Importer Says CIT Ruling on Drawback Claims for FTZ Goods 'Absurd' and 'Anomalous'
The Court of International Trade's ruling that a product is "imported" for duty drawback purposes when it's admitted into a foreign-trade zone and not when entered for domestic consumption impermissibly repealed part of the Foreign Trade Zone Act, imported King Maker Marketing argued in its opening brief at the U.S. Court of Appeals for the Federal Circuit. The importer added that it's "both absurd and anomalous" to impose a time limit on the recovery of duties and taxes under the drawback scheme as "beginning to run before those duties and taxes are paid" (King Maker Marketing v. United States, Fed. Cir. # 25-1819).
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King Maker admitted 21 shipments of paper-wrapped cigarettes into an FTZ from September 2012 to February 2014. The shipments were withdrawn from the FTZ for domestic consumption from May 2013 to September 2018 under Harmonized Tariff Schedule subheading 2404.20.80. After the goods were entered, the importer exported other cigarettes classified under the same subheading, leading the company to file claims for substitution unused merchandise drawback.
CBP denied the claims for being untimely, since they came more five years after the goods were admitted into the FTZ -- though they were filed within five years of the goods being entered into the U.S. The trade court held that the phrase "date of importation" in the drawback statute, 19 U.S.C. § 1313(r), refers to the date the goods were imported into the FTZ, rather than the date the goods were entered for consumption (see 2505150038).
In appealing the decision, King Maker argued that CIT's ruling renders an "absurd and anomalous interpretation" of the drawback statute, 19 U.S.C. Section 1313(j)(2)(B). The importer opened its argument by distinguishing the concept of "importation," which is an act that "causes liability for duties and taxes to attach to the imported merchandise" and subjects the imports to U.S. customs laws, whereas "entry," constitutes the accounting to CBP for the imports.
King Maker addressed a host of "judicial pronouncements" from the Supreme Court, which CIT relied on, that said importation means "bringing an article into a country from the outside" regardless of the "mode in which it is effected." The cases at issue are Cunard S.S. Co. v. Mellon, Arnold v. U.S. and Perots v. U.S. The importer argued that all three of these cases came before the FTZ Act of 1934, which "authorized the establishment of designated locations physically within the United States which are treated as though they are outside the Customs Territory of the United States."
The Act also says goods arriving in U.S. ports and directed to an FTZ shall not be subject to U.S. customs laws while in the FTZ. "This means that contrary to the holdings in Perots, Arnold and Cunard, liability for duties and taxes is not fixed upon these goods at the time of arrival with intent to unlade," the brief said. Goods exported from or destroyed in the FTZ will never become subject to U.S. customs laws, meaning the "formulations set out in cases such as Perots, Arnold, and Cunard, have been displaced, in certain contexts at least, by subsequent legislation," the importer argued.
Relatedly, King Maker argued that CIT's ruling partially repeals the FTZ Act, noting that it's a key rule of statutory construction to read statues harmoniously and that the drawback statute and the FTZ Act "are not in irreconcilable conflict." If the drawback's term "beginning on the date of importation of the imported merchandise" is "given proper contextual definition" by starting this clock on the date of entry, "both laws are given effect," the brief said.
However, under CIT's formulation of the drawback law, goods in an FTZ would be subject to a U.S. customs law, the drawback statute, despite Congress' explicit command that "that goods stored in an FTZ are outside the Customs Territory of the United States, and are not subject to the Customs laws of the United States," King Maker argued.
The importer added that the trade court's reading of the drawback statute is "absurd." The essence of "drawback" is the "recovery of a sum previously paid to the government." It said "it is both absurd and anomalous to interpret a time limitation on recovery of duties and taxes paid as beginning to run before those duties and taxes are paid." And if goods are in an FTZ for over five years, under CIT's reading of the law, the importer "would not ever be able to file a drawback claim," the brief said.
King Maker added that CIT "conflated Congress' prescription that FTZs be located 'within or adjacent to a port of entry' to mean that FTZ are 'within the limits of a port in the United States,' and therefore, are subject to customs laws." This "conflation" disregards the FTZ Act's legislative intention and the trade court's own decisions in Klockner v. U.S. and Torrington Co. v. U.S., in which the court said goods stored in FTZs aren't subject to the antidumping duty laws, King Maker argued.