Exporters and importers say they're close to agreeing with the U.S. Customs Service on the details of legislation regulating refunds of duties under a program known as "drawback."

The agreement covers not only the procedures involved in applying for duty refunds, but also the controversial issue of penalties for fraudulent claims under drawback.A compromise would clear away a major point of disagreement between Customs and the business community over proposed legislation to reform and modernize the agency.

Customs, however, still believes stiff penalties are needed to prevent fraud in this age of electronic document filing.

Also, many customs brokers, the links between industry and Customs, say importers and exporters are moving ahead too quickly. Brokers believe some major problems must still be resolved before the private sector can join Customs in a unified position on drawback.

Drawback is a procedure in which a company obtains a refund of import duties on materials that eventually are either exported or used in the manufacture of merchandise that is exported.

Major exporters support drawback because it makes their products more competitive by lowering prices. Nevertheless, the program is notoriously underutilized.

The government paid about $326 million in duty refunds last year, but an estimated $2 billion of potential refunds went uncollected, said Tom Valenzuela, chief of the customs liquidation section in San Francisco.

Many companies don't apply for drawback because they aren't aware of the program, or they are intimidated by the application process, or they fear penalties if their documentation is not accurate, Mr. Valenzuela told a seminar in Long Beach last week sponsored by the New York-based American Association of Exporters and Importers.

Customs and industry trade groups such as AAEI hope to stimulate more interest in drawback by clarifying the program in the new legislation, called the Customs Modernization Act, H.R. 3935.

Many technical procedures are involved in collecting drawback, and George Steuart, a Washington attorney who serves as legislative chairman of the AAEI, said Customs has agreed to accept private industry's views on clarifying these procedures, provided the penalty issue is resolved.

However, Frank McCarthy, a New York broker who serves as chairman of the drawback committee of the National Customs Brokers & Forwarders Association, said brokers still seek changes in procedural and other areas.

"We still feel Customs is taking the most narrow legalistic view possible," Mr. McCarthy said in a telephone interview.

The main dispute on drawback has been over penalties for fraud and negligence. For willful cheating on drawback, Customs originally wanted penalties as high as eight times the amount of the money collected.

Industry, including the International Trade Facilitation Council/NCITD, wants a penalty of no more than 75 percent, which is what the Internal Revenue Service charges taxpayers for cheating.

John D. Williams, import services manager at Dow Chemical USA in Lake Jackson, Texas, and chairman of AAEI's drawback committee, told the Long Beach seminar Customs has lowered its target to a 300 percent penalty for fraud. Customs and industry are probably close enough that the trade subcommittee of the House Ways and Means Committee can come up with a compromise acceptable to all, he said.

Also, the AAEI, which represents about 1,200 companies across the country, wants the penalty for negligence to be no more than 20 percent of the drawback refund. Mr. Williams said that figure is probably close enough to Customs' position that a compromise is now possible.

Customs, however, does not agree that a 75 percent penalty for fraud is high enough. Brokers, however, say Customs already has sufficient protection under existing law and does not need additional penalties, at least for negligence.