Customs Transition of Drawback to ACE Under New Regime Delayed
A 12-year collaborative effort between Customs and Border Protection and the Trade Community resulted in a new drawback statute found in Section 903 of HR 644 enacted as “The Trade Facilitation and Trade Enforcement Act of 2015.” The legislation set in motion an extensive and fundamental transformation of the 200-plus-year-old duty minimization strategy known as duty drawback refunds. Simply stated, the drawback program allows for the refund of duties on imported merchandise that is subsequently exported from the United States either in the same condition or following a manufacturing process.
The new drawback statute mandated a two-year implementation process to allow Customs and Border Protection ample time to draft and implement a new regulatory regime as well as complete the full automation of drawback claim submission through its electronic platform referred to as ACE (Automated Commercial Environment). Currently a small portion of each drawback claim is submitted electronically via automated broker interface (ABI) so that Customs can perform a series of validations within Customs Automated Commercial System (ACS).
Surprising to some in the Trade Community, Customs supported the liberalization of the substitution provision of the drawback law. Under the existing drawback regime, imports and exports are essentially matched at the part or model number level. The new law allows for matching at the much more general Harmonized Tariff Schedule (HTS No.). For example, under the existing law, a tennis shoe company would need to match according to style number, size, and color. Under the new law, all its various style numbers regardless of size and color fall under the more general tariff classification of “athletic footwear”.
Customs placed its support for the legislation on the position that simplifying the legal and regulatory structure as well as further automating drawback claim submission would reduce the manual workload of the Customs drawback staff, and eventually result in a reduction in the cost to administer the sometimes-convoluted duty refund program. For Customs to fully realize the administrative efficiencies of the new law, Customs needed to move quickly to complete the drawback processing module of ACE before the new law is fully implemented in February 2018.
Some background on ACE: ACE was developed as the primary, modernized system through which the U.S. Government will track, control and process all imported and exported goods. ACE has been in various stages of implementation since 2001. What was initially envisioned as a 5-year project, instead expanded beyond its initial scope and budget. Drawback, a relatively low priority comparatively, continued to languish in ACS as Customs understandably focused its programming resources on the import entry process and the tracking of cargo. This changed with the passage of the new drawback law as Customs made the programing of the drawback module in ACE a priority in late 2016.
Drawback’s now urgent transition to ACE further unnerved many in the drawback community attempting to digest the implications of the new legislation while working with Customs to draft, publish and finalize the new rules it time for the February 2018 deadline. Specifically, some in the drawback community fear that system design flaws, a lack of funding, and potential crashes due to insufficient bandwidth could delay the payment of drawback refunds once Customs flips the ACS “off” switch.
The most troubling issue with the new system relates to file size limitations for each type of record submitted. Each data record type (import, export, and bills of material for manufacturing drawback) is limited to 5,000 records each – woefully insufficient for high volume importers and exporters.
As an example, our firm, Alliance Drawback Services, works with a large eyewear importer and exporter that files drawback claims on a quarterly basis. Drawback claims for this company typically include more than 250,000 import and export records. Because of the record limitations, the number of annual drawback claims will increase for this claimant from 4 to over 100! Given that a drawback claim submission requires both the preparer and Customs to perform a series of administrative steps, increasing the number of drawback claim submissions, will increase the overall administrative burden for high transaction volume accounts.
The good news for those with concerns over a disruption in the immediate flow of drawback dollars is that the implementation of the ACE drawback module initially scheduled for late 2016 was delayed due to a variety of programming-related issues, although testing continues in earnest. The latest pronouncement from Customs regarding the final deployment of the drawback module in ACE indicates the publication of a deadline date sometime this summer.
While we do not entirely understand Customs’ systems-related challenges, it seems the only reasonable explanation for limiting file size in today’s age of almost unlimited computing capacity would suggest either a problem with the file layout specifications or that the ABI data pipeline lacks sufficient capacity, thus the need to limit the number of records for each claim submission. According to one drawback software company representative, initial testing indicates that ACE’s data transmission and response times for drawback claims are slower than those for ACS despite the file size limitations.
Regardless of whether the ACE drawback module is fully operational sometime this year, will ACE withstand the data deluge on February 24, 2018 when the Trade Community unleashes a backlog of claim activity just waiting to take advantage of the liberalized substitution provision of the new law?
Much to the dismay of drawback filers and specialists, some Customs officials recently privately floated the idea of pushing the implementation of the new law beyond the February 2018 deadline date primarily related to a lack of funding for continued ACE programming. To their credit, the drawback community included the 2018 start date in the language of the legislation. Consequently, Congressional action would be required to delay the law’s implementation. In a recent meeting with members of various drawback trade association committee members alarmed by Customs pronouncements, Customs reaffirmed its commitment to meet the February 24, 2018 deadline. Customs also stated it would develop contingency plans for accepting claims filed under the provisions of the new law in the event it could not meet the programming targets due to budgetary constraints.
Once the dust settles on all the changes, it remains to be seen if drawback filers will experience a simplified administrative process that encourages greater participation in the drawback program. Clearly, the new law expanded the amount of potential refunds with a significantly liberalized substitution provision, but the devil, as they say, is in the details. What drawback filers can expect with certainty is a less-than-seamless transition to the new regime – understandable given the magnitude of the changes to this valuable export incentive program.
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