Treatment of Reusable Shipping Devices Arriving From Canada or Mexico

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 10 and 113

[T.D. 96-20]

RIN 1515-AB51

Treatment of Reusable Shipping Devices Arriving From Canada or

Mexico

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations to allow certain

foreign- or U.S.-manufactured shipping devices arriving from Canada or

Mexico to be released, under specified conditions, without entry and

payment of duty at the time of arrival and without the devices being

serially numbered or marked, if they are always transported on or

within either intermodal and similar containers which are themselves

vehicles or vehicle appurtenances and accessories. As millions of these

devices are used annually in hundreds of millions of transportation

moves between the United States and Canada or Mexico, Customs has

determined that requiring the importing and exporting communities to

individually mark and track these devices places a burden on commerce

that may be alleviated.

EFFECTIVE DATE: April 1, 1996.

FOR FURTHER INFORMATION CONTACT: Louis Hryniw, Regulatory Audit, (202-

927-1100).

SUPPLEMENTARY INFORMATION:

Background

Pursuant to Chapter 98, Subchapter III, U.S. Note 3, Harmonized

Tariff Schedule of the United States (HTSUS) (19 U.S.C. 1202), in order

to facilitate the prompt clearance at ports of entry of certain

substantial containers and holders, the Secretary of the Treasury is

authorized to permit the admission of such devices without entry and to

permit any duties thereon to be paid cumulatively from time to time

either before or after their importation when conditions exist which

permit adequate Customs controls to be maintained.

In this connection, Customs received a petition from, and met with

representatives of, the American Automobile Manufacturers Association

(AAMA) concerning an amendment to Sec. 10.41b, Customs Regulations (19

CFR 10.41b), intended to ease the burden of serially numbering and

marking certain containers or holders arriving from Canada or Mexico,

as otherwise generally required thereunder.

After reviewing the AAMA proposal, Customs concluded that the

requirements to serially number and mark the substantial holders and

containers in question could be eased under the circumstances without

risking a loss of control or revenue.

Accordingly, by a document published in the Federal Register on

November 1, 1994 (59 FR 54537), Customs proposed to amend Sec. 10.41b,

to allow certain foreign-made shipping devices arriving from Canada or

Mexico to be released without entry and payment of applicable duty, and

without the devices being serially numbered or marked, following the

submission and approval of an application by the importer or his agent

in this regard.

Such application had to, among other things, describe the subject

shipping devices, identify the ports where they would arrive and depart

the U.S., and set forth the program for accounting for and reporting

the shipping devices to Customs. If the application were approved, the

importer or agent would submit to Customs a periodic report for the

shipping devices, which could not be less frequent than annual, using

his own accounting and recordkeeping procedures to keep track of the

devices. Records supporting the periodic reports of the shipping

devices would have to be retained for at least 3 years from the date

the reports were filed with Customs. Any duty applicable to the devices

would have to be tendered cumulatively at the time specified in the

approved application. Such tender could not occur more than 90 days

following the end of the related reporting period.

In the event the application were to be denied by Customs at the

initial stage, a right of appeal was also provided in the proposal.

Since duty under the proposal would be due on all shipping devices

acquired within the period covered by the periodic report which the

applicant would undertake to file, even though the devices might not

have yet been used in transborder traffic, accounting for specific

movements of the devices or for diversions to domestic traffic would be

superfluous.

Eight comments, including one from the AAMA, were received in

response to the notice of proposed rulemaking, six supporting the

proposal, with one posing a number of questions regarding the bond

conditions applicable under the proposed program. Another comment

advocated that the proposal be expanded to allow substantial holders or

outer containers formally designated as ``instruments of international

traffic'' to be temporarily diverted, from time to time, to domestic

traffic without an entry being required therefore. Customs finds that

this latter comment would have to be the subject of a separate

publication, inasmuch as it clearly falls outside the scope of the

published notice.

A discussion of the specific issues that were raised with respect

to the proposed program itself, together with Customs response thereto,

is set forth below.

Discussion of Comments

Comment: The AAMA in its comment wanted the proposed regulation

clarified to state explicitly that an approval by one Customs office of

an importer's application for tracking and reporting on its shipping

devices would constitute an approval binding on all Customs offices

nationwide. Also, it was recommended that the proposed regulation be

revised to reflect the Customs Reorganization Plan, which eliminated

regional and district offices.

Response: An approval by the Customs office with which the subject

application is filed would indeed be binding on all Customs offices

nationwide. Section 10.41b(b)(4) is changed by adding an express

provision to this effect, and by deleting the provision therefrom

indicating that approval would be limited to those Customs offices

listed in the application. Likewise, Sec. 10.41b(b)(2)(ii) is changed

to make clear that only the intended ports where it is anticipated the

devices will be arriving and departing the U.S. need be listed in the

application. The applicant should of course endeavor to fully

anticipate and list in the application all ports to be involved in the

program.

Also, Sec. 10.41b(b) is changed to reflect the Customs

Reorganization Plan, by

[[Page 7988]]

providing that the application would be filed with a port director,

instead of with a district director; and by providing that a right of

appeal would lie with the Assistant Commissioner, Office of Field

Operations, rather than with a regional commissioner, should the

application be denied.

Comment: The AAMA also observed that Sec. 113.66 of the Customs

Regulations (19 CFR 113.66) cited in proposed Sec. 10.41b(b)(3)

regarding the bond requirements for the importer's recordkeeping and

reporting program did not itself make corresponding provision for these

requirements; accordingly, the AAMA recommended that Sec. 113.66 be

appropriately amended to reiterate the basic requirements set forth for

the program in proposed Sec. 10.41b(b), to which the underlying bond

would relate.

Furthermore, a surety association posed a number of questions about

the bond requirements occasioned under the proposed amendment, viewing

the proposal as appearing not to provide sufficient information in this

matter. In particular, this commenter wanted the intended coverage

under the bond clarified, together with the basis both for assessing

liquidated damages under the bond, and for setting the limit of the

bond.

Additionally, this commenter compared the 3-year record retention

requirement of the proposal to 19 U.S.C. 1508(c) which enabled Customs

to require the retention of records relating to import transactions for

up to 5 years, and asked in this context which time frame would be

applicable. This commenter further wanted to know whether the

importer's accounting or auditing records, which would be relied upon

by Customs to establish compliance with the proposed program, would be

available to the surety as well.

Response: Section 113.66 has been revised to replicate the

importer's basic recordkeeping and reporting obligations concerning the

subject shipping devices, which would be covered by the bond, as

already amply evidenced in the proposed amendment of Sec. 10.41b.

Customs believes that the proposed rule in this regard adequately

framed the subject matter thereof for effective evaluation and comment.

To this end, Sec. 113.66 is revised by redesignating paragraph (c) as

paragraph (d), and by making corresponding provision for the bond

requirements in a new paragraph (c).

In this latter respect, liquidated damages under the bond would be

determined in the manner provided in Sec. 10.41b(b)(3) and in newly

redesignated Sec. 113.66(d) (formerly Sec. 113.66(c)). Specifically, if

the conditions of the bond were violated, the port director could issue

a claim for liquidated damages in an amount equal to the domestic value

of the container.

Likewise, the setting of the bond limit will follow the existing

guidelines previously issued pursuant to Secs. 113.12 and 113.13,

Customs Regulations (19 CFR 113.12, 113.13); for activity code 3a bonds

(applicable to substantial holders or outer containers under

Sec. 10.41b), this means that bond liability would be fixed at $10,000

or such larger amount as deemed necessary to accomplish the purpose for

which the bond is given.

By the same token, a surety's access to an importer's business

records relating to the reports of its shipping devices would be

dependent, once again, on Customs existing practices in this general

area, and, in particular, on the Freedom of Information Act, as amended

(5 U.S.C. 552), and the Trade Secrets Act, as amended (18 U.S.C. 1905).

The record retention period under 19 U.S.C. 1508(c) is tied to the

date of entry. The shipping devices in question, however, will not be

subject to entry as such, and Customs is satisfied that a record

retention requirement of 3 years from the date the importer's reports

of the shipping devices are filed with Customs would be sufficient

under the circumstances.

Comment: One commenter observed that the rule should be expanded to

apply equally to similar shipping devices of U.S. manufacture, inasmuch

as they should not be placed in a less favorable competitive position

than the foreign articles.

Response: Customs agrees. Section 10.41b(b) is amended accordingly.

Comment: Two commenters asked that the program not be limited to

reusable shipping devices arriving only from Canada or Mexico. It was

stated that Part I, Article I, of the GATT (General Agreement on

Tariffs and Trade) mandated uniform treatment for like products

originating from all contracting parties.

Response: Customs has concluded that a rational basis exists for

limiting the amendment, at least initially, to reusable shipping

containers and holders arriving from Canada or Mexico, inasmuch as

these countries are contiguous to the U.S., and it is believed that the

amendment as thus circumscribed can be safely implemented without

risking a loss of revenue or a loss of effective Customs control with

respect to the shipping devices concerned. Customs thus does not

perceive this limitation on the rule as violative of the GATT.

However, Customs finds significant merit in the commenter's

request, and will proceed to expeditiously review the prospect of

further extending the program.

Conclusion

In view of the foregoing, and following careful consideration of

the comments received and further review of the matter, Customs has

concluded that the proposed amendment with the modifications discussed

above should be adopted.

In addition, in order to apprise the Customs inspector that the

shipping devices in question have been relieved from having to be

serially numbered or marked as otherwise mandated under Sec. 10.41b,

the introductory text of Sec. 10.41b(b) is revised to require that a

notation appear on the manifest for the transporting vehicle or vessel

to the effect that such shipping devices have been exempted from serial

numbering or marking requirements pursuant to an application approved

under 19 CFR 10.41b(b). Also, Customs has determined to amend

Sec. 10.41b(b)(2)(vi) in order to emphasize that the location of the

supporting records in the U.S., which is required to be identified in

the importer's application, must be so identified therein by specific

name and address; and Sec. 10.41b(b)(6) is changed to provide that if

an approved application should later be revoked by the port director,

the procedures described in Sec. 10.41b(b)(5) will apply. Furthermore,

at the end of the introductory text of Sec. 10.41b(b), a provision is

added that pallets and other solid wood shipping devices must be

accompanied by an importer document, to the extent that this is

required by the Animal and Plant Health Inspection Service, Department

of Agriculture, regarding plant pest risk.

Regulatory Flexibility Act and Executive Order 12866

For the reasons set forth in the preamble, 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, it is

not subject to the regulatory analysis requirements of 5 U.S.C. 603 and

604. Nor do the amendments result in a ``significant regulatory

action'' under E.O. 12866.

Drafting Information: The principal author of this document was

Russell Berger, Regulations Branch, U.S. Customs Service. However,

personnel from other offices participated in its development.

[[Page 7989]]

List of Subjects

19 CFR Part 10

Alterations, Bonds, Customs duties and inspection, Exports,

Imports, Preference programs, Repairs, Reporting and recordkeeping

requirements, Trade agreements.

19 CFR Part 113

Air carriers, Customs duties and inspection, Exports, Freight,

Imports, Surety bonds, Vessels.

Amendments to the Regulations

Parts 10 and 113, Customs Regulations (19 CFR parts 10 and 113),

are 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, and the specific sectional authority for part 10 is amended by

adding specific sectional authority for Sec. 10.41b, in appropriate

numerical order thereunder, to read as follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States (HTSUS)), 1321, 1481, 1484,

1498, 1508, 1623, 1624;

* * * * *

Section 10.41b also issued under 19 U.S.C. 1202 (Chapter 98,

Subchapter III, U.S. Note 3, Harmonized Tariff Schedule of the U.S.

(HTSUS));

* * * * *

2. Section 10.41b is amended by redesignating paragraphs (b), (c),

(d), (e), (f), (g) and (h) as (c), (d), (e), (f), (g), (h) and (i),

respectively, and by adding a new paragraph (b) to read as follows:

Sec. 10.41b Clearance of serially numbered substantial holders or

outer containers.

* * * * *

(b) Subject to the approval of a port director pursuant to the

procedures described in this paragraph, certain foreign- or U.S.-made

shipping devices arriving from Canada or Mexico, 12 including racks,

holders, pallets, totes, boxes and cans, need not be serially numbered

or marked if they are always transported on or within either intermodal

and similar containers or containers which are themselves vehicles or

vehicle appurtenances and accessories such as twenty and forty foot

containers of general use and ``igloo'' air freight containers. The

following or similar notation shall appear on the vehicle or vessel

manifest in relation to such shipping devices which are exempt from

serial numbering or marking requirements pursuant to this paragraph:

``The shipping devices transported herein, which are not serially

numbered or marked, have been exempted from such requirement pursuant

to an application approved under 19 CFR 10.41b(b).'' Also, pallets and

other solid wood shipping devices must be accompanied by an importer

document, to the extent that this is required by the U.S. Department of

Agriculture, Animal and Plant Health Inspection Service, attesting to

the admissibility of such devices as regards plant pest risk, as

provided for in 7 CFR 319.40-3.

(1) An importer or his agent, regardless of whether the importer is

the owner of the foreign- or U.S.-manufactured shipping devices, may

apply to a port director of Customs at one of the importer's chiefly

utilized Customs ports or the port within which the importer's or

agent's recordkeeping center is located for permission to have such

shipping devices arriving from Canada or Mexico released without entry

and payment of duty at the time of arrival and without the devices

being serially 13 numbered or marked. Application may be filed in only

one port. Although no particular format is specified for the

application, it must contain the information enumerated in paragraph

(b)(2) of this section. Any duty which may be due on these shipping

devices shall be tendered and paid cumulatively at the time specified

in an approved application, which may be either before or after the

arrival of the shipping devices in the U.S. (such as, at the time a

contract, purchase order or lease agreement is issued).

(2) The application shall:

(i) Describe the types of shipping devices covered, their

classification under the Harmonized Tariff Schedule of the U.S.

(HTSUS), their countries of origin, and whether and to whom required

duty was paid for them or when it will be paid for them, including

duties for repair and modifications to such shipping devices while

outside the U.S.;

(ii) Identify the intended ports where it is anticipated the

shipping devices will be arriving and departing the U.S., as well as

the particular movements and conveyances in which they are intended to

be utilized;

(iii) Describe the applicant's proposed program for accounting for

and reporting these shipping devices;

(iv) Identify the reporting period (which shall in no event be less

frequent than annual), as well as the payment period within which

applicable duty and fees must be tendered 14 (which shall in no event

exceed 90 days following the close of the related reporting period);

(v) Describe the type of inventory control and recordkeeping,

including the specific records, to be maintained to support the reports

of the shipping devices; and

(vi) Provide the location in the United States, including the name

and address, where the records supporting the reports will be retained

by law and will be made available for inspection and audit upon

reasonable notice. (The records supporting the reports of the shipping

devices must be kept for a period of at least 3 years from the date

such reports are filed with the port director.)

(3) The application shall be filed along with a continuous bond

containing the conditions set forth in Sec. 113.66(c) of this chapter.

If the application is approved by the port director and the conditions

set forth in the application or of the bond are violated, the port

director may issue a claim for liquidated damages equal to the domestic

value of the container. If the domestic value exceeds the amount of the

bond, the claim for liquidated damages will be equal to the amount of

the bond.

(4) The port director receiving the application shall evaluate the

program proposed to account for, report and maintain records of the

shipping devices. The port director may suggest amendments to the

applicant's proposal. The port director shall notify the applicant in

writing of his decision on the 15 application within 90 days of its

receipt, unless this period is extended for good cause and the

applicant is so informed in writing. Approval of the application by the

port director with whom it is filed shall be binding on all Customs

ports nationwide.

(5) If the decision is to deny the application, in whole or in

part, the port director shall specify the reason for the denial in a

written reply, and inform the applicant that such denial may be

appealed to the Assistant Commissioner, Office of Field Operations,

Customs Headquarters, within 21 days of its date. The Assistant

Commissioner's decision shall be issued, in writing, within 30 days of

the receipt of the appeal, and shall constitute the final Customs

determination concerning the application.

(6) If the application is approved, an importer may later apply to

amend his application to add or delete particular types of shipping

devices listed in the application in which the procedures set forth in

the application may be utilized. If a requested amendment to an

approved application should be denied, or if an approved application

should be

[[Page 7990]]

revoked, in whole or in part, by the port director, the procedures

described in paragraph (b)(5) of this section shall apply.

(7) Application for and approval of a reporting program shall not

limit or restrict the use of other alternative 16 means for obtaining

the release of holders, containers and shipping devices.

* * * * *

PART 113--CUSTOMS BONDS

1. The general authority citation for part 113 continues to read as

follows:

Authority: 19 U.S.C. 66, 1623, 1624.

* * * * *

2. Section 113.66 is amended by redesignating paragraph (c) as (d)

and by adding a new paragraph (c) to read as follows:

Sec. 113.66 Control of containers and instruments of international

traffic bond conditions.

* * * * *

(c) Agreement to comply with application approved under 19 CFR

10.41b(b). If the principal establishes a program for the cross-border

movements of shipping devices based upon an application approved as

provided in Sec. 10.41b(b) of this chapter (19 CFR 10.41b(b)), the

principal agrees:

(1) To timely file complete and accurate reports on the shipping

devices, and to pay any applicable duty due on the devices and repairs

made to such devices, as provided in the approved application;

(2) To retain complete and accurate records regarding the shipping

devices, and to make such records available to Customs for inspection

and audit upon reasonable notice, as also required in the approved

application; and

(3) To otherwise comply with every other condition of the approved

application.

Approved: January 31, 1996.

George J. Weise,

Commissioner of Customs.

Dennis M. O'Connell,

Acting Deputy Assistant Secretary of the Treasury.

[FR Doc. 96-4797 Filed 2-29-96; 8:45 am]

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