Duty Drawback, TFTEA, and Administrative Delay
Tobacos de Wilson, Inc., et al. v. United States, et al. is an effort to force Customs to apply amended drawback law after the statutory deadline but before Treasury has completed the regulatory process. It is pretty in the weeds but is important to drawback claimants. In the bigger picture, it is a good example of using the Courts to ensure that administrative agencies are meeting congressional mandates for action.
The Trade Facilitation and Trade Enforcement Act of 2015 (known awkwardly as "TFTEA," which is pronounced "tiff-TEE-ah" in my office) made three important changes to the duty drawback law. Those changes, intended to make drawback less cumbersome, include: a change to the standard for substitution manufacturing drawback; a change to the test for commercial interchangeability for substitution unused merchandise drawback; and an expansion of the period for filing drawback claims.
Under the law, Treasury (remember, drawback is all about the money) had two years to pass regulations implementing TFTEA. That two-year period expired on February 24, 2018 without implementing regulations. Apparently, a draft Notice of Proposed Rule Making is been sent to Office of Management of Budget for review. Under the statute, starting February 24, 2018, drawback claimants can elect to proceed under the pre-amendment version or under the TFTEA.
On February 5, 2018, Customs and Border Protection published a Guidance Document (the link goes to Version 3)stating that it would not apply the TFTEA until the pending regulations are fully promulgated. That guidance also included restrictions on drawback not included in the TFTEA. Among those restrictions is the denial of accelerated disposition for TFTEA claims pending the new regulations.
The first question, as is always the case, is whether the Court of International Trade had jurisdiction to hear this challenge to CBP's Guidance Document. The Administrative Procedure Act, 5 USC 702, gives individuals a means to challenge a final agency action. But, it is not a jurisdictional statute. Some other statute must grant the court hearing the case the authority to do so. In this case, jurisdiction is based on 28 USC 1581(i)(4), which gives the Court of International Trade exclusive jurisdiction over "civil actions commenced against the United States, its agencies, or its officers, that arise out of any law of the United States providing for administration and enforcement with respect to, among other things import revenue collection. According to the Court, the Guidance Document, which is an operative statement of CBP policy and details how drawback claims are to be processed, is a final agency action subject to review. Consequently, this case is properly before the CIT.
Thus, under the APA, the question to be resolved is whether the policy stated in the Guidance Document is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or is without observance of procedure required by law.
Plaintiffs' first and second counts relate the allegation that the Guidance Document illegally limits a claimant's rights to accelerated payment. Accelerated payment of drawback claims is a regulatory provision that does not depend on the drawback statute, either pre- or post-TFTEA. See 19 CFR 191.92. Under the Guidance Document, CBP would continue to grant accelerated payment for claims filed under the old law but would decline accelerated payment for claims filed under TFTEA. According to plaintiffs, this is inconsistent with the regulations, especially 19 CFR 191.0, which states generally that the regulations apply to all drawback claims. Plaintiffs' reading of that makes it applicable to TFTEA claims as well.
The Court of International Trade rejected that argument. According to the Court, TFTEA requires Treasury to determine the calculation methods to be applied to refunds. Those methods will be determined in the regulations. Thus, for claims filed under TFTEA, the law requires a determination as to methodology that has not yet occurred. The regulation, therefore, is inconsistent with the statute and is invalid when applied to a TFTEA claim.
Plaintiffs also challenged two limitations on TFTEA drawback claims: the "first-filed" and "mixed use" rules. The first-filed rule means that the first claim made relating to a line on an entry will dictate the type of drawback available to be applied to the remaining merchandise on the line. This can limit the drawback available to claimants if, for example, some of the merchandise was first claimed on the basis of direct identification. All subsequent claims for that entry line must also be based on the direct identification method. Under the mixed use rule, claimants must identify entry lines that are subject to both pre-TFTEA and TFTEA claims. Under the most recent Guidance Document, CBP will accept these claims, but not process them until the regulations are passed.
Because CBP will not be enforcing these rules until the regulations are in place, the Court found these claims to be moot.
Plaintiffs next argued that the deadline for implementing regulations was mandatory and that the government's failure to comply entitles Plaintiffs to relief. The Court agreed that the deadline in the statute s clear and mandatory. Plaintiffs and other claimants are being deprived of benefits Congress intended to be in place by now. This, according to the Court, is a violation of the law.
The question is what to do about that violation? The Court had already ruled that the plaintiffs do not have a right to accelerated payment under TFTEA. Consequently, it refused to order it. The Court also found that it was not yet necessary to order Treasury to complete the regulatory process by a date certain. Instead, the Court ordered that if the government did not complete the process by July 5, 2018, the Court would consider imposing a deadline. [Note, this opinion was issued on June 29, 2018.] On top of that, the Court noted its willingness, if necessary, to craft further relief to ensure that the benefits of TFTEA are not lost due to administrative delay.
The Trade Facilitation and Trade Enforcement Act of 2015 (known awkwardly as "TFTEA," which is pronounced "tiff-TEE-ah" in my office) made three important changes to the duty drawback law. Those changes, intended to make drawback less cumbersome, include: a change to the standard for substitution manufacturing drawback; a change to the test for commercial interchangeability for substitution unused merchandise drawback; and an expansion of the period for filing drawback claims.
Under the law, Treasury (remember, drawback is all about the money) had two years to pass regulations implementing TFTEA. That two-year period expired on February 24, 2018 without implementing regulations. Apparently, a draft Notice of Proposed Rule Making is been sent to Office of Management of Budget for review. Under the statute, starting February 24, 2018, drawback claimants can elect to proceed under the pre-amendment version or under the TFTEA.
On February 5, 2018, Customs and Border Protection published a Guidance Document (the link goes to Version 3)stating that it would not apply the TFTEA until the pending regulations are fully promulgated. That guidance also included restrictions on drawback not included in the TFTEA. Among those restrictions is the denial of accelerated disposition for TFTEA claims pending the new regulations.
The first question, as is always the case, is whether the Court of International Trade had jurisdiction to hear this challenge to CBP's Guidance Document. The Administrative Procedure Act, 5 USC 702, gives individuals a means to challenge a final agency action. But, it is not a jurisdictional statute. Some other statute must grant the court hearing the case the authority to do so. In this case, jurisdiction is based on 28 USC 1581(i)(4), which gives the Court of International Trade exclusive jurisdiction over "civil actions commenced against the United States, its agencies, or its officers, that arise out of any law of the United States providing for administration and enforcement with respect to, among other things import revenue collection. According to the Court, the Guidance Document, which is an operative statement of CBP policy and details how drawback claims are to be processed, is a final agency action subject to review. Consequently, this case is properly before the CIT.
Thus, under the APA, the question to be resolved is whether the policy stated in the Guidance Document is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or is without observance of procedure required by law.
Plaintiffs' first and second counts relate the allegation that the Guidance Document illegally limits a claimant's rights to accelerated payment. Accelerated payment of drawback claims is a regulatory provision that does not depend on the drawback statute, either pre- or post-TFTEA. See 19 CFR 191.92. Under the Guidance Document, CBP would continue to grant accelerated payment for claims filed under the old law but would decline accelerated payment for claims filed under TFTEA. According to plaintiffs, this is inconsistent with the regulations, especially 19 CFR 191.0, which states generally that the regulations apply to all drawback claims. Plaintiffs' reading of that makes it applicable to TFTEA claims as well.
The Court of International Trade rejected that argument. According to the Court, TFTEA requires Treasury to determine the calculation methods to be applied to refunds. Those methods will be determined in the regulations. Thus, for claims filed under TFTEA, the law requires a determination as to methodology that has not yet occurred. The regulation, therefore, is inconsistent with the statute and is invalid when applied to a TFTEA claim.
Plaintiffs also challenged two limitations on TFTEA drawback claims: the "first-filed" and "mixed use" rules. The first-filed rule means that the first claim made relating to a line on an entry will dictate the type of drawback available to be applied to the remaining merchandise on the line. This can limit the drawback available to claimants if, for example, some of the merchandise was first claimed on the basis of direct identification. All subsequent claims for that entry line must also be based on the direct identification method. Under the mixed use rule, claimants must identify entry lines that are subject to both pre-TFTEA and TFTEA claims. Under the most recent Guidance Document, CBP will accept these claims, but not process them until the regulations are passed.
Because CBP will not be enforcing these rules until the regulations are in place, the Court found these claims to be moot.
Plaintiffs next argued that the deadline for implementing regulations was mandatory and that the government's failure to comply entitles Plaintiffs to relief. The Court agreed that the deadline in the statute s clear and mandatory. Plaintiffs and other claimants are being deprived of benefits Congress intended to be in place by now. This, according to the Court, is a violation of the law.
The question is what to do about that violation? The Court had already ruled that the plaintiffs do not have a right to accelerated payment under TFTEA. Consequently, it refused to order it. The Court also found that it was not yet necessary to order Treasury to complete the regulatory process by a date certain. Instead, the Court ordered that if the government did not complete the process by July 5, 2018, the Court would consider imposing a deadline. [Note, this opinion was issued on June 29, 2018.] On top of that, the Court noted its willingness, if necessary, to craft further relief to ensure that the benefits of TFTEA are not lost due to administrative delay.
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