For example, an export Grade A Orange Juice made from domestic oranges could be substituted or matched with imported Brazilian duty-paid Grade A Orange Juice because they both meet the same basic quality standards and industry specifications. In the case of merchandise identified by a part number or model number, (electronics and retail merchandise, for instance) the imported item and exported item must generally share the same part-number identifier to be considered substitutable for drawback purposes.
As an example, a company imports sunglasses from China into its U.S. distribution facility. The majority of these glasses are sold domestically, but a portion are exported to retail stores in the Caribbean. Under the existing substitution provision, sunglasses with a model number of RB123 could be matched with any import of an RB123 that occurred within three years before the export date.
The new drawback law entirely eliminates the concept of commercial interchangeability and instead relies upon the Harmonized Tariff Schedule Number, or HTS number. The imported and exported merchandise simply needs to fall under the same HTS number at the 8th digit level of the classification number.
Continuing with the sunglasses example, a pair of exported Ray Ban sunglasses could be matched with a pair of imported Oakley sunglasses, assuming they are both classified under the same HTS for sunglasses (HTS Number 9004.10.00). The one huge exception to the HTS substitution rule – if the classification begins with “other” at the 8th digit, then the drawback claimant must match at the 10th digit. If the HTS also begins with “other” at the 10th digit, then substitution drawback is not available, and the claimant must match imports and exports at the part-number level under the provisions of direct identification drawback.
These “other” classifications are catch-all baskets for merchandise without a specific classification. For example, heading 9004 is for “spectacles, goggles and the like, corrective, protective, or other.” 9004.10.00 under this heading is for “Sunglasses.” 9004.90.00 encompasses all spectacles, goggles, and the like corrective protective, OTHER than sunglasses; Consequently, a drawback claimant submitting drawback on protective goggles would need to match imports and exports according to part-number level and file drawback under the provisions of direct identification drawback (at least for the products that fall into the “other” baskets). This rule will require the vast majority of existing drawback claimants to file under both the provisions of substitution drawback and direct identification where many currently file only under substitution. Warning: The regulatory compliance requirements are substantially higher for direct identification drawback claims vs. substitution claims.