HQ 0222064 - The Request For Advice of the Assistant Regional Commissioner (Operations) Dated January 17, 1990, Concerning The Principal-Agency Relationship For Drawback - United States International Trade Commision Rulings

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HQ 222064

April 10, 1990

DRA-CO:R:C:E 222064 K

CATEGORY: DRAWBACK

Regional Commissioner of Customs
Southwest Region
5850 San Felipe Street
Houston, Texas 77057-3012

RE: The Request For Advice of the Assistant Regional Commissioner (Operations) Dated January 17, 1990, Concerning The Principal-Agency Relationship For Drawback

Dear Sir:

The ruling which follows is in response to the above- referenced request.

FACTS:

Corporation A imported raw sugar and refined it in October 1986. In September 1989, Corporation B succeeded Corporation A. It is assumed that Corporation A ceased to exist. Thereafter, Corporation B contracted with Corporation C to refine domestic (substituted) raw sugar for Corporation B presumedly in compliance with a principal-agency agreement under Treasury Decision 55207(1). The sugar refined by C was exported. B claimed drawback and designated as the basis for drawback the imported duty-paid raw sugar that was imported and used in production by the former Corporation A.

ISSUE:

Under the facts above, the issue is whether Corporation B, as the same legal entity, used both imported duty-paid and substituted merchandise of the same kind and quality in the manufacture or production of articles exported for drawback as required by 19 U.S.C. 1313(b). The answer is no, it did not.

LAW AND ANALYSIS:

As acknowledged in Customs Service Decision (C.S.D.) 86-11, there is a long administrative precedent which holds that the same legal entity (person) that uses substituted merchandise to manufacture or produce the exported articles claimed for drawback under 19 U.S.C. 1313(b) must also use in manufacture or production the duty-paid merchandise which is designated as the basis for the claim. In C.S.D 89-12, we noted that it is settled law that the corporation absorbed in a merger, or consolidation ceases to exist and its existence is not, in any way or form, continued in the surviving or resultant corporation which constitutes a different legal being altogether. Corporation A used the imported designated merchandise in a manufacture or production and then ceased to exist as a legal entity. Corporation B, as the successor of Corporation A, became a new legal entity and as such, Corporation B did not use imported designated merchandise as the basis for drawback.

The use requirement under 19 U.S.C. 1313(b) does not require the ownership of the duty-paid designated and substituted merchandise by the manufacturer or producer. It does require that the same legal entity must use both the designated and the substituted in the manufacture or production of articles. However, the principal-agency relationship under T.D.s 55027(2) and 55207(1) requires that the principal must own both the imported designated and substituted merchandise which it furnishes to its agents under contract for use in the manufacture of new articles for the account of the principal. Under such circumstances, the principal is treated as the same legal entity that satisfied the use requirement of 19 U.S.C. 1313(b). Corporation B did not exist when Corporation A imported and used the raw sugar in a manufacture or production. In the facts in this case, Corporation B did not own and could not have owned the duty-paid raw sugar imported and used by the former Corporation A in a manufacture or production. Since Corporation B did not own the imported duty-paid raw sugar as required by T.D. 55027(2), it could not contract with Corporation A to use that raw sugar in a manufacture or production for the account of Corporation B. The principal-agency relationship is not applicable under these circumstances. See C.S.D. 83-72 for a full discussion of the principal-agency relationship.

HOLDINGS:

A successor corporation cannot designate as the basis for drawback under 19 U.S.C. 1313(b) imported duty-paid merchandise which was used by the former corporation in the manufacture or production of articles.

A principal, under the principal-agency relationship (T.D.s 55027(2) and 55207(1)), must own both the imported duty- paid and the substituted merchandise used by his agents in the manufacture or production of articles in order for the principal to be considered as the same legal entity that satisfied the use requirement of substitution manufacturing drawback (19 U.S.C.

These holdings follow C.S.D.s 89-12 and 83-72

Sincerely,

Jerry Laderberg

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