Temporary Importation Bonds; Anticipatory Breach, Assessment Amounts, Petitions for Relief

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