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By Tom Ferramosca,
American Drawback Service, LLC
If you are involved in filing drawback claims, either as a company or as a customs broker on behalf of clients, one of the most important sections of the Customs Regulations to be familiar with is 191.14 - Identification of Merchandise or Articles by Accounting Method. Understanding what is said is obviously important, but understanding the implications is critical as well. Unfortunately, without experience or a background in the subject it is very difficult to deduce those implications.
191.14 can be used to identify merchandise or articles in inventory or storage for 1313(j)(1) direct identification unused merchandise or to identify merchandise used in manufacture or production under the provisions of 1313(a) direct identification manufacturing drawback. This section is not applicable where substitution is authorized.
By way of practical example, a claimant who maintains a common inventory may ship unused merchandise overseas and pursue 1313(j)(2) substitution to select imports with the highest duty return, while also utilizing one of the options in this provision to meet the NAFTA requirements for direct identification of same condition merchandise going to Canada and Mexico. Arbitrarily identifying an import for payment when claiming drawback on same condition goods shipped to a North American country is prohibited.
What is often overlooked is that this section also applies to situations in the substitution statutes where substitution is not allowed. For instance, multiple substitutions are barred for articles manufactured under 1313(b) or for unused merchandise substitution, 1313(j)(2).
For example, a manufacturer who designates an import for payment under manufacturing substitution, 1313(b), and files certificates of manufacture with Customs must know from which production a subsequent export or drawback delivery came. If the situation is such that drawback articles identified on these pre-claim filed documents are withdrawn from a common inventory for export or domestic sale where such identification can't be made, then 191.14 should be used because multiple substitutions are prohibited. However, when a claim is filed that combines both production information and export data and a certificate of manufacture has not already been filed with Customs, the double substitution situation can be avoided. But these combination claims are not always the best option for every production circumstance.
The situation is similar when there is a designation for payment under the provisions of 1313(j)(2) for unused merchandise and there is a subsequent delivery to another company that stores in a common inventory. That company either must know from which receipt they are exporting or use an authorized accounting method.
There are five specific conditions that must be met in order to use 191.14. These are:
- The lots or articles must be fungible - that is, for commercial purposes they must be identical and interchangeable in all situations.
- The merchandise or articles must be received and withdrawn from the same inventory. Different locations are allowed but the goods must be treated as if in the same inventory in the normal course of business. If they are treated separately, the different inventories may not be accounted for together.
- Unless otherwise provided for in a subsection of 191.14, all receipts into, and all withdrawals from, inventory must be recorded.
- Customs may verify that all of these receipts and withdrawals are being accounted for. Simply put, falling short of the standard means you are substituting.
- The accounting method used for drawback purposes must be used without variation with another method for at least one year, unless Customs approves a shorter period.
Tom Ferramosca is President of American Drawback Service, LLC.
American Drawback Service is a Custom House Broker and is part of the American Companies.
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