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HQ 228421




May 5, 2000

DRA-4-RR:CR:DR 228421 IOR

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
2350 N. Sam Houston Pkwy. E. Ste. 1000
Houston TX 77032
Attn: Drawback Unit

RE: Application for further review of protest No. 5301-99-100079; unused merchandise drawback; produce; deterioration; same condition; NAFTA; 19 U.S.C. 1313(j)(1); 19 CFR 181.44(a); 19 CFR 181.44(g); 19 CFR 181.45(b)

Dear Sir:

The above-referenced protest was forwarded to this office for review. We have considered the facts and issues raised, and our decision follows.

FACTS:

The subject protest concerns the following four drawback entries:

Drawback entry Entry date Liquidation date

UB2-xxxx375-6 3/22/96 9/18/98
UB2-xxxx472-1 5/10/96 9/18/98
UB2-xxxx495-2 5/17/96 9/18/98
UB2-xxxx671-8 12/10/96 9/18/98

Unless otherwise noted, the dates referred to are based on those reflected in ACS. The drawback entries were filed by STR Sales, Inc., also the importer of the designated merchandise. At least two other protests (5301-99-100077 and 5301-99-100078) were filed pertaining to other drawback entries, and raise the same facts and issues. Accompanying the protest was one representative drawback claim, consisting of a drawback entry (CF 7539), a chronological summary of exports, a list of designated import entries, coding sheets, and a copy of one import entry (CF 7501). The representative drawback entry is UB2-xxxx472-1, and the facts discussed are based on that entry and accompanying documents.

The drawback claim designated a total of 30 entries of produce, consisting of green onion, bok choy, kale and parsley. The drawback entry, CF 7539 refers to an enclosed list of entries. The list of import entries contains 30 entries, including the total amount of drawback claimed for each type of produce and divides the entries according to the quantity of each type of designated produce imported. According to the list of entries the entries were made from January 9, 1996, through January 24, 1996. The drawback coding sheet shows the 30 entries (for two of them the duty claimed figure is incorrect due to transposed numbers). The chronological summary of exports shows a total of 26 exportations from March 1, 1996 through March 30, 1996. Of the 26 exportations, all are destined for Canada, with the exception of two, which are destined for London, England. Neither the list of exports nor the list of entries makes any connection between the entries and exports.

The representative import entry, UB2-xxxx150-3, shows an import date of December 27, 1995, and an entry date of January 1, 1996 (the entry date reflected in ACS is January 10, 1996). The designated imported merchandise consists of 800 containers of onions and shallots, and the exporting country is identified as Mexico. The date of export from Mexico was shown as December 27, 1995, on the CF 7501. The tariff classification, subheading 0703.10.4000, HTSUS, indicates that the produce is fresh, and the designation “MX9906.07.11” on the CF 7501, indicates that NAFTA preference was claimed for the merchandise. No documentation of export, other than the chronological summary of exports, is provided.

Drawback entry UB2-xxxx472-1 was filed May 10, 1996, and was liquidated with no drawback allowed, along with the other three drawback entries, on September 18, 1998. Accelerated drawback had already been paid to the drawback claimant. Bill number 427419xxxxx, for drawback entry UB2-xxxx472-1, in the amount of the accelerated drawback paid, was issued to the claimant on September 18, 1998. According to ACS, the claimant had filed bankruptcy on May 15, 1997. Bill number 427419xxxxx was issued to the claimant’s surety on December 7, 1998, along with the bills for the other three liquidated drawback entries. The surety filed this protest on March 1, 1999. The protest contains the certification that it was not filed collusively to extend any other party’s time to protest.

The protest is against the liquidation of the drawback entries without drawback. The grounds for the protest are that the subject merchandise is not subject to any limitations of time and/or condition, including that of 19 CFR 181.44, and may properly receive the benefit of full drawback under 19 CFR 181.45(a)(1). In the alternative, it is claimed that even if the NAFTA drawback laws and regulations are applicable, the subject merchandise, which may have undergone a change in condition, despite not having been used, is eligible for drawback under 19 CFR 181.44(a) because it was subsequently shipped to Canada or Mexico. In addition, the protestant points out that some shipments had destinations other than Canada, and that these shipments should get the benefit of non-NAFTA drawback. It is stated that each of the claims were submitted under the exporter’s summary procedure pursuant to 19 CFR 191.53 (the applicable regulation at the time of filing of the drawback claim) and was supported by certain documents produced to the protestant pursuant to a FOIA request.

The position of the Houston Drawback Unit, as set forth on the CF 6445A is:

[Protestant’s counsel] was advised that this office was not in agreement with importer’s position. Based on shelf life issues fresh produce appears to be either substituted or deteriorated goods. Per a conversation with the Houston Drawback Chief, [protestant’s counsel] was advised that reliquidation of the protested claims could be considered if they can provide foreign purchase invoice and statements from the foreign purchaser identifying the quantity(ies), dates, commodities of deteriorated goods received. On March 22, 1999, [protestant’s counsel] contacted the Houston Drawback center and chose not to provide suggested supporting documentation; requesting further review of protests.

In determining deterioration, the Drawback unit relies upon the Texas Agricultural Extension Service of The Texas A&M University System, publication B-5031 on “Safe Home Food Storage” which includes a food storage timetable.

Upon receipt of the AFR, this office made a request to the protestant for inventory records following an entire transaction, from importation through exportation. A letter dated June 28, 1999, from counsel for the protestant, advised this office, that the protestant is unable to provide any further documentation.

ISSUES:

1) Whether the merchandise is subject to NAFTA drawback limitations?

2) Whether the protestant has satisfied the drawback requirements set forth by statute and the regulations?

LAW AND ANALYSIS:

We note initially that the refusal to pay a claim for drawback is a protestable issue pursuant to 19 U.S.C. §1514(a)(6). The four drawback claims were liquidated on September 18, 1998, and the surety was billed on December 7, 1998. This protest was timely filed by the surety under 19 U.S.C. §1514(c)(3), as it was filed within 90 days from the date of mailing of notice of demand for payment against its bond. Additionally the surety’s protest includes the certification that the protest was not filed collusively to extend another authorized person’s time to protest as specified in 19 U.S.C. §1514(c)(3).

The drawback claimant filed four drawback claims pursuant to 19 U.S.C. §1313(j)(1). For the exports destined for Canada, the transaction is subject to the North American Free Trade Agreement (“NAFTA”). For purposes of drawback to NAFTA countries the regulations found in the Customs Regulations, part 181 (19 CFR part 181), distinguish between same condition merchandise under 19 U.S.C. §1313(j)(1), and unused merchandise under 19 U.S.C. §1313(j)(1).

For exportations to Canada, made on or after January 1, 1996 (and Mexico on or after January 1, 2001), section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (public law 103-182; 107 Stat.2057, 2086; 19 U.S.C. §3333), provides for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. §3333(a) (Section 203(a) of the NAFTA), goods subject to NAFTA drawback, mean any good other than, among other things:

(5) A good that qualifies under the rules of origin set out in section 3332 of this title that is—

(A) exported to a NAFTA country.

Section 3332(a)(1) of title 19, provides that an originating good includes a good originating in the territory of a NAFTA country and the good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries.

Therefore, an originating good exported to a NAFTA country is not a good subject to the NAFTA drawback limitation. The NAFTA drawback limitation provides that drawback may be granted only on the lesser of the total duties paid or owed on the importation into the U.S. or the total amount paid on the exported good on its subsequent importation into Canada or Mexico.

The Customs Regulations, 19 CFR 181.45(a), issued under the authority of the NAFTA Implementation Act specifically provide for the availability of full drawback on the exportation of originating merchandise to a NAFTA country:

(a) Goods originating in Canada or Mexico. A Canadian or Mexican originating good that is dutiable and is imported into the United States is eligible for drawback without regard to the limitation on drawback set forth in §181.44 of this part if that originating good is: (1) Subsequently exported to Canada or Mexico.

The protestant takes the position that under 19 CFR 181.45(a)(1), the subject merchandise is not subject to any limitation on drawback, because the designated merchandise originated in Mexico, and was subsequently exported to Canada. We find that the merchandise was originating for the purpose of this protest on the basis that the claim for preference on the CF 7501 indicates that the merchandise was originating, and according to ACS the entry was liquidated based on the preferential rate.

As the subject merchandise is not subject to NAFTA drawback under 19 U.S.C. §3333(a) (as implemented by 19 CFR 181.45(a)), eligibility for full drawback is not limited by application of provisions pertaining to merchandise exported not in the same condition (19 CFR 181.44(g)). Therefore, it is not necessary to make a determination whether the merchandise was exported in the same condition in which it was imported.

The drawback claimant must provide evidence of exportation as set forth in the Customs regulations (19 CFR 191.52 and 191.53, were applicable at the time the subject drawback entries were filed). The present applicable regulation is in 19 CFR 191.72. No documentation supporting the Chronological summary of exports has been provided to Customs, and there is no indication that any is available.

Even if the protestant were to provide Customs with evidence of exportation, it has not been established that the drawback claimant is entitled to drawback. Drawback under 19 U.S.C. §1313(j)(1) requires the claimant to directly identify the import entry from which the exported merchandise was entered. The protestant has been requested to provide inventory records for one entire transaction, and in response the protestant stated it was unable to provide any further documentation. The protestant is unable to substantiate the direct identification drawback claims, and therefore has not established that the drawback claimant was entitled to drawback at all. See HQ 227679, dated March 23, 1996.

The drawback claims were properly liquidated without the allowance of drawback, for the reason that the direct identification could not be substantiated. Even if evidence of exportation were provided, drawback would not be allowed.

HOLDING:

1) The merchandise exported to Canada is not subject to NAFTA drawback limitations.

2) The protestant has not satisfied the drawback requirements set forth by statute and the regulations.

The protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,


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