Establishment of Conditional Release Period for Textiles and Textile Products

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 141

[T.D. 94-95]

RIN 1515-AB39

Establishment of Conditional Release Period for Textiles and

Textile Products

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations to establish a

conditional release period of 180 days on entries of textiles and

textile products for the sole purpose of facilitating a determination

as to whether the country of origin of the entered goods has been

accurately represented to Customs. This amendment will permit Customs

to issue Notices of Redelivery to importers of textiles and textile

products within 30 days after the end of the conditional release period

if investigation or information reveals that the merchandise was

claimed to originate in a country where little or no manufacturing

processes occurred in order to avoid quota or visa admissibility

requirements. An importer who fails to redeliver the merchandise to

Customs custody would be liable for liquidated damages under the terms

of the Basic Importation and Entry Bond.

EFFECTIVE DATE: January 3, 1995.

FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch,

Office of Regulations and Rulings, 202-482-6950.

SUPPLEMENTARY INFORMATION:

Background

On March 30, 1994, Customs published a notice in the Federal

Register (59 FR 14808) which proposed to amend Part 141 of the Customs

Regulations (19 CFR Part 141) to provide for a conditional release

period of 180 days on all textiles and textile products that are

subject to the provisions of section 204, Agricultural Act of 1956, as

amended (7 U.S.C. 1854). The notice referred to the significant

enforcement problem regarding textiles and textile products that are

imported into the United States in violation of quota restrictions or

without the appropriate visa from the country of origin. The notice

stated that this problem involves merchandise that is the product of a

country to which stringent quotas or visa requirements apply and that

is transshipped through a second country having less rigorous quota and

visa standards, often in order to facilitate the making of a false

claim, upon importation into the United States, that the merchandise is

a product of the country through which it was transshipped and

therefore subject to the more lenient quota and visa entry standards

applicable to products of that country. The notice pointed out two

principal obstacles to effective enforcement efforts in such cases: (1)

While the penalty provisions of section 592 of the Tariff Act of 1930,

as amended (19 U.S.C. 1592), are in principle available for assessment

against any party who has committed fraud, gross negligence or

negligence in connection with the entry of such transshipped

merchandise, it is not always possible to establish the requisite

culpability; and (2) the other alternative, namely the issuance of a

Notice of Redelivery followed by the issuance of a claim for liquidated

damages for a failure to redeliver, is often not available because in

many cases the violation is discovered only after the close of the time

period provided in the regulations for issuance of a Notice of

Redelivery (for textiles and textile products and other merchandise for

which a conditional release period is not specified in the regulations,

issuance must be within 30 days of the release of the merchandise from

Customs custody).

In order to address these problems, Customs proposed to amend

Sec. 141.113 of the Customs Regulations (19 CFR 141.113) by adding a

new paragraph (b) to provide for a specific conditional release period

of 180 days from the date of release for all textiles and textile

products subject to section 204 of the Agricultural Act of 1956. Thus,

under the terms of Sec. 113.62(d) of the Customs Regulations (19 CFR

113.62(d)), Customs would then have up to 30 days from the end of the

conditional release period to issue a Notice of Redelivery whenever it

is determined that a textile or textile product is not entitled to

admission into the commerce of the United States. Failure to redeliver

merchandise within the time period specified in the Notice of

Redelivery (generally 30 days from the date of the Notice) would result

in the assessment of a claim for liquidated damages under the Basic

Importation and Entry Bond as provided in Sec. 113.62(k) of the

regulations. In addition, the notice set forth proposed conforming

changes to Sec. 141.113 as a consequence of the addition of the

proposed new paragraph (b). The notice invited the public to submit

written comments on the proposals, and the public comment period closed

on May 31, 1994.

Analysis of Comments

Twenty-seven comments were received. Four of the commenters were

entirely in favor of the proposed regulatory amendments as written and

suggested no changes. Twenty-three commenters opposed the proposals.

The comments in opposition are discussed below.

Comment: All of the commenters opposing the proposed rule indicated

that the proposed conditional release period of 180 days on all textile

importations did not take into account the commercial reality of

textile importation and distribution. Textile and apparel sales are

subject to seasonal requirements and stylistic variables, and the

commenters charged that it would be commercially untenable to maintain

on hand seven months worth of inventory in order to be insulated from

any liability for possible redelivery violations. Many of the

commenters noted that they operate in a ``just in time'' environment so

that as little inventory as possible remains on hand. It was generally

agreed upon by the negative commenters that the proposed rule would

impose a significant economic burden on the legitimate importer but

that the nefarious importer would continue to operate without regard

for any possible consequence.

Customs response: Customs recognizes that some potential economic

risk would result from the establishment of the 180-day conditional

release period. As noted in the analysis of the following comment made

with regard to the proposal, Customs acknowledges the potential

economic hardship that might be caused by a sweeping regulation and,

therefore, has drawn the conditions upon which redelivery can be based

narrowly so as to affect as few entries as possible. In weighing the

economic harm caused by illegally transshipped goods against the

potential liability incurred by an importer because of the extension of

the 30-day redelivery period, Customs believes that this objection to

the proposed amendment does not constitute a sufficient basis for not

proceeding with a final rule on this matter.

Comment: All of the commenters opposed to the proposed regulation

stated that it was overly broad, noting that the proposed text would

apply a 180-day conditional release period to all textile and apparel

entries on any issue of admissibility, including issues of

classification, valuation or duty assessment. The following observation

was typical of the comments submitted on this point: Although the

release period modification was intended to address the assumed

abundance of transshipment violations, importers may be exposed to

liability merely for instances of classification/quota category

disputes; Customs will therefore have the opportunity to penalize

importers for matters independent of the intentions of the proposal.

Customs response: Customs agrees that the sweep of the proposed

regulation is too broad. Accordingly, the regulatory text in question,

as set forth below, has been redrafted to establish a conditional

release period of 180 days for textiles and textile products only for

purposes of determining whether a transshipment violation has occurred.

This narrowing of the scope of the regulation will serve to alleviate

many of the concerns of risk raised by the commenters. The 180-day

period would not be applicable to issues of classification, valuation

or other issues of admissibility not related to a transshipment

violation.

Comment: Two commenters suggested that the proposed rule directly

violates section 621 of the Customs Modernization (hereinafter the

``Mod Act'') provisions contained in Title VI of the North American

Free Trade Agreement Implementation Act (Public Law 103-182, 107 Stat.

2057). These commenters asserted that under the Mod Act provisions and

the intent of the Congress expressed therein, an importer is held to a

standard of ``reasonable care'' in discharging those entry and related

activities for which he is responsible. Failure to maintain that

standard will result in assessment of penalties for violation of the

provisions of 19 U.S.C. 1592. The commenters claimed that Customs,

through liquidated damages assessment, is gutting the reasonable care

concept and imposing a strict liability standard on a situation which

Customs admits cannot be sanctioned through a 1592 action due to a

failure of proof.

Customs response: Customs does not agree with this analysis. By

acting as importer of record, an importer or broker knowingly accepts

the terms of the Basic Importation and Entry Bond. When a transshipment

violation occurs, the importation of violative goods into the United

States results. Compensation for that harm, which is the purpose of a

liquidated damage claim, is not readily quantifiable and need not be

based upon a finding of culpability.

Liability under section 1592 is based upon a finding of culpability

and is not limited to the importer of the goods. The penalty provisions

reach importers, brokers, manufacturers, shippers, and the like, and

may also include aiders and abettors of violations. These penalties

serve to punish violators and deter future violative conduct but they

do not serve to compensate the Government for harm. It is inapposite to

impose standards of reasonable care promulgated by the Mod Act to a

bond violation situation. Customs does not believe that the proposed

regulation is in conflict with the Mod Act and therefore sees no reason

to modify or withdraw the proposed rule based on this comment.

Comment: Several commenters suggested that imposition of liquidated

damages equal to three times the value of merchandise which is not

redelivered serves to punish rather than compensate when the violation

involves illegal transshipment of textile merchandise. These commenters

noted that an importer could be found to be negligent and incur a 1592

penalty but pay considerably less than a three-times-the-value-of-the-

merchandise claim assessed as liquidated damages.

Customs response: Illegally transshipped textile merchandise, while

prohibited in nature, does not cause a health or safety hazard to the

general public. Accordingly, Customs agrees with the thrust of this

comment and, therefore, the regulatory text as set forth below, has

been redrafted to limit any liquidated damages assessment for

transshipment violations to the value of the merchandise involved in

the breach.

Conclusion

Accordingly, for the above reasons, Customs has determined that the

proposed regulatory changes should be adopted as a final rule, subject

to the textual modifications to the proposed regulatory text as

discussed in the above comment analysis and as set forth below.

Executive Order 12866

This document does not meet the criteria for a ``significant

regulatory action'' as specified in Executive Order 12866.

Regulatory Flexibility Act

Pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that the regulatory amendments

will not have a significant economic impact on a substantial number of

small entities. Establishment of a conditional release period for

textiles and textile products, which is necessary for law enforcement

purposes, will affect only the relatively small percentage of importers

who import such merchandise contrary to law. Accordingly, the

amendments are not subject to the regulatory analysis or other

requirements of 5 U.S.C. 603 and 604.

List of Subjects in 19 CFR Part 141

Bonds, Customs duties and inspection, Entry procedures, Imports,

Release of merchandise.

Amendments to the Regulations

Accordingly, for the reasons set forth above, Part 141, Customs

Regulations (19 CFR Part 141), is amended as set forth below.

PART 141--ENTRY OF MERCHANDISE

1. The authority citation for Part 141 continues to read in part as

follows:

Authority: 19 U.S.C. 66, 1448, 1484, 1624.

* * * * *

Section 141.113 also issued under 19 U.S.C. 1499, 1623.

2. Section 141.113 is amended by redesignating paragraphs (b)

through (g) as (c) through (h), by adding the words ``or (b)'' after

the words ``paragraph (a)'' in newly designated paragraph (c), and by

adding a new paragraph (b) to read as follows:

Sec. 141.113 Recall of merchandise released from Customs custody.

* * * * *

(b) Textiles and textile products. For purposes of determining

whether the country of origin of textiles and textile products subject

to the provisions of Sec. 12.130 of this chapter has been accurately

represented to Customs, the release from Customs custody of any such

textile or textile product shall be deemed conditional during the 180-

day period following the date of release. If the district director

finds during the conditional release period that a textile or textile

product is not entitled to admission into the commerce of the United

States because the country of origin of the textile or textile product

was not accurately represented to Customs, he shall promptly demand its

return to Customs custody. Notwithstanding the provisions of paragraph

(h) of this section and Sec. 113.62(k)(1) of this chapter, a failure to

comply with a demand for return to Customs custody made under this

paragraph shall result in the assessment of liquidated damages equal to

the value of the merchandise involved.

* * * * *

Michael H. Lane,

Acting Commissioner of Customs.

Approved: October 24, 1994.

Dennis M. O'Connell,

Acting Deputy Assistant Secretary of the Treasury.

[FR Doc. 94-29711 Filed 12-01-94; 8:45 am]

BILLING CODE 4820-02-P