CON-9/CON-9-09-CO:R:C:E 225642 PH
Roger L. Hiatt, Esq.
Watson, Ess, Marshall & Enggas
1010 Grand Avenue
Kansas, Missouri 64106-2271
RE: Temporary Importation Bond; Tariff Rate Quota; Interpretative Rule; T.D. 54802(53); T.D. 54802(54); Subheading 9813.00.05, HTSUS; Subheading 9813.00.30, HTSUS; 19 CFR 10.31(f); 5 U.S.C. 553(b)(A)
Dear Mr. Hiatt:
In your letter of August 19, 1994, you request a ruling on behalf of Wyeth-Ayerst Research regarding the importation of certain infant formula for what you describe as research and study. Representatives of this office met with you and your client on January 30, 1995, about this matter. At that meeting it was noted that the tariff provisions under consideration have changed so that instead of the merchandise being subject to an absolute quota, as would be true of the tariff classifications referred to in your letter, it may be subject to a tariff rate quota. We agreed to provide you copies of pertinent rulings on the interpretation of the Temporary Importation Bond (TIB) provision for the importation of articles intended solely for testing, experimental or review purposes (subheading 9813.00.30, Harmonized Tariff Schedule of the United States (HTSUS)). Enclosed are copies of rulings 223589, March 20, 1992, and 222827, March 1, 1991. These rulings reflect Customs current position in regard to the treatment of substances or drugs imported for testing as having been destroyed in the course of the testing. Also enclosed are copies of Treasury Decisions (T.D.'s) 54802(53) and 54802(54), which represent Customs position on the question of the applicability of quotas to TIB's. Because the applicability of tariff rate quotas to TIB's is not entirely clear from these T.D.'s, we are issuing a ruling on that issue, as applicable to the facts you described in your ruling request.
Our ruling follows.
FACTS:
You state that your client in this matter develops potential commercial pharmaceutical products and infant nutritionals, but it does not manufacture, sell or distribute any type of commercial product whatsoever. You ask whether your client may import infant formula classified under tariff subheadings subject to quota under Chapter 99 of the HTSUS (we understand that the quota provisions which could be applicable in this case are now tariff rate quotas and we so assume for purposes of this ruling) under TIB procedures under subheading 9813.00.30, HTSUS.
ISSUE:
May merchandise subject to a tariff rate quota be imported under subheading 9813.00.30, HTSUS, assuming that it otherwise qualifies for such importation?
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, including specifications, photographs and similar articles for use in connection with experiments or for study." 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 dis- cretion 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 predecessor of subheading 9813.00.30, HTSUS, in the Tariff Schedules of the United States (TSUS) was item 864.30, TSUS, which is substantively the same, for purposes of this ruling, as subheading 9813.00.30 (Tariff Classification Study, Explanatory and Background Materials, Schedule 8, pp. 74-79 (November 15, 1960)). The predecessor to this provision in the Tariff Act of 1930 was section 308(4) (19 U.S.C. 1308(4)) (section 308 was repealed by section 301(a) of the Tariff Classification Act of 1962 (Public Law 87-456; 76 Stat. 75)), which provided for the duty-free importation under bond (for a six month period which could be extended for a further period not to exceed six months) of "[a]rticles intended solely for experimental purposes ...." In section 10(c) of the Act of August 8, 1953 (67 Stat. 512), section 308(4) of the 1930 Act was amended to include articles intended for testing or review purposes, including blueprints, plans, specifications, and other similar items.
The legislative history for the TIB provision discussed below in regard to T.D. 54802(53) and (54), subheading 9813.00.05, HTSUS, is similar. Section 308(1) of the Tariff Act of 1930 provided for the duty-free importation under bond of "[m]achinery or other articles to be altered or repaired". An amendment by section 4 of the Customs Administration Act of 1938 (52 Stat. 1077), amended section 308(1) to provide for such treatment of "[a]rticles to be repaired, altered, or otherwise changed in condition by processes which do not result in articles manufactured or produced in the United States". Section 308(1) of the 1930 Act was further amended by the Act of May 16, 1958 (Public Law 85-414; 72 Stat. 118), to provide for the duty-free importation under bond of "[m]erchandise imported to be repaired, altered, or processed (including processes which result in articles manufactured or produced in the United States [with certain conditions])." In the revisions of the tariff schedules resulting in the TSUS and then the HTSUS, section 308(1) became item 864.05, TSUS, and then subheading 9813.00.05, HTSUS, without substantive change.
On March 9, 1959, Customs published T.D. 54802(53) and (54) in which it was stated that:
An article entered under section 308, Tariff Act of 1930, as amended, is "entered for consumption" and subject to quotas such as that relating to lead and zinc under Proclamation No. 3257 (T.D. 54705). [T.D. 54802(53)]
An article entered under section 308, Tariff Act of 1930, as amended, is "entered for consumption" and subject to quotas such as that relating to lead and zinc under Proclamation No. 3257 (T.D. 54705). [T.D. 54802(54)]
The cited basis for T.D. 54802(53) and (54) is a February 25, 1959, letter from the Chief, Division of Classification and Drawbacks, in which it is stated:
We have your letter of February 11, 1959, inquiring whether pig lead may be imported ex-quota under the provisions of section 308(1), Tariff Act of 1930, as amended, for manufacture into lead oxide for export.
Entries under section 308 are considered as entries for consumption and the merchandise concerned would be subject to existing quotas. Accordingly, pig lead would be permitted entry under section 308(1), as amended, only if the quota applicable to that commodity is open at the time the entry is presented.
Subsequently, Customs explained the reason for the position taken in T.D. 54802(53) and (54) as follows:
[Customs] has previously published notification in [T.D.] 54802 that merchandise entered on a temporary importation under bond under section 308, Tariff Act of 1930 (superseded by Schedule 8, Part 5C, TSUS), is considered entered for consumption. Unless a visa is required on merchandise entered under a temporary importation bond, a considerable loophole would exist for avoiding the quantitative controls on cotton textiles. Without the requirement, importers, unable to obtain visas once quota allotments were filled, would be able to make entry under the temporary importation bond provisions and could keep the merchandise in the United States merely by paying liquidated damages. Thus, in order to prevent the circumvention of agreements limiting importations of cotton textiles, it is necessary to require a visa on temporary importations under bond. [July 13, 1972, letter to Senator Jacob K. Javits from Acting Commissioner of Customs; see also rulings 203142, September 19, 1975, 306885, June 29, 1979, and 223491, March 30, 1992.]
It may be noted that T.D. 54802(53) and (54) was issued without publication in the Federal Register of a notice of proposed rulemaking and opportunity for participation in the rule making process through submission of comments on the proposed rulemaking by interested persons under section 4 of the Administrative Procedure Act (APA) (Act of June 11, 1946, ch. 324, section 4, 60 Stat. 238; 5 U.S.C. 553) (at the time of issuance of T.D. 54802(53) and (54), 5 U.S.C. 553 was codified at 5 U.S.C. 1003; that provision was revised, codified, and enacted as 5 U.S.C. 553 by section 1 of Public Law 89-554, 80 Stat. 378; 5 U.S.C. 553 is substantively unchanged from 5 U.S.C. 1003). Under 5 U.S.C. 553 (and its predecessor, 5 U.S.C. 1003), publication, followed by a period for public consideration and comment, of proposed agency rules that are substantive is required (see, e.g., La Casa del Convaleciente v. Sullivan, 965 F. 1175, 1177 (1st Cir. 1992)).
An exception to the APA requirement for notice-and-comment is found in 5 U.S.C. 553(b)(A), under which, "[e]xcept when notice or hearing is required by statute [the requirement] does not apply ... to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice ...." The distinction between substantive rules, subject to APA notice-and-comment requirements, and those exempt from those requirements has been described as "enshrouded in considerable smog" or "fuzzy" (see American Min. Congress v. MSHA, 995 F. 2d 1106, 1108-1109 (D.C. Cir. 1993), and cases discussed therein). In American Min. Congress, the Court held that certain Program Policy Letters (PPL's) of the Mine Safety and Health Administration stating the agency's position that certain X-ray readings qualify as "diagnose[s]" of lung disease within the meaning of agency reporting regulations were interpretative rules for APA purposes (995 F. 2d at 1107). In so holding, after reviewing the distinction between substantive rules and interpretative rules, the Court stated:
Accordingly, insofar as our cases can be reconciled at all, we think it almost exclusively on the basis of whether the purported interpretive rule has "legal effect", which in turn is best ascertained by asking (1) whether in the absence of the rule there would not be an adequate legislative basis for enforcement action or other agency action to confer benefits or ensure the performance of duties, (2) whether the agency has published the rule in the Code of Federal Regulations, (3) whether the agency has explicitly invoked its general legislative authority, or (4) whether the rule effectively amends a prior legislative rule. If the answer to any of these questions is affirmative, we have a legislative, not an interpretive rule. [995 F. 2d at 1112; see also, National Family Planning v. Sullivan, 979 F. 2d 227 (D.C. Cir. 1992); La Casa del Convaleciente v. Sullivan, supra at 1178, stating that some Courts of Appeals "have moved away from considering the level of impact on interested parties as a factor in correctly classifying a rule or regulation [as substantive or interpretative]"; Orengo Caraballo v. Reich, 11 F. 3d 186, 195 (D.C. Cir. 1993), "A statement seeking to interpret a statutory or regulatory term is ... the quintessential example of an interpretive rule"; and Health Ins. Ass'n of America, Inc. v. Shalala, 23 F. 3d 412, 422-425 (D.C. 1994).]
Applying the above criteria to T.D. 54802(53) and (54), we note initially that no notice or hearing was required by statute. We believe that no APA notice-and-comment procedures were necessary because the rule therein was an interpretative rule. Just as in American Min. Congress the MSHA regulations required the reporting of diagnoses of the specified diseases so that there was no legislative gap that required the PPL as a predicate to enforcement action, so in the case of T.D. 54802(53) and (54) the quota under consideration was an absolute quota prohibiting the entry, or withdrawal from warehouse, for consumption during the period concerned of any of the concerned merchandise after the specified quantity of the merchandise had been imported in the period so that there was no legislative that required the interpretation in T.D. 54802(53) and (54) as a predicate to enforcement action (995 F. 2d at 1112). That is, just as in the American Min. Congress case what was involved was the interpretation of what is a diagnosis (for purposes of an existing requirement), so in T.D. 54802(53) and (54) what was involved was the interpretation of what is an entry, or withdrawal from warehouse, for consumption (for purposes of an existing requirement).
In regard to the second and third criteria from American Min. Congress, Customs did not purport to act legislatively, either by including T.D. 54802(53) and (54) in the Code of Federal Regulations, or by invoking its general legislative authority under 19 U.S.C. 66 and 1624 (995 F. 2d at 1112). Nor was T.D. 54802(53) and (54) a de facto amendment of prior legislative rules (the prior legislative rules would have been the Customs Regulations then pertaining to quota (19 CFR 12.49 through 12.51) and/or TIB's (19 CFR 10.31 through 10.40) (the T.D. regarding the specific quota referred to in T.D. 54802(53) and (54) was not itself a legislative rule, since it merely reprinted verbatim a Presidential Proclamation issued pursuant to congressional authority (see Komjathy v. NTSB, 832 F. 2d 1294, 1296, 1297 (D.C. Cir. 1987), cert. den., 486 U.S. 1057, 108 S. Ct. 2825 (1988); and C. J. Tower & Sons v. United States, 43 Cust. Ct. 36, 48, C.D. 2100 (1959))). Sections 10.31 through 10.40 did not contain any provision which would have been amended by T.D. 54802(53) and (54). Under section 12.50 at the time under consideration, "... merchandise shall not be regarded as entered for purposes of quota priority until an entry therefore has been filed in proper form." Sections 12.50 and 12.51 also referred to consumption entries, withdrawals for consumption, mail entries, and informal entries. However, defining a TIB as an entry for consumption for quota purposes, as T.D. 54802(53) and (54) did, is not a de facto amendment of sections 12.50 and 12.51, it merely "supplies crisper and more detailed lines" (see below) of the term under consideration. Compare to American Min. Congress in which what was interpreted was the requirement for "diagnosis", and see the discussion of this criterion at 995 F. 2d at 1112:
A rule does not, in this inquiry, become an amendment merely because it supplies crisper and more detailed lines than the authority being interpreted. If that were so, no rule could pass as an interpretation of a legislative rule unless it were confined to parroting the rule or replacing the original vagueness with another.
See also, in regard to the distinction between substantive or legislative rules and interpretative rules for purposes of the notice-and-comment requirement in the APA, Gibson Wine Co. v. Snyder, 194 F. 2d 329 (D.C. Cir. 1952) (ruling by the Deputy Commissioner of Internal Revenue that berry wine made from the boysen variety of berries would not be entitled to the designation "blackberry wine" held to be an interpretative rule); Northern Illinois Gas Co. v. United States, 833 F. 2d 1582 (CAFC 1987) (classification by the Internal Revenue Service of certain utility trucks as "truck trailer combinations" within the meaning of the federal highway use tax of the Internal Revenue Code held to be an interpretative rule); Carlisle Tire & Rubber Co. v. United States, 10 CIT 301, 634 F. Supp. 419 (1986) (employment by the Department of Commerce of a .5% de minimus standard for antidumping margins without notice-and-comment procedures when the Department of Commerce had previously recognized that such a de minimum standard would be subject to public notice and comment held to be a substantive rule); B. F. Goodrich Co. v. United States, 16 CIT 333, 340, 794 F. Supp. 1148 (1992) (regulation promulgated in the Code of Federal Regulations without notice-and-comment procedures requiring same condition substitution drawback claimants to have possession of the imported merchandise when the statute contained no such requirement held to be substantive); and American Frozen Food Institute, Inc. v. United States, 855 F. Supp. 388, 396 (CIT 1994) (Treasury Decision stating the type size and style requirements for country of origin markings on certain merchandise held to be a legislative ruling because the requirements "do not interpret the meaning of 'conspicuous,' or any other term in the statute, but rather impose additional requirements for marking").
We note that since the issuance of T.D. 54802(53) and (54) in 1959, the statutory provisions interpreted in the T.D. have been amended several times (i.e., the TIB provision in the repeal of section 308 by the Tariff Classification Act of 1962 (see above), and the conversion of section 308(1) to item 864.05 of the TSUS, and the further conversion of item 864.05, TSUS, to subheading 9813.00.05, HTSUS, and the statutory authority for the quota referred to in T.D. 54802(53) and (54) (19 U.S.C. 1351) in the Acts of August 20, 1958, Public Law 85-686, section 3, 72 Stat. 673; October 11, 1962, Public law 87-794, Title II, section 257(a), (b), 76 Stat. 881; and July 26, 1979, Public law 96-39, Title II, section 202(a)(3), 93 Stat. 202). It is a doctrine of statutory construction that a "long continued administrative practice" may be considered to have been adopted by the legislature when the legislature reenacts, without material change, legislation containing the provision which is interpreted in the administrative practice after the administrative practice is established to have been in effect (see Joshua Hoyle & Sons, Ltd., Inc. v. United States, 25 CCPA 128, T.D. 49244 (1937); and United States v. Samuel Dunkel & Co., Inc., 33 CCPA 60, C.A.D. 317 (1945)). Under this doctrine, we believe Customs is justified in considering Congress to have adopted, or at least not to have reversed, the interpretation set forth in T.D. 54802(53) and (54).
As shown above, that interpretation is that merchandise entered under TIB (under heading 9813, HTSUS, and its predecessors) is considered entered for consumption for purposes of quotas, for the reason that if this were not the case, once a quantitative quota was filled, an importer could make entry under TIB and could keep the merchandise in the United States merely by paying liquidated damages, thus circumventing the quota limiting importations of the merchandise. Under T.D. 54802(53) and (54), when merchandise imported under a TIB is subject to an absolute quota (i.e., not a tariff rate quota), the merchandise would be permitted entry only if the quota applicable to the merchandise was open at the time the TIB was presented. If the quota was closed, the merchandise would not be permitted entry.
In the case of a tariff rate quota (e.g., subheadings 1901.10.35 and 1901.10.40, HTSUS, under the former of which an aggregate quantity of dairy products entered under subheading 1901.10.35 and other subheadings in any calendar year may not exceed 1,905,000 kilograms and merchandise so entered is subject to a duty of 17.5% (5.2% for NAFTA-qualifying goods of Canada), and the latter of which merchandise so entered is subject to a duty of $1.187 per kilogram plus 17.1% (see Additional U.S. Note 10 to Chapter 4, HTSUS) (the merchandise may be subject to further adjustments of duty under subheadings 9904.04.50 - 9904.05.01, HTSUS)), the quota would not be circumvented by permitting TIB entries after entry of the quantity of merchandise subject to the lower rate of duty (in the above example, that qualifying for entry under subheading 1901.10.35, HTSUS). This is so because the amount of the bond for the TIB would be at least double the duties which it is estimated would accrue had all the articles been entered under an ordinary consumption entry (19 CFR 10.31(f)). If an importer of such merchandise under a TIB chose to keep the merchandise in the country or otherwise default on the TIB bond conditions, the importer would be no better off than if he or she had imported the merchandise under the quota provision without recourse to the TIB provision (i.e., the importer would be subject to liquidated damages in an amount equal to at least double the applicable duties (19 CFR 10.39).
Therefore, merchandise subject to a tariff rate quota (as opposed to an absolute quota) may be entered under a TIB. In such a case, the bond for the TIB may be set in an amount to take into account the tariff rate quota in order to protect the revenue (see 19 CFR 10.31(f)).
HOLDING:
Merchandise subject to a tariff rate quota may be imported under subheading 9813.00.30, HTSUS, assuming that it otherwise qualifies for such importation; the bond for the TIB should be set in an amount to take into account the tariff rate quota in order to protect the revenue.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosures