Announcement of National Customs Automation Program Test Regarding Reconciliation

DEPARTMENT OF THE TREASURY

Customs Service

Announcement of National Customs Automation Program Test

Regarding Reconciliation

AGENCY: US Customs Service, Department of Treasury.

ACTION: General notice.

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SUMMARY: This notice announces Customs' plan to conduct a third

prototype test of Reconciliation. The notice invites public comments

concerning any aspect of the planned test, informs interested members

of the public of the eligibility requirements for voluntary

participation, describes the basis for selecting participants, and

establishes the process for developing evaluation criteria. To

participate in this prototype test, the necessary information, as

outlined in this notice, must be filed with Customs, and approval

granted. It is important to note that resources expended by the trade

and Customs on these prototypes may not carry forward to the final

program.

EFFECTIVE DATES: The test of this prototype will commence no earlier

than June 1, 1997, and will run for approximately two years, and may be

extended. The prototype will be limited to formal consumption entries

filed on or after June 1, 1997, through May 31, 1999. Applications for

participation in this prototype must be received on or before May 1,

1997. Comments concerning the test must be received on or before May 1,

1997.

ADDRESSES: Written comments regarding this notice, and information

submitted to be considered for voluntary participation in the

prototype, should be addressed to Ms. Renee Orme, Reconciliation Team,

US Customs Service, 1301 Constitution Ave, NW, Room 1322, Washington,

DC, 20229-0001.

FOR FURTHER INFORMATION CONTACT:

For operational or policy issues: Ms. Renee Orme, at (202) 927-0644.

For systems or automation issues: Mr. Alfred Morawski, at (202) 927-

1045.

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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 637 of the Act amends

Section 484 of the Tariff Act of 1930 by establishing a new subsection

(b) entitled ``Reconciliation.'' Reconciliation is a planned component

of NCAP. Section 631 authorizes tests of planned NCAP components.

Section 101.9(b) of the Customs Regulations (19 CFR101.9(b)) implements

the testing of NCAP components. See TD 95-21 (60 FR 14211, March 16,

1995). This test is established pursuant to those regulations.

Previous NCAP initiatives include Customs' prototype of remote

location filing (60 FR 17605), and the announcement of a Reconciliation

prototype for related party importers making upward adjustments to the

price of imported merchandise, pursuant to 26 U.S.C. 482 (60 FR 46141

and 60 FR 64470). On May 10, 1996, Customs announced in the Federal

Register (61 FR 21534) that it was conducting a voluntary prototype

test regarding Reconciliation, covering only entries to which anti-

dumping and countervailing duties applied, commencing July 9, 1996.

That prototype, ``RP1,'' was conducted with a very limited number of

participants, at limited locations, and generated minimal changes to

the Automated Commercial System (ACS). That prototype will conclude

when liquidation or reliquidation of all Reconciliations has become

final.

Additional prototypes of Reconciliation are being developed by

Customs to determine the systemic and operational design of the final

Reconciliation program, which will allow all filers to participate in

this type of entry process at a national level. This prototype will

test the benefits and potential problems of Reconciliation for Customs,

the trade community, and other parties impacted by this program.

I. Description of Proposed Test

The Concept of Reconciliation

Reconciliation allows an importer to provide Customs with

information (other than that related to the admissibility of

merchandise), which is not available at the time of entry summary

filing, at a subsequent time. A Reconciliation is treated as a legal

entry for purposes of liquidation, reliquidation, and protest.

A notice of intention to file a Reconciliation (``Notice of

Intent'') permits the liquidation of an entry as to all issues other

than those which are transferred to the Reconciliation. By filing a

Notice of Intent, an importer is requesting that a certain issue be

separated from the entry. The importer voluntarily requests and accepts

that the issue identified in the Notice of Intent remains open and

outstanding, and the importer remains liable for any duties, fees, and

taxes resulting from liquidation of the Reconciliation. Importers who

choose to participate in this prototype will recognize that the

liquidation of the underlying consumption entries pertains only to

those issues not identified by the importer on the Notice of Intent.

During this prototype, the importer will ``flag'' the underlying

consumption entries with an electronic indicator, which will be

sufficient to serve as the Notice of Intent.

In this prototype, the issue of the correct value of imported

merchandise (the ``value issue'') will be transferred to the

Reconciliation. The importer must exercise reasonable care in asserting

the value at the time the underlying consumption entry is filed, and

provide a good faith estimate. The value information will be updated at

the filing of the Reconciliation. Other Reconciliation issues, such as

classification, special trade programs, and antidumping and

countervailing duty, will not be included in this prototype. This

permits Customs to liquidate the underlying entries as to other issues

(e.g., classification), but the issue of value is held open at the

request of the importer, and is transferred to the Reconciliation.

Upon liquidation of any underlying entry, any decision by Customs

entering into that liquidation (e.g.,classification) may be protested

pursuant to 19 U.S.C. 1514. When the outstanding value information is

later furnished in the Reconciliation, the Reconciliation will be

liquidated. The liquidation of the Reconciliation will be posted to the

Bulletin Notice of Liquidation, and may be protested pursuant to 19

U.S.C. 1514, but the protest may only pertain to the issue of value

(i.e., the protest may not re-visit issues previously liquidated in the

underlying entry).

The Reconciliation shall be filed within 15 months of the date of

the oldest underlying consumption entry.

Absent any specified alternate procedure, the current Customs

regulations apply.

This prototype, as described below, will be the exclusive means by

which to reconcile entries on the value issue.

Prototype Objectives

The Reconciliation team's objectives for this prototype are:

1. To work with the trade community, other agencies, and other

parties impacted by this program in the design, conduct, and evaluation

of the prototype;

2. To obtain experience through the prototype for use in the design

of operational procedures, automated systems, and regulations;

3. To implement Reconciliation on a national level in conjunction

with the Trade Compliance Redesign.

Description of the Prototype

The purpose of this prototype is to test operational issues

regarding the establishment of standard operating procedures for

Reconciliation on a national scale. Customs would like to afford the

opportunity to participate to all those who volunteer for the test.

However, the number of participants may be limited in view of the fact

that this prototype will be conducted with minimal changes to

automation, requiring Customs to manually intervene in tracking and

processing. It is important to note that Customs intends to focus

primarily on the value issues of ``9802'' (maquiladora) concerns and

non-dutiable freight charges in the steel industry. The trade is

encouraged, however, to bring other appropriate value issues to our

attention for consideration for the prototype.

Only certain service ports are currently scheduled to participate

in this prototype (please see section entitled ``Prerequisites'').

However, a participant may file a Reconciliation in each selected port

in which underlying entries were filed (i.e., an importer may file the

Reconciliation in Laredo provided that all of the underlying

consumption entries were filed in Laredo).

For the duration of this prototype, Customs will not process

drawback claims (including accelerated drawback) filed against entries

flagged for Reconciliation, until after the Reconciliation entry is

liquidated. (Please refer to section V.1., ``Liquidation of

Reconciliation Entry.'')

It is important to note that Reconciliation procedures are designed

to closely parallel actual business practice in the trade. As intended

by the Act, liquidation of the non-

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Reconciliation issues on the underlying entries will result in a

reduction of contingent liabilities for the importer. An additional

benefit for the trade is that Reconciliation allows the importer

additional time after filing an entry to secure the pertinent value

information.

Standard Operating Procedures

I. Initial Interview

1. Upon an importer's acceptance into the pilot, Customs port

personnel will interview the company's representatives to discuss the

specific value issue to be reconciled, the merchandise and Harmonized

Tariff System (HTS) classification, which ports the importer uses, and

whether the importer has requested Reconciliation in another port.

2. During the interview, the approved value issue is documented.

This permits Customs to liquidate the underlying consumption entries

concerning all other issues (e.g., classification), but to hold open

the issue of value, at the request of the importer, and transfer it to

the Reconciliation entry.

3. The approved importer must appear as the importer of record on

each of the entries designated for Reconciliation.

II. Importer Files ``Flagged'' Consumption Entries

1. Any formal consumption entry (type 01 or 02) that is subject to

Reconciliation for the approved value issue must be filed via the

Automated Broker Interface (ABI) ``EI'' (entry summary) application. An

electronic indicator, or ``flag,'' signifying that these entries are to

be reconciled for the approved value issue, must be provided at the

header level. The flag designates that the approved value issue for the

entire entry summary (not just a specific line) is subject to

Reconciliation. The Reconciliation entry must be filed within 15 months

of the date of the oldest of these underlying entry summaries.

2. For purposes of this prototype, the ``flag'' serves as the

importer's Notice of Intent to file a Reconciliation entry.

3. The importer must use reasonable care in asserting the value for

the consumption entry, providing a good faith value estimate, and

depositing the appropriate duties, taxes, and fees.

III. Importer Electronically Transmits the Association File

1. When the importer has completed the information-gathering, and

has the answer to the value issue in question on the Reconciliation,

the filer will electronically (via ABI) transmit an ``association

file'' to Customs. The association file will consist of the following

data elements:

a. the Reconciliation entry number

b. all of the associated (underlying) consumption entry numbers

which were previously flagged as being subject to Reconciliation

c. the total amount of duty, fees, and taxes (broken out by ``class

code'') which should have been paid for each of the underlying

consumption entries, had the complete information been available to the

importer at the time of filing of that entry summary.

EXAMPLE (association file):

Header: Reconciliation Entry Number XXX

Detail: Flagged Consumption Entry #123

Total Reconciled Duty = $500

Total Fees = $25

Flagged Consumption Entry #456

Total Reconciled Duty = $1,000

Total Fees = $35

(etc.)

2. Transmission of the association file must occur within 15 months

of the date of the oldest underlying entry summary.

3. The importer must clearly document how the information in the

association file was derived, and provide all supporting documentation

to Customs when the Reconciliation entry is filed.

IV. Importer Manually Files the Reconciliation Entry

1. In conjunction with the ABI transmission of the association

file, the importer/filer will manually submit the Reconciliation entry

(entry type 09). Entry type 09 cannot be filed via ABI, because of

limited Customs automation capability for this prototype. The

Reconciliation must be manually filed on a CF7501, within 15 months of

the date of the oldest underlying consumption entry. The Reconciliation

should include no fewer than 10 underlying entries.

2. The Reconciliation must include complete supporting

documentation for the information provided, to substantiate the

importer's claim. The supporting documentation must include details at

the entry line level. Supporting documents may include, but are not

limited to:

a. detailed line-level spreadsheets

b. landed cost analysis sheets

c. invoices, purchase orders, and contracts.

3. Adequate bonding will be required for each Reconciliation. Since

there is no additional liability created on the Reconciliation, the

bond filed on the underlying entries will in most cases suffice.

4. The manual Reconciliation entry header data elements will

include, but are not limited to:

a. Reconciliation entry number

b. Reconciliation entry type (09)

c. IRS number

d. Bond type/number

e. Port of entry code

f. Surety code

g. Summary date of oldest underlying consumption entry

h. Reconciliation date.

5. The Reconciliation entry line data elements will include, but

are not limited to:

a. Reconciliation issue

b. Country of Origin

c. SPI (if any)

d. HTS number

e. Quantity

f. Value

g. Charges.

6. Each Reconciliation line item will be consolidated for all of

the underlying consumption entries listed in the association file. To

meet certain requirements of the Bureau of Census, each different HTS

number will require a separate line. The reconciled (or corrected)

information will be included below the consolidated (original)

information, as follows:

EXAMPLE (Reconciliation entry line item)

001 Issue: Value

(Original) C/O SPI HTS

Quantity Value Charges

(Corrected) C/O SPI HTS

Quantity Value Charges

V. Liquidation of Reconciliation Entry

1. The Reconciliation entry will be reviewed and liquidated, and a

bill or refund will normally be issued (as appropriate) against each

underlying consumption entry, calculated against the duty as shown in

the association file. Importers will recognize that there may be

instances where no bill or refund is necessary, based on the

information provided. Customs will calculate any interest due in any

case.

2. On a matter of dispute, the importer may follow normal protest

procedures (pursuant to 19 U.S.C. 1514) with regard to the

Reconciliation entry.

Prerequisites for Reconciliation Under this Prototype

A. Common Elements: Each Reconciliation under this prototype will

be limited to entries filed by one importer and one filer, and in one

port location. Importers who file entries at more than one port may

participate at more than one port, if the other prerequisites are met;

however, they must file a separate Reconciliation for

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each port used. Further, the Reconciliation must be filed in the same

port as the underlying consumption entries covered by the

Reconciliation. Value is the only issue which may be reconciled under

this prototype.

B. Bonding: Adequate bonding will be required for each

Reconciliation. Since there is no additional liability created on the

Reconciliation, the bond filed on the underlying entries will in most

cases be used to cover the Reconciliation. However, Customs will

analyze each participant's individual situation, and take action to

ensure that sufficient bond coverage exists. While Customs prefers to

have one common set of legally responsible parties for each

Reconciliation, importers with entries which were secured by more than

one surety will not necessarily be excluded from participation in this

prototype.

C. Eligible Entries: Only entry types 01 and 02, for formal

consumption entries, will be eligible for this prototype. Antidumping/

countervailing duty entries (entry types 03 and 07) and warehouse

withdrawals (entry types 31, 32, 34, and 38) are not eligible for

participation. Entry type 09, the Reconciliation entry, will be created

effective with this prototype.

D. Time Frame: This prototype is scheduled to begin no sooner than

June 1, 1997, and run for 24 months, unless Customs decides to extend

it. The prototype will be limited to formal consumption entries filed

on or after June 1, 1997, through May 31, 1999. It is important to note

that, although the test has concluded, Customs will liquidate

Reconciliation entries after the closing date of the test.

E. Port Locations: The following are service port locations which

will be operational under this prototype: Chicago, Detroit, El Paso,

Houston, Laredo, Los Angeles, New Orleans, Nogales, and San Diego. We

will consider including other service ports, based on requests from

applicants. If Customs decides to expand to other ports, we will issue

a notice to the Customs Electronic Bulletin Board, and will accordingly

extend the deadline for applying to participate in the prototype.

F. Liquidation: Importers who choose to participate in this

prototype will recognize that the liquidation of the underlying entries

pertains only to those issues not identified by the importer as

reconcilable (i.e., issues other than value). Upon liquidation of the

underlying entries, any decisions of the Customs Service entering into

that liquidation can be protested pursuant to 19 U.S.C. 1514. The

liquidation of the Reconciliation will be posted to the Bulletin Notice

of Liquidation, and may be protested (pursuant to 19 U.S.C. 1514).

Regulatory Provisions Suspended

Certain requirements of Section 113.62 of the Customs Regulations

(19 CFR 113.62), pertaining to basic importation and entry bond

conditions, will be suspended during this prototype test. Certain

provisions in Parts 141 and 142 of the Customs Regulations (19 CFR 141

and 19 CFR 142), pertaining to entry, and of Part 159 of the Customs

Regulations (19 CFR Part 159), pertaining to liquidation of duties,

will also be suspended during this prototype test.

Absent any specified alternate procedure, the current regulations

apply.

II. Eligibility Criteria

The following requirements must be met to be considered for

selection in this prototype:

1. No fewer than 10 entries may be subject to a single

Reconciliation.

2. Adequate bond coverage must exist for the Reconciliation.

3. Participants may not be the subject of a current investigation

by the Customs Service. Closed investigations will not necessarily

preclude an importer from participating. However, the findings will be

taken into consideration, as will the importer's demonstrated efforts

to correct past problems.

4. Participants must be capable of submitting certain information

electronically, via ABI.

5. Participants must agree to participate in the evaluation of this

test.

6. Only formal consumption entry types 01 and 02 will be accepted.

7. The Reconciliation and its underlying consumption entries must

be filed in the same port.

Interested candidates should note that participation in this test

will not constitute confidential information, and that lists of

participants will be made available on the Customs Electronic Bulletin

Board and the Administrative Message System.

Reconciliation Prototype Application

This notice requests importers, or their brokers and/or attorneys,

to voluntarily apply for participation in this prototype by submitting

the following information:

1. Importer name and IRS number

2. Broker name(s) and filer code(s)

3. Surety name(s) and surety code(s)

4. Bond coverage (i.e., whether a continuous and/or single entry bonds

will be used on the underlying entries)

5. Supplier name(s), address(es), and manufacturer's number

6. Commodities covered under the Reconciliation

7. Port(s) at which consumption entries and Reconciliation will be

filed

8. Number of entries anticipated to be covered by the Reconciliation

9. Point of contact and telephone number

10. Any comments on prototype participation.

This information should be submitted to Ms. Renee Orme,

Reconciliation Team, US Customs Service, 1301 Constitution Ave, NW,

Room 1322, Washington, DC, 20229-001, on or before May 1, 1997. If

Customs selects more service ports as prototype locations, the deadline

to apply will be extended to 30 days after the date of the Customs

Electronic Bulletin Board notice announcing the selections. By applying

to participate in this test, the importer is agreeing to participate

pursuant to the terms of the test as defined in this notice.

Basis for Participant Selection

Eligible importers will be considered for selection as participants

in this prototype. Selection will be based upon automation

capabilities, port of entry, and volume of entries within the

designated criteria. Customs is looking for a variety of circumstances

and participants for this prototype, within certain parameters.

However, a limited number of participants will be selected, because of

minimal automated programming available to support the test. Selected

participants will be notified in writing, and the list of participants

will be made available on the Customs Electronic Bulletin Board and the

Administrative Message System.

We stress that those applicants not selected for participation, and

other interested parties, are invited to comment on the design,

conduct, and evaluation of this prototype.

Dismissal From Prototype

If a filer attempts to submit data relating to prohibited

merchandise, or merchandise subject to antidumping or countervailing

duties, or other non-eligible data; if the filer submits non-

consumption entries; if the filer is consistently subject to a late-

file condition on the Reconciliation; if the filer refuses to supply

Customs with sufficient supporting documentation for the

Reconciliation; if the filer is habitually delinquent in the payment of

bills from Customs; or if the filer otherwise fails to follow the

procedures outlined herein, or applicable laws and regulations, then

the filer may be

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expelled from the program, and/or may be prevented from participation

in future Reconciliation prototypes, and/or may be subject to

penalties.

Any decision revoking participation may be appealed to the Director

of Trade Compliance, within 15 days of the decision date.

III. Test Evaluation Criteria

Once participants are selected, Customs will review all public

comments received concerning any aspect of the test program or

procedures, answer any questions in light of those comments, and

establish baseline measures and evaluation methods and criteria.

Interim evaluations of the prototype will be published on the Customs

Electronic Bulletin Board, and the results of the final prototype

evaluation will be published in the Federal Register as required by 19

CFR 101.9(b). The following evaluation methods and criteria have been

suggested:

1. Baseline measurements to be established through dataqueries and

questionnaires

2. Reports to be run through use of dataquery throughout the prototype

3. Questionnaires from both trade participants and Customs to be used

before, during and after the prototype period.

Customs may assess any or all of the following evaluation criteria:

1. Workload impact (workload shifts/volume, cycle times, etc.)

2. Cost savings (staff, interest, issuance of fewer checks or bills,

tracking refunds/bills, reduction in contingent liabilities, etc.)

3. Policy and procedure accommodation

4. Trade compliance impact

5. Problem resolution

6. System efficiency

7. Operational efficiency

8. Other issues identified by the participant group.

Customs will request that test participants be active in the

evaluation, identifying costs and savings experienced in this

prototype.

Dated: January 31, 1997.

Robert S. Trotter,

Acting Assistant Commissioner, Office of Field Operations.

[FR Doc. 97-2977 Filed 2-5-97; 8:45 am]

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