US Says 5-Year Limit to Claim Drawback Starts When Goods Admitted to FTZ

The brief was filed in importer King Maker Marketing's lawsuit seeking duty drawback on 21 shipments of paper-wrapped cigarettes that were admitted into an FTZ from September 2012 to February 2014. The shipments were withdrawn from the FTZ for domestic consumption from May 2013 to September 2018 under Harmonized Tariff Schedule subheading 2404.20.80. After the goods were entered, the importer exported other cigarettes classified under the same subheading, leading the company to file claims for substitution unused merchandise drawback.

CBP denied the claims for being untimely, since they came more five years after the goods were admitted into the FTZ, though they were filed within five years of the goods being entered into the U.S. The trade court held that the phrase "date of importation" in the drawback statute, 19 U.S.C. 1313(r), refers to the date the goods were admitted into the FTZ, rather than the date the goods were entered for consumption (see 2505150038).

King Maker appealed, arguing this definition renders an "absurd and anomalous interpretation" of the drawback statute, 19 U.S.C. Section 1313(j)(2)(B) (see 2507300035). The importer opened its argument by distinguishing the concept of "importation," which the company said is an act that "causes liability for duties and taxes to attach to the imported merchandise" and subjects the imports to U.S. customs laws, from the concept of "entry," which constitutes the accounting to CBP for the imports.

In response, the U.S. said the trade court properly read the terms "imported" and "importation" to mean goods brought into the U.S. from a foreign country. The common meaning and judicial interpretation of these terms undermines King Maker's position that goods admitted to an FTZ shouldn't be viewed as imports, the brief said. The fact that goods under the Foreign Trade Zones Act aren't brought within the customs territory of the U.S. doesn't provide a context that changes the meaning of the term "importation," the U.S. argued.

Citing Garner's Modern English Usage, Black's Law Dictionary and the Supreme Court's 1923 case Cunard S.S. Co. v. Mellon, the government stressed that a good coming into the U.S. from abroad is an import.

When Congress passed the FTZ Act, it was "operating in a landscape that had already defined 'importation,'" the U.S. said. The Cunard court said the term importation "should be given its ordinary meaning: 'bringing an article into a country from the outside.'" Even King Maker acknowledges the "common meaning of importation was well known before the FTZ Act," the government said, adding that the FTZ Act doesn't have any provisions stating that goods entered into an FTZ aren't to be considered importations.

King Maker argued that in the context of FTZs, the date of importation shouldn't be used for measuring the five-year limit to claim duty drawback. The importer said CIT combined the phrases "within or adjacent to a port of entry" and "within the limits of a port in the United States" to set a new interpretation of the term "date of importation." The U.S. said this isn't so, since the trade court "simply observed that Customs’ interpretation of date of importation comports with the legislative history from 1949."

The government added that CIT's decision furthers the policy aims Congress sought to achieve. According to the drafters of the FTZ Act, the purpose of an FTZ is to "foster the dealing in foreign goods that are imported, not for domestic consumption, but for reexport to foreign markets and for conditioning, or for combining with domestic products previous to export." Thus, "American workers would benefit under the FTZ Act by working at a FTZ to repack, assemble, manipulate, or manufacture products from foreign goods imported into the zone," and U.S. companies' goods "might be similarly used in the zone" to make a new product for export.

"That Congress would want these benefits to occur within five years is not surprising," the brief said. "It does not help American workers or companies to have goods sitting in a FTZ indefinitely. If an importer wants the benefit of drawback, it needs to complete the process within five years of importation."

The U.S. also argued that the fact that merchandise is admitted into an FTZ doesn't negate the fact it has been imported at or about the time of admission into the FTZ. King Maker argued that since the law lets goods enter an FTZ without being subject to U.S. customs laws, admitting a good into an FTZ means it hasn't been imported. To support its position, the importer relied on a key CIT decision from 1993: Torrington Co v. U.S. In that case, the court said the importation process "occurs when merchandise formally enters the Customs Territory," and in the case of FTZs, "this occurs when the merchandise leaves the FTZ and enters the United States Customs Territory."

CIT specifically said King Maker "misreads Torrington," since the sentence that "immediately precedes" these quotes says the regular customs laws of the U.S. "define entry as the process of filing documentation with Customs to allow Customs to determine whether the subject merchandise should be released from Customs’ custody and, if so, what duties are due." The entire section is actually "devoted to the discussion of entry, not importation," CIT said.