Importer Tells CAFC That CIT Failed to Reconcile Drawback, FTZ Statutes
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 would lead to a partial repeal of the FTZ Act, importer King Maker Marketing argued in a reply brief at the U.S. Court of Appeals for the Federal Circuit. King Maker said the trade court's decision would lead to "absurd and anomalous results," since it would require finding the clock for drawback claims to start before the right to make the claim accrues (King Maker Marketing v. United States, Fed. Cir. # 25-1819).
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In its lawsuit, King Maker is seeking duty drawback on 21 shipments of paper-wrapped cigarettes that were admitted 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 The shipments were withdrawn from the FTZ for domestic consumption from May 2013 to September 2018 under Harmonized Tariff Schedule subheading 2404.20.80.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 than 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 admitted into the FTZ, rather than the date the goods were entered for consumption (see 2505150038).
On appeal and in response to arguments from the government, King Maker said CIT's definition of "date of importation" ignored the context of the present case, which involves FTZs, and unlawfully applied a "customs law" to goods in an FTZ for the first time in history. The importer said the trade court had a duty to interpret the drawback and FTZs statutes harmoniously, and, if possible, avoid a partial repeal of a statute, "in this case the FTZ Act."
Instead, the trade court "declined to exercise its duty to interpret," only stating that the "court recognizes the potential for friction between plain readings of" the statutes, and that it's Congress' duty to resolve the conflict. King Maker said this is "incorrect," arguing that it's the court's job to harmoniously reconcile statutes passed by Congress. "In abdicating its interpretive responsibility by effectively leaving a statutory conflict unresolved, the lower court worked a partial repeal of the FTZ Act, and -- for the first time in history -- subjected goods stored in an FTZ to the operation of a Customs law," the brief said.
King Maker went on to say CIT Judge Timothy Reif erred in applying the plain, dictionary definition of "date of importation," since the term must be understood in context. Here, the facts of the case and the FTZ Act provide that context, since the FTZ Act "squarely provides that goods may be stored in an FTZ 'without being subject to the customs laws of the United States.'"
Applying the trade court's definition "would frustrate Congress's purpose in both statutes: it would effectively punish use of an FTZ by running the drawback clock during the very period Congress intended the goods to be outside U.S. Customs jurisdiction," the importer argued. Nothing in the text of the drawback statute suggests Congress meant to force FTZ users to export or enter their goods within five years of "mere physical arrival or else lower drawback eligibility," the brief said.
In its brief, the U.S. cited Garner's Modern English Usage, Black's Law Dictionary and the Supreme Court's 1923 case Cunard S.S. Co. v. Mellon to argue that a good coming into the U.S. from abroad is an import (see 2509120064).
King Maker urged the Federal Circuit to not rely on Cunard, arguing that it's a "century-old" case decided before the passage of the FTZ Act that can't be "read in a vacuum." The Supreme Court in Cunard "addressed the concept of importation for purposes of assessing tariff or regulatory liability on goods physically arriving in U.S. territory" and "drew the then-familiar distinction between 'importation' and 'entry.'"
The importer said it doesn't dispute this general principle, though the high court "did not consider -- and could not have foreseen -- the unique context of FTZs, where Congress permits goods to reside within or adjacent to a port yet outside the customs territory, nor did those cases address the proper trigger for a post-importation refund scheme like 'Modernized Drawback.'" The government's "heavy reliance on early judicial dicta, without accounting for the modern statutory landscape, only underscore the need for a contextual reading here," the brief said.
Lastly, King Maker urged the Federal Circuit to avoid the "absurd" results that would flow from Reif's ruling. Namely, the importer said "a claim for a refund of import duties cannot accrue before those duties have been paid."
In making this claim, King Maker relied on the Supreme Court's 2024 decision in Corner Post v. Bd. of Governors, Federal Reserve, in which the court said the six-year statute of limitations for a claim under the Administrative Procedure Act runs from the date a party is injured and not the date of the agency action. The court said a "right accrues when" the plaintiff "has a complete and present cause of action." Thus, a "cause of action does not become complete and present -- it does not accrue -- "until the plaintiff can file suit and obtain relief," King Maker said.
Here, the trade court's decision starts the clock for a drawback claim "at a point when King Maker had no claim to assert -- i.e., when its cigarettes were warehoused in an FTZ, no tax had been paid, and no drawback claim, nor information thereon, was available," the brief said. The importer added that the "text and purpose of the drawback statute confirm that Congress could not have meant to trigger the countdown before a duty or tax refund claim arises" and that Reif's decision would strip the possibility of drawback for importers who did "nothing wrong except" make "lawful use of the FTZ's warehousing provisions."