Customs Ruling HQ 226411 - Internal Advice Request on bond calculation concerning merchandise processing fees (MPF) on "free" rates of duty; TIBs with a "free" rate of duty; 19 C.F.R. §10.31(f); T.D. 95-22; 19 U.S.C. §58c(g)(2); Customs Directive No. 099 3510-004 (old number: 3510-04), issued July 23, 1991, entitled "Monetary Guidelines for Setting Bond Amounts"

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HQ 226411
Mar 19, 1996

Type : Bonds • HTSUS :
Related: 226034

BON-2/CON-9-RR:IT:EC 226411 JRS

Emery W. Ingalls
Port Director of Customs
312 Fore Street
Portland, ME 04101

RE: Internal Advice Request on bond calculation concerning merchandise processing fees (MPF) on "free" rates of duty; TIBs with a "free" rate of duty; 19 C.F.R. §10.31(f); T.D. 95-22; 19 U.S.C. §58c(g)(2); Customs Directive No. 099 3510-004 (old number: 3510-04), issued July 23, 1991, entitled "Monetary Guidelines for Setting Bond Amounts"

Dear Sir:

This is in response to your internal advice request dated August 28, 1995 (FILE: CLA-2-CV: I G), which we received on September 11, 1995, regarding the apparent conflict between the bond charge determination for calculating the TIB bond amount for duty-free entries with respect to the merchandise processing fee (MPF) as set forth in the above-referenced Customs Directive and the recently amended Customs Regulation, 19 C.F.R. §10.31(f)(see T.D. 95-22, effective April 19, 1995). Our advice follows.

FACTS: No facts were presented. However, the following example was given:

A number of aircraft have been entered on a TIB to have work completed on them. In addition, they are entered under the duty-free civil aircraft provision. One TIB currently on file is XXX NNNNNNN-N covering an aircraft with an entered value of $2,500,000. Guided by the 1991 Customs Directive and the $485 MPF maximum cap on "an ordinary consumption entry", the broker showed a bond charge of $485. Under the 19 CFR (Customs Regulations) this entry would have had to have a bond charge of $970. A bond charge of $10,500 calculated at 200% MPF with no maximum would be more appropriate for the value of the merchandise*.1 [*The port calculates the $10,500 bond charge by the following formula: $2,500,000 (value of the merchandise) multiplied by 0.0021 (0.21% ad valorem) is $5,250 (Merchandise Processing Fee (MPF)). $5,250 times 200% (double the MPF) equals $10,500.]

It is the port’s opinion with regard to entries with a "free" rate of duty that the "one times the MPF" in the 1991 Customs Directive No. 099 3510-004 should be disregarded in favor of either the 110% or 200% of the MPF, as appropriate, in the amended 19 C.F.R. §10.31(f). The port’s position is also that the $485 maximum MPF collectible should be disregarded in calculating bond charges since the $25 minimum MPF was disregarded in the Customs Directive (i.e.,"MPF or $100, whichever is greater") and because it results in bond charges greatly out of proportion with the value of the merchandise (that is, the revenue is not protected). The import specialist at the port interprets the amended regulation (19 C.F.R. §10.31(f)) as permitting the use of a straight 0.21% ad valorem MPF against the entered value of the merchandise. The port believes a $10,500 bond charge in the aircraft example is the appropriate amount rather than either $970 or $485. The port is concerned that with more free rates of duty being implemented as a result of free trade agreements and special trade programs on high-valued merchandise, bond charges on TIBs should be set at an appropriate level.

ISSUE:

What is the proper calculation to use in determining the bond on TIB entries with a "free" rate of duty?

LAW AND ANALYSIS:

At the outset, we will review verbatim the relevant sections of the Customs Regulations and Customs Directive No. 099 3510-004 (1991) to determine if there are any differences.

Section 10.31(f) of the Customs Regulations (CR), (19 C.F.R. §10.31(f)), provides, in pertinent part:

With the exceptions stated herein, a bond shall be given on Customs Form 301, containing the bond conditions set forth in §113.62 of this chapter, in an amount equal to double the duties, including fees, which it is estimated would accrue (or such larger amount as the district director shall state in writing or by the electronic equivalent to the entrant is necessary to protect the revenue) had all the articles covered by the entry been entered under an ordinary consumption entry. In the case of samples solely for use in taking orders entered under subheading 9813.00.20, HTSUS, motion-picture advertising films entered under subheading 9813.00.25, HTSUS, and professional equipment, tools of trade and repair components for such equipment or tools entered under subheading 9813.00.50, HTSUS, the bond required to be given shall be in an amount equal to 110 percent of the estimated duties, including fees, determined at the time of entry. (Emphasis ours.)

Section 113.13(a) of the Customs Regulations (CR), (19 C.F.R. §113.13(a)), reads as follows:

(a) Minimum amount of bond. The amount of any Customs bond shall not be less than $100, except when the law or regulation expressly provides that a lesser amount may be taken. Fractional parts of a dollar shall be disregarded in computing the amount of a bond. The bond always shall be stated as the next highest dollar.

In the Attachment to Customs Directive No. 099 3510-004, issued July 23, 1991, entitled "Monetary Guidelines for Setting Bond Amounts," on Activity Code 1 Bonds, the following guidelines appear on page 4, under paragraph (d):

When the bond is for a temporary importation, the bond limit of liability amount shall be fixed in an amount the district director may deem necessary to protect the revenue, but not less than an amount equal to double the duties which it is estimated would accrue had all the articles covered by the entry been entered under an ordinary consumption entry. In the case of samples solely for use in taking orders, motion picture advertising films, professional equipment, tools of trade, and repair components for professional equipment and tools of trade, the bond limit of liability amount shall be 110 percent of the estimated duties. Taxes and special duties (for example, IR taxes, antidumping and countervailing duties, etc.) shall be taken into account in all computations. (Emphasis ours.)

If the commodity would otherwise be free of duty, the bond liability amount shall include one times the merchandise processing fee or $100, whichever is greater, if MPF is applicable. (Emphasis ours.) See Customs Directive No. 099 3510-004 at page 4, paragraph d.

Initially, we reject the port’s example of a TIB entry with a "free" rate of duty. The example set forth by the port covers a temporarily free entry of an aircraft under subheading 9813.00.05, HTSUS. The port incorrectly assumes in its example that the aircraft would otherwise be "free" of duty if it was an ordinary consumption entry, stating that it could be entered under the duty-free civil aircraft provision ("Free (C)"). An entry which falls within a special trade program (i.e., "Free (C)") is not considered to be an "ordinary" consumption entry. See HQ 226034, dated February 23, 1996. HQ 226034 is incorporated by reference into this internal advice opinion. Special tariff treatment does not confer a "free" rate of duty under the temporary importation under bond procedures. For example, aircraft entered under Chapter 88 with a Column 1 rate of duty is not "Free," but has a 3 percent rate of duty (1996). Aircraft being entered duty-free under the civil aircraft provision is only "conditionally free." The bond amount should be calculated as if the aircraft were entered using the Column 1 rate of duty for an "ordinary" consumption entry and not the "conditionally free" rate of duty as provided under the special trade program of the Civil Aircraft Agreement. Thus, using the port’s example, the proper TIB bond amount for the aircraft would be $150,970 by doubling the duty applicable (3% x 2 = 6%) by the entered value of the merchandise ($2,500,000) and the applicable MPF ($485 x 2). See 19 C.F.R. §10.31(f).

Focusing on the merchandise processing fee aspect of "free" (or zero dollars) TIB entries, we do not find a conflict between the Customs Directive No. 099 3510-004 and section 113.13(a), CR. Section 113.13(a), CR, states that "any Customs bond shall not be less than $100." The Customs Directive recommends that if the commodity would otherwise be free of duty, the TIB bond liability shall include one times the MPF or $100, whichever is greater. It is clear that the Customs Directive is based upon section 113.13(a), CR, and when read together, it is our interpretation that for a TIB with a "free" rate of duty on an ordinary consumption entry, the minimum bond amount would be set at $100, even if the applicable minimum MPF for an entry was $25.

The "Background" section of T.D. 95-22 makes clear that when a TIB entry is filed, no merchandise processing fees are charged to the importer of record (19 U.S.C. §58c(b)(8)(B)(I)). Nevertheless, in accordance with 19 U.S.C. §58c(g)(2), the term "duties" for TIB bond and liquidated damages assessment under 19 CFR §§10.31(f) and 10.39(d), respectively, also include any applicable merchandise processing fees that otherwise would have been charged on an entry for consumption. (See 19 U.S.C. §58c(b)(8)(A)(I) which provides that a fee charged for the formal entry or release of merchandise may not exceed $485 or be less than $25, unless otherwise adjusted pursuant to subsection (a)(9)(B) of 19 U.S.C. §58c.) It is not clear that merchandise processing fees were included in the definition of "duties" when Customs Directive No. 099 3510-004 of July 23, 1991, superseded Customs Directive No. 099 3510-003 of January 14, 1991.

With regard to the maximum cap of the MPF (which is $485 per entry), Customs Directive 099 3510-004 at page 4, last paragraph in paragraph (d), appears to conflict with section 10.31(f), CR, since it requires only "one times the MPF or $100". The first paragraph in paragraph (d) of the Customs Directive, however, and subsection (f) of 19 C.F.R. §10.31 both require a TIB bond in an amount not less than either double or 110 percent of the duties which it is estimated would have accrued had all the articles covered by the entry been entered under an ordinary consumption entry. Since MPF are considered "duties," it would be inconsistent to add the MPF only once to a "free" (or zero dollar) rate of duty for TIB entries. We conclude that the last paragraph in paragraph (d) of Customs Directive 099 3510-004, which requires "one times the MPF" be disregarded in favor of the 1995 amendment of 19 C.F.R. §10.31(f), which explicitly mentions MPF as "duties" subjected to either the 200 percent (double) or 110% percent of the estimated duties. The first paragraph in paragraph (d) in CD 099 3510-004 is consistent with the amended section 10.31(f), but as stated above, it was unclear whether Customs Directive No. 099 3510-004 of July 23, 1991, was drafted to include the MPF as "duties." The $485 maximum MPF collectible must not be disregarded in calculating bond charges, as the port suggests, but it is nonetheless subject to doubling.

As pointed out in the "Analysis of Comments" section of T.D. 95-22 (see 60 FR 14630, March 20, 1995), the amendment of section 10.31(f) of the Customs Regulations does not give Customs excessively broad discretion in deciding the bond amount. The provisions of section 10.31(f) give the port director discretion to require a bond in sufficient size to protect the revenue. The Customs port directors always have the discretion to increase a bond amount if it is insufficient to protect the revenue. As a condition precedent to requiring a larger bond (than either in an amount equal to double the estimated duties, including fees, or in an amount equal to 110% of the estimated duties, including fees), the port director must notify the entrant, in writing or by equivalent electronic notification, of the increase. The language of the regulation does not permit an increase in the bond amount without cause.

HOLDING:

For TIB entries with a "free" (or zero dollar) rate of duty, the proper bond amount is set anywhere between $100 (minimum) and $970 (maximum) pursuant to 19 CFR §§113.13(a) and 10.31(f). This is so because the bond amount is set at either 200 percent (double) or 110 percent of the applicable duties due, as appropriate, inclusive of any merchandise processing fees that would have been assessed if the goods were entered for consumption at the time of entry.

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

Sincerely,

Director, International Trade
Compliance Division