Test Programs

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 101

[T.D. 95-21]

RIN 1515-AB47

Test Programs

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations by adding a new

provision that allows for test programs and procedures in general and,

specifically, for purposes of implementing those Customs Modernization

provisions of the North American Free Trade Agreement Implementation

Act that provide for the National Customs Automation Program. The

regulation allows the Commissioner of Customs to conduct limited test

programs/procedures, which have as their goal the more efficient and

effective processing of passengers, carriers, and merchandise. Test

programs may impose upon eligible, voluntary participants requirements

different from those specified in the Customs Regulations, but only to

the extent that such different requirements do not affect the

collection of the revenue, public health, safety, or law enforcement.

EFFECTIVE DATE: April 17, 1995.

FOR FURTHER INFORMATION CONTACT: John Durant, Director, Commercial

Rulings Division, (202) 482-6990.

SUPPLEMENTARY INFORMATION:

Background

Title VI of the North American Free Trade Agreement Implementation

Act (the Act), Public Law 103-182, 107 Stat. 2057 (December 8, 1993),

contains provisions pertaining to Customs Modernization (107 Stat.

2170). Subtitle B of title VI establishes the National Customs

Automation Program (NCAP)--an automated and electronic system for the

processing of commercial importations. Section 631 in Subtitle B of the

Act creates sections 411 through 414 of the Tariff Act of 1930 (19

U.S.C. 1411-1414), which define and list the existing and planned

components of the NCAP (section 411), promulgate program goals (section

412), provide for the implementation and evaluation of the program

(section 413), and provide for remote location filing (section 414).

Section 631 of the Act provides Customs with direct statutory

authority for full electronic processing of all Customs-related

transactions. For each planned NCAP program component, Customs is

required to prepare a separate implementation plan in consultation with

the trade community, establish eligibility criteria for voluntary

participation in the program, test the component, and transmit to

Congress the implementation plan, testing results, and an evaluation

report. The testing of any planned NCAP components would be conducted

under carefully delineated circumstances--with objective measures of

success or failure, a predetermined time frame, and a defined class of

participants. Notice of any NCAP program component testing would be

published in both the Customs Bulletin and the Federal Register and

participants solicited.

In addition to testing planned NCAP components, Customs also

proposed conducting limited test programs/procedures in other areas of

Customs-related transactions wherein Customs and the trade community

could benefit from the valuable information that such testing could

provide. Thus, Customs proposed a general test authority in order both

to meet its obligations under the NCAP legislation and to provide

itself with the ability to obtain information necessary to predict the

effects of various policy options.

The regulation proposed would allow the Commissioner of Customs to

conduct limited test programs and procedures and allow certain eligible

members of the public to participate on a voluntary basis. Also,

because test programs could require exemptions from regulations in

various parts of the Customs Regulations, e.g., parts 113 (Customs

bonds), 141 (entry of merchandise), 142 (entry process), 171 (fines,

penalties, and forfeitures), 174 (protests), and 191 (drawback),

participants would be subject to requirements different from those

specified in the Customs Regulations, but only to the extent that such

different requirements do not affect the collection of the revenue,

public health, safety, or law enforcement. Accordingly, pursuant to the

Secretary's authority under section 624 of the Tariff Act of 1930 (19

U.S.C. 1624) to make such rules and regulations as may be necessary to

carry out the provisions of the Tariff Act of 1930 and pursuant to the

requirement set forth in section 413 of the Tariff Act of 1930 (19

U.S.C. 1413) that the Secretary test planned NCAP program components,

on August 16, 1994, Customs published a Notice of Proposed Rulemaking

in the Federal Register (59 FR 41992) that proposed to amend part 101

of the Customs Regulations (19 CFR part 101) by adding a new Sec. 101.9

that would allow the Commissioner of Customs to conduct limited test

programs and procedures in general and for purposes of implementing

NCAP program components. Seven comments, most favorable to the proposed

regulation, were received. These comments raised four areas of concern.

The comments received and Customs responses to them are set forth

below.

Discussion of Comments

Comments were received from corporate sureties (1), customs brokers

[[Page 14212]] (4), and transportation associations (2). The comments

raised four areas of concern. The concerns relate to: (1) Generally,

whether there will be equal opportunity to participate in tests and

whether statutory requirements would be subject to suspension; (2) the

manner and amount of notice that would be provided; (3) the length of

time in which tests would be conducted; and, (4) the nature of

voluntary participation. We address each of these concerns seriatim.

In General

Comment: A commenter states that language should be added to

Sec. 101.9(a) ``to protect Customs businesses'' to the effect that no

test shall be made that will give economical advantages to one class of

importer, exporter, carrier, customs broker, freight forwarder, or

courier over another, or one geographic area over another.

Customs Response: While Customs understands the commenter's

concern, it believes that adding the suggested language to the

regulation would unduly inhibit Customs ability to modernize, i.e., to

streamline and automate the commercial operations of the Customs

Service, the reason the Customs Modernization provisions were

promulgated in the first place. The purpose of a test is to experiment

to see if something works. Hopefully, if the test is successful, those

who have chosen to participate will benefit. Customs, however, does not

wish to be unfair to non-participants. Accordingly, the proposed

regulation provides for notice in the Federal Register to the public

when a test will be run. These notices of proposed tests will allow all

interested parties to choose to participate and to comment on any

problem they perceive will result from the test proposed, including a

perceived problem of economical advantages being offered to one party

over another. Customs, generally, will attempt to address such concerns

before a test is run. If there are instances when Customs may need to

conduct tests that are company-/industry-specific, so that economies of

scale and other program parameters can be realized, the proposed

regulation seeks to limit the advantage that the test may provide by

requiring that the test be limited in time and scope.

While not adding the language suggested by the commenter, Customs

has determined, after review of this comment and others, to modify the

proposal to broaden the notice requirements. As now drafted, the final

regulation no longer provides that public notice is not required for

non-NCAP tests affecting carriers and passengers. Further, the

``whenever practicable'' language in the non-NCAP paragraph describing

the publication requirement is removed. Instead, the regulation

provides that whenever a particular test allows for deviation from any

regulatory requirement, notice shall be published in the Federal

Register not less than 30 days prior to implementing such test. Customs

believes that this allows all Customs businesses to comment on all

tests and provides adequate time for comments.

Comment: Two commenters are concerned with whether tests will be

conducted other than on a parallel basis which would violate a

statutory requirement. One of these commenters argues that language

should be added to Sec. 101.9(a) to the extent that no test should be

implemented that is contrary to U.S. law, because federal agencies

should not be allowed to set up a ``test'' as a simple way of

circumventing the laws passed by Congress.

Customs Response: Customs believes that it is clearly understood

that any test programs will be consistent with statutes and, therefore,

it is unnecessary to add language to the regulation to so indicate.

Notice

Comment: The proposed regulatory text may not provide sureties with

proper and timely notice of variations of its risk. The commenter, a

corporate surety, states that notice provided ``whenever practicable''

or ``within a reasonable period of time'' may run contrary to the

stated objectives of the Notice because it would ``affect the

collection of revenue'' by varying the surety's risk under its bond.

The obligation of a compensated surety is predicated upon certain known

risks or underwriting components and to the extent a surety's risk is

varied without its prior consent, sureties could be discharged from any

obligation under their bonds. Accordingly, the commenter suggests that

proper and timely notice of all test programs and results should be

provided to sureties to enable them to decide whether to agree to be

bound under a particular varied risk arising under a NCAP test program.

Another commenter believing that the Sec. 101.9(b)(2) requirement

for publication of complete test results ``within a reasonable time''

is not specific enough recommends that the regulation should provide

that, ``unless extended by Federal Register Notice, within 60 days

following the completion of the test, complete test results shall be

published.'' Further, the commenter urges that the published results

also include a list of the participants in the test.

Customs Response: Test programs will not be run that affect the

collection of the revenue. All duties, taxes, and fees owed to the U.S.

by law continue to be owed by the responsible parties throughout any

test program.

Regarding the issue of proper and timely notice to sureties,

Customs has modified the proposal in this final rule to provide that

whenever a particular test allows for deviation from any regulation

requirement, notice shall be published not less than 30 days prior to

implementing such test. When there is publication in the Federal

Register, such publication serves as constructive notice and is notice

to all. Customs believes that the 30-day time frame affords interested

sureties adequate time to discuss any of their bond conditions within

the context of participating in a test program, and to separately

respond to those test notices about which they may have questions

concerning their underwritten risk. In accordance with the above,

Customs has determined that it will not provide separate notices to

sureties.

Regarding the suggestion to amend the proposed regulation to

provide that publication of complete test results be accomplished

within 60 days unless extended by Federal Register notice, Customs does

not agree. While in general Customs will make every effort to publish

discrete test results as soon as possible, setting forth a specific

time frame in the regulation--applicable to all tests results--will not

give the Customs Service the flexibility it needs to properly evaluate

certain NCAP program components to assess their contribution toward

achieving specified program goals. Some tests may not be one-time

tests, and others may build on other test results.

Concerning publishing a list of the participants in an NCAP test,

while Customs has no hesitation in providing this information, Customs

does not want to routinely publish such lists. Accordingly, Customs

will provide a list of participants upon written request and believes

that this element of test notices need not be set forth in the

regulation.

Comment: A commenter states that, although notification of tests

will be published in the Federal Register and the Customs Bulletin,

Customs should ensure that the trade community is involved and informed

about all of the test programs and procedures for the various

components. Accordingly, the commenter suggests that test information

be sent via electronic mail to the main contacts for various trade

community representatives or that a [[Page 14213]] primary contact,

knowledgeable of all test programs and procedures be appointed as the

single contact for the trade community. Also, the commenter does not

feel that the proposed regulation should further the cause for

producing additional `paper-based' forms.

Customs Response: Section 631 of the Act specifically requires the

Secretary to consult with the trade community, to include importers,

brokers, shippers, and other affected parties when developing NCAP

program components. To this end, in addition to the regulatory

notification requirements adopted, Customs will be placing test

information on the Customs electronic bulletin board. As for furthering

the need for paper-based forms, it is hoped that the need for this

medium of information will be changed based on tests proposed to take

advantage of new or changing technologies.

Comment: A commenter states that proposed Sec. 101.9(a)(2) should

be amended to require advance notification to passengers and carriers

because tests affecting passengers will necessarily affect the carriers

they use. Thus, carriers should be notified of proposed tests well in

advance.

Customs Response: As stated earlier in the document, Customs is

modifying the proposal in this final rule to provide notice whenever a

particular test allows for deviation from any regulation requirement.

Comment: One commenter states that it is not at all clear from

either the BACKGROUND section or the proposed regulatory text section

of the Notice whether the procedures which will be tested will be in

addition to those already required under the regulations, i.e., will

they constitute a parallel test, or whether the current regulatory

procedures would not be followed. If the latter is the case, proposed

Sec. 101.9 should provide that Customs Headquarters will issue a letter

to each participant advising them of the fact that, during the period

of the test, they will not have to abide by certain identified

regulation(s) or specify any other requirements.

Customs Response: The proposal to amend Sec. 101.9 to provide that

Customs will issue a letter to participants only advising them that

they will not have to abide by certain identified regulation(s) or

specify any other requirements is rejected. This approach is not in

keeping with program requirements to consult with the trade community.

Instead, each Federal Register notice published announcing a specific

test will identify which, if any, regulatory requirements may be

suspended for purposes of the test. Customs believes such publication

will afford all interested parties an opportunity to comment on planned

tests. Accordingly, no change to the regulation is made based on this

comment.

Time/Duration

Comment: A commenter believes that implementation of the proposed

rule, as written, would mean that Customs would have carte blanche

authority to do whatever it wanted with respect to ``testing'',

``procedures'' or any derivation of these two words. It could conduct

such ``tests'' or invoke such ``procedures'' for whatever period of

time it decided--one month, one year, five years. Customs could select

whomever it chose to participate without being subject to anyone's

challenge. The sole interpreter would be Customs and neither importers

nor brokers would have any timely recourse. For these reasons, it

strongly opposes issuance of the rule as proposed; there is too big a

chance for misuse.

Customs Response: The purpose of publishing test proposals in the

Federal Register is to avoid such problems. The Customs Modernization

provisions are intended, in part, to provide safeguards, uniformity,

and due process rights for importers. Customs believes that the

publication requirement imposed by the proposed regulation adequately

meets the unlimited-time-fears expressed by the commenter and affords

all interested parties the opportunity to comment on any aspect of

proposed tests, including the proposed length of a test. Accordingly,

no change to the regulation is made based on this comment.

Comment: A commenter states that the 30-day time period for giving

notice prior to implementing a test, provided at Secs. 101.9 (a)(2) and

(b)(1), should be increased to 60 days to allow adequate time for the

trade community to comment on proposed tests and to give Customs time

to review the comments before the test is put into effect. To this end

the commenter states that Customs has, in the past, instituted

``programs'', e.g., revising the CF 7512, which resulted in the public

spending hundreds of thousands of dollars to acquire the new form only

to have Customs withdraw the form because of problems with the form.

The commenter suggests that an extended comment period will save more

money than it costs over the long run. Further, since almost all tests

will involve computer programming time, the trade will need the

additional time to reprogram their computers for the test.

Customs Response: As already stated, Customs will be publishing

notice of proposed tests on the Customs electronic bulletin board and

otherwise inform the trade community of pending developments. As no

rational basis has been given to double the length of time for

comments--from 30-days to 60-days--and the present electronic

environment adequately affords Customs time to review comments before a

test is implemented, no change to the regulation is made based on this

comment.

Comment: A commenter suggests that the ``time'' for a test should

be defined--given a definite time restriction--and published with the

initial notification of a test, as, in the past, Customs has had some

``tests'' go on for years, e.g., monthly periodic Customs entries on

automobile parts and imports of oil and gas. Further, if the test is

successful, the Customs Regulations and practices should be changed so

that the new procedure(s) can be enjoyed by all. And if it is necessary

to extend a test period, 30 days prior to the test end date, notice

should be published.

Also concerned with the length of time for a test, another

commenter suggests that in all cases, the regulation should specify

that the notice must contain either the specific dates for the test

(beginning and ending) or the length of the test. If Customs finds it

cannot adhere to the period specified, a notice should be published

specifying the reasons for the variance and the new dates. This

procedure, it is felt, will avoid what has been the past practice of

continuing tests ad infinitum.

Customs Response: These comments concerning unlimited time periods

for tests do not square with the provisions of the proposed regulation,

which expressly state that tests will be ``limited in scope, time, and

application to such relief as may be necessary to facilitate the

conduct of a specified program or procedure.'' 19 CFR 101.9 (a)(1) and

(b). At the risk of sounding repetitive, we again state that the

publication requirement will allow all interested parties to comment on

proposed tests and to express their particular concerns. This

publication requirement does not constitute a hollow gesture on Customs

part, as, for NCAP tests, Customs must subsequently prepare a user

satisfaction survey of parties participating in the program and

transmit a report of this survey to Congress. As the proposed

regulations adequately address these comments, no change to the

regulation is made based on this comment. [[Page 14214]]

Voluntary Participation

Comment: Two commenters express concern regarding the ``voluntary''

nature of participation in tests. One commenter states that voluntary

participation in a test should mean that volunteers should be allowed

to withdraw from a test upon a change in the conditions of the test.

The other commenter suggests that, to recognize the importance of

Customs test programs and filers' voluntary participation in these

programs, a new paragraph (c) be added to Sec. 101.9 to read as

follows:

(c) Voluntary participation. For tests affecting the entry of

merchandise, and for which participation by an entry filer requires or

includes a change in the manner, amount, or format of data submitted to

Customs by that filer, such participation shall be entirely voluntary.

An otherwise qualified filer's entry privileges, including but not

limited to electronic entry privileges, may not be reduced, suspended,

limited, or withdrawn by Customs solely because that filer declines to

participate in one or more such tests.

The commenter states that the voluntary status of filer

participation in new Customs programs would be explicitly limited to

those involving merchandise, and to those which are in fact test

programs. There would be no impediment to Customs mandatory

implementation of uniform procedures at points past the test stage.

The commenter states the impetus for this amendment to the proposed

regulations is a recent Customs/FDA electronic interface pilot program

in Seattle. Although in the first few months of the program filer

participation was entirely voluntary, such that brokerage firms could

elect when to participate, for the last year and a half participation

has been mandatory for Seattle-area brokers who wish to file their

entries electronically. If a Seattle broker does not wish to

participate in the pilot program, that broker must file non-ABI entries

for cargo subject to FDA oversight. In effect, the commenter claims

that such a broker is penalized by Customs for declining to participate

in that particular test program. In general, the commenter is also very

concerned about the potential impact of some types of Customs test

programs upon certain sections of the trade community, especially those

test programs which alter the manner, amount, or format of data

transmitted by an entry filer to Customs, as such programs require the

filer to incur at least some additional costs, in order to participate

in each test program.

Customs Response: Section 631 of the Act expressly provides that

``[p]articipation in the [NCAP] Program is voluntary.'' 19 U.S.C.

1411(b). Accordingly, a broker's, importer's, etc., initial decision to

become automated is entirely voluntary. However, as stated in the

BACKGROUND portion of the Federal Register notice of proposed

rulemaking, section 631 of the Act also provides Customs with direct

statutory authority for full electronic processing of all Customs-

related transactions. Thus, for Customs to implement the NCAP and

comply with the other mandates of section 631--(1) development of

separate implementation plans for each NCAP component, in consultation

with the trade community, (2) establishment of eligibility criteria for

voluntary participation, (3) testing of the components, and (4)

transmittal to Congress of the implementation plan, testing results,

and an evaluation report--a certain continuity of test participants

must be observed. Accordingly, while Customs will make every effort to

make as many aspects of tests as completely voluntary as possible,

Customs believes that while the decision by a broker or other

participant to participate in an automated Customs program is voluntary

in the first instance, continued participation in a particular test may

be required. In any event, a participant may always choose to not

participate with a particular automated component if the parameters of

the testing are not to their liking. If any doubts as to participation

in a particular test program or procedure exist after the parameters of

the test are published in the Federal Register, the hesitant

participant should take advantage of the comment period to seek

clarification. Accordingly, because of the extensive statutory

requirements that Customs must meet to conduct NCAP tests, Customs does

not believe that further regulatory language is needed at this time.

Inapplicability of the Regulatory Flexibility Act, and Executive Order

12866

Pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.) and based upon the information set forth above, it

is certified that the regulation will not have a significant impact on

a substantial number of small entities. Accordingly, the regulation is

not subject to the regulatory analysis or other requirements of U.S.C.

603 and 604. Further, this document does not meet the criteria for a

``significant regulatory action'' as specified in E.O. 12866.

Drafting Information

The principal author of this document was Gregory R. Vilders,

Attorney, Office of Regulations and Rulings, Regulations Branch.

However, personnel from other offices participated in its development.

List of Subjects in 19 CFR Part 101

Customs duties and inspection, Exports, Imports, Organization and

functions (Government agencies), Reporting and recordkeeping

requirements, Sureties, Tests.

Amendments to the Regulations

For the reasons stated above, part 101 of the Customs Regulations

(19 CFR part 101) is amended as set forth below:

PART 101--GENERAL PROVISIONS

1. The authority citation for part 101 is revised to read as

follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 2, 66, 1202 (General Note 17,

Harmonized Tariff Schedule of the United States (HTSUS)), 1623,

1624.

Section 101.3 and 101.4 also issued under 19 U.S.C. 1 and 58b;

Section 101.9 also issued under 19 U.S.C. 1411-1414.

2. In part 101, a new Sec. 101.9 is added to read as follows:

Sec. 101.9 Test programs or procedures; alternate requirements.

(a) General testing. For purposes of conducting a test program or

procedure designed to evaluate the effectiveness of new technology or

operational procedures regarding the processing of passengers, vessels,

or merchandise, the Commissioner of Customs may impose requirements

different from those specified in the Customs Regulations, but only to

the extent that such different requirements do not affect the

collection of the revenue, public health, safety, or law enforcement.

The imposition of any such different requirements shall be subject to

the following conditions:

(1) Defined purpose. The test is limited in scope, time, and

application to such relief as may be necessary to facilitate the

conduct of a specified program or procedure;

(2) Prior publication requirement. Whenever a particular test

allows for deviation from any regulatory requirements, notice shall be

published in the Federal Register not less than thirty days prior to

implementing such test, followed by publication in the Customs

Bulletin. The notice shall invite public comments concerning the

methodology of the test program or procedure, and inform interested

members of the public of the eligibility criteria for voluntary

participation in [[Page 14215]] the test and the basis for selecting

participants.

(b) NCAP testing. For purposes of conducting an approved test

program or procedure designed to evaluate planned components of the

National Customs Automation Program (NCAP), as described in section

411(a)(2) of the Tariff Act of 1930 (19 U.S.C. 411), the Commissioner

of Customs may impose requirements different from those specified in

the Customs Regulations, but only to the extent that such different

requirements do not affect the collection of the revenue, public

health, safety, or law enforcement. In addition to the requirement of

paragraph (a)(1) of this section, the imposition of any such different

requirements shall be subject to the following conditions:

(1) Prior publication requirement. For tests affecting the NCAP,

notice shall be published in the Federal Register not less than thirty

days prior to implementing such test, followed by publication in the

Customs Bulletin. The notice shall invite public comments concerning

any aspect of the test program or procedure, and inform interested

members of the public of the eligibility criteria for voluntary

participation in the test and the basis for selecting participants;

and,

(2) Post publication requirement. Within a reasonable time period

following the completion of the test, a complete description of the

results shall be published in both the Federal Register and the Customs

Bulletin.

Approved: February 21, 1995.

George J. Weise,

Commissioner of Customs.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 95-6525 Filed 3-15-95; 8:45 am]

BILLING CODE 4820-02-P