[Federal Register: November 2, 2004 (Volume 69, Number 211)]
[Rules and Regulations]
[Page 63445-63452]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02no04-5]
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DEPARTMENT OF HOMELAND SECURITY
Bureau of Customs and Border Protection
DEPARTMENT OF THE TREASURY
19 CFR Parts 10 and 178
[CBP Dec. 04-36]
RIN 1505-AB32
Prototypes Used Solely for Product Development, Testing,
Evaluation, or Quality Control Purposes
AGENCY: Customs and Border Protection, Department of Homeland Security.
ACTION: Final rule.
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SUMMARY: This document amends the Customs and Border Protection
Regulations in order to establish rules and procedures under the
Product Development and Testing Act of 2000 (PDTA). The purpose of the
PDTA is to promote product development and testing in the United States
by allowing the duty-free entry of articles, commonly referred to as
prototypes, that are to be used exclusively in product development,
testing, evaluation or quality control. The final regulations set forth
the procedures for both the identification of those prototypes properly
entitled to duty-free entry, as well as the permissible sale of such
prototypes, following use in the United States, as scrap, waste, or for
recycling.
EFFECTIVE DATE: This final rule is effective on December 2, 2004.
FOR FURTHER INFORMATION CONTACT: Richard Wallio, Office of Field
Operations, 202-344-2556.
SUPPLEMENTARY INFORMATION:
Background
The Product Development and Testing Act of 2000 (PDTA) was enacted
on November 9, 2000, as part of the Tariff Suspension and Trade Act of
2000 (Act) (Pub. L. 106-476). The provisions of the PDTA are found in
sections 1431-1435 of the Act.
The purpose of the PDTA, as set forth in section 1432(b) of the
Act, is to promote product development and testing in the United States
by allowing the importation on a duty-free basis of articles commonly
referred to as ``prototypes'' that are to be used exclusively for
product development, testing, evaluation or quality control.
Until the enactment of the PDTA, prototype articles had generally
been subject to customs duty when imported, unless the articles were
eligible for duty-free treatment under a special trade program, such as
the North American Free Trade Agreement (NAFTA) (19 U.S.C. 3301 et
seq.), or unless they were entered under a temporary importation bond
(TIB) (subheading 9813.00.30, Harmonized Tariff Schedule of the United
States (HTSUS)). Furthermore, the value of these prototypes had to be
included in the dutiable value of any imported production merchandise
that resulted from the same design and development efforts to which the
prototype articles themselves were dedicated. In effect, duty on a
prototype good was assessed twice, once when the prototype was imported
and a second time as part of the dutiable value of the related imported
production merchandise.
Consequently, to expedite and encourage the use of prototypes in
the United States, section 1433 of the Act amended the Harmonized
Tariff Schedule of the United States (HTSUS) by inserting a new
subheading 9817.85.01 in subchapter XVII of chapter 98, HTSUS, to
provide for the duty-free entry of prototype articles. Section 1433 of
the Act also included a new U.S. Note 6 in subchapter XVII of chapter
98, HTSUS, to define the term ``prototypes'' as used in HTSUS
subheading 9817.85.01.
CBP Rulemaking
By a document published in the Federal Register (67 FR 10636) on
March 8, 2002, Customs (which has been renamed Customs and Border
Protection (CBP) after being transferred to the Department of Homeland
Security) proposed to amend the Customs Regulations (now the CBP
Regulations) to add a new Sec. 10.91, in accordance with the
requirements of the
[[Page 63446]]
PDTA, that would: (1) Establish procedures regarding the identification
of prototypes at the time of their importation into the United States;
and (2) establish procedures regarding the sale of prototypes as scrap,
waste, or for recycling, after their intended use in product
development, testing, and evaluation, provided that all applicable
duties were tendered following the sale, at the rate of duty in effect
for such scrap, waste, or recycled materials at the time of importation
of the prototype articles. These latter procedures relating to the sale
of the used prototypes also included prototypes and parts of prototypes
that were incorporated into other products that were sold as scrap,
waste, or recycled materials.
Discussion of Comments
Twelve commenters responded to the notice of proposed rulemaking. A
description of the issues that are raised by these commenters together
with CBP's response to these issues is set forth below.
General; Duty-Free Entry
Comment: Proposed Sec. 10.91 does not create simplified procedures
and impose only minimal burdens, as Congress intended in enacting the
PDTA, regarding the entry of prototype articles for use under HTSUS
subheading 9817.85.01, and the possible recovery and sale of the used
prototypes thereafter as scrap, waste, or for recycling.
CBP Response: CBP disagrees. It is CBP's view that the proposed
procedures as further developed in this final rule will efficiently and
expeditiously promote product development and testing in the United
States, as contemplated under the PDTA, while, at the same time,
ensuring that the subject tariff provision is used only for the
purposes intended, and that any duty that is due on the sale of scrap,
waste or recycled material is correctly reported and paid, as the PDTA
also requires.
Comment: The heading for proposed Sec. 10.91 should add a
reference to product evaluation and quality control as purposes for
which prototypes may be entered duty-free under HTSUS subheading
9817.85.01.
CBP Response: CBP finds that this is unnecessary. Section headings
and titles are nothing more than reference guides and cannot limit or
restrict the plain meaning of the regulatory text itself. In accordance
with the PDTA, Sec. 10.91(b)(1) fully addresses the purposes for which
prototype articles may be entered duty-free under HTSUS subheading
9817.85.01.
Comment: It is observed that proposed Sec. 10.91 inadvertently
omits a paragraph (d), although it does contain paragraphs (e) and (f).
CBP Response: While this observation is correct, CBP is adding a
paragraph (d) in the final rule. The new paragraph (d) describes the
obligations of an importer of a prototype to CBP regarding a used
prototype if the used prototype is not sold. Because a paragraph (d) is
added, paragraphs (e) and (f) in proposed rule Sec. 10.91 may retain
their respective designations. However, because the proposed rule
incorrectly cross-referenced paragraph (d) in Sec. 10.91(b)(2)(ii) and
Sec. 10.91(c)(3), these cross-references are corrected in the final
rule.
Comment: Proposed Sec. 10.91(a) should provide that goods entered
as prototypes under HTSUS subheading 9817.85.01 may be exported or
scrapped prior to being used for the required purposes.
CBP Response: CBP disagrees. One of the purposes of the PDTA was to
encourage the trade to do its testing and research in the United States
without having to pay duty. Accordingly, CBP believes that goods that
benefit under the PDTA must be used for testing and research. Proposed
Sec. 10.91(d) reflects this.
Comment: Proposed Sec. 10.91(a)(1) should include specific
guidelines for the preparation of the CF 7501 (now CBP Form 7501) when
an importer is entering prototypes under HTSUS subheading 9817.85.01.
In particular, no other HTSUS subheading should be required on the CBP
Form 7501.
CBP Response: CBP disagrees that this regulation needs to include
specific guidelines. The statistical note to Chapter 98, HTSUS,
provides sufficient guidance. In addition, operational instructions
will be issued covering all aspects of the preparation of the CBP Form
7501 for articles sought to be entered, duty-free, as prototypes under
HTSUS subheading 9817.85.01.
Importer Declaration; Proof of Actual Use; Liquidation of Entry
Comment: Proposed Sec. 10.91 should include specific requirements
regarding the certification of the prototypes, such as a statement from
the importer indicating that the material is for testing or evaluation
under HTSUS subheading 9817.85.01.
CBP Response: CBP believes that Sec. 10.91(a)(2)(i) will
adequately address this issue in the context of the importer
declaration.
Comment: It is pointed out that proposed Sec. 10.91(a)(2) does not
make any provision for the liquidation of a prototype entry under HTSUS
subheading 9817.85.01.
CBP Response: CBP agrees that a time frame for liquidation of a
prototype entry should be provided, especially in relation to Sec.
10.91(a)(2)(ii), which authorizes the port director to request proof of
actual use. In this respect, proposed Sec. 10.91(a)(2)(ii) is amended
in this final rule to provide that liquidation of the entry will be
extended until the requested proof of actual use is received, or until
the three-year period from the date of entry allowed for its receipt
has expired; and that if proof of actual use is requested and not
timely received, the entry will be liquidated as dutiable under the
tariff provision that would otherwise apply to the imported article.
Comment: It is contended, under proposed Sec. 10.91(a)(2)(ii),
that the PDTA does not envision permitting the port director to request
proof of actual use of the articles following their entry under HTSUS
subheading 9817.85.01, and that CBP should not impose such a
requirement. It is declared that the life of a prototype may easily
span many years and that this would be inconsistent with requiring
proof of use, which must usually be submitted within three years of the
date of entry. One company asked that it be specifically exempted from
any requirement to submit proof of actual use of the articles following
entry.
CBP Response: CBP believes that it has the discretion to ask for
proof of actual use under HTSUS subheading 9817.85.01. To be entitled
to duty-free entry under that HTSUS subheading, the imported articles
must qualify as prototypes that are to be used exclusively for
development, testing, product evaluation or quality control purposes.
In this latter vein, CBP has a responsibility and an obligation under
the PDTA to follow up, on occasion, and require post-entry proof of
actual use as specified in Sec. 10.91(a)(2)(ii), in order to
effectively monitor and ensure the proper employment of this tariff
provision for the purposes intended. To this end, the port director is
accorded the discretion to require such proof in those cases where it
is believed to be warranted.
In those instances where the port director requests proof of actual
use, while such proof of use must be given to CBP within three years of
the date of entry, the prototype may, of course, continue to be used
thereafter for the purposes enumerated in HTSUS subheading 9817.85.01.
Proposed Sec. 10.91(a)(2)(ii) is modified in this final rule to make
this clear. Also, in relation to this, proposed Sec.
10.91(a)(2)(ii)(A) is
[[Page 63447]]
recast in this final rule to provide that the proof of use, if
requested, must include a description of the use that is being and/or
that has been made of the articles so as to enable the port director to
confirm that the articles have been entitled to entry as claimed.
Comment: Proposed Sec. 10.91(a)(2)(ii) should make clear what type
of statements would be acceptable for the proof or declaration of
actual use. Also, the statement required in proposed Sec.
10.91(a)(2)(ii)(B) that prototype articles not be put to any other use
than as specified in HTSUS subheading 9817.85.01 seems contradictory in
that the articles may be sold for use as scrap, waste, or for recycling
under the PDTA.
CBP Response: CBP agrees in part. To further sharpen the focus of
this provision, proposed Sec. 10.91(a)(2)(ii)(B) is revised in this
final rule to reflect that the prototype articles may not be put to any
other use than as specified in HTSUS subheading 9817.85.01 after their
entry or withdrawal from warehouse for consumption and prior to the
completion of their use under HTSUS subheading 9817.85.01. Further, a
reference to paragraphs (c) and (d) is added to Sec.
10.91(a)(2)(ii)(B) in this final rule, indicating the permissible
dispositions to which the articles may be subject following the
completion of their use as prescribed in HTSUS subheading 9817.85.01.
As thus revised, CBP finds that Sec. 10.91(a)(2)(ii)(A)-(C) sets
forth the information required for the proof (declaration) of actual
use with ample clarity and detail, and, along these same lines,
proposed Sec. 10.91(e)(1) is changed in this final rule to reference
those records which would be necessary to support the proof of actual
use.
Comment: Proposed Sec. 10.91(a)(2)(ii)(C) provides that a
declaration of actual use must include a statement that neither the
articles nor any parts of the articles will be sold, or be incorporated
into other products that are sold, after the articles have been entered
or withdrawn from warehouse for consumption and prior to the completion
of their use as provided in HTSUS subheading 9817.85.01. This paragraph
seems unnecessary in light of proposed Sec. 10.91(a)(2)(ii)(B), which
provides that the declaration of actual use must also include a
statement that articles are not to be put to any other use after the
articles have been entered or withdrawn from warehouse for consumption
and prior to the completion of their use under HTSUS 9817.95.01.
CBP Response: CBP disagrees. The statement required in Sec.
10.91(a)(2)(ii)(C) represents an acknowledgment by the importer that
the prototype articles may not be sold after importation and prior to
their use as prototypes under HTSUS subheading 9817.85.01. A sale of
the prototype articles does not constitute a use of those articles as
contemplated under Sec. 10.91(a)(2)(ii)(B).
Articles Classifiable as Prototypes Under the PDTA
Comment: Proposed Sec. 10.91(b)(1) should be revised essentially
to state that an article may be presumed to be entitled to duty-free
entry as a prototype under HTSUS subheading 9817.85.01, if the article
is otherwise eligible for entry under a temporary importation bond
(TIB) pursuant to HTSUS subheading 9813.00.30 (articles intended solely
for testing, experimental or review purposes).
CBP Response: CBP disagrees. Articles that may be entitled to free
entry as prototypes under HTSUS subheading 9817.85.01 are defined in
U.S. Note 6(a) to Subchapter XVII of Chapter 98, HTSUS. This definition
is essentially mirrored in Sec. 10.91(b)(1). Not all articles entitled
to entry under TIB pursuant to HTSUS subheading 9813.00.30 would
necessarily meet the stated definition for ``prototypes,'' as required
for duty-free entry under HTSUS subheading 9817.85.01.
Comment: Proposed Sec. 10.91(b)(1) should expressly state that
prototypes may encompass articles from all industries, and are not
restricted to articles of certain industries.
CBP Response: CBP agrees. The introductory text of proposed Sec.
10.91(b)(1) is changed in this final rule to affirm that articles
classifiable as prototypes under HTSUS subheading 9817.85.01 may
encompass articles that pertain to any industry as long as such
articles meet the requirements set forth in Sec. 10.91(b)(1)(i) and
(b)(1)(ii).
Comment: The definition of prototypes should be revised to show
that certain motor vehicles and parts of motor vehicles would qualify
as ``original'' articles under proposed Sec. 10.91(b)(1).
Additionally, concerning proposed Sec. 10.91(b)(1)(i), it is suggested
that a definition be added for the term ``preproduction'' to explicitly
include research and development efforts expended on prototypes that
may never result in commercial production; and that the phrase
``development, testing, product evaluation or quality control'' be
further defined to include, among other things, ``manufacturing of the
imported [prototype] articles with any foreign or domestic materials,
and further processing.''
CBP Response: CBP is of the opinion that the definition of
prototypes in U.S. Note 6(a) to subchapter XVII, chapter 98, HTSUS, as
adopted in Sec. 10.91(b)(1)(i) and (b)(1)(ii), should not be further
expanded within the framework of this rulemaking. In this regard,
whether given merchandise or particular activities or operations would
fall within the scope of the definition for prototypes under the PDTA
would more suitably be determined on a case-by-case basis as the need
arises, taking into account the precise facts and circumstances of each
case, through the administrative ruling process in accordance with the
requirements of part 177, CBP Regulations (19 CFR part 177).
Comment: In proposed Sec. 10.91(b)(2)(i), the importation of
prototypes is limited to noncommercial quantities based on industry
practice. The exact limits on the numbers of prototypes that may be
imported should be included in the regulation.
CBP Response: CBP disagrees. It is not possible to establish rigid
limitations on the numbers of prototypes that may be entered under
HTSUS subheading 9817.85.01, in view of the multifarious industries
potentially affected and the myriad purposes among those industries for
which prototypes might be used in testing, evaluation, product
development or quality control. In certain cases, an entry may be
rejected if CBP should conclude that an importer seeks to enter a
commodity under HTSUS subheading 9817.85.01 in numbers that are
considered to be excessive in light of the purposes intended and based
on the practice of the specific industry involved.
Comment: Proposed Sec. 10.91(b)(2)(ii) should be revised to
provide that the general restriction on the sale of prototypes or parts
of prototypes after their importation into the United States does not
apply to sales for export. It is stated that the same principle applies
in the case of temporary importations under bond (TIBs).
CBP Response: CBP believes that it is sufficient in the context of
this rulemaking to generally restate the prohibition imposed in U.S.
Note 6(b)(ii) to subchapter XVII, chapter 98, HTSUS, on the sale of
prototypes or parts of prototypes into the commerce of the United
States after their importation into the United States, including their
incorporation into other products that are sold. The prohibition on the
sale of prototypes or parts of prototypes does not apply to sales for
export.
Analogously, the TIB provisions and attendant regulations are to
the same effect. Specifically, articles entitled to entry under TIB may
not be imported for sale or for sale on approval (U.S.
[[Page 63448]]
Note 1(a) to subchapter XIII, chapter 98, HTSUS); and the implementing
CBP Regulations for TIBs merely reiterate this requirement (Sec.
10.31(a)(3)(iii), CBP Regulations (19 CFR 10.31(a)(3)(iii))).
Comment: Clarification is sought as to proposed Sec.
10.91(b)(2)(iii) (``Articles excluded from being prototypes''), which
excludes articles from being classified as prototypes if they are
subject to quantitative restrictions, antidumping orders or
countervailing duties. It is asked whether this provision would exclude
all textile and apparel products, as opposed to those that are in fact
subject to quantitative restrictions at the time of entry.
CBP Response: Based upon U.S. Note 6(c) to subchapter XVII of
chapter 98, HTSUS, articles that are in fact subject at the time of
entry to quantitative restrictions, antidumping orders or
countervailing duty orders are precluded from being classifiable as
prototypes entitled to free entry under HTSUS subheading 9817.85.01.
Proposed Sec. 10.91(b)(2)(iii), entitled, ``Articles excluded from
being prototypes,'' is revised in this final rule to make this clear,
and, furthermore, for purposes of editorial integrity, the provision is
redesignated in this final rule as Sec. 10.91(b)(2)(iv). Also, the
introductory text of proposed Sec. 10.91(b)(2) is revised in this
final rule to add a reference to U.S. Note 6(c).
Sale of Prototypes Following Use; Alternative Dispositions
Comment: It is asserted, in connection with proposed Sec.
10.91(c), that articles imported as prototypes under HTSUS subheading
9817.85.01 do not have to be sold as scrap, waste or for recycling;
that such articles may instead be exported, destroyed, donated to
charity, otherwise given away to another party, or be retained and/or
put to any other use by the importer. It is suggested that Sec. 10.91
should make reference to these possible alternative dispositions of the
articles, and state that such alternative dispositions of the used
prototype articles need not be reported to CBP.
CBP Response: CBP agrees. Except for sale, section 1434(b) of the
PDTA is not concerned with any other disposition of the prototypes
following their use pursuant to HTSUS subheading 9817.85.01. Hence,
other than sale to the extent authorized under section 1434(b), no
other disposition of the used prototype articles need be reported to
CBP. A paragraph (d) is added to proposed Sec. 10.91 in this final
rule to address this issue.
Comment: With respect to proposed Sec. 10.91(c), the regulation
should set out a comprehensive definition of recycling.
CBP Response: CBP has determined, as with the definition for
prototypes discussed previously, that the meaning of recycling for
purposes of the PDTA would more aptly be elucidated on a case-by-case
basis through the administrative ruling process pursuant to part 177,
CBP Regulations (19 CFR part 177). The concept of recycling may have
different meanings depending upon the merchandise concerned or the
particular industry involved.
Comment: Under proposed Sec. 10.91(c)(1), the provision that the
used prototypes or parts may be sold as scrap, waste, or for recycling
upon payment of applicable duty appears to erroneously imply that duty
must be paid before the articles may be sold.
CBP Response: To avoid this misperception, proposed Sec.
10.91(c)(1) is revised in this final rule to make clear that duty is
payable after the sale of the used prototypes or their parts.
Furthermore, in Sec. 10.91(c)(1), a reference is added in this final
rule to Sec. 10.91(c)(3), which sets forth the timing and the manner
in which the applicable duty must be paid.
Comment: Proposed Sec. 10.91(c)(2) should not require the
submission of a notice of sale if the used prototype that is sold as
scrap, waste, or for recycling is not subject to any duty.
CBP Response: CBP disagrees. The report of sale under Sec.
10.91(c)(2) is needed so that CBP may readily confirm that the used
prototype material has been sold as scrap, waste, or for recycling, as
authorized under the PDTA, and that the importer is correct in
concluding that the scrap, waste or recycled material that is sold is
duty-free.
For editorial consistency, the last sentence of proposed Sec.
10.91(c)(2) is recast in this final rule to advise that the notice of
sale, if applicable, should not be submitted to CBP prior to the
submission of proof of actual use, in the event that such proof should
be requested by the port director; likewise, the reference to paragraph
(c)(1) in the last sentence of proposed Sec. 10.91(c)(2) is changed in
this final rule to paragraph (a)(2)(ii).
Comment: Proposed Sec. 10.91(c)(2) and (c)(3) should be amended to
allow the notice of sale to be filed quarterly, instead of within 10
business days of each sale. A requirement that a separate notice of
sale be filed for each prototype or part of a prototype that is
scrapped or recycled and subsequently sold would impose an undue burden
on the importer. At the same time, lengthening the reporting period
would have no appreciable impact on customs revenue since most scrap,
waste and recycled materials are duty-free.
CBP Response: CBP agrees. Paragraphs (c)(2) and (c)(3) of proposed
Sec. 10.91 are changed in this final rule to permit an importer to
file a blanket notice of sale covering all sales of prototypes and
parts that occur during a quarterly (3-month) calendar period. This
blanket notice must be filed within 10 business days following the end
of the related quarterly calendar period in which the sale(s) occurred.
Comment: A question is posed as to whether the notice of sale in
proposed Sec. 10.91(c)(3) constitutes a new entry, an amended entry,
or a voluntary disclosure.
CBP Response: The notice of sale is neither an import entry, nor is
it a voluntary disclosure. The notice of sale is basically the required
report that is made to CBP regarding those prototypes and parts of
prototypes that are sold as scrap, waste, or for recycling following
their use under HTSUS subheading 9817.85.01. The employment of an
import entry form (a CBP Form 7501), modified as appropriate, as
provided in Sec. 10.91(c)(3), is simply a convenient administrative
means for making the required report of sale to CBP.
Comment: It is asked, regarding proposed Sec. 10.91(c)(3)(I),
whether the description requested by CBP of the condition of a
prototype following its use for the purposes specified in HTSUS
subheading 9817.85.01 relates to an article immediately following its
use as a prototype or the article after it has been scrapped (i.e.,
crushed and shredded).
CBP Response: CBP is interested in any damage, degradation or
deterioration to the prototype articles resulting from their use for
the specified purposes and resulting from any other cause before their
sale as scrap, waste or for recycling. Proposed Sec. 10.91(c)(3)(i) is
thus clarified in this final rule. Also, a corresponding change is made
to proposed Sec. 10.91(e)(2) in this final rule pertaining to the
valuation of the used prototypes or their parts for purposes of proper
duty assessment.
Entry Bond; Liquidated Damages for Failure To Report Sale/Pay Duty
Comment: Under proposed Sec. 10.91(c)(4), the failure to file a
notice of sale or to deposit appropriate duty following the sale of a
used prototype as scrap, waste, or for recycling constitutes a breach
of the importer's entry bond that will result in the assessment of
liquidated damages under the bond. The question is presented as to what
action CBP would take, for example, assuming the applicability of 19
U.S.C. 1504(b),
[[Page 63449]]
should the import entry of a prototype article be liquidated by
operation of law (4 years from the date of entry), with the underlying
import bond being cancelled, before the used prototype article is sold
as scrap, waste, or for recycling.
CBP Response: CBP has decided to delete proposed Sec. 10.91(c)(4)
in this final rule. The import entry bond referred to in proposed Sec.
10.91(c)(4) covers the performance of those conditions (19 CFR
113.62(h)) that are associated with the duty-free entry of a prototype
as defined in the PDTA that is to be used exclusively under HTSUS
subheading 9817.85.01. As such, the duty-free entry of the prototype
under HTSUS subheading 9817.85.01 is not concerned with or conditioned
upon any liability for duty that might thereafter accrue pursuant to
section 1434(b) of the PDTA due to the subsequent sale of the prototype
as scrap, waste, or for recycling. In sum, the payment of applicable
duty on scrap, waste or recycled material under the PDTA is an entirely
separate and distinct transaction that is not subsumed within the duty-
free entry of the prototype article.
Consequently, since duty to the extent payable on scrap, waste, or
recycled material that is sold under section 1434(b) of the PDTA would
not be assessed or collected under the import entry for the prototype,
liquidated damages under the associated import entry bond would not
apply with respect to such a sale.
Recordkeeping Requirements
Comment: In proposed Sec. 10.91(e)(1), the record retention period
for documents supporting the notice of sale of a used prototype as
scrap, waste or for recycling should be five years from the date of the
entry of the prototype article under HTSUS subheading 9817.85.01.
CBP Response: CBP disagrees. As explained above, the possible sale
of the used prototype as scrap, waste, or recycled material is not
related to the entry of the prototype under HTSUS subheading
9817.85.01. Should a sale of the used prototype as scrap, waste, or for
recycling in fact occur, Sec. 10.91(e)(1) mandates that records
supporting the notice of sale be retained for five years from the date
of filing the notice of sale in complete and proper form under Sec.
10.91(c)(3). This is governed by Sec. 163.4(a), CBP Regulations (19
CFR 163.4), which is referenced in Sec. 10.91(e)(1).
Comment: Proposed Sec. 10.91(e)(2) should make clear that the
market value of any prototypes sold as scrap, waste, or for recycling
will be based upon their selling price.
CBP Response: Section 10.91(e)(2) already makes this amply clear.
Conversion of TIB Entry to Duty-Free Prototype Entry
Comment: Proposed Sec. 10.91(f) should be expanded to permit
temporary importation bond (TIB) entries under HTSUS subheading
9813.00.05 to be converted to duty-free entries under HTSUS subheading
9817.85.01.
CBP Response: CBP disagrees. Section 1435(2) of the PDTA expressly
allows only TIB entries under HTSUS subheading 9813.00.30 to be
converted to duty-free entries under HTSUS subheading 9817.85.01, if
those TIB entries otherwise qualify for such conversion.
Conclusion
In view of the foregoing, and following careful consideration of
the comments received and further review of the matter, CBP has
concluded that the proposed regulations with the modifications
discussed above should be adopted as a final rule.
Regulatory Flexibility Act and Executive Order 12866
This final rule amends the CBP Regulations to implement the terms
and requirements of the PDTA, which went into effect on November 9,
2000. These regulations benefit the public by allowing the duty-free
importation of prototypes that are to be used exclusively for
development, testing, product evaluation or quality control purposes,
thereby promoting such activities in the United States, rather than
overseas. Accordingly, pursuant to the provisions of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), it is certified that these
regulations will not have a significant economic impact on a
substantial number of small entities. Nor do these regulations meet the
criteria for a ``significant regulatory action'' as specified in E.O.
12866.
Paperwork Reduction Act
The collections of information encompassed within this final rule
document have previously 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) and assigned OMB Control Numbers 1651-0032
(Importers of merchandise subject to actual use provisions); and 1651-
0038 (Proof of use for duty rates dependent on actual use). These
collections encompass a claim for duty-free entry for prototype
articles imported for use exclusively for development, testing, product
evaluation or quality control purposes. This final rule does not
present any material change to the existing approved information
collections.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number assigned by OMB.
Part 178, CBP Regulations (19 CFR part 178), containing the list of
approved information collections, is revised to make reference to the
new Sec. 10.91.
Signing Authority
This regulation is being issued in accordance with 19 CFR
0.1(a)(1).
List of Subjects
19 CFR Part 10
Customs duties and inspection, Imports, Preference programs,
Reporting and recordkeeping requirements, Shipments.
19 CFR Part 178
Administrative practice and procedure, Collections of information,
Imports, Paperwork requirements, Reporting and recordkeeping
requirements.
Amendments to the Regulations
0
Parts 10 and 178, CBP Regulations (19 CFR parts 10 and 178), are
amended as set forth below.
PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,
ETC.
0
1. The general authority citation for part 10 continues to read as
follows, and the specific sectional authority for Sec. 10.91 is added
in appropriate numerical order to read as follows:
Authority: 19 U.S.C. 66, 1202 (General Note 23, Harmonized
Tariff Schedule of the United States (HTSUS)), 1321, 1481, 1484,
1498, 1508, 1623, 1624, 3314;
* * * * *
Section 10.91 also issued under Pub. L. 106-476 (114 Stat.
2101), sections 1434, 1435;
* * * * *
0
2. Part 10 is amended by adding after Sec. 10.90 a new center heading
entitled ``Prototypes'' followed by a new Sec. 10.91 to read as
follows:
Prototypes
Sec. 10.91 Prototypes used exclusively for product development and
testing.
(a) Duty-free entry; declaration of use; extension of liquidation--
(1) Entry or
[[Page 63450]]
withdrawal for consumption. Articles defined as ``prototypes'' and
meeting the other requirements prescribed in paragraph (b) of this
section may be entered or withdrawn from warehouse for consumption,
duty-free, under subheading 9817.85.01, Harmonized Tariff Schedule of
the United States (HTSUS), on CBP Form 7501 or an electronic
equivalent. A separate entry or withdrawal must be made for a
qualifying prototype article each time the article is imported/
reimported to the United States.
(2) Importer declaration. (i) Entry accepted as declaration. Entry
or withdrawal from warehouse for consumption under HTSUS subheading
9817.85.01 may be accepted by the port director as an effective
declaration that the articles will be used solely for the purposes
stated in the subheading.
(ii) Proof (declaration) of actual use. If it is believed the
circumstances so warrant, the port director may request the submission
of proof of actual use, executed and dated by the importer. The title
of the party executing the proof of actual use must be set forth. If
proof of actual use is requested, the importer must provide it within
three years after the date the article is entered or withdrawn from
warehouse for consumption. Liquidation of the related entry may be
extended until the requested proof or declaration of actual use is
received or until the three-year period from the date of entry allowed
for the receipt of such proof has expired. While requested proof of use
must be given to CBP within three years of the date of entry, the
prototype may continue to be used thereafter for the purposes
enumerated in HTSUS subheading 9817.85.01. If requested proof of use is
not timely received, the entry will be liquidated as dutiable under the
tariff provision that would otherwise apply to the imported article.
While there is no particular form for this declaration, it may either
be submitted in writing, or electronically as authorized by CBP, and
must include the following:
(A) A description of the use that is being and/or that has been
made of the articles set forth in sufficient detail so as to enable the
port director to determine whether the articles have been entitled to
entry as claimed;
(B) A statement that the articles have not and are not to be put to
any other use after the articles have been entered or withdrawn from
warehouse for consumption and prior to the completion of their use
under HTSUS 9817.85.01 (also see paragraphs (c) and (d) of this section
concerning the disposition(s) to which the articles may be put
following their use under HTSUS subheading 9817.85.01); and
(C) A statement that the articles or any parts of the articles have
not been and are not intended to be sold, or incorporated into other
products that are sold, after the articles have been entered or
withdrawn from warehouse for consumption and prior to the completion of
their use as provided in HTSUS subheading 9817.85.01 ( see paragraph
(b)(2)(ii) of this section).
(b) Articles classifiable as prototypes-- (1) Prototypes defined.
In accordance with U.S. Note 6(a) to subchapter XVII of chapter 98,
HTSUS, applicable to subheading 9817.85.01, the term ``prototypes''
means originals or models of articles pertaining to any industry that:
(i) Are either in the preproduction, production or postproduction
stage and are to be used exclusively for development, testing, product
evaluation, or quality control purposes (not including automobile
racing for purse, prize or commercial competition); and
(ii) In the case of originals or models of articles that are either
in the production or postproduction stage, are associated with a design
change from current production (including a refinement, advancement,
improvement, development or quality control in either the product
itself or the means of producing the product).
(2) Additional requirements. In accordance with U.S. Note 6(b) and
(c) to subchapter XVII of chapter 98, HTSUS, applicable to subheading
9817.85.01, the following additional restrictions apply to articles
that may be classified as prototypes:
(i) Importations limited. Prototypes may be imported pursuant to
this section only in limited noncommercial quantities in accordance
with industry practice.
(ii) Sale prohibited after entry and prior to use. Prototypes or
parts of prototypes may not be sold, or be incorporated into other
products that are sold into the commerce of the United States, after
the prototypes have been entered or withdrawn from warehouse for
consumption under HTSUS subheading 9817.85.01, except that, after
having been used for the purposes for which they were entered or
withdrawn from warehouse under HTSUS subheading 9817.85.01, such
prototypes or any part(s) of the prototypes may be sold as scrap,
waste, or for recycling, as prescribed in paragraph (c) of this
section.
(iii) Articles subject to laws of another agency. Articles that are
subject to licensing requirements, or that must comply with laws, rules
or regulations administered by an agency other than CBP before being
imported, may be entered as prototypes pursuant to this section if they
meet all applicable provisions of law and otherwise meet the definition
of prototypes in paragraph (b)(1) of this section.
(iv) Articles excluded from being prototypes. Articles that are in
fact subject at the time of entry to quantitative restrictions,
antidumping orders or countervailing duty orders are excluded from
being classified as prototypes under this section.
(c) Sale of prototype following use. (1) Sale. Prototypes or any
part(s) of prototypes, after having been used for the purposes for
which they were entered or withdrawn under HTSUS subheading 9817.85.01,
may only be sold as scrap, waste, or for recycling. This includes a
prototype or any part thereof that is incorporated into another
product, as scrap, waste, or recycled material. If sold as scrap,
waste, or for recycling, applicable duty must be paid on the prototypes
or parts as provided in paragraph (c)(3) of this section, at the rate
of duty in effect for such scrap, waste, or recycled materials at the
time the prototypes were entered or withdrawn for consumption.
(2) Notice of sale required. If, after a prototype has been used
for the purposes contemplated in HTSUS subheading 9817.85.01, the
prototype or any part(s) of the prototype (including a prototype or any
part that is incorporated into another product) is sold as scrap,
waste, or for recycling, the importer must provide notice of such sale
to the port director where the entry or withdrawal of the prototype was
made. A notice, in the manner authorized in paragraph (c)(3) of this
section, must be submitted in connection with the sale, whether or not
duty is payable. The notice should not be submitted prior to the
submission of proof of actual use, should such proof of actual use be
requested by the port director ( see paragraph (a)(2)(ii) of this
section).
(3) Form and content of notice; tender of duty. While no particular
form is required for the notice of sale, a consumption entry (CBP Form
7501), appropriately modified, or an electronic equivalent as
authorized by CBP, may be used for this purpose. The notice may be a
blanket notice covering all those sales described in paragraph (c)(2)
of this section that occur over a quarterly (3-month) calendar period.
Such notice must be filed within 10 business days of the end of the
related quarterly period in which the sale(s) occurred. If an article
sold is dutiable,
[[Page 63451]]
the payment of any duty due must be forwarded together with the notice
(see paragraph (c)(1) of this section). If the notice is filed
electronically, payment of any duty owed will be handled through the
Automated Clearinghouse ( see Sec. 24.25 of this chapter). The notice
of sale must be executed by the importer, or other person having
knowledge of the facts surrounding the sale, and must include the
following:
(i) The identity of the prototype; the consumption entry number
under which it was imported; a copy of the declaration of actual use,
if proof of actual use was requested under paragraph (a)(2)(ii) of this
section; and a detailed description of the condition of the prototype
following use for the intended permissible purposes, including any
damage, degradation or deterioration to the article resulting from such
use and/or otherwise resulting to the article from any other cause
prior to its sale for scrap, waste, or recycling;
(ii) The name and address of the party to whom the article was
sold, and (if known) the use to which the party intends to put the
article;
(iii) The HTSUS subheading number for scrap, waste, or recycled
material, as applicable, claimed in connection with the sale of the
prototype, together with the corresponding rate of duty in effect at
the time the prototype was originally imported for consumption;
(iv) The value of the prototype article (if dutiable and the duty
owed is based upon value) ( see paragraph (e)(2) of this section); and
(v) The title of the party executing the declaration and the date
of execution.
(d) Prototypes not sold following use. As to those prototypes or
parts of prototypes that, after having been used as prescribed under
HTSUS subheading 9817.85.01, are disposed of otherwise than by sale (
see paragraph (c)(1) of this section), there is no requirement that the
importer notify CBP of any such alternative disposition. Nor are there
any dutiable consequences that ensue from any disposition of the
merchandise after the merchandise's use under HTSUS subheading
9817.85.01 other than sale to the extent authorized under paragraph
(c)(1) of this section.
(e) Recordkeeping; retention and production--(1) Recordkeeping. The
importer must be prepared to submit to the CBP officer, if requested,
any information, including any supporting documents, reports and
records, as was necessary for the preparation of the declaration of
use, if the declaration of use was requested under paragraph (a)(2)(ii)
of this section, and the notice of sale, if applicable under paragraph
(c)(3) of this section. The notices, together with any related
supporting evidence, may be subject to such verification as the port
director reasonably deems necessary. Supporting documentary evidence
must be made available to the CBP officer, upon request, for a period
of five years (see Sec. 163.4(a) of this chapter) from the date of
filing in complete and proper form, the declaration of use, if
requested, and, if applicable, the notice of sale. The supporting
records must be made available to the CBP officer upon request in
accordance with Sec. 163.6 of this chapter.
(i) Documents supporting the proof (declaration) of actual use
must:
(A) Establish that the identity and description of the prototype
article is the same article that the consumption entry was made for
under subheading 9817.85.01, HTSUS; and
(B) Describe the circumstances of the use of the article; the
operations, testing, review, manipulation, experimentation, and/or
other exercises that are being and/or that have been conducted in
connection with the prototype; and the location, such as the plant or
production facility, where these activities occurred, sufficient to
demonstrate that the purposes enumerated in HTSUS subheading 9817.85.01
are taking and/or have actually taken place.
(ii) Documents supporting the notice of sale must establish that:
(A) The identity of the prototype sold is the same article for
which a consumption entry was made under subheading 9817.85.01 HTSUS
when it was imported, and that the article was in the condition
described in the notice of sale;
(B) The article was sold to the party identified in the notice of
sale;
(C) The HTSUS subheading number for scrap, waste, or recycled
material, as applicable, claimed in connection with the sale of the
prototype is accurate;
(D) The date that the prototype was originally imported for
consumption, and the corresponding rate of duty in effect at the time
for the applicable HTSUS subheading; and
(E) The value of the prototype article (if dutiable and the duty
owed is based upon value) ( see paragraph (e)(2) of this section) as
claimed in the notice of sale is accurate.
(2) Relevant value for used prototype or parts sold. For purposes
of this section, with respect to any duty owed on prototypes or parts
of prototypes that are sold as scrap, or waste, or for recycling, where
the duty owed is based upon value, the relevant value is the market
value of the prototypes or parts, based upon their character and
condition following use for the purposes prescribed in HTSUS subheading
9817.85.01. The relevant value should take into consideration any
damage, degradation or deterioration to the prototypes or parts
resulting from their use as a prototype and/or otherwise resulting to
the articles from any other cause prior to their sale as scrap, waste,
or for recycling. The market value will generally be measured by the
selling price. Should a prototype or part of a prototype become a
component of another product that is sold as scrap, waste, or recycled
material, the relevant market value would be that portion of the
selling price attributable to the component (prototype or part) as
provided in this paragraph.
(f) Articles admitted under TIB--(1) Duty-free entry available.
Under the procedure presented in paragraph (f)(2) of this section, an
entry of an article made under a temporary importation bond (TIB)
solely for testing, experimental or review purposes under HTSUS
subheading 9813.00.30 may be converted into a duty-free entry under
HTSUS subheading 9817.85.01, if the following conditions exist:
(i) The article meets the definition for ``prototypes'' in
paragraph (b) of this section (U.S. Note 6(a) to subchapter XVII,
chapter 98, HTSUS); and
(ii) The TIB entry for the article was in effect and had not been
closed, and the TIB period for the article had not expired, as of
November 9, 2000.
(2) Procedure for converting TIB entry to duty-free entry--(i)
Importer request. The importer must submit a written request, or an
electronic equivalent as authorized by CBP, that a TIB entry made under
HTSUS subheading 9813.00.30, which was in effect and had not been
closed, and for which the TIB period had not expired, as of November 9,
2000, be converted instead into a duty-free consumption entry under
HTSUS subheading 9817.85.01.
(ii) Action by CBP. CBP will convert the TIB entry under HTSUS
subheading 9813.00.30 to a duty-free entry under HTSUS subheading
9817.85.01, provided that the port director is satisfied that the
conditions set forth in paragraphs (f)(1)(i) and (f)(1)(ii) of this
section have been met. When the TIB entry is converted, the bond will
be cancelled and the entry closed. Once the conversion is complete, the
port director will provide a courtesy acknowledgment to this effect to
the importer in writing or electronically.
[[Page 63452]]
PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS
0
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.
0
2. Section 178.2 is amended by adding the following in appropriate
numerical sequence according to the section number under the columns
indicated:
Sec. 178.2 Listing of OMB control numbers.
----------------------------------------------------------------------------------------------------------------
19 CFR section Description OMB Control No.
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Sec. 10.91.......................... Importers of merchandise 1651-0032 and 1651-0038
subject to actual use
provisions; proof of use for
duty rates dependent on
actual use.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Robert C. Bonner,
Commissioner, Customs and Border Protection.
Approved: October 27, 2004.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 04-24326 Filed 11-1-04; 8:45 am]
BILLING CODE 4820-02-P