[Code of Federal Regulations]

[Title 19, Volume 2]

[Revised as of April 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 19CFR181.44]



[Page 363-365]

 

                        TITLE 19--CUSTOMS DUTIES

 

   CHAPTER I--BUREAU OF CUSTOMS AND BORDER PROTECTION, DEPARTMENT OF 

        HOMELAND SECURITY; DEPARTMENT OF THE TREASURY (CONTINUED)

 

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 

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



[[Page 364]]



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 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.



[[Page 365]]



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]