers and drawback claimants may require in this regard.
Please contact us if we can furnish any additional information or assistance concerning this significant new legislation.
However, importers have determined that where certain footwear is produced in a CBERA country entirely from United States-origin materials, the footwear may qualified to enter the United States free of duty under section 222 of the Customs and Trade Act of 1990. Consequently, there is a fairly robust footwear manufacturing sector in several CBERA countries.
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