Consumer Electronics Daily was a Warren News publication.

CBP's Revised FAQ on IIT with Residue (Reasonable Care, Enforcement, Etc.) - Full Details

December 14, 2010 by Marie Rapport|Top News

U.S. Customs and Border Protection has posted a revised version of its May 2010 frequently asked questions document regarding containers considered to be instruments of international traffic (IIT) that are imported into the U.S. with residue of bulk products.

This is the final BP summary of the November 16, 2010 revisions to the FAQs, and largely transcribes the four new FAQs (4, 6, 7, and 9) and the expanded FAQs (2 and 5). A number of FAQs that were not revised were renumbered.

(See ITT’s Online Archives or 12/10/10 news, 10121022, for BP summary providing key highlights of the revised FAQ. See ITT's Online Archives or 05/10/10 news, 10120902, for BP summary announcing its availability. (In July 2009, CBP published HQ H026715 in the Customs Bulletin, to require chemical residue imported in containers be classified, entered, and manifested, while the containers themselves continue to be considered IIT. CBP then delayed enforcement of these requirements for chemical and other bulk product residue until further notice, and encouraged importers to take steps to comply with this requirement at their earliest opportunity.)

CBP is Still in Delayed Enforcement Mode, No Timeline for “Full Enforcement”

According to CBP sources, CBP remains in the delayed enforcement mode, with no timeline yet for full enforcement. Sources state that CBP is still working with the trucking associations and the rail carriers on a few unresolved issues.

(Note that amended FAQ 5 and new FAQ 6 cover topics that touch upon enforcement, such as manifested shortages and overages warranting enforcement action, and reasonable care regarding baseline measures for “heel” residue in returning tanks (as well as spot inspections and post entry audits). New FAQ 7 covers how to determine value within the context of reasonable care, and amended FAQ 2 mentions enforcement purposes. See below for details.)

Expanded FAQ 2

Manifesting and Entering an Arriving IIT with Residue

This FAQ answers the question of how an IIT, arriving from foreign with residue, is manifested, classified, and entered. Three new paragraphs have been added to this FAQ, and one paragraph has been modified, as follows:

Other agency requirements. Commodities imported as residue may be subject to other Federal agency license, permit, and/or restriction (e.g., Department of Transportation, Environmental Protection Agency Toxic Substances Control Act, Food and Drug Administration Prior Notice). Nothing in this document is intended to waive other Federal, state, or local agency requirements for the importation or transportation of residue cargo.

Port option to require formal entry. Pursuant to the CBP regulations at 19 CFR 143.22, the port director may require a formal consumption or appraisement entry for any merchandise if deemed necessary for import admissibility enforcement purposes, revenue protection, or the efficient conduct of Customs business.

Info needed if no entry required. The following information is required for merchandise that qualifies for release without entry (19 USC 1321; 19 CFR 143.23). In addition to this information, a valid type 3A bond in the name of the entity requesting release is required for IIT containing residue. The information needed is:

Bonds, classification. Added language states that CBP bond type 3A must be in the name of the entity requesting release, and two lines are required for informal and formal entry types (one using 9801.00.10 or 9803.0.50 for the IIT, and the other using the correct classification of the chemicals with the correct value).

New FAQ 4

CBP has added a FAQ on determining which party should file the CBP entry. Under the following scenarios, CBP asks who is the party that should be filing the CBP entry -- (1) Is it the nonresident exporter who owns the product that was not discharged; (2) is it the U.S. producer/exporter, who may not have any right to make entry based on the terms of the original sale, and who may not be able to verify that the residue is in fact, originally theirs; or (3) is it the carrier who owns the tank/container?

Five Importer Scenarios

CBP considers five importer scenarios and provides general comments, then specific comments on each of the five, as follows:

General Comments on the Carrier or Others as “Importer of Record”

CBP states that in situations where the interest is only in the return of the conveyance with residue and contract of carriage is structured to reflect the carrier as the consignee, and the consignee declares himself to be the owner of the residue, then the carrier may be considered the importer or record.

Appointing broker as “importer of record.” If the ownership of the residue does not vest with the carrier then as the consignee the carrier may appoint a broker to act as importer of record.

Parties must determine who is responsible for entering residue. CBP expects the parties to the transaction to determine who will be responsible for entering the residue product when the IIT is returned to the United States.

Structuring contracts to establish ownership. CBP has delayed enforcing existing statutes and regulations in order for parties structuring purchase and transportation contracts for international shipments to include provisions establishing ownership of residue and identifying the party responsible for filing entry as required by CBP regulations at 19 CFR 141.2.

Specific Comments on Five Importer Scenarios

CBP states it will attempt to address the particulars of the scenarios described below; however, the answers provided are for general guidance only as the potential variations on these scenarios are numerous and often complex:

Scenario 1 -- A U.S. company exports bulk product in its own tank truck or rail to a customer in Canada or Mexico as part of ongoing repetitive transactions. The product is pumped from the conveyance for delivery to the customer; residue “tank heel” remains and the conveyance is returned in each instance to the U.S. company for refilling. How can the U.S. company be the importer of record for the remaining tank heel even though the U.S. company does not own the returning goods (i.e., the company does not have a financial interest in the goods).

CBP states that given the situation described, the U.S. company should, as part of its established contractual transportation arrangements for its tank truck or rail car, provide CBP with the requisite information on the estimated amount of residue “tank heel” remaining. If internal controls do not exist to determine the amount of product delivered to the customer or potentially returned as “tank heel,’ the trade should utilize the delayed enforcement period to establish those systems to ensure adherence to all applicable entry and other agency safety requirements. Additionally, the US company should have added a clause to its sales contract setting forth the ownership of the expected “tank heel.”

Scenario 2 -- Same scenario as Scenario 1 except the tank container is leased by the U.S. company from a third party. Who is the importer of record?

With the exception of the 3rd party lessor, CBP states that there is no difference in the contractual transportation arrangements, so the U.S. company should, as part of the conveyance return process for its tank truck or rail car, provide CBP with the requisite information on the estimated amount of residue “tank heel” remaining. If internal controls do not exist to determine the amount of product delivered to the customer or potentially returned as “tank heel’, the trade should utilize the delayed enforcement period to establish those systems to ensure adherence to all applicable entry and other agency safety requirements.

Scenario 3 -- Same scenario as Scenario 1 except there is no repetitive transactions just a one-time export. After the product is delivered to the customer, residue remains and the conveyance returns to the U.S. for cleaning and use by another U.S. company either for export or domestic transaction. Who is the importer of record?

As noted above, CBP states that the company arranging for the return of the conveyance should ensure that all parties to the transaction understand the requirements for reporting residue to CBP as the conveyance return is dependent upon the accurate reporting of the residue.

Scenario 4 -- Who is the importer of record when the consignee is in a foreign country but the customer is in the U.S.?

According to CBP, this scenario requires clarification in terms of how and where the conveyance may be moving.

Scenario 5 -- A U.S. company exports goods via tank truck or rail to a customer in Canada or Mexico. There are repeat transactions. The product is delivered to the customer and the container is washed in Canada or Mexico.

Assuming that the conveyance is to be returned to the U.S. and that the washing process has removed the residue, then the IIT process is operative, according to CBP.

Expanded FAQ 5

Guidelines for Declaring Estimated Quantities

FAQ 5 has been expanded from one to six paragraphs, adding specific information on how importers can estimate the amount of residual goods, since the exact amount may not be known at the time of advance cargo information. The five new paragraphs are as follows:

The statutory language at 19 USC 1494 reads, “In all cases in which the invoice or entry does not state the weight, quantity, or measure of the merchandise, the expense of ascertaining the same shall be collected from the importer of record before its release from customs custody.”

Estimating allowed if residuals not above certain levels. CBP will allow carriers to declare estimated quantities consistent with industry standards that identify residual amounts not greater than 3% of the maximum capacity for IIT transported by truck and 7% of the maximum capacity for IIT transported by rail as acceptable based on the established transportation tariff rates.

The estimated quantity must be calculated based on the maximum capacity for the IIT. For example, a rail tank car may have a maximum capacity of 30,000 gallons. 7% of 30,000 gallons is 2,100 gallons. Therefore, the rail tank car could have 2,100 gallons of residual cargo, and it would fall within CBP’s threshold of residual cargo that should be manifested, classified, and entered in accordance with statutes and regulations enforced by CBP.

Shortages or overages. In instances where a shortage or overage of the manifested amount is detected, CBP will not initiate enforcement actions against the carrier when the verified quantity is less than the threshold amount of 3% (truck) and 7% (rail) unless the Port Director has identified other circumstances warranting enforcement action.

In instances where an overage of the manifested amount is detected, CBP will initiate enforcement actions against the carrier when the verified quantity is more than the threshold amount of 3% (truck) or 7% (rail) (such as when the IIT is manifested as empty but in fact has residue, or when any other regulation or ruling has been violated).

Existing CBP rulings & value. Nothing in this policy supersedes existing CBP rulings that have been issued to either the importer or entry filer covering imported commodities. The value must be provided and must be based on existing statutes and regulations as discussed in FAQ 7 of this document. Once the value has been determined as discussed in FAQ 7, a determination should be made as to which release should be sought from CBP as discussed in FAQ 2.

New FAQ 6

Documented Baseline Measures for Heel in Returning Tanks

A new FAQ has been added on CBP’s enforcement posture regarding current industry practice and measurement techniques for “heel” residue remaining in a tank after unloading, as follows:

Q. CBP states that current industry practice and measurement techniques have not been designed to measure “heel” residue remaining in a tank after unloading and, therefore, may be less than accurate when attempting to gauge such small quantities. How will CBP determine its enforcement posture when reviewing these transactions?

A. CBP has provided additional time to the statutory implementation date (pursuant to 19 USC 1625) for the ruling of September 16, 2009 in order for industry to readjust and modify its practices and procedures. CBP is aware that industry, in order to accurately track product movement and order fulfillment, utilizes such tools as mechanical displacement meter provers to calibrate the accuracy and performance of meters that measure the quantity of product being pumped or transferred at facilities such as drilling locations, refineries, tank farms and loading racks.

CBP believes that industry should utilize the readjustment time period to develop documented baseline measures for “heel” residue (in the respective modes utilized) which can serve as “reasonable care” measures when declaring “heel” in returning tanks.

CBP will conduct compliance checks by means of spot inspections and post entry audits.

CBP will exercise restraint when reviewing the declared “heel” amounts for accuracy and compliance with the 1% manifest discrepancy rule.

New FAQ 7

Value of Residue

A new FAQ on determining value states that:

Q. How does the importer determine value?

A. Under 19 U.S.C. 1484(a)(1)(B), the importer of record is required, using reasonable care, to complete the entry by filing with CBP the declared value, classification and rate of duty applicable to the merchandise.

The importer of record must use the value as determined in accordance with section 402, Tariff Act of 1930 (19 U.S.C. 1401a), as amended by the Trade Agreements Act of 1979 (TAA). Transaction value would not apply, because presumably the residue would not have been “sold for exportation to the United States.”

As transaction value has been eliminated as the basis of appraisement, the customs value will be determined by applying the next available appraisement method. The remaining methods, in order, are (1) transaction value of identical or similar merchandise, (2) deductive value, (3) computed value, and the (4) fallback method.

Basically, if a method seems to be reasonable, it will be allowed.

For example, CBP ruled in H019073, dated November 2, 2007, that the cost of disposal of imported contaminated soil was the customs value under the fallback method. This might be helpful in situations in which the residue is removed from the container after importation for disposal. In 548247, dated March 10, 2003, CBP appraised imported scrap metal under the fallback method on the basis of the market price for identical or similar scrap metal. There is no “one-size-fits-all” answer as to how returning residue should be valued. But based on the above, there are a number of options, depending on the scenario.

New FAQ 9

CBP also covers the topic of an IIT container that is cleaned prior to its return to the U.S. as follows:

Container Cleaned Prior to its Return

Q. If the container is cleaned prior to return to the United States will CBP demand proof of the cleaning as a condition of release for an Instrument of International Traffic?

A. As the entity requesting release is required to post a bond under 19 CFR 10.41a(c) and 19 CFR 113.66 for the movement of the IIT, CBP will not require proof of container cleaning as a condition of release for an IIT.