M E M O R A N D U M
TO:	Clients and Friends of the Firm
FROM:	Neville Peterson LLP
RE:	Customs Proposes Overhaul of Regulations Governing Issuance of Rulings

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I. INTRODUCTION

     The United States Customs Service has proposed a comprehensive overhaul of its regulations [19 C.F.R. Part 177] dealing with the issuance of binding rulings. The agency is seeking public comments on its proposal through September 17, 2001.

This Memorandum describes Customs' proposal, and suggests topics for comment by interested members of the trade community.

II. OVERVIEW

     Customs' binding rulings program is perhaps the most extensive such program administered by any Federal agency. Customs issues approximately 12,000 rulings each year. These include pre-importation rulings concerning prospective transactions, "internal advice" rulings regarding current or completed transactions, and protest review decisions involving completed transactions which are the subject of Customs liquidations and subsequent protests. Procedures pertaining to these type of rulings appear at current 19 C.F.R. Part 177 (with additional provisions relating to protest review decisions codified at 19 C.F.R. Part 174).

     Customs also issues rulings concerning the country of origin of products for purposes of government procurement under the Trade Agreements Act of 1979, pursuant to procedures set out in 19 C.F.R. Part 177, Subpart B.

     Section 625 of the Tariff Act of 1930, as amended [19 U.S.C. Section 1625] requires Customs to furnish advance notice and opportunity for public comment, prior to revoking or modifying certain rulings. In addition, the law requires Customs to publish or otherwise make available most rulings within a fixed time after they are issued.

     Recently, in United States v. Mead Corporation (June 16, 2001), the United States Supreme Court determined that reviewing courts are not required to give binding deference to the legal analysis contained in Customs rulings. However, such rulings are entitled to judicial "respect" based upon the thoroughness of their reasoning, and their power to persuade.

III. ANALYSIS

Overview of Proposed Regulatory Reorganization

      Customs proposes to reorganize 19 C.F.R. Part 177 from its current two subparts into five (5) subparts as follows:

Subpart A	General Provisions
Subpart B	Advice on Prospective Transactions
Subpart C	Internal Advice Procedure
Subpart D	Disclosure of Confidential Business Information
Subpart E	Country of Origin Rulings for Government Procurement

     Customs proposes to limit the issuance of rulings in such a way as to limit each party seeking a ruling to "two bites of the apple". Importers dissatisfied with a ruling issued by Customs regarding a prospective transaction may appeal such ruling to Customs Headquarters. Similarly, an importer receiving an adverse "internal advice" decision may appeal that decision. However, an importer may not seek both a prospective ruling and an internal advice decision, nor may it pursue either of these types of rulings and a protest review decision as well.

     Customs also proposes to eliminate its regulatory doctrine of "detrimental reliance", which allows importers to delay the application of ruling changes to their transactions, based upon a demonstration that they relied to their detriment on prior Customs rulings.

     Customs also proposes to create a procedure which would allow for the issuance of "Customs - initiated prospective rulings" - that is, the issuance of rulings by Customs in cases where no ruling has been requested by any member of the trade community. In most, but not all cases, private parties involved in such Customs "self-initiated" decisions would be afforded a 30-day period to present written views to Customs before the issuance of a ruling.

A. General Provisions [Proposed 19 C.F.R. Subpart A]

     Subpart A of the proposed revised 19 C.F.R. Part 177 would establish definitions of various terms associated with Customs' ruling processes.

     In particular, the proposed regulations would allow rulings to be sought only by the importer or by its "authorized agent", which would be limited to attorneys at law and licensed Customs brokers. Customs has determined that, in the majority of cases, the issuance of rulings will involve matters falling within the definition of "Customs business" and should be left "to those classes of persons who are specially qualified (for attorneys by virtue of admission to the bar and for Customs brokers by virtue of being licensed to conduct Customs business. . .) to make those requests and representations.

     In certain cases - for example, rulings involving marine transactions - additional "authorized agents" would be recognized.

B. Advice on Prospective Transactions [19 C.F.R. Part 177, Subpart B]

     Proposed new Subpart B to [19 C.F.R. Part 177] would modify requirements pertaining to requests for rulings concerning prospective transactions.

     The proposed regulation would formally require that all request be submitted in the English language. In addition, the requirement to identify the port where the prospective transaction will take place has been removed, on the ground that it is burdensome and irrelevant. Furthermore, the regulations would provide that samples submitted with ruling requests will be returned only at the specific request of the person seeking the ruling, and at the requester's cost.

     Interestingly, the requirement that a ruling request indicate whether there have been prior or current transactions involving the same subject matter has been revised to require submission of the statement in the form of a signed certification. This suggests that if a false or incorrect certification is submitted, Customs may consider some form of penalty action against the submitter.

     In addition, importers would need to make a specific request for a conference in cases where the issuance of an adverse ruling is contemplated.

     Under the proposed revision, conferences relating to a ruling would only be conducted at Customs' Headquarters Office, and only in connection with rulings to be issued by that office. In the event that a ruling request is made to Customs' National Commodity Specialist Staff in New York, and an adverse ruling contemplated, and the matter cannot be resolved informally by the ruling request or in that office, the request will be forwarded to Customs Headquarters for processing. In effect, the proposed regulation would seal off Customs National Commodity Specialist Staff from any formal interaction with the ruling-seeking public.

      In addition, only an "authorized agent" may represent a requester at such a conference. [Of course, the requester may always represent itself].

     The new regulations would also require that all withdrawals of ruling request be sought in writing. However, Customs reserves the right to "issue a ruling on the matter on its own initiative notwithstanding the withdrawal, if it is believed necessary for the sound administration of the Customs and related laws."

     One welcome change involves a clarification concerning the effective date of rulings modified pursuant to 19 U.S.C. Section 1625. Currently, these rulings are effective 60 days after their publication in the Customs Bulletin. The proposed regulations would clarify that Customs may make the new position effective earlier, at the request of the importer— for example, in cases where the proposed modification is favorable to the importer. This will minimize the need for the importer to file protests and associated requests for reliquidation of entries.

     Another controversial aspect of the proposed regulatory change involves the issuance by Customs of rulings which have the effect of modifying or revoking "the treatment previously accorded by Customs to substantially identical transactions." Importers whose transactions will be affected by a revocation or modification are generally entitled to a delayed effective date of any such change of treatment. However, under Customs' proposed regulation, the mere liquidation of entries in a particular way will not be considered a "treatment" of the importer's transactions. According to Customs, this proposal "is intended to reflect present Customs reality, that is, the fact that under selectivity and bypass and related procedures, Customs simply does not intervene in the vast majority of approximately 18 million formal entries filed annually (98% of which have been filed electronically and over 60% of which do not require the presentation of invoices to Customs). Customs believes that it would be inappropriate to conclude, as a legal matter, that Customs accorded treatment to a transaction in those circumstances." Customs believes that some additional interaction of the agency with an importer must be shown in order to establish the existence of a "practice".

C. Internal Advice Procedures [19 C.F.R. Part 177, Subpart C]

     Customs is proposing a substantial overhaul of its procedures regarding requests for "internal advice" rulings in cases involving current or completed transactions.

     Under the proposal, requests for internal advice from Customs Headquarters may be initiated by Customs port officers. Under Customs' proposal, in these cases, the importer involved in the transaction will be given 30 days to make a written submission on the issue which is the subject of the internal advice.

     In addition, importers may request that Customs port officers seek internal advice from Customs Headquarters. However, the decision to seek internal advice "is solely at the discretion of the Customs office and will be made in writing within 30 days".

     One particularly disturbing proposal would impose a general requirement that Customs officers seek internal advice when they learn that "two or more Customs offices are applying different tariff results to the same merchandise." It would also provide "that an importer of merchandise, as a function of the exercise of reasonable care, has an obligation to inform Customs when he files his entry if he knows that a 'different' situation regarding his importations" obtains at another port. In other words, an importer has an obligation to tell one Customs office what other Customs offices are doing, and risk a penalty for failure to exercise "reasonable care" if it fails to do so.

D. Disclosure of Confidential Business Information [19 C.F.R. Subpart D]

     This proposed change would require importers to seek confidential treatment for proprietary information appearing in ruling requests at the time the request is submitted. If an importer fails to seek confidential treatment at the time the request is submitted, it may not thereafter seek such treatment.

     Furthermore, in the event that Customs and the importer cannot reach agreement regarding the treatment of information claimed to be confidential, Customs will either close the ruling file, or — if the confidential treatment appeared on a supplemental submission — issue a ruling on the basis of the information submitted, without regard to the supplemental submission in which the confidential data appeared.

E. Government Procurement Country of Origin Determinations [19 C.F.R. Subpart E]

     Current 19 C.F.R. Part 177, Subpart B, relating to the issuance of country of origin determinations for government procurement purposes, would be renumbered as Subpart E, but otherwise unchanged.

IV. CONCLUSION

     Customs' proposals appear aimed at providing increased order the Customs ruling process, as well as reducing the number of instances to which rulings are issued. However, the proposal would cut back on importers' procedural and substantive rights in certain cases, and would increase importers' exposure to potential penalties for ruling related matters.

     Given the importance of Customs' ruling procedures, the changes could have substantial impact on your company's operations.

     Public comments regarding proposed regulatory changes are due on September 17, 2001. Our firm stands ready to furnish any additional information or assistance that interested parties may require in preparing and submitting such comments.

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