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Here are a few words of clarification for those filing or wishing to file Same Condition Drawback claims based on exports to Canada or Mexico after January 1, 1994.
NAFTA eliminated Same Condition Substitution drawback to Canada and Mexico. The name "Same Condition Substitution" was changed to "Unused Substitution" and applies to non-NAFTA countries.
The only Same Condition drawback allowed to Canada and Mexico for exports occurring on or after January 1, 1994 is direct identification.
There seems to be much controversy regarding how the same condition direct identification matching can be done. Much of this controversy was brought on by Customs themselves by not divulging the same information to everyone at the onset of this change. As it stands today, direct identification must be done by one of two different methods: explicit direct-i.d. and complete inventory tracking based on accounting methods.
Explicit direct-i.d. matching is, as the name implies, very explicit and precise on an item-by-item basis. Imported items must be directly matched to exports by a serial number or by another type of lot, box, crate or applicable unique identifier when serial numbers either do not exist or are not usable from the standpoint of practicality.
Complete inventory tracking is the only other method allowed. For some companies, this can be easier than explicit matching. Though this method involves the tracking of domestic sales as well as export sales and domestic receipts as well as import receipts it can be accomplished without great difficulty. The important factor in this method is the factoring in of domestic items. Even if all receipts are imported, Customs still wants filers to factor in domestic sales so all inventory is accounted for. This type of tracking should also be done based on an approved accounting basis such as FIFO (first-in, first-out).
Even if all receipts are of imported origin and as a consequence all exports are of imported origin, Customs is still taking the position that all sales, both domestic and export need to be tracked. What some filers are hoping for is to have the ability to file on a FIFO basis but not factor in domestic items. Customs has said that this will not be allowed. This Foreign-in Foreign-out concept does not meet their requirements.
If Canadian or Mexican same condition direct identification drawback is of value to your company, we have software to create the claims based on an approved Customs methodology. Though seldom used for years due to the popularity of substitution rules, we have had the ability to create claims based on these methods since 1981 when same condition was first allowed, and our software includes the change to "unused."
A trend of late being used by some drawback consultants is a diversion and outright scare tactic based on the same condition and unused changes as of January 1994. These people are preying upon drawback filers stating that all same condition substitution claims filed since January 1994 are fraudulent. The problem with this misinformation is twofold. First of all it presents the claimant with a negative impression of the drawback and brokerage business in general. Second and most importantly, the statement is so untrue as to be absurd. Customs has not allowed same condition substitution claims to be filed since "Unused Substitution" took its place. These people are trying to create alarm by selective presentation of facts mentioned above, namely that same condition substitution is no more, while omitting the fact that it was generally replaced with unused substitution. Moreover, same condition is still in use, and is in fact required (although limited to direct identification) on exports to Canada and Mexico.
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