HQ 0222784 - Manufacturing Drawback; Request for Extension or Waiver of the 5-Year Time Limitation for Exportation; 19 U.S.C. 1313(i); 19 CFR 191.8(a) - United States International Trade Commision Rulings

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HQ 222784

February 4, 1991

DRA-2-02-CO:R:C:E 222784 PH

CATEGORY: DRAWBACK

Ms. Jennifer M. Tomlinson
Mr. Bruce H. Leeds
Hughes Aircraft Company
Post Office Box 45066
Los Angeles, California 90045-0066

RE: Manufacturing Drawback; Request for Extension or Waiver of the 5-Year Time Limitation for Exportation; 19 U.S.C. 1313(i); 19 CFR 191.8(a)

Dear Ms. Tomlinson and Mr. Leeds:

In your letter of October 15, 1990, you request an extension or waiver of the 5-year time limitation provided in 19 U.S.C. 1313(i) with regard to manufacturing drawback for components imported for use in the manufacture of a series of communications satellites. We have received an endorsement of your request from the International Telecommunications Satellite Organization (Intelsat). Our ruling follows.

FACTS:

You state that in April of 1982 Intelsat contracted with your company for the manufacture of five satellites. Foreign participation was mandated in the Intelsat prime contract and component parts were imported from numerous international suppliers, primarily from 1983 to 1986. Under Intelsat's contract with your company and the launch providers, the imported components were to be manufactured into satellites within three years of receipt and launches or exports were to occur within 5 years of the date of importation of the components. Thus, you state, duty was paid with the good faith expectation that the manufacture and launch of the satellites would be well within the time period required for manufacturer's drawback claims.

You state that the five satellites were contractually scheduled for launch from April of 1986 through August of 1987. Due to the size of the satellites, the only launch vehicles with sufficient payload capacity were the United States Space Shuttle and the European Ariane-4 rocket. Because of the Challenger disaster in January of 1986 and the Ariane-3 launch failure in March of 1986, you state that launch of the satellites was postponed beyond the 5-year manufacturing drawback time period. Because no other rocket had the capacity to handle the satellites until December of 1989, you state that it was technically impossible to launch the satellites into operating orbit within 5-years of the importation of the component parts.

You state that the first of the satellites was launched in 1989 and that two others were launched in 1990. Barring any further substantial delays, the last two satellites are scheduled for launch in 1991.

You request a ruling that, under the circumstances described in your letter and above, the 5-year limitation between the importation of duty-paid components and the exportation of the manufactured product is waived or extended so that drawback may be claimed on the exportation or launch of the satellites.

ISSUE:

May the 5-year period within which completed articles must be exported in order to qualify for manufacturing drawback, prescribed in 19 U.S.C. 1313(i), be extended or waived?

LAW AND ANALYSIS:

Section 313(i), Tariff Act of 1930, as amended (19 U.S.C. 1313(i)), provides that:

No drawback shall be allowed under the provisions of this section unless the completed article is exported within 5 years after importation of the imported merchandise.

Under paragraph (l) of section 313, Tariff Act of 1930, as amended (19 U.S.C. 1313(l)), the Secretary of the Treasury is authorized to prescribe rules and regulations governing allowance of the privileges provided under section 313. Section 191.8(a), Customs Regulations (19 CFR 191.8(a)), issued under the authority of section 313, provides that:

Drawback shall be allowed only if the completed article is exported within 5 years after importation of the merchandise identified or designated to support the claim.

It has long been the position of Customs that drawback claimants must adhere to the requirements set forth in the applicable statutes and regulations to qualify for drawback. The Courts have repeatedly upheld this position (see, e.g., Swan Tricot Mills Corp. v. United States, 63 Cust. Ct. 530, C.D. 3948 (1969); GAF Corporation v. United States, 72 Cust. Ct. 153, C.D. 4526 (1974); and United States v. Lockheed Petroleum Services, Ltd., 1 Fed. Cir. (T) 63, 709 F. 2d 1472 (1983)).

No matter how sympathetic a case may be for extending the 5-year time period provided for in 19 U.S.C. 1313(i) and 19 CFR 191.8(a), there is no authority, statutory, regulatory, or other- wise, for doing so (see, e.g., Solomon v. United States, 26 Cust. Ct. 403, Abst. No. 55453 (1951), in which drawback was denied because exportation did not occur until after the time deadline as a result of the act of the War Shipping Administration in can- celling the sailing of the vessel onto which the merchandise had been laden). In the absence of such authority, we have no choice but to deny your request. We are unable to administratively extend or waive the 5-year period in this or any other case.

We will briefly comment below on the contentions made in your letter. It is true that 19 U.S.C. 1313(l) provides authority for the Secretary of the Treasury to prescribe rules and regulations pertaining to drawback, including "the fixing of a time limit within which drawback entries or entries for refund under any of the provisions ... shall be filed and completed ...." This does not provide authority for granting drawback in cases where the 5-year period for exportation of manufactured articles has been exceeded, nor have any such regulations or rulings been issued. In the example you give, even if Company A imports materials and holds them in storage for four years and then sells them to Company B which uses them in production, articles manufactured from the imported materials (or substituted materials, if 19 U.S.C. 1313(b) drawback is claimed) must still be exported within 5 years from the date Company A imported the materials. The time limit in 19 U.S.C. 1313(i) is, quite simply, an absolute limit. The authority given in 19 U.S.C. 1313(l) to the Secretary of the Treasury to prescribe regulations does not permit an extension or waiver of this time, it provides, among other things, for the fixing of a time limit within which drawback entries shall be filed (i.e., not the time within which the manufactured articles must be exported).

For your information, under the fourth proviso of section 3 of the Foreign Trade Zone Act of 1934, as amended (19 U.S.C. 81c), pursuant to the rules and regulations of the appropriate Federal agencies, articles which have been taken into a FTZ for "the sole purpose of exportation, destruction ..., or storage" shall be considered to be exported for the purpose of drawback and certain other provisions. Articles taken into a FTZ under this statute are given what is called "zone-restricted status." The Customs Regulations with regard to FTZ's are found in 19 CFR Part 146 (see, in particular, 19 CFR 146.44, under paragraph (b) of which proper application for zone-restricted status is required; see also 19 CFR 191.161 et seq.).

Under the above-described provision, an article manufactured from imported merchandise which could not actually be exported within 5 years from the date of importation of the imported merchandise could be taken into a FTZ and subsequently exported. If the date the article was taken into the FTZ was within 5 years from the date of importation of the imported merchandise, drawback would not be denied as a result of 19 U.S.C. 1313(i). However, you should be aware that once zone-restricted status is obtained for an article, the article may not subsequently be entered into American commerce; it must be either exported or destroyed (see, in this regard, Customs Service Decision 81-150, copy enclosed, the published version of a ruling dated January 5, 1981, to your company). Zone-restricted merchandise could be transferred to Customs territory for exportation or transporta- tion and exportation (see 19 CFR 146.70) (e.g., a satellite taken into a FTZ could be transferred to Customs territory for trans- portation to the launch site and launching, under the applicable procedures (see 19 CFR 146.67 and Part 18)).

HOLDING:

The 5-year period within which completed articles must be exported in order to qualify for manufacturing drawback, prescribed in 19 U.S.C. 1313(i), may not be extended or waived.

Sincerely,

John Durant

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