CBP Issues Final Rule on Prototypes under HTS 9817.85.01
U.S. Customs and Border Protection (CBP) has issued a final rule, effective December 2, 2004, which adds a new 19 CFR 10.91 to the Customs regulations in order to establish regulatory procedures and requirements pursuant to the Product Development and Testing Act of 2000 (PDTA), regarding the duty-free entry of articles, commonly referred to as prototypes (for any industry), that are to be used exclusively in product development, testing, evaluation or quality control.
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According to CBP, these final regulations set forth the procedures for both the identification of those prototypes properly entitled to duty-free entry, as well as the permissible sale of such prototypes, following use in the U.S., as scrap, waste, or for recycling.
(The PDTA, enacted on November 9, 2000, as part of the 2000 Tariff Suspension and Trade Act, resulted in a new HTS subheading 9817.85.01 to provide duty-free entry of prototype articles as defined in a new U.S. Note 6 in Chapter 98, Subchapter XVII.)
Highlights of the Final Rule
Duty-free entry for "prototypes." Under new 19 CFR 10.91, articles defined as prototypes'' which meet the requirements of this section may be entered or withdrawn from warehouse for consumption, duty-free, under HTS 9817.85.01, on CBP Form 7501 or an electronic equivalent. A separate entry or withdrawal must be made for a qualifying prototype article each time the article is imported/reimported to the United States.
Importer declaration. The entry or withdrawal from warehouse for consumption under HTS 9817.85.01 may be accepted by the port director as an effective declaration that the articles will be used solely for the purposes stated in the subheading.
Proof (declaration) of actual use. If it is believed the circumstances so warrant, the port director may request the submission of proof of actual use, executed and dated by the importer. The title of the party executing the proof of actual use must also be set forth.
If proof of actual use is requested, the importer must provide it within three years after the date the article is entered or withdrawn from warehouse for consumption.
Liquidation of the related entry may be extended until the requested proof or declaration of actual use is received or until the three-year period from the date of entry allowed for the receipt of such proof has expired. While the requested proof of use must be given to CBP within three years of the date of entry, the prototype may continue to be used thereafter for the purposes enumerated in HTS 9817.85.01. If the requested proof of use is not timely received, the entry will be liquidated as dutiable under the tariff provision that would otherwise apply to the imported article. (See notice for information that must be included in the proof or declaration of actual use.)
Restrictions on articles that may be classified as prototypes. In accordance with U.S. Note 6(b) and (c) to HTS Chapter 98, Subchapter XVII, a number of additional restrictions apply to articles that may be classified as prototypes: (i) importations may only be in limited noncommercial quantities, (ii) sale is prohibited after entry and prior to use; (iii) articles excluded from being prototypes include those that are subject to quantitative restrictions, antidumping (AD) or countervailing (CV) duty orders; etc.
Sale of prototype following use. Prototypes or any part(s) of prototypes, after having been used for the purposes for which they were entered or withdrawn under HTS 9817.85.01, may only be sold as scrap, waste, or for recycling.
In addition, the CBP port director where the entry or withdrawal of the prototype was made, must be notified of the sale, with blanket notices allowed for sales that occur over a quarterly (3-month) calendar period. Moreover, duty must be tendered with this notice if an article sold is dutiable.
Prototypes not sold following use. As to those prototypes or parts of prototypes that, after having been used as prescribed under HTS 9817.85.01, are disposed of otherwise than by sale, there is no requirement that the importer notify CBP of any such alternative disposition. Nor are there any dutiable consequences.
(See final rule for details of the above provisions and for recordkeeping requirements regarding the declaration of actual use, as well as the relevant value to be used for the prototype (market value, based on the prototype's condition following use for purposes of HTS 9817.85.01, which will generally be measured by its selling price.)
Also, note that this final rule reflects a number of changes from the proposed rule, which are identified in the Discussion of Comments section.)
(See ITT's Online Archives or 03/12/02 news, 02031220 for BP summary of proposed rule.
See ITT's Online Archives or 01/02/01, 06/28/04, and 09/10/04 news, 00122925, 04062830 and 04091015 for BP summaries of CBP's interim procedures on prototypes.)
CBP final rule (CBP Dec. 04-36, FR Pub 11/02/04), available at http://a257.g.akamaitech.net/7/257/2422/06jun20041800/edocket.access.gpo.gov/2004/pdf/04-24326.pdf