[Federal Register Volume 59, Number 217 (Thursday, November 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27905]


[[Page Unknown]]

[Federal Register: November 10, 1994]


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DEPARTMENT OF THE TREASURY
19 CFR Part 171

(T.D. 94-89)

 

Penalty Guidelines Applicable to Transshipped Textiles and 
Textile Products

AGENCY: Customs Service, Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the revised penalty guidelines pertaining 
to section 592 of the Tariff Act of 1930, as amended, by adopting the 
interim rule that added, as an example of an aggravating factor in 
arriving at a final administrative penalty decision, violations 
involving the illegal importation and entry of transshipped textiles 
and textile products. This amendment will enhance the U.S. textile 
import program and other programs or laws administered or enforced by 
Customs which involve a determination of the country of origin of 
imported merchandise.

DATES: Final rule is effective on November 10, 1994. This final rule is 
applicable to all textiles and textile products entered or withdrawn 
from warehouse for consumption, on or after, November 10, 1994.

FOR FURTHER INFORMATION CONTACT: Robert Pisani, Penalties Branch, 
Office of Regulations and Rulings (202-482-6950).

SUPPLEMENTARY INFORMATION:

Background

    Customs is confronted with a continuing problem involving textiles 
and textile products which, after exportation from their country of 
origin, are transshipped through a second country, thereby facilitating 
a false or otherwise unlawful statement, act, or omission regarding the 
country of origin of the merchandise when ultimately imported and 
entered in the United States. Such statements, acts or omissions may 
impinge on a number of programs or laws administered or enforced by 
Customs, including country of origin marking requirements, textile 
quota limitations and visa requirements under the U.S. textile import 
program, duty assessment and collection, and collection of trade 
statistics. The consequences of such unlawful statements, acts or 
omissions may include interference with the consumer's right to make an 
informed decision regarding a prospective purchase, undermining of 
bilateral and multilateral textile agreements to which the United 
States is a party and with resulting injury to domestic producers of 
textiles and textile products, loss of revenue, and inability to 
maintain proper trade statistics to support overall U.S. trade policy 
and analysis.
    Under section 592 of the Tariff Act of 1930, as amended (19 U.S.C. 
1592), a penalty may be assessed against any party who has committed 
fraud, gross negligence or negligence in connection with the unlawful 
entry of any merchandise in the United States, including textiles and 
textile products that have been transshipped in the circumstances 
described above. Provisions relating to the filing of petitions, and 
action upon petitions, for relief from fines, penalties and forfeitures 
incurred under laws administered by Customs, including penalties under 
section 592, are set forth in Part 171 of the Customs Regulations (19 
CFR Part 171). Appendix B to Part 171 sets forth Revised Penalty 
Guidelines under section 592. Although Appendix B is not intended to 
have regulatory effect, it represents the official Customs position 
regarding the standards that are generally applicable to the 
administrative review of petitions for remission or mitigation of 
penalties incurred under section 592. Appendix B includes, in section 
(G), certain factors that may be determined by Customs to be 
aggravating factors in arriving at a final administrative penalty 
decision. Appendix B is currently undergoing review within Customs with 
a view to publication of a proposed revision of those guidelines, with 
opportunity for public comment, in the near future.
    Notwithstanding the upcoming revision of Appendix B to Part 171 and 
the intended solicitation of public comments thereon, Customs 
determined that immediate action should be taken in a penalty 
mitigation context to address the textile and textile products 
transshipment problem described above. Customs notes that 
transshipments have resulted in material false statements, acts or 
omissions regarding the country of origin of the imported merchandise, 
including false designations of origin. Consequently, it is Customs 
position that transshipment must be susceptible to treatment as an 
aggravating factor in arriving at a final mitigated section 592 penalty 
decision under Part 171 of the regulations.
    On March 30, 1994, Customs published as T.D. 94-29 an interim rule 
in the Federal Register (59 FR 14745) to amend section (G) of Appendix 
B to Part 171 by adding a reference to ``transshipment in the case of 
textiles and textile products affecting a country of origin 
determination'' as an aggravating factor. Although this change was 
effective for merchandise entered, or withdrawn from warehouse for 
consumption, on or after April 1, 1994, Customs stated that it would 
consider any comments submitted.
    Customs received eleven comments in response to the interim rule. 
The comments received, and Customs responses to them, where 
appropriate, are set forth below.

Comment Analysis

    The comments received ostensibly fell into two categories: those 
unequivocally endorsing the interim rule as written (three comments); 
and those opposing the interim rule or seeking to limit its application 
(eight comments).

Comments Supporting the Interim Rule

    The three commenters supporting the interim rule expressed concern 
over Customs ability to combat transshipment resulting in an unlawful 
entry of textiles and textile products, and were of the opinion that 
the interim rule, as written, would serve as a useful deterrent to such 
unlawful practices.

Comments Opposing the Interim Rule

    Regarding the eight commenters opposing the interim rule or seeking 
to limit its application, three claimed that the interim rule unfairly 
discriminated against textile importers by holding such importers to a 
higher standard of care than that required of parties importing other 
merchandise. Two of these three commenters indicated that it was 
illogical for Customs to consider the act of transshipment an 
aggravating factor when, in fact, the act of transshipment constitutes 
the violation in question or, at least, an element of the violation. 
Put another way, these two commenters were of the opinion that 
aggravating factors cannot constitute the violation in question. 
Otherwise, according to one of these commenters, undervaluation 
logically would have to be an aggravating factor in cases involving 
understatement of value.
    Two other commenters stated that the interim rule should be limited 
in its application to those instances where the importer had actual 
knowledge of the improper transshipment of the textile products at 
issue.
    Regarding the remaining three commenters fully opposed to the 
interim rule, they objected on the basis that the rule constituted the 
imposition of unfair additional penalties and that mitigation in such 
cases would become meaningless. These commenters felt that existing 
guidelines were adequate and that the interim rule was not in keeping 
with the spirit of the recently enacted Customs Modernization Act. One 
of these commenters also expressed concern that the rule would permit 
Customs to raise the assessed penalty in cases involving transshipment. 
Finally, one of the commenters indicated that rules such as the interim 
rule have forced the closure of his apparel importing company.

Customs Response

    Customs acknowledges the concerns expressed by those commenters 
opposed to the interim rule on the basis that the rule discriminates 
against textile importers, but the importing community and domestic 
industry must, in Customs opinion, acknowledge the dilemma faced by the 
agency, namely, balancing the interests of the importer against the 
explosion of illegal transshipments to the United States. Aside from 
the obvious negative impact such shipments can have on domestic 
industry, illegally transshipped goods deceive U.S. consumers regarding 
the country of origin of imported merchandise, as well as distort the 
application of bilateral agreements with our trading partners. When 
faced with similar situations, Customs has had to take enforcement 
actions which focus on specific commodities or types of merchandise. In 
effect, the interim rule provides a warning to textile importers about 
the threat of illegal transshipment and suggests that such importers 
take extra pre-importation measures to ensure the accuracy of the 
country of origin of the products in question.
    Contrary to some commenters' views, it is clear that these textile 
transshipments do not, per se, constitute a violation of section 1592. 
Such transshipments may, or may not, result in false statements 
concerning the country of origin on entry documents, or goods being 
falsely marked with an incorrect country of origin. Consequently, a 
violation occurs at the time when the transshipped textile goods arrive 
for entry in the United States and are falsely marked, or the entry 
documents contain culpable, material false statements, omissions or 
acts. In other words, with respect to the circumstances under 
discussion, the act of textile transshipment does not, in and of 
itself, constitute a violation of section 1592.
    With respect to those commenters who recommended implementation of 
the rule provided that it only apply to those instances where the 
importer has actual knowledge of the improper transshipment, Customs 
notes that application of this aggravating factor would first require 
that Customs establish a violation of section 1592. If the importer is 
an innocent party to the transaction, then that importer will not be 
considered culpable, and therefore, cannot be charged with a violation 
of section 1592.
    Customs also would like to clear up what appears to be a 
misunderstanding regarding the meaning of the term ``aggravating 
factor'' and the practical impact of the presence of an aggravating 
factor in a penalty situation. First, as indicated above, aggravating 
factors alone do not constitute a violation of section 1592. Second, 
contrary to some commenters' belief, the presence of an aggravating 
factor does not increase or decrease the asserted level of culpability 
set forth in Customs section 1592 prepenalty and/or penalty notices. 
For example, in the case of an importer's material grossly negligent 
false statement of origin on an entry document, Customs does not 
increase the asserted level of culpability to fraud because the goods 
were transshipped. Rather, in arriving at the administrative 
disposition in a penalty action, Customs treats the presence of an 
aggravating factor (designated as such in the Customs guidelines) as an 
offset to the presence of a mitigating factor. It should also be noted 
that because the interim rule involves Customs penalty guidelines and 
such guidelines are neither statutory nor regulatory, per se, certain 
circumstances may warrant deviation from the ordinary application of 
the guidelines.
    Customs also is of the opinion that the interim rule is, in fact, 
in keeping with the spirit of the Customs Modernization provisions 
(Title VI) of the North American Free Trade Agreement Implementation 
Act (the Act), Public Law 103-182, 107 Stat. 2057 (December 8, 1993). 
Both the language of the Act and its legislative history clearly set 
forth the concepts of ``shared responsibility'' and ``informed 
compliance'' as critical to its effectiveness and application. In the 
instant situation, the interim rule is one of the measures Customs 
intends to use to address the significant problem of illegal 
transshipment. The interim rule informs the textile importer that he or 
she can avoid application of the interim rule by taking adequate 
measures prior to importation to attempt to ensure the accuracy and 
completeness of the information provided to Customs at the time of 
entry, including proper marking or other indication of the country of 
origin of the articles. In light of the problems associated with 
illegal transshipment, Customs believes that it is not unreasonable to 
expect textile importers to exert diligence in attempting to verify the 
source of their goods prior to importation commensurate with the 
statutory requirement to exercise reasonable care in presenting 
documentation to Customs during the entry process. If a textile 
importer can demonstrate that such measures were taken (i.e., the 
importer was not culpable and acted with reasonable care), then there 
can be no violation of section 1592 because culpability is a requisite 
element of such a violation. Put another way, the interim rule does not 
apply to those textile importers who responsibly take such adequate 
measures prior to importation.
    In view of the foregoing, Customs is adopting the text of the 
interim rule as final without change.

The 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 amendment will not have a 
significant economic impact on a substantial number of small entities. 
This document does not meet the criteria for a ``significant regulatory 
action'' as specified in Executive Order 12866.

List of Subjects in 19 CFR Part 171

    Administrative practice and procedure, Customs duties and 
inspection, Law enforcement, Penalties, Seizures and forfeitures.

Amendment to 19 CFR Chapter I

    For the reasons stated above, the interim rule amending part 171 of 
the Customs Regulations (19 CFR part 171), which was published at 59 FR 
14745-14746 on March 30, 1994 (T.D. 94-29), is adopted as a final rule 
without change.
Michael H. Lane,
Acting Commissioner of Customs.
    Approved: October 24, 1994.
Dennis M. O'Connell,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 94-27905 Filed 11-9-94; 8:45 am]
BILLING CODE 4820-02-P