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HQ 228433

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August 29, 2001

DRA-2-01-DRA-4-RR:CR:DR 228433IOR

CATEGORY: DRAWBACK

Mark C. Joye, Esq.
Baker & Hostetler LLP
1000 Louisiana, Suite 2000
Houston TX 77002-5009

RE: 19 U.S.C. 1313(s); 19 U.S.C. 1313(b); manufacture and exportation of bombs

Dear Mr. Joye:

We are in receipt of your ruling request dated April 28, 1999, pertaining to drawback successorship rights under 19 U.S.C. §1313(s) for manufacturing drawback claims filed by General Dynamics Ordnance Systems, Inc. (“GDOS”).

FACTS:

Drawback claims have been filed by GDOS under 19 U.S.C. §1313(b). Drawback is claimed under T.D. 81-300, for the manufacture of bombs from imported and substituted bomb casings and component parts (it is our understanding from the broker that the component parts are not imported). Approval of the letter of intent to operate under T.D. 81-300 for the subject manufacture is pending. According to the submission, the bombs are manufactured under a program called BLU-109, and the entities owning the program have undergone changes in corporate form and ownership in the recent past.

The relevant ownership of BLU-109 was initially with Lockheed Missiles & Space Technology (“LMS”) INC., an incorporated division of Lockheed Corporation (“Lockheed”). LMS received the bomb casings, manufactured the bombs, and exported them. According to the submission, on January 28, 1996, Lockheed merged with Martin Marietta Corporation to form Lockheed Martin Corporation (“Lockheed Martin”). The documents submitted only describe the creation of Lockheed Martin just prior to the merger and the January 28, 1996 merger of Martin Marietta and Lockheed Martin.

According to you, at the time of the merger, LMS was dissolved and along with Martin Marietta Armament Systems (“MMAS”), underwent a restructuring into a new division, LMAS Inc. (“LMAS”). No documentation regarding the dissolution and restructuring, and effective date has been provided. MMAS had included Martin Marietta Ordnance Systems, Inc., as a separate subdivision (“MMOS”). MMOS then changed its name to Lockheed Martin Ordnance Systems, Inc. (“LMOS”), and the responsibility for BLU-109 then rested with LMOS. During this time, you have stated that LMAS received the bomb casings and manufactured the bombs. Any exportations of the bombs during this time period were by Lockheed Martin.

Effective January 1, 1997, as evidenced by an Asset Purchase and Sale Agreement between Lockheed Martin and General Dynamics Corporation (“General Dynamics”), substantially all of the assets of LMAS, including all of the shares of LMOS, were sold to General Dynamics. The Asset Purchase and Sale Agreement refers to the sale and acquisition of substantially all of the assets and “certain specified liabilities” of LMAS. More specifically the sale is for all of the “assets, properties, rights and contracts held or used” but “free and clear of all liens, claims, charges, security interests, restrictions or other encumbrances of any kind or nature”.

On December 6, 1996, General Dynamics formed General Dynamics Armament Systems, Inc. (GDAS). Upon the sale of LMAS to General Dynamics, GDAS assumed all of the rights and obligations of General Dynamics under the Asset Purchase and Sale Agreement with respect to LMAS, including the BLU-109 program. Thereby LMOS became a wholly owned subsidiary of GDAS, and its name was changed to GDOS, the proposed drawback claimant. According to the letter of intent to operate under T.D. 81-300, GDOS receives the imported casings and assembles them with component parts. You have also provided information that GDOS exports the merchandise.

The file includes copies of 3 pending drawback entries. Each entry refers to an attachment “A” for the information pertaining to the imported designated merchandise, and the attachment references a specific certificate of delivery and manufacture filed in New York. According to you, the entity receiving the merchandise is whichever entity had the BLU-109 program at the time of receipt. Each entry also has an attached Chronological Summary of Exports.

Drawback entry 943-xxxx645-5 was filed on September 28, 1998. Attachment “A” shows the designated merchandise as 408 “empty finished bombs” delivered to “Lockheed” from September 27, 1995 to March 28, 1996. This period of delivery occurred while manufacture was done by LMS and also under LMAS. The document does not show the date of use of the merchandise. The Chronological Summary of Exports shows the exportation of 408 “empty finished bombs” by General Dynamics, from September 30, 1995 through July 22, 1996. We have been advised by General Dynamics through the broker, that the entity shown on the bills of lading as the exporter is LMAS through 1995, and Lockheed Martin as of the effective merger date in 1996.

Drawback entry 943-xxxx664-6 was filed on October 2, 1998. Attachment “A” shows the designated merchandise as 486 “empty finished bombs” delivered to Lockheed and LMAS respectively, from December 23, 1994 to April 26, 1996. This period of delivery occurred while manufacture was done by LMS and also by LMAS. The document does not show the date of use of the merchandise. The Chronological Summary of Exports shows the exportation of 486 “finished bombs” by General Dynamics, from October 2, 1996 through November 25, 1996. We have been advised by General Dynamics through the broker, that the entity shown on the bills of lading as the exporter is Lockheed Martin.

Drawback entry 943-xxxx612-5 was filed on October 1, 1998. Attachment “A” shows the designated merchandise as what appears to be 383 lines of 1895 pieces for a total of 725,785 pieces. According to the broker, each line represents the receipt of one empty casing, and the attachment is incorrect to the extent it appears that each line appears to show the receipt of more than one casing. The attachment shows the dates of use. The receipt and use was by different entities, as follows:

1) Receipt by LMAS 12/22/96; use by GDOS 1/1/97-1/31/97 (61 casings) 2) Receipt by GDOS 1/5/97-1/21/97; use by GDOS 1/15/97-1/31/97 (96 casings); 3) Receipt by LMAS 3/2/96-11/20/96; use by LMAS 3/12/96-11/30/96 (225 casings) 4) Receipt by LMS 9/30/95; use by LMS 10/10/95 (1 casing)

The Chronological Summary of Exports shows the exportation of 383 “empty finished bombs” by General Dynamics from August 26, 1996 through June 16, 1997. We have been advised by General Dynamics through the broker, that the entity shown on the bills of lading as the exporter is Lockheed Martin through 1996 and GDOS in 1997. As the exports are broken down, we can determine that 120 exports were made by Lockheed Martin from August 26, 1996 through December 20, 1996, and 263 were made by GDOS from January 20, 1997 through June 16, 1997.

ISSUE:

Whether GDOS may claim drawback under 19 U.S.C. §1313(s) under the facts described.

LAW AND ANALYSIS:

The statute, 19 U.S.C. §1313(s)(1), provides that for purposes of §1313(b), a drawback successor may designate imported merchandise used by the predecessor before the date of succession as the basis for drawback on articles manufactured by the drawback successor after the date of succession. Under §1313(s), a successor uses “substitute” merchandise to manufacture an article which is exported and the imported merchandise or drawback product to be designated in the drawback claim was used in manufacture by a different person (i.e., the predecessor).

Section 1313(s)(1) is one of two exceptions to the “one manufacturer” requirement under section 1313(b). The other exception is the provision in 19 CFR 191.9 which allows an owner of applicable merchandise to employ an agent to do all or part of a manufacture or production. For purposes of substitution manufacturing drawback, the applicability of section 1313(s) is limited to the situation in which the predecessor manufactures or produces an article using the designated merchandise, and the successor manufactures or produces the exported article. Section 1313(s) does not apply if a party other than the successor manufactures the exported article. Section 1313(s) does not apply if the successor exports articles manufactured or produced by the predecessor, in which case, the successor needs a Certificate of Manufacture and Delivery (CM&D) from the manufacturer/producer. Section 1313(s) does not apply if the predecessor was the exporter of the article on which drawback is based.

We will address each of the three drawback claims separately.

943-xxxx645-5

Under this fact situation, GDOS did not manufacture or export the merchandise on which drawback is claimed, therefore 1313(s) is not applicable to GDOS. Section 1313(s) is also not applicable to bombs manufactured and exported by LMS, and bombs manufactured and exported by LMAS and Lockheed Martin, because no successorship was involved. Section 1313(s) would apply if LMS received and used the imported bomb casings and the bombs that were exported were made under section 1313(b) by LMAS. LMAS as the manufacturer designating the use by LMS of the designated merchandise against its own manufacture of the exported bombs would need to comply with section 1313(s). If LMAS transferred the export bombs to Lockheed Martin for export, Lockheed Martin would need a certificate of manufacture and delivery from LMAS. As simply the successor claimant in this situation, GDOS would need to show entitlement to file Lockheed Martin's claim; however, section 1313(s) does not apply to that aspect of the transaction.

Information regarding the dates of use of the imported merchandise is not provided in the drawback claim, and must be provided before the applicability of 1313(s) can be fully determined and drawback can be allowed. The import entries covering the designated bomb casings must be identified against the exported bombs both to determine whether the claim complies with the same kind and quality requirement of section 1313(b) and whether there was compliance with section 1313(s). Documentation, regarding the dissolution of LMS and restructuring of its assets into LMAS, and the effective date must be provided to determine the applicable dates and whether the requirements of 1313(s) are met. Specifically, the documents must show that by written agreement, merger, or corporate resolution, LMAS acquired all or substantially all of the rights, privileges, immunities, powers, duties, and liabilities of LMS, or that the transferred assets and other business interests of LMS exceeds the value of all transferred drawback rights, inchoate or otherwise. This office was not provided with any documentation regarding the dissolution of LMS and subsequent restructuring into LMAS. The fact that LMS was included in the merger of Lockheed and Martin Marietta Corporation, is not relevant, and does not establish that LMAS was the successor to LMS for purposes of section 1313(s), as LMS and LMAS are separate corporate entities from Lockheed and Lockheed Martin.

With respect to the claims for which 1313(s) is not applicable, GDOS must simply establish its right to file drawback claims in the name of LMS or Lockheed Martin. For example if the imported bomb casings were used by LMAS and LMAS also made the exported bombs and then transferred those export bombs to Lockheed Martin for export, Lockheed Martin would be the person entitled to make the claim unless LMAS reserved its right to make the claim. Of course, in order to make that claim, Lockheed Martin would need the certificate of manufacture and delivery from LMAS to make that claim.

For any bombs manufactured by LMS and exported by Lockheed Martin, section 1313(s) is not applicable, and there must be a CM&D from LMS to LMAS and/or Lockheed Martin.

943-xxxx664-6

As above, under this fact situation, GDOS did not manufacture or export the merchandise on which drawback is claimed, therefore 1313(s) is not applicable to GDOS. Under these facts, information regarding the dates of use of the imported merchandise is not provided in the drawback claim, and must be provided before the applicability of 1313(s) can be fully determined, and drawback can be allowed. The drawback claimant must also identify which entries are designated for the different exports. This claim differs from that above in that the only exporter was Lockheed Martin. Section 1313(s) is not available for bombs manufactured by LMAS and exported by Lockheed Martin, because no successorship was involved. For any bombs manufactured by LMS and exported by Lockheed Martin, section 1313(s) is not applicable, and there must be a CM&D from LMS to LMAS and/or Lockheed Martin.

Again as above, for the claims for which 1313(s) is not applicable, GDOS must simply establish its right to file drawback claims in the name of Lockheed Martin, the exporter. For the claims for which 1313(s) is applicable, as above, documentation, regarding the dissolution of LMS and restructuring of its assets into LMAS, and the effective date, must be provided to determine whether the requirements of 1313(s), are met, with respect to merchandise used by LMS prior to the succession. Upon establishing that Lockheed Martin is eligible to claim drawback under §1313(s), GDOS must establish its right to file for drawback in the name of Lockheed Martin.

943-xxxx612-5

For this claim, the dates of use of the merchandise were provided. However, Customs is unable to determine for each export, which imported merchandise was designated. For example, from the Chronological Summary of Exports, we cannot determine whether the one casing used by LMS was designated as the basis for drawback on the articles exported by Lockheed Martin or GDOS.

In this case 1313(s) may be applicable for the one imported casing shown as used by LMS on October 10, 1995, in Attachment “A”, if it is designated as the basis for drawback on articles manufactured and exported by either Lockheed Martin or GDOS. Section 1313(s), may also be applicable for imported casings used by LMAS and designated by GDOS as the basis for drawback on articles manufactured and exported by GDOS. As above, documentation, regarding the dissolution of LMS and restructuring of its assets into LMAS and the effective date must be provided to determine whether the requirements of 1313(s), are met with respect to merchandise used by LMS. With respect to claims by GDOS on the basis of use by LMS and LMAS, we require documentation that all or substantially all of the rights, privileges , immunities, powers, duties, and liabilities of LMAS have been transferred to GDOS by written agreement, merger, or corporate resolution, or, that the assets and other business interests of LMAS were transferred to GDOS by written agreement, merger, or corporate resolution, and that the value of the transferred realty, personalty, and intangibles exceeds the value of all transferred drawback rights, inchoate or otherwise. We note that the Asset Purchase and Sale Agreement between Lockheed Martin and General Dynamics, for the sale of assets of LMAS, includes only specified liabilities. Therefore, we would require the documentation set forth in §1313(s)(3)(2).

The transition from LMOS to GDOS is simply a name change. Upon the sale of LMAS to General Dynamics, GDAS assumed the assets of LMAS which included the division of LMOS, the name of which was subsequently changed to GDOS. However, because the manufacture and export had been in the name of LMAS, the subsequent manufacture and export in the name of GDOS amounts to a succession, because LMAS and LMOS were separate corporate entities.

Section 1313(s) is not applicable to the casings used by LMAS and exported by Lockheed Martin, or casings used by GDOS and designated by the drawback claimant as the basis for drawback on articles manufactured and exported GDOS. In the case of LMAS, GDOS must establish its right to file drawback claims in the name of Lockheed Martin. In the case of GDOS, as the exporter and manufacturer, GDOS has the right to claim drawback without the benefit of section 1313(s).

For any bombs manufactured by LMS and exported by Lockheed Martin, section 1313(s) is not applicable, and there must be a CM&D from LMS to LMAS and/or Lockheed Martin. Similarly, for any bombs manufactured by LMAS and exported by GDOS, section 1313(s) is not applicable, and there must be a CM&D from LMAS to GDOS.

For the merchandise received by LMAS and used by GDOS, Certificates of Delivery must be provided. CM&D’s must be provided for articles manufactured by LMAS and exported by Lockheed Martin.

In conclusion, we have described the transactions which may be eligible for drawback under §1313(s), provided use and successorship are established by documents, and we have explained which transactions are not eligible under §1313(s). In addition to the documentation, Customs requires either the predecessor or the drawback successor to make the certifications set forth in §1313(s)(4). Relating to all of the claims, with respect to the delivery dates set forth in the Attatchment “A”s to the drawback claims, you have stated that the delivery is to whichever entity was responsible for the BLU-109 program at the time of receipt. However, the application of section 1313(s) is dependent on the legal entity actually named on the CM&D’s. We also note some discrepancies in the drawback claims filed, which were described in the FACTS section, such as the misdescribed quantities of imported merchandise on the designation sheet in claim 943-xxxx612-5, and the misdescription of the delivered merchandise in claims no. 943-xxxx645-5 and 943-xxxx664-6. This decision does not address whether all other requirements of drawback under §1313(b) are met by the claimant.

HOLDING:

GDOS may claim drawback under 19 U.S.C. §1313(s) under the facts described, for imported merchandise used by LMS and /or LMAS, which the appropriate successor manufacturer designates as the basis for drawback on articles it manufactures and exports, provided successorship as defined in §1313(s) is established by documentation, use by the predecessor is established, Certificates of Manufacture and Delivery are provided, and the certifications required by §1313(s)(4) are made. Section 1313(s) may be applicable to claims made by GDOS in the name of Lockheed Martin, for imported merchandise used by LMS, which is designated by the appropriate successor manufacturer as the basis for drawback on articles manufactured by LMAS and exported by Lockheed Martin, provided successorship as defined in §1313(s) is established by documentation,
use by the predecessor is established, Certificates of Manufacture and Delivery are provided, and the certifications required by §1313(s)(4) are made.

Sincerely,

John Durant
Director, Commercial

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