H341220

HQ H341220 August 30, 2024 OT:RR:CTF:EPDR H341220 ND CATEGORY: Entry John M. Foote Kelle Drye & Warren LLP Washington Harbour, Suite 400 3050 K Street, NW Washington, DC 20007 RE: Modification of HQ H326262 Dear Mr. Foote, This is in response to the August 16, 2024, request for reconsideration of Headquarters Ruling Letter (“HQ”) H326262, dated July 5, 2024. HQ H326262 was issued in response to a ruling request, filed by Comstock & Theakston, Inc. (“Comstock”), on behalf of [[ ]] (hereinafter “the Company”), regarding the calculation methodology for claiming drawback for certain exports from a foreign trade zone (“FTZ”) pursuant to 19 U.S.C. § 1313(j)(2). Based on the clarifications provided in the Company’s request and for the reasons set forth below, this office is modifying HQ H326262 with respect to the permissibility of the requested calculation methodology for claiming unused substituted merchandise drawback discussed in the ruling. On May 28, 2024, the Company sought confidential treatment of certain information submitted in connection with its ruling request. In consideration of the request and the sufficient justification presented pursuant to 19 C.F.R. § 177.2(b)(7), this office will not identify any business confidential information provided to U.S. Customs and Border Protection (“CBP”). The instant request for reconsideration does not seek confidential treatment. Nevertheless, this office will consider the May 28, 2024, treatment request to be a standing request. The information contained within brackets in your request will not be released to the public and will be withheld from public published version of this ruling. FACTS: The Company produces merchandise in a FTZ that contains domestic and foreign status components. According to the Company, the foreign status components are previously imported and not duty paid, while the domestic status components are either domestically produced or previously imported and duty paid. The Company seeks to claim drawback with regard to the finished merchandise, classified under subheading 8507.60.00, Harmonized Tariff Schedule of the United States (“HTSUS”), which was manufactured with foreign status components classified under subheading 8507.60.00, HTSUS, and exported. On July 15, 2022, the Company sought a ruling request, “regarding the drawback methodology of certain domestic status components that are entered into a FTZ to be claimed as refunds for drawback, per 19 U.S.C. § 1313(j)(2).” More specifically, the Company raised two issues in its request. First, the Company “would like the opportunity to claim drawback based on the value of the exported [[ ]] that did not receive the FTZ benefit against duty-paid imports for the same 8-digit HTSUS,” similar to the holding in HQ H305251 (Dec. 10, 2021) (“Mercedes”). Second, the Company sought clarity as to the holding of Mercedes because “the Mercedes ruling appears limited to calculating the drawback claim based upon the value alone. The ruling does not also address the need to decrement quantity as well as value for the drawback calculation.” On December 20, 2022, this office sought additional clarification via email with regard to terms used in the ruling request relating to the status of the materials in the FTZ and the nature of the ruling request. On February 22, 2023, the Company responded via email that their manufacturing scenario is identical to that outlined in the Mercedes ruling. The Company further clarified that, “[w]e would like to deduct both (1) the value of all foreign status components from the total value of the finished and exported products [[ ]], as CBP found proper in the Mercedes ruling, and (2) extrapolate this concept to deduct the weight of all foreign status components from the total weight of the finished and exported products, arriving at the legally permissible value of the exported [[ ]] for purposes of 1313(j)(2) drawback.” Because the merchandise at issue is classified under subheading 8507.60.00, HTSUS, which requires the primary unit of measure to be reported as “No.,” number, and the secondary unit of measure to be reported as “Kg.,” kilograms, this office needed further clarity with regard to the Company’s request. On March 20, 2024, this office met with the Company over Microsoft Teams. The Company reiterated their position that drawback claimants should be able to deduct both value and weight of all foreign status components from the total weight of the finished and exported products from the FTZ. The Company asserted that the ruling request was not limited to the HTSUS subheadings at issue in the ruling and drawback claimants should be able to decrement both value and weight no matter the subheading of the merchandise at issue. After careful consideration of the facts before this office, we determined that the Company cannot deduct the value and weight of foreign status components from the finished exported merchandise classified under subheading 8507.60.00, HTSUS, for purposes of calculating its claim for unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2). In an attempt to honor the sensitivity of the nature of the Company’s business confidential information, this office provided the Company with an opportunity to review the public version of HQ H326262 for purposes of reviewing the treatment of its confidential information. On June 5, 2024, the Company requested further time to review the public version of HQ H326262, which this office granted. However, the Company was specifically informed that the “review [was] limited to issues of confidentiality.” On June 20, 2024, the Company responded with a letter addressing several contentions with CBP’s position in HQ H326262 (hereinafter “June 20 Letter”). The letter did not address confidentiality concerns. Rather, the Company stated that, [w]e understand and accept that under the facts of this ruling, CBP has decided that a claimant “cannot deduct the value and weight of foreign status components from the finished exported merchandise . . . .” While we do not challenge that holding at this time, we are writing to urge CBP to reconsider a portion of the analysis that we believe rests on several mistakes of law and fact—a fundamental misunderstanding of the lawful interplay of the HTSUS and the duty drawback statute and regulations . . . . After review of the Company’s letter, this office agreed that in a statement that did not affect the reasoning or outcome of the holding, the ruling inadvertently mischaracterized the nature of ad valorem duty calculations. On July 5, 2024, this office issued a corrected ruling HQ H326262 to remove the mischaracterization and made a final attempt to seek confirmation from the Company that its confidentiality request had been honored. As the Company did not raise any confidentiality concerns, this office published HQ H326262 onto the Customs Rulings Online Search System (“CROSS”). Subsequently, the Company argued it had not been granted its right to a meeting in the event of a denial of its ruling request, despite no such meeting request being sought in its ruling request and despite the meeting held on March 20, 2024. Nevertheless, on August 7, 2024, this office met in person with the Company and confirmed that no issues of confidentiality existed. At that meeting, the Company made several clarifying statements with regard to its original ruling request. This office encouraged the Company to put those statements in writing and clarify whether it was seeking a reconsideration of HQ H326262. On August 16, 2024, the Company submitted a formal request for reconsideration of HQ H326262. The Company’s reconsideration request contains a section called “August 7 Meeting – Agreement in Principle.” This section asserts that “common understanding” was reached on several points. For purposes of ensuring an accurate record, this office emphasizes that no such “common understanding” was reached and will, instead, fashion the “ag

Whether the holding in HQ H305251 (“Mercedes”) would similarly apply to the prospective drawback claims proposed in the ruling request.In HQ H305251 (Dec. 10, 2021), CBP evaluated the drawback eligibility of vehicles manufactured within a FTZ with foreign and domestic status components. CBP concluded that when such vehicles are exported directly from a FTZ, given that only the domestic status components are eligible for drawback, “[t]he amount of duty refund claimed upon the submission of a drawback entry must therefore be limited to the value of the domestic status components within the exported vehicles.” HQ H305251 (Dec. 10, 2021) (citing 19 C.F.R. § 190.51(a)(2)(vii)). Consequently, a drawback claim on such vehicles required “the deduction of all foreign status components from the value of the manufactured and exported vehicles.” Id.The Company produces merchandise in a FTZ that contains domestic and foreign status components. According to the Company, the foreign status components are previously imported and not duty paid, while the domestic status components are either domestically produced or previously imported and duty paid. The Company seeks to claim drawback on the finished merchandise, classified under subheading 8507.60.00, HTSUS, which is withdrawn for exportation and was manufactured with foreign status components classified under subheading 8507.60.00, HTSUS. The Company does not challenge the need to deduct the value of all foreign status components from the total value of the finished and exported merchandise for purposes of properly calculating its drawback claim. Accordingly, under the facts as presented, the holding of Mercedes would similarly apply to the prospective drawback claims proposed by the Company.Whether, for purposes of calculating substituted unused merchandise drawback, the claimant can choose the unit of measure used in the per unit averaging calculation. Understanding the Company’s request requires a comprehensive understanding o