Assessment of Liquidated Damages Regarding Imported Merchandise That is Not Admissible Under the Food, Drug and Cosmetic Act

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 12, 113 and 141

RIN 1515-AC45

Assessment of Liquidated Damages Regarding Imported Merchandise

That is Not Admissible Under the Food, Drug and Cosmetic Act

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend the Customs Regulations to

provide for the assessment of liquidated damages equal to the domestic

value of the merchandise in the case of merchandise that is not

admissible under the provisions of the Food, Drug and Cosmetic Act and

that is not treated or otherwise disposed of in accordance with that

Act. The document also proposes to amend various provisions of the

Customs Regulations pertaining to customs bonds to provide for

liquidated damages of three times the appraised value of the

merchandise in the case of merchandise that is restricted or prohibited

from entry. Finally, the document sets forth a proposed editorial

correction within one of the sections of the Customs Regulations

pertaining to Customs bonds. The substantive changes reflected in the

proposed amendments are intended to enhance the effectiveness of the

affected regulatory provisions by increasing and clarifying the

potential liability for the payment of liquidated damages by principals

and sureties on customs bonds.

DATES: Comments must be received on or before October 1, 1999.

ADDRESSES: Written comments (preferably in triplicate) may be addressed

to the Regulations Branch, Office of Regulations and Rulings, U.S.

Customs Service, 1300 Pennsylvania Avenue, N.W., Washington, D.C.

20229. Comments submitted may be inspected at the Regulations Branch,

Office of Regulations and Rulings, U.S. Customs Service, 1300

Pennsylvania Avenue, N.W., 3rd Floor, Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch (202-

927-2344).

SUPPLEMENTARY INFORMATION:

Background

Section 801 of the Food, Drug and Cosmetic Act, as amended (21

U.S.C. 381), and the regulations promulgated thereunder, provide the

basic legal framework governing the importation of foodstuffs into the

United States. Under 21 U.S.C. 381(a), the Secretary of Health and

Human Services is authorized to refuse admission of, among other

things, any article that is adulterated, misbranded or has been

manufactured, processed or packed under insanitary conditions. The

Secretary of the Treasury is required by section 381(a) to cause the

destruction of any article refused admission unless the article is

exported, under regulations prescribed by the Secretary of the

Treasury, within 90 days of the date of notice of the refusal or within

such additional time as may be permitted pursuant to those regulations.

Under 21 U.S.C. 381(b), pending decision as to the admission of an

article being imported or offered for import, the Secretary of the

Treasury may authorize delivery of such article to the owner or

consignee upon the execution of a good and sufficient bond providing

for the payment of liquidated damages in the event of default as may be

required pursuant to regulations of the Secretary of the Treasury. In

addition, section 381(b) allows the owner or consignee in certain

circumstances to take action to bring an imported article into

compliance for admission purposes, under such bonding and other

requirements as the Secretary of the Treasury may prescribe by

regulation.

Based upon the above statutory authority, imported foodstuffs are

conditionally released under bond while determinations as to

admissibility are made; see Sec. 12.3 of the Customs Regulations (19

CFR 12.3). Under Sec. 141.113(c) of the Customs Regulations (19 CFR

141.113(c)), Customs may demand the return to Customs custody of most

types of merchandise that fail to comply with the laws or regulations

governing their admission into the United States (also referred to as

the redelivery procedure). The condition of the basic importation and

entry bond contained in Sec. 113.62(d) of the Customs Regulations (19

CFR 113.62(d)) sets forth the obligation of the importer of record to

timely redeliver released merchandise to Customs on demand and provides

that a demand for redelivery will be made no later than 30 days after

the date of release of the merchandise or 30 days after the end of the

conditional release period, whichever is later. Failure to meet the

obligation to redeliver contained in Sec. 113.62(d) will create a

potential liability for the payment of liquidated damages under the

terms of the bond.

Use of the Domestic Value Standard for Liquidated Damages

In an April 1998 report to the Chairman of the Permanent

Subcommittee on Investigations, Committee on Governmental Affairs, U.S.

Senate, on the subject of food

[[Page 41852]]

safety, the United States General Accounting Office (GAO) determined

that federal efforts to ensure the safety of imported foods were

inconsistent and unreliable. Among its specific conclusions, the GAO

report indicated that a weakness existed in the Customs bond structure

in that liquidated damages arising from breach of obligations to

redeliver merchandise for which admission was refused did not represent

a deterrent to the importation of unsafe products.

In response to this study, Customs is proposing in this document to

amend Sec. 12.3 of the Customs Regulations (19 CFR 12.3) by designating

the present text as paragraph (a) and adding a new paragraph (b) that

would refer specifically to the assessment of liquidated damages with

regard to any food, drug, device or cosmetic that is not redelivered

into Customs custody or otherwise treated or disposed of within the

time period prescribed by law after such merchandise has been found to

be inadmissible pursuant to the provisions of the Food, Drug and

Cosmetic Act. The proposed new paragraph (b) specifically provides for

the assessment of liquidated damages in an amount equal to the domestic

value of the merchandise at the time of entry as if it had not been

refused admission or otherwise found to be noncompliant. The meaning of

domestic value as set forth in Sec. 162.43(a) of the Customs

Regulations (19 CFR 162.43(a)) for purposes of seized merchandise (that

is, ``the price at which such or similar property is freely offered for

sale at the time and place of appraisement, in the same quantity or

quantities as seized, and in the ordinary course of trade'') would be

used as the basis for calculating the liquidated damages.

Use of the ``Three Times'' Value Standard for Prohibited Merchandise

The conditions of the basic importation and entry bond set forth in

Sec. 113.62 of the Customs Regulations (19 CFR 113.62), the conditions

of the basic custodial bond set forth in Sec. 113.63 of the Customs

Regulations (19 CFR 113.63), the conditions of the international

carrier bond set forth in Sec. 113.64 of the Customs Regulations (19

CFR 113.64), the conditions of the commercial gauger and commercial

laboratory bond set forth in Sec. 113.67 of the Customs Regulations (19

CFR 113.67), and the conditions of the foreign trade zone operator bond

set forth in Sec. 113.73 of the Customs Regulations (19 CFR 113.73)

prescribe, as a consequence of default, the assessment of liquidated

damages equal to three times the appraised value of the merchandise

involved in the default if that merchandise is ``restricted merchandise

or alcoholic beverages.'' Similar language is also used in

Sec. 141.113(h) of the Customs Regulations (19 CFR 141.113(h)), which

recites the liquidated damages that may be assessed for failure to

comply with a demand for return of merchandise to Customs custody.

A question has arisen whether the higher ``three times'' standard

for liquidated damages would be appropriate when the merchandise

involved is prohibited from entry. While it remains Customs position

that the regulatory provisions referred to above permit the assessment

of three times the appraised value of the merchandise when the

merchandise involved is prohibited, this document proposes to amend

those regulatory provisions to explicitly provide for the assessment of

three times the appraised value of the merchandise involved when that

merchandise is restricted ``or prohibited.''

Editorial Correction

Finally, this document proposes to make an editorial correction to

the first sentence of Sec. 113.62(l)(1) of the Customs Regulations (19

CFR 113.62(l)(1)), which sets forth consequences of default. This

sentence refers to ``conditions (a), (g), or (i)'' as exceptions to the

general rules regarding the amount of liquidated damages that may be

assessed (that is, the value of, or three times the value of, the

merchandise involved in the default). However, the sentence in question

also should exclude condition (k) of Sec. 113.62, for which a different

level of liquidated damages (that is, $100 per thousand board feet of

the imported lumber) is prescribed in paragraph (l)(5) of that section.

Comments

Before adopting these proposed regulatory amendments as a final

rule, consideration will be given to any written comments timely

submitted to Customs, including comments on the clarity of this

proposed rule and how it may be made easier to understand. Comments

submitted will be available for public inspection in accordance with

the Freedom of Information Act (5 U.S.C. 552), Sec. 1.4, Treasury

Department Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs

Regulations (19 CFR 103.11(b)), on regular business days between the

hours of 9:00 a.m. and 4:30 p.m. at the Regulations Branch, Office of

Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania

Avenue, N.W., 3rd Floor, Washington, D.C.

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 proposed amendments, if

adopted, will not have a significant economic impact on a substantial

number of small entities. The proposed regulatory amendments will not

require any additional action on the part of the public but rather are

intended to facilitate Customs enforcement efforts involving existing

import requirements. Accordingly, the proposed amendments are not

subject to the regulatory analysis or other requirements of 5 U.S.C.

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

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

List of Subjects

19 CFR Part 12

Bonds, Customs duties and inspection, Labeling, Marking, Prohibited

merchandise, Reporting and recordkeeping requirements, Restricted

merchandise, Seizure and forfeiture, Trade agreements.

19 CFR Part 113

Bonds, Customs duties and inspection, Imports, Reporting and

recordkeeping requirements, Surety bonds.

19 CFR Part 141

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

Prohibited merchandise, Release of merchandise.

Proposed Amendments to The Regulations

For the reasons stated above, it is proposed to amend parts 12, 113

and 141 of the Customs Regulations (19 CFR parts 12, 113 and 141) as

set forth below.

PART 12--SPECIAL CLASSES OF MERCHANDISE

1. The general authority citation for part 12 continues to read,

and the specific authority citation for Sec. 12.3 is revised to read,

as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,

Harmonized Tariff Schedule of the United States (HTSUS), 1624.

* * * * *

Section 12.3 also issued under 7 U.S.C. 135h, 21 U.S.C. 381;

* * * * *

2. Section 12.3 is revised to read as follows:

[[Page 41853]]

Sec. 12.3 Release under bond; liquidated damages.

(a) Release. No food, drug, device, cosmetic, pesticide, hazardous

substance or dangerous caustic or corrosive substance that is the

subject of Sec. 12.1 will be released except in accordance with the

laws and regulations applicable to the merchandise. Where any

merchandise that is the subject of Sec. 12.1 is to be released under

bond pursuant to regulations applicable to that merchandise, a bond on

Customs Form 301, containing the bond conditions set forth in

Sec. 113.62 of this chapter, shall be required.

(b) Liquidated damages. Whenever liquidated damages arise with

regard to any food, drug, device or cosmetic subject to Sec. 12.1(a)

for failure to redeliver merchandise into Customs custody or for

failure to rectify any non-compliance with the applicable provisions of

admission, including the failure to export or destroy the merchandise

within the time period prescribed by law after the merchandise has been

refused admission pursuant to the provisions of the Food, Drug, and

Cosmetic Act, those liquidated damages will be assessed in an amount

equal to the domestic value (see Sec. 162.43(a) of this chapter) of the

merchandise at the time of entry as if the merchandise were admissible

and otherwise in compliance.

PART 113--CUSTOMS BONDS

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

follows:

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

* * * * *

Sec. 113.62 [Amended]

2. In Sec. 113.62, paragraph (l)(1) is amended by removing the

words ``conditions (a), (g), or (i)'' and adding, in their place, the

words ``conditions (a), (g), (i), or (k)'' and by adding the words ``or

prohibited'' after the word ``restricted''.

Sec. 113.63 [Amended]

3. In Sec. 113.63, paragraph (h)(1) is amended by adding the words

``or prohibited'' after the word ``restricted''.

Sec. 113.64 [Amended]

4. In Sec. 113.64, the second sentence of paragraph (b) is amended

by adding the words ``or prohibited'' after the word ``restricted''.

Sec. 113.67 [Amended]

5. In Sec. 113.67, paragraphs (a)(2)(i) and (b)(2)(i) are amended

by adding the words ``or prohibited'' after the word ``restricted''.

Sec. 113.73 [Amended]

6. In Sec. 113.73, the second sentence of paragraph (a)(2) is

amended by adding the words ``or prohibited'' after the word

``restricted''.

PART 141--ENTRY OF MERCHANDISE

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

follows:

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

* * * * *

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

Sec. 141.113 [Amended]

2. In Sec. 141.113, the first sentence of paragraph (h) is amended

by adding the words ``or prohibited'' after the word ``restricted''.

Raymond W. Kelly,

Commissioner of Customs.

Approved: June 17, 1999.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 99-19636 Filed 7-30-99; 8:45 am]

BILLING CODE 4820-02-P