US Says Goods Become Imports When Entering US, Not Leaving FTZ
Foreign-trade zone goods become "importations" for duty drawback purposes when they are admitted into an FTZ, rather than when they are entered for consumption into the U.S., the government told the Court of International Trade on Nov. 27, urging it to dismiss a lawsuit from importer King Maker Marketing challenging the rejection of its duty drawback claims. As a result, King Maker's drawback claims are untimely, since they were brought over five years since the underlying cigarette entries were admitted into the FTZ, the government said (King Maker Marketing v. United States, CIT # 24-00134).
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King Maker brought the cigarettes into an FTZ in 2013-14, only later withdrawing them for domestic consumption. When they were withdrawn, CBP assessed the goods under Harmonized Tariff Schedule subheading 2404.20.80. King Maker said it later exported other cigarettes also classified under subheading 2402.20.80, qualifying them for substitution unused merchandise drawback (see 2408020050).
However, the drawback claims weren't filed until 2018, since the law enacting the 8-digit standard for substitutability didn't enter into force until 2018, the company said. CBP denied the claims as untimely, given that they make claim more than five years after the date of import.
The government moved to dismiss King Maker's case, arguing that the drawback claims are untimely under the two relevant statutory provisions regarding drawback claims, Sections 1313(j)(2) and (r)(1). Section (j)(2) requires the exportation or destruction of the other merchandise brought under the same HTS subheading as the "imported merchandise" before the end of the five-year period starting on the "date of importation of the imported merchandise." Section (r)(1) similarly requires a drawback entry to be filed no later than five years after the date on which the goods were "imported."
The only question is whether, as a result of the Foreign Trade Zones Act of 1934, goods admitted into an FTZ lose their status as "importations" under the drawback statute and become importations when withdrawn from the FTZ, the U.S. said.
Central to the government's argument is the distinction between the terms "importation" and "entry," as found in 1313(j)(1). The U.S. said that if these terms were "synonymous, then there would have been no need to use both terms." The term "entry" is defined as the filing of documents needed to determine whether the goods can be released from customs custody, the government said.
"In contrast, importation is defined as the act of bringing merchandise into a country from a foreign country," the brief said.
The U.S. said the issue of when a good is imported for drawback purposes was settled by the U.S. Customs Service in 1978, when it said the five-year limit to file a claim starts "before the merchandise is entered for consumption or warehouse." The government also cited a U.S. Court of Appeals for the Federal Circuit decision in making its case, which "recognized the distinction between entry and importation."
The U.S. added that the Foreign Trade Zone Act doesn't support King Maker's position, arguing that the importer looks to conflate the term "entry" with "importation." King Maker repeated, "as though magical, that the admission of its imported merchandise into a FTZ means that it is not subject to the Customs laws of the United States and is outside the Customs territory of the United States." This position is "illogical" given the application of sections (j)(2) and (r)(1) to King Maker's claims are to goods that were withdrawn from the FTZ in 2013-14 but imported in 2012-14.
This means CBP's finding that King Maker's claims are untimely is in line with the "plain language of the substitution drawback statute, the common meaning of importation, and the admonition that the privilege of drawback should be construed in favor of the Government and against King Maker," the brief said.