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HQ 116055





February 6, 2004

QUO-2-RR:IT:EC 116055/116056rb

CATEGORY: QUOTA

Port Director
Bureau of Customs and Border Protection
Houston Service Port
2350 North Sam Houston Parkway East, Suite 1000 Houston, TX 77032-3126 (ATTN: Jeffrey Mitchell)

RE: Further Review of Protests; Tariff-Rate Quota; Steel Wire Rod; Protest Nos. 5301-03-100197 and 5301-03-100257

Dear Sir or Madam:

Under cover of your undated transmittals, we received the applications for further review of the above-referenced numbered protests which have been consolidated pursuant to 19 CFR 174.15(a) and which are addressed in our decision below.

FACTS:

Protest number 5301-03-100197, received on May 8, 2003, covers a consumption entry for steel wire rod, that was liquidated on April 18, 2003. The merchandise was subject to a tariff-rate quota under Presidential Proclamation 7273 of February 16, 2000, which oversubscribed upon the opening of the 3rd quarter (September 3, 2002), so Headquarters (HQ) Quota issued instructions on September 10, 2002, prorating the quantity of merchandise (51.847%), that was to be allocated to each importer at the in-quota rate (duty-free) (subheading 9903.72.13, Harmonized Tariff Schedule of the United States (HTSUS)). When it was later found that this initial proration was mistaken, HQ Quota issued a revised proration (50.45%). As such, a portion of the importer’s steel wire rod was reassessed at the over-quota rate (5% ad valorem) (HTSUS subheading 9903.72.15), notwithstanding that the wire rod had already been entered for consumption in proper form, had acquired quota status, and been released from Customs custody at the in-quota rate under the first proration.

Protest number 5301-03-100257, received on May 19, 2003, covers a consumption entry also for steel wire rod, that was liquidated on February 21, 2003. The merchandise was likewise subject to a tariff-rate quota under the foregoing Presidential Proclamation, which oversubscribed upon the opening of the 4th quarter (December 2, 2002), so HQ Quota issued instructions on December 6, 2002, prorating the quantity of merchandise (82.982%), that was to be allocated to each importer at the in-quota rate (duty-free) (HTSUS subheading 9903.72.14). Later, when it was found that this proration was mistaken, HQ Quota recalculated the proration (78.4283%), which resulted in a reassessment of duty at the over-quota rate on part of the importer’s merchandise (5% ad valorem) (HTSUS subheading 9903.72.15), even though the merchandise had already been entered in proper form, accepted for quota and released at the in-quota rate under the first proration.

ISSUE:

Whether an over-quota duty assessment against tariff-rate quota merchandise (steel wire rod) based upon a revised proration is permissible once the merchandise has been entered, or withdrawn from warehouse, for consumption in proper form, has acquired quota status, and been released from Customs custody at the in-quota rate of duty under an initial proration.

LAW AND ANALYSIS:

The procedure, as described, of assessing the over-quota duty rate against tariff-rate quota goods already released at the in-quota rate, conclusively and impermissibly contravenes the prevailing regulatory scheme in part 132, Customs Regulations (19 CFR part 132), governing the implementation of tariff-rate quotas, including that for steel wire rod in Presidential Proclamation 7273, which are administered by Customs and Border Protection (CBP) (formerly Customs) Headquarters (see §§ 132.0 and 132.2(b), Customs Regulations; 19 CFR 132.0 and 132.2(b)). In particular, in order to succeed, the procedure under review would patently require that § 132.5(b) and (c) (19 CFR 132.5(b) and (c)) be overruled or disregarded. Yet, § 132.2(c), in pertinent part, requires strict compliance not only with the terms of a Presidential proclamation establishing a quota, but also with the regulations in part 132 which implement that quota.

Specifically, § 132.5(b) provides that while merchandise imported in excess of the quantity admissible at the reduced (in-quota) rate is “permitted entry at the higher [over-quota] duty rate,” such merchandise may also be disposed of in accordance with § 132.5(c); and, in this respect, § 132.5(c) provides that such over-quota merchandise may otherwise be disposed of by admission into a foreign trade zone, or by entry into a bonded warehouse, pending the opening of the next quota period; or that the merchandise may either be exported or destroyed under Customs supervision. And, § 132.12(c)(1) expressly makes § 132.5 applicable in this respect to those cases where the quota is expected to fill upon opening (and a proration must be undertaken). Notably, “to the extent that a customs regulation is a proper one, it is mandatory for customs officials to observe and follow it, and this, whether or not it is mandatory for the Secretary of the Treasury to adopt and promulgate such regulation” (Plywood & Door Southern Corp. v. United States, 57 Cust. Ct. 309, at 314-315 (1966)). To this latter end, paragraphs (b) and (c) of § 132.5 were issued under the general authority of 19 U.S.C. 66, 1624, and 1202, as amended (currently, General Note 3(i), HTSUS (2004)) in T.D. 73-203 (Vol. 7 Cust. Bull. 660, at 663 (1973)). As such, these provisions have been in effect for over 30 years, and they plainly constitute proper regulations.

Moreover, it is fairly evident under the circumstances that § 132.5(b) and (c) have the force and effect of law, further making their observance mandatory; thus, they may not be negated or disregarded, so as to dispossess an importer of its right to otherwise dispose of merchandise imported in excess of the in-quota quantity, as an alternative to paying the over-quota rate of duty on the merchandise, a rate which could impose a prohibitive financial burden upon the importer (see, e.g., Penick & Ford (Ltd., Inc.) v. United States, 12 Cust. Ct. Appls. 432, at 437-438 (1925) (quoting French v. Edwards, 80 U.S. 506) (regulation mandatory where intended to protect the citizen and prevent a sacrifice of his property, and by a disregard of which his rights might be and generally would be injuriously affected; such regulation must be followed or the acts done will be invalid)).

Furthermore, in wrongly disregarding § 132.5(b) and (c), the described procedure would also make it possible for the Government in fact to profit from its own error by applying the over-quota rate of duty to the goods after their release when the importer lacked any other recourse than being required to pay the higher rate (compare Plywood & Door, supra, at 315 (construction placed by Government upon noncompliance with proper customs regulation would enable it to benefit from its own default)).

Consequently, once tariff-rate quota goods have been entered, or withdrawn, for consumption in proper form, have acquired quota status, and been released from Customs custody at the in-quota rate of duty under an initial proration pursuant to § 132.12(c)(1), such goods may not thereafter be reassessed at the over-quota rate based upon a revised proration, because at that point the importer would be preempted from otherwise being able to dispose of the merchandise, as specifically authorized under § 132.5(b) and (c), as an alternative to paying the over-quota rate of duty on the goods. Hence, the first proration officially issued in each instance by HQ Quota must per force be recognized in this context as the definitive, and binding, legal proration in relation to the subject released merchandise.

Parenthetically, it is understood that the process of retroactively imposing revised prorations upon already-released tariff-rate quota goods was undertaken in an effort to prevent the overfilling of the quota. Nevertheless, while it is axiomatic that the Government must of course take all appropriate measures to ensure that the in-quota quantity limit of a tariff-rate quota is not exceeded, at the same time, such efforts may
not lawfully extend to correcting Governmental errors in this regard through forfeiture of the rights of the instant protestants as guaranteed by mandatory and longstanding Customs Regulations under the facts herein presented.

HOLDING:

Once tariff-rate quota goods have been entered, or withdrawn, for consumption in proper form, have acquired quota status, and been released from Customs custody at the in-quota rate of duty under an initial proration, such goods may not thereafter be reassessed at the over-quota rate based upon a revised proration. Protests numbered 5301-03-100197 and 5301-03-100257 should therefore be granted. Any additional duties that were assessed due to the application of any changed tariff-rate quota prorations in this case should be refunded.

Sincerely,

Glen E. Vereb

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