[Federal Register Volume 67, Number 159 (Friday, August 16, 2002)]
[Rules and Regulations]
[Pages 53483-53499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20757]


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

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 177

[T.D. 02-49]
RIN 1515-AC56


Administrative Rulings

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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

SUMMARY: This document adopts as a final rule, with some changes, 
proposed amendments to those provisions of the Customs Regulations that 
concern the issuance of administrative rulings and related written 
determinations and decisions on prospective and current transactions 
arising under the Customs and related laws. The regulatory changes 
involve primarily procedures regarding the modification or revocation 
of rulings on prospective transactions, internal advice decisions, 
protest review decisions, and treatment previously accorded by Customs 
to substantially identical transactions. The amendments are in response 
to statutory changes made to the administrative ruling process by 
section 623 of the Customs Modernization provisions of the North 
American Free Trade Agreement Implementation Act.

EFFECTIVE DATE: September 16, 2002.

FOR FURTHER INFORMATION CONTACT: John Elkins, Textiles Branch, Office 
of Regulations and Rulings (202-572-8790).

SUPPLEMENTARY INFORMATION:

Background

Statutory and Regulatory Background

    This document concerns amendments to part 177 of the Customs 
Regulations (19 CFR part 177) regarding the issuance of binding 
administrative rulings to importers and other interested persons with 
regard to prospective and current transactions arising under the 
Customs and related laws. Rulings, determinations, or decisions under 
specific statutory authorities provided for in the Customs Regulations 
other than in part 177 (for example, in part 133 for enforcement 
actions regarding intellectual property rights, in part 174 for 
protests, and in part 181 for advance rulings under the North American 
Free Trade Agreement) are not affected by this document.
    On December 8, 1993, the President signed into law the North 
American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 
Stat. 2057). Title VI of that Act contained provisions pertaining to 
Customs Modernization and thus is commonly referred to as the Customs 
Modernization Act or ``Mod Act.'' The Mod Act included, in section 623, 
an extensive amendment of section 625 of the Tariff Act of 1930 (19 
U.S.C. 1625) which, prior to that amendment, simply required that the 
Secretary of the Treasury publish in the Customs Bulletin, or otherwise 
make available to the public, any precedential decision with respect to 
any Customs transaction within 120 days of issuance of the decision. 
The regulations in part 177 currently incorporate the terms of 19 
U.S.C. 1625 as they existed prior to enactment of the Mod Act.
    The Mod Act amendment of section 1625 involved the following 
specific changes: (1) The existing text was designated as subsection 
(a), and in new subsection (a) the ``120 days'' publication time limit 
was changed to ``90 days'' and the text was modified to refer to ``any 
interpretive ruling (including any ruling letter, or internal advice 
memorandum) or protest review decision;'' (2) a new subsection (b) was 
added to provide for administrative appeals of an adverse interpretive 
ruling and interpretations of regulations prescribed to implement 
rulings; (3) a new subsection (c) was added to set forth specific 
procedures for the modification or revocation of interpretive rulings 
or decisions or previous treatments by Customs; (4) a new subsection 
(d) was added to provide that a decision that proposes to limit the 
application of a court decision must be published in the Customs 
Bulletin together with notice of opportunity for public comment prior 
to a final decision; and (5) a new subsection (e) was added to provide 
that the Secretary of the Treasury may make available in writing or 
through electronic media all information which contains instructions, 
requirements, methods or advice necessary for importers and exporters 
to comply with the Customs laws and regulations.
    The new subsection (c) provisions require publication, in the 
Customs Bulletin and with opportunity for public comment, of any 
proposal to modify (other than to correct a clerical error) or revoke a 
prior interpretive ruling or decision which has been in effect for at 
least 60 days or which would have the effect of modifying the treatment 
previously accorded by Customs to substantially identical transactions, 
require that interested parties be given not less than 30 days after 
the date of publication to submit comments on the proposed ruling or 
decision, and require that, after consideration of any comments 
received, a final ruling or decision be published in the Customs 
Bulletin within 30 days after the closing of the comment period, with 
the final ruling or decision to become effective 60 days after the date 
of its publication.

Publication of Proposed Regulatory Changes

    On July 17, 2001, Customs published in the Federal Register (66 FR 
37370) a notice of proposed rulemaking setting forth proposed 
amendments to part 177 of the Customs Regulations which

[[Page 53484]]

included amendments to Customs procedures in response to the changes 
made by section 623 of the Mod Act as well as organizational and 
substantive changes to clarify current administrative practice and 
otherwise improve the layout and readability of the present regulatory 
texts. The proposed changes involved principally the following areas: 
(1) The issuance of rulings and other written advice on prospective 
transactions; (2) the appeal of such rulings after issuance; (3) the 
modification or revocation of rulings on prospective transactions or of 
protest review decisions or of treatment previously accorded by Customs 
to substantially identical transactions; (4) the limitation of court 
decisions; (5) the issuance, appeal, and modification or revocation of 
internal advice decisions on current transactions; and (6) the 
treatment of requests for confidential treatment of business 
information submitted to Customs in connection with a request for 
written advice. Included in these proposed changes was a restructuring 
of part 177 under which new subpart A would consist of an overview 
section and a definitions section, new subpart B would concern 
prospective rulings, new subpart C would concern the internal advice 
procedure, new subpart D would deal with the disclosure of confidential 
business information, and present subpart B would be redesignated as 
subpart E.
    The July 17, 2001 notice of proposed rulemaking prescribed a 60-day 
period for the submission of public comments on the proposed regulatory 
changes. On August 28, 2001, Customs published a notice in the Federal 
Register (66 FR 45235) extending the public comment period for an 
additional 30 days, that is, until October 17, 2001. A total of 18 
commenters responded to the solicitation of comments in the notice of 
proposed rulemaking.
    The comments received by Customs were almost uniformly opposed to 
the organizational and substantive changes set forth in the notice of 
proposed rulemaking. Based on this overwhelmingly negative response, 
and because most of the changes proposed by Customs were discretionary 
in nature, that is, they were developed by Customs to address internal 
administrative concerns of Customs rather than statutory mandates, 
Customs has decided, with one exception, to withdraw those proposed 
changes rather than proceed with a final rule. This means that any 
future action taken by Customs in regard to those withdrawn proposals 
will be in the form of a new notice of proposed rulemaking that will 
provide an opportunity for public comment before final action is taken 
on the proposals.
    The one exception to withdrawal of the proposed changes concerns 
proposed Sec. 177.21, which would implement the 19 U.S.C. 1625(c) 
provisions regarding the modification or revocation of prospective 
rulings, internal advice decisions, protest review decisions, and 
previous treatment of substantially identical transactions. For the 
reasons explained below, Customs has determined that it is essential to 
proceed with implementation of the terms of 19 U.S.C. 1625(c) through 
appropriate regulatory standards.
    Under the framework set forth by the Supreme Court in Chevron 
U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 
(1984), which was applied by the Court to Customs Regulations in United 
States v. Haggar Apparel Co., 526 U.S. 380 (1999), a regulation 
promulgated by an administrative agency, if it represents the agency s 
statutory interpretation that fills a gap or defines a term in a way 
that is reasonable in light of the legislature's revealed design, must 
be given controlling weight and thus will receive judicial deference. 
The need for regulatory standards is particularly acute regarding the 
modification and revocation provisions of 19 U.S.C. 1625(c) in order to 
(1) Provide an appropriate regulatory basis for administrative 
procedures that Customs applies under the statute following passage of 
the Mod Act provisions, (2) provide guidance regarding the meaning of 
the statutory terms, in particular, the meaning of the term 
``treatment,'' (3) clarify the relationship between the procedures 
under 19 U.S.C. 1625(c) and other legislative, judicial or 
administrative actions that have the same effect as a modification or 
revocation under that statutory provision, and (4) prescribe standards 
for the application of the statutory modification or revocation 
effective date provisions to Customs transactions.
    As explained in detail in the preamble to the July 17, 2001, notice 
of proposed rulemaking, proposed Sec. 177.21 was drafted in order to 
set forth the Customs interpretation and application of the statutory 
modification and revocation provisions. That proposed text engendered a 
significant number of comments, which are discussed below. In addition, 
Customs performed an internal review of the proposed text after the 
close of the comment period (1) To determine whether additional 
clarification of the Customs position regarding the modification or 
revocation of treatments was necessary beyond any changes suggested by 
the commenters and (2) as a consequence of the decision not to proceed 
with the proposed restructuring of part 177, to assess the manner in 
which the proposed Sec. 177.21 text could best be included within the 
existing part 177 regulatory framework. The decisions taken as a result 
of that internal review are reflected in the discussion of the 
additional changes to the regulatory texts which follows the comment 
discussion.

Discussion of Comments

    Of the 18 commenters who responded to the solicitation of comments 
on the proposed part 177 changes, 14 provided one or more specific 
comments on the proposed Sec. 177.21 text. The comments are discussed 
below.
    Comment: Five commenters took issue with the statement in the first 
sentence of proposed Sec. 177.21(a) that a prospective ruling or an 
internal advice decision or a holding or principle covered by a protest 
review decision may be modified or revoked if found to be in error or 
not in accord with the current views of Customs. Three of these 
commenters argued that the regulations need more specific criteria 
(rather than only ``if found to be in error or not in accord with the 
current views of Customs'') in order for Customs to modify or revoke 
current rulings: Modification or revocation should be limited to 
situations where there has been a change in the law, or where the 
previous interpretation of Customs is construed to be erroneous as a 
matter of law, and not merely because Customs changes its mind. Another 
commenter stated that modification or revocation of rulings or 
decisions found to be ``not in accord with the current views of 
Customs'' should be limited to purely administrative positions and 
should not include derogation of a court ruling or other higher 
authority, because Customs cannot take a ``current view'' contrary to a 
higher authority, and the commenter suggested that this point should be 
clarified in the final regulations. One commenter stated that the words 
``not in accord with the current views of Customs'' are too vague and 
should be replaced by a statement that the authority of Customs to 
modify or revoke is limited to situations where there are two or more 
inconsistent rulings, because this is how the words in question have 
historically been applied. Finally, one commenter pointed out that, 
even under the level of deference adopted in United States v. Mead 
Corp., 121 S. Ct. 2164 (2001), Customs is entitled to deference only if 
it has provided a well-thought-out

[[Page 53485]]

position, and this standard is not reflected in this proposed 
provision.
    Customs response: Customs first notes that the phraseology in 
question, that is, ``in error or not in accord with the current views 
of Customs,'' does not constitute a new regulatory standard but rather 
merely reflects a standard that has existed in the regulations for many 
years under 19 CFR 177.9(d)(1). Moreover, while the proposed 
Sec. 177.21 text was intended to carry out the terms of 19 U.S.C. 
1625(c) as added by section 623 of the Mod Act, it is noted that the 
statutory amendment did not create new substantive standards that 
Customs must apply in deciding whether to modify or revoke a ruling, 
etc., but rather merely imposed certain procedural safeguards regarding 
modification or revocation actions. Therefore, Customs believes that 
the submitted comments are directed primarily to historical Customs 
practices rather than to new statutory standards imposed by the Mod Act 
changes. This being said, Customs in part agrees and in part disagrees 
with the points made by these commenters.
    Customs agrees that, as a basic principle, a ruling, etc., should 
be modified or revoked if it is ``erroneous as a matter of law,'' and, 
for that reason, the regulatory text in question continues to provide 
that, ``if [a ruling is] found to be in error,'' modification/
revocation authority will be exercised. The suggestion that Customs 
might modify or revoke a ruling for other than legal reasons is 
incorrect. All proposed modifications/revocations issued under 19 
U.S.C. 1625(c) will be based upon the current views of Customs 
regarding the proper interpretation of the law.
    The modification or revocation of a ruling or decision has always 
involved a purely administrative position, and nothing in the proposed 
regulatory texts purported to change that fact or to otherwise suggest 
that a modification or revocation might be in derogation of an 
applicable court decision or other higher authority. However, Customs 
believes that inclusion in the regulations of a statement on this point 
is unnecessary.
    Customs does not agree that the words ``not in accord with the 
current views of Customs'' have historically been applied in 
modification or revocation cases only where there are two or more 
inconsistent rulings. The phrase in question has been applied by 
Customs in a variety of different circumstances not involving 
inconsistent rulings, including circumstances in which all extant 
rulings on a particular issue are consistent but legally incorrect. 
Therefore, the statement suggested by the commenter should not be 
included in the regulatory text.
    Finally, Customs does not believe that the issue of deference under 
the Mead case is appropriate for treatment in this regulatory context. 
The Mead case concerned the degree to which the courts may give 
deference to rulings issued by Customs, which is a function of the 
ruling itself and not the regulations under which the ruling is 
promulgated. The granting of deference is a matter for the courts to 
decide and is not a proper subject for these regulations.
    Comment: Two commenters questioned whether the intent of referring 
to ``prospective'' rulings, as opposed to ``interpretive'' rulings as 
used in the statute, is intended to give greater breadth to the notice 
and comment regulation. If only related to prospective rulings, these 
commenters questioned how it can apply to internal advice rulings, 
which are considered current transactions, or to protest review 
decisions, which involve entries already liquidated. As to the 
reference to coverage of the regulation to protest review decisions, 
these commenters expressed uncertainty regarding how Customs intends to 
implement 19 U.S.C. 1625(c). They stated that they suspect that the new 
regulation is nothing more than an embodiment of existing practice 
whereby Customs Headquarters issues a section 1625 notice and comment 
when a holding or principle reflected in a previous protest review 
decision is modified or revoked, either by the issuance of a 
prospective ruling, or internal advice or protest review decision. The 
commenters felt that the interaction between the administrative rulings 
regulations, 19 CFR part 177, and the protest regulations, 19 CFR part 
174, is highlighted by the comments here and, because of this, they 
expressed the belief that it would be appropriate for Customs 
simultaneously to revise part 174 as well.
    Customs response: In the preamble portion of the July 17, 2001, 
notice of proposed rulemaking Customs gave two reasons for referring to 
prospective rulings in the proposed Sec. 177.21 text (see 66 FR 37374). 
First, the chosen terminology reflects a decision Customs has taken to 
use a prospective ruling as the means for carrying out a modification 
or revocation referred to in the statute or in the present regulatory 
text. Second, as regards what may be the subject of a modification or 
revocation, the reference to ``prospective'' (rather than 
``interpretive'') rulings was intended to ensure coverage of all 
rulings issued under new Subpart B. Thus, under the proposed text, only 
a prospective ruling issued under Subpart B (and not, for example, an 
internal advice decision issued under proposed Subpart C) could effect 
a modification or revocation. In light of the decision not to proceed 
with the organizational changes set forth in the proposed rulemaking, 
Customs has reconsidered the use of the word ``prospective.'' 
Accordingly, the regulatory text will follow the statutory language and 
refers to ``interpretive'' rulings, which includes internal advice 
decisions.
    As regards the commenters' concerns regarding the relationship 
between part 174 and part 177, they are correct that the proposed 
regulatory text in effect embodies present administrative practice 
except for the fact that, as explained above, Customs uses an 
interpretive ruling (but not an internal advice decision and not a 
protest review decision) as the modifying or revoking vehicle. With 
regard to the suggestion that parts 174 and 177 be revised 
simultaneously, Customs does not believe that this would be appropriate 
given the separate statutory bases for the two parts and the narrowed 
focus of this final rule document. However, the current administrative 
procedure will continue as regards the modification or revocation of a 
holding or principle contained in a protest review decision, and 
Customs at an appropriate future date will propose conforming changes 
to the part 174 texts to refer to the procedures embodied in the part 
177 texts.
    Comment: Customs should not modify or revoke any ruling in a manner 
that is adverse to an interested party unless the original ruling is 
clearly wrong, such as where a new law is passed, a provision in the 
HTSUS has been enacted, or a new court decision has been issued.
    Customs response: Customs does not disagree with the suggestion 
that a ruling that is ``clearly wrong'' should be modified or revoked, 
and, for that reason, Customs retains in the regulatory text the 
authority to propose a modification/revocation if a ruling is found to 
be in error. Moreover, the commenter appears to entirely misconstrue 
the scope of both the statute and the proposed regulatory text. The Mod 
Act changes reflected in the 19 U.S.C. 1625(c) procedures were directed 
to discretionary decisions taken by Customs on its own initiative under 
its administrative authority and were not intended to affect 
legislative, judicial or other actions over which Customs has no 
control. It was for this reason that Customs included paragraph (d) of 
proposed Sec. 177.21 which lists exceptions to application of the 
notice

[[Page 53486]]

requirements of paragraphs (b) and (c). The ``clearly wrong'' standard 
as suggested by the commenter would be too restrictive and contrary to 
the legislative intent.
    Comment: It should be more difficult for Customs to revoke an 
existing ruling, because importers need to be able to rely on rulings 
in order to plan their business. While the fact that a hardship can 
result from a sudden revocation of a ruling is not a new issue, it was 
recently raised in Heartland By-Products, Inc. v. United States of 
America and United States Beet Sugar Association, Slip Op. 99-110 (CIT 
1999). Based on a ruling obtained from Customs that classified a sugar 
syrup in a tariff provision to which the tariff rate quota system of 
the U.S. sugar program did not apply, Heartland in 1997 invested $10 
million in a syrup importing and refining operation. Subsequently, 
domestic sugar manufacturers sought a reclassification of Heartland's 
syrup and Customs in 1999 published a notice of its intent to revoke 
the Heartland ruling, the effect of which would have been to raise the 
tariffs Heartland would have to pay by more than 7000 percent, thereby 
effectively forcing Heartland to shut down its operation. The Court of 
International Trade in its decision determined that Customs 
reclassification of the sugar syrup was arbitrary, capricious and an 
abuse of discretion.
    Although Heartland is an extreme example, the sudden revocation of 
a ruling may raise important reliance issues. Due to the similarity 
between Internal Revenue Service private letter rulings and Customs 
rulings (in particular as regards their applicability only to the 
persons who requested them and as regards their validity only to the 
extent that the facts are correct), the sense of fair play that applies 
to IRS rulings (that is, that once issued, a ruling can be acted on 
with reliance and thus should not be disturbed) should also apply to 
Customs rulings. Moreover, based on a basic notion of fairness, the 
doctrine of equitable or regulatory estoppel should apply to, and thus 
should be a bar to, the revocation of rulings, particularly where a 
party has relied on a ruling to its detriment. Another possible 
solution to the detrimental reliance issue would be to adopt a binding 
declaratory ruling procedure similar to the declaratory judgment used 
by the courts, with the declaratory ruling being binding on Customs so 
that Customs could not change its position once the recipient has acted 
in reliance on the ruling. Another solution to detrimental reliance 
might be to apply administrative equity principles involving hardship 
exceptions (when a substantial hardship on the petitioner would 
result), fairness exceptions (when a rule is unreasonable when applied 
to the petitioner) and policy exceptions (when the goal or purpose of 
the rule can be achieved by other means).
    Customs response: Customs does not believe that the decision of the 
Court of International Trade in the Heartland case cited by this 
commenter serves as a proper example for the various points made by the 
commenter, because that decision was reversed by the United States 
Court of Appeals for the Federal Circuit in Heartland By-Products, Inc. 
v. United States and United States Beet Sugar Association, 264 F.3d 
1126 (2001) and because that litigation remains pending as Heartland 
filed a petition for Supreme Court review on April 3, 2002.
    While Customs would agree with the general proposition that 
importers need to be able to rely on rulings issued under part 177 in 
order to plan their business, that reliance has never been an absolute 
right. Section 177.9(a) of the Customs Regulations (19 CFR 177.9(a)), 
which predated the statutory changes made by the Mod Act, provides, 
among other things, that a ruling letter issued by Customs under part 
177 is binding on all Customs personnel in accordance with the 
provisions of that section until modified or revoked and, in the 
absence of a modification or revocation which affects the principle of 
the ruling, may be cited as authority in the disposition of 
transactions involving the same circumstances. Thus, even before the 
Mod Act changes to 19 U.S.C. 1625, reliance on rulings was a qualified 
right.
    With regard to the suggestions that it should be more difficult for 
Customs to revoke an existing ruling, that a hardship results from a 
``sudden'' revocation of a ruling, and that principles of detrimental 
reliance, fair play, equitable or regulatory estoppel, binding 
declaratory rulings, and administrative equity should be applied, 
Customs believes that the public notice and comment and delayed 
effective date provisions of 19 U.S.C. 1625(c) reflect the full extent 
to which Congress believes that these principles should apply to 
Customs rulings. Accordingly, it would be inappropriate for Customs to 
adopt additional regulatory standards that might be inconsistent with 
the limited procedural safeguards established by Congress in the 
statute.
    Comment: Three commenters argued that, as a matter of fairness and 
due process, Customs should publish a notice and allow public comment 
also in cases in which 60 days have not passed since issuance of the 
ruling. Another commenter, after referring to the 60-day period during 
which no notice or comment period is contemplated, stated that the 
regulations should be clarified so that no notice or comment period 
will apply only in cases involving clerical errors because a change to 
the substance or logic of a decision should be subject to public notice 
and comments.
    Customs response: The proposed regulatory text follows the statute 
in providing for public notice and comment procedures only in the case 
of a modification or revocation of a ruling that has been in effect for 
60 or more days. That 60-day period was included in the Mod Act changes 
to section 1625 and, in Customs view, represents an implicit statement 
by Congress on the issue of fairness and due process when there is a 
change to the substance or logic of a ruling.
    With regard to clerical errors, proposed Sec. 177.21(d)(2)(i) 
follows the statute in providing that no publication (and thus no 
public notice and comment) is required if the modifying ruling corrects 
a clerical error.
    Comment: One commenter suggested that, although the concept of 
distinguishing between rulings that have been in effect for less than 
60 calendar days and those in effect for 60 or more calendar days is 
appropriate, proposed Sec. 177.21(e)(1), which addresses rulings or 
decisions in effect for less than 60 days, should be modified to 
address a situation in which a person obtains a prospective ruling and 
orders goods in reliance on it, because that person should not have the 
ground rules changed with respect to goods that are covered by bona 
fide long-term contracts or are already ordered and/or en route to the 
United States on the date of issuance of the modification or revocation 
but that are actually imported on or after the date of issuance of the 
modification or revocation. Along a similar line, another commenter 
stated that proposed Sec. 177.21(e)(1) fails to take into account the 
situation where an importer orders goods in reliance upon a ruling or 
decision only to have it modified or revoked without notice and 
opportunity to comment: the regulations should address this type of 
situation because to not do so could potentially result in a great 
hardship to an importer who dutifully followed a reasonable course of 
action.
    Customs response: Customs believes that the issues of good faith 
reliance and potential hardship have been addressed by Congress in the 
changes to section 1625 made by the Mod Act. Congress

[[Page 53487]]

expressly chose to make a distinction between rulings in effect for 
less than 60 days (for which public notice and comment and delayed 
effective date requirements do not apply in the case of a modification 
or revocation) and rulings in effect for 60 days or more (in which case 
modification or revocation is subject to public notice and comment and 
delayed effective date requirements). The provisions of proposed 
Sec. 177.21(e)(1) merely reflect this distinction as regards the 
effective date for a modification or revocation of a ruling that has 
been in effect for less than 60 days.
    In the preamble portion of the July 17, 2001, notice of proposed 
rulemaking Customs stated that it was proposing ``to eliminate the 
principle of detrimental reliance (which was a purely regulatory 
creation) from the Part 177 texts because the Mod Act statutory 
amendments regarding the modification or revocation of rulings and 
previous treatment (including the provision for a delayed effective 
date) accomplish essentially the same purpose and therefore should be 
viewed as replacing it.'' In view of this stated position, Customs does 
not believe that it would be appropriate to reinsert the concept of 
detrimental reliance in response to these comments. Furthermore, 
introduction of a detrimental reliance standard would be contrary to 
the regime created by Congress in the statute.
    In particular with regard to prospective rulings issued under Part 
177, the terms of section 1625(c) implicitly encourage members of the 
trade community to exercise prudence in signing contracts before 
receipt of a needed ruling or during the 60-day period after issuance 
of the ruling, because there is always a possibility that the issued 
ruling will conflict with the expectations under the contract or will 
be modified or revoked to the recipient's detriment without advance 
notice during the 60-day period after issuance. The same need for 
prudence would apply in the case of a long-term contract signed more 
than 60 days after the issuance of a ruling because of the possibility 
that a later modification or revocation of the ruling could compromise 
the terms of the ongoing contract, and in this case the fact that the 
public notice and comment and delayed effective date provisions under 
section 1625(c) were followed might afford minimal benefit to the 
ruling recipient as regards his contractual obligations. Moreover, 
Customs would suggest that ruling recipients could mitigate the 
negative effect of a modification or revocation both during and after 
the 60-day period by including escape clauses in their contracts which 
would provide a way out if Customs modified or revokes a ruling.
    Finally, the commenters observations appear to be directed to 
situations in which a modification or revocation has a negative impact 
on the interests of the ruling recipient. However, there could be 
circumstances in which the modification or revocation militates in the 
favor of the ruling recipient.
    Comment: Four commenters stated that reliance on publication of a 
proposed modification or revocation only in the Customs Bulletin 
creates a potential problem because there have been significant delays 
in distributing the Customs Bulletin beyond the normal 2-week delay and 
thus there is not sufficient time to respond to the proposed change. 
Therefore, these commenters suggested that Customs should commit to 
posting all proposed modifications or revocations at an Internet-
accessible location, and two of these commenters suggested as an 
alternative that Customs should allow more time to comment. Two other 
commenters opined that the 30-day period for commenting is too short, 
and one of these commenters argued that a period of at least 60 days 
should be allowed for submitting comments on a proposed modification or 
revocation.
    Customs response: Publication in the Customs Bulletin must remain 
the publication standard for legal purposes, including for purposes of 
establishing the start of the comment period, because that is the 
procedure prescribed in the statute. However, in recognition of the 
delays associated with Customs Bulletin publication and distribution, 
Customs has adopted two additional ``heads up'' procedures to alert 
interested parties to the impending modification or revocation action. 
One of these procedures involves posting the notice of the proposed 
modification or revocation on the Customs Internet web site. The other 
procedure involves writing to all parties identified in the notice of 
proposed action as recipients of the ruling or decision or treatment 
that is the subject of the proposed modification or revocation.
    With regard to the 30-day comment period, which represents the 
minimum standard required by the statute, Customs did not opt for a 
longer period for several reasons. First, a longer comment period would 
only serve to delay the adoption of a final modification or revocation 
and thus would interfere with another important mission of Customs 
which is to ensure proper application of the law at the earliest 
practicable date. Second, the additional ``heads up'' procedures 
mentioned above typically take place several days before Customs 
Bulletin publication and thus have the practical effect of extending 
the comment period by providing advance notice of the proposed action. 
Third, Customs does not believe that a longer period is needed, 
particularly in view of the fact that the affected parties already are 
generally knowledgeable regarding the issue raised in the proposed 
modification or revocation and therefore should not require an extended 
period of time in which to prepare a response to the proposed action.
    Comment: Four commenters argued that the notice and comment 
provisions should not apply in the case of a ruling that is the subject 
of an appeal under proposed Sec. 177.20 if transactions covered by the 
ruling have been held in abeyance pending a favorable decision on the 
appeal, because the ruling has not been applied to an actual 
transaction and thus should not be considered to be in effect for 
purposes of the 60-day period after which the notice and comment 
procedure is required.
    Customs response: Customs does not agree with the premise that 
underlies the position of these commenters, that is, that a ruling is 
not considered to be in effect if it has not been applied to an actual 
transaction. On the contrary, as stated in present Sec. 177.9(a) and as 
repeated in proposed Sec. 177.19(a), a ruling is generally effective on 
the date of issuance (a principal exception to this general rule would 
be a modifying or revoking ruling to which the statutory 60-day delayed 
effective date applies). Thus, the fact that an appeal of a ruling is 
pending does not delay the effective date of the ruling and therefore 
does not delay the running of the 60-day period after which a ruling 
may be modified or revoked only after the statutory public notice and 
comment procedures have been completed. Moreover, the position of 
Customs regarding the application to current transactions of a ruling 
undergoing an appeal was made clear in proposed Sec. 177.20(e) which 
provided that the filing of an appeal ``will not result in a suspension 
of liquidation in the case of current transactions'' (while Customs 
might decide to delay liquidation pending a decision on the appeal, the 
decision to do so would be made based on operational considerations 
that are not a function of the part 177 texts).
    Comment: Two commenters complained that Customs appears to be 
requiring that people come forward and advise Customs that they have a 
ruling when they are not specifically identified in the published 
notice, but the statute

[[Page 53488]]

did not intend that such a burden be imposed on the public.
    Customs response: Customs believes that these commenters have 
misread the proposed regulatory text. Proposed Sec. 177.21(b)(1), which 
concerns publication of the proposed action, provides in this regard 
that the notice will refer to all previously issued rulings that 
Customs has identified as being the subject of the proposed action and 
will ``invite'' any member of the public who has received another 
ruling involving the issue that is the subject of the proposed action 
to advise Customs of that fact. Nowhere does the regulatory text 
require a member of the public to respond to the notice. Moreover, 
proposed Sec. 177.21(b)(2), which concerns the notice of final action, 
specifically provides that publication of a final modifying or revoking 
notice will have the effect of modifying or revoking ``any'' ruling 
that involves merchandise or an issue that is substantially identical 
in all material respects to the merchandise or issue that is the 
subject of the modification or revocation, including a ruling ``that is 
not specifically identified in the final modifying or revoking 
notice.'' Therefore, an unidentified ruling recipient does not have to 
respond to the notice in order for the modification or revocation to 
apply to his ruling.
    Customs further notes that even though a response to the notice of 
proposed modification or revocation is not required, there may be 
circumstances in which an affected ruling recipient not identified in 
the notice would prefer to respond to the notice. A response to the 
notice would mean that the ruling recipient would receive a final 
written decision on the proposed modification or revocation directly 
from Customs. Moreover, this would facilitate the exercise of the 
ruling recipient's option under proposed Sec. 177.21(e)(2)(ii) to have 
the position reflected in the modification or revocation applied to his 
transactions upon publication of the final notice in the Customs 
Bulletin rather than 60 days thereafter.
    Comment: Three commenters noted that the statute imposes a 
responsibility on Customs to publish notice and allow for comment when 
it contemplates modification or revocation of rulings. Thus, these 
commenters argued that it is incumbent upon Customs to identify the 
relevant rulings, either those directly involved or those affecting 
substantially identical merchandise or issues. The commenters believe 
that imposition of this burden on the importing community is 
antithetical to the role of Customs in the partnership created by 
``informed compliance,'' and it imposes an impossible burden on the 
importing community which must speculate as to which rulings are 
covered. The commenters further complained that reference in current 
modification or revocation notices imposing an obligation on importers 
to come forward and speculate whether their rulings are ``substantially 
similar'' or risk being found not to have exercised ``reasonable care'' 
is again antithetical to the concept of ``informed compliance,'' 
whereby Customs must clearly state its position so that the public 
knows what is expected of it.
    Another commenter similarly argued that requiring the public to 
report to Customs rulings that are potentially affected by a proposed 
modification represents an onerous burden and puts importers in an 
impossible situation because proposed modifications do not specify the 
practice or position that is being altered: typically, there is a clear 
change in classification but there is no clear identification of the 
practice or policy being changed, and thus it requires gross 
speculation on the part of importers.
    Customs response: As pointed out in the preceding comment response, 
there is no requirement that a ruling recipient come forward in 
response to a notice of proposed modification or revocation. Therefore, 
Customs does not agree with the commenters that the proposed regulatory 
text imposes an onerous or impossible burden on the importing 
community. When Customs determines that a proposed modification or 
revocation action is appropriate, Customs first endeavors to identify 
all rulings that would be affected by the proposed action so that they 
may be identified in the notice of the proposed action. It must be 
recognized, however, that a review of the available records may not 
disclose all existing affected rulings--hence the invitation in the 
proposed regulatory text for other ruling recipients to come forward.
    Customs also disagrees with the suggestions that the notices of 
proposed modification or revocation do not clearly state the position 
of Customs and do not clearly identify the practice or policy that is 
being changed. Customs believes that the published notices of proposed 
modification or revocation are, by-and-large, clear and complete on 
these points. What may not be clear is the extent to which the proposed 
action would affect rulings not identified in the notice that appear to 
be similar or related to the identified ones but that involve varying 
degrees of differences in the factual patterns or issues identified in 
the proposal. It is not possible for the notice of proposed 
modification or revocation to be definitive in this area because what 
is involved is essentially a judgment call requiring a determination on 
a case-by-case basis. Moreover, it should be noted that while Customs 
issues thousands of rulings each year, the average importer receives 
only a handful of rulings during a given year; therefore, the importer 
is in a far better position to assess the impact of a proposed 
modification or revocation on the handful of its rulings than is 
Customs which is required to employ a much wider frame of reference. 
The invitation to the public to participate at the proposal stage, 
which also includes an opportunity to comment on the proposed action, 
can also serve as a mechanism for obtaining clarification on this type 
of issue.
    As concerns the comments regarding reasonable care, Customs notes 
that the exercise of reasonable care by importers at the time of entry 
is a requirement under section 484(a) of the Tariff Act of 1930, as 
amended (19 U.S.C. 1484(a)), and therefore is not a direct function of 
the ruling modification or revocation process under 19 U.S.C. 1625(c) 
and the proposed part 177 regulatory texts. Nevertheless, there is a 
connection between the exercise of reasonable care at the time of entry 
and the ruling modification or revocation process in that an importer 
who has a ruling that has been modified or revoked could be liable for 
a penalty under section 592 of the Tariff Act of 1930, as amended (19 
U.S.C. 1592), for failure to exercise reasonable care if he continues 
to enter his merchandise in accordance with the modified or revoked 
ruling after the modification or revocation has taken effect. This is 
the basic point of publishing modification or revocation proposal 
notices. Of course, the determination of whether an importer has failed 
to exercise reasonable care must be made on a case-by-case basis based 
on an assessment of all relevant factors, and it is for this reason 
that the proposed modification or revocation notice refers to ``the 
rebuttable presumption of lack of reasonable care on the part of the 
importer or its agents'' for failure to follow the result reflected in 
the notice.
    Comment: One commenter claimed that the relationship between 
proposed Sec. 177.21(c) and 19 U.S.C. 1315(d) is not clear because the 
notice provisions of the regulation are inconsistent with those of the 
statute, because the statute speaks of an established and uniform 
practice, and because, even though proposed Sec. 177.21(d)(1)(viii) 
suggests that the provisions of proposed Sec. 177.21 are inapplicable, 
there is an element

[[Page 53489]]

reminiscent of a ``simultaneous equation'' associated with the two 
provisions (the commenter asked in this regard whether, for example, 
Customs is attempting to state that a two-year period immediately prior 
to publication is insufficient to establish a uniform practice). This 
commenter argued that, therefore, the purpose of Sec. 177.21(c) is 
unclear.
    Customs response: Customs believes that the purpose of proposed 
Sec. 177.21(c) is clear: it implements the terms of 19 U.S.C. 1625(c) 
as regards the modification of treatment previously accorded by Customs 
to substantially identical transactions, which is subject to the same 
public notice and comment and delayed effective date requirements that 
apply in the case of a modification or revocation of a ruling or 
decision that has been in effect for 60 or more days. It does not 
implement or otherwise affect established and uniform practices 
referred to in 19 U.S.C. 1315(d) which were the subject of proposed new 
Sec. 177.22.
    The relationship between proposed Sec. 177.21(c) and 19 U.S.C. 
1315(d) involves separate statutory and regulatory contexts (the 19 
U.S.C. 1315(d) provisions are presently dealt with in the Customs 
Regulations in 19 CFR 177.10(c)), and therefore they operate 
independently of each other. The notice and delayed effective date 
provisions are different in the two statutes (one provides for 
publication in the Federal Register and specifies a 30-day delayed 
effective date and the other prescribes publication in the Customs 
Bulletin and a 60-day delayed effective date). Therefore, the two 
provisions cannot operate simultaneously, and it was for this reason 
(as well as for purposes of administrative efficiency) that Customs 
provided in proposed Sec. 177.21(d)(1)(viii) that the publication and 
issuance requirements set forth in paragraphs (b) and (c) of proposed 
Sec. 177.21 do not apply if a modification or revocation in effect 
results from publication of a final ruling regarding a change of 
established and uniform practice under 19 U.S.C. 1315(d). The 2-year 
period for a treatment prescribed in proposed Sec. 177.21(c) has no 
bearing on whether an established and uniform practice exists within 
the meaning of 19 U.S.C. 1315(d), and, furthermore, the standards for 
determining whether a treatment exists differ from those that apply in 
determining whether there is an established and uniform practice in 
that in the latter case the uniformity must be nationwide for all 
Customs transactions involving the issue in question. Accordingly, 
there is no ``simultaneous equation'' as regards the statutory or 
regulatory provisions of these two programs.
    Comment: Five commenters argued that ``treatment'' should not be 
restricted to the classification of merchandise, because other areas 
(for example, valuation, country of origin marking, entry, and 
carriers) also involve treatments. Along the same line, another 
commenter suggested that the definition of ``treatment'' as relating to 
the ``classification of imported merchandise'' should be changed to 
refer to ``a consistent pattern involving imported merchandise'' 
because not including other issues is unwarranted and is not a 
reasonable interpretation of 19 U.S.C. 1315(d).
    Customs response: For the reasons stated in the preceding comment 
response, Customs does not agree with the suggested connection between 
``treatments previously accorded'' under proposed Sec. 177.21(c) which 
implements 19 U.S.C. 1625(c) and ``established and uniform practices'' 
under 19 U.S.C. 1315(d). However, Customs agrees with the main point 
made by these commenters that ``treatment'' should not be limited to 
decisions involving the classification of imported merchandise. The 
regulatory text set forth in this final rule document has been modified 
accordingly.
    Comment: Five commenters objected to the statement in proposed 
Sec. 177.21(c)(1)(ii) that a person may not claim as a treatment the 
treatment that Customs accorded to transactions of another person. 
These commenters made the following specific points in support of the 
proposition that a person should be able to claim as a treatment the 
treatment accorded to transactions of another person:
    1. In light of the official doctrine of uniformity, it is 
unacceptable that treatment accorded to transactions of another 
importer should not be considered at all: so long as sufficient data of 
the importations of other importers is provided, those importations 
should be relevant in determining whether a treatment exists.
    2. Customs should abandon the notion that treatment is personal and 
should retain the standard in the current regulation, Sec. 177.9(e), 
which describes ``modifying the treatment previously accorded by the 
Customs Service to substantially identical transactions of either the 
recipient of the ruling letter or other parties,'' because, as Customs 
noted in the notice of proposed rulemaking, Congress modeled section 
1625(c) on that current regulation.
    3. The proposed limitation of treatment to those who received the 
treatment will render section 1625(c)(2) virtually meaningless since 
Customs has no means to identify specific parties who may have received 
a prior treatment and thus would not be required to publish a decision 
which modifies a prior treatment.
    4. If this definition of treatment is retained, the effect will be 
negative for both Customs and the import community because it will 
increase the burden on both since it will serve to reinforce the 
requirement that importers seek their own binding rulings and not take 
the risk of relying on a ruling issued to another party.
    Customs response: Customs remains of the view that, for purposes of 
19 U.S.C. 1625(c)(2) and the regulatory provisions thereunder, 
``treatment'' must have reference only to the transactions of the 
person who is claiming the existence of the treatment and therefore 
cannot be claimed by a person who has had no transactions that have 
been the subject of the treatment under consideration.
    Customs recalls that the Mod Act changes reflected in the text of 
19 U.S.C. 1625(c) were included at the insistence of the trade 
community to ensure that there would be a statutory protection against 
abrupt changes made by Customs without adequate prior notice, 
particularly where the change is to a ruling or decision issued by 
Customs, or to a pattern of actions taken by Customs on import 
transactions, on which a party has reasonably relied in pursuing its 
Customs transactions. Implicit in the Mod Act statutory changes was the 
idea that reasonable expectations created by the actions of Customs 
were entitled to some protection from subsequent actions taken by 
Customs. Thus, 19 U.S.C. 1625(c)(1) refers to the modification or 
revocation of ``a prior interpretive ruling or decision which has been 
in effect for at least 60 days'' and 19 U.S.C. 1625(c)(2) refers to the 
modification of ``the treatment previously accorded by the Customs 
Service to substantially identical transactions.''
    For reasons of practicality, Customs disagrees with the suggestion 
of one of the commenters that importations of other importers should be 
relevant in determining whether a treatment exists so long as 
sufficient data regarding those importations is provided. In this 
regard, Customs notes that the proposed regulatory text in 
Sec. 177.21(c)(1)(iii) set forth detailed requirements regarding the 
information that must be provided to Customs in connection with a claim 
that a treatment exists (for example, entry numbers and quantities and 
values of the imported merchandise) so that Customs may make an 
appropriate

[[Page 53490]]

determination on the claim. This type of entry information is treated 
by Customs as confidential business information that is not disclosed 
to the public, and therefore it would not be available to parties who 
are not privy to the transactions in question. Accordingly, persons 
attempting to rely on a treatment accorded to another person's 
transactions would be unable to meet the requisite burden of proof set 
forth in the proposed regulatory text. In fact, in many cases a person 
would not even know of the other person's transactions or would not be 
able to determine with certainty that the other person's transactions 
are substantially identical to his own.
    With regard to the comment that Customs should abandon the notion 
that treatment is personal and rather retain the standard in present 
Sec. 177.9(e), Customs believes that the commenter has misread the 
present text. That regulatory provision, which the commenter correctly 
notes was in part the genesis of the statutory ``treatment'' provision 
added by the Mod Act, refers to ``treatment previously accorded * * * 
to substantially identical transactions of * * * other parties.'' The 
words ``other parties'' clearly relate only to parties who had 
transactions that received the treatment in question and not to parties 
who did not have transactions that received the treatment. Therefore, 
Customs believes that the proposed text is entirely consistent with the 
present Sec. 177.9(e) text in making a clear connection between the 
person whose transactions received the treatment and the person who is 
claiming the treatment. Further, to grant a ruling or treatment 
universal applicability, as the commenter is proposing, would elevate 
each ruling or treatment to the level of an established and uniform 
practice and thus would render the provisions of 19 U.S.C. 1315(d) 
redundant and a nullity.
    Customs disagrees with the commenter who alleged that the 
limitation of treatment to those who received the treatment will render 
the statutory provision meaningless because Customs will not be able to 
identify specific parties who received a treatment and thus will not be 
required to publish a decision modifying the treatment. Customs did 
recognize that there would be instances in which Customs is not aware, 
prior to issuance of a contemplated prospective ruling, that the ruling 
would have the effect of modifying or revoking a previous treatment, 
and this type of scenario was directly addressed in proposed 
Sec. 177.21(c)(2)(ii). Under the proposed text, an unidentified 
treatment recipient would have the opportunity to write to Customs 
after the issuance of the ruling and obtain the protections afforded by 
the public notice and comment and delayed effective date provisions if 
an adequate case regarding the existence of the treatment is made.
    The argument regarding the potential increased burden on Customs 
and the import community is not persuasive, for two reasons. First, 
even if the commenter's assumption were correct, the possibility of an 
increased burden on the government and on the private sector is not a 
sufficient basis for reaching a regulatory result that is not in accord 
with the underlying statutory text. Second, the decision of an importer 
whether to seek its own binding ruling or rely on a ruling issued to 
another party is a private business decision that has no effect on the 
issue of what constitutes a treatment.
    For the above reasons, Customs believes that treatments under 19 
U.S.C. 1625(c)(2) must relate to expectations created on the basis of a 
track record involving transactions of the person claiming the 
existence of the treatment.
    Comment: The proposed regulatory provisions regarding the 
modification or revocation of previous treatments are at variance with 
the decision of the U.S. Court of International Trade in Precision 
Specialty Metals, Inc v. United States, 116 F.Supp. 2d 1350 (2000), in 
particular as regards what constitutes a ``treatment''. In this regard, 
the Precision case simply states that a treatment may pertain to any 
``decision'' made by Customs and, therefore, the provisions for a 2-
year treatment period and for according diminished weight in the case 
of merchandise of smaller quantities or value and no weight in the case 
of informal entries are contrary to the judicially created standard. 
Moreover, as regards the 2-year treatment period, this requirement is 
unnecessary because importers who create the 2-year schedule will 
simply request the information from the Office of Strategic Trade in 
Customs under the Freedom of Information Act and, upon receipt of the 
information in Microsoft Access format, the importer would simply send 
the information back to Customs.
    Customs response: The Precision Specialty Metals case involved a 
review of a denial by Customs of a protest against a decision of 
Customs to deny drawback on 38 entries of stainless steel trim and 
scrap. One of the issues addressed by the court was whether the payment 
of drawback on 69 previous entries of stainless steel scrap was a 
``treatment'' under 19 U.S.C. 1625(c) which, if so, would mean that the 
decision on the protest was invalid if Customs had not first published 
a proposed and final modification or revocation of that treatment as 
required by the statute. However, Customs notes that the decision cited 
by the commenter (referred to in this comment discussion as Precision 
I) did not involve a substantive ruling on the treatment issue because 
the court concluded that the importer had not presented the court with 
sufficient record evidence to conclude that all required elements of 
section 1625(c) were satisfied: the Court of International Trade 
addressed the merits of the treatment issue in a subsequent decision 
involving the same parties and the same 38 entries, Precision Specialty 
Metals, Inc v. United States, Slip Op. 01-148, decided December 14, 
2001 (referred to in this comment discussion as Precision II). 
Nevertheless, the court in Precision I, in reciting the criteria that 
the court would use in analyzing the importer's claim for relief under 
section 1625(c), stated that ``[t]he term `treatment' looks to the 
actions of Customs, rather than its 'position' or policy,'' and that 
the term ``treatment'' is ``distinct from the terms `ruling' and 
`decision' '' which are covered elsewhere in section 1625(c). The 
Precision I court then stated: ``This construction would recognize that 
importers may order their actions based not only on Customs' formal 
policy, `position,' `ruling' or `decision', but on its prior actions. 
This construction furthers the stated legislative intent underlying 
Sec. 1625(c).''
    In Precision II, the court specifically found that, in connection 
with ``pre-liquidation reviews'' of three of the earlier 69 drawback 
entries that were eventually liquidated for the full amount of drawback 
claimed, Customs had asked the importer for additional information and 
documentation on the exports involved. In response, the importer 
furnished Customs with additional information and documentation which 
showed that the exported material was stainless steel scrap. The court 
further found that the facts set forth in a stipulation of facts agreed 
to by the parties were sufficient to resolve the factual issues 
outlined in Precision I so that the court could resolve the 
``treatment'' issue on a motion for summary judgment. The court, in 
concluding that the actions of Customs gave rise to a treatment under 
section 1625(c), specifically noted ``the consistent trail of 
correspondence and submissions in which Precision and its agents 
describe the entries on which drawback was granted as 'scrap'' and 
reiterated its holding in Precision I that ``treatment'' looks to the 
actions of

[[Page 53491]]

Customs rather than a ``position'' or ``policy'' of Customs.
    Based on the facts that were under review in Precision I and 
Precision II, Customs does not agree with the commenter's assertion 
that the proposed regulatory text is contrary to the standard set forth 
by the court. On the contrary, it is the position of Customs that the 
proposed regulatory standard is consistent with the court cases because 
it requires an actual action on the part of Customs (as distinguished 
from non-action on the part of Customs, for example, when an entry is 
liquidated automatically without Customs review or when an entry is 
liquidated by operation of law under 19 U.S.C. 1504). Moreover, as in 
the case of the three entries for which Customs purposely requested, 
received, and reviewed additional information bearing on the issue at 
hand in Precision II, the proposed regulatory text requires that 
Customs actually do something of significance in order to create a 
treatment (as distinguished from cases in which Customs gives at most 
cursory attention, such as informal entries and entries of small value 
or quantity). Therefore, the proposed regulatory text stands for the 
proposition that, in order for a person to be eligible for the 
protection afforded under 19 U.S.C. 1625(c)(2), that person must be 
able to make a showing that Customs took a conscious, intentional and 
knowledgeable action that created an impression that could give rise to 
an expectation as regards future action by Customs. Customs believes 
that this is entirely consistent with the facts involved in Precision 
II.
    Customs remains of the view that the principle reflected in the 
proposed text is necessary because it reflects the reality in which 
Customs operates. With over 18 million formal entries filed each year, 
almost all of which are filed electronically and the majority of which 
are not accompanied by invoices, Customs simply does not have the 
resources to review every transaction and at the same time facilitate 
the movement of goods in international trade. In the absence of a 
reasonable limitation on the circumstances in which a treatment may 
arise for section 1625(c) purposes as set forth in the proposed 
regulatory text, Customs believes that a number of potential negative 
consequences could result either separately or together: Customs would 
have to monitor all Customs transactions of whatever type arising over 
the preceding two years before issuing a ruling or decision to 
determine if section 1625(c) procedures are necessary; the number of 
times in which Customs must initiate section 1625(c) procedures would 
increase drastically; the entry and liquidation process would suffer 
significant delays; and/or the prospective ruling and internal advice 
procedures would be scaled back or eliminated in their entirety. All of 
the foregoing results would be inconsistent with the objectives of the 
Mod Act and importers' responsibilities under 19 U.S.C. 1484(a).
    As regards the 2-year period prescribed in the proposed regulatory 
text, Customs pointed out in the preamble portion of the July 17, 2001, 
notice of proposed rulemaking that the proposed definition of 
``treatment'' was drawn in part from the text of present Sec. 177.9(e) 
which concerns the use of delayed effective dates in the case of ruling 
letters covering transactions or issues not previously the subject of 
ruling letters and which have the effect of modifying the treatment 
previously accorded by Customs to substantially identical transactions. 
Customs expressed in this regard the belief that use of the present 
regulatory standards in this new regulatory text was appropriate 
because, given the similarity in language, it seemed clear that the 
present regulation served as the model for the subsequently enacted 
statutory text except that application of a delayed effective date was 
now mandated. Customs also in that preamble stated the view that all 
provisions regarding detrimental reliance should be removed from the 
Part 177 texts because they were superseded by the section 1625(c) 
provisions. These remain the views of Customs. Consequently, the 2-year 
period set forth in the proposed text, which reflects the period 
prescribed in the detrimental reliance provision for treatments in 
present Sec. 177.9(e) is appropriate and should be retained. Finally, 
as regards the commenter's assertion regarding the use of the Freedom 
of Information Act to obtain the information to provide to Customs 
covering the 2-year period, Customs does not believe that importers 
will effectively be able to do this because Customs does not retain the 
necessary information in such a way that it would on its face 
demonstrate the existence of a treatment.
    Comment: One commenter argued that Customs should adopt a 
reasonable standard for determining whether a ``treatment accorded 
substantially similar transactions'' exists. Customs should not follow 
through with its attempt to limit the standard for determining whether 
there has been such treatment. This commenter also asserted that the 
requirement that only entries actually reviewed by Customs (as opposed 
to entries liquidated by operation of law, through bypass or other 
automatic liquidation procedure) will count is irrational. Another 
commenter claimed that the limitation of treatment to instances in 
which Customs made a deliberative decision, usually requiring a 
physical examination of goods, is not adequately justified by Customs 
and is as objectionable as the suggestion that, where there is a no 
change liquidation, there is no Customs decision to protest.
    Customs response: For the reasons stated in the preceding comment 
response, Customs believes that the proposed text set forth a 
reasonable standard for determining whether a ``treatment'' exists, and 
Customs further suggests that the rationality of that approach is 
supported by the holding in Precision I that ``treatment'' looks to the 
actions of Customs. Similarly, Customs believes that the preceding 
comment response adequately justifies the deliberative decision 
standard reflected in the proposed text. Finally, the comment regarding 
no change liquidations and protest decisions involves a separate 
statutory and regulatory context and therefore is inapposite.
    Comment: Based on the regulations as proposed, importers and other 
interested parties have little or no ability to require Customs to 
examine specific transactions. The review of transactions is the 
responsibility of Customs. Accordingly, the term ``treatment'' should 
include all importations, not just those which Customs has actually 
examined.
    Customs response: While Customs generally agrees with the first two 
statements of this commenter, Customs disagrees with the commenter's 
conclusion. As indicated earlier in this comment discussion, Customs 
must deal with a very large number of import transactions each year and 
must at the same time facilitate international trade. It is simply 
impossible for Customs to facilitate trade and at the same time review 
all import transactions. Accordingly, Customs has adopted procedures, 
such as selectivity and bypass, which are intended to strike a workable 
balance between these two competing goals. As a result, the vast 
majority of import transactions do not receive Customs review. Since 
those unreviewed transactions receive no action on the part of Customs, 
they should not be considered to constitute a ``treatment'' within the 
meaning of 19 U.S.C. 1625(c).
    Comment: Three commenters complained that the burden of proof to

[[Page 53492]]

show a treatment (a listing by entry number, quantity and value, port 
of entry, and date of final action by Customs) is too great. Moreover, 
these commenters suggested that if Customs is not totally uniform in 
its treatment, the proposed regulations would appear to excuse Customs 
from a finding that there is a treatment triggering rights to the 
public.
    Customs response: Customs disagrees with the comment regarding the 
alleged burden, for two reasons. First, the regulatory standard 
reflected in the proposed text follows the text of present 
Sec. 177.9(e)(2) in this regard, and Customs is not aware that 
importers have had particular difficulty in meeting the burden of 
showing reliance on previous treatment under that provision. Second, 
the proposed regulatory standard appears to be consistent with the 
evidence of treatment on substantially identical transactions that the 
court in Precision I deemed appropriate for section 1625(c) purposes. 
The court noted in this regard that the plaintiff did not meet the 
necessary burden when it failed to provide information regarding the 
dates, ports and nature of the earlier transactions and a clear 
description of the merchandise at issue.
    With regard to the issue of uniformity, several points should be 
noted. First, reference in the regulatory text to a ``consistent 
pattern'' in the definition of ``treatment'' was intended to apply only 
to the person claiming the treatment and not to actions of Customs 
involving substantially identical transactions of other persons. 
Moreover, there is nothing in the proposed text that requires 100 
percent consistency. Customs avoided imposing a strict 100 percent 
requirement in recognition of the fact that a finding of reliance on a 
previous treatment could be reasonable even if the pattern of treatment 
was not entirely consistent, for example, where the actions of Customs 
were consistent over the entire 2-year period in all ports for a 
significant number of entries except for a relatively small number of 
isolated exceptions. On the other hand, Customs does not believe that a 
person should be able to claim the existence of a treatment for section 
1625(c) purposes when there is no consistency in the pattern of actions 
by Customs, that is, when the general pattern is that different results 
have been reached in different ports, because the different actions of 
Customs can give rise to no expectation on the part of the importer 
regarding the specific treatment that his transactions will receive 
from Customs. Further, it should be noted that, in actual practice, 
Customs has never denied a claim of treatment based solely on an 
importer not having had 100 percent consistent treatment: each 
determination has been based on consideration of all the relevant facts 
involved.
    Comment: Three commenters argued that, in determining whether a 
treatment exists, Customs should not disregard outright informal 
entries or other entries where there is less scrutiny. These commenters 
noted that informal entries are allowed for low value shipments but 
that there are certain informational requirements for these low value 
shipments which allow Customs to use selectivity criteria to review 
those shipments, and they therefore suggested that informal entries 
should not be disregarded. Similarly, these commenters asserted that 
just because Customs does not choose to examine certain merchandise 
does not mean that the action of Customs in liquidating entries is 
entitled to no weight. With regard to the statement that little weight 
will be given for treatment purposes to transactions that have small 
quantities or values, another commenter noted that test transactions 
are legitimate importations and that for some kinds of merchandise, 
such as machines, small quantities are the norm.
    Customs response: As already pointed out in this comment 
discussion, the key issue in determining whether a treatment exists is 
whether, and if so the manner in which, Customs has taken action on 
past transactions. The reference in the proposed text to informal 
entries was made in a context in which there is no examination or 
review, and therefore the regulatory text would not preclude the 
consideration of informal entries on which Customs took specific action 
such as an examination of the merchandise or a detailed review of the 
supporting entry documentation. Moreover, the mere fact that Customs 
does not examine the merchandise does not mean that an action leading 
to a treatment cannot occur, because other actions by Customs, such as 
a review of the entry documentation or a request for additional 
information from the importer, can constitute adequate evidence of the 
existence of a treatment. Similarly, there is nothing in the proposed 
text that would preclude the consideration of ``test transactions,'' 
and Customs further notes that transactions involving low quantity 
merchandise such as machines may be appropriate for consideration under 
the proposed text because their value probably would be significant and 
thus might warrant the specific attention of Customs. Finally, it 
should be noted that Customs has cooperated with importers and their 
counsel on ``test transactions'' or ``test shipments'' in resolving 
Customs transaction issues. It would be disingenuous of importers to 
``blind-side'' Customs by using these test shipments as a basis for 
claiming that a ``treatment'' exists rather than advising Customs that 
a valid Customs transaction issue exists which warrants examination.
    Comment: Customs should delete from Sec. 177.21 paragraph (d)(1) 
which sets forth exceptions to the notice requirements.
    Customs response: Customs is firmly of the opinion that paragraph 
(d)(1) of the proposed text should be retained in its entirety for the 
reasons stated in the preamble portion of the July 17, 2001, notice of 
proposed rulemaking, and Customs notes that the commenter provided no 
justification for its suggested change. The paragraph (d)(1) provisions 
are intended to avoid redundancy and to provide exceptions in the case 
of changes not occasioned by actions taken by Customs. The proposed 
text thus implicitly recognizes the true purpose of the section 1625(c) 
provisions which was only to protect importers and others from sudden 
actions taken by Customs. This intent was recognized in Precision II 
where the court, in discussing the relevant legislative history, noted 
the statement in Senate Report No. 103-189 that ``importers have a 
right * * * to expect certainty that the Customs Service will not 
unilaterally change the rules without providing importers proper notice 
and opportunity for comment.'' There is nothing in the statute or its 
legislative history that would suggest that Congress intended that the 
procedural safeguards set forth in section 1625(c) would apply in the 
case of rulings, decisions or treatments of Customs that are affected 
by subsequent laws passed by Congress or by subsequent actions taken by 
the President or other Executive Branch agencies or by subsequent 
decisions by the courts or by collateral public notice and comment 
procedures pursued by Customs under other authority. Rather, Customs 
believes that the opposite conclusion must be reached, and in this 
regard Customs notes that in Sea-Land Service, Inc. v. United States, 
239 F.3d 1366 (Fed. Cir. 2001), the United States Court of Appeals for 
the Federal Circuit upheld the conclusion of the Court of International 
Trade that, where Customs made decisions as a result of a court 
decision that established a statutory interpretation that in effect 
modified or revoked previous Customs decisions, the notice and comment 
requirements of section 1625(c) did not apply and would serve no 
purpose because Customs was

[[Page 53493]]

bound by the court decision and had no discretion to modify the court 
decision and thus would be unable to respond to any comments it 
received.
    Comment: Proposed Sec. 177.21(d) appears to be inclusive. However, 
proposed Sec. 177.21(d)(1)(iv) should be amended by adding the words 
``overturns or'' after ``which.''
    Customs response: Customs believes that the suggested change would 
result in a redundancy and therefore would not improve the text. The 
proposed text refers to a judicial decision ``which has the effect of 
overturning the Customs position'' in order to cover not only Customs 
positions that are directly affected by the judicial decision (for 
example, where a specific Customs ruling or decision is subjected to 
judicial review) but also cases in which the issue decided by the court 
has a substantive effect on rulings, decisions or treatments of Customs 
that are not directly at issue in the litigation. The suggested change 
in wording would appear to set forth a distinction without a difference 
(in other words, a judicial decision that ``overturns'' something 
equally has the ``effect of overturning'' that thing). Accordingly, no 
change should be made in this regard. This conclusion would comport 
with the facts and result under the Sea-Land case referred to in the 
preceding comment response.
    Comment: Customs should not adopt the position that petitions filed 
under 19 U.S.C. 1516 can be decided using the procedures of 19 U.S.C. 
1625(c) if the petition is filed by a domestic party, Customs agrees 
with the position of the domestic party, and there is an outstanding 
ruling in conflict with this position. If a domestic party files under 
section 1516, Customs is obligated to decide the issue under that 
statute and to provide all involved parties with the procedural 
safeguards dictated in that statute. Customs should not subvert the 
provisions of section 1516 by substituting procedures established by 
section 1625.
    Customs response: The comment relates to paragraph (d)(1)(v) of 
proposed Sec. 177.21 which provides that the publication and issuance 
requirements of paragraphs (b) and (c) will not apply in circumstances 
in which a decision is published in the Federal Register as a result of 
a petition by a domestic interested party pursuant to 19 U.S.C. 1516. 
Customs explained in the preamble to the July 17, 2001, notice of 
proposed rulemaking that this provision was included because Customs 
did not believe that sound administrative practice would be well served 
by repeating in a 19 U.S.C. 1625(c) procedure what was already 
accomplished in a 19 U.S.C. 1516 context. Since the proposed regulatory 
text refers to, and therefore does not preclude, use of the 19 U.S.C. 
1516 procedure, the commenter's stated concern does not relate to the 
wording of the regulatory text.
    Rather, the commenter s concern appears to be directed to the 
related discussion in the preamble to the July 17, 2001, notice of 
proposed rulemaking regarding the procedures Customs would follow in 
those infrequent cases that could potentially give rise to both 
statutory procedures. Customs stated in this regard that the following 
internal approach had been developed to avoid any possible conflict 
between the two procedures: (1) If Customs agrees with the position 
presented by a domestic interested party under 19 U.S.C. 1516, Customs 
will then attempt to determine whether there is an extant ruling, 
internal advice decision, protest review decision or treatment that is 
in conflict with that position and, if it is determined that a conflict 
exists, then Customs will initiate the 19 U.S.C. 1625(c) modification 
or revocation procedure; or (2) if the position of Customs differs from 
the position of the domestic interested party and that party contests 
the Customs position, the matter will be resolved in accordance with 
the 19 U.S.C. 1516 publication procedures. The commenter appears to 
take issue with the first alternative procedure to the extent that it 
indicates that Customs would pursue a modification or revocation under 
section 1625(c) in lieu of an action under section 1516.
    Customs believes that the alternative procedures outlined in the 
preamble to the July 17, 2001, notice of proposed rulemaking promote 
needed administrative flexibility and efficiency. Accordingly, Customs 
believes that the procedures outlined in the preamble to the July 17, 
2001, notice of proposed rulemaking are appropriate and therefore 
should be retained.

Additional Changes to the Regulatory Texts

A. Additional Modifications to the Proposed Sec. 177.21 Text

    In view of the significant number of comments submitted on the 
issue of treatments under the proposed Sec. 177.21(c) text, and based 
on further review of this issue, Customs has determined that some other 
changes, in addition to those mentioned in the above comment 
discussion, should be incorporated in the regulatory text adopted in 
this final rule document. These additional changes, which Customs 
believes are necessary to address issues raised by the commenters or to 
otherwise clarify the intent behind the proposed text, involve the 
following:
    1. The second sentence of paragraph (c)(1) has been revised to read 
``[t]he following rules will apply for purposes of determining under 
this section whether a treatment was previously accorded by Customs to 
substantially identical transactions of a person.'' This change results 
in the removal of the definition of ``treatment'' in favor of a 
sequence of subparagraphs ((i) through (iv)) that set forth all 
operative standards for determining whether paragraph (c) applies. The 
reference at the end to identical transactions ``of a person'' is 
intended to reflect the necessary connection between the transactions 
and the person claiming the treatment.
    2. Subparagraph (i)(A), which has no direct counterpart in the 
proposed text, provides that there must be evidence to establish that 
there was ``an actual determination by a Customs officer'' regarding 
the facts and issues involved in the claimed treatment. This is 
intended to clarify the point made in the above comment discussion 
that, as supported by the conclusion reached by the court in Precision 
II, there must be some review or other action on the part of Customs. 
The words ``actual determination'' are intended to clarify that there 
must be a conscious, intentional, purposeful act by a Customs officer, 
as distinguished from a result that arises out of an involuntary event 
such as an automatic liquidation or a liquidation by operation of law.
    3. Subparagraph (i)(B), which also has no direct counterpart in the 
proposed text, provides that there must be evidence to establish that 
the Customs officer making the actual determination ``was responsible 
for the subject matter'' on which the determination was made. This 
provision is a corollary to the subparagraph (i)(A) requirement and is 
necessary to ensure that actions taken by Customs officers that create 
treatments for section 1625(c) purposes involve the exercise of proper 
authority and supervisory control and thus accurately represent the 
policy of Customs. In other words, Customs believes that it would not 
be appropriate for a person to rely on the advice of a Customs officer 
for treatment purposes if that Customs officer has no official 
responsibility for, and therefore no particular competence in, the 
issue at hand (for example, a drawback liquidator should not be relied 
upon for advice regarding country of origin marking requirements). This 
position is

[[Page 53494]]

consistent with the facts involved in Precision I and Precision II and 
with the result reached by the court in Precision II in that the action 
taken by Customs that resulted in the creation of the treatment was 
taken by Customs officers assigned to a Customs office, that is, a 
drawback unit/office, specifically designated for the purpose of 
liquidating drawback entries.
    4. Subparagraph (i)(C) follows the 2-year period provision 
contained in the proposed text but incorporates a number of changes. 
The new text provides that there must be evidence to establish that 
over a 2-year period ``preceding the claim of treatment'' (rather than 
``prior to publication of the notice'') Customs ``consistently applied 
that determination on a national basis'' (rather than requiring ``a 
consistent pattern of decisions'') as reflected in liquidations of 
entries or reconciliations ``or other Customs actions'' with respect to 
``all or substantially all of that person's Customs transactions 
involving materially identical facts and issues.'' The ``preceding * * 
*'' language merely reflects that the time the claim is made (which, 
under paragraph (c)(2)(ii) could occur after publication of the notice 
of proposed modification or revocation), rather than the date of 
publication of the notice by Customs, is more relevant in identifying 
the 2-year period for purposes of protecting the treatment rights of a 
person. The language that replaced the reference to a ``consistent 
pattern of decisions'' is intended (1) to avoid any uncertainty as 
regards what a ``pattern'' is, (2) to reflect the principle that, as 
pointed out in the comment discussion above and as reflected in the 
action taken by Customs on the 69 entries discussed by the court in 
Precision II, more is needed than merely a determination, that is, 
Customs must do something beyond making the determination, such as 
apply the determination in the liquidation of entries, and (3) to 
ensure that a treatment does not result from a geographically narrow 
application of a determination that is different from the action taken 
by Customs on that person's substantially identical transactions at 
other locations. The addition of the reference to ``other Customs 
actions'' is intended to clarify that Customs actions that can give 
rise to a treatment are not limited to liquidations. The words ``all or 
substantially all'' are intended to reflect the point made in 
connection with the above comment discussion that 100 percent 
consistency is not required for purposes of finding that a treatment 
exists with regard to a person's Customs transactions. Finally, the 
words ``materially identical facts and issues'' were included to 
clarify what is meant by the words ``substantially identical'' when 
used with reference to transactions in the introductory text of 
paragraph (c)(1).
    5. At the end of subparagraph (ii), which repeats much of proposed 
paragraph (c)(1)(i), the words ``import specialist review'' have been 
replaced by ``Customs officer review'' to reflect the fact that review 
actions that can create treatments are not limited to actions of 
Customs import specialists.
    6. Subparagraph (iii)(A) provides that Customs will not find that a 
treatment was accorded to a person's transactions if the person's own 
transactions were not accorded the treatment in question over the 
prescribed 2-year period. This provision represents a restatement, 
without substantive change, of the principle reflected in proposed 
paragraph (c)(1)(ii) that treatment is personal.
    7. Subparagraph (iii)(B) provides that Customs will not find that a 
treatment was accorded to a person's transactions if the issue in 
question involves the admissibility of merchandise. This provision has 
no direct counterpart in the proposed text and has been added to 
clarify the existence of the essential rule that the admissibility of 
merchandise is always determined at the time of importation and 
therefore cannot be the subject of a treatment for purposes of section 
1625(c). The reason for this should be clear: in the case of 
merchandise that is not admissible (for example, because the 
merchandise has been found to exceed an applicable quantitative limit 
or has been found to constitute prohibited merchandise), an importer 
should not be allowed to continue to enter the merchandise in the 
United States in contravention of the applicable law regarding its non-
admissibility merely because Customs has failed to follow the 
publication procedures under section 1625(c).
    8. Subparagraph (iii)(C) provides that Customs will not find that a 
treatment was accorded to a person's transactions if the person made a 
material false statement or material omission in connection with a 
Customs transaction or in connection with the review of a Customs 
transaction and that statement or omission affected the determination 
on which the treatment claim is based. This provision has no direct 
counterpart in the proposed text and has been added to ensure that a 
person cannot profit from the section 1625(c) treatment provisions in 
circumstances in which the claimed treatment rests on a false premise 
resulting from an act or omission on the part of the person claiming 
the treatment. Customs believes that this rule is an appropriate 
expression of principles of equity and fair play.
    9. Subparagraph (iii)(D) provides that Customs will not find that a 
treatment was accorded to a person's transactions if Customs advised 
the person regarding the manner in which the transactions should be 
presented to Customs and the person failed to follow that advice. This 
provision has no direct counterpart in the proposed text. It has been 
added because Customs believes that it would be inconsistent with the 
reliance and consistency principles that underlie the treatment 
provisions for a person to claim a treatment that is inconsistent with 
specific advice provided by Customs. Moreover, even if Customs officers 
have taken determinative action on the person's individual transactions 
that is inconsistent with the advice provided elsewhere by Customs, the 
person should have no expectation that Customs will continue to take 
those inconsistent actions in the future.
    10. Subparagraph (iv) repeats the text of proposed paragraph 
(c)(1)(iii) regarding the burden of proof as regards the existence of 
the previous treatment but with the following changes: (1) In the first 
sentence, the words ``burden of proof'' have been replaced by 
``evidentiary burden'' to avoid an overly strict standard; (2) in the 
second sentence, reference is made to ``materially'' (rather than 
``substantially'' ) identical transactions to align on the language 
used in subparagraph (i)(C) as discussed above; and (3) at the end of 
the second sentence, the words ``and, if known, the name and location 
of the Customs officer who made the determination on which the claimed 
treatment is based'' have been added to specify other information, if 
available, that a person may use to convince Customs that the claimed 
treatment exists. In addition a third sentence has been added to the 
proposed text to provide that, in cases in which an entry is liquidated 
without any Customs review, the person claiming a previous treatment 
must be prepared to submit to Customs written or other appropriate 
evidence of the earlier actual determination of a Customs officer that 
the person relied on in preparing the entry and that is consistent with 
the liquidation of the entry. Customs believes that this provision, 
which is related to the standard under subparagraph (i) that there must 
be a determination of Customs that has been applied to transactions, is 
necessary in order to enable persons to demonstrate the

[[Page 53495]]

existence of a treatment when no specific determination was made on the 
person's individual transactions (an example would be where Customs 
issued a prospective ruling to another person and the person claiming 
the treatment followed that ruling in entering his identical 
merchandise and Customs liquidated those entries as entered and without 
review-presentation of the ruling to Customs would satisfy the 
regulatory standard).
    11. Finally, at the end of the notice procedures in paragraph 
(c)(2)(i), the text regarding written confirmation has been simplified 
by referring to confirmation sent to each person identified as having 
had substantially identical transactions.* * *'' This change conforms 
the text to current administrative practice.

B. Modification of Present Part 177 To Accommodate the Final 
Modification/Revocation Text

    In light of the decision discussed earlier in this document to 
proceed with a final rule only as regards those proposed Part 177 
regulatory changes that relate to the modification/revocation 
provisions of 19 U.S.C. 1625(c), the proposed Sec. 177.21 text must 
have a new section designation in order to appear properly within the 
existing Part 177 structure. Accordingly, Customs in this final rule 
document has designated the new modification/revocation section as 
Sec. 177.12 (with a consequential redesignation of present Sec. 177.12 
as Sec. 177.13) so that it will appear after both the provision that 
deals with the issuance of prospective rulings (Sec. 177.8) and the 
provision that concerns the issuance of internal advice decisions 
(Sec. 177.11), because issued prospective rulings and internal advice 
decisions may be the subject of a modification or revocation under the 
new section. In addition, some minor conforming changes have been made 
to the wording of paragraph (a) of new Sec. 177.12 to reflect the fact 
that the other structural changes to Part 177 contained in the July 17, 
2001, notice of proposed rulemaking are not being adopted in this final 
rule document.
    In addition, this final rule document makes a number of conforming 
changes to other existing sections within part 177 as a consequence of 
the addition of new Sec. 177.12. These changes are as follows:
    1. In the second sentence of paragraph (b)(2)(ii)(B) of 
``Sec. 177.2, the reference to ``Sec. 177.12'' has been changed to read 
``177.13.''
    2. The heading of Sec. 177.9 has been revised to remove the 
reference to modification or revocation which will no longer be 
``treated'' in that section.
    3. The last sentence of paragraph (a) of Sec. 177.9 has been 
revised to reflect the proper reference to the new modification and 
revocation provisions and to refer to the Federal Register (rather than 
the Customs Bulletin) which is the publication medium mentioned in the 
referenced Sec. 177.10(e).
    4. The first sentence of paragraph (c) of Sec. 177.9 has been 
revised to include exception language when the public notice and 
comment provisions of new Sec. 177.12 apply.
    5. Paragraph (d) of Sec. 177.9 has been removed because it concerns 
the modification or revocation of ruling letters and therefore is 
entirely superseded by the provisions of 19 U.S.C. 1625(c) and new 
Sec. 177.12.
    6. Paragraph (e) of Sec. 177.9, which concerns ruling letters 
modifying past Customs treatment of transactions not covered by ruling 
letters, has been removed because it also is entirely superseded by the 
provisions of 19 U.S.C. 1625(c) and new Sec. 177.12. It remains the 
position of Customs that these paragraph (e) provisions formed the 
basis for the statutory treatment provision, and in this regard the 
following was stated in the July 17, 2001, notice of proposed 
rulemaking (at 66 FR 37375) in discussing the definition of 
``treatment'' in proposed Sec. 177.21(c)(1):

    In setting forth these regulatory standards, Customs has relied 
in part on the text of present Sec. 177.9(e) which concerns the use 
of delayed effective dates in the case of ruling letters covering 
transactions or issues not previously the subject of ruling letters 
and which have the effect of modifying the treatment previously 
accorded by Customs to substantially identical transactions. Customs 
believes that use of the present regulatory standards in this new 
regulatory text is appropriate because, given the similarity in 
language, it seems clear that the present regulation served as the 
model for the subsequently enacted statutory text except that 
application of a delayed effective date is now mandated.

    7. Within Sec. 177.10, which concerns the publication of decisions, 
the following changes have been made: (1) Paragraph (b), which concerns 
the establishment of a uniform practice by publication of a ruling in 
the Customs Bulletin, has been removed; (2) paragraph (c) has been 
revised: in order to remove the reference to a change of position in 
the paragraph heading; in order to remove the second sentence of 
paragraph (c)(1) which concerns Federal Register publication and public 
comment regarding a ruling that contemplates a change of practice 
resulting in the assessment of a lower rate of duty; in order to remove 
the third sentence of paragraph (c)(1) which concerns rulings resulting 
in a change of practice but no change in the rate of duty; and in order 
to remove paragraph (c)(2) which concerns Federal Register publication 
and public comment regarding a contemplated ruling that has the effect 
of changing a position of Customs; and (3) the first sentence of 
paragraph (e), which concerns effective dates, has been revised to 
include exception language regarding modifications and revocations 
under new Sec. 177.12. The changes to paragraphs (b) and (c) are 
substantively similar to changes reflected in the proposed revised Part 
177 texts contained in the July 17, 2001, notice of proposed 
rulemaking. Customs explained in the preamble to that document in 
regard to those changes that, except in the case of an established and 
uniform practice where the proposed regulatory text was directly based 
on 19 U.S.C. 1315(d), it was proposed to remove all references to 
``uniform practice'' or ``practice'' from the Part 177 texts. The 
principal reason for this was that the statutory and regulatory 
modification/revocation standards of 19 U.S.C. 1625(c) and proposed 
Sec. 177.21 had rendered these provisions redundant or otherwise 
unnecessary. Customs would further add that a failure to make these 
changes in Sec. 177.10(b) and (c) in this final rule document will give 
rise to conflicts with the new Sec. 177.12 procedures, not only in 
regard to the vehicle for publication (Federal Register versus Customs 
Bulletin) but also with regard to the circumstances in which 
publication of the contemplated ruling is required and when it would 
take effect. Since the new Sec. 177.12 provisions devolve from a direct 
statutory mandate, Customs believes that they must take precedence.
    Finally, although not directly related to 19 U.S.C. 1625(c) and new 
Sec. 177.12, Customs notes that paragraph (a) of present Sec. 177.10 
and paragraph (b)(7) of present Sec. 177.11 refer to publication or 
other availability within 120'' days, whereas 19 U.S.C. 1625(a), which 
applies equally to prospective rulings and to internal advice 
decisions, requires publication or other availability within 90'' days. 
In addition, paragraph (a) of present Sec. 177.10 in two places refers 
to a precedential decision whereas 19 U.S.C. 1625(a) and new 
Sec. 177.12 use the word interpretive. The regulatory texts in question 
have been amended in this final rule document to align on the statute 
and new regulatory text.

[[Page 53496]]

Conclusion

    Accordingly, based on the comments received and the analysis of 
those comments as set forth above, and after further review of this 
matter, Customs believes that the proposed regulatory amendments 
regarding the modification and revocation of rulings, decisions, and 
treatments and regarding the publication of decisions should be adopted 
as a final rule with certain changes as discussed above and as set 
forth below. This document also includes an appropriate update of the 
list of information collection approvals (see the Paperwork Reduction 
Act portion of this document below) contained in Sec. 178.2 of the 
Customs Regulations (19 CFR 178.2).

Executive Order 12866

    This document does not meet the criteria for a ``significant 
regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

    Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is certified that these amendments will not 
have a significant economic impact on a substantial number of small 
entities. The regulatory amendments primarily represent a clarification 
of existing statutory and regulatory requirements. Accordingly, the 
amendments are not subject to the regulatory analysis or other 
requirements of 5 U.S.C. 603 and 604.

Paperwork Reduction Act

    The collection of information contained in this final rule has been 
reviewed and approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) 
under control number 1515-0228. An agency may not conduct or sponsor, 
and a person is not required to respond to, a collection of information 
unless it displays a valid control number assigned by OMB.
    The collection of information in part 177 of the Customs 
Regulations is required in connection with the consideration of 
requests for, and issuance of, rulings or other written advice from 
Customs regarding the application of the Customs and related laws to 
current or future transactions, in connection with modifications or 
revocations of prior Customs rulings or treatments, or in connection 
with the issuance of country-of-origin advisory rulings and final 
determinations relating to Government procurement. Failure to provide 
the required information may preclude issuance of the requested advice 
by Customs or may preclude the application of the requested relief or 
other action by Customs. The likely respondents are individuals and 
business or other for-profit institutions, including partnerships, 
associations, and corporations, and their authorized agents.
    The estimated average annual burden associated with the collection 
of information under part 177 is 10 hours per respondent or 
recordkeeper. Comments concerning the accuracy of this burden estimate 
and suggestions for reducing this burden should be directed to the U.S. 
Customs Service, Information Services Group, Office of Finance, 1300 
Pennsylvania Avenue, NW., Washington, DC 20229, and to OMB, Attention: 
Desk Officer for the Department of the Treasury, Office of Information 
and Regulatory Affairs, Washington, DC 20503.

Drafting Information

    The principal author of this document was Francis W. Foote, Office 
of Regulations and Rulings, U.S. Customs Service. However, personnel 
from other offices participated in its development.

List of Subjects

19 CFR Part 177

    Administrative practice and procedure, Customs duties and 
inspection, Government procurement, Reporting and recordkeeping 
requirements, Rulings.

19 CFR Part 178

    Administrative practice and procedure, Reporting and recordkeeping 
requirements.

Amendments to the Regulations

    Accordingly, for the reasons stated in the preamble, parts 177 and 
178 of the Customs Regulations (19 CFR parts 177 and 178) are amended 
as set forth below.

PART 177--ADMINISTRATIVE RULINGS

    1. The authority citation for Part 177 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 23, 
Harmonized Tariff Schedule of the United States), 1502, 1624, 1625.


    2. In Sec. 177.2, the second sentence of paragraph (b)(2)(ii)(B) is 
amended by removing the reference Sec. 177.12'' and adding, in its 
place, the reference Sec. 177.13''.

    3. In Sec. 177.9:
    a. The section heading is revised;
    b. The last sentence of paragraph (a) is revised;
    c. The first sentence of paragraph (c) is revised; and
    d. Paragraphs (d) and (e) are removed and reserved.
    The revisions read as follows:


Sec. 177.9  Effect of ruling letters.

    (a) * * * See, however, Sec. 177.10(e) (changes of practice 
published in the Federal Register) and Sec. 177.12 (rulings which 
modify or revoke previous rulings, decisions, or treatments).
* * * * *
    (c) Reliance on ruling letters by others. Except when public notice 
and comment procedures apply under Sec. 177.12, a ruling letter is 
subject to modification or revocation by Customs without notice to any 
person other than the person to whom the ruling letter was addressed. * 
* *
* * * * *

    4. In Sec. 177.10:
    a. In paragraph (a), the first sentence is amended by removing the 
number ``120'' and adding, in its place, the number ``90'' and removing 
the word ``precedential'' and adding, in its place, the word 
``interpretive'', and the second sentence is amended by removing the 
words ``a precedential'' and adding, in their place, the words ``an 
interpretive'';
    b. Paragraph (b) is removed and reserved; and
    c. Paragraph (c) and the first sentence of paragraph (e) are 
revised to read as follows:


Sec. 177.10  Publication of decisions.

* * * * *
    (c) Changes of practice. Before the publication of a ruling which 
has the effect of changing an established and uniform practice and 
which results in the assessment of a higher rate of duty within the 
meaning of 19 U.S.C. 1315(d), notice that the practice (or prior ruling 
on which that practice was based) is under review will be published in 
the Federal Register and interested parties will be given an 
opportunity to make written submissions with respect to the correctness 
of the contemplated change.
* * * * *
    (e) Effective dates. Except as otherwise provided in Sec. 177.12(e) 
or in the ruling itself, all rulings published under the provisions of 
this part will be applied immediately.
    * * *

    5. In Sec. 177.11, the first sentence of paragraph (b)(7) is 
amended by removing the number ``120'' and adding, in its place, the 
number ``90''.

[[Page 53497]]

Sec. 177.12  [Redesignated as Sec. 177.13]

    6. Section 177.12 is redesignated as Sec. 177.13 and a new 
Sec. 177.12 is added to read as follows:


Sec. 177.12  Modification or revocation of interpretive rulings, 
protest review decisions, and previous treatment of substantially 
identical transactions.

    (a) General. An interpretive ruling, which includes an internal 
advice decision, issued under this part, or a holding or principle 
covered by a protest review decision issued under part 174 of this 
chapter, if found to be in error or not in accord with the current 
views of Customs, may be modified or revoked by an interpretive ruling 
issued under this section. In addition, an interpretive ruling issued 
under this section may have the effect of modifying or revoking the 
treatment previously accorded by Customs to substantially identical 
transactions. A modification or revocation under this section must be 
carried out in accordance with the notice procedures set forth in 
paragraph (b) or paragraph (c) of this section except as otherwise 
provided in paragraph (d) of this section, and the modification or 
revocation will take effect as provided in paragraph (e) of this 
section.
    (b) Interpretive rulings or protest review decisions. Customs may 
modify or revoke an interpretive ruling or holding or principle covered 
by a protest review decision that has been in effect for less than 60 
calendar days by simply giving written notice of the modification or 
revocation to the person to whom the original ruling was issued or 
whose current transaction was the subject of the internal advice 
decision or, in the case of a protest review decision, to the person 
identified on the Customs Form 19 as the protestant or to any other 
person designated to receive notice of denial of a protest under 
Sec. 174.30(b) of this chapter. However, when Customs contemplates the 
issuance of an interpretive ruling that would modify or revoke an 
interpretive ruling or holding or principle covered by a protest review 
decision which has been in effect for 60 or more calendar days, the 
following procedures will apply:
    (1) Publication of proposed action. A notice proposing the 
modification or revocation and inviting public comment on the proposal 
will be published in the Customs Bulletin. The notice will refer to all 
previously issued interpretive rulings or protest review decisions that 
Customs has identified as being the subject of the proposed action and 
will invite any member of the public who has received another 
interpretive ruling or protest review decision involving the issue that 
is the subject of the proposed action to advise Customs of that fact. 
Interested parties will have 30 calendar days from the date of 
publication of the notice to submit written comments on the proposed 
modification or revocation and to advise Customs in writing that they 
are recipients of an affected interpretive ruling or protest review 
decision that was not identified in the notice.
    (2) Notice of final action. In the absence of extraordinary 
circumstances, within 30 calendar days after the close of the public 
comment period, any submitted comments will be considered and a final 
modifying or revoking notice or notice of other appropriate final 
action on the proposed modification or revocation will be published in 
the Customs Bulletin. In addition, a written decision will be issued to 
the person to whom, or on whose transaction, the original interpretive 
ruling was issued or, in the case of a protest review decision, to the 
person identified on the Customs Form 19 as the protestant or to any 
other person designated to receive notice of denial of a protest under 
Sec. 174.30(b) of this chapter. Publication of a final modifying or 
revoking notice in the Customs Bulletin will have the effect of 
modifying or revoking any interpretive ruling or holding or principle 
covered by a protest review decision that involves merchandise or an 
issue that is substantially identical in all material respects to the 
merchandise or issue that is the subject of the modification or 
revocation, including an interpretive ruling or holding or principle 
covered by a protest review decision that is not specifically 
identified in the final modifying or revoking notice.
    (c) Treatment previously accorded to substantially identical 
transactions--(1) General. The issuance of an interpretive ruling that 
has the effect of modifying or revoking the treatment previously 
accorded by Customs to substantially identical transactions must be in 
accordance with the procedures set forth in paragraph (c)(2) of this 
section. The following rules will apply for purposes of determining 
under this section whether a treatment was previously accorded by 
Customs to substantially identical transactions of a person:
    (i) There must be evidence to establish that:
    (A) There was an actual determination by a Customs officer 
regarding the facts and issues involved in the claimed treatment;
    (B) The Customs officer making the actual determination was 
responsible for the subject matter on which the determination was made; 
and
    (C) Over a 2-year period immediately preceding the claim of 
treatment, Customs consistently applied that determination on a 
national basis as reflected in liquidations of entries or 
reconciliations or other Customs actions with respect to all or 
substantially all of that person's Customs transactions involving 
materially identical facts and issues;
    (ii) The determination of whether the requisite treatment occurred 
will be made by Customs on a case-by-case basis and will involve an 
assessment of all relevant factors. In particular, Customs will focus 
on the past transactions to determine whether there was an examination 
of the merchandise (where applicable) by Customs or the extent to which 
those transactions were otherwise reviewed by Customs to determine the 
proper application of the Customs laws and regulations. For purposes of 
establishing whether the requisite treatment occurred, Customs will 
give diminished weight to transactions involving small quantities or 
values, and Customs will give no weight whatsoever to informal entries 
and to other entries or transactions which Customs, in the interest of 
commercial facilitation and accommodation, processes expeditiously and 
without examination or Customs officer review;
    (iii) Customs will not find that a treatment was accorded to a 
person's transactions if:
    (A) The person's own transactions were not accorded the treatment 
in question over the 2-year period immediately preceding the claim of 
treatment;
    (B) The issue in question involves the admissibility of 
merchandise;
    (C) The person made a material false statement or material omission 
in connection with a Customs transaction or in connection with the 
review of a Customs transaction and that statement or omission affected 
the determination on which the treatment claim is based; or
    (D) Customs advised the person regarding the manner in which the 
transactions should be presented to Customs and the person failed to 
follow that advice; and
    (iv) The evidentiary burden as regards the existence of the 
previous treatment is on the person claiming that treatment. The 
evidence of previous treatment by Customs must include a list of all 
materially identical transactions by entry number (or other Customs 
assigned number), the quantity and value of merchandise covered by each

[[Page 53498]]

transaction (where applicable), the ports of entry, the dates of final 
action by Customs, and, if known, the name and location of the Customs 
officer who made the determination on which the claimed treatment is 
based. In addition, in cases in which an entry is liquidated without 
any Customs review (for example, the entry is liquidated automatically 
as entered), the person claiming a previous treatment must be prepared 
to submit to Customs written or other appropriate evidence of the 
earlier actual determination of a Customs officer that the person 
relied on in preparing the entry and that is consistent with the 
liquidation of the entry.
    (2) Notice procedures--(i) When Customs has reason to believe that 
a contemplated interpretive ruling would have the effect of modifying 
or revoking the treatment previously accorded by Customs to 
substantially identical transactions, notice of the intent to modify or 
revoke that treatment will be published in the Customs Bulletin either 
as a separate action or in connection with a proposed modification or 
revocation of an interpretive ruling or holding or principle covered by 
a protest review decision under paragraph (b)(1) of this section. The 
notice will give interested parties 30 calendar days from the date of 
publication of the notice to submit written comments on the proposed 
modification or revocation and will invite any member of the public 
whose substantially identical transactions have been accorded the same 
treatment to advise Customs in writing of that fact, supported by 
appropriate details regarding those transactions, within that 30-day 
period. Within 30 calendar days after the close of the public comment 
period, any submitted comments will be considered, notice of the final 
interpretive ruling or other final action on the proposed modification 
or revocation will be published in the Customs Bulletin. Written 
confirmation of the applicability of a final modification or revocation 
will be sent to each person identified as having had substantially 
identical transactions that were accorded the same treatment.
    (ii) If Customs is not aware prior to issuance that a contemplated 
interpretive ruling would have the effect of modifying or revoking the 
treatment previously accorded by Customs to substantially identical 
transactions, the interpretive ruling will be issued and generally will 
be effective as provided in Sec. 177.19. However, Customs will, upon 
written application by a person claiming that the interpretive ruling 
has the effect of modifying or revoking the treatment previously 
accorded by Customs to his substantially identical transactions, 
consider delaying the effective date of the interpretive ruling with 
respect to that person, and continue the treatment previously accorded 
the substantially identical transactions, pending completion of the 
procedures set forth in paragraph (c)(2)(i) of this section.
    (d) Exceptions to notice requirements--(1) Publication and issuance 
not required. The publication and issuance requirements set forth in 
paragraphs (b) and (c) of this section are inapplicable in 
circumstances in which a Customs position is modified, revoked or 
otherwise materially affected by operation of law or by publication 
pursuant to other legal authority or by other appropriate action taken 
by Customs in furtherance of an order, instruction or other policy 
decision of another governmental agency or entity pursuant to statutory 
or delegated authority. Such circumstances include, but are not limited 
to, the following:
    (i) Adoption or amendment of a statutory provision, including any 
change to the Harmonized Tariff Schedule of the United States;
    (ii) Promulgation of a treaty or other international agreement 
under the foreign affairs function of the United States;
    (iii) Issuance of a Presidential Proclamation or Executive Order, 
or issuance of a decision or policy determination pursuant to authority 
delegated by the President;
    (iv) Subject to the provisions of Sec. 152.16 of this chapter, the 
rendering of a judicial decision which has the effect of overturning 
the Customs position;
    (v) Publication of a decision in the Federal Register as a result 
of a petition by a domestic interested party pursuant to 19 U.S.C. 1516 
(see part 175 of this chapter);
    (vi) Publication of an interim or final rule in the Federal 
Register in accordance with 5 U.S.C. 553;
    (vii) Publication of a final interpretative rule in the Federal 
Register in accordance with 5 U.S.C. 553 following public notice and 
comment procedures; and
    (viii) Publication of a final ruling in the Federal Register in 
accordance with 19 U.S.C. 1315(d) and Sec. 177.22 of this part relating 
to change of established and uniform practice.
    (2) Publication not required. In the following circumstances a 
final modifying or revoking ruling will be issued to the person 
entitled to it under paragraph (b) or (c) of this section but Customs 
Bulletin publication under paragraph (b) or (c) of this section is not 
required:
    (i) The modifying ruling corrects a clerical error; or
    (ii) The modifying or revoking ruling is directed to a ruling 
issued under subpart I of part 181 of this chapter relating to advance 
rulings under the North American Free Trade Agreement.
    (e) Effective date and application to transactions--(1) Rulings or 
decisions in effect for less than 60 days. If an interpretive ruling or 
holding or principle covered by a protest review decision that is 
modified or revoked under this section had been in effect for less than 
60 calendar days, the modifying or revoking interpretive ruling:
    (i) Will be effective on its date of issuance with respect to the 
specific transaction covered by the modifying or revoking interpretive 
ruling: and
    (ii) Will be applicable to merchandise entered, or withdrawn from 
warehouse for consumption, on and after its date of issuance.
    (2) Rulings or decisions in effect for 60 or more days. If an 
interpretive ruling or holding or principle covered by a protest review 
decision that is modified or revoked under this section had been in 
effect for 60 or more calendar days, the modifying or revoking notice 
will, provided that liquidation of the entry in question has not become 
final, apply to merchandise entered, or withdrawn from warehouse for 
consumption:
    (i) Sixty calendar days after the date of publication of the final 
modifying or revoking notice in the Customs Bulletin under paragraph 
(b)(2) of this section; or
    (ii) At the option of any person with regard to that person's 
transaction, on and after the date of publication of the final 
modifying or revoking notice in the Customs Bulletin under paragraph 
(b)(2) of this section.
    (3) Previous treatment accorded to substantially identical 
transactions. A final notice that modifies or revokes the treatment 
previously accorded by Customs to substantially identical transactions:
    (i) Will be effective with respect to transactions that are 
substantially identical to the transaction described in the modifying 
or revoking notice 60 calendar days after the date of publication of 
the final modifying or revoking notice in the Customs Bulletin under 
paragraph (b)(2) or paragraph (c)(2)(i) of this section; and
    (ii) Provided that liquidation of the entry in question has not 
become final, will apply to merchandise entered, or withdrawn from 
warehouse for consumption:

[[Page 53499]]

    (A) Sixty calendar days after the date of publication of the final 
modifying or revoking notice in the Customs Bulletin under paragraph 
(b)(2) or paragraph (c)(2)(i) of this section; or
    (B) At the option of a person who makes a valid claim regarding 
previous treatment, on and after the date of publication of the final 
modifying or revoking notice in the Customs Bulletin under paragraph 
(b)(2) or paragraph (c)(2)(i) of this section.

PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS

    1. The authority citation for Part 178 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.

    2. In Sec. 178.2, the table is amended by removing the listings for 
Secs. 177.2, 177.5, 177.11, and 177.12 and adding, in their place, a 
listing for Part 177 to read as follows:


Sec. 178.2  Listing of OMB control numbers.

------------------------------------------------------------------------
                                                             OMB control
           19 CFR section                  Description           No.
------------------------------------------------------------------------
 
                  *        *        *        *        *
Part 177...........................  Issuance of               1515-0228
                                      administrative
                                      rulings on
                                      prospective and
                                      current customs
                                      transactions.
 
                  *        *        *        *        *
------------------------------------------------------------------------

* * * * *

Robert C. Bonner,
Commissioner of Customs.
    Approved: August 12, 2002.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 02-20757 Filed 8-15-02; 8:45 am]
BILLING CODE 4820-02-P