CBP Should Consider Tariff Schedule Superior Text in Substitution Drawback, Lawsuit Says

CBP’s interpretation of the drawback statute and programming of its ACE Drawback Module led to an "absurd" rejection of substitution unused merchandise drawback eligibility for an importer of civil aviation equipment that disregards the basic structure of the tariff schedule, Spirit Aerosystems said in a March 24 motion for summary judgment at the Court of International Trade (Spirit Aerosystems v. U.S., CIT # 20-00094).

Spirit said CBP’s implementation of the Trade Facilitation and Trade Enforcement Act drawback rules in the ACE Drawback Module means that a 10-digit Harmonized Tariff Schedule subheading is ineligible for drawback when the term "other" appears next to its corresponding 8-digit subheading and to the 10-digit subheading, "even if there may be additional article description language in between the 8-digit subheading and the 10-digit" subheading. Since the HTS operates as a tabular hierarchy based on indentation, there is no requirement that article description language be on the same line as a particular tariff number to be part of the “article description” for that subheading, Spirit said.

The case has the potential to "certainly shake up the industry," Margo VanHeusden, president of customs consultancy Comstock & Theakston, told us, adding that the opinion could involve "a change in interpretation of what we understand is CBP's stance on what are eligible or not eligible HTS numbers for this type of drawback. VanHeusden said any guidance from the court would be “appreciated by the industry to have that precedent to stand on for our claimants so that we can then analyze what the opportunities are and pursue the optimal recoveries for them."

The aircraft parts for which Spirit sought drawback were imported in January 2018 and classified under the now-defunct 10-digit HTS subheading 8803.30.0030, which covered "Parts of goods of heading 8801 or 8802: Other parts of airplanes or helicopters: For use in civil aircraft: Other." Importantly, the eight-digit level of the subheading covers "other parts of airplanes or helicopters;" the phrase "for use in civil aircraft" is the superior text to the 10-digit line "other."

Under 19 U.S.C. § 1313(j), substitution unused merchandise drawback can be claimed if both the imported and exported merchandise are classifiable under the same 8-digit subheading and the "article description" does not begin with the term "other," or if the merchandise is classifiable under the same 10-digit statistical reporting number and the article description for that number does not begin with "other." CBP denied Spirit's drawback claim on the merchandise, finding that it wasn't eligible for substitution for unused merchandise drawback because the article description corresponding to the 10-digit subheading said "other."

Spirit argued that the article description at the 10-digit level for goods classified under subheading 8803.30.0030 “begins with” the superior text “For use in civil aircraft.”

There is no requirement that the article description language be on the same line as a particular tariff number in order to be part of the “article description” for that subheading, Spirit said. Due to the hierarchical approach of the HTS, there may be numerous article descriptions within a tariff schedule heading, Spirit said. "Indented language in the article description column may signify the beginning or end of an article description" and is inappropriate for an automated system to simplify.

VanHeusden said that some would benefit from this interpretation, "while others will lose opportunities they are currently claiming on if CBP were to change the interpretation of eligible HTS to consider the lines in between the 8 and 10-digit subheading. We have to tread very carefully on this topic as the result of this -- or any other court case regarding eligible HTS numbers for 1313(j)(2) -- has the potential to change the landscape of drawback for this provision."

Regardless of who wins and loses, such an interpretation from the court would result in major reprogramming for both CBP and the industry. All involved parties would need to restructure their understanding of what subheadings are now subject to this type of drawback, VanHeusden said.