Goods Become Imports When Leaving FTZ for Consumption in US, Importer Seeking Drawback Claims
Foreign-trade zone goods become "importations" for duty drawback purposes when they are entered for consumption into the U.S. and not when they are admitted into an FTZ, importer King Maker Marketing told the Court of International Trade. Responding to the government's motion to dismiss the company's suit challenging the rejection of its duty drawback claims, King Maker said goods in an FTZ are considered to be outside the customs territory of the U.S., making the "date of importation" the date the goods were withdrawn from the FTZ (King Maker Marketing v. United States, CIT # 24-00134).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 When they were withdrawn, CBP assessed the goods under Harmonized Tariff Schedule subheading 2404.20.80. The importer 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 the claim more than five years after the date of import. The U.S. moved to dismiss King Maker's case on the same grounds, arguing that the drawback claims are untimely since the two statutes on drawback claims require the exportation of the goods within five years from the date of importation (see 2412020049).
In response, King Maker first said that, historically, the date of importation has been defined as the "date a vessel arrives within port limits with intent to unlade." The importer noted three Supreme Court cases cited by the government that establish this historic definition -- Cunard S.S. Co. v. Mellon, Perots v. U.S. and Arnold v. U.S. The company said that what the three of these "venerable judicial pronouncements all have in common is that" they all came before the Foreign Trade Zones Act of 1934.
This act "authorized the establishment of designated locations physically within the United States which are treated as though they were outside the Customs Territory of the United States," the importer noted. As a result, contrary to the holdings of Perots, Arnold and Cunard, "liability for duties and taxes is not fixed upon these goods at the time of arrival with intent to unlade" but instead when they are withdrawn from the FTZ.
King Maker cited the 1993 CIT case Torrington Co. v. U.S. for the proposition that importation "occurs when merchandise formally enters the Customs Territory" and that, in the case of an FTZ, the goods enter U.S. customs territory when they leave the FTZ. "This is precisely the definition this Court must adopt in the instant case," the brief said.
The importer argued that customs law doesn't apply to goods stored in FTZs, noting that the FTZ act says foreign and domestic merchandise may, without being subject to U.S. customs laws, be brought into a zone for various purposes. The act then says "when foreign merchandise is so sent from a zone into Customs Territory of the United States, it shall be subject to the laws and regulations of the United States affecting imported merchandise." Thus, the duty drawback law "is a customs law that cannot be applied to goods in the FTZ, according to the Foreign Trade Zones Act," the brief said.
The government heavily relied on a 1978 Customs Service decision in which the agency said the former five-year time limit on exports to qualify for drawback doesn't commence when goods are withdrawn for consumption from a Customs bonded warehouse, since import occurs before the goods are entered for consumption. King Maker said that, in citing this decision, the U.S. "disregards the crucial differences between Customs bonded warehouses and FTZs," namely, that bonded warehouses are considered to be within the customs territory of the U.S. while FTZs are not.
The importer added that "the unique context provided by operation of the Foreign Trade Zones Act indicates that the 'date of importation' is the date imported cigarettes designated in plaintiff’s drawback claim were withdrawn from FTZ No. 31 for consumption in the United States, and assessed with duties and taxes."