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FOR IMMEDIATE RELEASE: November 3, 2009

SCHUMER SLAMS FLAWED CUSTOMS' PROPOSAL TO MAKE EXPORTING NYS WINE MORE EXPENSIVE; ASKS DEPARTMENTS OF TREASURY AND HOMELAND SECURITY TO WITHDRAW PROPOSAL IMMEDIATELY

Bureau of Customs and Border Protection and Alcohol and Tobacco Tax and Trade Bureau Have Proposed Regulations Limiting Program That Has Contributed to Dramatic Increase in New York Wine Exports Over Past 10 Years

Proposed Elimination of Substitution Drawback Program Undermines Global Competitiveness of NYS Wine Exports

Exporting of NYS Wine Generates Millions Each Year and Creates jobs in Upstate and on Long Island - Schumer Says Proposal Could Have Drastic Impact

Today, U.S. Senator Charles E. Schumer urged the Treasury Department and the Department of Homeland Security to withdraw the October 15, 2009 proposals by the Bureau of Customs and Border Protection (CBP) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) that would significantly affect New York’s wine industry. The CBP and TTB have proposed changes that would repeal a program that currently provides a rebate for wine producers and distributors who export NYS wine.  Under the program, any federal tax or duty that an American vineyard or distributer pays on wine imported from another country is refunded when that same entity exports American-made wine of roughly the same value.  Current duties and taxes on wine imports total approximately $1.30 per gallon.  Under the existing drawback program, the American vineyard or distributor gets a refund of these taxes and duties if they export a similarly-valued bottle of NYS-made wine.  The refund is a significant incentive for companies to export wine to Canada and overseas, and allows them to price those bottles more competitively, boosting sales and revenue for NYS vineyards.  This incentive program is known as “substitution drawback” because vineyards and distributors are “substituting” a US-produced bottle of wine for an imported bottle of wine. 

The CBP and TTB have proposed eliminating this program which Schumer said will greatly hurt New York vineyards, an important source of economic activity in many parts of upstate and on Long Island.  Schumer has asked Treasury and DHS, the federal parent agencies of CBP and TTB, to withdraw these proposals.    

“Over the past decade, the wine industry in New York has profited greatly from the substitution drawback program,” said Schumer. “Preserving these measures will ensure the continued economic growth of the industry and level the playing field for U.S. businesses who want to grow their exports. That is why I am urging Treasury and DHS to withdraw these proposals and maintain the current drawback program.”

The value of U.S. wine exports has doubled in the past 10 years, exceeding $1 billion in 2008.  New York State is the third largest producer of wine (by volume) in the country, with over 200 million bottles produced annually, 255 wineries statewide, $420 million in sales, and 15,000 employees.  According to the United States Department of Agriculture, approximately 55 percent of wine made in New York is sold through distributors, a significant portion of which is exported to Canada.  Exports of NYS wine have grown exponentially – over 240 percent – in the past decade.  The value of exports is expected to top $45 million in 2009.  The dramatic increase in exports is due in large part to the availability of the drawback program, which allows refunds of federal taxes paid on imports when comparable merchandise is exported.

The U.S. drawback program dates back to the late 18^th century.  The rationale for drawback has always been to encourage American commerce and manufacturing.  It permits the American manufacturer to compete in foreign markets without the handicap of including in its costs, and consequently in its sales price, the duty paid on imported merchandise.  In 2004, Congress overturned an earlier federal court ruling that would have limited the types of taxes or fees eligible for drawback.  Congress amended the drawback provision at issue to make clear that the law allows for drawback of any duty, tax or fee imposed under federal law. 

In October, CBP and TTB proposed limiting drawback eligibility; however they have failed to articulate any overriding need to revisit the interpretation of the drawback law, let alone any compelling legal basis for doing so. 

The purpose of drawback is to put U.S. exporters on an equal footing with overseas competitors, and the program is vital to U.S. businesses seeking to maintain and grow their exports, particularly in these difficult economic times.  CBP and TTB have offered no viable justification for attempting to reinterpret the current statutory drawback scheme.

Schumer noted that eliminating the program would significantly undermine the health of an industry that injects billions of dollars into the U.S. economy and employs tens of thousands of American workers. 

Today, Schumer, along with 9 other Senators from the top wine-producing states, wrote to Treasury Secretary Timothy Geithner and Secretary of Homeland Security Janet Napolitano to encourage them to withdraw the CBP and TTB proposed regulations and retain the current drawback program.  Schumer warned that the­­ continued success and growth of the U.S. wine industry and U.S. wine exports is directly tied to the drawback program and that eliminating eligibility for refunds of duties and taxes on exports would restrict the industry’s economic potential in New York and across the country. Senators Kirsten Gillibrand, Dianne Feinstein, Barbara Boxer, Maria Cantwell, Patty Murray, Ron Wyden, Debbie Stabenow, Mary Landrieu, and Jeff Merkley signed on to Schumer’s letter. 

A full copy of the letter is below: 

Secretary of the Treasury                                            Secretary
1500 Pennsylvania Avenue, NW                                 U.S. Department of Homeland Security
Washington, DC 20220                                               Washington, DC  20528

Dear Secretary Geithner and Secretary Napolitano,

We write to express our concerns regarding the October 15, 2009, proposals by the Bureau of Customs and Border Protection (CBP) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) that would alter the current drawback program and repeal the program for products currently eligible for so-called substitution drawback.  The proposed rulemakings seem to run counter to the current statutory scheme.  Moreover, if these proposals were to take effect, many U.S. businesses’ export programs would be significantly undercut.

As senators from the key wine-producing states, we are very concerned that the domestic wine industry would be particularly hard hit.  The value of U.S. wine exports has doubled in the past 10 years, exceeding $1 billion in 2008.  The dramatic increase in exports is due in large part to the availability of the drawback program, which allows refunds of federal taxes paid on imports when comparable merchandise is exported.  Eliminating the program would significantly undermine the health of an industry that injects billions of dollars into the U.S. economy and employs tens of thousands of American workers.  We collectively represent over 3500 wineries that produce 98 percent of the nation’s wine. 

In 2004, Congress acted to reaffirm the intended scope of the drawback program in response to a court ruling that would have limited eligibility for drawback to charges tied to the act of importation.  Congress amended the drawback provision at issue (19 USC 1313(j)) to make clear that the law allows for drawback of any duty, tax or fee imposed under federal law.  Moreover, the legislative history of the 2004 Trade Act reflects Congress’ unequivocal intent to overturn the court ruling. 

CBP and TTB have failed to articulate any overriding need to revisit this issue, let alone any compelling legal basis for doing so.  The observation that a particular federal tax is administered by an agency other than CBP or TTB does not and cannot vitiate the fact that the statute provides for identical treatment for “any duty, tax, or fee imposed under Federal law.”  Moreover, CBP and TTB’s reliance on section 1313(u) as evidence of some sort of general no “piggybacking” policy also is misplaced.  Section 1313(u) merely codifies a common-sense rule that imported merchandise never subject to duties, taxes, or fees (i.e., because such merchandise was imported into a foreign trade zone or bonded warehouse and never “entered” in to the United States) cannot be the basis for a drawback claim.

An agency cannot change by regulation a clearly articulated statutory right.  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.  The purpose of drawback is to put U.S. exporters on an equal footing with overseas competitors, and the program is vital to U.S. businesses seeking to maintain and grow their exports, particularly in these difficult economic times.  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.

Thank you for your attention, and we look forward to your reply.

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