CBP General Notice States that "Latent Defects" Are Not Eligible for Reconciliation
U.S. Customs and Border Protection (CBP) has issued a general notice which states that entry summaries cannot be flagged for Reconciliation to account for latent manufacturing defects discovered after importation.
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Reconciliation procedures can be used for defects known at time of importation. CBP states that under 19 CFR 158.12 (Merchandise partially damaged at time of importation), importers may request an allowance in value for merchandise found by the port director to be partially damaged at the time of importation. For example, if the port director finds that the imported merchandise contains defective zippers, an allowance in value may be granted to the extent of the defect.
According to CBP, Reconciliation is an acceptable method of reporting the change in value if it is known at the time of importation that the merchandise at issue is defective but the extent of the defect is not known. In the above example, if the importer does not have sufficient information to determine the extent of the known defect when the entry is filed (e.g. because it is not yet known whether the zippers can be repaired, and if so, the cost of such repairs), the entry can be flagged for Reconciliation. CBP states that the importer can file a Reconciliation entry once the extent of the known defect is established.
Reconciliation procedures cannot be used for latent defects (i.e., discovered after importation). CBP states that some importers have requested an allowance in value under 19 CFR 158.12 for imported merchandise that allegedly contains a latent manufacturing defect.
(A latent manufacturing defect is a defect that exists at the time of manufacture, and thus at the time of importation, but is invisible, hidden, or concealed. The defect is not discovered until some time later (in many cases, long after importation), usually when a consumer requests a repair under a consumer warranty pertaining to the imported article. The importer's claim for a defective merchandise allowance is generally based on the costs of the warranty repairs.)
CBP notes that recently, some of these importers have flagged entry summaries for Reconciliation on the issue of latent manufacturing defects so that information may be submitted after any latent defects are revealed (for example, information regarding the nature of the latent defects, the identity of the defective merchandise, and the extent of the defects based on warranty repair costs or other data). CBP states that the question has arisen as to whether these types of claims are value issues eligible for Reconciliation.
CBP states that its general notice clarifies that it does not consider claims for latent defects value issues eligible for Reconciliation and will not accept Reconciliation entries based on such claims.
Because the importer does not know that a latent defect in the merchandise exists at the time of entry summary, the importer cannot flag the entry summary for later resolution through Reconciliation.
(CBP notes that although Reconciliation does not cover latent defects, Reconciliation does cover the following issues: (1) value issues other than claims based on latent manufacturing defects; (2) classification issues, on a limited basis; (3) issues concerning value aspects of entries filed under heading 9802, Harmonized Tariff Schedule of the United States (HTSUS; 9802 issues); and (4) post-entry claims under 19 U.S.C. 1520(d) for the benefits of the North American Free Trade Agreement (NAFTA) or the United States-Chile Free Trade Agreement (US-CFTA) for merchandise as to which such claims were not made at the time of entry.)
Whether latent defect claims fall within scope of 19 CFR 158.12 is still under court review. CBP notes that the issue of whether these latent defect claims fall within the scope of 19 CFR 158.12, and if so, the evidence needed to support these claims, is still under review by the courts. CBP notes that there have been several preliminary court rulings on the subject, but several cases addressing these issues are still pending at the Court of International Trade and the Court of Appeals for the Federal Circuit (Volkswagen of America, Inc. v. United States and Saab Cars USA Inc. v. United States). CBP states that regardless of the final outcome of the court cases, the Reconciliation procedure cannot be used with regard to latent defect claims made pursuant to 19 CFR 158.12 or any other provision.
Other aspects of ACS Reconciliation prototype test. According to CBP, all other aspects of its Automated Commercial System (ACS) Reconciliation prototype test remain the same as set forth in previously published Federal Register notices. CBP notes that the testing period of the Reconciliation test was extended indefinitely starting October 1, 2000 and that applications to participate will be accepted throughout the duration of the test.
Richard Wallio (202) 344-2556 |
Marla Bianchetta (202) 344-2693 |
CBP notice (FR Pub 08/11/05) available at http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-15904.pdf.