Need for Cash Driving Increased Corporate Interest in Drawback
More companies are seeking drawback payments as the economic slowdown has increased the importance of cash on hand, CBP officials and industry executives said during the American Association of Exporters and Importers virtual conference Aug. 20. “In general, I would say COVID's had a major impact on our businesses and it's also made our company even more focused on getting cash in the door,” said Kathleen Palma, senior executive for international trade compliance at GE. “One of the levers that our leadership has been looking at has been drawback.” At the same time, Palma expects that because the company is bringing in fewer shipments, that will be reflected in fewer drawback claims going forward.
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The increased attention on drawback has resulted in a backlog of applications at the agency, said Michael Cerny, chief legal officer at Charter Brokerage. CBP has taken some steps to improve the review process “and we have noticed over the last few weeks that there has been a lot more movement of privileged applications, ruling applications, limited modifications,” he said. Still, there are “a lot of people out there that are waiting to get their money and to get their approvals so they can get the money.”
Janelle Cray, CBP branch chief, Drawback and Revenue Branch, confirmed that the agency has prioritized applications. “We understand the importance of accelerated payments and what it means for folks, especially for liquidity and having funds, so that's been our focus,” she said. The agency has been able to adjust “pretty quickly” to the shift to virtual work, said Maryanne Carney, CBP's New York/Newark assistant port director. “We have priority work now and the priority is to get all these applications moving,” she said.
CBP was already seeing “an influx in claims,” Cray said. That's due in part to the shift away from the paper process and into ACE, she said. CBP headquarters agrees with some in industry that “there does need to be some adjustments or agility within the programs so that things can be done more quickly,” she said. “I think that's going to take more time and we are looking at headquarters level and working with the field” to explore changes, Cray said. At the same time, “we are looked at with a fine-toothed comb, and so, we do have to be careful with some of the adjustments we may look to make to make sure we are keeping the integrity of the program,” she said.
The Section 301 tariffs have also led to growth in drawback claims, Carney said. “What's been a little frustrating to the field is that a new avenue of filers has emerged, and they don't really understand the legal or operational requirements of drawback,” she said. That and confusion around the drawback requirements related to Section 301 exclusions have meant for a lot of educating, Carney said.
CBP is in the process of making some technical changes to accept drawback claims under USMCA, even though the agency has been “pretty careful on what we're saying about” the issue because the final regulations aren't yet out, Cray said. There “was a question out there on same condition drawback claims from Canada and Mexico,” but “those you can file normally,” she said. “We haven't made a restriction on that.” Cerny said that means people can continue to file for such drawback as usual because there's currently no way to indicate whether the claim falls under USMCA or NAFTA, which was what led to the confusion. Same condition drawback represents the vast majority of drawback involving exports those countries, Cerny said.
It is more important than ever to ensure a correct classification, both on the import and on the export side, Palma said. The GE import and export data sets were historically kept separate, which meant there wasn't a lot of analysis of whether “we are importing it under the same [Harmonized Tariff Schedule heading] and exporting it under the same Schedule B,” she said. The company has since done “quite a bit of work to look at those Schedule B classifications to make sure we have a match.” That always is a worthwhile exercise for an exporter, but drawback “increased the attention on the Schedule B side,” Palma said.