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Drawback Entries are Deemed Liquidated Despite Outstanding Underlying Entries, Court Says

Thursday, February 05, 2015
Sandler, Travis & Rosenberg Trade Report

A recent U.S. Court of International Trade ruling determined that automaker Ford is not responsible for returning duty drawback it received for materials imported in the 1990s and early 2000s. The CIT decision clarifies the proper interpretation of 19 USC 1504(a)(2)(C) and provides leverage for other importers that may have had drawback claims denied by U.S. Customs and Border Protection in violation of this provision.

Drawback is a refund of up to 99 percent of the duties paid upon importation of an article or material that was later exported, and its purpose is to encourage the domestic manufacture of articles for export. CBP’s general practice is to defer the liquidation of drawback claims until either the liquidation of all underlying import entries has become final or the claimant has filed a waiver with a deposit of any additional duties owed, although there is no law requiring such a delay. In addition, prior to Dec. 3, 2004, the liquidation statute did not expressly address the deemed liquidation of drawback claims.

In 2004, “concerned that growing numbers of aging drawback claims were collecting dust at Customs” and could result in financial liability for importers, Congress enacted a law giving CBP one year to finalize all drawback claims filed by Dec. 4, 2004, and requiring CBP to liquidate future drawback claims within a specified period of time. Specifically, 19 USC 1504(a)(2)(C) states that an entry or claim for drawback that was filed before Dec. 4, 2004, and had not been liquidated as of Dec. 4, 2005, would be deemed liquidated at the amount asserted by the claimant at the time of the entry or claim. The 17 drawback claims at issue in this case were all filed before Dec. 3, 2004, and remained unliquidated as of Dec. 3, 2005, and Ford therefore argued that all 17 claims were deemed liquidated by operation of law.

CBP, however, held that subparagraph (C) does not apply to the drawback claims at issue because each of them had at least one underlying import entry that was unliquidated and not final as of Dec. 3, 2005.  Instead, CBP argued, these 17 claims were subject to subparagraph (B), which specifies certain deposit, liquidation request and waiver requirements that Ford failed to meet. CBP therefore claimed that it was entitled to the return of drawback it determined, after the deemed liquidation deadline expired, was paid in error.

The CIT rejected CBP’s position, pointing out that subparagraph (C) makes no mention of underlying import entries, let alone a requirement for their liquidation.  “The interpretation that Customs and the government give subparagraph (C) thus could be sustained only if one were to conclude that Congress did not mean what it unambiguously and unequivocally said,” the court wrote. As a result, the drawback entries at issue were deemed liquidated by operation of law and Ford is not required to return any of the associated drawback it received.

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