[Federal Register Volume 60, Number 53 (Monday, March 20, 1995)]
[Rules and Regulations]
[Pages 14630-14632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6759]
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DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Part 10
[T.D. 95-22]
RIN 1515-AB65
Temporary Importation Bonds; Anticipatory Breach, Assessment
Amounts, Petitions for Relief
AGENCY: Customs Service, Department of the Treasury.
ACTION: Final rule.
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SUMMARY: This document amends the Customs Regulations to permit
anticipatory breach and provide for early payment of liquidated damages
in Temporary Importation Bond (TIB) cases. It also amends the
regulations to permit assessment of liquidated damages in excess of
double the duties in those cases where the district director requires
extra bonding in order to protect the revenue and to state that the
term ``duties'' for TIB assessment shall also include any applicable
merchandise processing fees that otherwise would be charged on an entry
for consumption. Finally, the document amends the regulations to
eliminate forwarding of petitions for relief in TIB cases to Customs
Headquarters when the bond principal or surety is dissatisfied with the
decision on the petition afforded by the district director.
EFFECTIVE DATE: April 19, 1995.
FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch,
Office of Regulations and Rulings, 202-482-6950.
SUPPLEMENTARY INFORMATION:
Background
Under the provisions of Chapter 98, Subchapter XIII, Harmonized
Tariff Schedule of the United States (HTSUS), merchandise may be
entered under the terms of a Temporary Importation Bond (TIB) without
the payment of duties if the merchandise is entered for a specific
purpose enumerated in Subchapter XIII, HTSUS. Per U.S. Note 1 to
Subchapter XIII, the merchandise is permitted to remain in the United
States for a one-year period subsequent to the date of importation
(with a maximum of two one-year extensions allowed). Prior to the
expiration of the bond period or any properly approved extension
thereof, the merchandise must be exported or destroyed under Customs
supervision. Failure to export or destroy in a timely manner results in
the imposition of liquidated damages against the importer.
Instances arise where, after initiation of a TIB entry, the
importer decides that the merchandise will remain in the United States
in violation of the terms of the bond. Rather than wait for the one-
year period to end and for liquidated damages to be assessed, importers
inquired as to the possibility of early payment of liquidated damages.
The Customs Regulations currently do not provide for an anticipatory
breach of a TIB.
In a Notice of Proposed Rulemaking (NPRM) published in the Federal
Register of September 29, 1992 (57 FR 44714), it was proposed to amend
the regulations to permit anticipatory breach of a TIB and allow the
importer to pay the full measure of liquidated damages and thereby
close the bond. Through payment of the liquidated damages, the importer
would waive his right to receipt of notice of a claim for liquidated
damages pursuant to Sec. 172.1(a), Customs Regulations (19 CFR
172.1(a)).
For TIB entries, the provisions of Sec. 10.31(f) of the Customs
Regulations (19 CFR 10.31(f)) require that a bond shall be given
containing the conditions set forth in Sec. 113.62 of the Customs
Regulations (19 CFR 113.62) in an amount equal to double the duties
which it is estimated would have accrued (or such larger amount as the
district director shall state in writing to the entrant is necessary to
protect the revenue) had all the articles covered by the entry been
entered under an ordinary consumption entry. By contrast, under the
provisions of Sec. 10.39(d), if any article entered under Chapter 98,
Subchapter XIII, HTSUS, has not been exported or destroyed in
accordance with the regulations within the period of time during which
the articles may remain in the Customs territory of the United States
under bond (including any lawful extension), the district director
shall make a demand in writing under the bond for the payment of
liquidated damages equal to double the estimated duties applicable to
such entry, unless a lower amount is prescribed by Sec. 10.31(f).
On the one hand, Sec. 10.31(f) empowers the district director to
require a bond in excess of double the duties, but the provisions of
Sec. 10.39(d) only permit him to assess liquidated damages at double
the estimated duties or such lower amount (emphasis added) as
prescribed by Sec. 10.31(f). These regulations can provide anomalous
results and inefficient protection of the revenue. Accordingly, the
NPRM proposed an amendment to the regulations to permit, in the case of
breach of a TIB, assessment of liquidated damages in an
[[Page 14631]] amount equal to double the estimated duties or any
different amount prescribed by Sec. 10.31(f) rather than only a lower
amount.
When a TIB entry is filed, no merchandise processing fees are
charged to the importer of record. However, section 111 of the Customs
and Trade Act of 1990 (Pub. L. 101-382) amended 19 U.S.C. 58c(g) (the
statute which requires payment of the merchandise processing fee) to
provide that all administrative and enforcement provisions of the
Customs laws and regulations, except those relating to drawback, shall
apply with respect to any fee prescribed under 19 U.S.C. 58c(a) (which
requires payment of the merchandise processing fee), and with respect
to persons liable therefor, as if such fee is a Customs duty. Any
penalty which is expressed in terms of a relationship to the amount of
the duty (e.g., liquidated damages expressed in terms of an amount
equal to double the estimated duties due on an entry) shall be assessed
as a multiple of the unpaid fee. Accordingly, when calculating the
measure of liquidated damages for breach of a TIB, the amount of
estimated duties due for breach should include duties plus the
merchandise processing fees that would have been applicable to the
entry had an entry for consumption been filed. The NPRM proposed an
amendment to the regulations to provide that, for purposes of
assessment of liquidated damages for breach of a TIB, the term duties
includes any merchandise processing fees that would have been due on a
consumption entry that would have been filed with regard to such TIB
merchandise.
Under the provisions of Sec. 10.39(e) of the Customs Regulations
(19 CFR 10.39(e)), if there has been a default with respect to all the
articles covered by the bond and a written petition for relief is filed
timely, the regulations state that the petition ``shall be transmitted
to Headquarters, U.S. Customs Service, with a full report of the facts,
unless it is allowed by the district director in whole or in part in
accordance with this regulation, * * *.'' This language noting referral
to Headquarters is unique to TIB cases in which all the articles
covered by the bond are in default and the district director allows no
mitigation. The NPRM posited that the jurisdictional amount found in
Sec. 172.21 of the Customs Regulations (19 CFR 172.21) should govern
review of all petitions. Jurisdiction should not be predicated on a
denial of relief in a limited fact situation. Accordingly, the NPRM
proposed that Sec. 10.39(e) be amended to remove the reference
regarding referral of the petition to Customs Headquarters.
Analysis of Comments
Five comments were received with regard to the subject document. It
should initially be noted that Customs, in error, indicated the harbor
maintenance fees, as required by the provisions of the Harbor
Maintenance Review Act of 1986 (Pub. L. 99-682), are not imposed on TIB
entries. The NPRM then went on to state also in error that unpaid
harbor maintenance fees, as well as merchandise processing fees, should
be included in any calculation of double the duties or 110 percent of
the duties for assessment of liquidated damages. Two commenters noted
these errors. Customs concedes these mistakes, and the final rule
avoids any mention of harbor maintenance fees in the calculation of
duties, fees and charges in TIB liquidated damages assessment.
Two commenters suggested that the proposed regulatory amendment
would only permit anticipatory breach as to the entire amount of
merchandise entered under a TIB and would not permit anticipatory
breach if a percentage of TIB merchandise covered by a single entry was
intended to remain in the United States in violation of the bond
provisions but the remaining percentage was to be exported or destroyed
in compliance with bond conditions. The regulations require assessment
of the full amount of liquidated damages applicable to the entry. The
commenters suggest that there would be little incentive to comply with
anticipatory breach provisions because the importer who wishes to file
a partial anticipatory breach would be required to pay for the full
amount of the entry.
Customs concedes that the comment has some validity but it should
be emphasized that acceptance of payment in recognition of anticipatory
breach of TIB conditions is being promulgated in response to requests
made to Customs and as a courtesy to the importing community. It will
permit importers to close out the records on a TIB rather than wait for
the one-year bond period to expire. Partial anticipatory breaches would
be difficult for Customs to administer, particularly if merchandise
which the importer still intends to export or destroy in compliance
with bond conditions has not yet been exported or destroyed so as to
close the bond out in its entirety. Customs will not accept a partial
anticipatory breach if the merchandise not covered by the breach has
not been exported or destroyed in compliance with bond terms because of
the difficulty of administration.
A comment received from a representative of surety companies did
not oppose the concept of anticipatory breach, but did request that
Customs notify a surety that anticipatory breach occurred, liquidated
damages were paid and that the bond could be closed with regard to that
particular TIB entry. Customs has no objection to this request and has
added language which would require surety notification by the importer
when an anticipatory breach occurs. Inasmuch as the importer seeks the
benefit of anticipatory breach, Customs does not find it burdensome to
require the importer to notify surety of its actions.
One commenter was of the view that the proposed amendment to
Sec. 10.31(f) gave Customs excessively broad discretion in deciding the
bond amount. We disagree. The provisions of Sec. 10.31(f) give the
district director discretion to require a bond in sufficient size to
protect the revenue. As a condition precedent to requiring a larger
bond, the district director must notify the entrant, in writing or by
equivalent electronic notification, of the increase. The language of
the regulation does not permit an increase in the bond amount without
cause.
Finally, one commenter indicates that under proposed amendments to
Sec. 10.39(e) of the regulations, Customs could be faced with an
anomalous situation regarding review of petitions for relief. As
proposed, the district director would review petitions for relief in
all cases where the claim is for $100,000 or less and the entire amount
of merchandise entered under a TIB is in default. Under the provisions
of Sec. 10.39(f), a petition for relief could be reviewed by the
district director when a partial default occurs and the liability for
liquidated damages on the articles in respect of which there has been a
default does not exceed $50,000. Thus, jurisdictional amounts are not
consistent, and Headquarters review would be required in certain TIB
liquidated damages cases, depending upon what percentage of articles
are in default. We agree with the comment and, therefore, are amending
Sec. 10.39(f) to be consistent with the change to Sec. 10.39(e).
Accordingly, the regulations are amended as proposed except that
references to the harbor maintenance fee have been removed, notice of
anticipatory breach will now be required to be afforded to sureties by
the breaching importer, and the jurisdictional amount in Sec. 10.39(f)
is amended to $100,000 to be consistent with Sec. 10.39(e).
[[Page 14632]]
Regulatory Flexibility Act and Executive Order 12866
Pursuant to the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), it is certified that the amendments will not have
a significant economic impact on a substantial number of small
entities. Accordingly, the amendments are not subject to the regulatory
analysis requirements of 5 U.S.C. 603 and 604. The document does not
meet the criteria for a ``significant regulatory action'' as specified
in Executive Order 12866.
List of Subjects in 19 CFR Part 10
Articles conditionally free, Customs duties and inspection,
Exports, temporary importations under bond.
Amendments
Part 10, Customs Regulations (19 CFR part 10), is amended as set
forth below.
PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,
ETC.
1. The general authority citation for part 10 continues to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 17, Harmonized
Tariff Schedule of the United States), 1481, 1484, 1498, 1508, 1623,
1624;
* * * * *
2. Section 10.31 is amended by revising the first two sentences of
paragraph (f) to read as follows:
Sec. 10.31 Entry; bond.
* * * * *
(f) With the exceptions stated herein, a bond shall be given on
Customs Form 301, containing the bond conditions set forth in
Sec. 113.62 of this chapter, in an amount equal to double the duties,
including fees, which it is estimated would accrue (or such larger
amount as the district director shall state in writing or by the
electronic equivalent to the entrant is necessary to protect the
revenue) had all the articles covered by the entry been entered under
an ordinary consumption entry. In the case of samples solely for use in
taking orders entered under subheading 9813.00.20, HTSUS, motion-
picture advertising films entered under subheading 9813.00.25, HTSUS,
and professional equipment, tools of trade and repair components for
such equipment or tools entered under subheading 9813.00.50, HTSUS, the
bond required to be given shall be in an amount equal to 110 percent of
the estimated duties, including fees, determined at the time of entry.
* * *
* * * * *
3. Section 10.39(d)(1) is amended by removing the word ``lower'' in
the first sentence and by adding in its place the word ``different'',
and by adding a sentence at the end of the paragraph to read as
follows:
Sec. 10.39 Cancellation of bond charges.
* * * * *
(d) (1) * * * For purposes of this section, the term estimated
duties shall include any merchandise processing fees applicable to such
entry.
* * * * *
4. Section 10.39(e) is amended by revising its first sentence to
read as follows:
Sec. 10.39 Cancellation of bond charges.
* * * * *
(e) If there has been a default with respect to all the articles
covered by the bond and a written petition for relief has been timely
filed as provided in part 172 of this chapter, it shall be reviewed by
the district director if the full amount of the claim does not exceed
$100,000 and by the Director, International Trade Compliance Division,
Office of Regulations and Rulings, Customs Headquarters, if the full
amount of the claim exceeds $100,000.
* * * * *
Sec. 10.39 [Amended]
* * * * *
5. Section 10.39(f) is amended by removing the figure ``$50,000''
in the first sentence and by adding in its place the figure
``$100,000''.
6. Section 10.39 is amended by redesignating paragraph (g) as
paragraph (h) and by adding a new paragraph (g) to read as follows:
* * * * *
Sec. 10.39 Cancellation of bond charges.
* * * * *
(g) Anticipatory breach. If an importer anticipates that the
merchandise entered under a Temporary Importation Bond will not be
exported or destroyed in accordance with the terms of the bond, the
importer may indicate to Customs in writing before the bond period has
expired of the anticipatory breach. At the time of written notification
of the breach, the importer shall pay to Customs the full amount of
liquidated damages that would be assessed at the time of breach of the
bond, and the entry will be closed. The importer shall notify the
surety in writing of the breach and payment. By this payment, the
importer waives his right to receive a notice of claim for liquidated
damages as required by Sec. 172.1(a) of this chapter.
* * * * *
Approved: February 23, 1995.
Peter J. Baish,
Acting Commissioner of Customs.
Dennis M. O'Connell,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-6759 Filed 3-17-95; 8:45 am]
BILLING CODE 4820-02-P
