CUSTOMS-NOTES
The materials contained in this
document have been prepared George R. Tuttle Law Offices for informational
purposes only. The information contained is general in nature, and may not
apply to particular factual or legal circumstances. In any event, the materials
do not constitute legal advice or opinions and should not be relied upon as
such.
Customs Proposed Rule to
Revise
Its Administrative Rulings
Regulations
Written comments (due by September 17, 2001) have been requested by Customs in regard to a notice of proposed rulemaking to amend 19 CFR Part 177 (administrative rulings). Part 177 concerns the issuance of administrative rulings, written determinations, and decisions on prospective and current transactions.
The proposed regulatory changes include amendments to Customs’ procedures in response to the Mod Act of 1993. Structurally, the proposed rule would divide Part 177, Subpart A (general ruling procedure) into 4 sections
Ø Subpart A (general provisions),
Ø Subpart B (advice on prospective transactions),
Ø Subpart C (internal advice procedure),
Ø Subpart D (disclosure of confidential business information), and
The current text of Part 177, Subpart B
(government procurement; country-of-origin determinations) would be moved to
form a new Subpart E.
While there are many proposed changes the following highlight those we feel will be among the more controversial:
Ø Modification of regulations regarding treatments and established and uniform practices (UEP). Customs would significantly restrict the use of these concepts to only classification decisions under the HTS. Customs would also codify requirements as to how the treatment or UEP would be established.
Ø Customs would also codify new rules for importers requesting confidential treatment of information. Grants of confidentiality would be made for up to three years. Extensions would be possible given a detailed explanation as to why such confidential treatment is still necessary. Such an extension should be received by Customs in the three-month window prior to the expiration.
Ø Customs would change the definition of an “authorized agent” to include only brokers and attorneys. Consultants therefore would be unable to file ruling requests and requests for internal advise directly for a client.
The proposed rule would make additions to Customs regulations in order to conform them to the statutory changes enacted pursuant to the Mod Act of 1993. These long-overdue changes to the regulations include provisions regarding:
Ø The appeal of adverse prospective rulings and adverse internal advice decisions;
Ø The modification or revocation of prospective rulings, internal advice decisions, protest review decisions, and treatment previously accorded by Customs to substantially identical transactions. Customs also proposes a definition of the term “treatment”); and
Ø The publication of decisions that propose to limit the application of court decisions.
Title 19 section 1625(c) was amended by the Mod Act statute in 1993. The provisions of section 1625 require that where a Customs treatment is in effect, a Federal Register publication with notice and comment procedures is first required before Customs may change that importer specific treatment.
Now Customs is proposing to implement the treatment provisions of the statute, by requiring that the burden of proof of the existence of a treatment rests on the importer and that an application must be furnished to receive treatment benefits. The application would require an importer to furnish a list of all transactions of the merchandise or substantially similar merchandise imported within the past 2 years. The detailed information required includes entry numbers, classification, ports, whether inspections were preformed etc. Customs further states, that simply entering merchandise does not qualify for treatment status, rather there must have been some review of the product made, (perhaps an intensive review or other situation where a Customs decision was made as to admissibility).
Finally, Customs is proposing to restrict treatments to only classification decisions. The statutory provisions do not provide this distinction.
Other changes would also be made to clarify the current regulations:
Under the proposed changes, the term “advice” would include non-binding information letters and binding rulings. Further, the agency intends to clarify the procedures as to Customs-initiated prospective rulings. Customs would also expand the list of circumstances in which a prospective ruling would not be issued in order to limit a ruling requester to no more than “two-bites-at-the-apple.”
As to internal advice, Customs proposes that Customs field office should have the discretion to seek internal advice, except in situations where the regulatory text specifically mandates, or specifically precludes, use of the procedure.
Also, internal advice would not be available where importer would have two-bites-at-the-apple. (i.e. Customs had previously ruled on the matter.)
Ø An importer would also have the opportunity to present his written views to Customs before the issuance of an internal advice decision, even when the internal advice procedure is initiated within Customs.
Customs, states however that importers (and other interested parties) ought not have an absolute right to initiate the internal advice procedure, but rather proposes that importers must first meet one of several specific criteria in order to request internal advice. (The current regulations provide for internal advice where a position of the importer was in disagreement with the port.)
For example, one such set of criteria to obtain review would require that the importer “demonstrate” that his/her position is entirely consistent in all material respects with a Customs ruling, an internal advice decision, a protest review, a previous decision by a port, or a court decision.
The proposed rule would also affect the regulations concerning confidential information:
Ø A failure to request confidential business treatment at the time the information is submitted to Customs would constitute a waiver of all information;
Ø A request for confidential treatment may cover any information submitted to Customs under the new Subpart B (advice on prospective transactions) or the new Subpart C (internal advice procedure);
Ø Where an appeal of a ruling, or where a ruling or an internal advice request is initiated by an importer, a failure of Customs and the submitting person to reach agreement on a request for confidential treatment will either cause Customs to close the case file without action, or, if the information at issue is contained in a further submission, will cause Customs to proceed with the ruling or internal advice decision or appeal decision without considering the further submission; and
Ø A grant of confidential treatment generally would be valid for a period of 3 years and could be renewed for additional periods of up to 3 years each.
We oppose this provision since the
statutory language does not provide for the expiration of the confidential
information. Thus, it appears that
Customs is fabricating a 3-year rule as opposed to interpreting the statutory
language.
Under Customs proposed rule, the
confidential treatment would expire in 3 years or less, therefore, within three
months of the expiration, importers would be required to make a detailed
showing that the information previously provided is still confidential.
The enormous risk to business operations
through the exposure of trade secrets and other confidential business
information paired with the clear administrative burden this creates for
importers, means that some importers will be discouraged from seeking
clarification as to their Customs transactions.
Cusomts proposes that the ruling request
should go to either the Customs Headquarters (HQ), in D.C. or the National
Commodity Specialist Division (NCSD), in New York specific depending on the
subject matter of the request.
Customs NCSD would review:
1. tariff classification, marking (other than origin), and
2. country-of-origin,
(but would not review country-of-origin determinations involving the duty-preference programs under General Notes 3(a)(iv) and 4 – 11)
Customs HQ would review:
1. Country-of-origin determinations involving the duty-preference programs under General Notes 3(a)(iv) and 4 - 11,
2. valuation,
3. entry procedures,
4. Customs brokers,
5. drawback,
6. duty-deferral programs,
7. transportation and conveyances, and
8. intellectual property rights.
The proposed regulations detail the
information that must be included in prospective ruling requests regarding
these issues.
Customs states that requirement for a
ruling request to state the port where the prospective transaction will take
place is unnecessarily burdensome and has minimal legal relevance or utility.
Customs proposes that each ruling request must contain, or provide as a signed attachment, a certification that to the best of the requester’s knowledge and belief:
Ø the transaction described in the ruling request or a similar, identical, or related transaction is not currently being considered by any Customs office, and will not be pending before any Customs office by virtue of a request for a prospective ruling, internal advice, etc., and is not pending before any other federal agency or any federal court and
Ø all information provided in connection with this ruling request is accurate and complete.
Customs proposed regulation would
explicitly require inclusion of a statement in the ruling request if the
requester wants to have a conference with Customs before the issuance and
publication of an adverse ruling.
The regulations would also state that a conference may also be held whenever Customs HQ believes that one is necessary.
Such conferences may be held only at
Customs HQ and only in connection with rulings to be issued by Customs HQ. If a request for a conference is made in a
ruling request to the NCSD, an adverse ruling is contemplated, and the matter
cannot be resolved informally by the requester and the NCSD, the request will
be forwarded to Customs HQ for processing in order to preserve the requester’s
right to have a conference under the prescribed circumstances.
Finally, the regulations would provide
for a 30-day period (or a longer period as may be specified by Customs HQ), for
the submission of any additional information to be provided after a conference.
Customs will explicitly require Importers
to advise Customs of a change in the status of a transaction. Such notice must
be made:
Ø when the prospective transaction described in the ruling request becomes a current transaction, or
Ø when the requester subsequently learns that a summons has been filed in the Court of International Trade (CIT) regarding the same issue as that involved in the request.
Customs proposed regulation explicitly
states that penalties and nullification of the ruling may result from a failure
to notify Customs.
The proposed regulations would also
require that a request for withdrawal be in writing and that notwithstanding a
withdrawal, Customs may choose to issue a self-initiated ruling on the matter.
Customs proposes that a prospective ruling will not be issued when the two-bites-at-the-apple principle applies.
Such situations in which Customs proposes not to issue a
ruling include when:
Ø a ruling would not be issued if a requester has previously received a ruling on an identical or similar transaction and a decision on an appeal of that previous ruling has been issued, or if a modification or revocation is pending or has been issued.
Ø confidentiality issues raised in a ruling request cannot be resolved,
Ø Customs determines that issuance of an information letter would be more appropriate.
Customs will normally process requests
for prospective rulings in the order in which they are received and as
expeditiously as possible, but that additional time may be required for
preparation of a ruling if a laboratory analysis of a sample is needed or if it
is necessary to obtain additional information from another government agency.
Customs provides for expedited processing given the importer makes a showing
Requests for prospective rulings
involving tariff classification or country of origin or marking that are
submitted to the NCSD will generally attempt to respond within 30 calendar days
of receipt unless they are referred to Customs HQ.
Under the proposed rules, a third-party
would be able to rely on a prospective ruling issued to another person and
assume that Customs will apply the principles of that ruling to his
transaction. This is provided that the
relevant facts and principles reflected in the ruling are materially the same
as those involved in his/her transaction, and the ruling has not been modified
or revoked by operation of law or Customs.
In addition, any person eligible under
subpart B to request a prospective ruling may request a ruling on a transaction
believed to be similar to one covered by an already-issued ruling.
The NPRM adds new procedures regarding
appeals of adverse rulings, including the form and address, content, and
deadline for such appeals, the processing of appeals, etc.
The new regulations would also affect the
modification or revocation of prospective rulings, internal advice decisions,
protest review decisions, and previous treatment of substantially identical
transactions.
The new 177.21 provides that a ruling may
(a) modify or revoke a prior prospective ruling, internal advice decision, or a
holding or principle covered by a protest review decision, if such decision is
found to be in error or not in accord with current Customs views. The ruling may also have the same effect as
to substantially identical transactions. The procedures under which such a
modification or revocation takes place requires notice and comment procedures
in the Customs Bulletin.
In addition, proposed new 19 CFR 177.21
would state that under the following circumstances, a modifying or revoking
ruling would be issued to the person entitled to it but would not be required
to be published in the Customs Bulletin: (a) when the modifying ruling corrects
a clerical error, or (b) when the modifying or revoking ruling is directed to a
ruling issued under subpart I of 19 CFR Part 181 relating to advance rulings
under the NAFTA.
Proposed section 177.22 would state that for a finding of an established and uniform practice for purposes of 19 USC 1315(d) (effective date of administrative rulings resulting in higher duties):
Ø only a practice regarding tariff classification under the HTS may be considered;
Ø the practice must involve 100% uniform treatment accorded by Customs (i.e., based on an actual review of entries, not cases in which liquidation of an entry occurred without the direct, active involvement of Customs) through liquidations performed at multiple ports over an extended period of time; and
Ø the burden of proof is on the importer except in a situation where Customs, on its own initiative, publishes in the Federal Register or Customs Bulletin a notice informing the public of the existence of an established and uniform practice.
The statute 1315 states nothing about only classification
decisions, 100% uniformity, or the burden of proof. In limiting the scope to only classification matters, Customs may
be surpassing its interpretive powers.
Where a ruling would change an UEP and cause a higher rate
of duty or charge, Customs proposed regulations would also require Federal
Register notice and comment procedures prior to application of the adverse
decision.
Other than section 177.22 (UEP above),
Customs proposed regulations generally remove all references to “uniform
practice” or “practice” as the statutory and regulatory modification and
revocation standards and the proposed regulatory provisions regarding
third-party reliance have rendered these provisions redundant or otherwise
unnecessary.
Finally, the NPRM would require all
rulings to be published or made available for public inspection by electronic
or other means within 90 calendar days after the date of issuance.
An exception exists for rulings for which
specific notice and comment procedures would are prescribed. This includes the provisions of 19 CFR
177.21 (modification or revocation of prospective rulings, treatments, etc.),
177.22 (established and uniform practice), and 177.23 (limitation of court
decisions).
The regulations would also be modified by the removal of certain provisions for purposes of simplification, and organization.
Customs states that this proposed rule
would eliminate the principle of detrimental reliance (a purely regulatory
creation) in most but not all situations, as Mod Act statutory amendments (e.g.
the inclusion of a delayed effective date for the modification or revocation of
rulings and previous treatment) accomplish essentially the same purpose.
Except in one situation involving the
effective date of rulings resulting in higher duty rates (19 USC section
1315(d)), Customs is proposing to remove all references to “uniform practice”
or “practice” in Part 177, because, among other reasons, the proposed
regulatory text regarding third party reliance would render these provisions
redundant or otherwise unnecessary.
Customs states that it is proposing to eliminate the provision regarding inconsistent Customs decisions because, among other reasons, other procedures would accomplish much the same purpose.
Customs proposes that the regulation in Part 177 would no apply does to other administrative rulings, determinations, or decisions requested or issued under procedures set forth in other parts of the Customs regulations. Furthermore, the proposed regulations would also states that Part 177 would not apply to other requests for decisions of an operational, administrative, or investigative nature.
For example, the following types of
decision would not be subject to part 177:
a. Part 12, relating to submissions of proof of admissibility of articles detained under 19 USC 1307 (prohibition on the importation of convict-made, or forced labor goods);
b. Part 103, relating to disclosure of information in Customs files;
c. Part 133, on certain enforcement actions relating to intellectual property rights;
d. Part 152, subpart C, relating to determinations concerning the dutiable value of merchandise by Customs field officers;
e. Part 162, relating to the calculation of loss of revenue in penalty cases;
f. Part 171, relating to fines, penalties, and forfeitures;
g. Part 172, relating to liquidated damages;
h. Part 174, relating to protests;
i. Part 175, relating to petitions filed by U.S. manufacturers, producers, or wholesalers pursuant to 19 USC 1516 (petitions by U.S. interested parties for a tariff classification determination);
j. Part 181, relating to the North American Free Trade Agreement (NAFTA); and
k. Part 191, relating to general and specific manufacturing drawback rulings.
The following definitions apply only for purposes of
proposed revised subpart A and proposed new subparts B-D. The country-of-origin, government
procurement sections in the proposed subpart E (currently subpart B), includes
a separate definitions section.
The definition of authorized agent in Part 177 would be amended to include attorneys-at-law, and licensed customs brokers. Other persons qualify only where the matter does not concern “customs business” pursuant to 19 USC 1641(a)(2).
Title 19 USC 1641(a)(2) states:
(2) The term ''customs business'' means those activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation, or the refund, rebate, or drawback thereof. It also includes the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with the Customs Service in furtherance of such activities, whether or not signed or filed by the preparer, or activities relating to such preparation, but does not include the mere electronic transmission of data received for transmission to Customs.
Thus, Customs position is that “customs business” should
be left to classes of persons who are specially qualified to make such representations,
i.e. attorneys and Customs Brokers. Thus, consultants who are not attorneys or
licensed Customs brokers would not be able to submit rulings on behalf of importers.
Customs has acknowledged that that some matters (such as issues involving marine transactions or transportation of merchandise in bond, that arise under Part 177), do not constitute “customs business” and therefore should not be restricted.
Customs proposes amending the definition of Customs transaction to distinguish between prospective, current, and completed Customs transactions.
Further, Customs suggests that a current or completed Customs transaction would not be eligible for a ruling request under Part 177. Instead importers should avail themselves of the internal advice or protest regulations, while the completed transaction would have only the protest regulations.
The definition of ruling would be amended to include a reference to issuance by the National Commodity Specialist Division. Also the provision states explicitly that a ruling can self-initiated by Customs.
The definitions of information letter and Customs and related laws would each be slightly revised.
Customs has issued a proposed rule that
would amend 19 CFR Part 177 regarding the issuance of administrative rulings
and related written determinations and decisions on prospective and current
transactions arising under Customs and related laws. Written comments are due by September 17, 2001.
For additional information on this subject contact:
George R. Tuttle, Sr. at:
George R. Tuttle Law Offices,
Three Embarcadero Center, Suite 1160
San Francisco, CA 94111, Phone
(415) 986-8780, Fax (415) 986-0908
E-mail: grt@tuttlelaw.com