HQ H284687 April 27, 2017

DRA-2-02 OT:RR:CTF:ER H284687 KF

U.S. Customs and Border Protection Port of Houston 2350 North Sam Houston Parkway, East Suite 1000 Houston, TX 77032

Attn: Deidra Golden, Drawback Specialist

Re: Application for Further Review of Protest No. 5309-16-100169; Jana Brands Worldwide; transporting merchandise in-bond; 19 C.F.R. § 191.35(d); 19 C.F.R. § 18.7; 19 C.F.R. § 191.51(a)(1); 19 C.F.R. § 191.72. Dear Port Director: This is in response to the application for further review (“AFR”) of protest number 5309- 16-100169 (“protest”) forwarded to our office on March 14, 2017. We have considered the points raised by your office and the protestant, Jana Brands Worldwide (“JBW”). Our response follows. FACTS: JBW is an importer of tuna in pouches from Thailand, of which 42 entries were barred by the United States Food and Drug Administration. JBW decided to export its barred entries. Intending to file unused merchandise drawback claims pursuant to 19 U.S.C. § 1313(j)(1), JBW submitted United States Customs and Border Protection (“CBP”) Form 7553s for the entries it sought to export pursuant to 19 C.F.R. § 191.35(a). For two entries located in the Port of Chicago, CBP decided to conduct an examination of the merchandise in September of 2015, prior to its exportation. A CBP Officer noted that he had examined “all merchandise…and verified against entry documents.” JBW decided to export these examined entries from the Port of Los Angeles. Pursuant to 19 C.F.R. § 191.35(d), if merchandise will be exported from a port other than the port in which it was examined, the merchandise must be transported in-bond to its port of exportation. JBW acknowledges that CBP Form 7512 is required by CBP to effect transportation of merchandise in-bond pursuant to 19 C.F.R. § 191.35(d). In awareness of this requirement, JBW utilized the services of a brokerage company to submit CBP Form 7512s for both entries. JBW alleges the Port of Chicago instructed the brokerage company not to electronically submit the CBP Form 7512s, and requested that the forms be submitted manually to CBP. JBW alleges the brokerage company “followed these instructions and did not enter the [CBP Form] 7512s electronically.” JBW alleges that its brokerage company manually submitted CBP Form 7512s for both entries to the Port of Chicago, entered for Transportation & Exportation (“T&E”). None of the CBP Form 7512 copies submitted by JBW as part of its protest documentation are signed by a CBP officer. The two entries were transported by truck from the Port of Chicago to the Port of Los Angeles, then exported by vessel from the Port of Los Angeles in September of 2015. JBW subsequently submitted a drawback application for both entries with the Port of Houston. The entries were liquidated on February 12, 2016, without the benefit of drawback pursuant to your office’s determination that the subject merchandise was not properly transported in-bond. Your office states that no CBP Form 7512s were submitted for these entries, either electronically or manually, such that no bond movement was approved by CBP. In consequence, neither the Port of Chicago nor the Port of Los Angeles ever received or reviewed the CBP Form 7512s. Your office concluded that failure to transfer the subject merchandise in-bond by duly submitting CBP Form 7512s prevents JBW from satisfying all of the regulatory requirements for drawback eligibility, and JBW’s drawback claim was denied. ISSUE: Whether failure to transport merchandise in-bond with a duly submitted CBP Form 7512 precludes satisfaction of the regulatory requirements for drawback eligibility. LAW AND ANALYSIS: As an initial matter, we find that this protest meets the criteria for further review. We find that, pursuant to 19 U.S.C. § 1514(c)(3)(B), this protest was timely filed on August 8, 2016, within 180 days of the decision by your office, on February 12, 2016, to deny JWB’s drawback claims. Pursuant to 19 U.S.C. § 1514, a protestable issue was raised by challenging a decision by CBP. Pursuant to 19 C.F.R. § 174.24(b), this protest qualifies for further review because it involves a question of law which has not previously been ruled upon. Drawback may be granted, pursuant to 19 U.S.C. § 1313(j)(1), on imported duty-paid merchandise that is exported, or destroyed under CBP supervision, within five years from the date of importation, so long as the merchandise remains unused prior to its exportation or destruction. To administer drawback benefits under 19 U.S.C. § 1313, Congress vested CBP with rulemaking authority because “Congress anticipated the need for specific rules and regulations to be devised in order to assure proper entitlement to statutory benefits.” See Graham Engineering Corp. v. United States, 510 F.3d 1385, 1389 (Fed. Cir. 2007) (finding that CBP has the authority to specify conditions for satisfying substantive drawback requirements). Acting with due authorization from Congress, CBP has promulgated regulations within Chapter 19 of the Code of Federal Regulations (“CBP Regulations”) that specify conditions for receipt of drawback benefits. Id. The regulations applicable to merchandise intended to be exported for purposes of drawback under 19 U.S.C. § 1313 may be found, in part, in 19 C.F.R. § 191.35, which requires CBP to be given notice of a prospective exportation so that CBP may examine the merchandise to verify its identity and condition. See HQ 230089 (May 26, 2004). Additionally, if CBP examines merchandise intended to be exported “at a port other than the port of actual exportation, [19 C.F.R. § 191.35(d) requires that] the merchandise shall be transported in-bond to the port of exportation.” Pursuant to 19 C.F.R. § 113.11, in order for merchandise to be transported in-bond, a bond application must be filed with and approved by a port director. After a bond is obtained for a transaction, a transportation entry on a CBP Form 7512 must be filed with, received by, and approved by CBP to authorize the entry of the subject merchandise and its movement within the United States. See Customs Directive 3240-036A (August 7, 2003); 77 Fed. Reg. 1062 (February 22, 2012) (“in-bond merchandise may be transported through the United States… provided the carrier or other appropriate party obtains a bond and files a transportation entry on a CBP Form 7512”). The function of CBP Form 7512 is to enable CBP to supervise the lading of merchandise that must be transported in-bond, and to track its movement throughout the United States. See 19 C.F.R § 18.2(a)(2), § 18.8(a); Customs Directive 3240-036A. Pursuant to 19 C.F.R. § 18.20(a), CBP Form 7512 is required for T&E movement of merchandise by bonded carrier that is not covered by carnet. Failure to submit a CBP Form 7512 at the port of transportation, in this instance the port of examination, thereby constitutes an unauthorized importation of merchandise for purposes of exportation. See 19 C.F.R. § 18.20(a). Pursuant to 19 C.F.R. § 18.7(a), within two working days of merchandise required to be transported in-bond arriving at the port of exportation, the carrier must submit the accompanying in-bond document to the port director as notice that the merchandise has arrived. See e.g. 19 C.F.R. § 18 (the provisions of § 18 repeatedly refer to CBP Form 7512 as the in-bond document required for merchandise being transshipped through the United States absent the cover of a carnet). The function of this notice, as explained in 19 C.F.R. § 18.7(b), is to give the port director the ability to supervise the merchandise being laden for exportation. Another function of this notice is explained in 19 C.F.R. § 18.8(a), as providing CBP with “acceptable proof of proper delivery of bonded merchandise to… the port of...exportation [through] a properly receipted copy of the in-bond document (the appropriate Customs Form 7512…).” Failure to submit CBP Form 7512 at the port of exportation constitutes an irregular delivery or an improper transportation in-bond due to failure to abide by CBP Regulations. See 19 C.F.R. § 18.7(a). JBW does not dispute your office’s finding that it failed to submit CBP Form 7512s for the two entries electronically. JBW’s allegation that they manually provided CBP Form 7512s to the Port of Chicago is disproved by the copies of the forms JBW provided, which were never signed by a CBP officer as proof of receipt. See HQ 227944 (October 22, 2001) (finding that unsigned CBP Form 7512s indicated the forms were not received by CBP). Due to JBW’s failure to submit CBP Form 7512s for the protested entries, it failed to transport merchandise in-bond as required by CBP Regulations. As the Customs Court has long held, compliance with CBP regulations is a condition precedent for obtaining their benefits; therefore, we find that JBW has not satisfied 19 C.F.R. § 191.35(d) and is thereby impeded from obtaining the benefit of drawback because it failed to comply with all applicable regulations for transporting merchandise in-bond. See MacNichol Packing Co. v. United States, 14 Ct. Cust. 400, 403 (Ct. Cust. App. 1927); see also United States v. Lockheed Petroleum Services, Inc., 709 F.2d 1472, 1476 (Fed. Cir. 1983) (holding that receipt of drawback benefits is “expressly conditioned, by statute, upon compliance with rules and regulations”); and HQ 227944 (“[d]rawback claimants must strictly adhere to the requirements set forth in the statutes and applicable regulations”). JBW contends that failure to transport merchandise as required by CBP Regulations does not preclude a finding that JBW has nevertheless “satisfied all of the statutory requirements for drawback.” JBW additionally contends, citing to Hitachi Home Electronics (America), Inc. v. United States, 661 F.3d 1343 (Fed. Cir. 2011), that despite the plain language of 19 C.F.R. § 191.35(d), “the regulation…does not require that the merchandise be transported in-bond because the regulations fails to state a consequence for non-compliance.” We address each argument in turn. JBW identifies the provisions of 19 U.S.C. § 1313(j)(1) as the statutory and sole requirements for drawback eligibility. JBW argues that if these requirements are satisfied, duties, taxes, and fees “shall” be refunded by CBP without discretion or imposition of additional requirements. We note that JBW contravenes its own argument by acknowledging that submitting a notice of intent to export is a regulatory condition for drawback eligibility pursuant to 19 C.F.R. § 191.35(a-c). More significantly, JBW’s narrow interpretation of the requirements for drawback eligibility is contravened by CBP’s authority from Congress to promulgate additional conditions for obtaining drawback benefits. See Graham Engineering Corp. v. United States, 510 F.3d at 1389 (“the rulemaking authority vested in [CBP]… explicitly conditions allowance of the benefits of section 1313 on compliance with regulations [CBP] has prescribed”) (upholding CBP’s requirement of a notice of intent to export, which is not discussed within the statutory provisions of 19 U.S.C. § 1313(j)(1), as a prerequisite to obtaining drawback benefits); HQ 227944 (“the right to recover drawback ripens only when all provisions of the statute and applicable regulations prescribed by [CBP] under its authority have been met”) (citing Guess? Incorporated v. United States, 944 F.2d 855, 857 (Fed. Cir. 2001) (finding that the implementing regulations for a statute serve to define or identify what the statute requires)). We thus find that satisfaction of the statutory requirements for drawback specified in 19 U.S.C. § 1313(j)(1) alone is insufficient to establish drawback eligibility. We find that drawback eligibility requires satisfaction of both the statutory requirements specified in 19 U.S.C. § 1313(j)(1), and the applicable regulatory requirements specified in CBP Regulations. JBW’s additional contention is based on Home Electronics (America), Inc. v. United States, 661 F.3d 1343 (2011) (hereinafter Hitachi), which affirmed Hitachi Home Elecs., Inc. v. United States, 34 C.I.T. 488 (Ct. Int'l Trade 2010). JBW interprets Hitachi as holding that if a CBP regulation fails to specify a consequence for non-compliance with its terms, the regulation is non-mandatory. The Hitachi court expressly stated that CBP’s failure to comply with a regulatory deadline, for which no consequence was specified, did not allow for the imposition of an automatic consequence by operation of law. Id. at 1350. The Hitachi holding is therefore irrelevant to the present case. Underpinning JBW’s reliance on Hitachi is a determination that no consequence for failure to comply with the transportation in-bond requirement of 19 C.F.R. § 191.35(d) is specified within CBP Regulations. To the contrary, we find that the consequence for non- compliance is specified in 19 C.F.R. § 191.52(a). Pursuant to 19 C.F.R. § 191.52(a), CBP shall reject a drawback claim determined to be incomplete for failure to satisfy the requirements of 19 C.F.R. § 191.51(a)(1). Pursuant to 19 C.F.R. § 191.51(a)(1), “evidence of exportation” is required for a complete drawback application. Evidence of exportation consists of “documentary evidence that must fully establish the date and fact of exportation.” See 19 C.F.R § 191.72. Pursuant to 19 C.F.R. § 18.8(a), “a properly receipted” CBP Form 7512 is unambiguously required as acceptable proof of delivery of merchandise to the port of exportation if the in-bond movement constitutes an irregular delivery. An irregular delivery occurs, as in this case, when CBP Form 7512 is not presented at the port of exportation and the port director is denied the ability to supervise the subject merchandise being laden for exportation. See 19 C.F.R. § 18.7(a-b). Accordingly, an irregular delivery denies CBP the documentary evidence needed to fully establish that the goods it examined at a port were the same goods laden for exportation at a different port. See 19 C.F.R § 18.7(b); United States v. C.H. Robinson Co., 880 F. Supp. 2d 1335, 1337 (Ct. Int'l Trade 2012) (“CBP's regulatory scheme for T&E entries is designed to ensure that merchandise destined to a foreign port of entry is, in fact, exported”); HQ 228541 (April 5, 2000) (finding that the purpose of the transportation in-bond requirement is to “retain the identity of the merchandise examined by Customs in one port…[and assure CBP that] the same merchandise [is later] exported”); HQ 227944 (denying drawback because absent signed CBP Form 7512s, the applicant lacked sufficient records to establish the fact exportation, as required by 19 C.F.R § 191.72). We therefore find that due to JBW’s failure to transport the protested entries in-bond by duly submitting CBP Form 7512s, the fact of their exportation cannot be fully established as required by 19 C.F.R § 191.72 and 19 C.F.R. § 191.51(a)(1). Due to the incomplete drawback application submitted by JBW for the protested entries, your office properly denied JBW’s drawback claim as required by 19 C.F.R. § 191.52(a). HOLDING: JWB’s drawback claims were properly denied and protest number 5309-16-100169 should be DENIED in full. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Sixty days from the date of the decision, the Office International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director Commercial and Trade Facilitation Division