Assessment of Liquidated Damages Regarding Imported Merchandise That is Not Admissible Under the Food, Drug and Cosmetic Act

[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Proposed Rules]
[Pages 41851-41853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19636]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 12, 113 and 141

RIN 1515-AC45


Assessment of Liquidated Damages Regarding Imported Merchandise 
That is Not Admissible Under the Food, Drug and Cosmetic Act

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend the Customs Regulations to 
provide for the assessment of liquidated damages equal to the domestic 
value of the merchandise in the case of merchandise that is not 
admissible under the provisions of the Food, Drug and Cosmetic Act and 
that is not treated or otherwise disposed of in accordance with that 
Act. The document also proposes to amend various provisions of the 
Customs Regulations pertaining to customs bonds to provide for 
liquidated damages of three times the appraised value of the 
merchandise in the case of merchandise that is restricted or prohibited 
from entry. Finally, the document sets forth a proposed editorial 
correction within one of the sections of the Customs Regulations 
pertaining to Customs bonds. The substantive changes reflected in the 
proposed amendments are intended to enhance the effectiveness of the 
affected regulatory provisions by increasing and clarifying the 
potential liability for the payment of liquidated damages by principals 
and sureties on customs bonds.

DATES: Comments must be received on or before October 1, 1999.

ADDRESSES: Written comments (preferably in triplicate) may be addressed 
to the Regulations Branch, Office of Regulations and Rulings, U.S. 
Customs Service, 1300 Pennsylvania Avenue, N.W., Washington, D.C. 
20229. Comments submitted may be inspected at the Regulations Branch, 
Office of Regulations and Rulings, U.S. Customs Service, 1300 
Pennsylvania Avenue, N.W., 3rd Floor, Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch (202-
927-2344).

SUPPLEMENTARY INFORMATION:

Background

    Section 801 of the Food, Drug and Cosmetic Act, as amended (21 
U.S.C. 381), and the regulations promulgated thereunder, provide the 
basic legal framework governing the importation of foodstuffs into the 
United States. Under 21 U.S.C. 381(a), the Secretary of Health and 
Human Services is authorized to refuse admission of, among other 
things, any article that is adulterated, misbranded or has been 
manufactured, processed or packed under insanitary conditions. The 
Secretary of the Treasury is required by section 381(a) to cause the 
destruction of any article refused admission unless the article is 
exported, under regulations prescribed by the Secretary of the 
Treasury, within 90 days of the date of notice of the refusal or within 
such additional time as may be permitted pursuant to those regulations.
    Under 21 U.S.C. 381(b), pending decision as to the admission of an 
article being imported or offered for import, the Secretary of the 
Treasury may authorize delivery of such article to the owner or 
consignee upon the execution of a good and sufficient bond providing 
for the payment of liquidated damages in the event of default as may be 
required pursuant to regulations of the Secretary of the Treasury. In 
addition, section 381(b) allows the owner or consignee in certain 
circumstances to take action to bring an imported article into 
compliance for admission purposes, under such bonding and other 
requirements as the Secretary of the Treasury may prescribe by 
regulation.
    Based upon the above statutory authority, imported foodstuffs are 
conditionally released under bond while determinations as to 
admissibility are made; see Sec. 12.3 of the Customs Regulations (19 
CFR 12.3). Under Sec. 141.113(c) of the Customs Regulations (19 CFR 
141.113(c)), Customs may demand the return to Customs custody of most 
types of merchandise that fail to comply with the laws or regulations 
governing their admission into the United States (also referred to as 
the redelivery procedure). The condition of the basic importation and 
entry bond contained in Sec. 113.62(d) of the Customs Regulations (19 
CFR 113.62(d)) sets forth the obligation of the importer of record to 
timely redeliver released merchandise to Customs on demand and provides 
that a demand for redelivery will be made no later than 30 days after 
the date of release of the merchandise or 30 days after the end of the 
conditional release period, whichever is later. Failure to meet the 
obligation to redeliver contained in Sec. 113.62(d) will create a 
potential liability for the payment of liquidated damages under the 
terms of the bond.

Use of the Domestic Value Standard for Liquidated Damages

    In an April 1998 report to the Chairman of the Permanent 
Subcommittee on Investigations, Committee on Governmental Affairs, U.S. 
Senate, on the subject of food

[[Page 41852]]

safety, the United States General Accounting Office (GAO) determined 
that federal efforts to ensure the safety of imported foods were 
inconsistent and unreliable. Among its specific conclusions, the GAO 
report indicated that a weakness existed in the Customs bond structure 
in that liquidated damages arising from breach of obligations to 
redeliver merchandise for which admission was refused did not represent 
a deterrent to the importation of unsafe products.
    In response to this study, Customs is proposing in this document to 
amend Sec. 12.3 of the Customs Regulations (19 CFR 12.3) by designating 
the present text as paragraph (a) and adding a new paragraph (b) that 
would refer specifically to the assessment of liquidated damages with 
regard to any food, drug, device or cosmetic that is not redelivered 
into Customs custody or otherwise treated or disposed of within the 
time period prescribed by law after such merchandise has been found to 
be inadmissible pursuant to the provisions of the Food, Drug and 
Cosmetic Act. The proposed new paragraph (b) specifically provides for 
the assessment of liquidated damages in an amount equal to the domestic 
value of the merchandise at the time of entry as if it had not been 
refused admission or otherwise found to be noncompliant. The meaning of 
domestic value as set forth in Sec. 162.43(a) of the Customs 
Regulations (19 CFR 162.43(a)) for purposes of seized merchandise (that 
is, ``the price at which such or similar property is freely offered for 
sale at the time and place of appraisement, in the same quantity or 
quantities as seized, and in the ordinary course of trade'') would be 
used as the basis for calculating the liquidated damages.

Use of the ``Three Times'' Value Standard for Prohibited Merchandise

    The conditions of the basic importation and entry bond set forth in 
Sec. 113.62 of the Customs Regulations (19 CFR 113.62), the conditions 
of the basic custodial bond set forth in Sec. 113.63 of the Customs 
Regulations (19 CFR 113.63), the conditions of the international 
carrier bond set forth in Sec. 113.64 of the Customs Regulations (19 
CFR 113.64), the conditions of the commercial gauger and commercial 
laboratory bond set forth in Sec. 113.67 of the Customs Regulations (19 
CFR 113.67), and the conditions of the foreign trade zone operator bond 
set forth in Sec. 113.73 of the Customs Regulations (19 CFR 113.73) 
prescribe, as a consequence of default, the assessment of liquidated 
damages equal to three times the appraised value of the merchandise 
involved in the default if that merchandise is ``restricted merchandise 
or alcoholic beverages.'' Similar language is also used in 
Sec. 141.113(h) of the Customs Regulations (19 CFR 141.113(h)), which 
recites the liquidated damages that may be assessed for failure to 
comply with a demand for return of merchandise to Customs custody.
    A question has arisen whether the higher ``three times'' standard 
for liquidated damages would be appropriate when the merchandise 
involved is prohibited from entry. While it remains Customs position 
that the regulatory provisions referred to above permit the assessment 
of three times the appraised value of the merchandise when the 
merchandise involved is prohibited, this document proposes to amend 
those regulatory provisions to explicitly provide for the assessment of 
three times the appraised value of the merchandise involved when that 
merchandise is restricted ``or prohibited.''

Editorial Correction

    Finally, this document proposes to make an editorial correction to 
the first sentence of Sec. 113.62(l)(1) of the Customs Regulations (19 
CFR 113.62(l)(1)), which sets forth consequences of default. This 
sentence refers to ``conditions (a), (g), or (i)'' as exceptions to the 
general rules regarding the amount of liquidated damages that may be 
assessed (that is, the value of, or three times the value of, the 
merchandise involved in the default). However, the sentence in question 
also should exclude condition (k) of Sec. 113.62, for which a different 
level of liquidated damages (that is, $100 per thousand board feet of 
the imported lumber) is prescribed in paragraph (l)(5) of that section.

Comments

    Before adopting these proposed regulatory amendments as a final 
rule, consideration will be given to any written comments timely 
submitted to Customs, including comments on the clarity of this 
proposed rule and how it may be made easier to understand. Comments 
submitted will be available for public inspection in accordance with 
the Freedom of Information Act (5 U.S.C. 552), Sec. 1.4, Treasury 
Department Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs 
Regulations (19 CFR 103.11(b)), on regular business days between the 
hours of 9:00 a.m. and 4:30 p.m. at the Regulations Branch, Office of 
Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania 
Avenue, N.W., 3rd Floor, Washington, D.C.

Regulatory Flexibility Act And Executive Order 12866

    Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is certified that the proposed amendments, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities. The proposed regulatory amendments will not 
require any additional action on the part of the public but rather are 
intended to facilitate Customs enforcement efforts involving existing 
import requirements. Accordingly, the proposed amendments are not 
subject to the regulatory analysis or other requirements of 5 U.S.C. 
603 and 604. Furthermore, this document does not meet the criteria for 
a ``significant regulatory action'' as specified in E.O. 12866.

List of Subjects

19 CFR Part 12

    Bonds, Customs duties and inspection, Labeling, Marking, Prohibited 
merchandise, Reporting and recordkeeping requirements, Restricted 
merchandise, Seizure and forfeiture, Trade agreements.

19 CFR Part 113

    Bonds, Customs duties and inspection, Imports, Reporting and 
recordkeeping requirements, Surety bonds.

19 CFR Part 141

    Bonds, Customs duties and inspection, Entry procedures, Imports, 
Prohibited merchandise, Release of merchandise.

Proposed Amendments to The Regulations

    For the reasons stated above, it is proposed to amend parts 12, 113 
and 141 of the Customs Regulations (19 CFR parts 12, 113 and 141) as 
set forth below.

PART 12--SPECIAL CLASSES OF MERCHANDISE

    1. The general authority citation for part 12 continues to read, 
and the specific authority citation for Sec. 12.3 is revised to read, 
as follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States (HTSUS), 1624.
* * * * *
    Section 12.3 also issued under 7 U.S.C. 135h, 21 U.S.C. 381;
* * * * *
    2. Section 12.3 is revised to read as follows:

[[Page 41853]]

Sec. 12.3  Release under bond; liquidated damages.

    (a) Release. No food, drug, device, cosmetic, pesticide, hazardous 
substance or dangerous caustic or corrosive substance that is the 
subject of Sec. 12.1 will be released except in accordance with the 
laws and regulations applicable to the merchandise. Where any 
merchandise that is the subject of Sec. 12.1 is to be released under 
bond pursuant to regulations applicable to that merchandise, a bond on 
Customs Form 301, containing the bond conditions set forth in 
Sec. 113.62 of this chapter, shall be required.
    (b) Liquidated damages. Whenever liquidated damages arise with 
regard to any food, drug, device or cosmetic subject to Sec. 12.1(a) 
for failure to redeliver merchandise into Customs custody or for 
failure to rectify any non-compliance with the applicable provisions of 
admission, including the failure to export or destroy the merchandise 
within the time period prescribed by law after the merchandise has been 
refused admission pursuant to the provisions of the Food, Drug, and 
Cosmetic Act, those liquidated damages will be assessed in an amount 
equal to the domestic value (see Sec. 162.43(a) of this chapter) of the 
merchandise at the time of entry as if the merchandise were admissible 
and otherwise in compliance.

PART 113--CUSTOMS BONDS

    1. The authority citation for Part 113 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1623, 1624.
* * * * *


Sec. 113.62   [Amended]

    2. In Sec. 113.62, paragraph (l)(1) is amended by removing the 
words ``conditions (a), (g), or (i)'' and adding, in their place, the 
words ``conditions (a), (g), (i), or (k)'' and by adding the words ``or 
prohibited'' after the word ``restricted''.


Sec. 113.63   [Amended]

    3. In Sec. 113.63, paragraph (h)(1) is amended by adding the words 
``or prohibited'' after the word ``restricted''.


Sec. 113.64   [Amended]

    4. In Sec. 113.64, the second sentence of paragraph (b) is amended 
by adding the words ``or prohibited'' after the word ``restricted''.


Sec. 113.67   [Amended]

    5. In Sec. 113.67, paragraphs (a)(2)(i) and (b)(2)(i) are amended 
by adding the words ``or prohibited'' after the word ``restricted''.


Sec. 113.73   [Amended]

    6. In Sec. 113.73, the second sentence of paragraph (a)(2) is 
amended by adding the words ``or prohibited'' after the word 
``restricted''.

PART 141--ENTRY OF MERCHANDISE

    1. The authority citation for part 141 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1448, 1484, 1624.
* * * * *
    Section 141.113 also issued under 19 U.S.C. 1499, 1623.


Sec. 141.113   [Amended]

    2. In Sec. 141.113, the first sentence of paragraph (h) is amended 
by adding the words ``or prohibited'' after the word ``restricted''.
Raymond W. Kelly,
Commissioner of Customs.

    Approved: June 17, 1999.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 99-19636 Filed 7-30-99; 8:45 am]
BILLING CODE 4820-02-P