We have seen terrible problems arise when pharmaceuticals for medical trials have been imported without sufficient coordination between the importer and its broker. The Product Development and Testing Act of 2000 (PDTA) was enacted as part of the Tariff Suspension and Trade Act of 2000 (Act). Its purpose is to promote product development and testing in the United States, by allowing the importation on a duty-free basis of articles commonly referred to as ‘‘prototypes’’. These must be used exclusively for product development, testing, evaluation, or quality control. Consequently, section 1433 of the Act amended the Harmonized Tariff Schedule of the United States (HTSUS) by inserting a new subheading 9817.85.01 in Chapter 98, HTSUS, to provide for the duty-free entry of prototype articles. Section 1433 of the Act also included a new U.S. Note 6 in Subchapter XVII of Chapter 98, HTSUS, to define the term ‘‘prototypes’’ as used in HTSUS subheading 9817.85.01.
Customs amended the Customs Regulations to add a new § 10.91, in accordance with the requirements of the PDTA. What is does is: (1) establish procedures regarding the identification of prototypes at the time of their importation into the United States; and (2) establish procedures regarding the sale of prototypes as scrap, waste, or for recycling, after their intended use in product development, testing, and evaluation.
To qualify as a prototype, the merchandise must meet the requirements set forth in Note 6:
- It must be originals or models of articles that (i) are either in the preproduction, production, or postproduction stage and are to be used exclusively for development, testing, product evaluation, or quality control purposes; and (ii) in the case of originals or models of articles that are either in the production or postproduction stage, are associated with a design change from current production (including a refinement, advancement, improvement, development, or quality control in either the product itself or the means for producing the product).
- It may be imported only in limited noncommercial quantities in accordance with industry practice.
- Except as provided for by the Secretary of the Treasury, prototypes or parts of prototypes may not be sold after importation into the United States or be incorporated into other products that are sold.
- The imported item may not be subject to quantitative restrictions, antidumping orders, or countervailing duty orders, and
- It must comply with all applicable provision of law and otherwise meet the definition of “prototypes”, if the articles are subject to licensing requirements or other laws, rules, or regulations administered by agencies other than the CBP.
The entry has very particular requirements. It must be done in accordance with procedures set forth in 19 C.F.R. § 10.91, which state in pertinent part:
- Prototypes may be entered under subheading 9817.85.01, HTSUS, on CBP Form 7501 or an electronic equivalent.
- The importer must declare the intended use at the time of entry.
19 C.F.R. §10.91 also set forth procedures regarding sale and disposition of prototypes and requirements regarding record keeping.
To avoid the disaster of irrevocable imposition of duty at the moment of release, probably the most important take away message here for customs brokers and importers is to (i) enter under subheading 9817.85.01, HTSUS on all entry documents, and (ii) explicitly declare the intended use as a prototype at the time of entry.
This blog post was authored by Dr. S. Shannon Liang. If you have any further questions about this topic or The Mooney Law Firm, please feel free to contact us today.
