[Federal Register: August 11, 2005 (Volume 70, Number 154)]
[Notices]
[Page 46882-46884]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11au05-98]
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DEPARTMENT OF HOMELAND SECURITY
Bureau of Customs and Border Protection
Clarification of the National Customs Automation Program Test
Regarding Reconciliation; Latent Defects
AGENCY: Customs and Border Protection, Homeland Security.
ACTION: General notice.
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SUMMARY: This document clarifies the Customs and Border Protection
Automated Commercial System Reconciliation prototype test by setting
forth that the issue of value allowances for alleged latent
manufacturing defects
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made pursuant to 19 CFR 158.12 or any other provision is not among the
issues eligible for Reconciliation. Entry summaries cannot be flagged
for Reconciliation to account for latent manufacturing defects
discovered after importation. All other aspects of the test remain the
same as set forth in previously published Federal Register notices.
DATES: 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. Richard Wallio or Ms. Marla Bianchetta,
Reconciliation Team, Bureau of Customs and Border Protection, 1300
Pennsylvania Ave. NW., Room 5.2A, Washington, DC 20229-0001. Inquiries
regarding the test also may be made by e-mail: Recon.Help@dhs.gov.
FOR FURTHER INFORMATION CONTACT: Mr. Richard Wallio at (202) 344-2556
or Ms. Marla Bianchetta at (202) 344-2693.
SUPPLEMENTARY INFORMATION:
Background
Initially, it is noted that on November 25, 2002, the President
signed the Homeland Security Act of 2002, 6 U.S.C. 101 et seq., Public
Law 107-296 (the HS Act), establishing the Department of Homeland
Security and, under section 403(1) (6 U.S.C. 203(1)), transferring the
U.S. Customs Service, including functions of the Secretary of the
Treasury relating to the Customs Service, to the new department,
effective on March 1, 2003. Also, under the HS Act and the
Reorganization Plan Modification for the Department of Homeland
Security that was signed on January 30, 2003, the U.S. Customs Service
was renamed the Bureau of Customs and Border Protection (CBP). The
agency will be referred to by that name in this document, unless
reference to the Customs Service (or Customs) is appropriate in a given
context.
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 (Pub. L.
103-182, 107 State. 2057 (December 8, 1993)), is currently being tested
by CBP under the CBP Automated Commercial System (ACS) Prototype Test.
Customs initially 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 several
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; 66 FR 14619, published on March 13,
2001; 67 FR 61200, published on September 27, 2002; 67 FR 68238,
published on November 8, 2002; 69 FR 73730, published on September 2,
2004; and 70 FR 1730, published on January 10, 2005. A Federal Register
(65 FR 55326) notice published on September 13, 2000, extended the
prototype indefinitely.
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/xp/cgov/import/cargo_summary/reconciliation/
.
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 CBP 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.
Prior to this clarification, the issues for which an entry summary
could be ``flagged'' (for the purpose of later reconciliation) were
limited to: (1) Value issues; (2) classification issues, on a limited
basis; (3) issues concerning value aspects of entries filed under
heading 9802, Harmonized Tariff Schedule of the United States (HTSUS;
9802 issues); and (4) post-entry claims under 19 U.S.C. 1520(d) for the
benefits of the North American Free Trade Agreement (NAFTA) or the
United States-Chile Free Trade Agreement (US-CFTA) for merchandise as
to which such claims were not made at the time of entry.
Under the test procedure, 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. Thus, the flagging of an entry
summary constitutes the importer's declaration of intent to file 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. (The Reconciliation
test procedure for making post-entry NAFTA claims is explained in the
February 6, 1998, and December 29, 1999, Federal Register notices.)
Reconciliation and Defective Merchandise Claims--19 CFR 158.12
Under Sec. 158.12 of the Customs and Border Protection (CBP)
regulations (19 CFR 158.12), importers may request an allowance in
value for merchandise found by the port director to be partially
damaged at the time of importation. For example, if the port director
finds that the imported merchandise contains defective zippers, an
allowance in value may be granted to the extent of the defect.
Reconciliation is an acceptable method of reporting the change in value
if it is known at the time of importation that the merchandise at issue
is defective but the extent of the defect is not known. Thus, as in the
above example, if the importer does not have sufficient information to
determine the extent of the known defect when the entry is filed (e.g.
because it is not yet known whether the zippers can be repaired, and if
so, the cost of such repairs), the entry can be flagged for
Reconciliation. The importer can file a Reconciliation entry once the
extent of the known defect is established.
Some importers have requested an allowance in value under Sec.
158.12 for imported merchandise that allegedly contains a latent
manufacturing defect. A latent manufacturing defect is a defect that
exists at the time of manufacture, and thus at the time of importation,
but is invisible, hidden, or concealed. The defect is not discovered
until some time later (in many cases, long after importation), usually
when a consumer requests a repair under a consumer warranty pertaining
to the imported article. The importer's claim for a defective
merchandise allowance is generally based on the costs of the warranty
repairs. Recently, some of these importers have flagged entry summaries
for Reconciliation on the issue of latent manufacturing defects so that
information may be submitted after any latent defects are revealed (for
example, information regarding the nature of the latent defects, the
identity of the defective merchandise, and the extent of the defects
based on warranty repair costs or other data). Thus, the question has
arisen as to whether these types of claims are value issues eligible
for Reconciliation. The purpose of this notice is to clarify that CBP
does not consider claims for latent defects value issues eligible for
Reconciliation and will not accept Reconciliation entries based on such
claims. Because the
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importer does not know that a latent defect in the merchandise exists
at the time of entry summary, the importer cannot flag the entry
summary for later resolution through Reconciliation.
CBP notes that the issue of whether these latent defect claims fall
within the scope of Sec. 158.12, and if so, the evidence needed to
support these claims, is still under review by the courts. There have
been several preliminary court rulings on the subject, but several
cases addressing these issues are still pending at the Court of
International Trade and the Court of Appeals for the Federal Circuit
(Volkswagen of America, Inc. v. United States, Court No. 96-01-00132,
Court of International Trade; Saab Cars USA Inc. v. United States,
Court Nos. 04-1268 and 04-1416, Court of Appeals for the Federal
Circuit). Regardless of the final outcome of the court cases, the
Reconciliation procedure cannot be used with regard to latent defect
claims made pursuant to Sec. 158.12 or any other provision.
Test Clarification
Reconciliation may not be used with respect to claims for value
allowances made pursuant to Sec. 158.12 or any other provision based
on alleged latent manufacturing defects. Thus, to clarify, the
Reconciliation test covers the following issues: (1) Value issues other
than claims based on latent manufacturing defects; (2) classification
issues, on a limited basis; (3) issues concerning value aspects of
entries filed under heading 9802, Harmonized Tariff Schedule of the
United States (HTSUS; 9802 issues); and (4) post-entry claims under 19
U.S.C. 1520(d) for the benefits of the North American Free Trade
Agreement (NAFTA) or the United States-Chile Free Trade Agreement (US-
CFTA) for merchandise as to which such claims were not made at the time
of entry. CBP considers this a clarification of the test procedure
because CBP never contemplated latent defect claims to be value issues
eligible for Reconciliation.
Dated: August 3, 2005.
Denise Crawford,
Acting Assistant Commissioner, Office of Field Operations.
[FR Doc. 05-15904 Filed 8-10-05; 8:45 am]
BILLING CODE 4820-02-U