Drawback Trade Community Wins Key Court Case
The Trade Facilitation and Simplification Act of 2016 (known by its acronym TFTEA) significantly liberalized, and sought to simplify the export incentive program referred to as duty drawback. The statute mandated a two-year implementation period to allow Customs sufficient time for rulemaking and the programming changes (drawback filing was stilled mired in Customs’ legacy system ACS) needed to fully automate the submission of drawback claims.
Any proposed rulemaking requires a public comment period following formal publication in the Federal Register. Customs then considers any public comments submitted and eventually publishes the final version of the new regulatory structure.
The Trade Community was rightly alarmed that CBP had not even published proposed regulations in the Federal Register as the deadline date of Feb. 24, 2018, approached. Mere weeks before the deadline, CBP issued “Interim Guidance for Filing” pending final rulemaking. The interim guidelines stated CBP would suspend both the payment and liquidation (final review and disposition of a Customs transaction) of drawback claims filed using the more liberal Harmonized Tariff Schedule substitution rules (the new drawback regime allows for the matching of import and exports that fall within the same 8 digit HTS) until that time when drawback regulations were finalized.
Drawback claimants could continue to receive payment for claims filed under the more restrictive rules and time frames under the legacy “Core” drawback program during a one-year transition period mandated by the new law until Feb. 24, 2019. The trade community feared that left to its own devices, CBP would reach the end of the transition period without new rulemaking in place at which point the processing and payment of drawback claims would cease entirely, a likely scenario based on CBP historical performance of 3-5 years lag time for the finalization of new regulations.
The various industry association drawback committees that consist of drawback filers and Customs brokers specializing in drawback matters decided that CBP’s actions were not only in bad faith but a violation of the TFTEA drawback statute that required Customs to implement new rulemaking by Feb. 24, 2018. The drawback trade community decided to let the Court of International Trade decide the matter and initiated legal action in March 2018.
In the matter of Tabocos de Wilson, Judge Restani of the Court of International Trade held that the CBP violated the intent of the TFTEA statute by failing to implement the rulemaking necessary to process TFTEA drawback claims. The Court then needed to decide on a remedy for the CBP’s misguided actions. Judge Restani asked the Trade and CBP to offer possible solutions that would allow for the processing and payment of TFTEA drawback claims submitted on or after Feb. 24, 2018, the law’s official start date.
CBP, under the pressure of the detrimental ruling by the Court, decided on its own volition to publish approximately 450 pages of entirely new drawback regulations, proposed as Section 190 of the Customs Regulations. This tome was published for public comment on August 1st in part to convince Judge Restani that the government had complied with the TFTEA requirements. Given that proposed regulations have no legal effect and are not enforceable, the Court was unconvinced.
The attorney representing the various industry plaintiffs proposed the immediate issuance of a limited number of rules needed specifically to implement HTS level substitution. CBP argued that it needed more time to consider all public comments, adjust provisions accordingly, and allow for review by the governing federal agencies, before finalizing rulemaking. Despite losing its case on the merits, Customs, instead of seeking middle ground, asked the Court to allow them complete latitude in finalizing the proposed regulations.
Predictably, Judge Restani was unmoved by the government’s argument and its clear intent to avoid any consequence for failing to meet the statutory requirements of the TFTEA. The judge issued his final decision Slip Opinion 18-138 on October 12.
The decision favorable to the Trade included the following elements:
- Government to publish entire NPRM by Dec. 17, 2018, and make it effective on that date:
- Excise tax provisions to have delayed effective date; BUT —
- Government, in its discretion, may elect to delay publishing any regulations other than the ones plaintiff identified as essential to carry out Section 906(g) of TFTEA.
The last element essentially severely restricted the government’s ability to appeal the decision on the basis that it was unreasonable to require a compressed time period to issue the final version — 450 pages of proposed rulemaking. CBP was required only to implement the rules needed to implement TFTEA substitution as proposed by the plaintiffs’ attorney. The government could delay or implement other parts of the proposed regulations at its own discretion.
When Can you Expect Payment?
CBP most recently advised the courts that it had submitted the final version of the proposed rulemaking to the various government agencies for final review and that it anticipated meeting the court’s imposed deadline of Dec. 17, 2018, a clear indication that it chose not to appeal the decision. The drawback community expects the payment of TFTEA drawback claims to commence on or about that date.
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