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HQ 219495


September 18, 1988

DRA-4 CO:R:C:E 219495 RB

CATEGORY: DRAWBACK

Assistant Regional Commissioner, Operations Southwest Region
U. S. Customs Service
5850 San Felipe Street
Houston, Texas 77057

RE: Internal Advice Request Regarding the Use of a "Weighted Average Value Method" for Calculating Drawback Claims

Dear Sir:

This is in reference to your request for internal advice dated June 9, 1987, regarding the acceptability of a so-called "weighted average value method" for calculating same condition drawback claims under 19 U.S.C. 1313(j)(1). Your office previously approved the use of this method by a company filing its same condition claims in the Southwest Region. However, the company also prepared certificates of delivery in the same manner covering imported merchandise sold to another party claiming manufacturing drawback under 19 U.S.C. 1313(b).

The Pacific Region, where the manufacturing claims are filed, has, by memorandum dated March 24, 1987, opposed the use of the method in question, following an audit thereof. The company responded to the Pacific Region's memorandum by letter dated May 4, 1987. In addition, in a letter dated April 12, 1988, the company, through its attorney, raised policy and constitutional arguments in order to obtain Headquarters ratification of its use of an average value methodology. The company's January 8, 1987, letter, initially asking that you seek internal advice in this matter, was attached to your submission.

FACTS:

A company exclusively imports numerous types of semiconductor devices, approximately 15000 individual device types in all, falling into 29 different overall product lines. A product line encompasses all those individual device types which have certain general characteristics in common, although they have different specific functions and specifications, as well as markedly different values, from one device type to another. As such, one device type would not be fungible with another, nor is it alleged to be (19 CFR

The company exports about 4-5% of the devices it imports, and claims same condition drawback under 19 U.S.C. 1313(j)(1) in the Southwest Region, using the accelerated payment and exporter's summary procedures (19 CFR 191.72; 19 CFR 191.53; 19 CFR 191.141(d)). It also supplies imported devices to its customer which claims manufacturing drawback under 19 U.S.C. 1313(b) in the Pacific Region. The company states that the exported articles claimed under section 1313(b) are produced by the customer with the very devices supplied which give rise to the claim, the devices being related thereto by means of their certificate(s) of delivery.

The company, however, uses the existing information on its computer system data base to prepare its same condition claims as well as the certificates of delivery it issues for the devices supplied to its customer. This data base lists the total quantity and value of the devices by product line and import entry; it does not record the quantity and value of the devices by individual device type. Hence, the specific device types exported, or delivered and used in manufacture, are identified for drawback instead by product line, and assigned a "weighted average net unit value" which is computed by product line from a selected import entry. The entry selected for this purpose, notably, may not necessarily contain any of the same device types.

By way of brief illustration, assume that 10 units each of device types "A" and "B," dutiable at $5. and $10. apiece, are imported under entry "1," and 10 units each of device types "B" and "C," dutiable, respectively, at $10. and $6. apiece, are imported under entry "2," all the device types falling into Product Line "X": on the computer data base, this would be reflected merely as 20 Product Line "X" units worth $150. imported under entry "1," and 20 Product Line "X" units worth $160. imported under entry "2." If 5 "C" units (dutiable at $6. apiece) are later exported, entry "1" could be used to sustain a {1313(j)(1) claim, with a calculated "weighted average net unit value" of $7.50; if entry "2" is selected, the "value" would be $8. per unit. Either way, there would be a payment of drawback which exceeds the duty paid on the exported merchandise.

The company admits in effect that certain claims may be overpaid in this way, but insists that "over time" the use of its methodology will be "revenue neutral." In contrast to this approach, valuation by individual device type would, at present, entail the company's having to retrieve the paper invoices which form a part of each import entry. The company contends that having to do this would be "costly," and prohibitively "time- consuming."

ISSUE:

Whether a "weighted average value method," as defined and employed in the circumstances of this case, is acceptable as a means of calculating claims under the same condition drawback law, 19 U.S.C. 1313(j)(1), or under the substitution manufacturing drawback law, 19 U.S.C. 1313(b).

LAW AND ANALYSIS:

Under same condition drawback, 19 U.S.C. 1313(j)(1), in pertinent part, "[i]f imported merchandise on which was paid any duty...because of its importation...is exported...then upon such exportation...99 per centum of the amount of...such duty...so paid shall be refunded as drawback" (emphasis added). The mandatory regulations which implement the law in this respect provide that: "An exporter-claimant who desires to export merchandise with drawback under 19 U.S.C. 1313(j)...shall... identify the import entry...under which the merchandise was imported into the United States" (19 CFR 191.141(b)(1)), and, if the entry contains different merchandise, shall "identify with respect to that import entry ...the imported duty-paid merchandise" on which drawback is claimed (19 CFR 191.22(b)(2); and see 19 CFR 191.141(e)).

Similarly, under substitution manufacturing drawback, 19 U.S.C. 1313(b), in pertinent part, if imported duty-paid and domestic or duty-free merchandise of the same kind and quality are used in the manufacture or production of articles, then upon the exportation of any such articles, drawback may be allowed, but "the total amount of drawback allow[able]...shall not exceed 99 per centum of the duty paid on such imported merchandise" (emphasis added) (also see 19 CFR 191.2(b); 19 CFR 191.32(a)(1)).

The plain language of the statute and attendant regulations, therefore, definitively precludes the use of an average value methodology for claiming same condition or manufacturing drawback on exported merchandise or articles, in circumstances where, as here, the use of such averages could result in an overallowance of drawback on the claim, i.e., a payment in excess of 99 per centum of the duty paid on the particular merchandise which is exported under {1313(j)(1), or received and used under {1313(b), and which may thus properly constitute the underlying focal point of the claim. Each claim must, of course, comply with the law and regulations in this regard, whether it is filed on a single export shipment, or, periodically, on numerous ones, as drawback claims frequently are.

Accordingly, against this backdrop, the company's representation that "over time" its method will be "revenue neutral" is without legal significance. And, parenthetically, it is, in any event, so broad and indefinite as to essentially lack meaning.

In short, the problem in this case, fundamentally, is that the information currently included on the company's computer data base, and used to prepare same condition claims and certificates of delivery (see 19 CFR 191.22(e)), is simply not sufficient for drawback purposes. The specific device types in fact exported, or delivered and used in manufacture, which could lawfully qualify as the basis for a {1313(j)(1) or (b) drawback claim herein, cannot be identified, and the amount of duty attributable thereto ascertained, with respect to the import entry or entries under which they were imported, as required by law and regulation, in order to obviate a statutorily impermissible overallowance of drawback.

Records which ensure against such an overallowance must consequently be used to support drawback claims, notwithstand- ing that doing so may be "costly and nonremunerative" (Bayer, Pretzfelder & Mills, Inc. v. United States, 39 Cust. Ct. 107, 110-111 (1957)). The Pacific Region has observed in this context that other companies dealing with this kind of merchandise have been able to maintain accessible records by device type and import entry satisfactory in its view to establish drawback compliance.

It should be mentioned that Customs has, over the years, consistently disallowed proposals made along the very same lines as those advanced herein (see, e.g., Bureau letter dated January 10, 1963, to Supervising Customs Agent (SCA), Baltimore, re: Burlington Industries, Inc.; Bureau letter dated May 23, 1951, to SCA, New Orleans, re: Haspel Brothers, Inc.).

Policy Considerations

From the foregoing discussion, it may readily be seen that, contrary to the company's contention, the legal permissibility of its weighted average approach to claiming drawback is hardly a "close call," thereby undermining the foundation for the argument made in its attorney's April 12, 1988, letter that drawback claims using its average value procedure should be permitted as a matter of policy. Yet, even if the resolution of this case were in doubt, this would not lawfully enable an approval of the company's drawback recordkeeping. It has been repeatedly averred that "[a]ny doubt arising in the decision of a drawback case in the construction of the statute and regulations must be decided in favor of the Government" (Border Brokerage Co. v. United States, 53 Cust. Ct. 6, 10 (1964); Nestle's Food Co. (Inc.) v. United States, 16 Ct. Cust. Appl. 451, 455 (1929); Swan & Finch Co. v. United States, 190 U.S. 143, 146 (1903)).

Constitutional Argument - Uniformity, Due Process Clauses

The company also maintains, through its attorney's April 12, 1988, letter, that the Uniformity Clause of the U. S. Constitution (Art. 1, {8, Cl. 1) compels the Pacific Region to follow the Southwest Region in authorizing drawback on the weighted average value methodology; and that "by substantially benefitting those who have had their drawback claims allowed at Houston, the Customs Service would have incurred an obligation to grant an equal benefit to those whose drawback claims are" filed elsewhere. To fail to do so, would, according to the company, be violative of a concept of equal protection under the Due Process Clause of the Fifth Amendment.

Whether the Uniformity Clause, which deals by its specific terms with the laying and collection of duties, would also be applicable to drawback under 19 U.S.C. 1313 is, at best, problematic, none of the cases cited in the attorney's April 12 letter establishing that it would be. But assuming arguendo that the Uniformity Clause would apply to drawback under {1313, the precise argument advanced on behalf of the company in this regard has, at any rate, already been considered in a duty assessment context by the Court of International Trade in F.W. Myers & Co. v. United States, 9 CIT 19, 615 F. Supp. 569, 570 (1985), and been conclusively repudiated:

This argument fails to consider that, by protesting the classification of its merchandise and bringing this action plaintiff is ensuring uniformity of classification for this merchandise henceforth.....The fact that identical merchandise was classified differently at another port has no bearing on the proceedings before this Court...There is no reason, therefore, for the Court to adopt contrary assessments made at a different port and thus subrogate the contested resolution of the classification issue set forth herein (emphasis added) (615 F. Supp. at 573).

The company's Fifth Amendment argument is predicated principally upon Supreme Court decisions which in fact addressed the Equal Protection Clause of the Fourteenth Amendment, relating to state action (Sioux City Bridge Co. v. Dakota Cty., 260 U.S. 441 (1923); Iowa-Des Moines National Bank v. Bennett, 284 U.S. 239 (1931)). Specifically, these decisions were rooted in "intentional discrimination" perpetrated by state tax officials who assessed certain taxpayers as prescribed by law, while illegally undertaxing others similarly situated.

Accordingly, even assuming, in the first place,that a concept of equal protection under the Fifthe Amendment could be determinative of a claimant's rights under {1313, again a doubtful point, and one plainly unsubstantiated by the cases cited in the attorney's April 12 letter, such proposition would, in any event, lack support in the instant case, for there has been no intentional discrimination by Customs officials here (cf. American Express Co. v. United States, 67 Cust. Ct. 141, 152-153 (1971), aff'd., 60 CCPA 86, 100 (1973) (concept of equal protection under Fifth Amendment held not applicable to Secretary's findings under countervailing duty statute, 19 U.S.C. 1303, but even if it were, the absence of proof of discrimination would deprive it of support in the case at bar)). In the present case, unbeknownst to the Pacific Region, the company's drawback claims were approved in the Southwest Region on the basis of weighted average values, due to an error of judgment. And "mere errors of judgment do not support a claim of discrimination" (Sioux City, supra, 447).

There is no constitutional ground compelling Customs to allow the drawback entries of the company's customer, filed in the Pacific Region, which are dependent upon certificates of delivery prepared by the company on the same basis.

HOLDING:

A "weighted average value method," as defined and employed in the circumstances of this case, is not acceptable as a means of calculating claims under the same condition drawback law, 19 U.S.C. 1313(j)(1), or under the substitution manufacturing drawback law, 19 U.S.C. 1313(b).

Sincerely,

John A. Durant
Director
Commercial Rulings Division


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