[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Notices]
[Pages 61197-61200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24589]


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DEPARTMENT OF THE TREASURY

Customs Service


Announcement of Paperless Drawback Prototype Test

AGENCY: Customs Service, Department of the Treasury.

ACTION: General notice.

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SUMMARY: This notice announces Customs plan to conduct a prototype test 
to determine the feasibility of filing paperless drawback claims. The 
Paperless Drawback prototype will provide for a ``paperless'' process 
that allows approved participants to electronically file drawback 
claims using the Automated Broker Interface of Customs Automated 
Commercial System. The Paperless Drawback prototype is limited to 
drawback claims filed at the New York/Newark Drawback Center. This 
notice invites public comment concerning any aspect of the planned 
prototype, informs interested members of the public of the eligibility, 
procedural and documentation requirements for voluntary participation 
in the Paperless Drawback prototype, and outlines the evaluation 
methodology to be used in the test.

DATES: Drawback claimants who wish to participate in the Paperless 
Drawback prototype must submit applications to Customs no later than 
October 28, 2002. The Paperless Drawback prototype will commence no 
earlier than August 1, 2002, and will run for approximately one year 
with a final evaluation taking place at the end of the first year.

ADDRESSES: Written comments regarding this notice, and prototype 
applications, should be addressed to the U.S. Customs Service, Entry 
and Drawback Management Branch, 1300 Pennsylvania Avenue, NW., Room 
5.2-33, Washington, DC 20229.

FOR FURTHER INFORMATION CONTACT: Questions pertaining to any aspect of 
this prototype should be directed to Sherri Lee Hoffman, U.S. Customs 
Service, Entry and Drawback Management Branch, at (202) 927-0300 or via 
email at [email protected].

SUPPLEMENTARY INFORMATION: 

Background

Paperless Drawback: Planned Component of the National Customs 
Automation Program (NCAP)

    Title VI of the North American Free Trade Agreement Implementation 
Act (the Act), Public Law 103-182, 107 Stat. 2057 (December 8, 1993), 
contains provisions pertaining to Customs Modernization (107 Stat. 
2170). Subpart B of title VI of the Act concerns the National Customs 
Automation Program (NCAP), an electronic system for the processing of 
commercial importations.
    Within subpart B, section 631 of the Act added section 411 to the 
Tariff Act of 1930 (19 U.S.C. 1411-1414), which defines the NCAP, 
provides for the establishment of and participation in the NCAP, and 
includes a list of existing and planned components. Section 
411(a)(2)(F) identifies the electronic (i.e., paperless) filing of 
drawback claims, records or entries as a planned NCAP component.
    Section 101.9(b) of the Customs Regulations (19 CFR 101.9(b)) 
provides for the testing of NCAP planned

[[Page 61198]]

components. The Paperless Drawback prototype is being tested in 
accordance with this provision.

Description of Paperless Drawback Prototype

    The Paperless Drawback prototype provides for a ``paperless'' 
process that permits approved participants to electronically file 
drawback claims using the Automated Broker Interface (ABI) of Customs 
Automated Commercial System (ACS). Approved participants are encouraged 
to file drawback claims electronically at the New York/Newark Drawback 
Center where feasible; however, traditional ``paper'' drawback claims 
may also be filed by approved prototype participants where necessary.
    The Paperless Drawback prototype will commence no earlier than 
August 1, 2002, and will run for approximately one year with a final 
evaluation taking place at the end of the first 12-months of the 
prototype.
    At this time, the Paperless Drawback prototype is limited to 
drawback claims filed at the New York/Newark Drawback Center to permit 
Customs to assess the feasibility of filing electronic drawback claims 
on a nationwide basis. The Paperless Drawback prototype is also limited 
to the New York/Newark Drawback Center to assist Customs in processing 
the drawback claims that were lost on September 11, 2001, as a result 
of the destruction of the New York Customhouse located at 6 World Trade 
Center, without having to reconstruct each of those claims. It is noted 
that the New York/Newark Drawback Center will also continue to accept 
paper drawback claims.
    Prototype participants are permitted to electronically file through 
ABI all the information that is required for traditional drawback 
claims pursuant to part 191 of the Customs Regulations (19 CFR part 
191). In addition, participants will be required to provide Customs 
with specific information as to the ``earliest export date'' (i.e., the 
date of the first export in a given claim). Submission of ``earliest 
export date'' data is necessary in a paperless environment to enable 
ACS to determine whether the drawback claim is timely (i.e., whether 
the earliest export date falls within the prescribed regulatory time 
limits for filing a drawback claim).
    Customs will spot check claims for valid export information as 
necessary and prototype participants remain subject to audit by Customs 
Regulatory Audit Division.

Objectives of Paperless Drawback Prototype

    Customs objectives in conducting the Paperless Drawback prototype 
test are as follows:
    (1) Reduce/eliminate need to reconstruct paper drawback claims for 
the drawback unit that was destroyed at 6 Word Trade Center, New York, 
and moved to Newark;
    (2) Assess feasibility of filing electronic drawback claims on a 
nationwide basis; and
    (3) Reduce space necessary to retain records.

Eligibility Requirements

    To be eligible to participate in the Paperless Drawback prototype a 
candidate must be:
    (1) Approved to use ABI (19 CFR 143.3);
    (2) Approved to use Accelerated Payment (19 CFR 191.92);
    (3) Approved for waiver of Prior Notice of Intent to Export, 
Destroy or Return Merchandise for Purposes of Drawback (19 CFR 191.91); 
and
    (4) Able to use the Export Summary Procedure (19 CFR 191.73).

Application Procedure

    Written applications from drawback claimants who wish to 
participate in the Paperless Drawback prototype must be received by 
Customs no later than October 28, 2002. Customs brokers must file a 
separate application for each claimant that they wish to submit 
paperless drawback claims for under this prototype. Applications should 
be submitted to U.S. Customs Service, Entry and Drawback Management 
Branch, 1300 Pennsylvania Avenue, NW., Room 5.2-33, Washington, DC 
20229. Customs will issue written notification to applicants who are 
selected to participate in the Paperless Drawback prototype. It is 
noted that participation in the Paperless Drawback prototype is not 
confidential, and that lists of participants will be made available to 
the public.
    Paperless Drawback prototype applications must include the 
following information:
    (1) Company name, address, telephone number, facsimile number, 
email address (if applicable), and point of contact.
    (2) Name of Client Representative assigned to company for ABI;
    (3) Anticipated number of claims that will be processed during the 
one-year period of the prototype;
    (4) Types of drawback claims that will be filed (i.e., pursuant to 
19 U.S.C. 1313(a), 1313(b), 1313(c), 1313(j)(1), 1313(j)(2) or 
1313(p));
    (5) A brief statement describing the nature of the drawback 
operation;
    (6) A statement describing all records to be maintained, address of 
document retention site, and name of designated recordkeeping contact; 
and,
    (7) A statement describing how the applicant's business records 
substantiate the subject drawback claim, as per the statute and 
regulations.

Recordkeeping Requirements

    The following lists offer examples of business records that are 
used to support different types of drawback claims. The lists are not 
comprehensive, and are offered as general guidelines as to the types of 
documentation that may prove useful for purposes of substantiating a 
drawback claim. Prototype participants are advised to consult the 
Customs Drawback Informed Compliance publication for guidance as to the 
types of documents that are to be maintained for each type of drawback 
claim. This publication is available to the public on the Customs 
website, at www.customs.treas.gov. It is further noted that 
participants in the Paperless Drawback prototype remain subject to the 
applicable recordkeeping requirements set forth in the regulations.
    Claimant records must identify the merchandise or event or, in the 
alternative, the claimant must be able to establish, to Customs 
satisfaction, a clear link between the record and the merchandise or 
event.
Records Establishing Importation and Receipt of Imported Merchandise
    The following records may be used to establish importation and 
receipt of imported merchandise:
    (1) Customs import documents such as the Customs Form (CF) 7501 
(Entry Summary) or a certificate of delivery supporting the receipt of 
imported merchandise;
    (2) Purchase orders or contract of purchase, invoices, packing 
lists, vendor confirmations;
    (3) Accounts payable, disbursements, letters of credit, payment 
documents;
    (4) Receipts, inventory records, perpetual or physical transaction 
log, stores control; and
    (5) Import bills of lading, delivery records from point of import 
to plant.
Records Establishing Manufacture or Production (19 U.S.C. 1313(a) and 
(b))
    The following records may be used to establish manufacture or 
production:
    (1) Inventories for raw materials, work in process, finished goods 
or, in certain large assembly operations, a comprehensive inventory 
control

[[Page 61199]]

system where receipt and shipment of the product are shown by receiving 
and shipping documents. The inventory records should include references 
that are traceable to both the source of the material and the 
material's destination. Use is shown by a bill of materials that 
identifies the raw materials required, the raw materials withdrawals 
showing the materials that were ``used in'' or ``appear in'' the 
finished goods, the labor routing or travelers that show which 
department performed the manufacturing operation, and finished goods 
inventory reduction which shows that those goods were withdrawn from 
inventory. Due care must be used to maintain evidence (i.e. the bills 
of material must be dated and current) and inventories must be 
reconciled periodically;
    (2) Bills of material, formulas, scrap or waste records (to the 
extent that the claimant can show that the bill of materials or formula 
demonstrates manufacture or production of the manufactured article in 
question);
    (3) Job or work orders, inventory picks, travelers, serial or lot 
number control records, particularly in the case of subsection 1313(a) 
direct identification manufacturing drawback;
    (4) Inventory methodologies (e.g., inventory turnover rates or 
``turns,'' FIFO (first-in, first-out)), or other inventory 
identification methods as provided in 19 CFR 191.14); and
    (5) Stores requisition, work in process records showing that 
production occurred.
Records Establishing Substitution (19 U.S.C. 1313(b) and (k))
    Records must be retained that establish that the imported and 
substituted merchandise were of the same kind and quality for purposes 
of subsections 1313(b) and 1313(k) (the imported and substituted 
merchandise were commercially interchangeable for purposes of 
subsection 1313(j)(2), or the qualified article and the exported 
article were of the same kind and quality for purposes of subsection 
1313(p)).
    Records for these categories of merchandise must describe the 
compared goods with adequate specificity to ensure that the 
requirements for substitution are met. Generally, these records should 
reflect and be related to the particular requirement for substitution. 
For example, for commercial interchangeability drawback under 
subsection 1313(j)(2), the factors to be considered include, but are 
not limited to, Governmental and recognized industrial standards, part 
numbers, tariff classification, and value. See 19 CFR 191.32 (c). 
Therefore, the records retained in conjunction with a commercial 
interchangeability drawback claim should reflect the aforementioned 
specifications for the imported and substituted merchandise. 
Additionally, any other records relating to commercial 
interchangeability should be retained, and may include such items as:
    (1) Certifications regarding grade, specification, and content 
(i.e., Government certifications for the USDA or FDA, or industry/
independent certifications such as weighers or gaugers);
    (2) Sales contracts, customer purchase order specifications, 
commercial invoices, inventories;
    (3) In-house lab reports, engineering specifications;
    (4) Bills of material, description of the manufacturing process, 
flow charts for the manufacturing process (for substitution drawback 
pursuant to subsection 1313(b)); and
    (5) Import entry documentation (Entry and Entry Summary) and export 
documentation (Shipper's Export Declaration (SED)).
Records Establishing Use (1313(j))
    Records must show that the imported merchandise or the commercially 
interchangeable substituted merchandise, under subsection 1313(j), has 
not been used in the United States before exportation or destruction. 
Records for this purpose may include inventories, material 
requisitions, travelers or labor routing sheets or other material 
movement documents, or other records that show that the claimed 
merchandise was not used prior to exportation or destruction. For 
example, records of receipt into a storage warehouse and withdrawal 
from that storage warehouse could establish evidence of non-use.
Records Establishing Non-conformance, Shipped Without Consent, or 
Defect (1313(c))
    These records are used to show that the imported merchandise did 
not conform to sample or specifications, was shipped without the 
consent of the consignee, or was determined to be defective as of the 
time of importation. Because no substitution is provided under this 
subsection, merchandise must be traceable to receipts, inventory or 
other accounting records and exports must be correlated with imports.
    Records establishing non-conformance, shipped without consent or 
defect may include:
    (1) A signed agreement between the importer and the foreign 
supplier that the imported merchandise was defective at the time of 
importation;
    (2) Purchase orders, contracts, sales confirmations, and 
specifications (in each case, linked to the specifications of the 
merchandise); and
    (3) A signed statement from the consignee attesting to the fact 
that the merchandise had been shipped without consent.
Records Establishing Exportation
    Records used to show exportation must include one or more items 
from item 1 below, and be reconcilable with some of the items listed in 
items 2 through 4, below. To establish that particular merchandise was 
exported, a paper trail is needed to trace the merchandise from the 
finished goods or other inventory to the vessel, air carrier, or land 
carrier that actually takes the merchandise out of the U.S. The trail 
must include a bill of lading or other document that is issued by the 
exporting carrier, or other third party such as foreign Customs, and 
include time and fact of exportation. Generally, a bill of lading will 
reference an invoice or other document that can be traced to withdrawal 
of the goods from the claimant's inventory.
    (1) An originally signed bill of lading, air or freight waybill, 
Canadian Customs manifest, cargo manifest, notice of foreign trade zone 
transfer, foreign Customs document, landing certificate, delivery 
record from plant to export, captain's loading ticket, loading report, 
shipping release, or certified copies thereof. See 19 CFR 191.72;
    (2) Sales invoice, packing list, customer purchase order/sales 
contracts;
    (3) Receivables, cash receipts; and
    (4) Warehouse withdrawals, inventory pick lists, finished goods 
inventories, transaction log.
Records for Destruction
    Records must specifically identify the merchandise or articles 
destroyed. As with exportation, to support the destruction of a 
particular item a paper trail is needed to trace the item from the 
finished goods or other inventory to the place of actual destruction. 
The trail must include documents of transfer, receipt, and 
transportation (including inventory withdrawals and/or financial 
records that can be related to the destroyed merchandise or articles), 
and must include the time and fact of destruction.
    Records establishing destruction may include:
    (1) Affidavits from disinterested third parties, such as wrecking 
companies and landfill operators, attesting as to

[[Page 61200]]

what they witnessed (e.g., goods were crushed and then ground up into 
one inch diameter pebbles'') or whatever the actual destruction process 
was and what happened to any residue or remainder (e.g., buried or 
incinerated);
    (2) Photographs of the destruction to accompany affidavits; and
    (3) Reports from other Government agencies (e.g., EPA, certifying 
destruction).

Denial of Application to Participate in Paperless Drawback Prototype

    Customs will issue written notification to any party whose 
application to participate in the Paperless Drawback prototype is 
denied. The written notice will set forth the reasons for the denial 
and inform the applicant that the denial may be appealed within 30 days 
of the date of the notice.
    The appeal should include substantiating documentation that 
establishes, to Customs satisfaction, that the alleged deficiencies 
that led to the denial did not occur or have been corrected. The appeal 
should be addressed to U.S. Customs, Trade Programs, Executive 
Director, 1300 Pennsylvania Avenue, NW., Room 5.2-33, Washington, DC 
20229. Customs will issue a written determination to the applicant 
within 30 days of receipt of the appeal.
    Applicants who are denied participation in the Paperless Drawback 
prototype who do not appeal, or applicants who have had an appeal 
denied, may reapply if Customs subsequently reopens the application 
period. Customs will publish a notice in the Federal Register 
announcing any subsequent reopening of the application period.

Changes to Application Information

    Throughout the prototype period, participants must provide Customs 
with advance notification of any changes to the information provided in 
the application. This notification must be provided to Customs at least 
seven days before the effective date of a change and will be considered 
an amendment to the application. By written notice to the participant, 
Customs may reject such an amendment or suspend the party from further 
participation in the prototype.

Misconduct Under Prototype

    All participants in the Paperless Drawback prototype are required 
to abide by the terms and conditions of this notice. A participant may 
be suspended from the prototype, subject to penalties and other 
administrative sanctions, and/or prevented from participation in future 
prototypes if a participant fails to:
    (1) Maintain a sufficient level of compliance;
    (2) File accurate and timely data;
    (3) Supply Customs with requested information;
    (4) Cooperate fully in a Drawback Compliance Assessment, Focus 
Assessment or audit;
    (5) Provide timely and accurate data and adequate resources in 
support of a Drawback Compliance Assessment, Focus Assessment or audit, 
or comply fully with the terms of a Compliance Improvement plan;
    (6) Maintain sufficient continuous bond coverage; or
    (7) Exercise reasonable care in following the Paperless Drawback 
prototype procedures and obligations outlined in this notice, including 
all other applicable laws and regulations.

Suspension From Participation in Paperless Drawback Prototype

    Customs has the discretion to suspend a Paperless Drawback 
prototype participant based on the determination that an unacceptable 
compliance risk exists, or for misconduct as described in the 
``Misconduct Under Prototype'' section of this notice. Except in the 
case of willfulness on the part of a prototype participant, or where 
public health, interest or safety is concerned, written notice of a 
proposed suspension will be issued by Customs to the participant on a 
prospective basis. The notice of pending suspension will set forth the 
reasons for the action. The participant may appeal such decision, in 
writing, within 15 days of receipt of Customs suspension notification. 
The appeal should include substantiating documentation that 
establishes, to Customs satisfaction, that the alleged deficiencies 
that led to the pending suspension did not occur or have been 
corrected. The appeal should be addressed to U.S. Customs, Trade 
Programs, Executive Director, 1300 Pennsylvania Avenue, NW., Room 5.2-
33, Washington, DC 20229. Customs will issue a written determination to 
the participant within 30 days of receipt of the appeal. If no appeal 
is timely submitted, the suspension will go into effect as of the date 
set forth in the notice of suspension. If an appeal is timely 
submitted, Customs will hold the suspension in abeyance until such time 
as a written determination based on the appeal has been issued.

Prototype Evaluation

    Participation in the Paperless Drawback prototype is not deemed 
confidential information. Lists of participants and evaluation results 
will be made available to the public by means of the Customs Electronic 
Bulletin Board and the Customs Administrative Message System, and upon 
written request. Also, upon conclusion of the prototype, the final 
results will be published in the Federal Register and the Customs 
Bulletin and reported to Congress.

    Dated: September 24, 2002.
Jayson P. Ahern,
Assistant Commissioner, Office of Field Operations.
[FR Doc. 02-24589 Filed 9-26-02; 8:45 am]
BILLING CODE 4820-02-P