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HQ 226726




December 19, 1996

CON-9-RR:IT:EC 226726 PH

CATEGORY: BONDS

Port Director
U.S. Customs Service
300 South Ferry Street
Terminal Island, California 90731

RE: Internal Advice; Temporary Importation Bond (TIB); Anticipatory Breach; Heading 9813, HTSUS; 19 CFR 10.31; 19 CFR 10.39(g); Treasury Decision (T.D.) 95-22

Dear Madame or Sir:

In your memorandum of November 6, 1995 (Your File: MAR 1 02 LA:S:TC:6 AS XCON-9-09), you requested internal advice on a temporary importation bond (TIB) stated to cover the importation of nine vehicles of which six were exported and three remain in the United States. You enclosed materials relating to this matter with your memorandum. Our ruling follows.

FACTS:

The importer imported nine vehicles under TIB subheading 9813.00.30, HTSUS, on May 15, 1993. According to personnel in your office and a notation in the file, the TIB was extended for one additional year. Six of the vehicles were exported on July 6, 1994.

By letter of February 23, 1995, the representative of the importer sought to confirm that the importer's responsibilities in regard to the TIB entry would be completely satisfied upon payment of the liquidated damages in regard to the three vehicles remaining in the United States. Your office responded by letter of March 7, 1995, stating that you had been advised that the importer' responsibilities regarding the TIB entry would be satisfied upon payment of all liquidated damages for the three automobiles remaining in the United States. You noted that payment of the liquidated damages does not equate to the valid entry of the vehicles into the United States. You stated that the liquidated damages would be double the duty/MPF for the three vehicles that remaining in the United States ($1,335.14, according to your letter).

By letter of March 27, 1995, the representative of the importer, "[p]ursuant to [s]ection 10.39(f) of the Customs Regulations, [presented] a voluntary tender of $1,335.14 as liquidated damages due for anticipatory breach of the subject TIB entry." The model numbers for the three vehicles remaining in the United States were listed, and the stated value and duties and fees attributable to them, were stated. According to this letter, Customs files would reflect the exportation of six of the vehicles covered by the TIB, as well as evidence of compliance with Department of Transportation (DOT) and Environmental Protection Agency (EPA) regulations for the three vehicles remaining in the United States. Enclosed in the file is a receipt for the above amount as a "Voluntary Tender For TIB."

In the file there is a July 26, 1995, letter from the representative of the importer stating that "... we require a letter to be presented to the State of California in regard to the registration of these vehicles [the vehicles are listed and have the same VIN numbers as the vehicles listed in the March 27, 1995, letter (above)]." There is an August 8, 1995, letter from your office in response to the July 26, 1995, letter, advising that the "[TIB case, with the same vehicles listed as above] was closed on April 6, 1995 upon payment of the claim for liquidated damages." The letter proceeded to state that:

The closure of this case in its administrative process is not to be construed as Customs release or entry of the above vehicles. The TIB period has expired and any extension must be requested from the Chief, Entry Rulings Branch in Washington, D.C. as noted on the attached TIB Fact Sheet. Unless such an extension is granted, these vehicles must be exported or destroyed, under Customs supervision, to satisfy the Customs regulations.

By letter of August 25, 1995, the representative of the importer asked that you seek internal advice in this matter "so that a letter can be issued to the importer which will facilitate lawful registration of the vehicles covered by the case so that they can remain in the country permanently." In your November 6, 1995, memorandum, you sought internal advice on this matter, as requested. Specifically, you asked whether payment of liquidated damages precludes the necessity for exporting merchandise imported on a TIB and, among other issues, you raise the question of whether two times the duties plus merchandise processing fees is a sufficient bond for TIB's for non-complying vehicles.

ISSUE:

Must merchandise be exported or destroyed when the merchandise has been entered under a TIB and liquidated damages have been assessed and paid, as a result of an anticipatory breach as provided for in 19 CFR 10.39(g)?

LAW AND ANALYSIS:

Subheading 9813.00.30, HTSUS, provides for the temporary duty-free entry of "[a]rticles intended solely for testing, experimental or review purposes ...." Pursuant to U.S. Note 1(a) of Subchapter XIII of Chapter 98, HTSUS, which contains subheading 9813.00.30:

The articles described in the provisions of this subchapter, when not imported for sale or for sale on approval, may be admitted into the United States without the payment of duty, under bond for their exportation within 1 year from the date of importation, which period, in the discretion of the Secretary of the Treasury, may be extended, upon application, for one or more further periods which, when added to the initial 1 year, shall not exceed a total of 3 years ....

The Customs Regulations pertaining to TIB's are found in 19 CFR 10.31 through 10.40. Under section 10.31(f), with certain exceptions not applicable in this case, the bond amount for a TIB is required to be "... equal to double the duties, including fees, which it is estimated would accrue (or such larger amount as the port director shall state in writing or by the electronic equivalent to the entrant is necessary to protect the revenue) had all the articles covered by the entry been entered under an ordinary consumption entry." Section 10.39(a) provides that charges against bonds for TIB entries may be canceled in the manner prescribed in 19 CFR 113.55. Section 113.55(a) provides that a bond to assure exportation may be canceled either upon exportation (as described in section 113.55(a)(1)) or upon the payment of liquidated damages. Section 10.39(f) provides that in instances where there has been partial compliance with the terms of a TIB and a written petition for relief is filed, total liability under the TIB may be canceled upon the payment of an amount equal to double the duty or 110% percent of the duty, as appropriate, of the articles in respect of which the default occurred. Under section 10.39(g) (as added by Treasury Decision (T.D.) 95-22 (published in the Federal Register on March 20, 1995 (60 FR 14630)), after publication of a Notice of Proposed Rulemaking in the Federal Register (57 FR 44714, September 29, 1992)):

If an importer anticipates that the merchandise entered under a [TIB] will not be exported or destroyed in accordance with the terms of the bond, the importer may indicate to Customs in writing before the bond period has expired of the anticipated breach. At the time of written notification of the breach, the importer shall pay to Customs the full amount of liquidated damages that would be assessed at the time of breach of the bond, and the entry will be closed. The importer shall notify the surety in writing of the breach and payment. By this payment, the importer waives his right to receive a notice of claim for liquidated damages as required by ? 172.1(a) of this chapter.

Section 10.39(g) was considered in a recent court case involving TIB's (Titanium Metals Corp. v. United States, 901 F. Supp. 362 (CIT 1995)). In this case, which upheld Customs position that merchandise subject to antidumping duties or countervailing duties could be entered under a TIB, the Court described section 10.39(g) as follows:

Under the new amendment, an importer may choose not to export goods entered under TIB and pay liquidated damages equal to the amount of the bond at that time, rather than at the expiration of the statutory time period (generally, one year). [901 F. Supp. at 366]

The Court in the Titanium Metals case noted Customs position that for purposes of quota laws, Customs has considered TIB entries to be entered for consumption and counted such entries against the applicable quota (901 F. Supp. 366, footnote 11). This Customs position was published in Treasury Decisions 54802(53) and (54). The reason for the position taken in these T.D.'s has been explained in a number of subsequent letters (see quoted material on page 4 of HQ Ruling 225642, April 3, 1995, copy enclosed; see also C.S.D. 93-21 ("The rationale for so deeming TIB entries to be consumption entries for purposes of administering quotas is that to rule otherwise could allow the circumvention of the quota laws (i.e., otherwise merchandise subject to quota for which no visa could be obtained could be entered under a TIB entry and, if consumed in the United States, subject only to liquidated damages)" (emphasis added)).

The foregoing makes it clear that when merchandise is entered under TIB and the bond is canceled upon payment of liquidated damages, the merchandise is not required to be exported or destroyed, nor is any entry for consumption required. The Court in Titanium Metals described the provision in 19 CFR 10.39(g) (providing for anticipatory breaches of TIB's) in just those terms (i.e., "... an importer may choose not to export goods entered under TIB and pay liquidated damages ..." (supra))). This is consistent with Customs long-standing position regarding TIB's and quota merchandise, as described above (i.e., otherwise, if merchandise under TIB could be required to be destroyed or exported, there would be no danger of the quota being circumvented). Finally, the Customs Regulations themselves provide that once liquidated damages are assessed and paid, the bond for the TIB entry is canceled (19 CFR 10.39(a); 19 CFR 113.55(a)(2), described above).

In regard to your question about whether the bond amount for TIB's provided for in 19 CFR 10.39 is sufficient when the imported merchandise may be non-complying vehicles (we assume you mean vehicles which do not meet Environmental Protection Agency (EPA) emission requirements and/or Department of Transportation (DOT) safety requirements), see the applicable Customs Regulations (19 CFR 12.73 and 12.80). These provisions provide for exemption from the usual bonding requirements for non-complying vehicles imported for the purpose of test or experiment (section 12.73(h)(2); section 12.80(b)(1)(vii) and 12.80(c)(3)), if certain conditions are met. Those conditions are, under section 12.73, prior approval by the EPA in writing (although a bond may be provided for timely submission of such written approval (section 12.73(j))) (section 12.73(h), and, under section 12.80, a declaration and statement fully describing the test or experiment, the estimated period of time necessary to use the vehicle on the public roads, and the disposition to be made of the vehicle after completion of the test or experiment (section 12.80(c)(3)). In the case of the latter, Customs is required to forward the declaration and statement to the National Highway Traffic Safety Administration (NHTSA) in the DOT.

Thus, these Customs Regulations contain control mechanisms under which the Federal Agencies primarily involved are informed and/or involved in the importation of the vehicles for test or experiment. These Customs Regulations were either approved by the other Federal Agency (see Treasury Decision (T.D.) 78-478, signed by the then Administrator of the NHTSA) or coordinated with the other Federal Agency (according to the file for T.D. 88-40, the regulations in section 12.73 were coordinated with the EPA). We note that, according to the March 27, 1995, letter from the representative of the importer in this case, evidence of compliance with DOT and EPA requirements for the three vehicles remaining in the United States has allegedly been presented to your office. In view of the foregoing and the clear language in the Customs Regulations setting amounts for bonds for TIB entries, we see no authority for setting such bonds in an amount greater than "double the duties, including fees" (19 CFR 10.31(f)). The only exception is that given in the parenthetical statement in section 10.31(f) (i.e., "such larger amount as the port director shall state in writing or by the electronic equivalent to the entrant is necessary to protect the revenue"). In view of the above-described regulations in 19 CFR 12.73 and 12.80 (in which the Federal Agencies primarily involved authorize the admission of non-conforming vehicles for test or experiment without bond, in certain conditions), protection of the revenue does not appear to be involved.

HOLDING:

Merchandise which has been entered under a TIB and for which liquidated damages have been assessed and paid, as a result of an anticipatory breach as provided for in 19 CFR 10.39(g), is not required to be exported or destroyed (because the bond for the TIB entry has been canceled (19 CFR 10.39(a); 19 CFR

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels 60 days from the date of this decision.

Sincerely,

Director, International

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