National Association of Manufacturers v. United States, Court No. 19-00053, filed in the United
States Court of International Trade on April 18, 2019, is the much-anticipated challenges to recently-
implemented Customs drawback regulations [19 C.F.R. Part 190] which seek to restrict drawback of
Federal excise taxes.
CBP’s final regulations seek to restrict drawback of FET in two ways:
(1) By limiting the amount of FET drawback to the lesser of the taxes paid on the
imported designated article, or the taxes paid on the exported, substituted
merchandise* ; and
(2) Expanding the definition of “drawback claim” to include any other remission of tax,
in effect arguing that a grant of drawback on FET is a “double drawback” claim in
violation of 19 U.S.C. §1313(b).
The intent is to preclude payment of FET drawbacks in cases where the exported goods are withdrawn from a bonded warehouse for exportation. The NAM Complaint challenges CBP’s regulations as being arbitrary, capricious and an abuse of discretion, in violation of the Administrative Procedure Act (APA).
A Good Likelihood of Success
NAM argues that CBP’s regulation restricting payment of FET drawback to the amount of FET assessed on the exported “substituted” merchandise conflicts directly with the language of Section 313 of the Tariff Act, as amended by the Trade Facilitation and Trade Enforcement Act (TFTEA). On this point, NAM would seem to have a clear path to victory. Treasury’s proposal to limit FET was first proposed as a change of practice in 2007, when the prior version of the drawback statute was in effect, and withdrawn in 2009. As amended by TFTEA, however, the drawback statute clearly forecloses the government’s position, since it indicates that the amount of FET drawback to be paid is that which “would have been charged had the exported merchandise been imported”.
Where Treasury will try to mount its defense in earnest is in its attempt to expand the definition of “drawback claim” to include not only claims filed under 19 U.S.C. § 1313, but also remissions or exemptions of taxes arising under other statutes. This regulation, if upheld, would let Treasury justify the denial of FET drawback claims as being prohibited “double drawback” in violation of 19 U.S.C. §1313(v). However, that statute seeks only to prevent the same merchandise from being designated for drawback under §1313 twice. Moreover, the term drawback claim has a long history as a term of art both in the statute, and in Customs regulations, most notably 19 U.S.C. Part 191.
Treatment of Previously-Filed Drawback Claims
The NAM Complaint also seeks a declaratory judgment that the limitations in the regulations cannot be applied to drawback claims filed before the regulations’ effective date. While Customs’ regulation limiting FET drawback to the amount of tax paid on exported goods entered into force on February 23, 2019, the regulation providing a restrictive definition of “drawback claim” entered into force on December 17, 2018.
NAM is seeking a declaratory judgment regarding the extent to which the regulations can be applied to claims filed prior to their stated effective dates. It acknowledges that this issue need not be reached if the regulations are struck down as unlawful.
Courts are generally reluctant to issue declaratory judgments, and have discretion not to do so. Courts prefer to have a specific case or controversy presented (in a case like this, a denied drawback claim). However, it is possible that Court, even if it does not issue a declaratory judgment, might include non-binding dicta in its decision which would have the effect of dissuading CBP from denying such claims.
Neville Peterson LLP played a major role in forcing Customs to issue regulations implementing the TFTEA drawback rules. Our attorneys are happy to discuss this new case and its potential impact on drawback claimants.
*This limitation has the effect of denying drawback altogether in cases where they exported article was
withdrawn from a bonded warehouse for exportation.