New HS Provision for Prototypes

January 2001

On November 9, 2000, the 2000 Trade Suspension and Tariff Act ("the Act") was enacted. The Act amended the Tariff Schedule by inserting a new subheading, 9817.85.01, which provides for the duty-free treatment of certain prototypes. Subheading 9817.85.01 covers prototypes "to be used exclusively for development, testing, product evaluation, or quality control purposes."

This new provision will assist domestic companies who seek to conduct product development and testing in the United States. Previously, Customs would include the value of imported prototypes when determining the dutiable value of subsequently imported merchandise. Additionally, Customs would assess duty on the prototypes themselves. The effect of the previous law was a double assessment of duty on imported prototypes. Congress concluded that this practice had a chilling effect on domestic research and development.

Importers who wish to use the new provision should consult Note 6 to Chapter 98, Subchapter XVII, which defines prototypes. Note 6 also places limitations on the quantities of prototypes which may be imported. Articles subject to quantitative restrictions, antidumping orders, or countervailing duty orders may not be classified as prototypes under the new provision. Also, prototypes which receive duty-free treatment may not be resold after importation.

On December 22, 2000, U.S. Customs Headquarters issued a memorandum to the field regarding prototypes which states that subheading 9817.85.01 will be applied to entries of prototypes made on or after November 9, 2000. It also sets forth a procedure for the conversion of entries of prototypes under subheading 9813.00.30 for which the temporary importation bond entry was open as of November 9, 2000, to consumption entries under subheading 9817.85.01.

The memorandum also specifies that liquidations of all prototype entries are to be withheld pending the publication of final regulations regarding subheading 9817.85.01. BR&C has learned that Customs expects to publish a notice of proposed regulations in the Federal Register in a matter of weeks. A period for comment from interested parties will follow.