TaxNewsFlash-Trade & Customs

September 19, 2007
No. 2007-139

Federal Circuit: No Drawback Available for Merchandise Exported to Canada and Mexico Under NAFTA Drawback Restriction

The U.S. Court of Appeals for the Federal Circuit today affirmed that a U.S. business was not entitled to a drawback (i.e., a refund of customs duty) on its export of goods to Canada and Mexico. The Federal Circuit held that the Court of International Trade correctly reasoned that a drawback generally is prohibited for merchandise exported to a NAFTA country (provided none of the exceptions under 19 U.S.C. section 3333(a) is met). Merck & Co., Inc. v. United States, 2006-1538 (Fed. Cir. September 19, 2007).

For an electronic version of the Federal Circuit’s opinion: Merck

Summary

In 1993, the exporter (Merck) imported 35 kilograms of famotidine to the United States from Ireland, at a duty rate of 6.9% ad valorem. During July and August 1995, Merck imported an additional 1195 kilograms of famotidine, which, pursuant to the Uruguay Round Trade Agreement, was duty-free. In 1995, Merck exported 35 kilograms of duty-free imported famotidine to Mexico and Canada.

Although the exported 35 kilograms was not the same material that was imported in 1993, Merck filed a claim for drawback seeking a refund of the duties paid for the 35 kilograms of famotidine imported in 1993. U.S. Customs denied Merck’s drawback claim. Because Merck’s merchandise was exported to Mexico and Canada, and the duty-paid imported merchandise did not meet any of the exceptions in § 3333(a), Customs determined that Merck was not entitled to a drawback.

Merck filed suit in the Court of International Trade seeking reversal of Customs’ decision. The court granted the government’s motion for summary judgment, finding that 19 U.S.C. section 1313(j)(4)(A) eliminates drawback for substitute goods exported to a NAFTA country unless the duty-paid imported merchandise is of the type listed in 19 U.S.C. section 3333(a).

The Federal Circuit affirmed.

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