[Federal Register Volume 60, Number 51 (Thursday, March 16, 1995)]
[Rules and Regulations]
[Pages 14211-14215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6525]



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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 101

[T.D. 95-21]
RIN 1515-AB47


Test Programs

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations by adding a new 
provision that allows for test programs and procedures in general and, 
specifically, for purposes of implementing those Customs Modernization 
provisions of the North American Free Trade Agreement Implementation 
Act that provide for the National Customs Automation Program. The 
regulation allows the Commissioner of Customs to conduct limited test 
programs/procedures, which have as their goal the more efficient and 
effective processing of passengers, carriers, and merchandise. Test 
programs may impose upon eligible, voluntary participants requirements 
different from those specified in the Customs Regulations, but only to 
the extent that such different requirements do not affect the 
collection of the revenue, public health, safety, or law enforcement.

EFFECTIVE DATE: April 17, 1995.

FOR FURTHER INFORMATION CONTACT: John Durant, Director, Commercial 
Rulings Division, (202) 482-6990.

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 631 in Subtitle B of the 
Act creates sections 411 through 414 of the Tariff Act of 1930 (19 
U.S.C. 1411-1414), which define and list the existing and planned 
components of the NCAP (section 411), promulgate program goals (section 
412), provide for the implementation and evaluation of the program 
(section 413), and provide for remote location filing (section 414).
    Section 631 of the Act provides Customs with direct statutory 
authority for full electronic processing of all Customs-related 
transactions. For each planned NCAP program component, Customs is 
required to prepare a separate implementation plan in consultation with 
the trade community, establish eligibility criteria for voluntary 
participation in the program, test the component, and transmit to 
Congress the implementation plan, testing results, and an evaluation 
report. The testing of any planned NCAP components would be conducted 
under carefully delineated circumstances--with objective measures of 
success or failure, a predetermined time frame, and a defined class of 
participants. Notice of any NCAP program component testing would be 
published in both the Customs Bulletin and the Federal Register and 
participants solicited.
    In addition to testing planned NCAP components, Customs also 
proposed conducting limited test programs/procedures in other areas of 
Customs-related transactions wherein Customs and the trade community 
could benefit from the valuable information that such testing could 
provide. Thus, Customs proposed a general test authority in order both 
to meet its obligations under the NCAP legislation and to provide 
itself with the ability to obtain information necessary to predict the 
effects of various policy options.
    The regulation proposed would allow the Commissioner of Customs to 
conduct limited test programs and procedures and allow certain eligible 
members of the public to participate on a voluntary basis. Also, 
because test programs could require exemptions from regulations in 
various parts of the Customs Regulations, e.g., parts 113 (Customs 
bonds), 141 (entry of merchandise), 142 (entry process), 171 (fines, 
penalties, and forfeitures), 174 (protests), and 191 (drawback), 
participants would be subject to requirements different from those 
specified in the Customs Regulations, but only to the extent that such 
different requirements do not affect the collection of the revenue, 
public health, safety, or law enforcement. Accordingly, pursuant to the 
Secretary's authority under section 624 of the Tariff Act of 1930 (19 
U.S.C. 1624) to make such rules and regulations as may be necessary to 
carry out the provisions of the Tariff Act of 1930 and pursuant to the 
requirement set forth in section 413 of the Tariff Act of 1930 (19 
U.S.C. 1413) that the Secretary test planned NCAP program components, 
on August 16, 1994, Customs published a Notice of Proposed Rulemaking 
in the Federal Register (59 FR 41992) that proposed to amend part 101 
of the Customs Regulations (19 CFR part 101) by adding a new Sec. 101.9 
that would allow the Commissioner of Customs to conduct limited test 
programs and procedures in general and for purposes of implementing 
NCAP program components. Seven comments, most favorable to the proposed 
regulation, were received. These comments raised four areas of concern. 
The comments received and Customs responses to them are set forth 
below.

Discussion of Comments

    Comments were received from corporate sureties (1), customs brokers 
[[Page 14212]] (4), and transportation associations (2). The comments 
raised four areas of concern. The concerns relate to: (1) Generally, 
whether there will be equal opportunity to participate in tests and 
whether statutory requirements would be subject to suspension; (2) the 
manner and amount of notice that would be provided; (3) the length of 
time in which tests would be conducted; and, (4) the nature of 
voluntary participation. We address each of these concerns seriatim.

In General

    Comment: A commenter states that language should be added to 
Sec. 101.9(a) ``to protect Customs businesses'' to the effect that no 
test shall be made that will give economical advantages to one class of 
importer, exporter, carrier, customs broker, freight forwarder, or 
courier over another, or one geographic area over another.
    Customs Response: While Customs understands the commenter's 
concern, it believes that adding the suggested language to the 
regulation would unduly inhibit Customs ability to modernize, i.e., to 
streamline and automate the commercial operations of the Customs 
Service, the reason the Customs Modernization provisions were 
promulgated in the first place. The purpose of a test is to experiment 
to see if something works. Hopefully, if the test is successful, those 
who have chosen to participate will benefit. Customs, however, does not 
wish to be unfair to non-participants. Accordingly, the proposed 
regulation provides for notice in the Federal Register to the public 
when a test will be run. These notices of proposed tests will allow all 
interested parties to choose to participate and to comment on any 
problem they perceive will result from the test proposed, including a 
perceived problem of economical advantages being offered to one party 
over another. Customs, generally, will attempt to address such concerns 
before a test is run. If there are instances when Customs may need to 
conduct tests that are company-/industry-specific, so that economies of 
scale and other program parameters can be realized, the proposed 
regulation seeks to limit the advantage that the test may provide by 
requiring that the test be limited in time and scope.
    While not adding the language suggested by the commenter, Customs 
has determined, after review of this comment and others, to modify the 
proposal to broaden the notice requirements. As now drafted, the final 
regulation no longer provides that public notice is not required for 
non-NCAP tests affecting carriers and passengers. Further, the 
``whenever practicable'' language in the non-NCAP paragraph describing 
the publication requirement is removed. Instead, the regulation 
provides that whenever a particular test allows for deviation from any 
regulatory requirement, notice shall be published in the Federal 
Register not less than 30 days prior to implementing such test. Customs 
believes that this allows all Customs businesses to comment on all 
tests and provides adequate time for comments.
    Comment: Two commenters are concerned with whether tests will be 
conducted other than on a parallel basis which would violate a 
statutory requirement. One of these commenters argues that language 
should be added to Sec. 101.9(a) to the extent that no test should be 
implemented that is contrary to U.S. law, because federal agencies 
should not be allowed to set up a ``test'' as a simple way of 
circumventing the laws passed by Congress.
    Customs Response: Customs believes that it is clearly understood 
that any test programs will be consistent with statutes and, therefore, 
it is unnecessary to add language to the regulation to so indicate.

Notice

    Comment: The proposed regulatory text may not provide sureties with 
proper and timely notice of variations of its risk. The commenter, a 
corporate surety, states that notice provided ``whenever practicable'' 
or ``within a reasonable period of time'' may run contrary to the 
stated objectives of the Notice because it would ``affect the 
collection of revenue'' by varying the surety's risk under its bond. 
The obligation of a compensated surety is predicated upon certain known 
risks or underwriting components and to the extent a surety's risk is 
varied without its prior consent, sureties could be discharged from any 
obligation under their bonds. Accordingly, the commenter suggests that 
proper and timely notice of all test programs and results should be 
provided to sureties to enable them to decide whether to agree to be 
bound under a particular varied risk arising under a NCAP test program.
    Another commenter believing that the Sec. 101.9(b)(2) requirement 
for publication of complete test results ``within a reasonable time'' 
is not specific enough recommends that the regulation should provide 
that, ``unless extended by Federal Register Notice, within 60 days 
following the completion of the test, complete test results shall be 
published.'' Further, the commenter urges that the published results 
also include a list of the participants in the test.
    Customs Response: Test programs will not be run that affect the 
collection of the revenue. All duties, taxes, and fees owed to the U.S. 
by law continue to be owed by the responsible parties throughout any 
test program.
    Regarding the issue of proper and timely notice to sureties, 
Customs has modified the proposal in this final rule to provide that 
whenever a particular test allows for deviation from any regulation 
requirement, notice shall be published not less than 30 days prior to 
implementing such test. When there is publication in the Federal 
Register, such publication serves as constructive notice and is notice 
to all. Customs believes that the 30-day time frame affords interested 
sureties adequate time to discuss any of their bond conditions within 
the context of participating in a test program, and to separately 
respond to those test notices about which they may have questions 
concerning their underwritten risk. In accordance with the above, 
Customs has determined that it will not provide separate notices to 
sureties.
    Regarding the suggestion to amend the proposed regulation to 
provide that publication of complete test results be accomplished 
within 60 days unless extended by Federal Register notice, Customs does 
not agree. While in general Customs will make every effort to publish 
discrete test results as soon as possible, setting forth a specific 
time frame in the regulation--applicable to all tests results--will not 
give the Customs Service the flexibility it needs to properly evaluate 
certain NCAP program components to assess their contribution toward 
achieving specified program goals. Some tests may not be one-time 
tests, and others may build on other test results.
    Concerning publishing a list of the participants in an NCAP test, 
while Customs has no hesitation in providing this information, Customs 
does not want to routinely publish such lists. Accordingly, Customs 
will provide a list of participants upon written request and believes 
that this element of test notices need not be set forth in the 
regulation.
    Comment: A commenter states that, although notification of tests 
will be published in the Federal Register and the Customs Bulletin, 
Customs should ensure that the trade community is involved and informed 
about all of the test programs and procedures for the various 
components. Accordingly, the commenter suggests that test information 
be sent via electronic mail to the main contacts for various trade 
community representatives or that a [[Page 14213]] primary contact, 
knowledgeable of all test programs and procedures be appointed as the 
single contact for the trade community. Also, the commenter does not 
feel that the proposed regulation should further the cause for 
producing additional `paper-based' forms.
    Customs Response: Section 631 of the Act specifically requires the 
Secretary to consult with the trade community, to include importers, 
brokers, shippers, and other affected parties when developing NCAP 
program components. To this end, in addition to the regulatory 
notification requirements adopted, Customs will be placing test 
information on the Customs electronic bulletin board. As for furthering 
the need for paper-based forms, it is hoped that the need for this 
medium of information will be changed based on tests proposed to take 
advantage of new or changing technologies.
    Comment: A commenter states that proposed Sec. 101.9(a)(2) should 
be amended to require advance notification to passengers and carriers 
because tests affecting passengers will necessarily affect the carriers 
they use. Thus, carriers should be notified of proposed tests well in 
advance.
    Customs Response: As stated earlier in the document, Customs is 
modifying the proposal in this final rule to provide notice whenever a 
particular test allows for deviation from any regulation requirement.
    Comment: One commenter states that it is not at all clear from 
either the BACKGROUND section or the proposed regulatory text section 
of the Notice whether the procedures which will be tested will be in 
addition to those already required under the regulations, i.e., will 
they constitute a parallel test, or whether the current regulatory 
procedures would not be followed. If the latter is the case, proposed 
Sec. 101.9 should provide that Customs Headquarters will issue a letter 
to each participant advising them of the fact that, during the period 
of the test, they will not have to abide by certain identified 
regulation(s) or specify any other requirements.
    Customs Response: The proposal to amend Sec. 101.9 to provide that 
Customs will issue a letter to participants only advising them that 
they will not have to abide by certain identified regulation(s) or 
specify any other requirements is rejected. This approach is not in 
keeping with program requirements to consult with the trade community. 
Instead, each Federal Register notice published announcing a specific 
test will identify which, if any, regulatory requirements may be 
suspended for purposes of the test. Customs believes such publication 
will afford all interested parties an opportunity to comment on planned 
tests. Accordingly, no change to the regulation is made based on this 
comment.

Time/Duration

    Comment: A commenter believes that implementation of the proposed 
rule, as written, would mean that Customs would have carte blanche 
authority to do whatever it wanted with respect to ``testing'', 
``procedures'' or any derivation of these two words. It could conduct 
such ``tests'' or invoke such ``procedures'' for whatever period of 
time it decided--one month, one year, five years. Customs could select 
whomever it chose to participate without being subject to anyone's 
challenge. The sole interpreter would be Customs and neither importers 
nor brokers would have any timely recourse. For these reasons, it 
strongly opposes issuance of the rule as proposed; there is too big a 
chance for misuse.
    Customs Response: The purpose of publishing test proposals in the 
Federal Register is to avoid such problems. The Customs Modernization 
provisions are intended, in part, to provide safeguards, uniformity, 
and due process rights for importers. Customs believes that the 
publication requirement imposed by the proposed regulation adequately 
meets the unlimited-time-fears expressed by the commenter and affords 
all interested parties the opportunity to comment on any aspect of 
proposed tests, including the proposed length of a test. Accordingly, 
no change to the regulation is made based on this comment.
    Comment: A commenter states that the 30-day time period for giving 
notice prior to implementing a test, provided at Secs. 101.9 (a)(2) and 
(b)(1), should be increased to 60 days to allow adequate time for the 
trade community to comment on proposed tests and to give Customs time 
to review the comments before the test is put into effect. To this end 
the commenter states that Customs has, in the past, instituted 
``programs'', e.g., revising the CF 7512, which resulted in the public 
spending hundreds of thousands of dollars to acquire the new form only 
to have Customs withdraw the form because of problems with the form. 
The commenter suggests that an extended comment period will save more 
money than it costs over the long run. Further, since almost all tests 
will involve computer programming time, the trade will need the 
additional time to reprogram their computers for the test.
    Customs Response: As already stated, Customs will be publishing 
notice of proposed tests on the Customs electronic bulletin board and 
otherwise inform the trade community of pending developments. As no 
rational basis has been given to double the length of time for 
comments--from 30-days to 60-days--and the present electronic 
environment adequately affords Customs time to review comments before a 
test is implemented, no change to the regulation is made based on this 
comment.
    Comment: A commenter suggests that the ``time'' for a test should 
be defined--given a definite time restriction--and published with the 
initial notification of a test, as, in the past, Customs has had some 
``tests'' go on for years, e.g., monthly periodic Customs entries on 
automobile parts and imports of oil and gas. Further, if the test is 
successful, the Customs Regulations and practices should be changed so 
that the new procedure(s) can be enjoyed by all. And if it is necessary 
to extend a test period, 30 days prior to the test end date, notice 
should be published.
    Also concerned with the length of time for a test, another 
commenter suggests that in all cases, the regulation should specify 
that the notice must contain either the specific dates for the test 
(beginning and ending) or the length of the test. If Customs finds it 
cannot adhere to the period specified, a notice should be published 
specifying the reasons for the variance and the new dates. This 
procedure, it is felt, will avoid what has been the past practice of 
continuing tests ad infinitum.
    Customs Response: These comments concerning unlimited time periods 
for tests do not square with the provisions of the proposed regulation, 
which expressly state that tests will be ``limited in scope, time, and 
application to such relief as may be necessary to facilitate the 
conduct of a specified program or procedure.'' 19 CFR 101.9 (a)(1) and 
(b). At the risk of sounding repetitive, we again state that the 
publication requirement will allow all interested parties to comment on 
proposed tests and to express their particular concerns. This 
publication requirement does not constitute a hollow gesture on Customs 
part, as, for NCAP tests, Customs must subsequently prepare a user 
satisfaction survey of parties participating in the program and 
transmit a report of this survey to Congress. As the proposed 
regulations adequately address these comments, no change to the 
regulation is made based on this comment. [[Page 14214]] 

Voluntary Participation

    Comment: Two commenters express concern regarding the ``voluntary'' 
nature of participation in tests. One commenter states that voluntary 
participation in a test should mean that volunteers should be allowed 
to withdraw from a test upon a change in the conditions of the test. 
The other commenter suggests that, to recognize the importance of 
Customs test programs and filers' voluntary participation in these 
programs, a new paragraph (c) be added to Sec. 101.9 to read as 
follows:
    (c) Voluntary participation. For tests affecting the entry of 
merchandise, and for which participation by an entry filer requires or 
includes a change in the manner, amount, or format of data submitted to 
Customs by that filer, such participation shall be entirely voluntary. 
An otherwise qualified filer's entry privileges, including but not 
limited to electronic entry privileges, may not be reduced, suspended, 
limited, or withdrawn by Customs solely because that filer declines to 
participate in one or more such tests.
    The commenter states that the voluntary status of filer 
participation in new Customs programs would be explicitly limited to 
those involving merchandise, and to those which are in fact test 
programs. There would be no impediment to Customs mandatory 
implementation of uniform procedures at points past the test stage.
    The commenter states the impetus for this amendment to the proposed 
regulations is a recent Customs/FDA electronic interface pilot program 
in Seattle. Although in the first few months of the program filer 
participation was entirely voluntary, such that brokerage firms could 
elect when to participate, for the last year and a half participation 
has been mandatory for Seattle-area brokers who wish to file their 
entries electronically. If a Seattle broker does not wish to 
participate in the pilot program, that broker must file non-ABI entries 
for cargo subject to FDA oversight. In effect, the commenter claims 
that such a broker is penalized by Customs for declining to participate 
in that particular test program. In general, the commenter is also very 
concerned about the potential impact of some types of Customs test 
programs upon certain sections of the trade community, especially those 
test programs which alter the manner, amount, or format of data 
transmitted by an entry filer to Customs, as such programs require the 
filer to incur at least some additional costs, in order to participate 
in each test program.
    Customs Response: Section 631 of the Act expressly provides that 
``[p]articipation in the [NCAP] Program is voluntary.'' 19 U.S.C. 
1411(b). Accordingly, a broker's, importer's, etc., initial decision to 
become automated is entirely voluntary. However, as stated in the 
BACKGROUND portion of the Federal Register notice of proposed 
rulemaking, section 631 of the Act also provides Customs with direct 
statutory authority for full electronic processing of all Customs-
related transactions. Thus, for Customs to implement the NCAP and 
comply with the other mandates of section 631--(1) development of 
separate implementation plans for each NCAP component, in consultation 
with the trade community, (2) establishment of eligibility criteria for 
voluntary participation, (3) testing of the components, and (4) 
transmittal to Congress of the implementation plan, testing results, 
and an evaluation report--a certain continuity of test participants 
must be observed. Accordingly, while Customs will make every effort to 
make as many aspects of tests as completely voluntary as possible, 
Customs believes that while the decision by a broker or other 
participant to participate in an automated Customs program is voluntary 
in the first instance, continued participation in a particular test may 
be required. In any event, a participant may always choose to not 
participate with a particular automated component if the parameters of 
the testing are not to their liking. If any doubts as to participation 
in a particular test program or procedure exist after the parameters of 
the test are published in the Federal Register, the hesitant 
participant should take advantage of the comment period to seek 
clarification. Accordingly, because of the extensive statutory 
requirements that Customs must meet to conduct NCAP tests, Customs does 
not believe that further regulatory language is needed at this time.

Inapplicability of the Regulatory Flexibility Act, and Executive Order 
12866

    Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) and based upon the information set forth above, it 
is certified that the regulation will not have a significant impact on 
a substantial number of small entities. Accordingly, the regulation is 
not subject to the regulatory analysis or other requirements of U.S.C. 
603 and 604. Further, this document does not meet the criteria for a 
``significant regulatory action'' as specified in E.O. 12866.

Drafting Information

    The principal author of this document was Gregory R. Vilders, 
Attorney, Office of Regulations and Rulings, Regulations Branch. 
However, personnel from other offices participated in its development.

List of Subjects in 19 CFR Part 101

    Customs duties and inspection, Exports, Imports, Organization and 
functions (Government agencies), Reporting and recordkeeping 
requirements, Sureties, Tests.

Amendments to the Regulations

    For the reasons stated above, part 101 of the Customs Regulations 
(19 CFR part 101) is amended as set forth below:

PART 101--GENERAL PROVISIONS

    1. The authority citation for part 101 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 2, 66, 1202 (General Note 17, 
Harmonized Tariff Schedule of the United States (HTSUS)), 1623, 
1624.
    Section 101.3 and 101.4 also issued under 19 U.S.C. 1 and 58b;
    Section 101.9 also issued under 19 U.S.C. 1411-1414.

    2. In part 101, a new Sec. 101.9 is added to read as follows:


Sec. 101.9  Test programs or procedures; alternate requirements.

    (a) General testing. For purposes of conducting a test program or 
procedure designed to evaluate the effectiveness of new technology or 
operational procedures regarding the processing of passengers, vessels, 
or merchandise, the Commissioner of Customs may impose requirements 
different from those specified in the Customs Regulations, but only to 
the extent that such different requirements do not affect the 
collection of the revenue, public health, safety, or law enforcement. 
The imposition of any such different requirements shall be subject to 
the following conditions:
    (1) Defined purpose. The test is limited in scope, time, and 
application to such relief as may be necessary to facilitate the 
conduct of a specified program or procedure;
    (2) Prior publication requirement. Whenever a particular test 
allows for deviation from any regulatory requirements, notice shall be 
published in the Federal Register not less than thirty days prior to 
implementing such test, followed by publication in the Customs 
Bulletin. The notice shall invite public comments concerning the 
methodology of the test program or procedure, and inform interested 
members of the public of the eligibility criteria for voluntary 
participation in [[Page 14215]] the test and the basis for selecting 
participants.
    (b) NCAP testing. For purposes of conducting an approved test 
program or procedure designed to evaluate planned components of the 
National Customs Automation Program (NCAP), as described in section 
411(a)(2) of the Tariff Act of 1930 (19 U.S.C. 411), the Commissioner 
of Customs may impose requirements different from those specified in 
the Customs Regulations, but only to the extent that such different 
requirements do not affect the collection of the revenue, public 
health, safety, or law enforcement. In addition to the requirement of 
paragraph (a)(1) of this section, the imposition of any such different 
requirements shall be subject to the following conditions:
    (1) Prior publication requirement. For tests affecting the NCAP, 
notice shall be published in the Federal Register not less than thirty 
days prior to implementing such test, followed by publication in the 
Customs Bulletin. The notice shall invite public comments concerning 
any aspect of the test program or procedure, and inform interested 
members of the public of the eligibility criteria for voluntary 
participation in the test and the basis for selecting participants; 
and,
    (2) Post publication requirement. Within a reasonable time period 
following the completion of the test, a complete description of the 
results shall be published in both the Federal Register and the Customs 
Bulletin.

    Approved: February 21, 1995.
George J. Weise,
Commissioner of Customs.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-6525 Filed 3-15-95; 8:45 am]
BILLING CODE 4820-02-P