H322158

H322158 March 20, 2026 OT:RR:CTF:EPDR H322158 MY CATEGORY: Entry Peter W. Klestadt, Esq. Grunfeld Desiderio Lebowitz Silverman & Klestadt LLP 599 Lexington Avenue FL 36 New York, NY 10022-7648 RE: Use of an approved accounting method to claim drawback under 19 U.S.C. § 1313(j)(1); exports to Canada. Dear Mr. Klestadt, This is in response to the November 22, 2021, ruling request filed by your firm, on behalf of Safilo USA Inc. (“Safilo”). You seek a determination as to the permissibility of using an approved accounting method under 19 C.F.R. § 190.14 to identify drawback eligible goods in order to claim direct identification unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(1). You seek confirmation that merchandise withdrawn from a fungible inventory, in which duty-paid unused merchandise and customer returned retail merchandise is commingled, may be identified as drawback eligible through an approved accounting method, specifically the low-to-high blanket method FACTS: Safilo imports non-prescription eyewear (“eyewear”). None of the imported eyewear is originating under the United States-Mexico-Canada Agreement (“USMCA”). While most of the imported eyewear is sold to domestic retailers, Safilo states that it “also exports [some] eyewear to Canada in the same condition as imported.” It is this exported eyewear that is at issue in Safilo’s request. The exported eyewear is withdrawn from an inventory consisting of unsold merchandise and returned merchandise. The returned merchandise is comprised of eyewear that was either returned by a retailer, without having first been sold to an end-customer, or eyewear that was returned by a customer after retail sale. Both types of returned merchandise, retailer-returned and customer-returned, are inspected by Safilo’s receiving department. As part of this inspection, Safilo pulls any defective or damaged eyewear to be destroyed. The remaining eyewear, which is deemed “of saleable quality,” is returned to Safilo’s inventory and commingled with eyewear that was never sold. All eyewear within Safilo’s commingled inventory is tracked by a Stock Keeping Unit (“SKU”). Each model of eyewear is assigned a 13-digit SKU number – this SKU identifies a given unit’s model, color, bridge size, and front. Safilo posits that all eyewear of the same SKU is identical and interchangeable for commercial purposes, rendering it fungible for drawback purposes. Safilo explains that its inspection and inventory tracking process allows it to keep a tally of all returned merchandise. Although Safilo cannot identify which specific units of eyewear within its commingled inventory were returned as opposed to unsold, it proposes to identify unsold eyewear by utilizing an accounting method specified in 19 C.F.R. § 190.14(c). Safilo does not claim that the returned merchandise in its inventory is “unused” and therefore eligible for drawback under 19 U.S.C. § 1313(j)(1). Instead, Safilo seeks to claim direct identification unused merchandise drawback under 19 U.S.C. § 1313(j)(1) on the unsold portion of its inventory by distinguishing it from returned merchandise through an accounting method specified in 19 C.F.R. § 190.14(c). Safilo provides an example of how it may utilize an approved accounting method to identify unsold eyewear in its commingled inventory. Safilo proposes that by utilizing the low-to-high blanket accounting method (19 C.F.R. § 190.14(c)(3)(iv)): all returned merchandise in its inventory will be assigned a zero duty value for drawback purposes; exports to Canada in any given period will be first matched with receipts having the lowest duty value; no drawback will be claimed on receipts with a zero duty value; and therefore no drawback will be paid on returned merchandise. This process, Safilo explains, will allow it to restrict the amount of drawback sought to the value of unsold merchandise in inventory. Safilo argues that the commingling of drawback eligible goods with returned goods does not, of itself, render the unsold portion of the commingled inventory ineligible for unused merchandise drawback nor preclude the use of an accounting method under 19 C.F.R. § 190.14(c) to identify unsold merchandise. In support of its argument, Safilo invokes Toyota Motor Sales v. United States (“Toyota Motor Sales”) in which the Court of International Trade specifically acknowledged that an accounting method could be utilized to identify and distinguish between drawback eligible and drawback ineligible goods stored in a commingled inventory. See 35 C.I.T. 1205 (Ct. Int’l Trade 2011). Safilo further underscores that the regulatory text of 19 C.F.R. § 190.14(c)(3)(iv)(B) contemplates that some exports will consist of goods on which drawback is not available by stating that “[a]ll withdrawals for export must be accounted for whether or not drawback is available or claimed on the withdrawals.” Safilo also argues that its inventory of eyewear is fungible as required by 19 C.F.R. § 190.14(b)(1) in order to utilize an inventory accounting method. Safilo posits that its eyewear is fungible for the following reasons: all units of the same SKU number have the same model, color, bridge size, and front; both returned and unsold eyewear originate from the same source abroad; the returned eyewear which is deemed “of saleable quality” is not distinguishable from unsold eyewear based on its characteristics; and purchase orders for domestic sales and exports 2 are both placed based on a product’s SKU number, without regard to its status as unsold or returned merchandise. ISSUES: I. Whether the unsold portion of Safilo’s inventory, that is exported to Canada, is unused and therefore eligible for drawback under 19 U.S.C. § 1313(j)(1). II. Whether Safilo’s inventory of eyewear is fungible for purposes of utilizing an accounting method specified in 19 C.F.R. § 190.14(c). III. Whether an accounting method specified in 19 C.F.R. § 190.14(c), specifically the low-to-high blanket method, may identify unused merchandise commingled with returned merchandise in inventory for purposes of claiming direct identification unused merchandise drawback under 19 U.S.C. § 1313(j)(1). LAW AND ANALYSIS: I. Whether the unsold portion of Safilo’s inventory, that is exported to Canada, is unused and therefore eligible for drawback pursuant to 19 U.S.C. § 1313(j)(1). Pursuant to 19 C.F.R. § 182.42(c), substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2) is not available on exports to Canada or Mexico. See also 19 U.S.C. § 1313(j)(4)(A)(i) (“the exportation to a USMCA country of merchandise that is fungible with and substituted for imported merchandise . . . shall not constitute an exportation”). Additionally, the refund for drawback eligible claims, such as unused merchandise drawback under 19 U.S.C. § 1313(j)(1), is generally limited to the lesser of the total duties paid or owed on the importation into the United States, or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico. See 19 C.F.R. § 182.44(a). This limitation is referred to as the “lesser of” rule. An exception from the “lesser of” rule arises in circumstances where a good is exported to Canada or Mexico in the same condition as imported into the United States. See 19 U.S.C. § 4534(a)(2); 19 C.F.R. § 182.45(b). A good generally remains in the “same condition” if prior to exportation it does not undergo an operation that materially alters its characteristics. See 19 C.F.R. § 182.45(b)(1); see also HQ H331751 (Nov. 20, 2024). The USMCA drawback requirements under Part 182 are also of particular relevance to Safilo’s proposal to utilize an accounting method specified in 19 C.F.R. § 190.14(a). Pursuant to 19 C.F.R. § 181.45(b)(2)(i)(B), if an inventory of fungible goods consists entirely of non-originating goods then identification of merchandise “for same condition drawback” purposes under 19 U.S.C. § 1313(j)(1) must be based on one of the acco

I. Whether the unsold portion of Safilo’s inventory, that is exported to Canada, is unused and therefore eligible for drawback pursuant to 19 U.S.C. § 1313(j)(1). Pursuant to 19 C.F.R. § 182.42(c), substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2) is not available on exports to Canada or Mexico. See also 19 U.S.C. § 1313(j)(4)(A)(i) (“the exportation to a USMCA country of merchandise that is fungible with and substituted for imported merchandise . . . shall not constitute an exportation”). Additionally, the refund for drawback eligible claims, such as unused merchandise drawback under 19 U.S.C. § 1313(j)(1), is generally limited to the lesser of the total duties paid or owed on the importation into the United States, or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico. See 19 C.F.R. § 182.44(a). This limitation is referred to as the “lesser of” rule. An exception from the “lesser of” rule arises in circumstances where a good is exported to Canada or Mexico in the same condition as imported into the United States. See 19 U.S.C. § 4534(a)(2); 19 C.F.R. § 182.45(b). A good generally remains in the “same condition” if prior to exportation it does not undergo an operation that materially alters its characteristics. See 19 C.F.R. § 182.45(b)(1); see also HQ H331751 (Nov. 20, 2024). The USMCA drawback requirements under Part 182 are also of particular relevance to Safilo’s proposal to utilize an accounting method specified in 19 C.F.R. § 190.14(a). Pursuant to 19 C.F.R. § 181.45(b)(2)(i)(B), if an inventory of fungible goods consists entirely of non-originating goods then identification of merchandise “for same condition drawback” purposes under 19 U.S.C. § 1313(j)(1) must be based on one of the accounting methods specified in 19 C.F.R. § 190.14. Safilo states that none of the eyewear in its inventory is originating under the USMCA, and that its eyewear is fungible. Safilo’s ruling request thus ste