[Code of Federal Regulations]
[Title 19, Volume 2]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 19CFR181.44]

[Page 358-360]
 
                        TITLE 19--CUSTOMS DUTIES
 
  CHAPTER I--UNITED STATES CUSTOMS SERVICE, DEPARTMENT OF THE TREASURY
 
PART 181--NORTH AMERICAN FREE TRADE AGREEMENT--Table of Contents
 
     Subpart E--Restrictions on Drawback and Duty-Deferral Programs
 
Sec. 181.44  Calculation of drawback.

    (a) General. Except in the case of goods specified in Sec. 181.45 of 
this part, drawback of the duties previously paid upon importation of a 
good into the United States may be granted by the United States, upon 
presentation of a NAFTA drawback claim under this subpart, on the lower 
amount of:
    (1) The total duties paid or owed on the good in the United States; 
or
    (2) The total amount of duties paid on the exported good upon 
subsequent importation into Canada or Mexico.
    (b) Individual relative value and duty comparison principle. For 
purposes of this section, relative value shall be determined, and the 
comparison between the duties referred to in paragraph (a)(1) of this 
section and the duties referred to in paragraph (a)(2) of this section 
shall be made, separately with reference to each individual exported 
good, including where two components or materials are used to produce 
one exported good or one component or material is divided among multiple 
exported goods.

    Example. Upon importation of Chemical X into the United States, 
Company A entered Chemical X and paid $2.00 in duties. Company A 
processed Chemical X into Products Y and Z, each having the same 
relative value; that is, $1.00 in duty is attributable to Product Y and 
$1.00 in duty is attributable to Product Z. Company A exported Product Y 
to Canada and Canada assessed a free rate of duty. Company A exported 
Product Z to Mexico and Mexico assessed the equivalent of US$2.00 in 
duty. There is no entitlement to drawback on the export of Product Y to

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Canada because zero is the lesser amount when compared to the $1.00 in 
duty attributable to Product Y as a result of the separation of Chemical 
X into Products Y and Z. There would be entitlement to drawback on the 
export to Mexico, consisting of the $1.00 duty attributable to Product 
Z, because that amount is the lesser amount when comparing the duty paid 
to the United States and the US$ equivalent duty paid to Mexico.

    (c) Direct identification manufacturing drawback under 19 U.S.C. 
1313(a). Upon presentation of the NAFTA drawback claim under 19 U.S.C. 
1313(a), in which the amount of drawback payable is based on the lesser 
amount of the customs duties paid on the good either to the United 
States or to Canada or Mexico, the amount of drawback refunded shall not 
exceed 99 percent of the duty paid on such imported merchandise into the 
United States.

    Example 1. Upon the importation of Product X to the United States 
from Japan, Company A paid $2.00 in duties. Company A manufactured the 
imported Product X into Product Y, and subsequently exported it to 
Mexico. Mexico assessed the equivalent of US$11.00 in duties upon 
importation of Product Y. Upon presenting a drawback claim in the United 
States, in accordance with 19 U.S.C. 1313(a), Company A would be 
entitled to a refund of 99 percent of the $2.00, or $1.98. The $2.00 
paid by Company A (less 1 percent) on the importation of Product X into 
the United States is a lesser amount of duties than the total amount of 
customs duties paid to Mexico (the equivalent of US$11.00) on Product Y.
    Example 2. Upon the importation of Product X into the United States 
from Hong Kong, Company A entered Product X and paid $5.00 in duties. 
Company A manufactured Product X into Product Y, sold it to Company B in 
Mexico and subsequently exported it to Mexico. Company A reserved its 
right to drawback. Upon Product Y's importation, Company B was assessed 
a free rate of duty. Company A's claim for drawback will be denied 
because Company A is entitled to zero drawback for the reason that, as 
between the duty paid in the United States and the duty paid in Mexico, 
the duty in Mexico was zero.

    (d) Substitution manufacturing drawback under 19 U.S.C. 1313(b). 
Upon presentation of a NAFTA drawback claim under 19 U.S.C. 1313(b), on 
which the amount of drawback payable is based on the lesser amount of 
the customs duties paid on the good either to the United States or to 
Canada or Mexico, the amount of drawback is the same as that which would 
have been allowed had the substituted merchandise used in manufacture 
been itself imported. For purposes of drawback under this subpart, the 
term ``same kind and quality'' used in Sec. 1313(b) (see 
Sec. 191.2(x)(1) of this chapter) shall have the same meaning as the 
term ``identical or similar good'' used in Article 303 of the NAFTA 
except that there shall be no requirement that the good be manufactured 
in the same country.

    Example 1. Upon importation of Product X from Japan to the United 
States, Company A paid $5.00 in duties. Company A substituted a same 
kind and quality domestic Product X for the Japanese Product X in its 
production of Product Y under its 19 U.S.C. 1313(b) drawback contract. 
Company A sold Product Y to Company B which subsequently exported it to 
Canada. On the importation of Product Y by Company B, Company B paid the 
equivalent of US$2.00 in duties assessed by Revenue Canada and waived 
its right to drawback to Company A. Company A is entitled to obtain 
drawback under 19 U.S.C. 1313(b) in the United States in the amount of 
$1.98 (or 99 percent of the US$2.00 equivalent Company B paid in duty to 
Canada) since that $2.00 was the lesser of the total amount of customs 
duties paid on the product to either Canada or the United States.
    Example 2. Same facts as above example, but Company B paid the 
equivalent of US$5.00 to Revenue Canada. Company A is entitled to obtain 
$4.95 in drawback (a refund of 99 percent of $5.00 paid to the United 
States). Since the same amount of duty was assessed by each country, 
drawback is allowable because the drawback paid does not exceed the 
lesser amount paid.

    (e) Meats cured with imported salt. Meats, whether packed or smoked, 
which have been cured with imported salt may be eligible for drawback in 
aggregate amounts of not less than $100 in duties paid on the imported 
salt upon exportation of the meats to Canada or Mexico (see 19 U.S.C. 
1313(f)).

    Example. Company Z produced Virginia smoked ham on its Smithfield, 
Virginia farm, using 4,000 pounds of imported salt in curing the meat. 
The salt was imported from an HTSUS Column 2 country, with a duty of 
$200. Upon exportation of the hams to Mexico, Company Z pays the 
equivalent of US$250.00 in duties to Mexico. Company Z is entitled to 
drawback of the full 100 percent of the $200.00 in duties it paid on the 
importation of the salt into the United States because that $200.00 is a 
lesser amount than the

[[Page 360]]

total amount of customs duties paid to Mexico on the exported meat.

    (f) Jet aircraft engines. A foreign-built jet aircraft engine that 
has been overhauled, repaired, rebuilt, or reconditioned in the United 
States with the use of imported merchandise, including parts, may be 
eligible for drawback of duties paid on the imported merchandise in 
aggregate amounts of not less than $100 upon exportation of the engine 
to Canada or Mexico (19 U.S.C. 1313(h)).

    Example. A Swedish-made jet aircraft engine is repaired in the 
United States using imported parts from Korea on which $160.00 in duties 
have been paid by Company W. The engine is subsequently exported to 
Canada by Company W and Company W pays the equivalent of US$260.00 in 
duties to Canada. Upon showing the country in which the engine was 
manufactured and a description of the processing performed thereon in 
the United States on Customs Form 7551, appropriately modified, Company 
W is entitled to the full refund of the duties paid to the United States 
since that $160.00 was a lesser amount than the duties paid on the 
engine to Canada.

    (g) Unused goods under 19 U.S.C. 1313(j)(1) that have changed in 
condition. An imported good that is unused in the United States under 19 
U.S.C. 1313(j)(1) and that is shipped to Canada or Mexico not in the 
same condition within the meaning of Sec. 181.45(b)(1) may be eligible 
for drawback under this section, except when the shipment to Canada or 
Mexico does not constitute an exportation under 19 U.S.C. 1313(j)(4).

    Example. Upon importation of Product X from Spain to the United 
States, the U.S. importer pays $10.00 in duties. While in the original 
package in the importer's warehouse, Product X becomes damaged. A 
Canadian purchaser buys Product X and imports it into Canada and pays 
the equivalent of US$5.00 in duties assessed by Revenue Canada. The 
Canadian purchaser who exported Product X from the United States to 
Canada and who otherwise qualifies for drawback is entitled to drawback 
under 19 U.S.C. 1313(j)(1) in the amount of $4.95 (99 percent of the 
US$5.00 equivalent in duties paid to Canada). Eligibility for full 
drawback of the $10.00 in U.S. duties under Sec. 181.45(b) would be 
precluded because Product X, although unused, was not exported to Canada 
in the same condition as when imported into the United States within the 
meaning of Sec. 181.45(b)(1).

[T.D. 95-68, 60 FR 46364, Sept. 6, 1995, as amended by T.D. 98-16, 63 FR 
11005, Mar. 5, 1998]