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HQ 231068

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August 30, 2005

DRA-4 RR:CR:DR 231068 RDC

CATEGORY:

Port Director,
Customs and Border Protection
610 S. Canal Street
Chicago, Illinois 60607
ATTN: Linda Golf, Drawback Office
Room 602

RE: Protest number 3901-05-100561; Merchandise Processing Fee; Harbor Maintenance Tax; Texport Oil Co. v. United States, 185 F.3d 1291 (Fed. Cir. 1999); Miscellaneous Trade and Technical Corrections Act of 2004.

Dear Sir or Madam:

On 8/2/2005, the above-referenced Protest was received in this office pursuant to a request for further review. We have considered the points raised by your office and the protestant. Our decision follows.

FACTS:

Reichhold, Inc. (Reichhold), filed drawback claim xxx-xxxxxxxx-0 for drawback per 19 U.S.C. § 1313(p), substitution of finished petroleum derivatives, of duties paid on 42,536.04 kilograms of polyurethane imported on 1/11/2003. The drawback claim was received by CBP on 4/17/2003 and designated six exportations of polyurethane. This 42,536.04 kilograms of polyurethane was exported between 1/20/2003 and 3/26/2003. On 8/20/2003, Reichhold filed an additional CF 7551 for the same drawback claim labeled “Amended,” which included for the first time, a claim for drawback of Harbor Maintenance Tax (HMT), and Merchandise Processing Fee (MPF) on the imported polyurethane.

The claims for drawback of the MPF and HMT were denied and on 6/24/2005, the protested drawback claim was liquidated with zero drawback of the MPF and HMT allowed, i.e., drawback of duty only was permitted. According to the CF 6445A, the HMT claim was denied because drawback of the HMT was not permitted prior to the enactment of the Miscellaneous Trade and Technical Corrections Act of 2004 (2004 Trade Act) on 12/3/2004, and because the 2004 Trade Act authorized drawback of HMT only on drawback claims filed per 19 U.S.C. § 1313(j).

The claim for drawback of MPF was denied, according to the drawback office, because MPF claims per § 1313(p) were not authorized prior to CBP Decision 04-33, issued on 10/7/2004 (69 Fed. Reg. 60,082). Because the exports on the protested drawback claim were made before CBP Decision 04-33, drawback of MPF under § 1313(p) was denied. On 6/27/2005, Reichhold Chemicals Inc. filed protest number 3901-05-100561 with which it protested the denial of drawback of MPF and HMT on drawback claim xxx-xxxxxxxx-0. On 8/15/2005, via telephone, a representative of the broker that prepared the protest advised that the protestant should have been “Reichhold, Inc.” instead of Reichhold Chemicals, Inc. The importer number given was correct on the protest as filed.

ISSUES:

1. Whether drawback of MPF claimed per § 1313(p) is payable prior to CBP Decision 04-33, issued on 10/7/2004?

2. Whether drawback of HMT on claims filed under § 1313(p) is payable under the amendments to 19 U.S.C. § 1313(j), made by the Miscellaneous Trade and Technical Corrections Act of 2004?

LAW AND ANALYSIS:

We note initially that the instant protest was timely filed, i.e., within 90 days of the refusal to pay the drawback claim (19 U.S.C. § 1514(c)(3)(B)). Under 19 U.S.C. § 1514 “decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to . . . the refusal to pay a claim for drawback . . .” (§ 1514(a)(6)) are final unless a protest of that decision is filed within 90 days of the decision to deny drawback (§ 1514(c)(3)(B)). The drawback claim was liquidated on 6/24/2005 with zero drawback of the MPF and HMT allowed and this Protest was filed on 6/27/2005.

1. Whether drawback of MPF claimed per § 1313(p) is payable on designated merchandise exported prior to CBP Decision 04-33, issued on 10/7/2004?

Drawback of MPF was denied on the protested claim because the designated exports took place between 1/20/2003 and 3/26/2003, prior to CBP Decision 04-33, 10/7/2004. The Merchandise Processing Fees are fees collected per 19 U.S.C. 58c(a)(9)(A) for the processing of merchandise that is formally entered or released into the United States. The fees are assessed as a percentage of the value of the imported merchandise, as that value is determined under 19 U.S.C. 1401a. The protestant argues that, per Texport Oil Co. v. United States, (185 F.3d 1291 (Fed. Cir. 1999) (Texport), and 19 C.F.R. § 191.3(a)(4) and (b)(2), drawback of MPF is payable on its claim as amended. In Texport, CBP denied drawback of MPF and HMT claimed per § 1313(j)(2) because, as explained by the CAFC, “those charges were not assessed ‘because of [the merchandise’s] importation’ and thus did not fall within the ambit of section 1313(j)(2)” (185 F.3d 1291, 1293).

The Federal Circuit Court (CAFC) in Texport affirmed the Court of International Trade’s (CIT) decision that drawback of MPF is payable on a drawback claim filed under 19 U.S.C. § 1313(j)(2) (185 F.3d 1291 (Fed. Cir. 1999) (vacating in part, rev’g in part, aff’g in part, the CIT decision in Texport Oil Co. v. United States, 1 F. Supp. 2d 1393 (1998)). The CIT held and the CAFC affirmed, that MPF is a fee assessed because of importation, and is subject to drawback per § 1313(j) because that section specifically permits drawback of a tax or a “fee imposed under Federal law because of its importation” (1 F. Supp. 2d 1393, 1401; 85 F.3d 1291, 1296). Thus, the Texport decision reversed CBP’s position that drawback of MPF was not payable on claims per § 1313(j).

The effect of the CAFC’s decision in Texport was to make MPF subject to drawback claimed per § 1313(j)(2). The Federal Circuit Court in Texport found that § 1313(j)(2):
affords drawback if the following two conditions are met: (1) the charge is ‘any duty, tax, or fee assessed under Federal law’; and (2) the charge is assessed ‘because of . . . importation.’

(85 F.3d 1291, 1296). Therefore, it was the following language in § 1313(j)(2):
if there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under Federal law upon entry or importation . . .

(emphasis added) upon which the Texport Courts relied to find that MPF was payable per § 1313(j)(2). Section 1313(j)(1) also contains the language relied on in the Texport case:

If imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law upon entry or importation . . .

(emphasis added) and requires the same two conditions, among others, be met in order to claim drawback per 1313(j)(1), i.e.,

(1) the charge is ‘any duty, tax, or fee assessed under Federal law’; and (2) the charge is assessed ‘because of . . . importation.’

(Emphasis added) (85 F.3d 1291, 1296). Because the critical language relied on by the Texport Court when holding that MPF is payable per § 1313(j)(2) is also contained in § 1313(j)(1), the decision in Texport also has the effect of making MPF payable on claims per § 1313(j)(1).

Moreover, because the Texport decision was based on language already contained in §§ 1313(j)(1) and (2) at the time of that decision, and prior to the amendment of § 58c, drawback of MPF was payable on claims per § 1313(j) since the assessment of the MPF was enacted into law. The words relied on by the Federal Circuit Court in Texport were added to § 1313 as (j)(1) and (2) by Public Law 96-609, enacted on 12/28/1980 (Title II, § 201(a), 94 Stat. 3560, 12/28/1980) and applied to articles entered for consumption on or after 12/28/1980 (Public Law 96-609, § 201(b), Title II). Subsequent to the amendment of § 1313 to add subsections (j)(1) and (2), the law providing for collection of the MPF was enacted.

Subparagraph 9 providing for the assessment of MPF was added to § 58c(a) by the Omnibus Budget Reconciliation Act of 1986 (§ 8101(a), Title VIII, Subtitle B, P.L. 99-509, 10/21/1986, 100 Stat. 1965, 196).

Section 58c(a)(9) was subsequently amended, but not in ways that change this analysis. The Omnibus Trade and Competitiveness Act of 1988 (§ 1214(g), Title I, Subtitle B, P.L. 100-418, H.R. 4848, 8/23/1988, 102 Stat. 1107, 1156) amended § 58c(a)(9) to change the references in that subsection from the Tariff Schedules of the United States (TSUS) to the Harmonized Tariff Schedule of the United States (HTSUS):

For the processing of any merchandise (other than an article that is--

“(A) provided for under any item in chapter 98 of the Harmonized Tariff Schedule of the United States, except subheading 9802.00.60 or 9802.00.80,

“(B) a product of an insular possession of the United States, or

“(C) a product of any county listed in general note 3(c)(v) of such Schedule) that is formally entered, or withdrawn from warehouse for consumption--

“(i) after November 30, 1986, and

“(ii) before October 1, 1987;
a fee in an amount equal to 0.22 percent ad valorem.

(§ 58c(a)(9), 8/23/1988.) The Customs and Trade Act of 1990 (§ 111(a), Subtitle B, Title I, P.L. 101-382, H.R. 1594, 8/20/1990, 104 Stat. 629, 654) amended § 58c(a)(9) to provide:

For the processing of merchandise that is formally entered or released during any fiscal year, a fee, subject to the limitations in subsection (b)(8)(A), in an amount equal to 0.17 percent ad valorem.

The Uruguay Round Agreements Act (§ 612(a) Subtitle B Title VI, P.L. 103-465, H.R. 5110, 12/8/1994, 108 Stat. 4809) applicable to articles entered, or withdrawn from warehouse for consumption, on or after 1/1/95, changed the MPF to 0.21. Section § 58c(a)(9) (1994) currently provides:

(9) (A) For the processing of merchandise that is formally entered or released during any fiscal year, a fee in an amount equal to 0.21 percent ad valorem, unless adjusted under subparagraph (B). Therefore, the § 1313(j) language that the Texport Court said required payment of drawback of the MPF was in the drawback statute at the time the law providing for collection of the MPF was enacted (see § 201(b), Public Law 96-609). Consequently, when the CAFC Texport decision interpreting § 1313(j)(2) as authorizing drawback of MPF was issued, the language necessary to pay drawback of MPF claimed under § 1313(j) was already in that statute. Therefore, drawback of the MPF on claims per § 1313(j) was payable at that time, providing all other statutory requirements for drawback were fulfilled. Depending on whether the claim is filed per § 1313(j)(1) or (2), these requirements include: the imported or substituted article be exported or destroyed within 3 years from importation (§§ 1313(j)(1)(A), (j)(2)(B)), substituted articles must be commercially interchangeable with imported articles (§ 1313(j)(2)(A); articles cannot be used in the U.S. before export or destruction (§§ 1313(j)(1)(B), (j)(2)(C)(i)), the possession requirement (§ 1313(j)(2)(C)(ii)), drawback claim must be complete within 3 years after the date of exportation.

In addition, the Federal Circuit Court’s opinion in Texport Oil Co. v. United States, also makes drawback of MPF payable on drawback claims filed per 19 U.S.C. § 1313(p)(2)(A)(iii) and (iv). As stated above, a drawback claim filed per § 1313(j)(1) or 1313(j)(2), claiming drawback of MPF and meeting all the statutory requirements for drawback is payable. Because 19 U.S.C. § 1313(p)(2)(A)(iii) and (iv) reference § 1313(j), the holding in Texport that drawback of MPF is payable on claims made per § 1313(j) applies to drawback claims payable per § 1313(p)(2)(A)(iii) and (iv).

Subsection (p) was added to § 1313 by the North American Free Trade Agreement Implementation Act (103 P.L. 182; 107 Stat. 2057; H.R. 3450, 12/8/1993). This amendment to § 1313 was effective on 12/8/1993. Section 1313(p)(1) provides in part:

(p) Substitution of finished petroleum derivatives. (1) In general. Notwithstanding any other provision of this section, if-- (A) an article (hereafter referred to in this subsection as the “exported article”) of the same kind and quality as a qualified article is exported; (B) the requirements set forth in paragraph (2) are met; and (C) a drawback claim is filed regarding the exported article; drawback shall be allowed as described in paragraph (4).

Thus, § 1313(p)(1) directs that if the requirements named therein are met, drawback will be paid according to the instructions in § 1313(p)(4). The relevant portion of § 1313(p)(4) states:

(4) Limitation on drawback. The amount of drawback payable under this subsection shall not exceed the amount of drawback that would be attributable to the article--. . . (B) imported under clause (iii) or (iv) of paragraph (2)(A) had the claim qualified for drawback under subsection (j).

(Emphasis added) (§ 1313(p)(4)(B)). The underlined text in § 1313(p)(4)(B) (above) directs that if the drawback is payable because the requirements of § 1313(p)(2)(A)(iii) or (iv) are met, then the amount of drawback paid is no more than the amount of drawback payable per § 1313(j).

It is this language, the underlined language in § 1313(p)(4)(B) referencing § 1313(j), that makes the holding in Texport applicable to drawback claims made per § 1313(p)(2)(A)(iii) or (iv), that is, drawback claims that meet the requirements of § 1313(p)(2)(A)(iii) or (iv):

(2) Requirements. The requirements referred to in paragraph (1) are as follows: (A) The exporter of the exported article--. . . (iii) imported a qualified article in a quantity equal to or greater than the quantity of the exported article, or (iv) purchased or exchanged, directly or indirectly, a qualified article from an importer in a quantity equal to or greater than the quantity of the exported article.

Section1313(p) was effective on 12/8/1993, subsequent to the effective date of § 1313(j) and § 58c(a)(9) requiring collection of the MPF. Therefore, the Texport decision means that drawback of MPF claimed per § 1313(p)(2)(A)(iii) and (iv) was payable since enactment of § 1313(p). Consequently, when all the statutory and regulatory requirements for drawback per § 1313(p) are met, drawback of MPF claimed for substitution of petroleum derivatives per § 1313(p)(2)(A)(iii) or (iv) is payable. That is, for example, a claim for MPF must meet the filing requirement of 19 U.S.C. § 1313(r) to be eligible. See HRL 230776 (8/10/2005). In this case, Reichhold met the filing requirement. The polyurethane was exported in the period from 1/20/2003 to 3/26/2003 and the claim for drawback on the MPF was made on 8/20/2003, well within the three-year filing period set by § 1313(r).

As a result of the CAFC’s decision in Texport, T.D. 01-18, containing the interim rule embodying the Texport decision, was issued (66 Fed. Reg. 9647, 2/9/2001). T.D. 01-18 amended on an interim basis § 191.3, Duties and fees subject or not subject to drawback, and § 191.51, Completion of drawback claims, so that the regulations would reflect the drawback law as interpreted in Texport:

In view of the recent judicial interpretation of section 1313(j)(2) in which merchandise processing fees were deemed subject to unused merchandise drawback, §§ 191.3(a) and (b)(2) of the Customs Regulations are amended to reflect that determination. A new paragraph (a)(4) is added to provide that merchandise processing fees are eligible to be claimed as unused merchandise drawback. Paragraph (b)(2) is amended so as to provide that merchandise processing fees are ineligible for drawback except when unused merchandise drawback is claimed.

(66 Fed. Reg. 9647, 48.) T.D. 02-39 was issued to adopt the final rule amending the regulations at 19 C.F.R. §§ 191.3 and 191.51(b)(2) (67 Fed. Reg. 48,547, 7/25/2002). As stated in T.D. 02-39,

These regulations serve to conform the Customs Regulations to reflect a recent decision by the Court of Appeals for the Federal Circuit and to finalize an interim rule that is already effective. In addition, the regulatory changes benefit the public by allowing merchandise processing fees to be claimed as unused merchandise drawback, and by providing specific information as to how a drawback claimant is to correctly calculate that portion of a merchandise processing fee that is eligible to be claimed as unused merchandise drawback.

(67 Fed. Reg. at 48,548). However, because T.D. 02-39 did not amend the regulations to reflect the Texport decision’s effect on drawback claims per § 1313(p), it was necessary to amend the regulations further.

The CBP regulations were again amended to reflect the Texport decision by CBP Dec. 04-33 (69 Fed. Reg. 60,082, 10/7/2004). CBP Dec. 04-33 further amended § 191.3 and § 191.51 to reflect that MPF is payable on drawback claims filed under § 1313(p)(2)(A)(iii) or (iv):

Consistent with the determination of the CAFC that merchandise processing fees are eligible to be claimed as drawback pursuant to 19 U.S.C. 1313(j), such fees are also eligible to be claimed as drawback when drawback is based on substitution of finished petroleum derivatives pursuant to 19 U.S.C. 1313(p)(2)(A)(iii) or (iv).

(69 Fed. Reg. 60,082, 83.) The amendments to the CBP regulations were required to reflect the change in the interpretation of the drawback law by the Texport decision to permit drawback of MPF per § 1313(j) and § 1313(p)(2)(A)(iii) or (iv), i.e., to conform the regulations to the law set out in Texport. That is, the amended regulations did not themselves authorize the change.

Consequently, providing the other statutory and regulatory drawback requirements are met, drawback of MPF claimed per § 1313(p) (2)(A)(iii) or (iv) is payable on designated merchandise exported prior to CBP Decision 04-33, issued on 10/7/2004. Therefore, to the extent that the protested drawback claim meets the requirements of § 1313(p) (2)(A)(iii) or (iv) and meets the other statutory and regulatory requirements, including § 1313(r), for drawback per § 1313(p), drawback of the MPF is allowed.

2. Whether drawback of HMT on claims filed per § 1313(p) is payable under the amendments to 19 U.S.C. § 1313(j) made by the Miscellaneous Trade and Technical Corrections Act of 2004?

Drawback of HMT was denied on the protested drawback claim because, according to Chicago, drawback of HMT was not permitted prior to the enactment of the Miscellaneous Trade and Technical Corrections Act of 2004 (2004 Trade Act), on 12/3/2004 and because the 2004 Trade Act authorized drawback of HMT only on drawback claims filed per 19 U.S.C. § 1313(j). The Harbor Maintenance Fee, provided for at 26 U.S.C. §§ 4461, 4462, imposes a tax on any port use where commercial cargo is involved. Reichhold argues that the amendments to 19 U.S.C. § 1313(j) made by the 2004 Trade Act authorized drawback of HMT on claims filed per 19 U.S.C. § 1313(p).

Section 1557 of 2004 Trade Act (108 P.L. 429, 118 Stat. 2434, H.R. 1047, 12/03/2004) amended the language of § 1313(j) to make the HMT subject to drawback claimed under § 1313(j). Sections 1313(j)(1) and (2) were amended by deleting the language “because of its” and replacing it with “upon entry or.” In subparagraph (C)(ii)(II) “then upon” was deleted and replaced with “then, notwithstanding any other provision of law, upon” and “shall be refunded as drawback” was replaced with “shall be refunded as drawback under this subsection.” (§ 1557(a), 108 P.L. 429, 118 Stat. 2434, H.R. 1047, 12/03/2004). As explained above, because 19 U.S.C. § 1313(p)(2)(A)(iii) and (iv) reference § 1313(j), the 2004 Trade Act amendments which make drawback of HMT payable on claims made per § 1313(j)(2) also apply to drawback claims of HMT per § 1313(p)(2)(A)(iii) and (iv). (See analysis above and HRL 230776, 8/10/2005.) Consequently, providing the other statutory and regulatory drawback requirements are met, drawback of HMT is payable when claimed per § 1313(p) (2)(A)(iii) or (iv) and timely filed as under § 1557(b) the 2004 Trade Act and 19 U.S.C. § 1313(r).

Subsection 1557(b) of the 2004 Trade Act provides the effective date for the amendments to § 1313(j):

The amendments made by this section shall take effect on the date of the enactment of this Act, and shall apply to any drawback claim filed on or after that date and to any drawback entry filed before that date if the liquidation of the entry is not final on that date.

(§ 1557(b), 108 P.L. 429, 118 Stat. 2434) (emphasis added). The 2004 Trade Act was enacted 12/03/2004. Therefore the amendments apply to drawback entries claiming drawback of the HMT per § 1313(j)(1) or § 1313(j)(2) or § 1313(p)(2)(A)(iii) or § 1313(p)(2)(A) (iv) when those claims are filed: 1) either on or after 12/03/2004 or
2) if filed before 12/03/2004, when the liquidation of that claim was not final on 12/03/2004. Accordingly, § 1557(b) gives the 2004 Trade Act amendments to § 1313(j) limited retroactive effect.

Reichhold filed the amended drawback claim for HMT on 8/20/2003 and the claim was not liquidated until 6/24/2005. Therefore, the claim was filed before 12/03/2004, and there was no liquidation to become final before 12/03/2004. Given the limited retroactive effect of § 1557(b), the protested drawback claim at issue was filed timely under the 2004 Trade Act and within the three-year period required by § 1313(r). Consequently, to the extent that the protested drawback claim meets the requirements under § 1313(p)(2)(A)(iii) or (iv), and the other statutory and regulatory requirements for drawback per § 1313(p), drawback of the HMT is allowed.

HOLDINGS:

1. Under Texport Oil Co. v. United States, drawback of MPF is payable prior to CBP Decision 04-33 on timely filed drawback claims under § 1313(p)(2)(A)(iii) or (iv), providing the other statutory and regulatory drawback requirements, including the filing requirement set by 19 U.S.C. § 1313(r), are met.

2. The Miscellaneous Trade and Technical Corrections Act of 2004, which authorized drawback of HMT per § 1313(j) established the right to drawback of HMT for claims filed under § 1313(p) prior to 12/3/2004, providing the other statutory and regulatory drawback requirements, including the filing requirement set by 19 U.S.C. § 1313(r), are met.

Therefore, to the extent the protested drawback claim at issue meets the statutory and regulatory requirements for drawback claims per § 1313(p), drawback of the HMT and MPF is payable and this protest should be GRANTED.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the claim 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 CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

William G. Rosoff,

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See also:

• Tariff No.: 9802.00.60 - U.S. articles of specific metals exported for further processing and returned for further processing
• Tariff No.: 9802.00.80 - U.S. articles assembled abroad, which have not lost their physical identity or have not advanced in value or improved in condition abroad