[Federal Register Volume 60, Number 53 (Monday, March 20, 1995)]
[Rules and Regulations]
[Pages 14630-14632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6759]



=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 10

[T.D. 95-22]
RIN 1515-AB65


Temporary Importation Bonds; Anticipatory Breach, Assessment 
Amounts, Petitions for Relief

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This document amends the Customs Regulations to permit 
anticipatory breach and provide for early payment of liquidated damages 
in Temporary Importation Bond (TIB) cases. It also amends the 
regulations to permit assessment of liquidated damages in excess of 
double the duties in those cases where the district director requires 
extra bonding in order to protect the revenue and to state that the 
term ``duties'' for TIB assessment shall also include any applicable 
merchandise processing fees that otherwise would be charged on an entry 
for consumption. Finally, the document amends the regulations to 
eliminate forwarding of petitions for relief in TIB cases to Customs 
Headquarters when the bond principal or surety is dissatisfied with the 
decision on the petition afforded by the district director.

EFFECTIVE DATE: April 19, 1995.

FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch, 
Office of Regulations and Rulings, 202-482-6950.

SUPPLEMENTARY INFORMATION:

Background

    Under the provisions of Chapter 98, Subchapter XIII, Harmonized 
Tariff Schedule of the United States (HTSUS), merchandise may be 
entered under the terms of a Temporary Importation Bond (TIB) without 
the payment of duties if the merchandise is entered for a specific 
purpose enumerated in Subchapter XIII, HTSUS. Per U.S. Note 1 to 
Subchapter XIII, the merchandise is permitted to remain in the United 
States for a one-year period subsequent to the date of importation 
(with a maximum of two one-year extensions allowed). Prior to the 
expiration of the bond period or any properly approved extension 
thereof, the merchandise must be exported or destroyed under Customs 
supervision. Failure to export or destroy in a timely manner results in 
the imposition of liquidated damages against the importer.
    Instances arise where, after initiation of a TIB entry, the 
importer decides that the merchandise will remain in the United States 
in violation of the terms of the bond. Rather than wait for the one-
year period to end and for liquidated damages to be assessed, importers 
inquired as to the possibility of early payment of liquidated damages. 
The Customs Regulations currently do not provide for an anticipatory 
breach of a TIB.
    In a Notice of Proposed Rulemaking (NPRM) published in the Federal 
Register of September 29, 1992 (57 FR 44714), it was proposed to amend 
the regulations to permit anticipatory breach of a TIB and allow the 
importer to pay the full measure of liquidated damages and thereby 
close the bond. Through payment of the liquidated damages, the importer 
would waive his right to receipt of notice of a claim for liquidated 
damages pursuant to Sec. 172.1(a), Customs Regulations (19 CFR 
172.1(a)).
    For TIB entries, the provisions of Sec. 10.31(f) of the Customs 
Regulations (19 CFR 10.31(f)) require that a bond shall be given 
containing the conditions set forth in Sec. 113.62 of the Customs 
Regulations (19 CFR 113.62) in an amount equal to double the duties 
which it is estimated would have accrued (or such larger amount as the 
district director shall state in writing to the entrant is necessary to 
protect the revenue) had all the articles covered by the entry been 
entered under an ordinary consumption entry. By contrast, under the 
provisions of Sec. 10.39(d), if any article entered under Chapter 98, 
Subchapter XIII, HTSUS, has not been exported or destroyed in 
accordance with the regulations within the period of time during which 
the articles may remain in the Customs territory of the United States 
under bond (including any lawful extension), the district director 
shall make a demand in writing under the bond for the payment of 
liquidated damages equal to double the estimated duties applicable to 
such entry, unless a lower amount is prescribed by Sec. 10.31(f).
    On the one hand, Sec. 10.31(f) empowers the district director to 
require a bond in excess of double the duties, but the provisions of 
Sec. 10.39(d) only permit him to assess liquidated damages at double 
the estimated duties or such lower amount (emphasis added) as 
prescribed by Sec. 10.31(f). These regulations can provide anomalous 
results and inefficient protection of the revenue. Accordingly, the 
NPRM proposed an amendment to the regulations to permit, in the case of 
breach of a TIB, assessment of liquidated damages in an 
[[Page 14631]] amount equal to double the estimated duties or any 
different amount prescribed by Sec. 10.31(f) rather than only a lower 
amount.
    When a TIB entry is filed, no merchandise processing fees are 
charged to the importer of record. However, section 111 of the Customs 
and Trade Act of 1990 (Pub. L. 101-382) amended 19 U.S.C. 58c(g) (the 
statute which requires payment of the merchandise processing fee) to 
provide that all administrative and enforcement provisions of the 
Customs laws and regulations, except those relating to drawback, shall 
apply with respect to any fee prescribed under 19 U.S.C. 58c(a) (which 
requires payment of the merchandise processing fee), and with respect 
to persons liable therefor, as if such fee is a Customs duty. Any 
penalty which is expressed in terms of a relationship to the amount of 
the duty (e.g., liquidated damages expressed in terms of an amount 
equal to double the estimated duties due on an entry) shall be assessed 
as a multiple of the unpaid fee. Accordingly, when calculating the 
measure of liquidated damages for breach of a TIB, the amount of 
estimated duties due for breach should include duties plus the 
merchandise processing fees that would have been applicable to the 
entry had an entry for consumption been filed. The NPRM proposed an 
amendment to the regulations to provide that, for purposes of 
assessment of liquidated damages for breach of a TIB, the term duties 
includes any merchandise processing fees that would have been due on a 
consumption entry that would have been filed with regard to such TIB 
merchandise.
    Under the provisions of Sec. 10.39(e) of the Customs Regulations 
(19 CFR 10.39(e)), if there has been a default with respect to all the 
articles covered by the bond and a written petition for relief is filed 
timely, the regulations state that the petition ``shall be transmitted 
to Headquarters, U.S. Customs Service, with a full report of the facts, 
unless it is allowed by the district director in whole or in part in 
accordance with this regulation, * * *.'' This language noting referral 
to Headquarters is unique to TIB cases in which all the articles 
covered by the bond are in default and the district director allows no 
mitigation. The NPRM posited that the jurisdictional amount found in 
Sec. 172.21 of the Customs Regulations (19 CFR 172.21) should govern 
review of all petitions. Jurisdiction should not be predicated on a 
denial of relief in a limited fact situation. Accordingly, the NPRM 
proposed that Sec. 10.39(e) be amended to remove the reference 
regarding referral of the petition to Customs Headquarters.

Analysis of Comments

    Five comments were received with regard to the subject document. It 
should initially be noted that Customs, in error, indicated the harbor 
maintenance fees, as required by the provisions of the Harbor 
Maintenance Review Act of 1986 (Pub. L. 99-682), are not imposed on TIB 
entries. The NPRM then went on to state also in error that unpaid 
harbor maintenance fees, as well as merchandise processing fees, should 
be included in any calculation of double the duties or 110 percent of 
the duties for assessment of liquidated damages. Two commenters noted 
these errors. Customs concedes these mistakes, and the final rule 
avoids any mention of harbor maintenance fees in the calculation of 
duties, fees and charges in TIB liquidated damages assessment.
    Two commenters suggested that the proposed regulatory amendment 
would only permit anticipatory breach as to the entire amount of 
merchandise entered under a TIB and would not permit anticipatory 
breach if a percentage of TIB merchandise covered by a single entry was 
intended to remain in the United States in violation of the bond 
provisions but the remaining percentage was to be exported or destroyed 
in compliance with bond conditions. The regulations require assessment 
of the full amount of liquidated damages applicable to the entry. The 
commenters suggest that there would be little incentive to comply with 
anticipatory breach provisions because the importer who wishes to file 
a partial anticipatory breach would be required to pay for the full 
amount of the entry.
    Customs concedes that the comment has some validity but it should 
be emphasized that acceptance of payment in recognition of anticipatory 
breach of TIB conditions is being promulgated in response to requests 
made to Customs and as a courtesy to the importing community. It will 
permit importers to close out the records on a TIB rather than wait for 
the one-year bond period to expire. Partial anticipatory breaches would 
be difficult for Customs to administer, particularly if merchandise 
which the importer still intends to export or destroy in compliance 
with bond conditions has not yet been exported or destroyed so as to 
close the bond out in its entirety. Customs will not accept a partial 
anticipatory breach if the merchandise not covered by the breach has 
not been exported or destroyed in compliance with bond terms because of 
the difficulty of administration.
    A comment received from a representative of surety companies did 
not oppose the concept of anticipatory breach, but did request that 
Customs notify a surety that anticipatory breach occurred, liquidated 
damages were paid and that the bond could be closed with regard to that 
particular TIB entry. Customs has no objection to this request and has 
added language which would require surety notification by the importer 
when an anticipatory breach occurs. Inasmuch as the importer seeks the 
benefit of anticipatory breach, Customs does not find it burdensome to 
require the importer to notify surety of its actions.
    One commenter was of the view that the proposed amendment to 
Sec. 10.31(f) gave Customs excessively broad discretion in deciding the 
bond amount. We disagree. The provisions of Sec. 10.31(f) give the 
district director discretion to require a bond in sufficient size to 
protect the revenue. As a condition precedent to requiring a larger 
bond, the district director must notify the entrant, in writing or by 
equivalent electronic notification, of the increase. The language of 
the regulation does not permit an increase in the bond amount without 
cause.
    Finally, one commenter indicates that under proposed amendments to 
Sec. 10.39(e) of the regulations, Customs could be faced with an 
anomalous situation regarding review of petitions for relief. As 
proposed, the district director would review petitions for relief in 
all cases where the claim is for $100,000 or less and the entire amount 
of merchandise entered under a TIB is in default. Under the provisions 
of Sec. 10.39(f), a petition for relief could be reviewed by the 
district director when a partial default occurs and the liability for 
liquidated damages on the articles in respect of which there has been a 
default does not exceed $50,000. Thus, jurisdictional amounts are not 
consistent, and Headquarters review would be required in certain TIB 
liquidated damages cases, depending upon what percentage of articles 
are in default. We agree with the comment and, therefore, are amending 
Sec. 10.39(f) to be consistent with the change to Sec. 10.39(e).
    Accordingly, the regulations are amended as proposed except that 
references to the harbor maintenance fee have been removed, notice of 
anticipatory breach will now be required to be afforded to sureties by 
the breaching importer, and the jurisdictional amount in Sec. 10.39(f) 
is amended to $100,000 to be consistent with Sec. 10.39(e). 
[[Page 14632]] 

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 amendments will not have 
a significant economic impact on a substantial number of small 
entities. Accordingly, the amendments are not subject to the regulatory 
analysis requirements of 5 U.S.C. 603 and 604. The document does not 
meet the criteria for a ``significant regulatory action'' as specified 
in Executive Order 12866.

List of Subjects in 19 CFR Part 10

    Articles conditionally free, Customs duties and inspection, 
Exports, temporary importations under bond.
Amendments

    Part 10, Customs Regulations (19 CFR part 10), is 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:

    Authority: 19 U.S.C. 66, 1202 (General Note 17, Harmonized 
Tariff Schedule of the United States), 1481, 1484, 1498, 1508, 1623, 
1624;
* * * * *
    2. Section 10.31 is amended by revising the first two sentences of 
paragraph (f) to read as follows:


Sec. 10.31  Entry; bond.

* * * * *
    (f) With the exceptions stated herein, a bond shall be given on 
Customs Form 301, containing the bond conditions set forth in 
Sec. 113.62 of this chapter, in an amount equal to double the duties, 
including fees, which it is estimated would accrue (or such larger 
amount as the district director shall state in writing or by the 
electronic equivalent to the entrant is necessary to protect the 
revenue) had all the articles covered by the entry been entered under 
an ordinary consumption entry. In the case of samples solely for use in 
taking orders entered under subheading 9813.00.20, HTSUS, motion-
picture advertising films entered under subheading 9813.00.25, HTSUS, 
and professional equipment, tools of trade and repair components for 
such equipment or tools entered under subheading 9813.00.50, HTSUS, the 
bond required to be given shall be in an amount equal to 110 percent of 
the estimated duties, including fees, determined at the time of entry. 
* * *
* * * * *
    3. Section 10.39(d)(1) is amended by removing the word ``lower'' in 
the first sentence and by adding in its place the word ``different'', 
and by adding a sentence at the end of the paragraph to read as 
follows:


Sec. 10.39  Cancellation of bond charges.

* * * * *
    (d) (1) * * * For purposes of this section, the term estimated 
duties shall include any merchandise processing fees applicable to such 
entry.
* * * * *
    4. Section 10.39(e) is amended by revising its first sentence to 
read as follows:


Sec. 10.39  Cancellation of bond charges.

* * * * *
    (e) If there has been a default with respect to all the articles 
covered by the bond and a written petition for relief has been timely 
filed as provided in part 172 of this chapter, it shall be reviewed by 
the district director if the full amount of the claim does not exceed 
$100,000 and by the Director, International Trade Compliance Division, 
Office of Regulations and Rulings, Customs Headquarters, if the full 
amount of the claim exceeds $100,000.
* * * * *


Sec. 10.39  [Amended]

* * * * *
    5. Section 10.39(f) is amended by removing the figure ``$50,000'' 
in the first sentence and by adding in its place the figure 
``$100,000''.
    6. Section 10.39 is amended by redesignating paragraph (g) as 
paragraph (h) and by adding a new paragraph (g) to read as follows:
* * * * *


Sec. 10.39  Cancellation of bond charges.

* * * * *
    (g) Anticipatory breach. If an importer anticipates that the 
merchandise entered under a Temporary Importation Bond will not be 
exported or destroyed in accordance with the terms of the bond, the 
importer may indicate to Customs in writing before the bond period has 
expired of the anticipatory breach. At the time of written notification 
of the breach, the importer shall pay to Customs the full amount of 
liquidated damages that would be assessed at the time of breach of the 
bond, and the entry will be closed. The importer shall notify the 
surety in writing of the breach and payment. By this payment, the 
importer waives his right to receive a notice of claim for liquidated 
damages as required by Sec. 172.1(a) of this chapter.
* * * * *
    Approved: February 23, 1995.
Peter J. Baish,
Acting Commissioner of Customs.

Dennis M. O'Connell,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-6759 Filed 3-17-95; 8:45 am]
BILLING CODE 4820-02-P