H302869

90 K Street, N.E., Washington, D.C. 20229-1177 U.S. Customs and Border Protection HQ H302869 November 30, 2021 DRA 2; FOR 01 OT:RR:CTF:ER H302869 HvB David R. Ostheimer, Esq. Lamb & Lerch 233 Broadway Suite 2702 New York, NY 10279 Re: BMW of North America: Request for Determination of Eligibility of Motor Vehicles for Substitution Unused Merchandise Drawback under 19 U.S.C. § 1313(j)(2); Possession; Foreign Trade Zone Operator Dear Mr. Ostheimer: This is in response your request, dated February 8, 2019, on behalf of BMW of North America, LLC (“BMW NA”), for a binding ruling on the eligibility of certain motor vehicles for substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2), as amended pursuant to Section 906 of the Trade Enforcement and Trade Facilitation Act of 2015 (“TFTEA”). In addition, we took into consideration your supplemental response dated December 16, 2020. FACTS: BMW NA wishes to claim substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2). BMW NA intends to designate motor vehicles exported by BMW Manufacturing Co., LLC. (“BMW MC”) from a foreign trade subzone operated by BMW NA. BMW MC is the manufacturer, owner and exporter of the motor vehicles exported from the FTZ. BMW MC has agreed to waive its right to claim drawback on the designated merchandise. BMW MC will assign that right to BMW NA, and will also provide the requisite certification, as required by 19 C.F.R. §§ 190.33(b)(2) and 190.82. When claiming substitution unused drawback, BMW NA will substitute the exported motor vehicles owned by BMW MC for motor vehicles imported and duty paid by BMW NA. BMW NA asks us to confirm whether BMW NA may satisfy the possession requirement under 19 U.S.C. § 1313(j)(2), by virtue of BMW NA being the operator of the FTZ where the motor vehicles owned by BMW MC are stored prior to exportation. This ruling does not address whether the proposed transaction complies with other requirements under 13 U.S.C. § 1313(j)(2). In submitting this ruling request, BMW NA has also asked us to revoke Headquarters Ruling (“HQ”) H236882 (July 7, 2016). In that ruling, CBP considered whether CSI, a warehouse operator met the possession requirement under (pre-TFTEA) 19 U.S.C. § 1313(j)(2) as the operator of a warehouse in which the designated merchandise, i.e., jewelry, was stored. CSI argued that it satisfied the possession requirement because it had physical control of the jewelry. CSI did not hold legal title to the jewelry, was not involved in selling the merchandise, and merely complied with inventory instructions issued by the jewelry owners. CBP concluded that “because CSI did not have complete control and dominion over the exported merchandise while in its physical custody, it did not satisfy the possession requirement for substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2).” ISSUE: Whether BMW NA, has “possession” of motor vehicles owned by BMW MC per 19 U.S.C. § 1313(j)(2)(C)(ii), substitution unused drawback, by acting in its capacity as an FTZ operator where the motor vehicles are stored prior to exportation? LAW AND ANALYSIS Substitution unused merchandise drawback per 19 U.S.C. § 1313(j)(2) requires, inter alia, that the exported merchandise on which drawback is to be claimed, is in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, . . . . 19 U.S.C. § 1313(j)(2)(C)(ii). On February 24, 2016, TFTEA (Pub. L. 114–125, 130 Stat. 122, February 24, 2016) was signed into law. Section 906 of TFTEA made significant changes to the drawback laws but the language at issue here, 19 U.S.C. § 1313(j)(2)(C)(ii)), is unchanged. When it amended 19 U.S.C. § 1313(j) under TFTEA, (Pub. L. 114–125, 130 Stat. 122, February 24, 2016) Congress left in place this “possession” requirement for substitution unused merchandise drawback per 19 U.S.C § 1313(j)(2)(C)(ii). Thus, we consult the legislative history to the Customs Modernization Act of 1993, when Congress last amended 19 U.S.C. § 1313(j)(2)(C). The drawback law, including the possession requirement, was substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. Congress amended the possession requirement under §1313(j)(2) to its present-day language. In the House Report on the bill (section 632 of H.R. 3450) that became law, Congress noted that its “Reasons for Change” included expanding U.S. exports and easing administrative burdens. Congress then stated, "[h]owever, the Committee does not intend to create a 'market' for drawback rights." H.R. Rep. No. 103-361(I), at 130 (1993), reprinted in 1993 U.S.C.C.A.N. 2553, 2680. In the same report when discussing the new allowance for substituted merchandise under §1313(j), Congress states that it intended the general rule to be: that the party claiming drawback must either have paid the duties on the imported merchandise or have received from the person who imported and paid the duties on the imported merchandise a certificate of delivery for the imported merchandise, commercially interchangeable merchandise, or any combination thereof. Id at 131. Moreover, for cases in which the claimant was not the importer, Congress intended that the claimant have proof of possession, e.g., a certificate of delivery. The legislative history therefore shows that Congress intended to limit the parties that may claim drawback and eliminated the possibility of drawback claimants merely trading paper ownership of the designated goods thereby creating the market for drawback rights. In C.S.D. 85-52, CBP explained that “[t]o hold that for purposes of same condition drawback arbitragers and futures dealers in commodities have "possession" of these commodities because of the purchase of commercial paper and temporary storage in leased bins or tanks, would not further the intent of the Congress or the fundamental purpose of the drawback law.” CBP has consistently interpreted the “possession” requirement under 19 U.S.C. § 1313(j)(2) to mean “complete control over the articles or merchandise on premises or locations where the possessor can put the articles or merchandise to any use chosen.” C.S.D. 85-52 (Aug. 16, 1985). See also HQ 225166 (Apr. 10, 1996). In C.S.D. 85-52, CBP defined “possession” as “occupancy and exercise of dominion over property” citing to Ballantine’s Law Dictionary , 964 (3rd ed. 1969). Hence, CBP’s rulings on possession for purposes of 19 U.S.C. § 1313(j) reflect this intent. See, e.g., HQ 225228 (Dec. 23, 1994) citing H. Rep. 103-361, at 130 and HQ H236882 (July 7, 2016). CBP has ruled that under certain circumstances drawback may be claimed when the substituted merchandise is in the physical custody of another, such as bailment, if the claimant maintains complete control and dominion over the merchandise. Per 19 U.S.C. § 1313(j)(2), possession includes ownership while in bailment. That is, the owner of the goods still has dominion and control over the goods while the goods are entrusted to another, the bailee. It does not mean, as BMW suggests, that the bailee, such as an FTZ operator to whom the goods have been entrusted possesses any rights beyond that of a mere custodian. In HQ 222500 (July 16, 1990), we allowed a claimant to satisfy the possession requirement even though the substituted merchandise was stored in leased storage tanks prior to its exportation. Tradecom, the claimant and bailor, leased storage tanks from a warehouse operator (the bailee) to store the duty-paid merchandise (soybean oil) from a warehouse “tank farm.” Tradecom produced receipts from the warehouse operator, Shipper’s Declaration of Exportation, and a bill of lading, to demonstrate its ownership. In finding that Tradecom had possession, CBP explained: Drawback re

Substitution unused merchandise drawback per 19 U.S.C. § 1313(j)(2) requires, inter alia, that the exported merchandise on which drawback is to be claimed, is in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, . . . . 19 U.S.C. § 1313(j)(2)(C)(ii). On February 24, 2016, TFTEA (Pub. L. 114–125, 130 Stat. 122, February 24, 2016) was signed into law. Section 906 of TFTEA made significant changes to the drawback laws but the language at issue here, 19 U.S.C. § 1313(j)(2)(C)(ii)), is unchanged.When it amended 19 U.S.C. § 1313(j) under TFTEA, (Pub. L. 114–125, 130 Stat. 122, February 24, 2016) Congress left in place this “possession” requirement for substitution unused merchandise drawback per 19 U.S.C § 1313(j)(2)(C)(ii). Thus, we consult the legislative history to the Customs Modernization Act of 1993, when Congress last amended 19 U.S.C. § 1313(j)(2)(C). The drawback law, including the possession requirement, was substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. Congress amended the possession requirement under §1313(j)(2) to its present-day language. In the House Report on the bill (section 632 of H.R. 3450) that became law, Congress noted that its “Reasons for Change” included expanding U.S. exports and easing administrative burdens. Congress then stated, "[h]owever, the Committee does not intend to create a 'market' for drawback rights." H.R. Rep. No. 103-361(I), at 130 (1993), reprinted in 1993 U.S.C.C.A.N. 2553, 2680. In the same report when discussing the new allowance for substituted merchandise under §1313(j), Congress states that it intended the general rule to be: that the party claiming drawback must either have paid the duties on the importedmerchandise or have r