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Newsletter

Demands for Redelivery of Imported Goods
and Liquidated Damages

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 is made.

The 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.

Limitations 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," [1] 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.

What 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.


[1] See generally 19 C.F.R. 12.01 through 12.105 for information on goods subject to import restrictions.

 

George R. Tuttle, III, is an attorney with the Law Offices of George R. Tuttle in San Francisco. His practice focuses on Customs and U.S. Trade Regulation. The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered such.

 

Copyright 2003 by Tuttle Law Offices.

All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

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