Duty Drawback Simplification Adapting Your Procedures

Transcription

1 Duty Drawback Simplification Adapting Your Procedures 1

2 Speakers Michael V. Cerny is Vice President of Sandler & Travis Trade Advisory Services, a global trade compliance management provider and licensed Customs broker specializing in duty drawback and other trade services. Mr. Cerny is also an a member of Sandler, Travis & Rosenberg, a law firm focused exclusively on customs and trade law. Together, STTAS and ST&R form the largest customs and international trade services provider in the world. Mr. Cerny is the Chair of the Drawback Committee for the National Customs Brokers & Forwarders Association of America. He was selected by U.S. Customs & Border Protection to serve as a Trade Ambassador as part of the Trade Support Network (TSN), and the Trade Leadership Council, and is Chair of the TSN Drawback Committee, Co-Chair of the TSN Legal Policy Committee, and a member of the TSN Entry Committee. Mr. Cerny is Co-Chair of the Drawback and Duty Deferral Committee of the American Association of Exporters & Importers, as well as a member of that organization s Board of Governors and Nominating Committee. Mr. Cerny is admitted to the United States Court of International Trade and is a member of the Customs & International Trade Bar Association, the American Bar Association Section of International Law & Practice, the New York State Bar Association, and the Association of the Bar of the City of New York. Mr. Cerny also serves on the Simplification, Drawback Regulations, and ACE Drawback working groups, as well as on the COAC Rulings Subcommitee. 2

3 Speakers David Corn is a Vice President with Comstock & Theakston Inc., starting his drawback career in David was appointed to the cochair position of AAEI's Drawback and Duty Deferral Committee in 2015 and is active on the NCBFAA Drawback Committee. He also serves on a working group for the Trade Support Network that is coordinating efforts with CBP to write the new drawback CATAIR to fulfill the user requirements for ACE. Mr. Corn has discussed drawback legislation with congressional representatives from NJ, NY, CT, the House Ways and Means Committee and the Senate Finance Committee. Mr. Corn has a Bachelor of Science degree from The Ohio State University in Consumer Affairs, is a Licensed Customs Broker (LCB) and a Certified Customs Specialist (CCS). 3

4 The Purpose of Drawback Drawback is the last remaining export promotion program that is sanctioned by the World Trade Organization/GATT As stated by Congress, [t]he rationale for drawback has always been to encourage American commerce or manufacturing, or both. It permits the American manufacturer to compete in foreign markets without the handicap of including in his costs, and consequently in his sales price, the duty paid on imported merchandise. See the Legislative History Report of the Customs Mod Act from the House Ways and Means Committee, House Report , 103d Cong., 1st Sess. (1993) Customs states that [t]he purpose of drawback is to enable a manufacturer to compete in foreign markets. To do so, however, the manufacturer must know, prior to making contractual commitments, that he will be entitled to drawback on his exports. The drawback procedure has been designed to give the manufacturer this assurance and protection. 4

5 Why Change Drawback? One word simplification Streamline a process Move to 8-digits Make it user friendly and less complex Decrease the cost and administrative burden for both CBP and manufacturers/exporters 5

6 Taking Effect When does the new law take effect? Subsection (q) of the new law states that the amendments made by Section 906 take effect On the date of enactment, and apply to drawback filed on or after the date that is 2 years after such date of enactment. However, there is a transition rule which says that for one year after the date that filings can be made under the new law, drawback claims can be filed under the new law (1313 as amended) or the old law (1313 prior to the amendments) Application of the new law is not subject to the operation of ACE 6

7 What About Regulations? The new Subsection (l)(2) of Section 313 requires CBP to prescribe regulations: Within 2 years after the date of enactment - February 24, 2018, and That determine the calculation of amounts to be refunded as drawback under the new law. The new law is a statutory change, and CBP must prescribe regulations to implement the new law Expect an NPRM, hopefully later this summer The need for CBP and the Trade to work together in drafting Congressional oversight will be part of the process Not impacted by Trump moratorium on new regulations 7

8 Yet Another Government Report Subsection (p): Government Accountability Office Report to be completed one year after issuance of the regulations Assessment of modernization of drawback and refunds under the new law Description of permissible claims before and after the effective date and identification of the affected industries Description of drawback claims not permissible before the effective date that are now permissible and the affected industries Study to be submitted to Ways & Means and Finance Committees Why a GAO study? 8

9 Substitution Unused Merchandise Drawback 1313(j)(2) Standard for substitution is 8-digit HTS, not commercial interchangeability Limitations if your 8-digit HTS starts with other 5 years import to claim No more Certificates of Delivery New rules for calculating drawback amount Consider value of exported/destroyed items Drawback for recovered materials 9

10 1313(j)(2) Drawback What does 8-digit substitution mean? It means just that, same 8-digit HTS in and out Schedule B can be used at export, and it could be broader- without regard to whether the Schedule B number corresponds to more than one 8-digit HTS subheading Your Entry Summary could have an incorrect HTS, but still qualify for drawback (PEAs, Protests, Disclosures, Rulings, Court Cases) Previous CIDs and CI rulings are irrelevant No need for CIDs - obtain a classification ruling 10

11 1313(j)(2) Drawback 8-digit substitution and other categories What is this about? Basket Provisions You may not be able to use j2 if your 8-digit HTS starts with the word other However, you can use j2 if your 8-digit HTS has 10 digit breakouts and you product s breakout doesn t start with the word other. If your 10 digit HTS begins with other, then you can only claim drawback under 1313(j) using j1. 11

12 1313(j)(2) Drawback 8-digit substitution and other categories Example, 8509 Electromechanical Domestic Appliances (j)(1) 12

13 1313(j)(2) Drawback New Statutory Time Requirements Current Law: Date of Import Date of Export Date of Claim 3 Years 3 Years New Law: Date of Import Date of Export Date of Claim 5 Years 13

14 1313(j)(2) Drawback Certificates of Delivery Eliminated Transfers of merchandise may be evidenced by business records kept in the normal course of business and no additional certificates of transfer shall be required. Expect to see regulations as to what business records may be used to support evidence of transfer 14

15 1313(j)(2) Drawback What does this mean? You do not need CDs under the new law Transfers need only be evidenced by business records kept in the normal course of business, such as invoice and shipping records (what, by whom, to whom, when) Must be received directly or indirectly (intermediate transfers) from the importer With joint and several liability, some importers may feel more comfortable with agreements and some type of transfer records (a private CD?) 15

16 1313(j)(2) Drawback Calculating Drawback 1313(l) Every drawback provision now points to (l) for the drawback calculation. 1313(l)(2)(A): Not later than the date that is 2 years after the date of the enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (or, if later, the effective date provided for in section 606(q)(2)(B) of that Act), the Secretary shall prescribe regulations for determining the calculation of amounts refunded as drawback under this section. 16

17 1313(j)(2) Drawback Calculating Drawback 1313(l) The regulations required by subparagraph (A) for determining the calculation of amounts refunded as drawback under this section shall provide for a refund of equal to 99 percent of the duties, taxes, and fees paid on the imported merchandise, which were imposed under Federal law upon entry or importation of the imported merchandise, and may require the claim to be based upon the average per unit duties, taxes, and fees as reported on the entry summary line item, or if not reported on the entry summary line item, as otherwise allocated by U.S. Customs and Border Protection 17

18 1313(j)(2) Drawback This means: Customs must write regulations to explain calculation of drawback They must provide for an amount equal to 99% of the duties, taxes, and fees paid Customs can choose to issue regulations providing for calculation of duties, taxes and fees based upon the average line item amount Possibly no change in the calculation method Alternatively, CBP could require all calculations to use the average Third possibility is a hybrid approach requiring average for substitution and invoice level calculation for direct ID If claimed at invoice level, possibly not available for substitution Could result in tough decisions for drawback claimants 18

19 1313(j)(2) Drawback: Lesser Of Rule You are limited to no more than drawback of 99% of the duties, taxes, and fees that would apply to the exported or destroyed merchandise. However, for substitution, the calculation is limited by the value of the exported/destroyed item 19

20 1313(j)(2) Drawback: Lesser Of Rule What does this do? You can t import an expensive race car and then export an economy car and get the full duty, taxes and fees on the race car. You are limited by the value of the economy car. Another example: Montblanc for BIC pen 20

21 1313(j)(2) Drawback: Lesser Of Rule Questions for regulations How do you determine value of the exported item? Export Invoice EEI Other method How do you determine value of the destroyed item? Original Invoice Value Current Inventory Value 21

22 1313(j) Drawback 1313(x) Recovered Materials now applies to (j) For purposes of subsections (a), (b), (c), and (j), the term destruction includes a process by which materials are recovered from imported merchandise or from an article manufactured from imported merchandise. In determining the amount of duties to be refunded as drawback to a claimant under this subsection, the value of recovered materials (including the value of any tax benefit or royalty payment) that accrues to the drawback claimant shall be deducted from the value of the imported merchandise that is destroyed, or from the value of the merchandise used, or designated as used, in the manufacture of the article. 22

23 Direct Identification, 1313(j)(1) Drawback What has changed? Use the new 5-year time frame Same drawback calculation under (l) (same condition?) CDs are eliminated Will be claimed by only: (1) those with 8-digit HTS numbers that fail the other rule (2) those who otherwise can t use substitution (3) those with same condition under NAFTA and US-Chile, and (4) those folks who want to punish themselves 23

24 Manufacturing Drawback Calculations 1313(a) & 1313(b) calculations are now found in 1313(l) For manufacturing direct identification, will be equal to 99% of duties, taxes, and fees paid on the imported merchandise Need specific definitions in new regulations for average per unit on the entry summary line item Can collect taxes and fees 24

25 Manufacturing Substitution Drawback Lesser-of Calculation The regulations required by subparagraph (A) for determining the calculation of amounts refunded as drawback under this section shall provide for a refund of equal to 99 percent of the duties, taxes, and fees paid on the imported merchandise incorporated into an article that is exported or destroyed.except that where there is substitution of the imported merchandise, then- i. in the case of an article that is exported, the amount of the refund shall be equal to 99 percent of the lesser of- (I) the amount of duties, taxes, and fees paid with respect to the imported merchandise; or (II) the amount of duties, taxes, and fees that would apply to the substituted merchandise if the substituted merchandise were imported; AND If destruction only, reduced by the value of the materials recovered during destruction 25

26 Manufacturing Substitution Drawback Major Changes 8-digit for 8-digit for substituted merchandise, looking at the components used in the manufacturing process Same kind and quality rulings are no longer required No tracking of receipt date and broader time limit requirement on use BOM will be required to be submitted with substitution manufacturing claims BOM will require HTS and value of both the imported designated and substituted merchandise Includes a special rule for sought chemical elements CDs and CMDs no longer required (transfer of merchandise) Claim HMF and MPF refunds 26

27 Manufacturing Substitution Drawback Sought Chemical Elements Statute has special provision to protect sought chemical elements within 8-digit substitution (tied to calculation subsection (l)) Sought elements in today s world with apportioned quantity Import and designate titanium sponge (99kg pure) Or substitute scrap (99kg pure titanium) Use any combination of sponge and scrap Export article containing 99kg pure titanium Apportion duty paid on 100kg of sponge with 99% duty to pure titanium content 27

28 Manufacturing Substitution Drawback Sought Chemical Elements Lesser-of provision was added late Intent was to leave the apportionment to be based on the value of the metal is the substituted material, not based on duty alone Regulations should clarify based on value, but appears as if lesserof will apply Will be impact to some claimants here 28

29 5 years 3 years Manufacturing Drawback Timeframes Current 1313(a) 5 years Import Manufacture Export Future 1313(a) and (b) Import Import Current 1313(b) Manufacture 5 years Plant Used in Manufacturing 3 years Export Article Manufactured File Claim Export 29

30 1313(c) Merchandise Not Conforming to Sample or Specification Amendments to synchronize with new concepts Eliminating certificates of delivery Changing timeframe from 3 years to 5 years Changing the Customs Service to U.S. Customs and Border Protection Refund amount will be determined by calculation language in 1313(l) Evidence of Transfers by ordinary business records 30

31 1313(p) Substitution of Petroleum Products Amendments to synchronize with new concepts Changing Harmonized Tariff Schedule of the United States to HTS Eliminating certificates of delivery Evidence of Transfers by ordinary business records 31

32 Proof of Exportation Amendments to 1313(i) Proof of exportation shall establish fully the date and fact of exportation and the identity of the exporter Records to meet the above can be: (1) Records kept in normal course of business or (2) Electronic export system of the U.S. as determined by U.S. Customs and Border Protection 32

33 Liability for Drawback Claims Amendments to 1313(k) Any person making a claim for drawback shall be liable for the full amount claimed Liability for Importers will be lesser of (1) amount claimed with respect to the imported merchandise; or (2) amount that the importer authorized other person to claim with respect to the imported merchandise Joint and Several Liability (hierarchy?) 33

34 Recordkeeping Time Frame What has changed? The current law is three years from date of payment Today, many claims are paid accelerated and can take more than 3 years to liquidate. A desk review can actually be made AFTER the recordkeeping time frame has expired Under new law, it is 3 years from the date of liquidation of the claim This could be a period of time that is required now, but it will also ensure that records are kept through liquidation 34

35 Adapting Your Procedures: Data Start collecting data based on known statutory changes Still waiting on regulations to provide specifics, but will need to add line item number when new law begins Some overlap with development of ACE and new fields needed (i.e., fees, line item number, etc.) Utilize ACE and ITRAC for full view of imports and exports Data for the last several years; may assist in filling data gaps within your system 35

36 Adapting Your Procedures: Applications and Claims Filing applications May need to file additional applications for opportunities that didn t exist before, specifically with unused substitution Waiting on direction from CBP policy for different types of (j) drawback approval Claim preparation Claim frequency may increase due to change in drawback type and due to transition to ACE Additional programming necessary to allow for new fields and new CATAIR 36

37 Adapting Your Procedures: Classification Examine, correct, and document HTS numbers for imports, domestic items, exports Identify items classified as other, as you may be required to claim on a different unused type Record value of substituted merchandise (for unused and manufacturing) 37

38 Adapting Your Procedures: Additional Opportunities Drawback trading Concept for petroleum drawback today Other commodities can trade in 2018 with TFTEA Match on 8 or 10-digit HTS, subject to other restrictions Expands on opportunities for companies that only import OR export Works outside of your current drawback program Prospective only 38

39 Questions and Contact Information Michael V. Cerny STTAS/Sandler, Travis & Rosenberg 24 Smith Street Building 2, Suite 101 Pawling, NY (212) David Corn Comstock & Theakston, Inc. 466 Kinderkamack Road Oradell, NJ (201) x103 39