Hands off drawback
The U.S. Treasury and Homeland Security departments want to do away with the long-time industry practice of filing substitution drawback claims under 19 U.S.C. 1313(j)(2) (unused merchandise substitution drawback) to recover internal revenue excise taxes.
Treasury's Alcohol and Tobacco Tax and Trade Bureau, and Homeland Security's Customs and Border Protection proposed rules on Oct. 15 to preclude this activity. Since then, comments from the industry and Capitol Hill lawmakers have poured into the agencies.
Duty drawback, which allows customs duties paid on imported goods to be refunded when the imported good or a substituted good is exported from the United States, has been an element of customs rules since the days of the founding fathers. The latest proposed regulatory action by TTB and CBP aims to redefine substitution drawback for unused duty-bearing imports that end up as part of equivalent exports, an important aspect in the production and export viability of certain U.S.-manufactured chemicals, petroleum products, tobacco and wine.
In 2004, Congress reaffirmed the program scope in response to a court ruling that would have limited eligibility for drawback to charges tied to the imports. The lawmakers amended the drawback provision (19 USC 1313(j)) to make clear that the law allows for drawback of any duty, tax or fee imposed under federal law, and reflect Congress' intent to overturn the court ruling.
'The proposed (TTB and CBP) rulemakings seem to run counter to the current statutory scheme,' warned a group of 10 senators in an Oct. 30 letter to the treasury and homeland security secretaries. 'Moreover, if these proposals were to take effect, many U.S. businesses' export programs would be significantly undercut.'
The senators, hailing from wine producing states such as California, Oregon, Washington and New York, claim to represent more than 3,500 wineries that produce 98 percent of the nation's wine. They also cited that the value of U.S. wine exports has doubled in the past 10 years to more than $1 billion by 2008. Wine exporters stand to suffer the most if the rule is enacted.
'An agency cannot change by regulation a clearly articulated statutory right,' the senators said. 'In this instance, the law unequivocally provides for the drawback of any duty, tax or fee imposed under federal law on the entry or importation of imported merchandise upon the subsequent exportation of substitution merchandise.
'CBP and TTB have offered no viable justification for attempting to reinterpret the current statutory drawback scheme, and we respectfully request that you withdraw these ill-advised proposals,' they said.
Industry groups such as the Association of American Exporters and Importers and National Customs Brokers
and Forwarders Association of America are gathering mem-bers' comments to fight the proposed regulatory change.
'Does regulation trump law? I don't think so,' said Edwin W. Van Ek, chairman of the AAEI Drawback Committee and president of C.J. Holt & Co., a drawback-filing specialist.
While the shrinking dollar value has made U.S. exports more attractive in the global marketplace in recent years, drawback remains an important competitive tool for U.S. companies still struggling to compete against low-cost production markets, such as China. 'Companies are looking for every penny that they can get back through drawback,' Van Ek said. ' Chris Gillis
FMC ruling allows OTIs to use agents
Ocean freight forwarders and non-vessel-operating common carriers will have more latitude in how they organize their businesses as a result of a court decision and recent U.S. Federal Maritime Commission order.
The November FMC order said 'it is lawful for licensed ocean transportation intermediaries to engage unlicensed persons to act as their agents to perform OTI services on behalf of the disclosed licensed OTI.'
The decision grows out of a petition made in August 2006 by Team Ocean Services, a Winnsboro, Texas-based forwarder and NVO, which asked the FMC to issue a declaratory order to clarify the permissible use of agents by OTIs. The FMC's declaratory order on Feb. 15, 2008 said 'only licensed persons are permitted to provide OTI services to the public.'
Randy Honeycutt, president of Team Ocean Services, said he could live with that original decision, but he wanted more flexibility in how he organized his business to be able to use a franchise-like model.
'What we didn't want was the cost of maintaining a local setup of buildings, phone systems, utilities, employee relationships ' all of which bring unnecessary burdens, costs and risk,' he explained. He wanted to place agents and pay them a commission, based in accordance to the amount of business they do.
After the 2008 order, Landstar System of Jacksonville, Fla. petitioned the U.S. Court of Appeals for the District of Columbia Circuit to review the FMC declaratory order in the Team Ocean matter. The appeals court reversed the FMC ruling on June 26, saying agents providing OTI services do not need to be licensed, and the FMC 'lacks authority to compel those agents to obtain licenses.'
In line with the decision, the FMC in November granted the declaratory order.
Honeycutt believes the FMC ruling will help businesses grow, and provide shippers with more choices.
He noted articles about his company's original petition 'gave the opinion that we were trying to do away with the bonds at each location. We have no intention of doing that, as we will require each location to be bonded.
'Each station will be required to follow all FMC rules and regulations, as Team Ocean Services Inc. is totally responsible for their actions. They will be required to perform all functions as Team Ocean Services as our agent and will not be utilizing their companies' name in any manner. Each station will be under an agent's agreement, specifically detailing our requirement that they adhere to FMC standards of actions. Each station will be required to have an employee with at least three years minimum experience as required by the FMC and they will be required to prove their worthiness prior to signing any agent agreements and they will be required to maintain an employee that meets our satisfaction.
'This is the way business is done today,' Honeycutt said. 'A smaller company attaches itself to a larger company and utilizes their branding, their computer systems, their contract rates, their accounting systems and their procedural systems.
'While several articles said this places the larger companies at a disadvantage, I disagree as they can create a hybrid company. They can utilize company stations where the resources justify it, and they can assign agents in smaller locations where the revenue and resources do not justify the risk of a company owned station,' he said. ' Chris Dupin