[Federal Register Volume 66, Number 28 (Friday, February 9, 2001)]
[Rules and Regulations]
[Pages 9647-9650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3358]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 191

[T.D. 01-18]
RIN 1515-AC67


Merchandise Processing Fee Eligible To Be Claimed as Unused 
Merchandise Drawback

AGENCY: Customs Service, Department of the Treasury.

ACTION: Interim rule; solicitation of comments.

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SUMMARY: This document amends the Customs Regulations on an interim 
basis to indicate that merchandise processing fees are eligible to be 
claimed as unused merchandise drawback. The change is 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 will require a drawback 
claimant to apportion the merchandise processing fee to that 
merchandise that provides the basis for drawback.

DATES: This interim rule is effective February 9, 2001. Comments must 
be received on or before April 10, 2001.

ADDRESSES: Written comments (preferably in triplicate) may be submitted 
to and inspected at the Regulations Branch, Office of Regulations and 
Rulings, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd 
Floor, Washington, DC 20229.

FOR FURTHER INFORMATION CONTACT: William G. Rosoff, Chief, Duty and 
Refund Determinations Branch, Office of Regulations and Rulings, U.S. 
Customs Service, 1300 Pennsylvania Avenue, NW., Washington, DC 20029, 
Tel. (202) 927-2265.

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 in an amount equal to 0.21 
percent of the value of the imported merchandise, as determined under 
19 U.S.C. 1401a. 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 <divide> .0021 = 
$230,952.38); and
    (2) For certain monthly entries, as prescribed by Pub. L. 101-382, 
section 111(f), as amended, and implemented

[[Page 9648]]

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 <divide> .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 in Texport Oil v. United 
States, 185 Fd. 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.

Amendment to the Customs Regulations

    To implement the court's interpretation of 19 U.S.C. 1313(j), it is 
necessary to amend the Customs Regulations to provide that merchandise 
processing fees are now subject to unused merchandise drawback, and to 
add apportionment language. Apportionment language is necessary because 
in order for a drawback claimant to correctly calculate the amount of 
drawback due, the claimant must apportion the merchandise processing 
fee to that merchandise that provides the basis for unused merchandise 
drawback.
    In this document, Customs is amending the regulations to reflect 
the holding in Texport and to provide examples of apportionment 
calculations. Amendments are made to Secs. 191.2(u), 191.3, and 191.51 
of the Customs Regulations. Section 191.3 is amended to reflect that a 
merchandise processing fee is now subject to unused merchandise 
drawback. Section 191.51 is amended to reflect how a claimant is to 
calculate the portion of a merchandise processing fee that is eligible 
to be claimed as unused merchandise drawback. A conforming change is 
made to Sec. 191.2(u). A more detailed explanation of the amendments is 
set forth below.

19 CFR 191.3

    Section 191.3 of the Customs Regulations (19 CFR 191.3) identifies 
those duties and fees that are subject to, or ineligible for, drawback. 
Paragraph (a) of this section enumerates those duties that are subject 
to drawback. Paragraph (b) sets forth those duties and fees that are 
deemed ineligible for drawback. In paragraph (b)(2), merchandise 
processing fees are specifically identified as ineligible for drawback.
    In view of the recent judicial interpretation of section 1313(j)(2) 
in which merchandise processing fees were deemed subject to unused 
merchandise drawback, Secs. 191.3(a) and (b)(2) of the Customs 
Regulations are amended to reflect that determination. A new paragraph 
(a)(4) is added to provide that merchandise processing fees are 
eligible to be claimed as unused merchandise drawback. Paragraph (b)(2) 
is amended so as to provide that merchandise processing fees are 
ineligible for drawback except when unused merchandise drawback is 
claimed.

19 CFR 191.51

    Section 191.51(b) of the Customs Regulations requires a drawback 
claimant to correctly calculate the amount of drawback due when 
completing a drawback entry.
    As stated above, the court's interpretation of 19 U.S.C. 1313(j) 
requires that a drawback claimant apportion a merchandise processing 
fee to that merchandise that provides the basis for unused merchandise 
drawback in order to correctly calculate the amount of drawback due.
    In order for a drawback claimant to be able to ascertain what 
portion of a merchandise processing fee is eligible to be claimed as 
unused merchandise drawback, a four-step apportionment calculation is 
necessary. First, as with any drawback claim where not all of the 
merchandise in a particular entry provides a basis for drawback, it is 
necessary for a claimant to calculate the value of each line item of 
entered merchandise subject to the fee, relative to the value of the 
entire entry subject to the fee. The resulting figure constitutes the 
``relative value ratio''. Second, the relative value ratio for each 
line item is multiplied by the amount of merchandise processing fee 
paid in connection with the entry. The resulting figures represent the 
amount of merchandise processing fee attributable to each line item. 
Third, the amount of merchandise processing fee attributable to each 
line item that provides the basis for unused merchandise drawback is 
multiplied by 99 percent. The resulting figure represents that portion 
of the merchandise processing fee attributable to each line item that 
is eligible to be claimed as unused merchandise drawback, as per 
section 1313(j). Lastly, in order to calculate the amount of 
merchandise processing fee eligible for drawback per unit of 
merchandise, the amount of fee that is eligible to be claimed as unused 
merchandise drawback per line item is divided by the number of units 
covered by that line item.
    As Sec. 191.51(b) requires that a drawback claimant correctly 
calculate the amount of drawback due, and a claim for unused 
merchandise drawback for a merchandise processing fee will necessarily 
involve an apportionment calculation, this provision is amended to 
reflect that fact and to provide examples of the manner by which such 
apportionment calculations are to be made.

19 CFR 191.2(u)

    Section 191.2(u) of the Customs Regulations (19 CFR 191.2(u)) sets 
forth the definition of the term ``relative value'' for purposes of 
part 191.
    A drawback claimant is required to calculate the ``relative value 
ratio'' when determining what portion of a merchandise processing fee 
is eligible for unused merchandise drawback. See the amended text of 
Sec. 191.51(b) of the Customs Regulations (19 CFR 191.51(b)), discussed 
below. As the term ``relative value ratio,'' as used in Sec. 191.51(b), 
as amended, does not share the same meaning as the term ``relative 
value'' as set forth in Sec. 191.2(u), and the two terms are similar 
enough to potentially cause confusion, Sec. 191.2(u) is amended so as 
to exclude applicability to Sec. 191.51(b).

[[Page 9649]]

Comments

    Before adopting this interim regulation as a final rule, 
consideration will be given to any written comments timely submitted to 
Customs, including comments on the clarity of this interim rule and how 
it may be made easier to understand. Comments submitted will be 
available for public inspection in accordance with the Freedom of 
Information Act (5 U.S.C. 552), Sec. 1.4 of the Treasury Department 
Regulations (31 CFR 1.4), and Sec. 103.11(b) of the Customs Regulations 
(19 CFR 103.11(b)), on regular business days between the hours of 9 
a.m. and 4:30 p.m. at the Regulations Branch, Office of Regulations and 
Rulings, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd 
Floor, Washington, DC.

Inapplicability of Prior Public Notice and Comment Procedures

    Pursuant to the provisions of 5 U.S.C. 553(b)(B), Customs has 
determined that prior public notice and comment procedures on this 
regulation are unnecessary and contrary to public interest. The 
regulatory changes conform the Customs Regulations to reflect a recent 
decision by the Court of Appeals for the Federal Circuit. 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.

Executive Order 12866

    This document does not meet the criteria for a ``significant 
regulatory action'' as specified in Executive Order 12866.

Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this rule, 
the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
do not apply.

Drafting Information

    The principal author of this document was 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

19 CFR Part 191

    Claims, Commerce, Customs duties and inspection, Drawback.

Amendment to the Regulations

    For the reason stated above, part 191 of the Customs Regulations 
(19 CFR part 191), is amended as set forth below.

PART 191--DRAWBACK

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

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States), 1313, 1624.
* * * * *

    2. Section 191.2(u) is amended by adding the words ``, except for 
purposes of Sec. 191.51(b),'' after the word ``means'' in the first 
sentence.

    3. Section 191.3 is amended:
    a. In paragraph (a), introductory text, by adding the words ``and 
fees'' after the word ``Duties'';
    b. At the end of paragraph (a)(1)(ii), by adding the word ``and'' 
after the semi-colon;
    c. At the end of paragraph (a)(2), by removing the word ``and,'';
    d. At the end of paragraph (a)(3), by removing the period and 
adding in its place ``; and'';
    e. By adding a new paragraph (a)(4); and
    f. By revising paragraph (b)(2).
    The addition and revision read as follows:


Sec. 191.3  Duties and fees subject or not subject to drawback.

    (a) * * *
    (4) Merchandise processing fees (see Sec. 24.23 of this chapter) 
for unused merchandise drawback pursuant to 19 U.S.C. 1313(j).
    (b) * * *
    (2) Merchandise processing fees (see Sec. 24.23 of this chapter), 
except where unused merchandise drawback is claimed; and
* * * * *

    4. Section 191.51(b) is amended by redesignating the existing text 
as paragraph (b)(1), adding a heading to newly redesignated paragraph 
(b)(1), and adding a new paragraph (b)(2) to read as follows:


Sec. 191.51  Completion of drawback claims.

* * * * *
    (b) Drawback due.--(1) Claimant required to calculate drawback. * * 
*
    (2) Merchandise processing fee apportionment calculation. Where a 
drawback claimant seeks unused merchandise drawback pursuant to 19 
U.S.C. 1313(j) for a merchandise processing fee paid pursuant to 19 
U.S.C. 58c(a)(9)(A), the claimant is required to correctly apportion 
the fee to that merchandise that provides the basis for drawback when 
calculating the amount of drawback requested on the drawback entry. 
This is determined as follows:
    (i) Relative value ratio for each line item. The value of each line 
item of entered merchandise subject to a merchandise processing fee is 
calculated (to four decimal places) by dividing the value of the line 
item subject to the fee by the total value of entered merchandise 
subject to the fee. The resulting value forms the relative value ratio.
    (ii) Merchandise processing fee apportioned to each line item. To 
apportion the merchandise processing fee to each line item, the 
relative value ratio for each line item is multiplied by the 
merchandise processing fee paid.
    (iii) Amount of merchandise processing fee eligible for drawback 
per line item. 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.
    (iv) Amount of merchandise processing fee eligible for drawback per 
unit of merchandise. To calculate the amount of a merchandise 
processing fee eligible for drawback per unit of merchandise, the line 
item amount that is eligible for drawback is divided by the number of 
units covered by that line item (to two decimal places).

Example 1

Line item 1--5,000 articles valued at $10 each total $50,000
Line item 2--6,000 articles valued at $15 each total $90,000
Line item 3--10,000 articles valued at $20 each total $200,000
Total units = 21,000
Total value = $340,000
Merchandise processing fee = $485 (for purposes of this example, the 
fee cap of $485, as per 19 U.S.C. 58c(a)(9)(B)(i), is applicable)

    Line item relative value ratios. The relative value ratio for line 
item 1 is calculated by dividing the value of that line item by the 
total value ($50,000 <divide> 340,000 = .1470). The relative value 
ratio for line item 2 is .2647. The relative value ratio for line item 
3 is .5882.
    Merchandise processing fee apportioned to each line item. The 
amount of fee attributable to each line item is calculated by 
multiplying $485 by the applicable relative value ratio.

[[Page 9650]]

The amount of the $485 fee attributable to line item 1 is $71.295 
(.1470  x  $485 = $71.295). The amount of the fee attributable to line 
item 2 is $128.3795 (.2647  x  $485 = $128.3795). The amount of the fee 
attributable to line item 3 is $285.277 (.5882  x  $485 = $285.277).
    Amount of merchandise processing fee eligible for drawback per line 
item. The amount of merchandise processing fee eligible for drawback 
for line item 1 is $70.5821 <divide> (.99  x  $71.295). The amount of 
fee eligible for drawback for line item 2 is $127.0957 (.99  x  
$128.3795). The amount of fee eligible for drawback for line item 3 is 
$282.4242 (.99  x  $285.277).
    Amount of merchandise processing fee eligible for drawback per unit 
of merchandise. The amount of merchandise processing fee eligible for 
drawback per unit of merchandise is calculated by dividing the amount 
of fee eligible for drawback for the line item by the number of units 
in the line item. For line item 1, the amount of merchandise processing 
fee eligible for drawback per unit is $.0141 ($70.5821 <divide> 5,000 = 
$.0141). If 1,000 widgets form the basis of a claim for drawback under 
19 U.S.C. 1313(j), the total amount of drawback attributable to the 
merchandise processing fee is $14.10 (1,000  x  .0141 = $14.10). For 
line item 2, the amount of fee eligible for drawback per unit is $.0212 
($127.0957 <divide> 6,000 = $.0212). For line item 3, the amount of fee 
eligible for drawback per unit is $.0282 ($282.4242 <divide> 10,000 = 
$.0282).

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 $70,000) that is exempt from the merchandise processing fee under 
19 U.S.C. 58c(b)(8)(ii)(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 <divide> 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 <divide> 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 fee attributable to line item 3 is $121.25 
(.25  x  $485 = $121.25).
    The amount of drawback on the merchandise processing fee 
attributable to each unit of line item 2 is $.0243 ($363.75 <divide> 
15,000 = $.02430). The amount of drawback on the merchandise processing 
fee attributable to each unit of line item 3 is $.0121 ($121.25 
<divide> 10,000 = $.0121).
    If 1,000 units of line item 2 were exported, the drawback 
attributable to the merchandise processing fee is $24.23 ($.02423  x  
1,000 = $24.23).
* * * * *

Raymond W. Kelly,
Commissioner of Customs.
    Approved: November 9, 2000.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 01-3358 Filed 2-8-01; 8:45 am]
BILLING CODE 4820-02-P