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HQ 229416

March 20, 2002

RR:CR:DR 229416 LLB

Port Director of Customs
2350 North Sam Houston Parkway East
Suite 1000
Houston, Texas 77032-3126

RE: Internal Advice;Protest/Application for Further Review No. 5301- 01-100076; 19 U.S.C. § 1313(j)(1); 19 C.F.R. § 181.45; Spencer Fruit Company; NAFTA drawback; same condition drawback; unused merchandise drawback; evidence of exportation; Mexican agricultural goods; inventory recordkeeping

Dear Sir or Madam:

The above-referenced protest has been forwarded to our office for further review. As explained below, because the requirements for further review have not been met, we are treating the application as a request for internal advice per 19 C.F.R. § 177.11. We have considered the points raised by the protestant and your office. Our decision follows.


According to the CF 7539 submitted, on November 8, 1995, the protestant sought drawback on 11, 245 containers of fresh asparagus. On January 12, 2001, the port denied the drawback claim for four reasons including that 1) commercial interchangeability had not been established; 2) an accurate description nor the invoice value of the asparagus had been given; 3) the quantity of exported merchandise as it related to import entry was not shown; and 4) the import and export summaries did not allow the asparagus to be “traced.” On March 27, 2001, a protest was filed thereto, in which the protestant indicated that it would submit a revised claim.

On June 22, 2001, the protestant submitted a revised drawback claim indicating that it was not seeking substitution drawback under 19 U.S.C. § 1313(j)(2). Attached thereto are several computer-generated spreadsheets which include a “Chronological Summary of Exports”; a “Chronological Summary of Imports”; an import summary; and export summary. The export summary includes a column titled “ Proof of Export Documentation,” which, for each alleged
exportation, states “SEE ATTACHED.” However, there are no attachments to the export summary nor has any export documentation been provided to this office.


1) Whether the produce imported from Mexico and exported to Canada is subject to NAFTA drawback

2) Whether the merchandise is eligible for drawback under 19 U.S.C. § 1313(j)(1)


Initially, we note that the protestant’s March 27, 2001, protest, is timely inasmuch as it was filed within 90 days from the January 12, 2001, denial of drawback. 19 U.S.C. § 1514(c)(3). The matter is protestable under § 1514(a)(6).

We also note that the protestant’s application for further review (AFR) does not meet the requirements set forth in 19 C.F.R. § 174.24, which provides:

Further review of a protest which would otherwise by denied by the port director shall be accorded a party filing an application for further review which meets the requirements of § 174.25 when the decision against which the protest was filed: (a) Is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise; (b) Is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts; (c) Involves matters previously ruled upon by the Commissioner of Customs or his designee or by the Customs courts but facts are alleged or legal arguments presented which were not considered at the time of the original ruling; or (d) is alleged to involve questions which the Headquarters Office, United States Customs Service, refused to consider in the form of a request for internal advice pursuant to § 177.11(b)(5) of this chapter.

Therefore, further review will be accorded to the party filing an application for further review which meets the requirements of § 174.25 and at least one of the criterion in § 174.24. In the subject protest, the port approved the AFR notwithstanding the fact the protestant has not alleged any of the conditions required in § 174.24 of the decision protested. Further, the port, in its AFR transmittal indicates that “[c]riteria for further review has been met: alleges decision is inconsistent with a ruling, Court, or other Port decision;”

The foregoing is an attempt to paraphrase § 174.24(a), supra; however, we note that subsection (a) does not include inconsistent rulings made by the “courts.” however, has not indicated which rulings or port decisions are inconsistent. Consequently, the criteria for further review have not been met and therefore, we are treating protestant’s application as a request for internal advice. Under 19 U.S.C. §1313(j)(1), drawback is authorized if imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation is, within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction. Section 632 of the NAFTA Implementation Act changed same condition drawback under 19 U.S.C. 1313(j)(1), by providing that imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation, and is within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction, is eligible for “unused merchandise drawback.” The requirement that the merchandise be exported remains in all instances of drawback.

Substitution of commercially interchangeable merchandise, subject to certain conditions, is authorized under 19 U.S.C. §1313(j)(2), but 19 U.S.C. §1313(j)(4) limits that authorization in the following manner:

Effective upon the entry into force of the North American Free Trade Agreement, the exportation to a NAFTA country ... of merchandise that is fungible with and substituted for imported merchandise, other than merchandise described in paragraphs (1) through (8) of [19 U.S.C. 3333(a)(1) through (8)], shall not constitute an exportation for purposes of [section 1313(j)(2)].

The Agreement entered into force on January 1, 1994. See 19 U.S.C. 3311; Executive Order No. 12889, Section 8, 58 F.R. 69681 (December 27, 1993). However, if the exported produce at issue was exported to a NAFTA country in the same condition as when imported into the U.S., then it would be exempt from the above limitation. See 19 U.S.C. §3333(a)(2). Thus it is clear from the above provisions that substitution drawback under 19 U.S.C. §1313(j)(2) no longer exists for shipments to Canada of dutiable agricultural products imported into the United States unless one of the specific exemptions is met. See also, House Report (Ways & Means Committee) No. 103-161(I), pp. 39- 40, 103d Cong., 1st Sess. (1993) (reprinted at 1993 U.S.C.C.A.N. 2552, 2589-2590) (stating that section 203(c) of the NAFTA Implementation Act eliminates "same condition substitution drawback" for imported dutiable goods shipped to Canada or Mexico, except for the excepted goods listed in section 203(a)). Here, all of the exported merchandise consists of dutiable agricultural products that were exported after January 1, 1994. Therefore, the merchandise exported after that date would be ineligible for substitution drawback under 19 U.S.C. 1313(j)(2) unless one of the exemptions applied.

A good exported to a NAFTA country may escape NAFTA drawback limitations and gain full drawback under 1313(j) if it is a good exported to a NAFTA country in the same condition as when imported into the United States. See 19 U.S.C. 3333(a)(2)(B). If such a good With the exception of agricultural goods imported into the U.S. or Mexico that is substituted by an identical or similar good that is subsequently exported to the territory of the other country. See paragraph 12 of section A of Annex 703.2 of the Agreement. is commingled with fungible goods and exported in the same condition, the identity of such a good may be determined on the basis of the inventory methods provided for in the regulations implementing Title 19, except for agricultural products covered by 19 U.S.C. 3333(a)(2)(B).

Accordingly, 19 C.F.R. 181.45 provides for goods eligible for full drawback (i.e., not subject to the NAFTA drawback limitations of §181.44). See 19 C.F.R. 181.45(a)(1), (b)(1) (April 7, 1997). For same condition drawback, if the inventory from which the exported goods are removed consists of fungible goods that are commingled, an inventory or accounting method If the commingled goods are originating and non-originating goods, then the origin of the goods and the identification of entries for designation for same condition drawback may be made on the basis of an approved inventory method contained in the appendix to 19 C.F.R. Part 181. See 19 C.F.R. 181.45(b)(2)(i)(A). If the commingled goods consist entirely of non-originating goods, then the identification of entries for designation for same condition drawback my be made on the basis of one of the accounting methods contained in 19 C.F.R. 191.14. See 19 C.F.R. 181.45(b)(2)(i)(B). (such as the FIFO method) may be used to identify the goods on which same condition drawback is claimed. See 19 C.F.R. 181.45(b)(2)(i). However, Mexican agricultural goods that are commingled with fungible U.S.-origin agricultural goods are excluded from the application of such methods. See 19 C.F.R. 181.45(b)(2)(ii). Therefore, the Claimant must establish that the merchandise imported from Mexico was exported to Canada in order to claim same condition drawback. The protestant alleges in its AFR that it uses the FIFO accounting method. However, since no inventory records were provided to the port, there is no basis upon which this office may determine whether the protestant is properly using the FIFO method to establish same condition drawback.

Notwithstanding the foregoing, the protestant’s drawback claim is incomplete. Pursuant to 19 C.F.R. § 191.51(a), a complete drawback claim consists of, inter alia, evidence of exportation. To establish exportation, regardless of whether the export summary procedure is used, the evidence should consist of “documentary evidence, such as an originally signed bill of lading, air way bill, freight waybill, Canadian Customs manifest, or certified copies thereof, issued by the exporting carrier . . .” See 19 C.F.R. § 191.72(a); see also, Export Summary Procedure, § 191.73(c)(1)(“ . . .Actual evidence of exportation, as described in § 191.72(a) of this subpart, is the primary evidence of export for drawback purposes). To establish exportation for NAFTA same-condition drawback:

Acceptable documentary evidence of exportation to Canada or Mexico shall include a to bill of lading, air way bill, freight waybill, Canadian Customs manifest, cargo manifest, or certified copies thereof, issued by the exporting carrier. Supporting documentary evidence shall establish fully the time and fact of exportation, the identity of the exporter, and the identity and location of the ultimate consignee of the exported goods . . .

19 C.F.R. § 181.47(b)(ii)(G)(emphasis added).

According to the port’s AFR transmittal, “the protestant was contacted and it was requested that they submit proof of export and supporting documentation to establish direct identification of the merchandise.” Further, according to the port’s notes accompanying the protest, the drawback specialist, Chris Brooks, spoke with protestant’s broker, on December 4, 2001. These notes reflect that the broker was told that the drawback claim lacked proof of export and that the alleged exports to Canada needed to be supported by inventory records.

As discussed above, both 19 C.F.R. §§ 181.47(b)(ii)(G) and 191.72(a) require that evidence of exportation be provided with a drawback claim. In conclusion, the protestant did not provide any documentary evidence to support its Export Summary when requested for verification by the drawback office for verification, therefore, it has failed to show the merchandise was exported.

Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback. See Chrysler Motors Corp. v. United States, 14 CIT 807, 816, 755 F. Supp. 388, aff'd, 945 F.2d 1187 (Fed. Cir. 1991) citing Swan & Finch Co. v. United States, 190 U.S. 143, 146 (1903)(holding that “the allowance of drawback is a privilege and compliance with the regulations is a prerequisite to securing it where the regulations are authorized and reasonable.”) See also, United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675 (1976); Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) ("We are dealing [in discussing drawback] instead with an exemption from duty, a statutory privilege due only when the enumerated conditions are met"). Insofar as the protestant has failed to show evidence of exportation within the requirements of 19 C.F.R. § 191.73(c)(1) and § 181.47, and provide its inventory records pursuant to 19 C.F.R. § 181.45(b)(2), the protestant’s drawback claim as well as its protest, should be denied.


The protestant’s drawback claim, as well as its protest, should be denied insofar as the protestant has failed to present export documentation and inventory records to support its claim for same condition drawback.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.


John Durant, Director

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