[Federal Register Volume 67, Number 143 (Thursday, July 25, 2002)]
[Rules and Regulations]
[Pages 48547-48549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18664]



DEPARTMENT OF THE TREASURY

Customs Service

19 CFR PART 191

[T.D. 02--39]
RIN 1515-AC67


Merhcandise Processing Fee Eligible To Be Claimed as Unused 
Merchandise Drawback

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document adopts as a final rule, with some changes, the 
interim rule amending the Customs Regulations that was published in the 
Federal Register on February 9, 2001, as T.D. 01-18. The interim rule 
amended the regulations to indicate that merchandise processing fees 
are eligible to be claimed as unused merchandise drawback. The change 
was made to reflect a recent court decision in which merchandise 
processing fees were found to be assessed under Federal law and imposed 
by reason of importation and therefore eligible to be claimed as unused 
merchandise drawback pursuant to 19 U.S.C. 1313(j). The amendment 
requires a drawback claimant to apportion the merchandise processing 
fee to that merchandise that provides the basis for drawback.

EFFECTIVE DATE: July 25, 2002.

FOR FURTHER INFORMATION CONTACT: William G. Rosoff, Chief, Duty and 
Refund Determinations Branch, Office of Regulations and Rulings, U.S. 
Customs Service, Tel. (202) 572-8807.

SUPPLEMENTARY INFORMATION:

Background

Merchandise Processing Fees--19 U.S.C. 58c(a)(9)(A)

    Merchandise processing fees are fees the Secretary of the Treasury 
charges and collects for the processing of merchandise that is formally 
entered or released into the United States. See 19 U.S.C. 58c(a)(9)(A). 
A merchandise processing fee is assessed as a percentage of the value 
of the imported merchandise, as determined under 19 U.S.C. 1401a. The 
ad valorem rate is currently 0.21 percent. (See 19 CFR 24.23). Section 
58c(b)(8)(A)(i) provides that the fee charged under subsection (a)(9) 
may not be less than $25, unless adjusted pursuant to subsection 
(a)(9)(B) of this section.
    Merchandise processing fees are subject to two monetary limits:
    (1) A cap of $485 is imposed by 19 U.S.C. 58c(a)(9)(B)(i) for any 
release or entry, including weekly Free Trade Zone entries (see section 
410 of the Trade and Development Act of 2000, Pub. L. 106-200, 114 
Stat. 251, enacted on May 18, 2000), for which the value of merchandise 
subject to the fee exceeds $230,952.38 ($485 / .0021 = $230,952.38), 
and;
    (2) For certain monthly entries, as prescribed by Pub. L. 101-382, 
section 111(f), as amended, and implemented by Sec. 24.23(d) of the 
Customs Regulations (19 CFR 24.23(d)), the merchandise processing fee 
is limited to the lesser of the following:
    (i) A cap of $400 where the value of the merchandise subject to the 
fee exceeds $190,476.19 ($400 / .0021 = $190,476.19); or
    (ii) The amount determined by applying the ad valorem rate under 
paragraph (b)(1)(i)(A) of Sec. 24.23 to the total value of such daily 
importations.

Drawback--19 U.S.C. 1313

    Section 313 of the Tariff Act of 1930, as amended, (19 U.S.C. 
1313), concerns drawback and refunds. Drawback is a refund of certain 
duties, taxes and fees paid by the importer of record and granted to a 
drawback claimant under specific conditions. There are several types of 
drawback. Section 1313(j) concerns drawback for ``unused merchandise,'' 
and provides, pursuant to specific conditions set forth therein, that a 
refund of 99 percent of each duty, tax, or fee ``imposed under Federal 
law because of [an article's] importation'' will be refunded as 
drawback.

Merchandise Processing Fees Eligible To Be Claimed as Unused 
Merchandise Drawback

    The issue of whether a merchandise processing fee is ``imposed 
under Federal law because of [an article's] importation,'' and 
therefore eligible to be claimed as unused merchandise drawback 
pursuant to the terms of section 1313(j), was recently examined by the 
Court of Appeals for the Federal Circuit (CAFC) in Texport Oil v. 
United States, 185 F.3d 1291 (Fed. Cir. 1999). In that case, the court 
held that as merchandise processing fees are ``assessed under Federal 
law'' (pursuant to 19 U.S.C. 58c(a)(9)) and ``explicitly linked to 
import activities,'' they are imposed by reason of importation and 
therefore subject to unused merchandise drawback by application of the 
statute.
    On February 9, 2001, Customs published in the Federal Register (66 
FR 9647), as T.D. 01-18, an interim rule amending Secs. 191.2, 191.3 
and 191.51 to reflect the CAFC's decision in Texport Oil. In that 
document, the Customs Regulations were amended to allow

[[Page 48548]]

merchandise processing fees to be claimed as unused merchandise 
drawback, and to provide specific information as to how a drawback 
claimant is to correctly calculate that portion of a merchandise 
processing fee that is eligible to be claimed as unused merchandise 
drawback.

Discussion of Comments

    Two commenters responded to the solicitation of public comment 
published in T.D. 01-18. A description of the comments received, 
together withCustoms analyses, is set forth below.

Comment

    One commenter noted that the illustration presented in Example 2, 
as set forth in the amendments to Sec. 191.51, is inaccurate and 
inconsistent with the provisions of Sec. 191.51(b)(2)(iii). Pursuant to 
Sec. 191.51(b)(2)(iii), ``the amount of merchandise processing fee 
apportioned to each line item is multiplied by 99 percent to calculate 
that portion of the fee attributable to each line item that is eligible 
for drawback.'' It is noted that although Example 1 in Sec. 191.51 
illustrates the amount of merchandise processing fee eligible for 
drawback per line item by multiplying by 99 percent (0.99), Example 2 
does not. As a result, some of the figures used in Example 2 are 
incorrect.

Customs Response

    Customs agrees with the comment submitted regarding Example 2. 
Consequently, this document amends Sec. 191.51, Example 2, to insert 
language that illustrates the amount of merchandise processing fee 
eligible for drawback per line item by multiplying the amount by 99 
percent (0.99). As a result of this amendment, the figures in Example 2 
will be revised. It is also noted that this document corrects a 
clerical error in Example 2, Line Item 1, and the figure $70,000 will 
be replaced by the figure $7,000.

Comment

    One commenter opposed the apportionment formula set forth in T.D. 
01-18 and proposed that the merchandise processing fees not be 
apportioned across the entire entry, but be allowed to be allocated to 
individual items. The commenter also notes that as drawback for 
merchandise processing fees is allowed pursuant to section 
1313(p)(4)(B), the Customs Regulations should be amended to reflect 
this fact.

Customs Response

    Customs does not agree with the commenter's proposal. It is noted 
that pursuant to 19 U.S.C. 58c(a)(9)(B)(i), a merchandise processing 
fee cap of $485 is applicable to each entry. For this reason, it is 
necessary that the merchandise processing fee be apportioned and 
refunded as a percentage of the entire entry.
    The commenter's statement that the Customs Regulations should be 
amended to include reference to the fact that section 1313(p)(4)(B) 
authorizes drawback for merchandise processing fees has merit. Customs 
will prepare another document for publication in the Federal Register 
that amends the regulations in this regard.

Conclusion

    After review of the comments and further consideration, Customs has 
decided to adopt as a final rule the interim rule published in the 
Federal Register (66 FR 6647) on February 9, 2001, as T.D.01-18, with 
changes, discussed above, regarding amendment to Sec. 191.51, Example 
2, to insert language that illustrates the amount of merchandise 
processing fee eligible for drawback per line item by multiplying the 
amount by 99 percent (0.99). As a result of this amendment, the figures 
in Example 2 will be revised. This document also corrects a clerical 
error in Example 2, Line Item 1, whereby the figure $70,000 will be 
replaced by the figure $7,000.

Inapplicability of Delayed Effective Date

    These regulations serve to conform the Customs Regulations to 
reflect a recent decision by the Court of Appeals for the Federal 
Circuit and to finalize an interim rule that is already effective. In 
addition, the regulatory changes benefit the public by allowing 
merchandise processing fees to be claimed as unused merchandise 
drawback, and by providing specific information as to how a drawback 
claimant is to correctly calculate that portion of a merchandise 
processing fee that is eligible to be claimed as unused merchandise 
drawback. For these reasons, pursuant to the provisions of 5 U.S.C. 
553(d)(1) and (3), Customs finds that there is good cause for 
dispensing with a delayed effective date.

The Regulatory Flexibility Act and Executive Order 12866

    Because no notice of proposed rulemaking was required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do 
not apply. Further, these amendments do not meet the criteria for a 
``significant regulatory action'' as specified in Executive Order 
12866.

Drafting Information

    The principal author of this document was Ms. Suzanne Kingsbury, 
Regulations Branch, Office of Regulations and Rulings, U.S. Customs 
Service. However, personnel from other offices participated in its 
development.

List of Subjects in 19 CFR Part 191

    Claims, Commerce, Customs duties and inspection, Drawback.

Amendment to the Regulations

    For the reasons stated above, the interim rule amending 
Secs. 191.2, 191.3 and 191.51 of the Customs Regulations (19 CFR 191.2, 
191.3 and 191.51), which was published at 66 FR 9647-9650 on February 
9, 2001, is adopted as a final rule with the changes set forth below.

PART 191--DRAWBACK

    1. The general authority citation for part 191 is revised to read 
as follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 23, 
Harmonized Tariff Schedule of the United States), 1313, 1624.

    2. In Sec. 191.51(b)(2), Example 2 is revised to read as follows:


Sec. 191.51  Completion of drawback claims.

* * * * *
    (b) Drawback due.--* * *
    (2) Merchandise processing fee apportionment calculation. * * *

    Example 2: This example illustrates the treatment of dutiable 
merchandise that is exempt from the merchandise processing fee and 
duty-free merchandise that is subject to the merchandise processing 
fee.

Line item 1--700 meters of printed cloth valued at $10 per meter (total 
value $7,000) that is exempt from the merchandise processing fee under 
19 U.S.C. 58c(b)(8)(B)(iii)
Line item 2--15,000 articles valued at $100 each (total value 
$1,500,000)

Line item 3--10,000 duty-free articles valued at $50 each (total value 
$500,000)

    The relative value ratios are calculated using line items 2 and 3 
only, as there is no merchandise processing fee imposed by reason of 
importation on line item 1.

Line item 2--1,500,000 / 2,000,000 = .75 (line items 2 and 3 form the 
total value of the merchandise subject to the merchandise processing 
fee).
Line item 3--500,000 / 2,000,000 = .25.

    If the total merchandise processing fee paid was $485, the amount 
of the fee attributable to line item 2 is $363.75 (.75 x $485 = 
$363.75). The amount of the

[[Page 48549]]

fee attributable to line item 3 is $121.25 (.25 x $485 = $121.25).
    The amount of merchandise processing fee eligible for drawback for 
line item 2 is $360.1125 (.99 x $363.75). The amount of fee eligible 
for line item 3 is $120.0375 (.99 x $121.25).
    The amount of drawback on the merchandise processing fee 
attributable to each unit of line item 2 is $.0240 ($360.1125 / 15,000 
= $.0240). The amount of drawback on the merchandise processing fee 
attributable to each unit of line item 3 is $.0120 ($120.0375 / 10,000 
= $.0120).
    If 1,000 units of line item 2 were exported, the drawback 
attributable to the merchandise processing fee is $24.00 ($.0240 x 
1,000 = $24.00).
* * * * *

Robert C. Bonner,
Commissioner of Customs.
    Approved: July 19, 2002.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 02-18664 Filed 7-24-02; 8:45 am]
BILLING CODE 4820-02-P