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13 February 2018 US Customs publishes draft interim guidance for filing drawback claims under TFTEA On 9 February 2018, two weeks before the Congressionally mandated date for United States (US) Customs and Border Protection (CBP) to publish final regulations and begin accepting electronic filings of drawback claims made under the Trade Facilitation and Trade Enforcement Act (TFTEA), CBP announced that it would not have regulations in place, and issued interim guidance on drawback filing. The interim guidance has material impact for exporters who may benefit from TFTEA drawback. TFTEA, enacted on 24 February 2016, significantly expanded the customs drawback program. Drawback is a mechanism to recover duty, taxes or fees paid with respect to imported merchandise when the imported merchandise, a product manufactured with the imported merchandise, or substituted "like-kind" merchandise is subsequently exported. Among the significant changes made by TFTEA are determining "like-kind" merchandise based on the Harmonized Tariff System classification of the products (replacing a subjective standard with an objective one), requiring automated filing, and expanding timeframes for recovery. To allow CBP sufficient time to automate the filing system, Congress deferred the date on which claims can be filed until two years after enactment (24 February 2018). Congress also mandated that CBP issue regulations by that date. CBP has announced that it will deploy an electronic interface for filing drawback claims on 24 February 2018, utilizing the Automated Commercial Environment (ACE). Regulations, however, have not yet been proposed. On 9 February 2018, CBP issued a document titled Drawback: Interim Guidance for Filing TFTEA Drawback Claims (the Interim Guidance), providing instructions on filing drawback claims prior to the effective date of final regulations. The Interim Guidance is very restrictive, effectively preventing business eligible for TFTEA drawback from benefitting from the statutory changes until final regulations are issued. Moreover, CBP cautions the reader that the Interim Guidance reflects "CBP's tentative and conditional framework for drawback" pending the issuance of final regulations, noting that the Interim Guidance may be revised, and cautioning the reader that "any decisions a reader makes based on this draft document are taken voluntarily, and with the understanding that policies and procedures might change." The Interim Guidance has material implications for TFTEA claims and in particular for those filing manufacturing drawback claims or utilizing common drawback privileges, detailed below: Manufacturers can benefit from the TFTEA "like-kind" substitution standard by claiming drawback on duties, taxes and fees paid on an imported product when a like-kind product is used in manufacturing of an exported product. Prior to filing a manufacturing drawback claim, a manufacturer must generally obtain a product specific drawback ruling from CBP, approving the production process and records for drawback. In many instances, manufacturers with existing drawback rulings will be able to expand recovery under TFTEA, because the "like kind" rules are liberalized. CBP is requiring that drawback claimants with an existing manufacturing drawback ruling must file a supplemental application for a limited modification to their ruling in order to claim TFTEA benefits. For manufacturers without a current ruling, a full application must be made under existing rules, accompanied by a TFTEA modification. The vast majority of drawback claims are paid via Accelerated Payment, in which the applicant posts a bond and CBP processes the refund in short order. The Interim Guidance states that CBP will not accept TFTEA drawback claims requesting Accelerated Payment, even from claimants with existing approvals, until TFTEA regulations are implemented. Additionally, from a procedural standpoint, TFTEA claims submitted in ACE with an indicator to request Accelerated Payment privileges will be rejected. CBP does provide that submission of bond information at the time that a TFTEA claim is filed will be deemed a request for delayed payment of Accelerated Payment once the regulations to implement TFTEA-Drawback are in effect. The suspension of the Accelerated Payment program may cause a substantial cash flow issue for many companies. In order to claim drawback, an exporter must give CBP prior notice of export, and an opportunity to inspect the product to be exported. However, on application, a Waiver of Prior Notice of intent to export or destroy is routinely granted by CBP. Additionally, the privilege is generally accompanied by a one-time, retroactive waiver, to allow past exports to qualify for drawback. The vast majority of exporters participating in the drawback program have the Waiver of Prior Notice privilege. The Interim Guidance states that waivers granted under the current rules (19 CFR Part 191 for claims under 19 U.S.C. 1313(c) and (j)(1)/(2)) will not be in accordance with TFTEA requirements. Notably, under TFTEA, a certification of conformity is required for claimants to continue to operate under the Waiver of Prior Notice if the privilege was granted pursuant to current drawback rules (i.e.,19 CFR Part 191). These certifications will be accepted before the TFTEA regulations are implemented, but the actual claims cannot be processed for TFTEA claims until after the regulations are implemented. Drawback claimants who have not been eligible for pre-TFTEA substitution drawback should proceed with these rules carefully. TFTEA provides for a five-year period for filing, so when filings are accepted on 24 February 2018, imports dating to 24 February 2013 may be eligible for drawback recovery. In 2013, an exporter would not have known about changes to the law that occurred in 2016 under TFTEA, and consequently would not have provided CBP prior notice of export. Properly adhering to the rules for the waiver privilege are essential for these companies. With the ACE drawback interface go-live date rapidly approaching, the draft Interim Guidance is much needed. Drawback filers are well advised to review the guidance and ensure the interim procedures are followed for Manufacturing Drawback, Accelerated Payment and Waiver of Prior Notice so as to avoid further delays in processing once the rules are implemented, or claims being rejected and becoming time barred. Additionally, for a one-year period (through 24 February 2019) an exporter may choose to file under either the pre-TFTEA or TFTEA rules. Claims filed under pre-TFTEA procedures may use rulings and privileges, and may be paid under Accelerated Payment. Note, however, that for many companies TFTEA claims will yield greater benefits because of liberalized substitution. As only one drawback back claim can be filed per export, claimants should review their potential benefit under the more flexible TFTEA rules to optimize recovery. Document ID: 2018-5292 |
