March 19, 2003
Did you know that the Customs Service can order the
recall or "redelivery" of merchandise weeks and sometimes months
after it has been released to your company? Did you know that your company
has agreed to pay Customs one, two, and even three times the value of the
merchandise if it is not returned when demanded?
The Customs Service has a legal obligation to determine
the admissibility of merchandise imported into the United States before it
is released from Customs' custody. As a practical matter, Customs does not
have the resources to timely examine all merchandise at the time of its arrival.
Customs will, therefore, "conditionally" release merchandise prior
to a determination that all legal requirements have been met.
If Customs subsequently determines that the goods
are not admissible as a result of that examination, it will order the redelivery
of the merchandise. The failure to redeliver all of the merchandise within
the time allowed will result in the assessment of liquidated damages. Liquidated
damages are a type of monetary penalty assessed by Customs because of a failure
by an importer or its Customs broker to satisfy one or more conditions of
importation, including the redelivery of merchandise.
Where It All Begins: Import Bonds
As a precondition to importing, an importer must obtain
a general importation and entry bond (there are single-transaction and multi-transaction
bonds available for imports), or post a cash deposit equal to the value of
the merchandise. In almost all cases, an importer will choose to obtain a
general importation and entry bond.
Under the terms of the bond, Customs agrees that it
will release the goods for admission into the United States if the importer
agrees to comply with all of the conditions specified in the general import
bond. The bond acts as security for the performance of the obligations the
importer has agreed to. The conditions of importation that an importer agrees
to are found in Section 113.62 of the Customs Regulations, and include promises
by the importer to redeliver merchandise to Customs in the event a demand
amount of liquidated damages that will be assessed for a breach of a bond
condition varies according to the type of bond condition breached. In general,
if the importer fails to comply with the conditions of the general import
and entry bond, the importer is obligated to pay liquidated damages equal
to the value of the merchandise involved in the default, unless a different
amount is specified in the Customs Regulations. Different amounts are specified
for non-payment of duties and fees, importation of restricted merchandise,
and non-production of documents or records required for entry or admission.
For instance, the amount of liquidated damages specified for the importation
of restricted merchandise is three times the value of merchandise.
On Customs To Demand Redelivery
Section 141.113(g) of the Customs Regulations provides
that a demand for the return of merchandise to Customs' custody shall not
be made after the liquidation of the entry has become final. By law, liquidation
can take up to one year, and can, under certain circumstances, be extended
for another three. (See 19 U.S.C. § 1504.) There is a limit, however, on
the amount of time Customs has to demand redelivery of merchandise. This
limitation is found in Section 113.62(d) of the Customs Regulations, which
reads: "a demand for the redelivery of merchandise can be made no later
than 30 days following the date the merchandise is released from Customs Custody,
or 30 days after the end of the conditional release period, whichever is later."
Section 113.62 has been interpreted to preclude Customs
from enforcing a demand for redelivery that is issued more than 30 days after
the date merchandise is physically released, unless a "conditional release
period" is established. Customs explained in C.S.D. 90-99 that a conditional
release period is the period of time an importer is given to respond to a
formal request for information or production of a sample (for example, a CF 28).
By regulation, a CF 28 must be issued within 30 days of the actual release
of the merchandise. Once a CF 28 is issued, an importer is provided
20 days to submit the sample. If Customs does not received the sample, or
if it is found that the sample is non-compliant, Customs has 30 days from
the date of receipt of the sample to issue the demand for redelivery of the
merchandise. If no sample is provided, Customs must issue the demand for redelivery
within 30 days of the last day to provide the sample.
The conditional release period is not the same in
all instances. For that class of goods known as "restricted merchandise," the conditional release period may be longer. For
textile and textile products, the conditional release period ends 180 days
from the date of release. (See 19 C.F.R. 141.113(b).) In the case of FDA-regulated
products, it can be even longer. In HQ 225807, dated December 4, 1995, Customs
said that the absence of a "may proceed notice" issued by the FDA
prior to the release of the merchandise by Customs was an occurrence establishing
a conditional release period, and that the FDA's subsequent issuance of a
Notice of Refusal of Admission established the end of the conditional release.
Customs then has 30 days from the end of the conditional release period to
issue the notice of redelivery. Of course, the failure to redeliver the restricted
merchandise will result in the issuance of a demand for liquidated damages
equal to three times the value of the restricted goods.
Can You Do If You Receive A Notice Of Redelivery?
Alert importers will not be surprised to receive a
notice of redelivery. Typically, a CF 28 Request for Information or
Production of Sample will precede the Demand for Redelivery. Ignoring the
CF 28 or not taking the opportunity to submit a serious response to the
request will inevitably lead to the issuance of a demand of redelivery and
possibly, a demand for payment of liquidated damages.
If a demand of redelivery is issued, importers should
immediately attempt to prevent the distribution of merchandise that is subject
to the notice of redelivery, or, if possible, to retrieve any merchandise
that has already been distributed.
If it is determined that the demand for redelivery
is unwarranted or untimely, it should be protested. 19 U.S.C. § 1514(a)(4)
allows an importer to file a protest against a demand for redelivery. The
protest, however, must be filed with Customs within 90 days of the date of
issuance of demand for redelivery.
Protesting a notice of redelivery can achieve three
goals. First, it will allow Customs to consider the merits of
the importer's arguments that redelivery is inappropriate; second,
it can forestall the issuance of a demand for payment of liquidated
damages; and third, it can form the basis of judicial review of
the importer's arguments that redelivery is inappropriate. If
redelivery is inappropriate, there is no breach of the bond and
no cause for issuance of a demand for liquidated damages.