[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Notices]
[Pages 64248-64251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31802]


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DEPARTMENT OF THE TREASURY

Customs Service
[TD 97-96]


Reasonable Care Checklist

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

ACTION: General notice.

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SUMMARY: This document sets forth, for guidance, a checklist of 
measures which importers and their agents may find helpful in meeting 
the ``reasonable care'' requirements of the Customs laws.

DATES: Effective December 4, 1997.

FOR FURTHER INFORMATION CONTACT: Robert Pisani, Penalties Branch, 
International Trade Compliance Division, Office of Regulations and 
Rulings, (202) 927-1203.

SUPPLEMENTARY INFORMATION:

Background

    On May 16, 1997, the Customs Service published a Second Discussion 
Draft in the Customs Bulletin (as well as the Customs Electronic 
Bulletin Board and Customs Internet Website) concerning the importer's 
obligation to use reasonable care. Based on comments received in 
response to the initial discussion draft on reasonable care, Customs 
decided to adopt a ``checklist'' approach--as a means to provide 
guidance regarding an importer's obligation to use reasonable care. The 
second discussion draft set forth an expanded and revised checklist, 
and requested public comment on the document by June 30, 1997.
    Customs has finalized its review of all second discussion draft 
comments received from interested parties. The ``final'' checklist 
follows the discussion of the public comments, and Customs notes that 
the document contains relatively minor revisions to the checklist 
published on May 16, 1997. Customs also notes that the majority of the 
comments received from the public favored the adoption of the 
checklist. It should also be pointed out that although Customs is 
publishing the ``final'' checklist, the agency's adoption of this 
format for providing guidance may readily be expanded in the future to 
suit the changing nature of international trade--without resort to 
statutory or regulatory amendment. Also it should be reiterated that, 
as new Customs regulations are proposed, it is anticipated that 
regulatory references to the reasonable care standard will be included.

Discussion

    The majority of comments received by Customs applauded the agency's 
decision to adopt the checklist approach to the issue of reasonable 
care. There is a general consensus that a ``black and white'' 
definition of reasonable care is impossible, inasmuch as the concept of 
acting with reasonable care depends upon individual circumstances.
    The most prevalent concern about the checklist raised by commenters 
involved Customs use of the term ``expert'' in those checklist 
questions pertaining to relying on the advice of an ``expert.'' Some 
commenters are concerned that unlicensed and unregulated individuals 
are regularly advising importers in Customs matters--i.e., holding 
themselves out as ``Customs experts'' or Customs consultants, in 
violation of section 641 of the Tariff Act of 1930. In addition, one 
commenter is of the opinion that the public should not be misled into 
believing that it constitutes reasonable care to consult with anyone 
who chooses to call himself or herself a Customs expert.
    With respect to the above concerns, Customs notes that publication 
of the checklist is not intended to condone the unlawful conduct of 
Customs business by unlicensed individuals or entities. Rather, the 
agency's use of the term ``expert'' is in conformity with the Customs 
Modernization Act's legislative history as reflected in the language of 
the House of Representatives and Senate Reports (H.Rep. 103-361, pg. 
120; S. Rep. 103-189, pg. 73) discussion of the reasonable care 
standard. A party's selection of an expert, and the expert's 
qualifications are part and parcel of the review of all of the facts 
and circumstances in the agency's determination whether the party has 
exercised reasonable care. In Customs view, the importer who retains 
the services of an ``expert'' bears some responsibility in ensuring 
that the party is qualified to render advice on the Customs matter at 
issue. In Customs view, it is not unreasonable to expect that a party 
selecting an expert will inquire about the Customs experience and 
credentials of an expert. Customs believes this responsibility to be 
particularly important in cases involving selection of unlicensed 
experts such as consultants. The existence of experienced Customs 
lawyers and licensed brokers makes fulfillment of this responsibility 
an easier task--but in Customs view, to limit the selection of an 
expert to these individuals runs contrary to the language of the 
congressional reports. In sum, the importer or party selecting an 
expert must use judgment and reason in making his or her selection.
    One commenter expressed a reservation about the checklist in that 
``assiduous compliance with the list for every entry would require an 
impossible expenditure of time and resources.'' The commenter believes 
that the checklist fails to keep sight of ``commercial realities and 
business realities.''
    Customs believes it is important to underscore that the checklist 
is not a law or Customs regulation, and that it merely serves to 
provide guidance and information to the importing community to assist 
the members of the community in meeting reasonable care obligations. In 
publishing the checklist, Customs is not mandating that each and every 
question be asked by each and every importer for all transactions. 
Rather, the checklist serves as a flexible tool to help importers find 
and/or understand statutory and regulatory obligations involved in the 
importation process. Customs notes that the agency rejected the 
regulatory and policy statement approaches set forth in the first 
discussion draft for the very reasons set forth by the commenter. In 
this regard, Customs believes the following excerpts from the second 
discussion draft warrant reiteration:

    * * * [I]t is important to remember that not every incident of 
non-compliance involves a failure to exercise reasonable care. The 
circumstances surrounding an incident of non-compliance determine 
whether or not the incident involves culpable conduct.
    * * * For example, if Customs were to enact a regulation, or 
issue a policy statement setting forth ``reasonable care'' 
parameters and standards, such regulation or policy statement could 
be considered helpful, cost-effective and instructive to a large 
multi-national importer, yet harmful, impractical, intrusive and 
cost-defective to a smaller organization.
    Rather than attempting to dictate specific methods of compliance 
with regard to a standard that demands flexibility and is dependent 
upon circumstance, Customs believes that by providing guidance and 
education the agency is working toward fulfilling the principle of 
informed compliance which underscores the Customs Modernization Act.

    One of the commenters suggested that the agency abandon General 
Question

[[Page 64249]]

No. 3 pertaining to alerting Customs of different treatment at 
different ports for the same merchandise or transactions. The commenter 
believes that it is the responsibility of the Customs Service to 
coordinate and ensure uniformity. In addition, the commenter believes 
it is unnecessary to require that the importer attach a ruling it 
receives to every entry, provided that the importer follows the ruling.
    Customs does not agree that it is reasonable for an importer to 
remain silent when it becomes aware that the same merchandise or 
transaction is receiving different treatment at different ports. 
Further, it is important to remember that the checklist is not a 
vehicle to amend existing law or regulation or law--rather, the 
checklist questions pertaining to the Customs rulings program simply 
point out the importer's obligations under existing law and regulation.
    Several commenters recommended that Customs revise some of the 
questions in the checklist to emphasize that the exercise of reasonable 
care also applies to the process employed by the importer in preparing 
its Customs entries. The commenters suggest that some questions be 
added and/or revised to reflect that the exercise of reasonable care 
also encompasses an importer's development and maintenance of 
reasonable steps or reasonable procedures to ensure compliance with the 
Customs laws and regulations.
    Customs agrees and has added new questions and/or revised some of 
the existing questions to reflect the recommendations set forth above.
    As a convenience to the public, the checklist published below also 
includes the checklist previously published in the Federal Register for 
use in certain textile and apparel importations. The full document was 
published in 62 FR 48340 (September 15, 1997).

Reasonable Care Checklist

Preamble

    One of the most significant effects of the Customs Modernization 
Act is the establishment of the clear requirement that parties exercise 
``reasonable care'' in importing into the United States. Section 484 of 
the Tariff Act, as amended, requires an importer of record ``using 
reasonable care'' to make entry by filing such information as is 
necessary to enable the Customs Service to determine whether the 
merchandise may be released from customs custody,'' and using 
reasonable care--``complete the entry by filing with the Customs 
Service the declared value, classification and rate of duty'' and 
``such other documentation * * * or information as is necessary to 
enable the Customs Service to * * * properly assess duties * * * 
collect accurate statistics * * * determine whether any other 
applicable requirement of law * * * is met.'' Despite the seemingly 
simple connotation of the term ``reasonable care,'' this explicit 
responsibility defies easy explanation. The facts and circumstances 
surrounding every import transaction differ--from the experience of the 
importer to the nature of the imported articles. Consequently, neither 
the Customs Service nor the importing community can develop a foolproof 
reasonable care ``checklist'' which would cover every import 
transaction. On the other hand, in keeping with the Modernization Act's 
theme of ``informed compliance,'' the Customs Service would like to 
take this opportunity to recommend that the importing community examine 
the list of questions below. In Customs view, the list of questions may 
prompt or suggest a program, framework or methodology which importers 
may find useful in avoiding compliance problems and meeting 
``reasonable care'' responsibilities.
    Obviously, the questions below cannot be exhaustive or 
encyclopedic--ordinarily, every import transaction is different. For 
the same reason, it cannot be overemphasized that although the 
following information is provided to promote enhanced compliance with 
the Customs laws and regulations, it has no legal, binding or 
precedential effect on Customs or the importing community. In this 
regard, Customs notes that the checklist is not an attempt to create a 
presumption of negligence, but rather, an attempt to educate, inform 
and provide guidance to the importing community. Consequently, Customs 
believes that the following information may be helpful to the importing 
community and hopes that this document will facilitate and encourage 
importers to develop their own unique compliance measurement plans, 
reliable procedures and ``reasonable care'' programs.
    As a convenience to the public, the checklist also includes the 
text of a checklist previously published in the Federal Register for 
use in certain textile and apparel importations. The full document was 
published in 62 FR 48340 (September 15, 1997).
    As a final reminder, it should be noted that to further assist the 
importing community, Customs issues rulings and informed compliance 
publications on a variety of technical subjects and processes. It is 
strongly recommended that importers always make sure that they are 
using the latest versions of these publications.

Asking and answering the following questions may be helpful in 
assisting importers in the exercise of reasonable care

General Questions for all Transactions

    1. If you have not retained an expert to assist you in complying 
with Customs requirements, do you have access to the Customs 
Regulations (Title 19 of the Code of Federal Regulations), the 
Harmonized Tariff Schedule of the United States, and the GPO 
publication ``Customs Bulletin and Decisions?'' Do you have access to 
the Customs Internet Website, Customs Electronic Bulletin Board or 
other research service to permit you to establish reliable procedures 
and facilitate compliance with Customs laws and regulations?
    2. Has a responsible and knowledgeable individual within your 
organization reviewed the Customs documentation prepared by you or your 
expert to ensure that it is full, complete and accurate? If that 
documentation was prepared outside your own organization, do you have a 
reliable system in place to insure that you receive copies of the 
information as submitted to Customs; that it is reviewed for accuracy; 
and that Customs is timely apprised of any needed corrections?
    3. If you use an expert to assist you in complying with Customs 
requirements, have you discussed your importations in advance with that 
person and have you provided that person with full, complete and 
accurate information about the import transactions?
    4. Are identical transactions or merchandise handled differently at 
different ports or Customs offices within the same port? If so, have 
you brought this to the attention of the appropriate Customs officials?

Questions Arranged by Topic

Merchandise Description & Tariff Classification
    Basic Question: Do you know or have you established a reliable 
procedure or program to ensure that you know what you ordered, where it 
was made and what it is made of?
    1. Have you provided or established reliable procedures to ensure 
you provide a complete and accurate description of your merchandise to 
Customs in accordance with 19 U.S.C. 1481? (Also, see 19 CFR 141.87 and 
19 CFR 141.89 for special merchandise description requirements.)

[[Page 64250]]

    2. Have you provided or established reliable procedures to ensure 
you provide a correct tariff classification of your merchandise to 
Customs in accordance with 19 U.S.C. 1484?
    3. Have you obtained a Customs ``ruling'' regarding the description 
of the merchandise or its tariff classification (See 19 CFR part 177), 
and if so, have you established reliable procedures to ensure that you 
have followed the ruling and brought it to Customs attention?
    4. Where merchandise description or tariff classification 
information is not immediately available, have you established a 
reliable procedure for providing that information, and is the procedure 
being followed?
    5. Have you participated in a Customs pre-classification of your 
merchandise relating to proper merchandise description and 
classification?
    6. Have you consulted the tariff schedules, Customs informed 
compliance publications, court cases and/or Customs rulings to assist 
you in describing and classifying the merchandise?
    7. Have you consulted with a Customs ``expert'' (e.g., lawyer, 
broker, accountant, or Customs consultant) to assist in the description 
and/or classification of the merchandise?
    8. If you are claiming a conditionally free or special tariff 
classification/provision for your merchandise (e.g., GSP, HTS Item 
9802, NAFTA, etc.), How have you verified that the merchandise 
qualifies for such status? Have you obtained or developed reliable 
procedures to obtain any required or necessary documentation to support 
the claim? If making a NAFTA preference claim, do you already have a 
NAFTA certificate of origin in your possession?
    9. Is the nature of your merchandise such that a laboratory 
analysis or other specialized procedure is suggested to assist in 
proper description and classification?
    10. Have you developed a reliable program or procedure to maintain 
and produce any required Customs entry documentation and supporting 
information?
Valuation
    Basic Questions: Do you know or have you established reliable 
procedures to know the ``price actually paid or payable'' for your 
merchandise? Do you know the terms of sale; whether there will be 
rebates, tie-ins, indirect costs, additional payments; whether 
``assists'' were provided, commissions or royalties paid? Are amounts 
actual or estimated? Are you and the supplier ``related parties''?
    1. Have you provided or established reliable procedures to provide 
Customs with a proper declared value for your merchandise in accordance 
with 19 U.S.C. 1484 and 19 U.S.C. 1401a?
    2. Have you obtained a Customs ``ruling'' regarding the valuation 
of the merchandise (See 19 CFR Part 177), and if so, have you 
established reliable procedures to ensure that you have followed the 
ruling and brought it to Customs attention?
    3. Have you consulted the Customs valuation laws and regulations, 
Customs Valuation Encyclopedia, Customs informed compliance 
publications, court cases and Customs rulings to assist you in valuing 
merchandise?
    4. Have you consulted with a Customs ``expert'' (e.g., lawyer, 
accountant, broker, Customs consultant) to assist in the valuation of 
the merchandise?
    5. If you purchased the merchandise from a ``related'' seller, have 
you established procedures to ensure that you have reported that fact 
upon entry and taken measures or established reliable procedures to 
ensure that value reported to Customs meets one of the ``related 
party'' tests?
    6. Have you taken measures or established reliable procedures to 
ensure that all of the legally required costs or payments associated 
with the imported merchandise have been reported to Customs (e.g., 
assists, all commissions, indirect payments or rebates, royalties, 
etc.)?
    7. If you are declaring a value based on a transaction in which you 
were/are not the buyer, have you substantiated that the transaction is 
a bona fide sale at arm's length and that the merchandise was clearly 
destined to the United States at the time of sale?
    8. If you are claiming a conditionally free or special tariff 
classification/provision for your merchandise (e.g., GSP, HTS Item 
9802, NAFTA, etc.), have you established a reliable system or program 
to ensure that you reported the required value information and obtained 
any required or necessary documentation to support the claim?
    9. Have you established a reliable program or procedure to produce 
any required entry documentation and supporting information?
Country of Origin/Marking/Quota
    Basic Question: Have you taken reliable measures to ascertain the 
correct country of origin for the imported merchandise?
    1. Have you established reliable procedures to ensure that you 
report the correct country of origin on Customs entry documents?
    2. Have you established reliable procedures to verify or ensure 
that the merchandise is properly marked upon entry with the correct 
country of origin (if required) in accordance with 19 U.S.C. 1304 and 
any other applicable special marking requirement (watches, gold, 
textile labeling, etc)?
    3. Have you obtained a Customs ``ruling'' regarding the proper 
marking and country of origin of the merchandise (See 19 CFR Part 177), 
and if so, have you established reliable procedures to ensure that you 
followed the ruling and brought it to Customs attention?
    4. Have you consulted with a Customs ``expert'' (e.g., lawyer, 
accountant, broker, Customs consultant) regarding the correct country 
of origin/proper marking of your merchandise?
    5. Have you taken reliable and adequate measures to communicate 
Customs country of origin marking requirements to your foreign supplier 
prior to importation of your merchandise?
    6. If you are claiming a change in the origin of the merchandise or 
claiming that the goods are of U.S. origin, have you taken required 
measures to substantiate your claim (e.g., Do you have U.S. milling 
certificates or manufacturer's affidavits attesting to the production 
in the U.S.)?
    7. If you are importing textiles or apparel, have you developed 
reliable procedures to ensure that you have ascertained the correct 
country of origin in accordance with 19 U.S.C. 3592 (Section 334, Pub. 
L. 103-465) and assured yourself that no illegal transshipment or false 
or fraudulent practices were involved?
    8. Do you know how your goods are made from raw materials to 
finished goods, by whom and where?
    9. Have you checked with Customs and developed a reliable procedure 
or system to ensure that the quota category is correct?
    10. Have you checked or developed reliable procedures to check the 
Status Report on Current Import Quotas (Restraint Levels) issued by 
Customs to determine if your goods are subject to a quota category 
which has ``part'' categories?
    11. Have you taken reliable measures to ensure that you have 
obtained the correct visas for your goods if they are subject to visa 
categories?
    12. In the case of textile articles, have you prepared or developed 
a reliable program to prepare the proper country declaration for each 
entry, i.e., a single country declaration (if wholly obtained/produced) 
or a multi-country declaration (if raw materials from one

[[Page 64251]]

country were produced into goods in a second)?
    13. Have you established a reliable maintenance program or 
procedure to ensure you can produce any required entry documentation 
and supporting information, including any required certificates of 
origin?

Intellectual Property Rights

    Basic Question: Have you determined or established a reliable 
procedure to permit you to determine whether your merchandise or its 
packaging bear or use any trademarks or copyrighted matter or are 
patented and, if so, that you have a legal right to import those items 
into, and/or use those items in, the U.S.?
    1. If you are importing goods or packaging bearing a trademark 
registered in the U.S., have you checked or established a reliable 
procedure to ensure that it is genuine and not restricted from 
importation under the ``gray-market'' or parallel import requirements 
of U.S. law (see 19 CFR 133.21), or that you have permission from the 
trademark holder to import such merchandise?
    2. If you are importing goods or packaging which consist of, or 
contain registered copyrighted material, have you checked or 
established a reliable procedure to ensure that it is authorized and 
genuine? If you are importing sound recordings of live performances, 
were the recordings authorized?
    3. Have you checked or developed a reliable procedure to see if 
your merchandise is subject to an International Trade Commission or 
court ordered exclusion order?
    4. Have you established a reliable procedure to ensure that you 
maintain and can produce any required entry documentation and 
supporting information?
Miscellaneous Questions
    1. Have you taken measures or developed reliable procedures to 
ensure that your merchandise complies with other agency requirements 
(e.g., FDA, EPA/DOT, CPSC, FTC, Agriculture, etc.) prior to or upon 
entry, including the procurement of any necessary licenses or permits?
    2. Have you taken measures or developed reliable procedures to 
check to see if your goods are subject to a Commerce Department dumping 
or countervailing duty investigation or determination, and if so, have 
you complied or developed reliable procedures to ensure compliance with 
Customs reporting requirements upon entry (e.g., 19 CFR 141.61)?
    3. Is your merchandise subject to quota/visa requirements, and if 
so, have you provided or developed a reliable procedure to provide a 
correct visa for the goods upon entry?
    4. Have you taken reliable measures to ensure and verify that you 
are filing the correct type of Customs entry (e.g., TIB, T&E, 
consumption entry, mail entry, etc.), as well as ensure that you have 
the right to make entry under the Customs Regulations?

Additional Questions for Textile and Apparel Importers

    Note: Section 333 of the Uruguay Round Implementation Act (19 
U.S.C. 1592a) authorizes the Secretary of the Treasury to publish a 
list of foreign producers, manufacturers, suppliers, sellers, 
exporters, or other foreign persons who have been found to have 
violated 19 U.S.C. 1592 by using certain false, fraudulent or 
counterfeit documentation, labeling, or prohibited transshipment 
practices in connection with textiles and apparel products. Section 
1592a also requires any importer of record entering, introducing, or 
attempting to introduce into the commerce of the United States 
textile or apparel products that were either directly or indirectly 
produced, manufactured, supplied, sold, exported, or transported by 
such named person to show, to the satisfaction of the Secretary, 
that such importer has exercised reasonable care to ensure that the 
textile or apparel products are accompanied by documentation, 
packaging, and labeling that are accurate as to its origin. Under 
section 1592a, reliance solely upon information regarding the 
imported product from a person named on the list does not constitute 
the exercise of reasonable care. Textile and apparel importers who 
have some commercial relationship with one or more of the listed 
parties must exercise a degree of reasonable care in ensuring that 
the documentation covering the imported merchandise, as well as its 
packaging and labeling, is accurate as to the country of origin of 
the merchandise. This degree of reasonable care must rely on more 
than information supplied by the named party.

    In meeting the reasonable care standard when importing textile or 
apparel products and when dealing with a party named on the list 
published pursuant to section 592A an importer should consider the 
following questions in attempting to ensure that the documentation, 
packaging, and labeling is accurate as to the country of origin of the 
imported merchandise. The list of questions is not exhaustive but is 
illustrative.
    1. Has the importer had a prior relationship with the named party?
    2. Has the importer had any detentions and/or seizures of textile 
or apparel products that were directly or indirectly produced, 
supplied, or transported by the named party?
    3. Has the importer visited the company's premises and ascertained 
that the company has the capacity to produce the merchandise?
    4. Where a claim of an origin conferring process is made in 
accordance with 19 CFR 102.21, has the importer ascertained that the 
named party actually performed the required process?
    5. Is the named party operating from the same country as is 
represented by that party on the documentation, packaging or labeling?
    6. Have quotas for the imported merchandise closed or are they 
nearing closing from the main producer countries for this commodity?
    7. What is the history of this country regarding this commodity?
    8. Have you asked questions of your supplier regarding the origin 
of the product?
    9. Where the importation is accompanied by a visa, permit, or 
license, has the importer verified with the supplier or manufacturer 
that the visa, permit, and/or license is both valid and accurate as to 
its origin? Has the importer scrutinized the visa, permit or license as 
to any irregularities that would call its authenticity into question?

    Dated: December 1, 1997.
Stuart P. Seidel,
Assistant Commissioner, Office of Regulations and Rulings.
[FR Doc. 97-31802 Filed 12-3-97; 8:45 am]
BILLING CODE 4820-02-P