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HQ 229909




June 24, 2003

DRA-4-RR:CR:DR 229909 IOR

CATEGORY: DRAWBACK

Michael F. Mitri, Esq.
Phelan & Mitri
One Atlantic Street
Stamford, CT 06901

RE: 19 U.S.C. 1313(n)(2); 19 U.S.C. 1313(p); 19 U.S.C. 3333(a); 19 CFR 181.41; NAFTA

Dear Mr. Mitri:

This is in response to the ruling request submitted by your letter dated March 28, 2003, and follow-up submission dated May 27, 2003, on behalf of BP Products North America Inc. (hereinafter “BP”), in connection with BP’s claims for drawback under 19 U.S.C. §1313(p), based on merchandise exported to Canada. This decision follows a telephone conference held on April 21, 2003, between you and staff of the Duty and Refund Determination Branch.

FACTS:

The following are the facts described in your submissions. BP’s predecessor, BP Exploration & Oil, Inc. (hereinafter referred to as BP E&O), imported a total of 322,446 bbl. of alkylate, classified under subheading 2710.00.4590, Harmonized Tariff Schedule of the United States (HTSUS), under four consumption entries from May 24 through June 18, 2001. According to a copy of a bill of lading dated June 28, 2001, BP E&O exported 125,022.43 bbl. of alkylate, also classified under subheading 2710.00.4590, HTSUS, to Canada. The bill of lading indicates that the merchandise was laden on board the exporting vessel on June 28, 2001. The copy of the bill of lading does not have any certification of authenticity.

Drawback claim UI4-xxxx172-7 was filed by BP on May 28, 2003, claiming drawback under 19 U.S.C. §1313(p). The claim designates 125,022.43 bbls. of the imported alkylate. The drawback claim includes a 19 U.S.C. §1313(s) certification, which describes BP’s successorship of BP E&O, effective October 1, 2001.

The ruling request dated March 28, 2003, described the same facts which are substantially reflected in the drawback claim. In addition, the request stated that “the export articles covered by the claims will consist of domestic petroleum products”. In the April 21, 2003 telephone conference, it was stated on behalf of BP, that it was not certain that the exported merchandise did not consist of any imported duty paid merchandise. In the May 27, 2003 submission, it is stated that “[w]here as may apply to the export covered by the subject representative BP drawback claim, the petroleum product is withdrawn for export from commingled fungible storage and none of these inventory management methods are utilized, the origin of the exported product, and thereby the product’s history as imported or not imported, cannot be determined for Customs purposes”.

ISSUE:

Whether under the facts described, the law provides for full drawback under 19 U.S.C. §1313(p) on exports to Canada.

LAW AND ANALYSIS:

The statutory provision applicable to these facts, 19 U.S.C. §1313(p)(2)(iii) provides for drawback when a qualified petroleum product is imported into the U.S., and an article of the same kind and quality as the qualified article is exported within 180 days of the date of entry, assuming compliance with all other applicable requirements. A “qualified article” for purposes of this subsection means an article described in Heading 2710, HTSUS (among other headings), which is imported duty-paid. An exported article is of the “same kind and quality” as the qualified article for which it is substituted under this provision, if it is a product that is commercially interchangeable with or referred to under the same eight-digit classification of the HTSUS as the qualified article.

The “requirements” which must be met for purposes of this subsection are that the exporter of the exported article imported the qualified article in a quantity equal to or greater than the quantity of the exported article; that the exported article is exported within 180 days after the date of entry of the imported qualified article; that the drawback claimant complies with all requirements of section 1313, including providing certificates which establish the drawback eligibility of articles for which drawback is claimed; and that the manufacturer, producer, importer, exporter, and drawback claimant of the qualified article and the exported article maintain all records required by regulation.

Article 303, paragraph 2 of the NAFTA provides, in pertinent part, that:

No Party may, on condition of export, refund, waive or reduce:

(d) customs duties paid or owed on a good imported into its territory and substituted by an identical or similar good that is subsequently exported to the territory of another party.

Article 303 basically provides that drawback may not be granted by a NAFTA country “on a good imported into its territory and substituted by an identical or similar good that is subsequently exported to the territory of another party.” In HQ 225463, dated February 10, 1995, we stated that because the limitation in Article 303 on substitution drawback was not implemented with regard to 19 U.S.C. §1313(p), the limitation therein does not apply to drawback under section 1313(p). Paragraph 2(d) of Article 303 was implemented by section 1313(j)(4) which in turn applied only to section 1313(j)(2) rather than to section 1313(p). The effective date provision for section 1313(n) on exports to Mexico occurred on January 1, 2001.

In your ruling request you take the position that drawback under section 1313(p), under the facts above, is also not limited. The applicable provision is 19 U.S.C. §1313(n), which provides as follows:

(2) For purposes of subsections (a),(b), (f), (h), (p), and (q) of this section, if an article that is exported to a NAFTA country is a good subject to NAFTA drawback, no customs duties on the good may be refunded, waived, or reduced in an amount that exceeds the lesser of –
the total amount of customs duties paid or owed on the good on importation into the United States, or (B) the total amount of customs duties paid on the good to the NAFTA country.

The term “subject to NAFTA drawback” is defined under 19 U.S.C. §3333(a) as including goods other than, among others, goods exported to a NAFTA country in the same condition as when imported into the U.S. On behalf of BP, it is asserted that “the only goods subject to the NAFTA drawback restrictions of 19 U.S.C. §1313(n) are those that have been imported into the United States and subsequently exported to Canada or Mexico”. Emphasis supplied. In your March 28 submission, you take the position that because the exported article is domestic and therefore not imported into the U.S. prior to exportation to Canada or Mexico, it is not a good subject to the NAFTA drawback restrictions under sections 1313(n) and 3333(a). However, in the May 27 submission it is clarified that BP may not be able to determine the origin, as imported or not imported, of the exported product.

Therefore, for purposes of sections 1313(n) and 3333(a)(2), if the exported merchandise is in fact imported merchandise, then it is subject to section 3333(a). Under 19 U.S.C. §3333(a), an imported good subsequently exported to a NAFTA country in the same condition as when imported, is not a “good subject to NAFTA drawback”. Stated another way, an imported good exported to a NAFTA country in the same condition as when imported, is merchandise described in paragraphs (1) through (8) of section 3333(a), therefore it is not merchandise other than the described merchandise, for purposes of 19 U.S.C. §1313(n)(2). Therefore, an exportation of a good to a NAFTA country in the same condition as when imported is not subject to the restriction on drawback in section 1313(n)(2). Section 3333(a)(2) refers to direct identification, it does not cover substituted goods. In fact the use of the phrase “if a good described in the first sentence of this paragraph is commingled with fungible goods and exported”, shows that no substitution was intended. 19 U.S.C. §3333(a)(2)(B) (emphasis added). A fungible good that is identified by an inventory management method is not substituted in a legal sense. The good so identified is the good. The limitation of section 1313(n)(2) is applicable only to goods subject to NAFTA drawback.

The Customs Regulations 191.2(f) (19 CFR 191.2(d)) define “designated merchandise” as “either eligible imported duty-paid merchandise or drawback products selected by the drawback claimant as the basis for a drawback claim under 19 U.S.C. 1313(b) or (j)(2), as applicable, or qualified articles selected by the claimant as the basis for drawback under 19 U.S.C. 1313(p).” In 19 CFR 191.2(x)(3), the regulations define “substituted merchandise or articles” under 1313(p) as “of the same kind and quality as the qualified article for which it is substituted”. Goods eligible for drawback and full drawback have also been defined by regulation in 19 CFR 181.43(a) and 181.45(b). The application of the inventory management method is defined in 19 CFR 181.45(b)(2)(i). In this case, the good exported to Canada, is not the imported good upon which the drawback claim is based, but is a substituted good. Therefore the exported good is not a good which was imported and is subsequently exported. The exported good stands in the place of the imported good, under the principle of substitution. The designated imported merchandise, which is not exported is the basis for the drawback claim. As neither the exported good nor the imported good is merchandise described in paragraph (2) of section 3333(a), the restriction in section 1313(n)(2) applies.

Paragraph 6 of Article 303, of the NAFTA, describes the goods Article 303 does not apply to, and therein describes certain goods described in §3333(a), paragraphs (1) through (8), including:

(b) a good exported to the territory of another Party in the same condition as when imported into the territory of the Party from which the good was exported (processes such as testing, cleaning, repacking or inspecting the good, or preserving it in its same condition, shall not be considered to change a good’s condition). Except as provided in Annex 703.2, Section A, paragraph 12, where such a good has been commingled with fungible goods and exported in the same condition, its origin for purposes of this subparagraph may be determined on the basis of the inventory methods provided for in the Uniform regulations established under Article 511 (Uniform regulations);

The imported merchandise which is the basis for drawback in this case, the imported alkylate, is not an exported good under subparagraph (b) above, therefore, Article 303 does apply to the imported alkylate, and the restriction on drawback is applicable under the NAFTA.

The Customs Regulations implementing the NAFTA Implementation Act are found in 19 C.F.R. Part 181. Subpart E of Part 181 contains the regulations providing restrictions on drawback and duty-deferral programs. According to section 181.41, which is the first section in Subpart E:

This subpart sets forth the provisions regarding drawback claims and duty-deferral programs under Article 303 of the NAFTA and applies to any good that is a “good subject to NAFTA drawback” within the meaning of 19 U.S.C. 3333.

As the imported alkylate, on which the drawback claim is based, is not a good exported to a NAFTA country in the same condition as when imported, it is a “good subject to NAFTA drawback”, and Subpart E is applicable to such good, and therefore the limitation in 19 CFR 181.44 is also applicable to such good.

Based on the foregoing analysis, we conclude that drawback under 19 U.S.C. §1313(p) claimed on the basis of the imported merchandise, which is a good subject to NAFTA drawback, in this case an imported good for which a substituted good is exported to a NAFTA country, is subject to the limitation in section 1313(n)(2). This position is consistent with that taken in a prior Customs decision, HQ 228209, dated April 12, 2002, which pertained to 19 U.S.C. §1313(j)(2) and (4).

In the supplemental submission, on behalf of BP it is asserted that because imported petroleum products are typically delivered into U.S. commerce and are consumed, the risk that the exported merchandise may contain imported molecules is limited. Further it is urged that Customs treats the articles as domestic for some purposes, such as exportation and not for other purposes such as drawback. In subjecting merchandise to export rules, whether or not that merchandise is of domestic origin, or is imported duty-paid merchandise, is not the same as treating the merchandise as domestic merchandise. Unless otherwise provided, for purposes of exportation, Customs does not distinguish between imported duty-paid merchandise and merchandise of domestic origin. To make an exception in this case as suggested by BP, and treat the exported goods as domestic, would be inconsistent with the requirements for NAFTA tariff preference and the NAFTA in general.

It is stated in the May 27 submission that under 19 U.S.C. §1313(u), imported merchandise regularly entered or withdrawn may satisfy export requirements, and that the provision is not overidden by the provisions of the NAFTA Implementation Act. We fail to see the relevance of section 1313(u) to the issue and facts presented.

In the drawback claim, BP is simply the successor claimant in this situation, and would need to show entitlement to file BP E&O’s claim. Section 1313(s) is not applicable to claims under section 1313(p). Also with regard to the representative drawback claim submitted, the bill of lading does not carry the required certification of authenticity. Documentation showing the the date of export from the U.S. must carry some certification of authenticity, either in the form of a signature on an original document or certification of a copy of the signed document. See 19 CFR 191.72; HQ 228736, dated February 6, 2002; HQ 226929, dated June 4, 1997.

HOLDING:

Under the facts described, drawback under 19 U.S.C. §1313(p), on exports to Canada, is limited by the provisions in 19 U.S.C. §1313(n)(2).

Sincerely,

Myles Harmon

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