[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Notices]
[Pages 61200-61204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24588]


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DEPARTMENT OF THE TREASURY

Customs Service


Modification and Clarification of Procedures of the National 
Customs Automation Program Test Regarding Reconciliation

AGENCY: Customs Service, Treasury.

ACTION: General notice.

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SUMMARY: This document announces modifications to the Customs Automated 
Commercial System (ACS) Reconciliation prototype test regarding NAFTA 
Reconciliation entries, the method for filing Reconciliation entries 
covering flagged entry summaries for which liquidated damages have been 
assessed, acceptance of compact disks for Reconciliation spreadsheets, 
and applicability to test participants of previously suspended 
regulatory provisions of part 111, Customs Regulations. Other than 
these modifications, the test remains the same as set forth in 
previously published Federal Register notices. The document also 
provides clarifications and reminders to test participants regarding 
certain other aspects of the test and announces the new address for 
Reconciliation submissions for the port of NY/Newark.

DATES: Effective as of January 27, 2003, the previously suspended 
regulatory provisions of part 111 of the Customs Regulations will be 
applicable to Reconciliation test participants. Effective as of 
December 26, 2002, are the following three Reconciliation test 
modifications: (1) Test participants who have flagged an entry summary 
for NAFTA Reconciliation must file a NAFTA Reconciliation entry to make 
a post-entry claim for NAFTA under 19 U.S.C. 1520(d); (2) where a test 
participant amends a timely filed NAFTA Reconciliation entry after it 
is returned by Customs for correction, the

[[Page 61201]]

test participant cannot add entry summaries to those that were covered 
in the original Reconciliation entry; (3) a Reconciliation entry filed 
in response to a monthly liquidated damages claim for no-file 
violations cannot include flagged entry summaries that are not in 
violation. Effective September 27, 2002, test participants may submit 
Reconciliation spreadsheet line item data via compact disks. The two-
year testing period of this Reconciliation prototype commenced on 
October 1, 1998, and was extended indefinitely starting October 1, 
2000. Applications to participate in the test will be accepted 
throughout the duration of the test.

ADDRESSES: Written inquiries regarding participation in the 
Reconciliation prototype test and/or applications to participate should 
be addressed to Mr. John Leonard, Reconciliation Team, U.S. Customs 
Service, 1300 Pennsylvania Ave. NW., Room 5.2A, Washington, DC 20229-
0001. Answers to inquiries regarding the test are also available at 
[email protected].

FOR FURTHER INFORMATION CONTACT: Mr. John Leonard at (202) 927-0915 or 
Ms. Christine Furgason at (202) 927-2293.

SUPPLEMENTARY INFORMATION: 

Background

    Reconciliation, a planned component of the National Customs 
Automation Program (NCAP), as provided for in Title VI (Subtitle B) of 
the North American Free Trade Agreement Implementation Act (the NAFTA 
Implementation Act; Public Law 103-182, 107 State. 2057 (December 8, 
1993)), is currently being tested by Customs under the Customs 
Automated Commercial System (ACS) Prototype Test. Customs announced and 
explained the test in a general notice document published in the 
Federal Register (63 FR 6257) on February 6, 1998. Clarifications and 
operational changes were announced in four subsequent Federal Register 
notices: 63 FR 44303 published on August 18, 1998; 64 FR 39187 
published on July 21, 1999; 64 FR 73121 published on December 29, 1999; 
and 66 FR 14619 published on March 13, 2001. A Federal Register (65 FR 
55326) notice published on September 13, 2000, extended the prototype 
indefinitely.
    As announced in a previously published document on Reconciliation 
(August 18, 1998), certain regulations of part 111 of the Customs 
Regulations were suspended for test participants (sometimes referred to 
as importers). This document announces that those regulations are no 
longer suspended.
    Also, since commencement of the test, Customs has monitored the 
test's operation and has observed several practices engaged in by test 
participants that are not consistent with the procedures Customs 
expects participants to follow. Consequently, this document modifies 
the test with respect to North American Free Trade Agreement (NAFTA) 
Reconciliation entries and the method for filing Reconciliation entries 
covering flagged entry summaries for which liquidated damages have been 
assessed, and provides clarifications and reminders concerning other 
aspects of the test regarding: reduced-data, no-change Aggregate 
Reconciliation entries; maintenance of bond riders covering 
Reconciliation entries; the right to file Reconciliation entries; and 
the ``port'' column data element of the line item spreadsheet.
    The document also modifies the test regarding use of compact disks 
for Reconciliation spreadsheets.
    Aside from the above modifications, including the removal of the 
suspension of the part 111 regulations, the test remains as set forth 
in the previously published Federal Register notices.
    Finally, the document sets forth the new address for submitting 
Reconciliation entries for the port of NY/Newark.
    For application requirements, see the Federal Register notices 
published on February 6, 1998, and August 18, 1998. Additional 
information regarding the test can be found at http://www.customs.gov/recon.

Reconciliation Generally

    Reconciliation is the process that allows an importer, at the time 
an entry summary is filed, to identify undeterminable information 
(other than that affecting admissibility) to Customs and to provide 
that outstanding information at a later date. The importer identifies 
the outstanding information by means of an electronic ``flag'' which is 
placed on the entry summary at the time the entry summary is filed and 
payment (applicable duty, taxes, and fees) is made. The issues for 
which an entry summary may be ``flagged'' (for the purpose of later 
reconciliation) are limited and relate to: (1) Value issues; (2) 
classification issues, on a limited basis; (3) ``9802 issues,'' those 
concerning value aspects of entries filed under heading 9802, 
Harmonized Tariff Schedule of the United States (HTSUS)); and (4) NAFTA 
issues, those concerning merchandise entered under the North American 
Free Trade Agreement (NAFTA).
    The flagged entry summary (the underlying entry summary) is 
liquidated for all aspects of the entry except those issues that were 
flagged. The means of providing the outstanding information at a later 
date relative to the flagged issues is through the filing of a 
Reconciliation entry. The flagged issues will be liquidated at the time 
the Reconciliation entry is liquidated. Any adjustments in duties, 
taxes, and/or fees owed will be made at that time. (See the February 6, 
1998, Federal Register notice for a more detailed presentation of the 
basic Reconciliation process.)

Test Modifications

Use of Reconciliation to Make Post-Entry NAFTA Claims

    Ordinarily, a claim for duty-free treatment under NAFTA is made at 
the time of entry; however, in some circumstances, an importer is 
unable to make the claim at that time. In that instance, an importer 
may make a post-entry NAFTA claim under the authority of 19 U.S.C. 
1520(d). This provision authorizes Customs to reliquidate an entry, 
notwithstanding that a valid protest under 19 U.S.C. 1514 was not 
filed, to refund excess duties paid when imported merchandise qualifies 
for NAFTA treatment but a claim for NAFTA was not made at the time of 
entry. Under Sec.  181.33(c)(1), Customs has accepted 1520(d) NAFTA 
claims after entry but before liquidation; these claims do not require 
reliquidation.
    There are two ways to make a 1520(d) NAFTA claim: One way is to 
file an individual 1520(d) claim in accordance with the procedures set 
forth in subpart D of part 181 of the Customs Regulations (hereafter 
referred to as a part 181 NAFTA claim), and the other is to make a 
1520(d) claim in accordance with the Reconciliation process (hereafter 
referred to as a NAFTA Reconciliation claim). No action is required at 
the time of entry when a part 181 NAFTA claim is later filed within one 
year of the date of importation. In contrast, a NAFTA Reconciliation 
claim requires following Reconciliation test procedures: the importer 
flags entry summaries for NAFTA and files, within one year of the date 
of importation, a NAFTA Reconciliation entry that resolves the NAFTA 
issue for those entries. (The filing of the Reconciliation entry, not 
the mere flagging of the entry summaries, constitutes the making of the 
NAFTA claim under the Reconciliation process.)
    In monitoring the test, Customs observed that importers, in some 
instances, flagged entry summaries for a

[[Page 61202]]

NAFTA Reconciliation and then filed a separate part 181 NAFTA claim 
covering those same entry summaries. In other instances, Customs 
observed that importers filed part 181 NAFTA claims and a NAFTA 
Reconciliation entry covering the same entry summaries, representing a 
double claim.
    In fairness, Customs notes that it made allowances during the first 
year or more of the test relative to the filing of NAFTA Reconciliation 
claims while importers changed internal procedures and practices. Also, 
during the initial period of the test, Customs was unable to liquidate 
NAFTA Reconciliation entries due to ACS programming development. 
Consequently, some importers may have been allowed to submit separate 
part 181 NAFTA claims after flagging for NAFTA Reconciliation the same 
entry summaries covered in those part 181 NAFTA claims. Customs notes, 
however, that participants have had ample time to adjust their 
procedures and practices. Also, Customs now has full Reconciliation 
liquidation programming capability and has been liquidating NAFTA 
Reconciliation entries and processing refunds since April of 2001. 
Thus, Customs will no longer accept the practice by test participants 
of filing separate part 181 NAFTA claims covering the same entry 
summaries already flagged for NAFTA Reconciliation.
    Beginning with the effective date of this change (see below), for 
entry summaries that are flagged for NAFTA issues, the filing of a 
Reconciliation entry will be considered the exclusive means to make a 
1520(d) NAFTA claim for those entry summaries. After the flagging of 
entry summaries, the filing of a separate part 181 NAFTA claim covering 
any or all of those entry summaries will be considered duplicative and 
will not be accepted. If an importer wishes to make a part 181 NAFTA 
claim for a given entry summary, the importer should not flag that 
entry summary for NAFTA Reconciliation.
    With this modification to the test, an importer who flags entry 
summaries for NAFTA Reconciliation in effect waives its ability to file 
a part 181 NAFTA claim covering those entry summaries and commits to 
making the post-entry NAFTA claim for those flagged entry summaries 
only through the filing of a NAFTA Reconciliation entry. This 
modification will ensure that Customs does not process duplicate post-
entry NAFTA claims covering the same entry summaries, one under the 
part 181 procedures and another under Reconciliation procedures, and 
will thereby protect the revenue. Another problem this modification 
will resolve is the clogging up of the Reconciliation process from 
flagged entry summaries that have been abandoned.
    In summary, once entry summaries are flagged for NAFTA under the 
test, the importer has two options: (1) Make the NAFTA Reconciliation 
claim for the flagged entry summaries by timely filing a Reconciliation 
entry under the test procedure or (2) choose not to file a 
Reconciliation entry and let the NAFTA claim for the flagged entry 
summaries lapse with the passage of the filing deadline. Customs 
expects that importers who flag entry summaries for NAFTA 
Reconciliation understand that they make a commitment to file a NAFTA 
Reconciliation entry to make the 1520(d) NAFTA claim and that they 
waive the ability to make that claim any other way.
    The table below highlights the options available to importers for 
filing a 1520(d) NAFTA claim, as well as the options available to a 
Reconciliation test participant who chooses to flag an entry summary 
for a NAFTA issue:

         Options for Making Post-Entry NAFTA Claim Under 1520(d)
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           Part 181 procedure                Reconciliation procedure
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File a claim pursuant to procedures set  Flag entry summary for NAFTA
 forth in subpart D, part 181 of the      Reconciliation at time of
 Customs Regulations within one year of   entry.
 date of importation. No action          After flagging the entry
 required at the time of entry.           summary, do one of the
                                          following:
Does not apply to entry summaries that   (1) Resolve the NAFTA claim for
 have been flagged for NAFTA              the flagged entry summary(ies)
 Reconciliation. A part 181 claim         by timely filing a
 covering entry summaries that have       Reconciliation entry under the
 been flagged for Reconciliation will     test procedure; or
 be rejected. For flagged entry          (2) Choose not to file a
 summaries, see column 2,                 Reconciliation entry and let
 ``Reconciliation Procedure.''            the NAFTA claim for the
                                          flagged entry summaries lapse
                                          with the passage of the filing
                                          deadline.
------------------------------------------------------------------------

    This test modification is effective 90 days after the date of 
publication of this document in the Federal Register. The 
Reconciliation test procedure for making post-entry NAFTA claims is 
explained in the February 6, 1998, and December 29, 1999, Federal 
Register notices.
    Finally, Customs recommends the use of the Reconciliation test for 
making post-entry NAFTA claims because the test procedure provides the 
importer with several benefits. First, using the test procedure is a 
simpler means of filing claims; the importer is able to make 
potentially thousands of NAFTA claims on one Reconciliation. Second, 
the importer can receive one check from Customs rather than many (even 
up to thousands) upon Customs liquidation of a Reconciliation entry and 
issuance of a refund. Third, because processing NAFTA claims under 
Reconciliation is simpler for Customs, the refund delivery system is 
more efficient.

Amendment of Timely Filed NAFTA Reconciliation Entries

    Under the test, participants can amend timely filed NAFTA 
Reconciliation entries when Customs rejects a Reconciliation entry and 
returns the entry to the participant for correction. In monitoring the 
test, Customs observed that, some importers amending timely filed NAFTA 
Reconciliation entries added entry summaries to the corrected 
Reconciliation entry upon returning it to Customs for processing and 
eventual liquidation. The result has been that entry summaries that 
were time-barred from Reconciliation because they were not covered by a 
timely filed Reconciliation entry were liquidated in the Reconciliation 
process.
    Up to now, Customs has accepted this practice but here announces 
that, effective 90 days after publication of this document in the 
Federal Register, the practice will no longer be accepted. Thus, when 
Customs rejects a NAFTA Reconciliation entry for correction, no 
additional underlying entry summaries (whether or not time-barred) may 
be added to that NAFTA Reconciliation when it is resubmitted. This 
modification will streamline the NAFTA Reconciliation process, improve 
Customs efficiency in processing claims, and better protect the revenue 
against double claims.

[[Page 61203]]

Liquidated Damages for No-file Reconciliation Entries

    Provisions regarding the assessment of liquidated damages against 
participants in the Reconciliation test for failure to file or late 
filing of Reconciliation entries and/or moneys (duties, taxes, and/or 
fees) due with these entries were announced in the December 29, 1999, 
Federal Register notice and modified in the March 13, 2001, Federal 
Register notice. This document announces an additional modification of 
the test's liquidated damages and mitigation guidelines relative to no-
file Reconciliation violations.
    For each test participant that is identified by Customs as having 
committed no-file violations, i.e., entry summaries flagged but no 
Reconciliation entry filed and the filing deadline has passed, Customs 
will issue monthly Reconciliation liquidated damages claims (CF 5955a 
Notice of Penalty or Liquidated Damages). A separate claim will be 
issued for each continuous bond number under which the affected flagged 
entry summaries were filed. (For example, if all affected flagged entry 
summaries involve one continuous bond, one CF 5955a claim covering all 
affected flagged entry summaries will be issued to the violating 
participant. If three continuous bonds are involved among all the 
affected flagged entry summaries, three CF 5955a claims will be issued 
to the violating participant, each claim covering only the affected 
flagged entry summaries filed under a particular bond.) Mitigation is 
afforded for no-file Reconciliation entries once the flagged entry 
summaries listed in the claim are properly reconciled. In this way, a 
Reconciliation entry filed by a participant to resolve a no-file 
violation is, in effect, a petition for mitigation.
    In monitoring the test, Customs observed that participants 
commingle, on Reconciliation entries, flagged entry summaries listed as 
no-file violations on a CF 5955a with other flagged entry summaries 
that are not in violation. Up to now, Customs has allowed this practice 
but now modifies the test to stop the practice.
    Under the new practice, participants who receive a monthly 
liquidated damages claim covering flagged entry summaries that have not 
been reconciled (representing no-file violations), and who seek to 
reconcile those flagged entry summaries, must submit a Reconciliation 
entry (or Reconciliation entries) that contains only those flagged 
entry summaries listed on the CF 5955a. By limiting these 
Reconciliation entries to the flagged entry summaries involved in the 
violations, Customs separates the Reconciliation liquidated damages/
mitigation process from the ordinary Reconciliation liquidation 
process.
    This test modification is effective 90 days after publication of 
this document in the Federal Register.

Acceptance of Compact Disks as Approved Reconciliation Spreadsheet 
Media

    Customs announces a modification of the test to allow importers to 
submit Reconciliation spreadsheet line item data via compact disks, as 
well as 3.5 inch diskettes. All requirements regarding the content and 
format of the spreadsheet remain the same as described in prior Federal 
Register notices, including the requirement that a hard copy be 
submitted to the processing port (unless this requirement is waived by 
the port).
    This modification to the test is effective on the date this 
document is published in the Federal Register.

Regulations No Longer Suspended

    The August 18, 1998, Federal Register notice included a section on 
regulatory provisions suspended and referred to part 111 of the Customs 
Regulations. This document announces that the provisions of part 111 
are no longer suspended for Reconciliation test participants. 
Regulations providing for the licensing of, and the granting of permits 
to, customs brokers must be complied with. This includes compliance 
with Sec.  111.2(b)(2)(i)(C) which requires a national permit issued 
under Sec.  111.19(f) for a broker participating in the test to 
transact customs business within a district for which the broker does 
not have a district permit.
    This modification to the test is effective 120 days from the date 
this document is published in the Federal Register. Affected customs 
brokers participating in the test must have a valid national permit by 
that date.

Clarifications and Reminders

Reduced-Data, No-Change Aggregate Reconciliation Entries

    After the importer obtains the information that was undeterminable 
at the time underlying entry summaries were filed and flagged, the 
importer files a Reconciliation entry that provides that information 
(by the deadline applicable to the kind of issue flagged). There are 
two basic types of Reconciliation entries: the Aggregate Reconciliation 
entry (or Aggregate Reconciliation) and the Entry-by-Entry 
Reconciliation entry (or Entry-by-Entry Reconciliation).
    The Aggregate Reconciliation contains a list of the underlying 
entry summaries covered and the aggregate revenue adjustment relative 
to those entry summaries. Aggregate Reconciliations can be used to 
report an increase in duties, taxes, and fees owed or no change in the 
amounts already paid when the underlying entry summaries were filed; 
decreases may be reported in an Aggregate Reconciliation only when the 
importer includes a statement waiving any claim to a refund for those 
decreases.
    The Entry-by-Entry Reconciliation can be used to report an 
increase, decrease, or no-change in revenue (duties, taxes, and/or 
fees). Unlike the Aggregate Reconciliation, these Reconciliation 
entries show the revenue adjustment or no change in revenue relative to 
each entry summary covered. In order to receive a refund, the importer 
must file an Entry-by-Entry Reconciliation.
    The March 13, 2001, Federal Register notice announced a new kind of 
Aggregate Reconciliation: The reduced-data, no-change Aggregate 
Reconciliation. These Reconciliation entries cover only entry summaries 
that show no change or adjustment (no increase or decrease) at the time 
the Reconciliation entry is filed. The reduced-data feature of this 
Aggregate Reconciliation relieves importers from having to provide, in 
the Reconciliation entry, the aggregate total of the original duties, 
taxes, and fees applicable to the underlying entry summaries. Importers 
have been using this feature of the test program since October 23, 
2001, to close out flagged entry summaries that have no change in 
reportable data. On that date, Customs announced availability of the 
feature via ABI Administrative Message number 01-1152.
    In monitoring the test, Customs recognized a need to clarify that 
the reduced-data, no-change Aggregate Reconciliation entry is for use 
only when the importer chooses to close out the Reconciliation with no 
further action; i.e., when the importer does not anticipate making any 
changes/modifications whatsoever to that Reconciliation. These 
Reconciliation entries are not to be used for the single purpose of 
meeting the filing deadline with the intent to later amend the no-
change Reconciliation entry, prior to its liquidation, when the still 
outstanding undeterminable information is obtained. If a reduced data, 
no-change Aggregate Reconciliation is filed, that entry will be 
liquidated immediately.
    Test participants filing the reduced-data, no-change Aggregate

[[Page 61204]]

Reconciliation are reminded that they must still submit the ABI header 
document in hard copy to the processing port to which the ABI 
transmission is made. This header document should state: ``Spreadsheet 
is not provided because there are no adjustments to reportable data 
elements in this Reconciliation.'' Participants are required to 
transmit this same statement in the R15/R16 record of their ABI 
transmission. Failure to provide both the R15/R16 statement and the 
hardcopy document will constitute a failure to file violation.
    Where a test participant who must file a Reconciliation entry to 
meet the filing deadline has yet to obtain the undeterminable 
information needed to resolve the flagged issue, that test participant 
should timely file a no-change Aggregate Reconciliation entry (not a 
reduced data, no-change Aggregate Reconciliation entry) providing the 
original duties, taxes, and fees data and, if possible, the best 
available information of changes expected, along with a letter 
requesting that Customs delay liquidation until the needed information 
is obtained.

``Port'' Column on the Reconciliation Line Item Spreadsheet

    The data elements and specific columns of the Reconciliation line 
item spreadsheet were explained in the February 6, 1998, Federal 
Register notice and ABI Administrative Message number 99-0506, dated 
July 9, 1999. Because certain information was omitted from the sample 
spreadsheet, Customs is clarifying its instructions on properly 
completing the spreadsheet.
    The sample spreadsheet included in the Federal Register notice 
(Durant Motor Corp.) has several blank fields in the port column among 
the fourteen rows listed. Customs notes that per U.S. Bureau of the 
Census requirements, all fields in the port column must be filled in 
with either: (1) The specific four digit port code applicable to the 
port where the merchandise represented by that line item was entered or 
(2) the word ``all'' to denote that the merchandise represented by that 
line item entered through multiple ports. This should eliminate any 
confusion regarding proper execution of the port column element of the 
spreadsheet.

Reconciliation Bond Riders

    One of the requirements for participation in the Reconciliation 
test program is the submission of a Reconciliation bond rider. The bond 
rider is an addendum to the continuous entry bond required under the 
Customs Regulations (19 CFR part 113) and is designed to cover 
Reconciliation entries. Specific Reconciliation bond rider language can 
be found in the August 18, 1998, Federal Register notice.
    During monitoring of the test, Customs discovered that bond riders 
have not always been filed properly. Thus, Customs reminds participants 
in the Reconciliation test program that updated Reconciliation bond 
riders should be submitted to the Customs port where the bond was 
filed, with a copy of the bond rider submitted to the Headquarters 
Reconciliation Team.

Updated Address and ABI Filing Information for NY/Newark Port 1001

    Due to the terrorist attacks that destroyed the U.S. Customhouse at 
6 World Trade Center in New York, the address for Reconciliation 
submissions for importers assigned to NY/Newark (port 1001) has 
changed. The new address is: U.S. Customs Service, 1210 Corbin Street, 
Elizabeth, NJ 07201. Filers may still transmit the ABI portion of their 
Reconciliations to port 1001.

    Dated: September 24, 2002.
Jayson P. Ahern,
Assistant Commissioner, Office of Field Operations.
[FR Doc. 02-24588 Filed 9-26-02; 8:45 am]
BILLING CODE 4820-02-P