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[Federal Register Volume 62, Number 25 (Thursday, February 6, 1997)]
[Notices]
[Pages 5673-5677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2977]

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DEPARTMENT OF THE TREASURY
Customs Service

Announcement of National Customs Automation Program Test 
Regarding Reconciliation

AGENCY: US Customs Service, Department of Treasury.

ACTION: General notice.

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SUMMARY: This notice announces Customs' plan to conduct a third 
prototype test of Reconciliation. The notice invites public comments 
concerning any aspect of the planned test, informs interested members 
of the public of the eligibility requirements for voluntary 
participation, describes the basis for selecting participants, and 
establishes the process for developing evaluation criteria. To 
participate in this prototype test, the necessary information, as 
outlined in this notice, must be filed with Customs, and approval 
granted. It is important to note that resources expended by the trade 
and Customs on these prototypes may not carry forward to the final 
program.

EFFECTIVE DATES: The test of this prototype will commence no earlier 
than June 1, 1997, and will run for approximately two years, and may be 
extended. The prototype will be limited to formal consumption entries 
filed on or after June 1, 1997, through May 31, 1999. Applications for 
participation in this prototype must be received on or before May 1, 
1997. Comments concerning the test must be received on or before May 1, 
1997.

ADDRESSES: Written comments regarding this notice, and information 
submitted to be considered for voluntary participation in the 
prototype, should be addressed to Ms. Renee Orme, Reconciliation Team, 
US Customs Service, 1301 Constitution Ave, NW, Room 1322, Washington, 
DC, 20229-0001.

FOR FURTHER INFORMATION CONTACT:
For operational or policy issues: Ms. Renee Orme, at (202) 927-0644. 
For systems or automation issues: Mr. Alfred Morawski, at (202) 927-
1045.

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SUPPLEMENTARY INFORMATION:

Background

    Title VI of the North American Free Trade Agreement Implementation 
Act (the Act), Public Law 103-182, 107 Stat. 2057 (December 8, 1993), 
contains provisions pertaining to Customs Modernization (107 Stat. 
2170). Subtitle B of Title VI establishes the National Customs 
Automation Program (NCAP)--an automated and electronic system for the 
processing of commercial importations. Section 637 of the Act amends 
Section 484 of the Tariff Act of 1930 by establishing a new subsection 
(b) entitled ``Reconciliation.'' Reconciliation is a planned component 
of NCAP. Section 631 authorizes tests of planned NCAP components. 
Section 101.9(b) of the Customs Regulations (19 CFR101.9(b)) implements 
the testing of NCAP components. See TD 95-21 (60 FR 14211, March 16, 
1995). This test is established pursuant to those regulations.
    Previous NCAP initiatives include Customs' prototype of remote 
location filing (60 FR 17605), and the announcement of a Reconciliation 
prototype for related party importers making upward adjustments to the 
price of imported merchandise, pursuant to 26 U.S.C. 482 (60 FR 46141 
and 60 FR 64470). On May 10, 1996, Customs announced in the Federal 
Register (61 FR 21534) that it was conducting a voluntary prototype 
test regarding Reconciliation, covering only entries to which anti-
dumping and countervailing duties applied, commencing July 9, 1996. 
That prototype, ``RP1,'' was conducted with a very limited number of 
participants, at limited locations, and generated minimal changes to 
the Automated Commercial System (ACS). That prototype will conclude 
when liquidation or reliquidation of all Reconciliations has become 
final.
    Additional prototypes of Reconciliation are being developed by 
Customs to determine the systemic and operational design of the final 
Reconciliation program, which will allow all filers to participate in 
this type of entry process at a national level. This prototype will 
test the benefits and potential problems of Reconciliation for Customs, 
the trade community, and other parties impacted by this program.

I. Description of Proposed Test

The Concept of Reconciliation

    Reconciliation allows an importer to provide Customs with 
information (other than that related to the admissibility of 
merchandise), which is not available at the time of entry summary 
filing, at a subsequent time. A Reconciliation is treated as a legal 
entry for purposes of liquidation, reliquidation, and protest.
    A notice of intention to file a Reconciliation (``Notice of 
Intent'') permits the liquidation of an entry as to all issues other 
than those which are transferred to the Reconciliation. By filing a 
Notice of Intent, an importer is requesting that a certain issue be 
separated from the entry. The importer voluntarily requests and accepts 
that the issue identified in the Notice of Intent remains open and 
outstanding, and the importer remains liable for any duties, fees, and 
taxes resulting from liquidation of the Reconciliation. Importers who 
choose to participate in this prototype will recognize that the 
liquidation of the underlying consumption entries pertains only to 
those issues not identified by the importer on the Notice of Intent. 
During this prototype, the importer will ``flag'' the underlying 
consumption entries with an electronic indicator, which will be 
sufficient to serve as the Notice of Intent.
    In this prototype, the issue of the correct value of imported 
merchandise (the ``value issue'') will be transferred to the 
Reconciliation. The importer must exercise reasonable care in asserting 
the value at the time the underlying consumption entry is filed, and 
provide a good faith estimate. The value information will be updated at 
the filing of the Reconciliation. Other Reconciliation issues, such as 
classification, special trade programs, and antidumping and 
countervailing duty, will not be included in this prototype. This 
permits Customs to liquidate the underlying entries as to other issues 
(e.g., classification), but the issue of value is held open at the 
request of the importer, and is transferred to the Reconciliation.
    Upon liquidation of any underlying entry, any decision by Customs 
entering into that liquidation (e.g.,classification) may be protested 
pursuant to 19 U.S.C. 1514. When the outstanding value information is 
later furnished in the Reconciliation, the Reconciliation will be 
liquidated. The liquidation of the Reconciliation will be posted to the 
Bulletin Notice of Liquidation, and may be protested pursuant to 19 
U.S.C. 1514, but the protest may only pertain to the issue of value 
(i.e., the protest may not re-visit issues previously liquidated in the 
underlying entry).
    The Reconciliation shall be filed within 15 months of the date of 
the oldest underlying consumption entry.
    Absent any specified alternate procedure, the current Customs 
regulations apply.
    This prototype, as described below, will be the exclusive means by 
which to reconcile entries on the value issue.

Prototype Objectives

    The Reconciliation team's objectives for this prototype are:
    1. To work with the trade community, other agencies, and other 
parties impacted by this program in the design, conduct, and evaluation 
of the prototype;
    2. To obtain experience through the prototype for use in the design 
of operational procedures, automated systems, and regulations;
    3. To implement Reconciliation on a national level in conjunction 
with the Trade Compliance Redesign.

Description of the Prototype

    The purpose of this prototype is to test operational issues 
regarding the establishment of standard operating procedures for 
Reconciliation on a national scale. Customs would like to afford the 
opportunity to participate to all those who volunteer for the test. 
However, the number of participants may be limited in view of the fact 
that this prototype will be conducted with minimal changes to 
automation, requiring Customs to manually intervene in tracking and 
processing. It is important to note that Customs intends to focus 
primarily on the value issues of ``9802'' (maquiladora) concerns and 
non-dutiable freight charges in the steel industry. The trade is 
encouraged, however, to bring other appropriate value issues to our 
attention for consideration for the prototype.
    Only certain service ports are currently scheduled to participate 
in this prototype (please see section entitled ``Prerequisites''). 
However, a participant may file a Reconciliation in each selected port 
in which underlying entries were filed (i.e., an importer may file the 
Reconciliation in Laredo provided that all of the underlying 
consumption entries were filed in Laredo).
    For the duration of this prototype, Customs will not process 
drawback claims (including accelerated drawback) filed against entries 
flagged for Reconciliation, until after the Reconciliation entry is 
liquidated. (Please refer to section V.1., ``Liquidation of 
Reconciliation Entry.'')
    It is important to note that Reconciliation procedures are designed 
to closely parallel actual business practice in the trade. As intended 
by the Act, liquidation of the non-

[[Page 5675]]

 Reconciliation issues on the underlying entries will result in a 
reduction of contingent liabilities for the importer. An additional 
benefit for the trade is that Reconciliation allows the importer 
additional time after filing an entry to secure the pertinent value 
information.

Standard Operating Procedures

I. Initial Interview
    1. Upon an importer's acceptance into the pilot, Customs port 
personnel will interview the company's representatives to discuss the 
specific value issue to be reconciled, the merchandise and Harmonized 
Tariff System (HTS) classification, which ports the importer uses, and 
whether the importer has requested Reconciliation in another port.
    2. During the interview, the approved value issue is documented. 
This permits Customs to liquidate the underlying consumption entries 
concerning all other issues (e.g., classification), but to hold open 
the issue of value, at the request of the importer, and transfer it to 
the Reconciliation entry.
    3. The approved importer must appear as the importer of record on 
each of the entries designated for Reconciliation.
II. Importer Files ``Flagged'' Consumption Entries
    1. Any formal consumption entry (type 01 or 02) that is subject to 
Reconciliation for the approved value issue must be filed via the 
Automated Broker Interface (ABI) ``EI'' (entry summary) application. An 
electronic indicator, or ``flag,'' signifying that these entries are to 
be reconciled for the approved value issue, must be provided at the 
header level. The flag designates that the approved value issue for the 
entire entry summary (not just a specific line) is subject to 
Reconciliation. The Reconciliation entry must be filed within 15 months 
of the date of the oldest of these underlying entry summaries.
    2. For purposes of this prototype, the ``flag'' serves as the 
importer's Notice of Intent to file a Reconciliation entry.
    3. The importer must use reasonable care in asserting the value for 
the consumption entry, providing a good faith value estimate, and 
depositing the appropriate duties, taxes, and fees.
III. Importer Electronically Transmits the Association File
    1. When the importer has completed the information-gathering, and 
has the answer to the value issue in question on the Reconciliation, 
the filer will electronically (via ABI) transmit an ``association 
file'' to Customs. The association file will consist of the following 
data elements:
    a. the Reconciliation entry number
    b. all of the associated (underlying) consumption entry numbers 
which were previously flagged as being subject to Reconciliation
    c. the total amount of duty, fees, and taxes (broken out by ``class 
code'') which should have been paid for each of the underlying 
consumption entries, had the complete information been available to the 
importer at the time of filing of that entry summary.
EXAMPLE (association file):
Header: Reconciliation Entry Number XXX
Detail: Flagged Consumption Entry #123
Total Reconciled Duty = $500
Total Fees = $25
Flagged Consumption Entry #456
Total Reconciled Duty = $1,000
Total Fees = $35
(etc.)

    2. Transmission of the association file must occur within 15 months 
of the date of the oldest underlying entry summary.
    3. The importer must clearly document how the information in the 
association file was derived, and provide all supporting documentation 
to Customs when the Reconciliation entry is filed.
IV. Importer Manually Files the Reconciliation Entry
    1. In conjunction with the ABI transmission of the association 
file, the importer/filer will manually submit the Reconciliation entry 
(entry type 09). Entry type 09 cannot be filed via ABI, because of 
limited Customs automation capability for this prototype. The 
Reconciliation must be manually filed on a CF7501, within 15 months of 
the date of the oldest underlying consumption entry. The Reconciliation 
should include no fewer than 10 underlying entries.
    2. The Reconciliation must include complete supporting 
documentation for the information provided, to substantiate the 
importer's claim. The supporting documentation must include details at 
the entry line level. Supporting documents may include, but are not 
limited to:

a. detailed line-level spreadsheets
b. landed cost analysis sheets
c. invoices, purchase orders, and contracts.

    3. Adequate bonding will be required for each Reconciliation. Since 
there is no additional liability created on the Reconciliation, the 
bond filed on the underlying entries will in most cases suffice.
    4. The manual Reconciliation entry header data elements will 
include, but are not limited to:

a. Reconciliation entry number
b. Reconciliation entry type (09)
c. IRS number
d. Bond type/number
e. Port of entry code
f. Surety code
g. Summary date of oldest underlying consumption entry
h. Reconciliation date.

    5. The Reconciliation entry line data elements will include, but 
are not limited to:

a. Reconciliation issue
b. Country of Origin
c. SPI (if any)
d. HTS number
e. Quantity
f. Value
g. Charges.

    6. Each Reconciliation line item will be consolidated for all of 
the underlying consumption entries listed in the association file. To 
meet certain requirements of the Bureau of Census, each different HTS 
number will require a separate line. The reconciled (or corrected) 
information will be included below the consolidated (original) 
information, as follows:

EXAMPLE (Reconciliation entry line item)
001  Issue: Value
(Original) C/O SPI HTS
  Quantity Value Charges
(Corrected) C/O SPI HTS
  Quantity Value Charges
V. Liquidation of Reconciliation Entry
    1. The Reconciliation entry will be reviewed and liquidated, and a 
bill or refund will normally be issued (as appropriate) against each 
underlying consumption entry, calculated against the duty as shown in 
the association file. Importers will recognize that there may be 
instances where no bill or refund is necessary, based on the 
information provided. Customs will calculate any interest due in any 
case.
    2. On a matter of dispute, the importer may follow normal protest 
procedures (pursuant to 19 U.S.C. 1514) with regard to the 
Reconciliation entry.

Prerequisites for Reconciliation Under this Prototype

    A. Common Elements: Each Reconciliation under this prototype will 
be limited to entries filed by one importer and one filer, and in one 
port location. Importers who file entries at more than one port may 
participate at more than one port, if the other prerequisites are met; 
however, they must file a separate Reconciliation for

[[Page 5676]]

each port used. Further, the Reconciliation must be filed in the same 
port as the underlying consumption entries covered by the 
Reconciliation. Value is the only issue which may be reconciled under 
this prototype.
    B. Bonding: Adequate bonding will be required for each 
Reconciliation. Since there is no additional liability created on the 
Reconciliation, the bond filed on the underlying entries will in most 
cases be used to cover the Reconciliation. However, Customs will 
analyze each participant's individual situation, and take action to 
ensure that sufficient bond coverage exists. While Customs prefers to 
have one common set of legally responsible parties for each 
Reconciliation, importers with entries which were secured by more than 
one surety will not necessarily be excluded from participation in this 
prototype.
    C. Eligible Entries: Only entry types 01 and 02, for formal 
consumption entries, will be eligible for this prototype. Antidumping/
countervailing duty entries (entry types 03 and 07) and warehouse 
withdrawals (entry types 31, 32, 34, and 38) are not eligible for 
participation. Entry type 09, the Reconciliation entry, will be created 
effective with this prototype.
    D. Time Frame: This prototype is scheduled to begin no sooner than 
June 1, 1997, and run for 24 months, unless Customs decides to extend 
it. The prototype will be limited to formal consumption entries filed 
on or after June 1, 1997, through May 31, 1999. It is important to note 
that, although the test has concluded, Customs will liquidate 
Reconciliation entries after the closing date of the test.
    E. Port Locations: The following are service port locations which 
will be operational under this prototype: Chicago, Detroit, El Paso, 
Houston, Laredo, Los Angeles, New Orleans, Nogales, and San Diego. We 
will consider including other service ports, based on requests from 
applicants. If Customs decides to expand to other ports, we will issue 
a notice to the Customs Electronic Bulletin Board, and will accordingly 
extend the deadline for applying to participate in the prototype.
    F. Liquidation: Importers who choose to participate in this 
prototype will recognize that the liquidation of the underlying entries 
pertains only to those issues not identified by the importer as 
reconcilable (i.e., issues other than value). Upon liquidation of the 
underlying entries, any decisions of the Customs Service entering into 
that liquidation can be protested pursuant to 19 U.S.C. 1514. The 
liquidation of the Reconciliation will be posted to the Bulletin Notice 
of Liquidation, and may be protested (pursuant to 19 U.S.C. 1514).

Regulatory Provisions Suspended

    Certain requirements of Section 113.62 of the Customs Regulations 
(19 CFR 113.62), pertaining to basic importation and entry bond 
conditions, will be suspended during this prototype test. Certain 
provisions in Parts 141 and 142 of the Customs Regulations (19 CFR 141 
and 19 CFR 142), pertaining to entry, and of Part 159 of the Customs 
Regulations (19 CFR Part 159), pertaining to liquidation of duties, 
will also be suspended during this prototype test.
    Absent any specified alternate procedure, the current regulations 
apply.

II. Eligibility Criteria

    The following requirements must be met to be considered for 
selection in this prototype:
    1. No fewer than 10 entries may be subject to a single 
Reconciliation.
    2. Adequate bond coverage must exist for the Reconciliation.
    3. Participants may not be the subject of a current investigation 
by the Customs Service. Closed investigations will not necessarily 
preclude an importer from participating. However, the findings will be 
taken into consideration, as will the importer's demonstrated efforts 
to correct past problems.
    4. Participants must be capable of submitting certain information 
electronically, via ABI.
    5. Participants must agree to participate in the evaluation of this 
test.
    6. Only formal consumption entry types 01 and 02 will be accepted.
    7. The Reconciliation and its underlying consumption entries must 
be filed in the same port.
    Interested candidates should note that participation in this test 
will not constitute confidential information, and that lists of 
participants will be made available on the Customs Electronic Bulletin 
Board and the Administrative Message System.

Reconciliation Prototype Application

    This notice requests importers, or their brokers and/or attorneys, 
to voluntarily apply for participation in this prototype by submitting 
the following information:

1. Importer name and IRS number
2. Broker name(s) and filer code(s)
3. Surety name(s) and surety code(s)
4. Bond coverage (i.e., whether a continuous and/or single entry bonds 
will be used on the underlying entries)
5. Supplier name(s), address(es), and manufacturer's number
6. Commodities covered under the Reconciliation
7. Port(s) at which consumption entries and Reconciliation will be 
filed
8. Number of entries anticipated to be covered by the Reconciliation
9. Point of contact and telephone number
10. Any comments on prototype participation.

    This information should be submitted to Ms. Renee Orme, 
Reconciliation Team, US Customs Service, 1301 Constitution Ave, NW, 
Room 1322, Washington, DC, 20229-001, on or before May 1, 1997. If 
Customs selects more service ports as prototype locations, the deadline 
to apply will be extended to 30 days after the date of the Customs 
Electronic Bulletin Board notice announcing the selections. By applying 
to participate in this test, the importer is agreeing to participate 
pursuant to the terms of the test as defined in this notice.

Basis for Participant Selection

    Eligible importers will be considered for selection as participants 
in this prototype. Selection will be based upon automation 
capabilities, port of entry, and volume of entries within the 
designated criteria. Customs is looking for a variety of circumstances 
and participants for this prototype, within certain parameters. 
However, a limited number of participants will be selected, because of 
minimal automated programming available to support the test. Selected 
participants will be notified in writing, and the list of participants 
will be made available on the Customs Electronic Bulletin Board and the 
Administrative Message System.
    We stress that those applicants not selected for participation, and 
other interested parties, are invited to comment on the design, 
conduct, and evaluation of this prototype.

Dismissal From Prototype

    If a filer attempts to submit data relating to prohibited 
merchandise, or merchandise subject to antidumping or countervailing 
duties, or other non-eligible data; if the filer submits non-
consumption entries; if the filer is consistently subject to a late-
file condition on the Reconciliation; if the filer refuses to supply 
Customs with sufficient supporting documentation for the 
Reconciliation; if the filer is habitually delinquent in the payment of 
bills from Customs; or if the filer otherwise fails to follow the 
procedures outlined herein, or applicable laws and regulations, then 
the filer may be

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expelled from the program, and/or may be prevented from participation 
in future Reconciliation prototypes, and/or may be subject to 
penalties.
    Any decision revoking participation may be appealed to the Director 
of Trade Compliance, within 15 days of the decision date.

III. Test Evaluation Criteria

    Once participants are selected, Customs will review all public 
comments received concerning any aspect of the test program or 
procedures, answer any questions in light of those comments, and 
establish baseline measures and evaluation methods and criteria. 
Interim evaluations of the prototype will be published on the Customs 
Electronic Bulletin Board, and the results of the final prototype 
evaluation will be published in the Federal Register as required by 19 
CFR 101.9(b). The following evaluation methods and criteria have been 
suggested:

1. Baseline measurements to be established through dataqueries and 
questionnaires
2. Reports to be run through use of dataquery throughout the prototype
3. Questionnaires from both trade participants and Customs to be used 
before, during and after the prototype period.

    Customs may assess any or all of the following evaluation criteria:

1. Workload impact (workload shifts/volume, cycle times, etc.)
2. Cost savings (staff, interest, issuance of fewer checks or bills, 
tracking refunds/bills, reduction in contingent liabilities, etc.)
3. Policy and procedure accommodation
4. Trade compliance impact
5. Problem resolution
6. System efficiency
7. Operational efficiency
8. Other issues identified by the participant group.

    Customs will request that test participants be active in the 
evaluation, identifying costs and savings experienced in this 
prototype.

    Dated: January 31, 1997.
Robert S. Trotter,
Acting Assistant Commissioner, Office of Field Operations.
[FR Doc. 97-2977 Filed 2-5-97; 8:45 am]
BILLING CODE 4820-02-P
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