Court of International Trade Opines on Application of “Other-Other” Rule under Substitution Unused Merchandise Drawback

On January 30, 2024, the U.S. Court of International Trade (CIT) issued an opinion (Spirit AeroSystems, Inc. v. United States, slip op. 24-10) that may impact the use of substitution-based unused merchandise drawback.

Imported merchandise that is not used within the U.S. before its exportation or destruction may be eligible for a refund of duties, taxes and fees known as drawback (“unused merchandise drawback”). Under 19 U.S.C. §1313(j)(2), the refund of duties, taxes and fees is allowed when exported or destroyed merchandise is classifiable under the same 8-digit subheading as the imported merchandise (“substitution unused merchandise drawback”). However, in accordance with 19 U.S.C. §1313(j)(5), merchandise is ineligible for substitution if the article description for the 8-digit subheading begins with the term “other,” unless the imported merchandise and the exported or destroyed merchandise are classified under the same 10-digit statistical reporting number (SRN), and the article description for the 10-digit SRN does not begin with the term “other.” This is commonly referred to as the “Other-Other” rule.

The case before the CIT involved a dispute between Spirit AeroSystems, Inc. (Spirit) and U.S. Customs and Border Protection (CBP) over a drawback claim for imported plane parts. At issue was whether the prefatory language “[f]or use in civil aircraft” renders the SRN 8803.30.0030 of the HTSUS (Harmonized Tariff Schedule of the United States) eligible for substitution unused merchandise drawback. Spirit argued that the relevant items can be claimed under substitution unused merchandise drawback because they do not fall under “Other-Other” based on the preceding indented text, i.e., “[f]or use in civil aircraft.” However, CBP took the position that only the description adjacent to the 10-digit number, i.e., “[o]ther” matters. The court ruling highlighted the plain meaning rule when applying 19 U.S.C. §1313(j)(5)(B) and ultimately determined that CBP’s interpretation was correct. 

In this decision, the CIT explained that the plain meaning of 19 U.S.C. §1313(j)(5)(B)(ii) allowing substitution when the same 10-digit HTSUS SRN is used and the article description for that 10-digit HTS SRN does not begin with the term “other” refers to the words describing the article adjacent to the 10-digit number. According to the CIT, “The words ‘for that 10-digit HTS SRN’ necessarily limit the description to the words adjacent to the numbers,” “[t]he pronoun ‘that’ is singular, meaning it refers to only one item,” and “[u]nattached unifying language in the HTSUS, as prefatory language, necessarily refers to more than one 10-digit SRN where there are multiple preceding 10-digit SRNs. See, e.g., HTSUS 4418.50.00.” The court concluded that the plain language of the statute indicates the term “for that article description” can refer only to the description attached to one 10-digit HTS SRN.  Accordingly, the Court found that CBP’s interpretation of 19 U.S.C. § 1313(j) is correct, and it properly rejected Spirit’s substitution unused merchandise drawback claim.

Harmonized Tariff Schedule of the United States (2020)

Annotated for Statistical Reporting Purposes

Harmonized Tarfif Schedule of the United States (2020)

Source: Harmonized Tariff Schedule

BDO Insight

The CIT decision in Spirit AeroSystems, Inc. v. United States provides clear guidance on the legal interpretation and application of the regulations governing how the Other-Other rule may be applied in substitution unused merchandise drawback claims. It highlights the challenges companies may face in preparing drawback claims, the importance of understanding the intricacies of the statutory requirements when making such claims and underscores the need for thorough analysis, review and documentation.

There are various complex scenarios where the eligibility for substitution unused drawback claims may not be clear. In such cases, companies should consider reviewing their use and application of the Other-Other rule in drawback claims. Furthermore, the accuracy of the HTSUS classification of the merchandise should be reviewed in the event that a more accurate provision is available and not subject to the Other-Other rule for drawback purposes.

How BDO Can Help

BDO’s Customs & International Trade team can assist clients with evaluating new and existing drawback programs to support compliance and refund optimization objectives. BDO helps businesses navigate the complex rules governing cross-border product movements to minimize the risk of noncompliance and maximize opportunities for cost reduction, supporting their competitive advantage in the global marketplace.

In addition to duty drawback, our services include:

  • Tariff classification
  • Origin determination
  • Foreign trade zones
  • FTA qualification
  • Customs valuation and transfer pricing
  • Import and export compliance assessments
  • Supply chain planning
  • Customs rulings, protests and other administrative filings