Back in February, 2018, the Treasury Department bypassed a Congressional deadline for issuing regulations concerning how duty drawbacks should be calculated under the Trade Facilitation and Trade Enforcement Act (TFTEA).  Drawback claimants who had been promised a “transition year” in which they could claim drawback either under historical rules or TFTEA rules were at a loss concerning how they should structure and file duty drawback claims. In lieu of regulations, Customs and Border Protection issued an Interim Guidance Document setting out “guidelines” for calculating TFTEA drawback – guidelines which were changeable at will and which would govern the drawback program until Customs could complete and finalize regulations regarding drawback under TFTEA.

What’s worse, the agency indicated that it would not issue accelerated payments of drawback for TFTEA claims until final regulations were adopted. Mindful that CBP’s last major set of drawback regulations had taken nearly five (5) years to be finalized, and facing financial losses, a group of drawback claimants and drawback service providers brought suit, seeking to force Treasury to issue the calculation regulations which Congress had directed be in place by February 2018.

On June 29, 2018, the United States Court of International Trade ruled for the drawback claimants, holding that Treasury had “unlawfully withheld” required agency action, and that, under the Administrative Procedure Act, the Court was required to “compel agency action unlawfully withheld”. Tabacos de Wilson et al. v. United States, Slip Op. 18-81 (June 29, 2018).

Having ruled against the government, the Court asked the parties to the lawsuit to confer and try to determine the form of relief the Court should enter. The government noted that it was preparing a 450-page set of proposed regulations, which would include the TFTEA drawback rules, and urged the Court to take no action until the massive rules package could be proposed and finalized. The government suggested to a skeptical court that it could complete this massive rulemaking package by the end of 2018, leaving some time for drawback claimants to take advantage of the last few weeks of the “transition year”.  [The proposed regulations had been published in the Federal Register on August 2, 2018, and public comments solicited through September 17, 2018].

The plaintiffs, on the other hand, pointed to a small handful of rules which were necessary to calculation of TFTEA drawback, and urged the Court to order that only those be made effective immediately.

Concerned that drawback claimants were being deprived of important substantive rights, and noting the looming end of the “transition year”, the Court of International Trade on October 12, 2018 issued a judgment order directing Treasury and CBP to publish the entire drawback rulemaking package as a final regulation no later than December 17, 2018, and made effective on that day. [Controversial proposals concerning calculation of excise-tax drawback would have a 60-day delayed effective date]. Tabacos de Wilson et al v. United States, Slip Op 18-138 (October 12, 2018).

In making this ruling, the Court noted that it was Congress intent that drawback claimants have the right to make informed decisions during the “transition year”, and that drawback, including accelerated payments of drawback, be available during that time.

But the Court gave the government an important, if partial, “out”.  It held that the government could, at its discretion, delay making effective any proposed regulations other than those the plaintiffs had identified as necessary for TFTEA drawback. Thus, the government has the option to put in place a more limited package of rules by December 17, get TFTEA drawback claims and accelerated payments flowing, and take more time, if it wished, to wade through the large number of comments on the remaining proposed regulations.

This aspect of the ruling gives the government considerable flexibility in issuing the bulk of its regulations – and also limits the chances an appeals court would hold that the Court’s order is overreaching.

The Court’s ruling will ensure that drawback claimants at least have a couple of months of the “transition period” to determine how to structure their drawback claims, and will get the flow of accelerated drawback payments restored.  At this point, it’s hard to tell whether CBP will rush to complete the entire massive drawback rulemaking package by December 17th, or implement a more limited set of rules, but at least TFTEA will become operational by that date.

Better late than never, goes the saying. Drawback claimants will be working to get their claims in as soon after December 17 as possible, or will be counting that the final regulations will mirror the proposed ones (in the realm of drawback calculation, a pretty safe bet).

We’re happy to discuss the case and its implications in further detail.