DEPARTMENT OF THE TREASURY
Customs Service
AGENCY: U.S. Customs Service, Department of the Treasury.
19 CFR Parts 18, 24, 112, 113, 141, 144, 146, 178 and 191
Foreign Trade Zones; Specialized and General Provisions
[T.D. 86-16]
51 FR 5040
February 11, 1986
ACTION: Final rule.
SUMMARY: This document revises Customs Regulations relating to foreign
trade zones to provide a new audit-inspection method of zone supervision
by Customs. A foreign trade zone is a defined area, considered to be
outside the customs territory of the U.S., where certain lawful activities
can be conducted with a minimum of formalities. A zone provides a site at
or adjacent to a Customs port of entry where operations involving foreign
merchandise can take place, which otherwise might have been done abroad
for tariff and trade reasons. The revision sets forth the general provisions
applicable to the administration of all zones and other specialized
provisions applicable to subzones and zone sites. In addition, changes in
the language of the regulations will clarify some provisions, eliminate
inconsistencies, and conform the regulations to current administrative
practices.
EFFECTIVE DATE: May 12, 1986.
FOR FURTHER INFORMATION CONTACT:
Operational Aspects: John Holl, (202-566-8151);
Inventory Control and Recordkeeping System Aspect: Marcus Sircus,
(202-566-2812);
Appraisement and Valuation Aspect: Myles Flynn, (202-535-4134);
Liquidated Damages, Penalty and Suspension Aspect: William Lawlor,
(202-566-5856);
Economic Aspect: Daniel Norman, (202-535-4138).
All of the above Customs personnel are located at:
U.S. Customs Service Headquarters,
1301 Constitution Avenue, NW.,
Washington, DC 20229.
TEXT: SUPPLEMENTARY INFORMATION:
Background
In 1934, Congress enacted the Foreign-Trade Zones Act to expedite and
encourage foreign commerce. The Act created domestic foreign trade zones
and was designed to stimulate international trade and create jobs in the
U.S. At that time, zones were envisioned as storage, manipulation, and
transshipment (exportation) centers. In 1950, an amendment to the Act was
passed, authorizing manufacturing and exhibition inside zones. Foreign
trade zones (zones) are areas within the U.S. (but outside the "Customs
territory of the U.S.," as defined in @ 101.1(e), Customs Regulations (19
CFR 101.1(e)), where foreign or domestic merchandise may be brought for
manipulation, manufacture, assembly or other processing, or for storage
or exhibition, provided that these operations are not otherwise prohibited
by law. Foreign merchandise may be brought into a zone without being
subject to the usual Customs entry procedures and payment of duty. Foreign
or domestic merchandise may be exported or entered into the Customs
territory from a zone. Quota restrictions do not normally apply to
foreign merchandise in a zone. Merchandise moved to a zone for export may
be considered exported upon its admission to a zone for purposes of excise
tax rebates and drawback.
Zones are established under the Foreign-Trade Zones Act of 1934, as
amended (19 U.S.C. 81a-81u), and the general regulations and rules of
procedure of the Foreign-Trade Zones Board (the Board), Department of
Commerce (15 CFR Part 400). Part 146, Customs Regulations (19 CFR Part
146), governs the admission of merchandise into a zone; the manipulation,
manufacture, destruction, or exhibition in a zone; the exportation of
merchandise from a zone; and the transfer of merchandise from a zone into
the Customs territory.
Typically, a foreign trade zone is a fenced-in area with a general
warehouse type building or buildings and access to all modes of
transportation. Space is available for leasing to firms for authorized
zone activity. Some zones have industrial park characteristics or are
located within such facilities and have lots on which zone users can
construct their own facilities. Subzones are locations authorized by the
Board through zone grantees for operations by individual firms when zone
procedures are vital for an operation that is in the public interest but
cannot be accommodated within an existing zone.
Between 1934 and 1970, just 12 zones were approved by the Board. At
this time, there are 109 general purpose zones and 60 subzones. It has
been estimated that the volume of business in zones has multiplied
substantially from 1970 to the present with zones now handling about
$4.8 billion worth of merchandise each year.
As can be appreciated from the foregoing, the number of zones and the
operations conducted therein have increased tremendously in recent years.
Historically, Customs has administered zones and their operations by the
physical presence of Customs officers at the various zone locations.
However, as time has passed, Customs staffing available to supervise zones
has declined while zones have continued to proliferate. This has resulted
in delays in the approval of activation of a given zone, and has presented
problems for Customs in the exercise of effective control over some zone
operations, especially subzone manufacturing activities. Therefore,
Customs undertook an effort to devise a method to reduce Customs staffing
requirements in zones and other areas (notably bonded warehouses) without
endangering the revenue or law enforcement priorities, while also not
hampering the growth of those areas and not impeding commerce.
The audit-inspection program approach to administration of those areas
of Customs responsibility, which de-emphasizes the physical presence of a
Customs officer to supervise each transaction, was successfully implemented
in regard to the operation of bonded warehouses (see T.D. 82-204,
published in the Federal Register on November 1, 1982 (47 FR 49355)).
Audit-inspection is a method of supervision based on spot checks and
audits of foreign trade zone activities as represented in records
maintained by the zone operator. This method is substituted in lieu of
physical on-site supervision by Customs when merchandise is admitted to,
transferred from, or processed in the zone.
The principal advantage for Customs of audit-inspection is that it
requires fewer Customs personnel to administer the zones. The principal
advantages for the importing community are that (1) merchandise may be
admitted, transferred, or processed without a Customs officer being
present, allowing increased flexibility in zone operations, and (2) for
most zones, the reimbursable cost paid to Customs is reduced. Audit-
inspection is based on several procedures, which are essential for its
proper functioning and success. These procedures are:
1. The determination by Customs of the identity and nature of the
merchandise through examination before or upon admission to the zone so
that the initial responsibility of the operator for the merchandise can
be determined.
2. The issuance of a prior permit by Customs to the zone operator for
admission, transfer to the Customs territory, and processing in the zone.
3. The assumption by the zone operator of responsibility for the
merchandise, maintaining records concerning the merchandise, and physical
supervision of the zone. Quantities of merchandise received at the zone
and transferred to the Customs territory are determined jointly by the
zone operator and the carrier.
4. The performance by Customs of spot checks and audits to determine
whether the zone operator is properly supervising the zone and maintaining
records of the merchandise. The cost of the spot checks and audits is
reimbursed to Customs through an annual fee charged the zone operator for
this service.
5. The assessment of liquidated damages in an amount sufficient to
ensure performance of the operator's duties and responsibilities under
the rules and regulations needed for proper zone supervision and
recordkeeping.
6. The temporary suspension by Customs of zone operations which do not
comply with the rules and regulations.
It is noted that Customs initiated use of the audit-inspection method
in August 1983, on the basis of voluntary agreements between Customs and
zone, operators. At present, 12 subzones and 6 general-purpose zones have
entered into voluntary agreements to use the audit-inspection method to
administer their operations. Customs has taken that limited experience
under the zone audit-inspection method into account in preparing this
revision.
To implement the audit-inspection method of supervision in foreign-
trade zones, it is necessary to substantially revise Part 146, Customs
Regulations (19 CFR Part 146), concerning the administration of foreign
trade zones, and to revise to a much lesser extent, Parts 18, 24, 112,
113, 141, 144, 178, and 191, to conform them to changes made by the
revision to Part 146. Accordingly, by notice published in the Federal
Register on July 17, 1984 (49 FR 28855), an extensive revision of Part
146 and minor conforming revisions of Parts 18, 24, 112, 141, 144 and 191
were proposed. A detailed discussion of the proposed amendments to Part
146 can be found on pages 28856-28859 of the notice.
Interested parties were given until October 15, 1984, to submit written
comments. However, by notice published in the Federal Register on September
11, 1984 (49 FR 35658), the comment period was extended to November 30,
1984, as an accommodation to the National Association of Foreign-Trade
Zones. Approximately 150 comments were received in response to the notice.
A discussion of the comments and our responses to the comments follow.
Discussion of Comments
Most of the commenters commend efforts to improve the regulations.
However, many of them have complaints about several provisions of the
proposal. Many commenters question the reasonableness of the proposed
fees, penalties and liquidated damages provisions. They also allege that
the proposal is inconsistent with generally accepted accounting principles
and the Foreign-Trade Zones Act, and that it could impede the flow of
commerce. Commenters further complained that the proposed regulations do
not provide an orderly transition to the new audit-inspection system, and
that they were unduly complex and restrictive. Specific comments and our
responses are as follows:
Comment: Under the proposed regulations, Customs would treat merchandise
destined for a zone as imported and subject to examination prior to
admission to the zone, unless a subzone or zone site qualifies under
special procedures for exemption from the prior examination requirement.
This treatment of zone-destined merchandise may impede or delay shipments.
Response: We disagree. Merchandise which is destined for a zone is
imported, within the meaning of @ 101.1(h), Customs Regulations. Under
section 499, Tariff Act of 1930, as amended (19 U.S.C. 1499), imported
merchandise is subject to examination in Customs territory. Therefore,
examination of zone-destined merchandise is already provided for under the
law. The frequency and intensity of these examinations, however, will be
reduced by selective examination procedures. Also, only occasional
examinations will be necessary at certain subzones and zone sites because
shipments to these sites are repetitive, liability for violations is
known in advance, and elaborate audit trails for checking for diversions
of the merchandise exist.
Comment: The proposed regulations do not clearly distinguish between
physical and record identification of merchandise. The two systems cannot
work together. Record identification is the only viable system under the
proposed revision.
Response: We disagree. The physical and record systems of identifying
merchandise are compatible. Under the specific identification system, the
zone operator maintains a zone lot control system, physically segregating
his merchandise by zone lots and controlling identification of merchandise
by zone lot records from admission through final zone removal. Under the
record identification system, the merchandise is identified by inventory
records, using a Customs-approved inventory method, e.g., the first-in,
first-out method (FIFO). Both methods require a reconciliation, at least
annually, of physical merchandise on hand to quantities reflected by the
Customs-approved inventory method. Any discrepancies would require
corrective action by the operator.
The physical identification of merchandise is required to ensure
reliability of admissions, inventory record accuracy, and proper zone
status requests, among other things. For these reasons, it is retained in
the regulations.
Comment: The proposal provides no mechanism or guidance for transition
to the audit-inspection method of supervision. Serious consideration
should be given to grandfathering in some zones or allowing them
sufficient time to change over to the new method.
Response: We disagree. Allowing some zone operations to be
grandfathered in, i.e., granted an exemption from the new foreign trade
zone regulations, is not feasible because it would result in the
perpetuation of different sets of rules for some zones. The intent of the
proposed regulations is that one set of rules should govern all zone
operations.
The regulatory changes will become effective as a final rule 90 days
from the date of publication, except that zones with Alternative Inventory
Control Systems (AICS) will have either 180 days after the publication
date or to the end of their current business year to comply with the new
recordkeeping regulations. This 90-day period, instead of the 30-day
period ordinarily granted, will allow zone operators a sufficient period
of time for bringing their inventory system into compliance with the new
regulations.
Zones under the AICS are different from other zones in that the record
of inventory is maintained by the zone grantee or operator, or by the
individual zone firms or their agents, under the supervision of the
grantee or operator, rather than by Customs. The zone grantee or operator
is responsible for the posting of inventory ledgers, the supervision of
individual zone firms which maintain their own inventory records, the
correction of inventory discrepancies, the conducting of periodic selective
inventories of open lots of all zone firms, and various additional tasks
which require time and other resources to handle the paperwork associated
with these tasks. Because of the complexity of operating this type of
inventory control system, these zones will require more time than non -AICS
zones to convert to the audit-inspection supervision system under the new
regulations. For this reason zones under AICS will be given either 180 days
from the date of publication of the new regulations or to the end of their
business year to bring their inventory system into compliance with the new
regulations. However, they will be subject to the 90-day period for
bringing all other aspects of their zone operations into compliance with
the new regulations.
Conversion to audit-inspection supervision under the new regulations
will occur as follows:
All zones operators, except as noted below, will furnish a certification
that their inventory control and recordkeeping system complies with the
new regulations, a procedures manual, the date of the end of their
business year, and the annual fee on or before the date the new
regulations take effect, and the prescribed zone operator's bond. If these
requirements are not complied with by the effective date, no further
merchandise will be admitted to the zone and the activated status of
the zone may be suspended.
In addition, the following actions will be taken with respect to
specific zones:
(a) Zones where Customs has maintained inventory records. Customs will
provide a listing of inventory balances for all lots in the zone on the
effective date. The operator will have 30 days to review the lot balances,
conduct a physical inventory, and resolve any differences with Customs.
On or before the end of the 30-day period, the operator will sign to
accept the lot balances as reflecting the inventory on hand on the
effective date, with such adjustments as are mutually agreed to between
the operator and the district director.
(b) Zones with voluntary audit-inspection agreements. Zone operators
will have the option of conducting a physical inventory before the
effective date and certifying as to specific quantities of merchandise for
which they are responsible on the effective date. Otherwise, they will be
held responsible for losses and overages unless they can clearly show,
with competent evidence, that the losses and/or overages occurred before
the effective date.
(c) Zones with alternative inventory control systems. Zone operators
may request postponement of the procedures manual and certification
requirements until one of the following dates:
(i) 90 days after the effective date of the new regulations; or
(ii) end of their current business year. With respect to paragraph (c),
the district director may approve the request for a postponement if he is
satisfied that the postponement is necessary for the conversion of the
operator's recordkeeping system to comply with the requirements of Subpart
B, Part 146, Customs Regulations. During the interim before the procedures
manual and certification are received, the operator will be allowed to
maintain the inventory and recordkeeping system as agreed under the AICS,
and he need not meet the requirements of Subpart B. However, the operator
must meet and follow all the other requirements of the new regulations
upon their effective date. The same physical inventory option will be
available for zones with an AICS as for zones with a voluntary audit-
inspection agreement. If that option is not exercised, any losses or
overages found after the effective date will be considered to have
occurred after the effective date, unless the operator can clearly show,
with competent evidence, that the losses and/or overages occurred before
the effective date.
Comment: The proposed regulations are inconsistent with generally
accepted accounting principles as well as modern business practices.
Response: The commenters do not point to any specific instance of
inconsistency. However, we do note that Customs method of identifying
merchandise by the first-in, first-out (FIFO) method does not conform to
generally accepted accounting principles (GAPP) under which FIFO is used
to determine the value of goods in an ending inventory. Customs use of
FIFO to identify merchandise expedites the movement of goods in and out
of zones. It is used as an alternative to specific identification of
merchandise.
Comment: While the proposed regulations provide for the removal of
Customs officers from zones, there are no provisions detailing the methods
and the time restraints for transmitting data and documents to Customs,
particularly when a zone is remote from a Customs office. There should be
a variety of mechanisms to transmit data and documents to expedite zone
operations.
Response: We disagree. The regulations need not specify the method of
transmittal. Many methods of transmittal, such as mail, messenger delivery,
or electronic transmittal, can be accommodated so long as they can be
administratively handled by Customs, There should be no problem with
timely delivery of the required documentation to Customs on the part of
any zone since, in order to be designated a foreign trade zone, it must be
in or adjacent to a port of entry.
There are specific provisions for the timing of the transmittal and
receipt of documentation by Customs from zone operators, such as in @
146.40(a) and (b), and wherever else specific provisions are necessary. In
the absence of any stated provisions, documentation must be received by
Customs before a permit to admit, handle or transfer merchandise can be
issued.
Comment: The regulations should include a provision allowing merchandise
to be temporarily removed from a zone for repair, restoration, or
incidental operations and then returned to the zone.
Response: Customs has been testing such a proposal with, as yet,
inconclusive results. If the test has favorable results, the procedure
will be implemented on a permanent basis through a separate rulemaking
proceeding.
Comment: One commenter state that Customs should not extend its concept
of adjacency, in respect to subzones, beyond 35 miles from a port. Other
commenters believe that subzones that are distant from ports should not be
required to deliver merchandise and documentation to Customs, as is
required in proposed @ 146.15(a)
Response: The adjacency concept, and its application to subzones which
are 35 miles from a port, is under review in a separate rulemaking
proceeding at the Department of Commerce. Since this entire issue is under
review, proposed @ 146.15 is premature. Accordingly, it has been deleted
from the final regulations.
Comment: Several commenters believe that the proposed regulations are
too complicated, impose unnecessary requirements, and make zones less
manageable.
Response: We have simplified the proposed regulations and removed
certain requirements. The regulations, as revised, impose minimum
requirements for recordkeeping and inventory systems, which zone operators
are free to supplement so as to meet their own recordkeeping and inventory
control requirements. The requirements for recordkeeping are similar to
those any conscientious businessman would adhere to in the supervision of
his business. The revised regulations make zones more, not less,
manageable. They also allow Customs to carry out its mission of protecting
U.S. revenue and enforcing importation laws and regulations more
efficiently.
Comment: Many commenters criticize the criteria under proposed @
146.14 for allowing domestic status merchandise to be admitted to a zone
without a prior application and permit for each shipment. They believe
the criteria are too stringent, particularly those involving commercially
identical merchandise and merchandise which has been combined so that it
has lost its identity.
Response: We agree with these comments. Therefore, proposed @ 146.14 is
deleted. The subject matter of @ 146.14 is transferred to @ 146.43, which
is further amended to specify that no prior permit will be required for
the admission, handling, or transfer to Customs territory of domestic
status merchandise except: (1) When mixed or combined with merchandise of
another zone status, or (2) when so ordered by the Commissioner of Customs
under certain circumstances. This latter authority on the Commissioner's
part allows Customs to properly control domestic status merchandise in
unusual circumstances. The zone operator must still maintain proper
inventory records of domestic status merchandise as prescribed in Subpart
B, Part 146, Customs Regulations, even if no permit is required.
Comment: Several commenters inquire as to the authority for Customs
allowing activation of a zone under @ 146.6. They also question whether
this allowance is not more appropriately within the authority of either
the Board or the zone grantee.
Response: Authority for Customs approval of activation of zones is
found in the individual grants to the zones and subzones, as well as the
Act itself. The grants contain provisions to the effect that operations at
the zone shall not commence until the grantee obtains all the necessary
permits from Federal authorities, and that the grant is subject to an
agreement between the grantee and Customs regarding compliance with
requirements for the protection of the revenue.
Section 15(b) of the Foreign-Trade Zones Act (19 U.S.C. 810(b)) gives
the Secretory of the Treasury broad authority to approve regulations for
the protection of the revenue under the Act, while section 9 (19 U.S.C.
81(i)) directs the Board to cooperate with Customs. The activation
procedure is the method which Customs has chosen for protecting the
revenue. Through this procedure Customs is assured that the zone is ready
to receive merchandise in zone status.
Comment: Section 146.65 creates a new valuation concept, i.e., "total
zone value." There are a substantial number of Customs rulings dealing
with zone valuation issues. These rulings should serve as the proper
guidance for Customs position on this issue.
Response: "Total zone value" may be a new regulatory term, but it is not
a novel regulatory concept. It is the value provided for by current @
146.48(e). Its significance relates to the valuation of recoverable waste
or scrap from a zone operation and situations where the rate of duty
applicable to nonprivileged foreign merchandise is dependent on the value
of the article being transferred from a zone. Section 146.65 therefore,
accurately reflects the current Customs position on zone valuation matters.
Comment: Many commenters are concerned with proposed @ 146.8, which
authorizes the zone operator to affix and break Customs in-bond seals.
Heretofore, only Customs officers could affix and break Customs in-bond
seals.
Response: Since under the audit-inspection approach a Customs officer
will no longer be physically present in most cases, it is necessary that
the zone operator be given authority in certain areas to perform functions
that were previously conducted by Customs. One of these is the authority
to affix and break in-bond seals. Under the new regulation, the zone
operator will report to Customs any discrepancies in seal condition. This
will protect the zone operator from liability when it is determined that
the loss of merchandise occurred prior to arrival of the merchandise at
the zone site.
Comment: Special procedures for admitting and removing zone merchandise
limited to subzones and zone sites should be extended to general-purpose
zones. Also, the criteria for admittance and removal are too stringent for
most zones.
Response: We disagree. The audit-inspection requirement is that a permit
is required before admission to a zone or transfer to Customs territory.
The purpose of proposed @ 146.13 is to exempt shipments from this prior
permit requirement only when they are repetitive, predictable, and
relatively unchanging over a period of time. The exemption was intended to
be restrictive because of Customs experience that a major portion of trade
destined for zones is non-repetitive and difficult to predict.
In response to the comments on this subject, however, Customs has made
a number of changes in the special procedures. First, the criteria for
direct delivery are moved to @ 146.39 since they are applicable only to
merchandise being admitted to a zone, and @ 146.13 is deleted.
Secondly, the criteria for direct delivery as they appear in @ 146.39
have been simplified. There is now no requirement for direct transmittal
of statistical information to the Bureau of the Census. Also, the criteria
have been grouped according to those that apply to merchandise and those
that apply to the operator. The specific restriction of the direct
delivery procedure to subzones and zone sites has been limited. However,
we believe that most general-purpose zones will not qualify for the
procedure because the zone operator is not the owner or purchaser of the
merchandise (as interpreted by Customs in Customs Directive 3530-02, dated
November 6, 1984). The criteria for direct delivery ensure that not only
are the shipments repetitive and relatively unchanging, but also that the
zone operator is in a position to see that they remain so.
Finally, the criteria for direct delivery no longer apply to merchandise
transferred from a zone for weekly entry or permit for consumption,
transportation, or exportation under proposed @@ 146.63 and 146.69.
Instead, the criteria for a weekly permit under the direct delivery
procedure in these sections is whether the merchandise is manufactured or
changed to its final form just shortly (within 24 hours) before physical
transfer from the zone. These sections are necessary for assembly-line
type operations where there otherwise would be little time for examination
of the merchandise and furnishing of proper entry documentation after the
merchandise is in its final form but before physical removal from the
zone. By allowing a weekly entry based on an estimate of merchandise to be
removed during the week, Customs has prior information as to merchandise
to be removed and documentation to serve as the basis of physical
examination of the merchandise. At the same time, the assembly-line
operation need not be delayed pending acceptance of an entry and Customs
examination of the merchandise.
Comment: To qualify for many of the more liberal procedures, zones must
provide statistical data directly to the Bureau of the Census instead of
providing a statistical carbon copy of Customs Form 214-A, titled
"Application For Foreign Trade Zone Admission And/Or Status Designation"
to Customs. This may be very difficult for many zone users, and it
abrogates the responsibility of Customs to collect statistics.
Responses: We disagree. Customs responsibility is to support the Census
in collecting foreign trade statistics.
In some instances, Census has allowed direct transmittal of statistics
by zone importers, relieving Customs of the necessity of collecting a
copy of Customs Form 214-A. Normally, collection of this form is very
important to Census because it ensures that statistical information is
collected on each and every shipment to a zone. Direct transmittal of
statistics is permitted by Census only when it is satisfied through other
means that each and every shipment will be covered by the direct
transmittal.
Census has indicated that trade statistics need not be collected for
domestic status merchandise admitted to a zone. Therefore, the criteria
in proposed @ 146.13(b)(1) is not needed. Also, Customs will not, except
as ordered by the Commissioner, require a prior permit for the admission
of domestic status merchandise to a zone.
Under proposed @ 146.13(b), direct transmittal of statistical
information to Census is necessary to qualify a zone importer for direct
delivery of merchandise to a zone without a prior permit to admit
merchandise. Section 146.40 requires importers to submit Customs Form 214
for merchandise recorded into the zone inventory and recordkeeping system
the previous business day. The previous business day may not occur until
several weeks after the merchandise is physically received in the zone.
Census is concerned that statistical information on zone importations may
not be reported timely.
To alleviate Census concern, yet reduce barriers to use of the direct
delivery procedures by importers under @ 146.40, Customs has decided to
allow two alternatives to meeting Census statistical reporting
requirements. The zone importer must either have a direct transmittal
arrangement with Census or he must submit an individual Customs Form 214
and 214-A under @ 146.40(c)(2) for each shipment, within 10 days after the
end of the month in which the merchandise is physically received in the
zone. No extension will be authorized to this statistical reporting
requirement. The statistics for each shipment of merchandise to the U.S.,
including nationality of the shipping vessel or aircraft, date of
exportation, and date of importation, must be reported separately.
These requirements are being incorporated into @ 146.40 inasmuch as @
146.13 is deleted, as discussed above.
Comment: Many commenters object to proposed regulations concerning
Customs examination and documentation requirements before or upon
admission to zones. Specifically, the objections are that the examination
required by the proposed regulations: (1) Is contrary to the Act; (2)
would unreasonably delay the shipment of merchandise to zones; (3) reduces
the advantages to using zones; and (4) would result in insufficient
supervision for the proper enforcement of the foreign trade zone
regulations. Commenters also state that examination should only be done
in zones, that removal of Customs officers from zones would make it
impossible to examine merchandise there, that commercial invoices are not
usually available for presentation before or upon admission to a zone,
further delaying shipments, and that merchandise admitted to a zone but
destined only for exportation should not be examined by Customs.
Responses: We do not agree. Physical examination is a key principle of
audit-inspection supervision because it enables Customs to determine the
initial responsibility of the operator for the merchandise. Proper duty
assessment and enforcement of admissibility requirements are also benefits
of zone merchandise examination. The authority for such examinations is
found in sections 4, 8, and 15(b) of the Act (19 U.S.C. 81d, h, and o(b)),
as well as in section 499 of the Tariff Act of 1930, as amended
(19 U.S.C. 1499).
The purpose of providing a commercial invoice of similar documentation
is to assist Customs in physical examinations by disclosing the purported
nature of the merchandise. It also aids in planning examinations under
Customs selective examination procedures.
Furthermore, the proposed examination and documentation requirements do
not unreasonably delay shipments to zones. First, under selective
examination procedures, only about 20-30 percent of shipments are examined.
Secondly, merchandise destined for zone sites under direct delivery
procedures (@ 146.40) is examined even less frequently. Thirdly, if proper
documentation is not available or is incomplete, the merchandise may be
temporarily deposited in the zone, pending its receipt and Customs
examination (@ 146.35).
Additionally, the examination and documentation requirements do not
decrease the advantages of zones. First, there would not be unreasonable
delays. Secondly, zone importers would not have to await the arrival of a
Customs officer to physically supervise admission, as under the existing
system. Thirdly, at worst the delays caused by examination and
documentation requirements and those caused by awaiting the arrival of a
Customs officer for physical supervision are equal. Zones still have very
significant advantages conferred upon them under the Act.
As to the place of examination, we believe that this should be left to
the discretion of the district director, so as to allow the most efficient
deployment of personnel to carry out Customs tasks. In many cases,
examination can be done more quickly at the dock, where Customs officers
may be stationed full time, rather than at a zone with no full-time
Customs officers.
The main purpose of audit-inspection supervision is to replace the
physical supervision of zones. It does not deal directly with Customs
staffing of zones for examination or documentation purposes. If the
workload of a zone is large enough to warrant assignment of an officer
full-time to examine merchandise and review documentation, the district
director may do so. If the zone workload is light and commitments to other
segments of the import community heavy, it would be inefficient and
unreasonable to assign a full-time officer to a zone. There is nothing in
the Act or elsewhere that obliges Customs, in its deployment of personnel,
to accord zones more favorable treatment than other segments of the
importing community.
Audit-inspection supervision will not result in ineffective enforcement
of U.S. laws and regulations in zones. Under this system, Customs does not
abandon supervision; rather, it supervises in a different manner, relying
on physical supervision and recordkeeping by zone operators, enforced
through liquidated damages, penalties, and suspension procedures. Customs
believes these deterrents will provide better enforcement than physical
supervision.
As to merchandise with no invoice or an incomplete invoice, we note
that this merchandise may be sent to a zone for temporary deposit. Customs
will accept alternate documentation in lieu of a commercial invoice,
providing the documentation provides a clear description of the nature of
the merchandise. However, Customs experience has been that commercial
invoices exist for most zone shipments.
Finally, with regard to merchandise destined only for exportation, this
merchandise is subject to examination for identification purposes under
audit-inspection supervision just as any other merchandise destined for
zones.
Comment: Proposed @ 146.73(d)(2) prohibits duty-paid merchandise from
being further processed in a zone. This provision is contrary to the Act
and Customs Headquarters Ruling 215870. It therefore should be deleted.
Response: Whether or not the provision is contrary to Ruling 215870, the
regulations take precedence. The prohibition against further processing of
duty-paid merchandise is applicable only to merchandise previously in a
zone, and not to all duty-paid merchandise.
The purpose of proposed @ 146.73(d)(1) was to allow merchandise to
remain in a zone after it has been constructively transferred to Customs
territory and entered. It was intended to accommodate zone users who
wished to make entry for a large amount of merchandise, but for various
commercial reason did not wish to immediately remove all or some of the
merchandise from the zone. The prohibition on further processing was
intended to avoid abuse of this privilege by an assortment of schemes
designed to circumvent high duty rates or import restrictions. Examples of
such schemes are as follows:
1. Merchandise is entered for consumption at a duty rate of 5 percent.
After entry the merchandise is retained in the zone, or it is removed but
shortly thereafter returned to the same or a different zone in domestic
status. Then it is further manufactured into a product whose rate of duty
is 25 percent. However, the merchandise is no longer subject to duty since
it is now wholly in domestic status.
2. There is a quota on sugar products containing over 65 percent
sucrose. The importer adds another product to the sugar in a zone to
produce a product with less than 65 percent sucrose content, which is not
subject to the quota. The importer files an entry on the product in the
latter state, but the merchandise is retained in the zone in domestic
status. Then the added product is sifted out, leaving a sugar product
containing 90 percent sucrose. The merchandise is no longer subject to
quota upon its ultimate removal from the zone because it is in domestic
status.
3. A firm produces pharmaceutical products in a zone. During an
intermediate stage of processing, the merchandise is in a condition
subject to a fee rate of duty, while the final rate of duty would be 15
percent. The intermediate stage is transitory, lasting no more than an
hour. During this period, the firm files an entry at the free rate of
duty. The intermediate stage merchandise is left in the zone for
continuous processing, or is piped in a loop that runs into Customs
territory and immediately back into the zone, whereupon the firm requests
readmission in domestic status. By the time Customs accepts the entry and
has an opportunity to examine the merchandise, it is no longer in its
condition as entered. Besides circumventing the higher rate of duty, the
merchandise covered by the entry can no longer be examined for
verification or appraisement purposes.
Entry for consumption in these cases is a sham. Merchandise which is
entered but not commingled with U.S. commerce is not, in Customs opinion,
entered for consumption, and such entries may be declared null and void
and cancelled by the district director. We note that there is a line of
court decisions in support of the view that entered for consumption means
that the merchandise has entered U.S. commerce as an integral part
thereof. See U.S. v. Rolls Royce of America, Inc. T.D. 41202 and U.S. v.
Mussman and Schafer, C.A.D. 506, C.D. 1367.
Section 3 of the Act permits zones two choices in the rate of duty
upon entry for consumption -- the rate of duty on the merchandise in its
condition when the choice is made, or the rate of duty on the merchandise
in its condition when transferred to Customs territory. A sham consumption
entry allows a third choice -- the rate applicable to the merchandise in
an intermediate stage of processing in the zone.
In lieu of a prohibition on further processing, proposed @ 156.73(d)(1)
(now @146.71(d)(1)) is being amended to authorize district directors to
reject or cancel consumption entries from zones when the merchandise is
not timely removed from the zone after entry, and merchandise removed from
the zone does not enter U.S. commerce and is subsequently readmitted to a
zone in domestic status. If the merchandise is so readmitted and the entry
cancelled, it will be restored to its last zone status and a new entry
required upon its transfer to Customs territory. This amendment closes an
existing loophole so as to protect the revenue and properly enforce U.S.
import laws and regulations.
A determination as to whether merchandise has not entered the commerce
will be made by district directors on a case by case basis, considering
factors such as the following:
1. Length of time the merchandise was outside the zone before
readmission.
2. Whether readmission was requested by the importer of record or his
agent, or a person acting in collusion with the importer of record.
3. Credible evidence that there was an intent by the importer or
others, at the time of entry, to seek readmission to the zone.
4. The merchandise evades a higher rate of duty or an import
restriction because of its having been admitted in domestic status.
5. The merchandise was not used or was not the subject of a bona fide
sale by the importer after entry.
6. The merchandise was not further processed or manufactured outside
the zone, or such processing or manufacture was minimal or cosmetic in
nature.
Entries of merchandise readmitted in zone-restricted status will not
be cancelled under the provision. It is noted that the position set forth
in @ 146.71(d)(1) is consistent with those in @@ 146.61, 146.63(c)(1) and
146.7,1(d)(2) in that merchandise which was entered but never removed
from the zone is treated as constructively transferred back to the zone
in its previous zone status.
An exception is made in @ 146.71(c) from the general requirement of
prompt zone removal for articles for use in a zone, such as production
equipment, construction materials, and articles to be consumed in a zone.
A new @ 146.71(d)(3) is added to clarify that merchandise which is
actually entered into commerce may be readmitted to a zone in domestic
status.
Comment: Several commenters were concerned that under the revised
regulations, Customs would no longer approve a zone's procedures manual.
Response: Currently, Customs has three methods of supervising zones:
(1) Customs maintained zone inventory ledgers; (2) Alternative inventory
Control Systems (AICS) maintained by the zone operator; and (3) the Audit-
Inspection Program where the zone operator maintains his inventory control.
Only under AICS has Customs approved a zone operator's inventory control
system. The reason for Customs allowing the AICS method of operating a
zone stems from the fact that Customs did not have regulatory guidelines
available for use by zone operators. However, there were some problems
with the AICS method due to Customs limited ability to assist in the
design of sophisticated data processing systems within short time frames
so as to allow zones to be activated. Also, several zone systems were
approved where zone operations were delayed sometimes for several years,
resulting in the origninal system either being rendered obsolete or in
need or major changes at the time the zone was activated.
Accordingly, Customs decided to provide much needed inventory control
guidelines in the regulations and allow the individual zones to adopt their
own inventory systems with the guidelines devised by Customs. Questions as
to whether particular elements of a proposed inventory control and
recordkeeping system meet the criteria in revised Subpart B, Part 146,
Customs Regulations, may be referred to the district director for a non-
binding ruling, or to Customs Headquarters for a ruling in accordance with
Part 177, Customs Regulations (19 CFR Part 177). Customs will not review
any system in its entirety to render an opinion as to whether it meets all
of the criteria in Subpart B.
Comment: Since the Government's expense in providing Customs officers
at the zone is reimbursed by the zone itself, there is no logical reason
why Customs personnel cannot be permanently stationed at the zone.
Response: Although the expense of maintaining a Customs officer at a
zone is a consideration in our decision to implement audit-inspection
supervision, there are other considerations of equal value. One is that
audit-inspection supervision would provide protection to the revenue,
which is equal to or greater than that under the existing systems. This
was apparent from a 4-year study of warehouses which had converted to
audit-inspection supervision. Another consideration is that the new system
allows Customs to assign personnel to other areas which have a higher
priority. A great many zone operators, grantees and users do not realize
that Customs warehouse and zone officer positions, although they are fully
reimburseable, are counted against Customs overall personnel ceiling. If
officers are assigned to warehouses and zones, there will be fewer officers
for assignment to higher priority tasks.
Comment: The proposed regulations do not reduce recordkeeping and
information costs to operators.
Response: We disagree. To meet present document filing requirements,
zone operators must gather, maintain, and compile certain data on their
zones's admissions and removals and file required documents with Customs.
Under the proposal, data gathering and maintenance needs will not change
appreciably, but required document filings will be reduced dramatically.
We estimate 50,000 -- 70,000 annual form filings will be eliminated by
the proposal, resulting in operator data handling and form filing cost
reductions of from $600,000 to $700,000. We regard document cost
reductions of an average $10,000 per year per activated zone site to be
real and significant.
Comment: Since Customs no longer will be approving operator procedures
manuals in their entirety, it is not fulfilling its obligations to assist
the importing and exporting public. Customs should therefore provide some
instruction to zone operators.
Response: We agree. Accordingly, Customs will provide the following
assistance to the importing and exporting and exporting public:
1. Every attempt has been made to make the new regulations clear and
concise.
2. Rewrite the Customs pamphlet on foreign trade zones.
3. Develop a booket on foreign trade zones for operators and users.
4. Provide informational seminars for the public on the new regulations.
5. Rewrite operational guidelines based upon the new regulations.
6. Provide materials and seminars for Customs personnel, as well as the
public.
Comment: Because of its impact, the proposal qualifies as a major rule
under E.O. 12291 and thus requires a regulatory analysis.
Response: We disagree. Section 1(b) of E.O. 12291 requires a regulatory
impact analysis for a proposal when one or more of the following criteria
are met:
(1) A net national economic cost of $100 million or more;
(2) Significant cost increases for consumers; and
(3) Adverse effect upon the international competitiveness of U.S. firms.
In conducting an initial regulatory analysis under the terms of the
Regulatory Flexibility Act (5 U.S.C. 603, 604), we concluded that none of
the criteria was met.
Comment: Many commentors object to the penalty and liquidated damages
provisions of the proposed regulations as excessive, unwarranted and not
comparable to the bonded warehouse liquidated damages provisions or the
penalties for fraud under section 592, Tariff Act of 1930, as amended
(19 U.S.C. 1592). They also question the authority of district directors
to suspend a zone's activated status, claiming that this action amounts
to revocation of the zone grant.
Response: As to the liquidated damages and penalties provisions of the
new regulations not being comparable to those for bonded warehouses, we
note that there are considerable differences between zones and bonded
warehouses. Merchandise in a bonded warehouse is in Customs territory,
has been entered, and is secured by both the warehouse proprietor's bond
and the warehoue entry bond, whereas merchandise in a zone is not in
Customs territory, is not entered and is not generally subject to the
Customs laws or the bonding requirements. Also, there is much greater
freedom to manufacture and manipulate merchandise in a zone than in a
bonded warehouse. In view of this relative freedom from Customs control of
activities in zones as compared to warehouses, the bonding requirments
proposed are minimal.
As to the comment that the liquidated damages provisons under the new
regulations should be consistent with those for bonded warehouses, we note
that the proposed liquidated damages provisions for restricted merchandise
or alcoholic beverages are consistent with those for such articles under
the importer's and warehouse proprietor's bonds. They are in a higher
amount than liquidated damages for other merchandise. This is necessary to
remove the economic incentive to breach the bond, in certain cases, in
order to evade quota, licensing, labeling or other restrictions.
With respect to liquidated damages claims not relating to merchandise,
the liquidated damages proposed were in an amount to be determined by the
district director, but not more than $200. Several commenters, however,
were of the opinion that liquidated damages for non-merchandise related
defaults of the zone operator's bond should be consistent with those for
default of the warehouse proprietor's bond. Customs agrees with this
position. Therefore, proposed @ 146.81 is deleted, and the zone operator's
bond in @ 113.73, Customs Regulations (19 CFR 113.73), is modified to
include the provisions previously appearing in @ 146.81. Liquidated
damages for merchandise and non-merchandise related defaults of the zone
operator's bond will conform to those applicable to the warehouse
proprietor's bond as well as other Customs bonds.
The only penalty provision in the new regulations is a restatement of
19 U.S.C. 81s (section 19, the Act), which authorizes a fine of not more
than $1,000 for violation of the Act or any regulations thereunder. The
regulations in Part 146, Customs Regulations, are regulations under the
Act. The penalty for fraud under 19 U.S.C. 1592 is the domestic value of
the merchandise plus any duties. These two penalty provisions are
concerned with preventing two different types of activity which bear no
relationship to each other. The penalties can in no way be compared to
each other.
With respect to Customs authority to suspend activation of a zone, in
proposed @ 146.83, we note that sections 3, 5, 8, and 15(b) of the Act
(19 U.S.C. 81c, e, h, o(b)), confer authority upon the Secretary of the
Treasury to make rules and regulations under the Act. Customs derives
this authority from the Secretary.
Suspension of activation of a zone is not a revocation of the zone
grant, which is the only remedy currently available to Customs for
improper activity or continued violations of the foreign trade zones
regulations, provided that the Board orders the revocation. Furthermore,
under section 18 of the Act (19 U.S.C. 81r), the zone grant cannot be
revoked without giving four months notice and taking other actions.
Suspension gives Customs an alternative method for dealing with improper
activity in a zone. It allows Customs to single out the improper activity,
subzone, or zone site involved and apply certain sanctions, without
disturbing other proper zone activities. For example, suspension may be
limited to the activities of a particular site, such as suspension of the
privilege to admit merchandise for a particular activity, and it may not
necessarily be directed at the activation of the zone as a whole. Proposed
@@ 146.83 (a) and (b)(1) (now @@ 146.82 (a) and (b)(1)) have been modified
to clarify this procedure.
Some commenters also object to the proposed regulations on suspension
on the grounds that they recognize only the operator as a party to
suspension proceedings. These commenters suggest that grantees and users
also be made parties to suspension proceedings. Customs agrees with this
suggestion with respect to grantees, and, accordingly, we have added new
paragraph (4) to @ 146.83(b) to recognize the grantee. However, we do not
agree that a user should be a party. Approval of zone activation is given
to a grantee or operator, not to users. Suspension, or partial suspension,
of that approval is a matter between Customs and the grantee or operator
who is responsible for the zone.
Finally, it is noted that suspensions are for a limited period, are
designed for fast action to minimize developing problems, and are
substantially less onerous than revocation provisions applicable to
customs brokers, warehouse proprietors, container station operators, and
cartmen.
Comment: Language is not used consistently and accurately throughout
the proposal. In describing the process of merchandise flow through a
zone, the following words are used: admit, brought, enter, receive,
remove, transfer, deliver, and withdraw. Also the terms zone, zone site,
noncontiguous zone site, zone user, zone firm, and zone seller are used
with different intents but without definition.
Response: Customs does not agree with this comment. Nevertheless, it
appears that some commenters do not understand, or misunderstand, the use
of a number of terms. Accordingly, it has been decided to revise and
expand the definitions section and, through editorial changes throughout
the proposed regulations, improve clarity. "Secretary", "Board", "State,"
"Corporation", "Public Corporation", "Private Corporation", "Applicant",
"Grantee", and "Zone", are defined in section 1 of the Act (19 U.S.C.
81a), and wherever those terms appear in Part 146, they are used in
consonance with their statutory meaning, unless otherwise stated. The
statutory definitions will not be repeated in the new regulations.
Definitions of several terms, i.e., "subzone", "operator", and "user"
have appeared in the proposed regulations of the Board published on
February 18, 1983, in the Federal Register (48 FR 7189). As it is not
known when those proposed regulations may become final, and as the use
of these words is necessary in these regulations, their definitions have
been added to @ 146.1. If it appears necessary, the definitions may be
modified when the proposed regulations of the Board become final.
The terms "zone site" and "noncontiguous zone site" result from
particular grants of authority by the Board to establish and operate a
zone. It is believed that grantees and operators of those sites are aware
of their meanings. The term "noncontiguous zone" has been deleted from
these regulations wherever it appears. A definition of "zone site" has
been added.
The exclusion of production equipment, building materials, and supplies
from the definition of "merchandise" in @ 146.1(h) is consistent with
Customs decision on this subject. Production equipment, building
materials, and supplies are not "merchandise" within the meaning of
section 3 of the Act (19 U.S.C. 81c) for the reasons set forth in Customs
Service Decision (C.S.D.) 79-418. Also, in H.Rept. 98-267 on H.R. 3398
(Trade and Tariff Act of 1984, June 24, 1983), at page 36, it is stated
that the Act does not apply to machinery and equipment. They are,
therefore, dutiable upon entry.
This position is supported by 19 U.S.C. 1311, the statute establishing
bonded manufacturing warehouses, which specifically prohibits the duty-
free entry of imported implements, machinery, or apparatus to be used in
the construction or repair of any bonded manufacturing warehouse or for
the prosecution of the business carried on therein. It would be
inconsistent for Customs to prohibit the duty-free entry of such articles
into a manufacturing warehouse, from which manufactured goods must be
exported, and to permit the duty-free entry of the same articles into a
zone. If zones had no such limitation, they would have a distinct
advantage over domestic manufacturers since domestic manufacturers are
required to enter and pay duty on those articles.
Review does not reveal differing intents in the use of "zone user",
"zone firm", and "zone seller" and their meaning is self-evident in
context. However, a definition of "user" has been added to @ 146.1, and
an effort has been made to remove the terms or to further clarify their
meaning by editorial changes.
"Enter", where used, refers to the entry of merchandise into the
Customs territory of the United States. "Withdrawal" refers to withdrawal
from warehouses. Both words are used in the ordinary tariff sense.
To minimize confusion, and since goods are neither entered into nor
withdrawn from a zone in the tariff sense, the words "admit", for bringing
goods into a zone in zone status, and "transfer", for taking goods out of
a zone, have been used. Definitions of these words have been added.
"Brought", "receive", "remove", and "deliver", wherever used, have their
ordinary meaning. While inconsistent and inaccurate use of the terms in
the proposed regulations is not evident, their use has been reviewed and
editorial changes have been made wherever appropriate.
Comment: Several commenters objected to the procedures for appealing
decisions of the district director denying applications to activate a zone
or suspending the activated status of a zone, but these comments were not
specific.
Response: We see no problem with the appeal procedure for suspensions
of the activated status of a zone or of certain activities in a zone. The
procedures include the right to request a hearing and to obtain the
decision of the regional commissioner.
With respect to denial of an application to activate a zone or zone
site, the decision of the district director is considered the final
administrative decision for several reasons. First, there may not even be
an appealable right. The grant to establish and operate a zone is
conditioned upon the grantee's obtaining all necessary permits and
licenses, and securing the permission of the district director to begin
operations in the zone. Where the district director denies activation
because the conditions have not been complied with, or for other stated
reasons, denial of activation does not result in denial of an appealable
right since the right to activate the zone has not been granted.
Secondly, the district director is more closely connected with the
application for and activation of a zone than Customs regional or
headquarters officials. Appeals of denials to the Customs region or to
Headquarters would result in little more than delay and inquiries into the
factual basis of the decision. We believe that the Board and the courts
provide the most suitable forum for appeals from denials of activation on
the part of the district director.
Comment: The annual fees proposed for zones are unreasonably high.
Response: We disagree. The purpose of the annual fee is to recover
Customs costs incurred in carrying out the audit-inspection supervision
program. The annual fee to be charged each zone is a function of the
degree of complexity in Customs auditing and inspection of zones.
Under the present inspectional system, Customs bills zone operators
approximately $1.3 million annually for inspectional services. Zone
operators recover this expense in their fee and rental/lease billings to
zone users. We estimate that the Customs component of these fees paid by
zone users averages $870 per year per user.
Under the proposed audit-inspection system with different fee tiers,
Customs billings to operators of general purpose zones will amount to
approximately $1 million per year, versus the estimated $1.3 million at
present. The Customs component of small business users' payment to
operators will average $670 per year per user, versus the $870 per year
per user at present. Future increases in the annual fee will reflect cost
increases incurred by Customs in delivering audit and inspection services.
These increases will consist largely of annual rises in labor costs. It
is expected that labor costs, and thus annual fees charged zone operators,
will rise by a moderate 2-4 percent each year.
The proposed fees, therefore, are not unreasonable. Moreover, the
proposed annual fee has been restructured into a three-tiered system with
the larger, more active zones set to pay higher fees than the smaller
zones. This would provide equitable treatment for the smaller zones in
that they would no longer subsidize the larger zones. Appendix B reflects
the revised structure of the annual fee.
Comment: Many commenters requested clarification of the respective
liabilities to Customs of grantees, operators, and users of zones.
Response: As the privilege of establishing, operating, and maintaining
a zone is given to a grantee, Customs is of the opinion that all
liabilities to Customs involving zone activities reside ultimately with
the grantee of the zone. If the operator is not the grantee, these
liabilities can be minimized by the operator's being named as principal
on the zone operator's bond. There is no liability to Customs on the part
of zone users, other than users that are also operators.
It is the grantee or the grantee and operator who have responsibilities
to Customs with the attendant liabilities. Grantees are free to make
whatever contractual agreements regarding indemnification with operators
and users that they choose. Furthermore, Customs is not aware of any way
that a grantee can divest itself of all liability, or limit its liability,
in the event of loss or damage to Customs resulting from zone activities.
While 19 U.S.C. 1623(c) and @ 113.51, Customs Regulations (19 CFR 113.51),
authorize the cancellation of bonds or bond charges under certain
circumstances, that authority does not apply to prospective transactions
nor does it extend to the waiver of any lawful claims against the grantee,
not secured by bond, that arise from zone activities.
Comment: A few comments were received concerning Subpart D, Part 146.
The commenters stated that many of the sections and subsections of Subpart
D were definitional in nature and should be in Subpart A.
Response: The subject matter of Subpart D -- the status of merchandise
in a zone is of sufficient importance to merit its own subpart. The terms
"privileged foreign merchandise," "nonprivileged foreign merchandise,"
"domestic merchandise," and "zone-restricted merchandise" do not appear
in the Act. They were coined to describe the status of certain merchandise
in a zone with reference to particular provisos of section 3 of the Act
(19 U.S.C. 81c). In that sense, the terms are not definitional but
descriptive, in that they simply provide a name for conditions prescribed
by law, e.g., "zone-restricted" describes the status of merchandise
subject to the fourth proviso of 19 U.S.C. 81c.
One commenter urged that @ 146.44 (zone-restricted merchandise) be
expanded to include a requirement that merchandise placed in a zone to
obtain payment of drawback and subsequently removed for shipment to an
insular possession of the U.S. be reported by the zone operator to the
district director. Upon consideration, it has been decided not to add that
requirement to Part 146. Section 191.13, Customs Regulations (19 CFR
191.13), provides that there is no authority to allow drawback on articles
shipped to insular possessions. There is authority to allow drawback on
articles placed in a zone in zone-restricted status. Subsequent shipment
of such articles to an insular possession would be contrary to the Act
since it would not be an exportation, destruction, or storage. The
likelihood of such shipments is remote and since @ 191.13 essentially
covers the situation, there is no need to make allowance for it in
@ 146.44.
In connection with the deletion of @ 146.14, @ 146.43 is amended to
specify that no permit will be required for the admission, handling, or
transfer to Customs territory of domestic status merchandise except: (1)
When mixed or combined with merchandise of another zone status, and (2)
when so ordered by the Commissioner in individual circumstances. The
latter residual authority is retained to allow Customs to properly
control domestic status merchandise in unusual circumstances. The
operator must still maintain proper records of domestic status merchandise
under Subpart B, Part 146, even if no permit is required.
Finally, a new @ 146.14 has been added. This section is a restatement
of the statutory limitation on retail trade in a zone, found in section
15(d) of the Act (19 U.S.C. 81o(d)).
Changes are made throughout the regulations to conform them to the
changes made by this document. Also, as a general point, whenever the
word "days" appears in this revision, it means calendar days, unless
"working days" is specified.
After careful analysis of all the comments received and upon further
review of the matter, it has been determined advisable to adopt the
proposed regulatory amendments with the various modifications as set
forth above.
Executive Order 12291
It has been determined that these amendments are not a "major rule"
within the criteria provided in section 1(b) of E.O. 12291, and therefore
no regulatory impact analysis is required.
Regulatory Flexibility Act
The provisions of the Regulatory Flexibility Act relating to an initial
and final regulatory flexibility analysis (5 U.S.C. 603, 604), are
applicable to this document. An initial regulatory analysis was prepared
and included in the NPRM as Appendix C. A final regulatory flexibility
analysis is attached to this document as an appendix.
Paperwork Reduction Act
The collection of information requirements contained in @ 146.25 and
the recordkeeping requirement contained in @ 146.4, are subject to the
provisions of the Paperwork Reduction Act (44 U.S.C. 3504(h)) and have
been cleared by the Office of Management and Budget (OMB). Accordingly,
Part 178, Customs Regulations (19 CFR Part 178), which lists the
information collections contained in the regulations and the control
numbers assigned by OMB, is being amended to include OMB control number
1515-0151.
Drafting Information
The principal author of this document was Susan Terranova, Regulations
Control Branch, Office of Regulations and Rulings, U.S. Customs Service.
However, personnel from other Customs offices participated in its
development.
List of Subjects in 19 CFR Parts 146 and 178
Customs duties and inspection, Exports, Foreign trade zones, Imports,
Reporting and recordkeeping requirements, Paperwork requirements,
Collections of information.
Amendments to the Regulations
Chapter I, Title 19, Code of Federal Regulations, is amended by revising
Part 146 to read as follows:
PART 146 -- FOREIGN TRADE ZONES
Sec.
146.0 Scope.
Subpart A -- General Provisions
146.1 Definitions.
146.2 District director as Board representative.
146.3 Customs supervision.
146.4 Operator responsibility and supervision.
146.5 Activation fee and annual fee.
146.6 Procedure for activation.
146.7 Zone changes.
146.8 Seals; authority of operator to break and affix.
146.9 Permission of operator.
146.10 Authority to examine merchandise.
146.11 Transportation of merchandise to a zone.
146.12 Use of zone by carrier.
146.13 Customs forms and procedures.
146.14 Retail trade within a zone.
Subpart B -- Inventory Control and Recordkeeping System
146.21 General requirements.
146.22 Admission of merchandise to a zone.
146.23 Accountability for merchandise in a zone.
146.24 Transfer of merchandise from a zone.
146.25 Annual reconciliation.
146.26 System review.
Subpart C -- Admission of Merchandise to a Zone
146.31 Admissibility of merchandise into a zone.
146.32 Application and permit for admission of merchandise.
146.33 Temporary deposit for manipulation.
146.34 Merchandise transiting a zone.
146.35 Temporary deposit in a zone; Incomplete documentation.
146.36 Examination of merchandise.
146.37 Operator admission responsibilities.
146.38 Certificate of arrival of merchandise.
146.39 Direct delivery procedures.
146.40 Operator responsibilities for direct delivery.
Subpart D -- Status of Merchandise in a Zone
146.41 Privileged foreign status.
146.42 Nonprivileged foreign status.
146.43 Domestic status.
146.44 Zone-restricted status.
Subpart E -- Handling of Merchandise in a Zone
146.51 Customs control of merchandise.
146.52 Manipulation, manufacture, exhibition, or destruction; Customs
Form 216.
146.53 Shortages and overages.
Subpart F -- Transfer of Merchandise From a Zone
Sec.
146.61 Constructive transfer to Customs territory.
146.62 Entry.
146.63 Entry for consumption.
146.64 Entry for warehouse.
146.65 Classification, valuation, and liquidation.
146.66 Transfer of merchandise from one zone to another.
146.67 Transfer of merchandise for exportation.
146.68 Transfer for transportation or exportation; estimated production.
146.69 Supplies, equipment, and repair material for vessels or aircraft.
146.70 Transfer of zone-restricted merchandise into Customs territory.
146.71 Release and removal of merchandise from zone.
Subpart G -- Penalties; Suspension; Revocation
146.81 Penalties.
146.82 Suspension.
146.83 Revocation of zone grant.
Authority: 19 U.S.C. 66, 81a - 81u, 1202 (Gen. Hdnote 11), 1623, 1624,
@ 146.5 also issued under 31 U.S.C. 9701.
@ 146.0 Scope.
Foreign trade zones are established under the Foreign Trade Zones Act
and the general regulations and rules of procedure of the Foreign Trade
Zones Board contained in 15 CFR Part 400. This Part 146 of the Customs
Regulations governs the admission of merchandise into a foreign trade
zone, manipulation, manufacture, or exhibition in a zone; exportation of
the merchandise from a zone; and transfer of merchandise from a zone into
Customs territory.
Subpart A -- General Provisions
@ 146.1 Definitions.
(a) The following words, defined in section 1 of the Foreign-Trade Zones
Act of 1934, as amended (19 U.S.C. 81a), are given the same meaning when
used in this part, unless otherwise stated: "Board", "Grantee", and
"Zones".
(b) The following are general definitions for the purpose of this part:
(1) Act. "Act" means the Foreign-Trade Zones Act of June 18, 1934, as
amended (48 Stat. 998-1003; 19 U.S.C. 81a-u).
(2) Activation. "Activation" means approval by the grantee and district
director for operations and for the admission and handling of merchandise
in zone status.
(3) Admit. "Admit" means to bring merchandise into a zone with zone
status.
(4) Alteration. "Alteration" means a change in the boundaries of an
activated zone or subzone; activation of a separate site of an already-
activated zone or subzone with the same operator at the same port; or the
relocation of an already-activated site with the same operator.
(5) Customs territory. "Customs territory" is the territory of the U.S.
in which the general tariff laws of the U.S. apply. "Customs territory of
the United States" includes only the States, the District of Columbia,
and Puerto Rico. (General Headnote 2, Tariff Schedules of the United
States (19 U.S.C. 1202)).
(6) Constructive transfer. "Constructive transfer" is a legal fiction
which permits acceptance of a Customs entry for merchandise in a zone
before its physical transfer to the Customs territory.
(7) Deactivation. "Deactivation" means voluntary discontinuation of the
activation of an entire zone or subzone by the grantee or operator.
Discontinuance of the activated status of only a part of a zone site is
an alteration.
(8) Default. "Default" means an action or omission that will result in
a claim for duties, taxes, charges, or liquidated damages under the
Foreign Trade Zone Operator Bond.
(9) Merchandise. "Merchandise" includes goods, wares and chattels of
every description, except prohibited merchandise. Building materials,
production equipment, and supplies for use in operation of a zone are not
"merchandise" for the purpose of this part.
(10) Domestic merchandise. "Domestic merchandise" is merchandise which
has been (i) produced in the U.S. and not exported therefrom, or (ii)
previously imported into Customs territory and properly released from
Customs custody.
(11) Foreign merchandise. "Foreign merchandise" is imported merchandise
which has not been properly released from Customs custody in Customs
territory.
(12) Conditionally admissible merchandise. "Conditionally admissible
merchandise" is merchandise which may be imported into the U.S. under
certain conditions. Merchandise which is subject to permits or licenses,
or which may be reconditioned to bring it into compliance with the laws
administered by various Federal agencies, is an example of conditionally
admissible merchandise.
(13) Prohibited merchandise. "Prohibited merchandise" is merchandise
the importation of which is prohibited by law on grounds of public policy
or morals, or any merchandise which is excluded from a zone by order of
the Board. Books urging treason or insurrection against the U.S., obscene
pictures, and lottery tickets are examples of prohibited merchandise.
(14) Fungible merchandise. "Fungible merchandise" means merchandise
which for commercial purposes is identical and interchangeable in all
situations.
(15) Operator. "Operator" is a corporation, partnership, or person that
operates a zone or subzone under the terms of an agreement with the zone
grantee. Where used in this part, the term "operator" also applies to a
"grantee" that operates its own zone.
(16) Reactivation. "Reactivation" means a resumption of the activated
status of an entire area that was previously deactivated without any
change in the operator or the area boundaries. If the boundaries are
different, the action is an alteration. If the operator is different, it
is an activation.
(17) Subzone. "Subzone" is a special-purpose zone established as part
of a zone project for a limited purpose, that cannot be accommodated
within an existing zone. The term "zone" also applies to a subzone,
unless specified otherwise.
(18) Transfer. "Transfer" means to take merchandise with zone status
from a zone for consumption, transportation, exportation, warehousing,
cartage or lighterage, vessel supplies and equipment, admission to
another zone, and like purposes.
(19) Unique identifier. "Unique identifier" means the numbers, letters,
or combination of number and letters that identify merchandise admitted to
a zone with zone status.
(20) User. "User" means a person or firm using a zone or subzone for
storage, handling, or processing of merchandise.
(21) Zone lot. "Zone lot" means a collection of merchandise maintained
under an inventory control method based on specific identification of
merchandise admitted to a zone by lot.
(22) Zone site. "Zone site" means the physical location of a zone or
subzone.
(23) Zone status. "Zone status" means the status of merchandise admitted
to a zone, i.e., nonprivileged foreign, privileged foreign, zone
restricted, or domestic.
@ 146.2 District director as Board representative.
The district director in whose district the zone is located shall be
in charge of the zone as the representative of the Board.
@ 146.3 Customs supervision.
(a) Assignment of Customs officers. Customs officers will be assigned
or detailed to a zone as necessary to maintain appropriate Customs
supervision of merchandise and records pertaining thereto in the zone,
and to protect the revenue.
(b) Supervision. Customs supervision over any zone or transaction
provided for in this part will be in accordance with @ 161.1 of this
chapter. The district director may direct a Customs officer to supervise
any transaction or procedure at a zone. Supervision may be performed
through a periodic audit of the operator's records, quantity count of
goods in a zone inventory, spot check of selected transactions or
procedures, or review of recordkeeping, security, or conditions of
storage in a zone.
@ 146.4 Operator responsibility and supervision.
(a) Supervision. The operator shall supervise all admissions,
transfers, removals, recordkeeping, manipulations, manufacturing,
destruction, exhibition, physical and procedural security, and conditions
of storage in the zone as required by law and regulations. Supervision by
the operator shall be that which a prudent manager of a storage,
manipulation, or manufacturing facility would be expected to exercise,
and may take into account the degree of supervision exercised by the zone
user having physical possession of zone merchandise.
(b) Customs access. The operator shall permit any Customs officer
access to a zone.
(c) Safekeeping of merchandise and records. The operator is responsible
for safekeeping of merchandise and records concerning merchandise admitted
to a zone. The operator, at its liability, may allow the zone importer or
owner of the goods to store, safeguard, and otherwise maintain or handle
the goods and the inventory records pertaining to them.
(d) Records maintenance. The operator shall (1) maintain the inventory
control and recordkeeping system in accordance with the provisions of
Subpart B, (2) retain all records required in this Part and defined in
@ 162.1(a) of this chapter, pertaining to zone merchandise for 5 years
after the merchandise is removed from the zone, and (3) protect
proprietary information in its custody from unauthorized disclosure.
Records shall be readily available for Customs review at the zone.
(e) Merchandise security. The operator shall maintain the zone and
establish procedures adequate to ensure the security of merchandise
located in the zone in accordance with applicable Customs security
standards and specifications.
(f) Storage and handling. The operator shall store and handle
merchandise in a zone in a safe and sanitary manner to minimize damage
to the merchandise, avoid hazard to persons, and meet local, state, and
Federal requirements applicable to a specific kind of goods. All trash
and waste will be promptly removed from a zone. Aisles will be established
and maintained, and doors and entrances left unblocked for access by
Customs officers and other persons in the performance of their official
duties.
(g) Guard service. The operator is authorized to provide guards or
contract for guard service to safeguard the merchandise and ensure the
security of the zone. This authorization does not limit the authority of
the district director to assign Customs guards to protect the revenue
under section 4 of the Act (19 U.S.C. 81d).
(h) Miscellaneous responsibilities. The operator is responsible for
complying with requirements for admission, manipulation, manufacture,
exhibition, or destruction, shortage, or overage; inventory control and
recordkeeping systems, transfer to Customs territory, and other
requirements as specified in this part.
@ 146.5 Activation fee and annual fee.
The operator, or where there is no operator, the grantee, will be
charged a nonrefundable fee to activate a zone or any portion of a zone,
or to alter or relocate an activated portion of a zone, under the
provisions of 31 U.S.C. 9701. The operator of an activated zone will be
charged a nonrefundable annual fee for each activated zone as payment of
the cost of the additional Customs service required under the Act as
provided in 19 U.S.C. 81n and the regulations in this part. The operator
or grantee shall pay the annual fee to the district director of the
district in which the zone is located within 14 days after activation and
within 14 days after the effective date of the published fee schedule for
each year thereafter that the area remains activated. The fee schedule
will be revised annually and published in the Federal Register and the
Customs Bulletin.
@ 146.6 Procedure for activation.
(a) Application. A zone operator, or where there is no operator, a
grantee, shall make written application to the district director of the
district in which the zone is located to obtain approval of activation of
a zone or zone site. The area to be activated may be all or any portion
of the zone approved by the Board. The application must include a
description of all the zone sites covered by the application, any
operation to be conducted therein, and a statement of the general
character of the merchandise to be admitted.
(b) Supporting documents. The application must be accompanied by the
following:
(1) The application fee required by @ 146.5;
(2) A blueprint of the area approved by the Board to be activated
showing area measurements, including all openings and buildings; and all
outlets, inlets, and pipelines to any tank for the storage of liquid or
similar product, that portion of the blueprint certified to be correct by
the operator of the tank;
(3) A gauge table, when appropriate, showing the capacity, in the
appropriate unit, of any tank, certified to be correct by the operator
of the tank;
(4) A procedures manual describing the inventory control and
recordkeeping system that will be used in the zone, certified by the
operator or grantee to meet the requirements of Subpart B; and
(5) The written concurrence of the grantee, when the operator applies
for activation, in the requested zone activation.
(c) Inquiry by district director. As a condition of approval of the
application, the district director may order an inquiry by a Customs
officer into:
(1) The qualifications, character, and experience of an operator and/
or grantee and their principal officers; and
(2) The security, suitability, and fitness of the facility to receive
merchandise in a zone status.
(d) Decision of the district director. The district director shall
promptly notify the applicant in writing of his decision to approve or
deny the application to activate the zone. If the application is denied,
the notification will state the grounds for denial which need not be
limited to those listed in @ 146.82. The decision of the district director
will be the final Customs administrative determination in the matter. On
approval of the application, a Foreign Trade Zone Operator's Bond shall
be executed on Customs Form 301, containing the bond conditions of
@ 113.73 of this chapter.
(e) Activation. Upon the district director's approval of the
application and acceptance of the executed bond, the zone or zone site
will be considered activated; and merchandise may be admitted to the zone.
Execution of the bond by an operator does not lessen the liability of the
grantee to comply with the Act and implementing regulations.
@ 146.7 Zone changes.
(a) Alteration of an activated area. An operator shall make written
application to the district director for approval of an alteration of an
activated area, including an alteration resulting from a zone boundary
modification. The application must be accompanied by the fee required in
@ 146.5 and the supporting document requirements specified in @ 146.6, as
applicable. The district director may review the security, suitability,
and fitness of the area, and shall reply to the applicant as provided
for in @ 146.6.
(b) Deactivation or reactivation. A grantee, or an operator with the
concurrence of a grantee, shall make written application to the district
director for deactivation of a zone site, indicating by layout or
blueprint the exact site to be deactivated. The district director shall
not approve the application unless all merchandise in the site in zone
status (other than domestic status) has been removed at the risk and
expense of the operator. The district director may require an accounting
of all merchandise in a zone as a condition of approving the deactivation.
A zone may be reactivated using the above procedure if a sufficient bond
is on file under @ 146.6(d). No fee is required for deactivation or
reactivation.
(c) Suspension of activated site. When approval of an activated status
has been suspended through the procedure in Subpart G, the district
director may require all goods in that area in zone status (other than
domestic status) to be transferred to another zone, a bonded warehouse,
or other location where they may lawfully be stored, if the district
director considers that transfer advisable to protect the revenue or
administer any Federal law or regulation.
(d) New bond. The district director may require an operator to furnish,
on 10 days notice, a new Foreign Trade Zone Operator's Bond on Customs
Form 301. If the operator fails to furnish the new bond, no more
merchandise will be received in the zone in zone status. Merchandise in
zone status (other than domestic status) will be removed at the risk and
expense of the operator. A new bond may be required if (1) the activated
zone area is substantially altered; (2) the character of merchandise
admitted to the zone or operations performed in the zone are substantially
changed; (3) the existing bond lacks good and sufficient surety; or (4)
for any other reason that substantially affects the liability of the
operator under the bond. Although a new bond may not be required, the
operator shall obtain the consent of the surety to any material
alteration in the boundaries of the zone.
(e) New operator. A grantee of an activated zone site shall make
written application to the district director for approval of a new
operator, submitting with the application a certification by the new
operator that the inventory control and recordkeeping system meets the
requirements of Subpart B, and a copy of the system procedures manual
if different from the previous operator's manual. The district director
may order an inquiry into the qualifications, character, and experience
of the operator and its principal officers.
(f) The bond in @ 146.6 shall be submitted by the operator before the
operating agreement may become effective in respect to merchandise in
zone status. The district director shall promptly notify the grantee,
in writing, of the approval or disapproval of the application.
(g) List of officers, employees, and other persons. The district
director may make a written demand upon the operator to submit, within
30 days after the date of the demand, a written list of the names,
addresses, social security numbers, and dates and places of birth of
officers and persons having a direct or indirect financial interest in
the operator, and of persons employed in the carriage, receipt or
delivery of merchandise in zone status, whether employed by the zone
operator or a zone user. If a list was previously furnished, the
district director may make a written demand for the same information
in respect to new persons employed in the carriage, receipt, or delivery
of zone status merchandise within 10 days after such employment. The
list need not include employees of common or contract carriers
transporting goods to or from the zone.
@ 146.8 Seals, authority of operator to break and affix.
The district director may authorize an operator to break a Customs
in-bond seal affixed under @ 18.4 of this chapter, or under any Customs
order of directive, on any vehicle or intermodal container containing
merchandise approved for admission to the zone upon its arrival at the
zone; or to affix a Customs in-bond seal to any vehicle or intermodal
container of merchandise for which an entry, withdrawal, or other
approval document has been obtained for movement in-bond from the zone.
The authorized affixing or breaking of that seal will be considered to
have been done under Customs supervision. The operator shall report to
the district director, upon arrival of the vehicle or container at the
zone, any seal found to be broken, missing, or improperly affixed, and
hold the vehicle or container and its contents intact pending instructions
from the district director. If the operator does not obtain the written
concurrence of the carrier as to the condition of the seal or delivering
conveyance, the district director shall deem the seal or delivering
conveyance to be intact.
@ 146.9 Permission of operator.
An application for permission to admit merchandise into a zone, or to
manipulate, manufacture, exhibit, or destroy merchandise in a zone must
include the written concurrence of the operator, except where the
regulations of this part provide for the making of application by the
operator itself or where the operator files a separate specific or blanket
application. The written concurrence of the operator in the removal of
merchandise from a zone is not required because the merchandise is
released by the district director to the operator for delivery from the
zone, as provided in @ 146.71 (a).
@ 146.10 Authority to examine merchandise.
The district director may cause any merchandise to be examined before
or at the time of admission to a zone, or at any time thereafter, if the
examination is considered necessary to facilitate the proper
administration of any law, regulation, or instruction which Customs is
authorized to enforce.
@ 146.11 Transportation of merchandise to a zone.
(a) From outside Customs territory. Merchandise may be admitted
directly to a zone from any place outside Customs territory.
(b) Through Customs territory, foreign merchandise. Foreign merchandise
destined to a zone and transported in-bond through Customs territory will
be subject to the laws and regulations applicable to other merchandise
transported in-bond between two places in Customs territory.
(c) From Customs territory, domestic merchandise. Domestic merchandise
may be admitted to a zone from Customs territory by any means of
transportation which will not interfere with the orderly conduct of
business in the zone.
(d) From a bonded warehouse. Merchandise may be withdrawn from a bonded
warehouse under the procedures in @ 144.37(g) of this chapter and
transferred to a zone for admission in zone-restricted status.
@ 146.12 Use of zone by carrier.
(a) Primary use; lading and unlading. The water area docking facilities,
and any lading and unlading stations of a zone are intended primarily for
the unlading of merchandise into the zone or the lading of merchandise for
removal from the zone. Their use for other purposes may be terminated by
Customs if found to endanger the revenue, or by the Board if found to
impede the primary use of the zone.
(b) Carrier in zone not exempt from law or regulations. Nothing in the
Act or the regulations in this part shall be construed as excepting any
carrier entering, remaining in, or leaving a zone from the application of
any other law or regulation.
@ 146.13 Customs forms and procedures.
Where a Customs form or other document is required in this part, the
number of copies of the form or document required to be presented and
their manner of distribution and processing shall be determined by the
district director, except as otherwise specified in this part.
@ 146.14 Retail trade within a zone.
Retail trade is prohibited within a zone except as provided in 19
U.S.C. 81o(d). See also the regulations of the Board as contained in 15
CFR Part 400.
Subpart B -- Inventory Control and Recordkeeping System
@ 146.21 General requirements.
(a) Systems capability. The operator shall maintain either manual or
automated inventory control and recordkeeping systems or combination
manual and automated systems capable of:
(1) Accounting for all merchandise, including domestic status
merchandise, temporarily deposited, admitted, granted a zone status and/
or status change, stored, exhibited, manipulated, manufactured, destroyed,
transferred, and/or removed from a zone;
(2) Producing accurate and timely reports and documents as required by
this part;
(3) Identifying shortages and overages of merchandise in a zone in
sufficient detail to determine the quantity, description, tariff
classification, zone status, and value of the missing or excess
merchandise;
(4) Providing all the information necessary to make entry for
merchandise being transferred to the Customs territory;
(5) Providing an audit trail to Customs forms from admission through
manipulation, manufacture, destruction or transfer of merchandise from a
zone either by zone lot or Customs authorized inventory method.
(b) Procedures manual.
(1) The operator shall provide the district director with an English
language copy of its written inventory control and recordkeeping systems
procedures manual in accordance with the requirements of this part.
(2) The operator shall keep current its procedures manual and shall
submit to the district director any change at the time of its
implementation.
(3) The operator may authorize a zone user to maintain its individual
inventory control and recordkeeping system and procedures manual. The
operator shall furnish a copy of the zone user's procedures manual,
including any subsequent changes, to the district director. However, the
operator will remain responsible to Customs and liable under its bond for
supervision, defects in, or failures of a system.
(4) The operator's procedures manual and subsequent changes will be
furnished to the district director for information purposes only. Customs
receipt of a manual does not indicate approval or rejection of a system.
(c) Liability of operator. Upon zone activation approval the operator
remains liable for complying with all inventory control and recordkeeping
system requirements set forth in this part.
@ 146.22 Admission of merchandise to a zone.
(a) Identification. All merchandise will be recorded in a receiving
report or document using a zone lot number or unique identifier. All
merchandise, except domestic status merchandise for which no permit for
admission is required under @ 146.43, will be traceable to a Customs
Form 214 and accompanying documentation.
(b) Reconciliation. Quantities received will be reconciled to a
receiving report or document such as an invoice with any discrepancy
reported to the district director as provided in @ 146.37.
(c) Incomplete documentation. Merchandise received without complete
Customs documentation or which is unacceptable to the inventory control
and recordkeeping system will be recorded in a suspense account or record
until documentation is complete or the system is capable of accepting the
information, at which time it will be formally admitted to the zone under
@ 146.32 or 146.40. The receiving report or document will provide
sufficient information to identify the merchandise and distinguish it
from other merchandise. The suspense account or record will be completely
documented for Customs review to explain the differences noted and
corrections made.
(d) Recordation. Merchandise received will be accurately recorded in
the inventory system records from the receiving report or document using
the zone lot number or unique identifier for traceability. The inventory
record will state the quantity and date admitted, cost or value where
applicable, zone status, and description of the merchandise, including
any part or stock number.
@ 146.23 Accountability for merchandise in a zone.
(a) Identification of merchandise.
(1) General. A zone lot number or unique identifier will be used to
identify and trace merchandise.
(2) Fungible merchandise. Fungible merchandise may be identified by an
inventory method authorized by Customs, which is consistently applied,
such as First-In-First-Out (FIFO) and using a unique identifier.
(b) Inventory records. The inventory records will specify by zone lot
number or unique identifier:
(1) Location of merchandise;
(2) Zone status;
(3) Cost or value, unless operator's or user's financial records
maintain cost or value and the records are made available for Customs
review;
(4) Beginning balance, comulative receipts and removals, adjustments,
and current balance on hand by date and quantity;
(5) Destruction of merchandise; and
(6) Scrap, waste, and by-products.
(c) Physical inventory. The operator shall take at least an annual
physical inventory of all merchandise in the zone (unless continuous
cycle counts are taken as part of an ongoing inventory control program)
with prior notification of the date(s) given to Customs for any supervision
of the inventory deemed necessary. The operator shall notify the district
director of any discrepancies in accordance with @ 146.53.
@ 146.24 Transfer of merchandise from a zone.
(a) Accountability.
(1) All zone status merchandise transferred from a zone will be
accurately recorded within the inventory control and recordkeeping system.
(2) The inventory control and recordkeeping system for merchandise
transfers must have the capability to trace all transfers back to a zone
admission under a Customs authorized inventory method.
(b) Information. The inventory control and recordkeeping system must be
capable of providing all information necessary to make entry for transfer
of merchandise from the zone.
@ 146.25 Annual reconciliation.
(a) Report. The operator shall prepare a reconciliation report within
90 days after the end of the zone/subzone year unless the district
director authorizes an extension for reasonable cause. The operator shall
retain that annual reconciliation report for a spot check or audit by
Customs, and need not furnish it to Customs unless requested. There is no
form specified for the preparation of the report.
(b) Information required. The report must contain a description of
merchandise for each zone lot or unique identifer, zone status, quantity
on hand at the beginning of the year, cumulative receipts and transfers
(by unit), quantity on hand at the end of the year, and cumulative
positive and negative adjustments (by unit) made during the year.
(c) Certification. The operator shall submit to the district director
within 10 working days after the annual reconciliation report, a letter
signed by the operator certifying that the annual reconciliation has been
prepared, is available for Customs review, and is accurate. The
certification letter must contain the name and street address of the
operator, where the required records are available for Customs review; and
the name, title, and telephone number of the person having custody of the
records. Reporting of shortages and overages based on the annual
reconciliation will be made in accordance with @ 146.53. These reports
must accompany the certification letter.
@ 146.26 System review.
The operator shall perform an annual internal review of the inventory
control and recordkeeping system and shall report to the district director
any deficiency discovered and corrective action taken, to ensure that the
system meets the requirements of this part.
Subpart C -- Admission of Merchandise to a Zone
@ 146.31 Admissibility of merchandise into a zone.
Merchandise of every description may be admitted into a zone unless
prohibited by law. A distinction is made between prohibited and
conditionally admissible merchandise.
(a) Prohibited merchandise. District directors shall not admit
prohibited merchandise. If there is a question as to whether the
merchandise may be prohibited, district directors may permit the
temporary deposit of the merchandise in a zone pending a final
determination of its status. Any prohibited merchandise which is
found within a zone will be disposed of in the manner provided for in the
laws and regulations applicable to that merchandise.
(b) Conditionally admissible merchandise. The admission of this
merchandise into a zone is subject to the regulations of the Federal
agency concerned.
@ 146.32 Application and permit for admission of merchandise.
(a) Application on Customs Form 214 and permit. Merchandise may be
admitted into a zone only upon application on a uniquely and sequentially
numbered Customs Form 214 ("Application for Foreign Trade Zone Admission
and/or Status Designation") and the issuance of a permit by the district
director. Exceptions to the Customs Form 214 requirement are for
merchandise temporarily deposited (@ 146.33), transiting merchandise
(@ 146.34), or domestic merchandise admitted without permit (@ 146.43).
The applicant for admission shall present the application to the district
director and shall include a statistical copy on Customs Form 214-A for
transmittal to the Bureau of Census, unless the applicant has made
arrangements for the direct transmittal of statistical information to
that agency.
(b) Supporting documents. -- (1) Commercial documentation. The applicant
shall submit with the application two copies of an examination invoice
meeting the requirements of Subpart F, Part 141, of this chapter, for any
merchandise, other than that excepted in paragraph (a) of this section,
to be admitted to a zone. The notation of tariff classification and value
required by @ 141.90 of this chapter need not be made, unless the
merchandise is to be admitted in privileged status.
(2) Evidence of right to make entry. The applicant for admission shall
submit with the application a document similar to that which would be
required as evidence of the right to make entry for merchandise in
Customs territory under @ 141.11 or @ 141.12 of this chapter.
(3) Release order. Merchandise will not be authorized for delivery by
Customs to a zone until a release order has been executed by the carrier
which brought the merchandise to the port, unless the merchandise is
released back to that same carrier for delivery to the zone (see @ 141.11
of this chapter). When a release order is required, it will be made on
any of the forms specified in @ 141.111 of this chapter, or by the
following statement attached to Customs Form 214:
Authority is hereby given to release the merchandise described in this
application to
--
Name of Carrier
--
Signature and title of carrier
representative
--
A blanket or qualified release order may be authorized for the transfer
of merchandise to a zone as provided for in @ 141.111 of this chapter.
(4) Application to unlade. For merchandise unladen in the zone directly
from the importing carrier, the application on Customs Form 214 will be
supported by an application to unlade on Customs Form 3171.
(5) Other documentation. The district director may require additional
information or documentation as needed to conduct an examination of
merchandise under Customs selective entry processing criteria, or to
determine whether the merchandise is admissible to the zone.
(c) Conditions for issuance of a permit. The district director will
issue a permit for admission of merchandise to a zone when:
(1) The application is properly executed and includes the zone status
desired for the merchandise, as provided in Subpart D of this part;
(2) The operator's approval appears either on the application or in a
separate specific or blanket approval;
(3) The merchandise is retained for examination at the place of
unlading, the zone, or other location designated by the district director,
except for merchandise for direct delivery to a zone under @@ 146.39 and
146.40. The merchandise may be examined as if it were to be entered for
consumption or warehouse; and
(4) All requirements have been fulfilled.
(d) Blanket application for admission of merchandise. Merchandise may
be admitted to a zone under blanket application upon presentation of a
Customs Form 214 covering more than one shipment of merchandise. A blanket
application for admission is for:
(1) Shipments which arrive under one transportation entry as described
in @ 141.55 of this chapter, or
(2) Shipments which are destined to the same zone applicant on a single
business day, in which case the applicant shall:
(i) Present the examination invoices required by paragraph (b) of this
section to the district director before the merchadise is admitted into
the zone,
(ii) Have been approved for the direct transmittal of statistical trade
information to the Bureau of Census under an agreement with that agency;
and
(iii) Have examination invoices containing a unique identifier to trace
the shipment to the manifest of the carrier that brought the merchandise
to the port having jurisdiction over the zone, as well as to the
inventory control and recordkeeping system of the operator as described
in Subpart B.
@ 146.33 Temporary deposit for manipulation.
Imported merchandise for which an entry has been made and which has
remained in continuous Customs custody may be brought temporarily to a
zone for manipulation and return to Customs territory under Customs
supervision, pursuant to section 562, Tariff Act of 1930, as amended
(19 U.S.C. 1562), and @ 19.11 of this chapter. That merchandise will not
be considered within the purview of the Act but will be treated as though
remaining in Customs territory. No zone form or procedure will be
considered applicable, but the merchandise will remain subject to any
requirements necessary for the enforcement of section 562 and other
Customs laws while in the zone.
@ 146.34 Merchandise transiting a zone.
The following procedure is applicable when merchandise is to be
unladen from any carrier in the zone for immediate transfer to Customs
territory, or if it is to be transferred from Customs territory through
the zone for immediate lading on any carrier in the zone:
(a) Application. Application for permission to lade or unlade will be
filed with the district director on Customs Form 3171 prior to transfer
of the merchandise into the zone.
(b) Permit. The district director shall permit the transfer unless he
has reason to believe that the merchandise will not be moved promptly
from the zone or will be made the subject of an application for admission
in accordance with @ 146.32(a).
(c) Treatment of merchandise. Upon the issuance of a permit to lade,
or unlade, the merchandise will be treated as though the lading or
unlading were in the Customs territory.
(d) Delay in zone transit. Merchandise delayed while transiting a zone
must be made the subject of an application for admission in accordance
with @ 146.32, or it must be removed from the zone.
@ 146.35 Temporary deposit in a zone; Incomplete documentation.
(a) General. Temporary deposit of merchandise in a zone is allowed in
circumstances where the information or documentation necessary to complete
the Customs Form 214 is not available at the time of arrival of
merchandise within the jurisdiction of the port. The merchandise will be
subject to examination as provided in @ 146.36.
(b) Application. An application for temporary deposit will be made to
the district director on a properly signed and uniquely numbered Customs
Form 214, annotated clearly "Temporary Deposit in a Zone".
(c) Conditions. Merchandise temporarily deposited under the provisions
of this section has no zone status and is considered to be in the Customs
territory. It will:
(1) Be physically segregated from all other zone merchandise;
(2) Be held under the bond and at the risk of the operator; and
(3) Be manipulated only to the extent necessary to obtain sufficient
information about the merchandise to file the appropriate admission or
entry documentation.
(d) Approval. The district director shall approve the application for
temporary deposit of merchandise in a zone if the provisions of
paragraphs (b) and (c) are met.
(e) Submission of Customs Form 214. A complete and accurate Customs
Form 214 will be submitted, as provided in @ 146.32, within 5 working
days plus any extension granted by the district director, or the
merchandise shall be placed in general order.
@ 146.36 Examination of merchandise.
Except for direct delivery procedures provided for in @ 146.39, all
merchandise covered by a Customs Form 214 may be retained for Customs
examination at the place of unlading, the zone, or another location, as
designated by the district director. The district director may authorize
release of the merchandise without examination, as provided in @ 151.2 of
this chapter. If a physical examination is conducted, the Customs officer
shall note the results of the examination on the examination invoices.
@ 146.37 Operator admission responsibilities.
(a) Maintenance of admission documentation. The operator shall maintain
either:
(1) Lot file. The operator shall open and maintain a lot file containing
a copy of the Customs Form 214, the examination invoice, and all other
documentation necessary to account for the merchandise covered by each
Customs Form 214. The lot file will be maintained in sequential order by
using the unique number assigned to each Customs Form 214 as the file
reference number; or
(2) Authorized inventory method. Where a Customs authorized inventory
method other than a lot system (specific identification of merchandise)
is use, e.g., First-In-First-Out (FIFO), no lot file is required but the
operator shall maintain a file of all Customs Form's 214 in sequential
order.
(b) Examination invoice. The operator shall give a copy of the
examination invoice to the person making entry to transfer the merchandise
from the zone upon request of that person or the district director.
(c) Liability for merchandise. The operator will be held liable under
its bond for the receipt of merchandise admitted in the quantity and
condition as described on the Customs Form 214, except as modified by a
discrepancy report:
(1) Signed jointly by the operator and carrier on the Customs Form 214
or other approved form within 15 days after admission of the merchandise,
and reported to the district director within 2 working days thereafter; or
(2) Submitted on Customs Form 5931 under the provisions of Subpart A,
Part 158, of this chapter within 20 days after admission of the
merchandise. The operator may file a Customs Form 5931 on behalf of the
person who applied for admission of merchandise to the zone.
(d) Supervision of merchandise. The district director may authorize the
receipt of zone status merchandise at a zone without physical supervision
by a Customs officer (see @ 146.3). In that case, the operator shall
supervise the receipt of merchandise into the zone, report the receipt
and condition of the merchandise, and mark packages with the unique
Customs Form 214 number so that the merchandise can be traced to a
particular Customs Form 214. Packages that are accounted for under a
Customs-authorized inventory method other than specific identification,
need not be marked with a unique Customs Form 214 number but must be
adequately identified so Customs can conduct an inventory count. The
operator shall submit the Custom Form 214 to Customs at the location
specified by the district director.
@ 146.38 Certificate of arrival of merchandise.
Whenever a certificate prepared by Customs as to the arrival of any
merchandise in a zone is required by a Federal agency, the district
director shall issue the document certifying only that authorization to
deliver the merchandise to a zone has been made. The operator shall issue
a certificate of arrival of merchandise at a zone.
@ 146.39 Direct delivery procedures.
(a) General. This procedure is for delivery of merchandise to a zone
without prior application and approval on Customs Form 214.
(b) Application. An operator, meeting the criteria of paragraph (c) of
this section, shall file a written application with the district director
at least 30 days before the special procedure is to become effective. The
application will describe the merchandise to be handled or processed, and
the kind of operation which it will undergo in the zone.
(c) Criteria. The district director shall approve the application if
the following criteria are met:
(1) The merchandise is not restricted or of a type which requires
Customs examination or documentation review before or upon its arrival at
the zone;
(2) The merchandise to be admitted to the zone, and the operations to
be conducted therein, are known well in advance, are predictable and
stable over the long term, and are relatively fixed in variety by the
nature of the business conducted at the site; and
(3) The operator is the owner or purchaser of the goods.
(d) Application decision. The district director shall promptly notify
the operator, in writing, of Customs decision on the application. If the
application is denied, the district director shall specify the reason for
denial in his reply. The district director's decision will constitute the
final Customs administrative determination concerning the application.
(e) Revocation of approval. The district director may revoke the
approval given under this section if it becomes necessary for Customs
routinely to examine the merchandise or documentation before or upon
admission to the zone.
@ 146.40 Operator responsibilities for direct delivery.
(a) Arrival of conveyance. Upon arrival at a subzone or zone site of a
conveyance containing foreign merchandise, the operator shall:
(1) Collect in-bond or cartage documentation from the carrier;
(2) Check the condition of any seal affixed to the conveyance, and if
broken, missing or improperly affixed, notify the district director and
receive instructions before unloading the merchandise;
(3) Check each incoming in-bond and cartage shipment to determine if
the manifested quantity or the quantity on the cartage document agrees
with the quantity actually received;
(4) Sign and date the in-bond or cartage documentation to accept
responsibility for the merchandise under the Foreign Trade Zone Operator's
Bond and to relieve the carrier of responsibility.
(5) Forward the in-bond or cartage documentation so as to reach the
district director within 2 working days after the date of arrival of the
conveyance at the subzone or zone site;
(6) Maintain a file of open in-bond manifests in chronological order
of date of conveyance arrival to identify shipments that have arrived but
the entire contents of which have not been admitted to the subzone or
zone site; and
(7) Notify the district director, by annotation on the Customs Form
214, when the entire contents of a shipment have been admitted.
(b) Admission of merchandise: alternative procedures. -- (1) Cumulative
Customs Form 214. If the operator has an agreement with the Bureau of
Census for direct transmittal of statistical information, he shall submit
to the district director each business day a properly signed and uniquely
numbered Customs Form 214 listing all merchandise except for domestic
status merchandise admitted under @ 146.43 recorded into the inventory
control and recordkeeping system during the previous business day. The
Customs Form 214 must contain a list of all in-bond (I.T.) numbers or the
unique number of any cartage document, as well as the number of invoices
for each I.T. or cartage document, pertaining to merchandise which has
been entered into the system.
(2) Individual Customs Form 214. If a cumulative Customs Form 214 is
not submitted as provided in paragraph (b)(1) of this section, the
operator shall file with the district director each business day an
individual Customs Form 214 and 214-A covering each shipment recorded into
the inventory control and recordkeeping system during the previous
business day. The forms shall be submitted within 10 days after the end
of the month in which the merchandise was received in the zone, and no
extension beyond that time will be approved by the district director.
(3) General order. Merchandise which is not admitted into a subzone or
zone site as provided in this section within 5 working days after its
arrival there may be sent to general order unless:
(i) The district director grants the operator's request for an
extension of the 5 working day period; or
(ii) The importer of record files an appropriate Customs entry for the
mechandise and removes it from the zone premises.
(4) Inventory control and recordkeeping system. The operator shall
establish and maintain a continuing input quality control program to
ensure that information concerning merchandise in admission documents,
verified or corrected by counts and checks, is accurately recorded in the
inventory control and recordkeeping system. Quantities recorded in the
system, after allowance by the district director for any discrepancies,
will be the quantities of merchandise for which the operator shall be
held liable under its bond for admission to the subzone or zone site. A
discrepancy involving a within-case shortage (or overage) need not be
reported on Customs Form 5931, if the operator is able to report that
information in another manner so that the district director can determine
whether there is liability for the discrepancy under the bond of any
party to the importation.
Subpart D -- Status of Merchandise in a Zone
@ 146.41 Privileged foreign status.
(a) General. Foreign merchandise which has not been manipulated or
manufactured so as to effect a change in tariff classification will be
given status as privileged foreign merchandise on proper application to
the district director.
(b) Application. Each application for this status will be made on
Customs Form 214 at the time of filing the application for admission of
the merchandise into a zone or at any time thereafter before the
merchandise has been manipulated or manufactured in the zone in a manner
which has effected a change in tariff classification.
(c) Supporting documentation. Each applicant for this status shall
submit to the district director, with the application, an invoice notated
as provided for in @ 141.90 of this chapter.
(d) Determination of duties and taxes. Upon receipt of the application
and accompanying invoice, the district director may examine the
merchandise to determine whether to approve the application. The
merchandise will be subject to classification and valuation as provided
in @ 146.65.
(e) Status as privileged foreign merchandise binding. A status as
privileged foreign merchandise cannot be abandoned and remains applicable
to the merchandise even if changed in form by manipulation or manufacture,
except in the case of recoverable waste (see @ 146.42(b)), as long as the
merchandise remains within the purview of the Act. However, privileged
foreign merchandise may be exported or withdrawn for supplies, equipment,
or repair material of vessels or aircraft without the payment of taxes
and duties, in accordance with @@ 146.67 and 146.69.
@ 146.42 Nonprivileged foreign status.
All of the following will have the status of nonprivileged foreign
merchandise:
(a) Foreign merchandise. Foreign merchandise properly in a zone which
does not have the status of privileged foreign merchandise or of zone-
restricted merchandise;
(b) Waste. Waste recovered from any manipulation or manufacture of
privileged foreign merchandise in a zone; and
(c) Certain domestic merchandise. Domestic merchandise in a zone,
which by reason of noncompliance with the regulations in this part has
lost its identity as domestic merchandise, will be treated as foreign
merchandise. Any domestic merchandise will be considered to have lost
its identity if the district director determines that it cannot be
identified positively by a Customs officer as domestic merchandise on
the basis of an examination of the articles or consideration of any
proof that may be submitted promptly by a party-in-interest.
@ 146.43 Domestic status.
(a) General. Domestic status may be granted to merchandise:
(1) The growth, product, or manufacture of the U.S. on which all
internal-revenue taxes, if applicable, have been paid;
(2) Previously imported and on which duty and tax has been paid; or
(3) Previously entered free of duty and tax.
(b) Application. No application or permit is required for the admission
of domestic status merchandise, including domestic packing and repair
material, to a zone, except upon order of the Commissioner of Customs. No
application or permit is required for the manipulation, manufacture,
exhibition, destruction, or transfer to Customs territory of domestic
status merchandise, including packing and repair materials, except: (1)
When it is mixed or combined with merchandise in another zone status, or
(2) upon order of the Commissioner of Customs. When the Commissioner
orders a permit to be required for domestic status merchandise, he may
also order the procedures, forms, and terms under which the permit will
be received and processed.
(c) Return of merchandise of Customs territory. Upon compliance with
the provisions of this section, any of the merchandise specified in
paragraph (a) of this section, may subsequently be returned to Customs
territory free of quotas, duty, or tax.
@ 146.44 Zone-restricted status.
(a) General. Merchandise taken into a zone for the sole purpose of
exportation, destruction (except destruction of distilled spirits, wines,
and fermented malt liquors), or storage will be given zone-restricted
status on proper application. That status may be requested at any time
the merchandise is located in a zone, but cannot be abandoned once
granted. Merchandise in zone-restricted status may not be removed to
Customs territory for domestic consumption except where the Board
determines the return to be in the public interest.
(b) Application. Application for zone-restricted status will be made
on Customs Form 214.
(c) Merchandise considered exported. -- (1) For Customs purposes. If
the applicant desires a zone-restricted status in order that the
merchandise may be considered exported for the purpose of any Customs
law, all pertinent Customs requirements relating to an actual exportation
shall be complied with as though the admission of the merchandise into
zone constituted a lading on an exporting carrier at a port of final exit
from the U.S. Any declaration or form required for actual exportation will
be modified to show the merchandise has been deposited in a zone in lieu
of actual exportation, and a copy of the approved Customs Form 214 may be
accepted in lieu of any proof of shipment required in cases of actual
exportation.
(2) For other purposes. If the merchandise is to be considered exported
for the purpose of any Federal law other than the Customs laws, the
district director shall be satisfied that all pertinent laws, regulations,
and rules administered by the Federal agency concerned have been complied
with before the Customs Form 214 is approved.
(d) Merchandise entered for warehousing transferred to a zone.
Merchandise entered for warehousing and transferred to a zone, other than
temporarily for manipulation and return to Customs territory as provided
for in @ 146.33, will have the status of zone-restricted merchandise when
admitted into the zone. The application on Customs Form 214 will state
that zone-restricted status is desired for the merchandise.
Subpart E -- Handing of Merchandise in a Zone
@ 146.51 Customs control of merchandise.
No merchandise, other than domestic status merchandise provided for in
@ 146.43, will be manipulated, manufactured, exhibited, destroyed, or
transferred from a zone in any manner or for any purpose, except under
Customs permit as provided for in this part. The district director may
require segregation of any zone status merchandise whenever necessary to
protect the revenue or properly administer U.S. laws or regulations.
@ 146.52 Manipulation, manufacture, exhibition or destruction; Customs
Form 216.
(a) Application. Prior to any action, the operator shall file with the
district director an application (or blanket application) on Customs Form
216 for permission to manipulate, manufacture, exhibit, or destroy
merchandise in a zone. After Customs approves the application (or blanket
application), the operator will retain in his recordkeeping system the
approved application.
(b) Approval.
(1) The district director shall approve the application unless (i) the
proposed operation would be in violation of law or regulation; (ii) the
place designated for its performance is not suitable for preventing
confusion of the identity or status of the merchandise, or for
safeguarding the revenue; (iii) the district director is not satisfied
that the destruction will be effective; or (iv) the Executive Secretary
of the Board has not granted approval of a new manufacturing operation.
(2) The district director is authorized to approve a blanket application
for a period of up to one year for a continuous or repetitive operation.
The district director may disaprove or revoke approval of any application,
or may require the operator to file an individual application.
(c) Appeal of adverse ruling. If an approved application is subsequently
rescinded by the district director for any reason, the applicant or
grantee may appeal the adverse ruling pursuant to the hearing provisions
of @ 146.82(b)(2). The rescission shall remain in effect pending the
decision on the appeal.
(d) Report results. -- (1) Separate application. -- The operator shall
report on Customs Form 216 the results of an approved manipulation,
manufacture, exhibition, or certification of destruction (other than by
a blanket application), unless the district director chooses physically
to supervise the operation.
(2) Blanket application. -- The operator shall maintain a record of
an approved manipulation, manufacture, exhibition, or certification of
destruction, in its inventory control and recordkeeping system so as to
provide an accounting and audit trail of the merchandise through the
approved operation.
(e) Destruction. The district director may permit destruction to be
done outside the zone, in whole or in part and at the risk and expense
of the applicant, and under such conditions as are necessary to protect
the revenue, if proper destruction cannot be accomplished within the
zone. Any residue from the destruction within a zone, which is determined
to be without commercial value, may be removed to Customs territory for
disposal.
@ 146.53 Shortages and overages.
(a) Report required. The operator shall report, in writing, to the
district director upon identification, as such, of any:
(1) Theft or suspected theft of merchandise;
(2) Merchandise not properly admitted to the zone; or
(3) Shortage of one percent (1%) or more of the quantity of merchandise
in a lot or covered by a unique indentifier, if the missing merchandise
would have been subject to duties and taxes of $100 or more upon entry
into the Customs territory. The operator shall record upon identification
all shortages and overages, whether or not they are required to be
reported to the district director at that time, in its inventory control
and recordkeeping system. The operator shall record all shortages and
overages as required in the annual reconciliation report under @ 146.25.
(b) Certain domestic merchandise. Except in a case of theft or suspected
theft, the operator need not file a report with the district director, or
note in the annual reconciliation report, any shortage or overage
concerning domestic status merchandise for which no permit is required.
(c) Shortage.
(1) Operator responsibility. The operator is responsible under its
Foreign Trade Zone Operator's Bond for any loss of merchandise or for any
merchandise which cannot be located or otherwise accounted for (except
domestic status merchandise for which no permit is required), unless the
district director is satisfied that the merchandise was:
(i) Never received in the zone;
(ii) Removed from the zone under proper permit;
(iii) Not removed from the zone; or
(iv) Lost or destroyed in the zone through fire or other casualty,
evaporation, spillage, leakage, absorption, or similar cause, and did not
enter the commerce of the U.S.
(2) Liability for duty and taxes. Upon demand of the district director,
the operator shall make entry for and pay duties and taxes applicable to
merchandise which is missing or otherwise not accounted for.
(d) Overage. The person with the right to make entry shall file, within
5 days after identification of an overage, an application for admission
of the merchandise to the zone on Customs Form 214 or file a Customs entry
for the merchandise. If a Customs Form 214 or a Customs entry is not
timely filed, and the district director has not granted an extension of
the time provided, the merchandise shall be sent to general order.
(e) Damage. The liability of the operator under its Foreign Trade Zone
Operator's Bond may be adjusted for the loss of value resulting from
damage to merchandise occurring in the zone. The operator shall segregate,
mark, and otherwise secure damaged merchandise to preserve its identity
as damaged merchandise.
Subpart F -- Transfer of Merchandise From a Zone
@ 146.61 Constructive transfer to Customs territory.
The district director shall accept receipt of any entry in proper form
provided under this subpart, and the merchandise described therein will be
considered to have been constructively transferred to Customs territory at
that time, even though the merchandise remains physically in the zone. If
the entry is thereafter rejected or cancelled, the merchandise will be
considered at that time to be constructively transferred back into the
zone in its previous zone status.
@ 146.62 Entry.
(a) General. Entry for foreign merchandise which is to be transferred
from a zone, or removed from a zone for exportation or transportation to
another port, for consumption or warehouse, will be made on Customs Form
7512, Customs Form 3461, Customs Form 7501, or other applicable Customs
forms. If entry is made on Customs Form 3461, the person making entry
shall file an entry summary for all the merchandise covered by the Customs
Form 3461 within 10 working days after the time of entry.
(b) Documentation. (1) Customs Form 7501 or the entry summary will be
accompanied by the entry documentation, including invoices as provided in
Parts 141 and 142 of this chapter. The person with the right to make entry
shall submit any other supporting documents required by law or regulations
that relate to the transferred merchandise and provide the information
necessary to support the admissibility, the declared values, quantity,
and classification of the merchandise. If the declared values are
predicated on estimates or estimated costs, that information must be
clearly stated in writing at the time an entry or entry summary is filed.
(2) Customs Form 7512 for merchandise to be transferred to another port
or zone or for exportation shall state that the merchandise covered is
foreign trade zone merchandise; give the number of the zone from which the
merchandise was transferred; state the status of the merchandise; and, if
applicable, bear the notation or endorsement provided for in @ 146.64(c),
@ 146.66(b), or @ 146.70(c).
(c) Waiver of supporting documents. The district director may waive
presentation of an invoice and supporting documentation required in
paragraph (b) of this section with the entry or entry summary, if
satisfied that presentation of those documents would be impractical, and
the person making entry or the operator either files invoices and
supporting documentation with the district director or maintains and makes
those records available for examination by Customs.
@ 146.63 Entry for consumption.
(a) Foreign merchandise. Merchandise in foreign status or composed in
part of merchandise in foreign status may be entered for consumption from
a zone.
(b) Zone-restricted merchandise. Merchandise in a zone-restricted
status may be entered for consumption only when the Board has ruled that
merchandise can be entered for consumption.
(c) Estimated production. -- (1) Weekly entry. When merchandise is
manufactured or otherwise changed in a zone (exclusive of packing) to its
physical condition as entered within 24 hours before physical transfer
from the zone for consumption, the district director may allow the person
making entry to file an entry on Customs Form 3461 for the estimated
removals of merchandise during the calendar week. The Customs Form 3461
must be accompanied by a pro forma invoice or schedule showing the number
of units of each type of merchandise to be removed during the week and
their zone and dutiable values. Merchandise covered by an entry made under
the provisions of this section will be considered to be entered and may be
removed only when the district director has accepted the entry on Customs
Form 3461. If the actual removals will exceed the estimate for the week,
the person making entry shall file an additional Customs Form 3461 to
cover the additional units before their removal from the zone.
Notwithstanding that a weekly entry may be allowed, all merchandise will
be dutiable as provided in @ 146.65. When estimated removals exceed actual
removals, that excess merchandise will not be considered to have been
entered or constructively transferred to the Customs territory.
(2) Individual transfers. After acceptance of the weekly entry,
individual transfers of merchandise covered by the entry may be made from
the zone.
(d) Textiles and textile products. Subject to the existing statutory
authority of the Board, textiles and textile products admitted into a
zone, regardless of whether the merchandise has privileged or
nonprivileged foreign status, which would have been subject to quota or
visa or export license requirements in their condition at the time of
importation (if entered for consumption rather than admitted to a zone),
may not be subsequently transferred into Customs territory for
consumption if, during the time the merchandise is in the zone, there has
been a change by manipulation, manufacture, or other means:
(1) In the country of origin of the merchandise as defined by @ 12.130
of this chapter;
(2) To exempt from quota or visa or export license requirements other
than a change brought about by statute, treaty, executive order or
Presidential proclamation; or
(3) From one textile category to another textile category.
@ 146.64 Entry for warehouse.
(a) Foreign merchandise. Merchandise in privileged foreign status or
composed in part of merchandise in privileged foreign status may not be
entered for warehouse from a zone. Merchandise in nonprivileged foreign
status containing no components in privileged foreign status may be
entered for warehouse in the same or at a different port.
(b) Zone-restricted merchandise. Foreign merchandise in zone-restricted
status may be entered for warehouse in the same or at a different port
only for storage pending exportation, unless the Board has approved
another disposition.
(c) Textiles and textile products. Textiles and textile products which
have been changed as provided for in @ 146.63(d) may be entered for
warehouse only if the entry is endorsed by the district director to show
that the merchandise may not be withdrawn for consumption.
(d) Time limit. Merchandise may neither be placed nor remain in a
Customs bonded warehouse after 5 years from the date of importation of
the merchandise.
@ 146.65 Classification, valuation, and liquidation.
(a) Classification. -- (1) Privileged foreign merchandise. Privileged
foreign merchandise provided for in this section will be subject to
tariff classification according to its character, condition and quantity,
at the rate of duty and tax in force on the date of filing, in complete
and proper form, the application for privileged status. Classification of
merchandise subject to a tariff-rate import quota will be made only at
the higher non-quota duty rate in effect on the date privileged foreign
status was granted.
(2) Nonprivileged foreign merchandise. Nonprivileged foreign merchandise
provided for in this section will be subject to tariff classification in
accordance with its character, condition and quantity as constructively
transferred to Customs territory at the time the entry or entry summary
is filed with Customs.
(b) Valuation. -- (1) Total zone value. The total zone value of
merchandise provided for in this section will be determined in accordance
with the principles of valuation contained in sections 402 and 500 of the
Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19
U.S.C. 1401a, 1500). The total zone value shall be that price actually
paid or payable to the zone seller in the transaction that caused the
merchandise to be transferred from the zone. Where there is no price paid
or payable, the total zone value shall be the cost of all materials and
zone processing costs related to the merchandise transferred from the zone.
(2) Dutiable value. The dutiable value of merchandise provided for in
this section shall be the price actually paid or payable for the
merchandise in the transaction that caused the merchandise to be admitted
into the zone less, if included, international shipment and insurance
costs and U.S. inland freight costs. If there is no such price actually
paid or payable, or no reasonable representation of that cost, the
dutiable value may be determined by excluding from the zone value any
included zone costs of processing or fabrication, general expenses and
profit and the international shipment and insurance costs and U.S. inland
freight costs related to the merchandise transferred from the zone. The
dutiable value of recoverable waste or scrap provided for in @ 146.42(b)
will be the price actually paid or payable to the zone seller in the
transaction that caused the recoverable waste or scrap to be transferred
from the zone.
(3) Allowance. An allowance in the dutiable value of zone merchandise
may be made by the district director in accordance with the provisions
of Subparts B and C of Part 158 of this chapter, for damage,
deterioration, or casualty while the merchandise is in the zone.
(c) Liquidation; extension to update cost data. When the declared value
or values of the merchandise are based on an estimate or estimates, the
person making entry may request an extension of liquidation pending the
presentation of updated or actual cost data. A request for an extension
may be granted at the discretion of the district director.
@ 146.66 Transfer of merchandise from one zone to another.
(a) At the same port. A transfer of merchandise to another zone with a
different operator at the same port (including a consolidated port) will
be by a licensed cartman under an entry for immediate transportation on
Customs Form 7512 or other appropriate form with a Customs Form 214 filed
at the destination zone. A transfer of merchandise between zone sites at
the same port having the same operator may be made under a permit on CF
6043 or under a local control system approved by the district director
wherein any loss of merchandise between sites will be treated as if the
loss occurred in the zone.
(b) At a different port. A transfer of merchandise from a zone at one
port of entry to a zone at another port will be by bonded carrier under
an entry for immediate transportation on Customs Form 7512. All copies of
the entry must bear a notation that the merchandise is being transferred
to another zone designated by its number.
(c) Forwarding of merchandise history; documentation. When merchandise
is transferred under the provisions of this section, the operator of the
transferring zone shall provide the operator of the destination zone with
the documented history of the merchandise being transferred.
(1) The following documentation must accompany merchandise maintained
under a lot inventory control system:
(i) A copy of the original Customs Form(s) 214 with accompanying
invoices for admission of the merchandise and all components thereof;
(ii) A copy of any Customs Form 214 filed subsequent to admission to
change the status of the merchandise or its components; and
(iii) A copy of any Customs Form 216 to manipulate or manufacture the
merchandise.
(2) The following documentation must accompany merchandise not under
a lot system, and not manufactured in a zone:
(i) A copy of the original Customs Form(s) 214 with accompanying
invoices for admission of the merchandise as attributed under the
particular zone inventory method;
(ii) A copy of any Customs Form 214 filed subsequent to admission to
change the status of the merchandise as attributed under the particular
zone inventory method; and
(iii) A copy of any Customs Form 216 to manipulate the merchandise as
attributed under the particular zone inventory method.
(3) If the documents specified in paragraph (c)(2) of this section are
not presented, the operator of the transferring zone shall submit the
following:
(i) A statement of the zone value, dutiable value, quantity,
description, unique identifier, and zone status (showing any changes of
status after admission and whether the merchandise was manipulated so as
to change its tariff classification) of all the merchandise in the
shipment covered by the transportation entry; and
(ii) A certification that the statement in paragraph (c)(3)(i) of this
section, is true and that the information contained therein is contained
in the inventory control and recordkeeping system of the transferring zone.
(4) The following documentation must accompany merchandise not under a
lot system, but manufactured in a zone:
(i) A statement by the transferring zone operator of the zone value,
dutiable value, quantity, description, unique identifier, and zone status
of all the merchandise (and components thereof, where applicable) covered
by the transportation entry. The statement will also show any change in
zone status in the transferring zone and whether the merchandise has been
manufactured or manipulated in the zone so as to change its tariff
classification; and
(ii) A certification by the operator of the transferring zone that the
statement in paragraph (c)(4)(i) of this section is true and the
information therein is contained in the inventory control and
recordkeeping system of the zone.
(5) The operator of the transferring zone shall transmit the historical
documentation of the merchandise to the receiving zone within 10 working
days after it has been delivered to the bonded carrier for transportation.
The documentation will be referenced to the I.T. number covering the
merchandise.
(d) Arrival at destination zone. Upon arrival of the merchandise at
the destination zone, it will be admitted under the procedure provided
for in @ 146.32, except that no invoice or Customs examination will be
required. When the historical documentation is received, the operator of
the destination zone shall associate it with the Customs Form 214 for
admission of the merchandise and incorporate that information into the
zone inventory control and recordkeeping system.
@ 146.67 Transfer of merchandise for exportation.
(a) Direct exportation. Any merchandise in a zone may be exported
directly therefrom (without transfer into Customs territory) upon
compliance with the procedures of paragraph (b) of this section.
(b) Immediate exportation. Each transfer of merchandise to the Customs
territory for exportation at the port where the zone is located, will be
made under an entry for immediate exportation on Customs Form 7512. The
person making entry shall furnish an export bond on Customs Form 301
containing the bond conditions provided for in @ 113.62 of this chapter.
(c) Transportation and exportation. Each transfer of merchandise to
the Customs territory for transportation to and exportation from a
different port, will be made under an entry for transportation and
exportation on Customs Form 7512. The bonded carrier will be responsible
for exportation of the merchandise in accordance with @ 18.26 of this
chapter.
(d) Textiles and textile products. Textiles and textile products which
have been changed as provided for in @ 146.63(d) may be exported and
returned to Customs territory for warehousing provided the entry for
warehouse is endorsed by the district director to show that the
merchandise may not be withdrawn for consumption.
(e) Merchandise produced or manufactured in a zone and returned to
Customs territory after exportation. Merchandise produced or manufactured
in a zone and exported without having been transferred to Customs
territory other than for exportation or for transportation and exportation
will be subject, on its return to Customs territory, to the duties and
taxes applicable to like articles of wholly foreign origin, unless it is
conclusively established that it was produced or manufactured exclusively
with the use of domestic merchandise. The identity of the domestic
merchandise must have been maintained in accordance with the provisions
of this part, in which case that merchandise will be subject to the
provisions of Schedule 8, Part 1, Tariff Schedules of the United States
(19 U.S.C. 1202).
@ 146.68
59Transfer for transportation or exportation; estimated production.
(a) Weekly permit. The district director may allow the person making
entry for merchandise provided for in @ 146.63(c) to file an application
for a weekly permit to enter and release merchandise during a calendar
week for exportation, transportation, or transportation and exportation.
The application will be on Customs Form 7512 stating at the top the words
"Application for Weekly Zone Permit," and will be filed with the district
director. The application must be accompanied by a pro forma invoice or
schedule like that required in @ 146.63(c)(1). If actual transfers will
exceed the estimate for the week, the person with the right to make entry
shall file a supplemental Customs Form 7512 to cover the additional
merchandise to be transferred from the subzone or zone site. No
merchandise covered by the weekly permit may be transferred from the zone
before approval of the application by the district director.
(b) Individual entries. After approval of the application for a weekly
permit by the district director, the person making entry will be
authorized to execute individual Customs Forms 7512 for exportation,
transportation, or transportation and exportation of the merchandise
covered by permit. Upon transfer of the merchandise, the operator shall
obtain a receipt from the carrier on Customs Form 7512 to ensure its
assumption of liability under the carrier's or cartman's bond. Customs will
consider the time of entry to be when the removing carrier signs the
receipt for the merchandise. The operator shall give the bonded carrier a
copy of the individual Customs Form 7512 and the destination copy (Customs
Form 7512-C), as provided for in @ 18.2(c) of this chapter. The operator
also shall ensure that the district director receives a copy of the
Customs Form 7512 and the origin copy (Customs Form 7512-C) by the end
of the next working day after the carrier has receipted for the
merchandise.
(c) Statement of merchandise entered. The person making entry for
merchandise under an approved weekly permit shall file with the district
director, by the close of business on the second working day of the week
following the week designated on the permit, a statement of the
merchandise entered under that permit. The statement must list each
Customs Form 7512 by its unique I.T. number, and will provide a
reconciliation of the quantities on the weekly permit with the manifested
quantities on the individual Customs Forms 7512 submitted to Customs, as
well as an explanation of any discrepancy.
@ 146.69 Supplies, equipment, and repair material for vessels or
aircraft.
(a) General. Any merchandise which may be withdrawn duty and tax free
in Customs territory under section 309 or 317, Tariff Act of 1930, as
amended (19 U.S.C. 1309, 1317), and under @@ 10.59 through 10.65 of this
chapter, may similarly be transferred from a zone, regardless of its zone
status, under those statutes and regulations. Each transfer from a zone
for delivery to a qualified vessel or aircraft, will be made on Customs
Form 7512 (see @ 10.60 of this chapter). The person making entry shall
furnish a bond on Customs Form 301 containing the bond conditions
provided for in @ 113.62 of this chapter.
(b) Merchandise for delivery within zone. Upon acceptance of the entry
and bond, the district director shall release the merchandise to the
operator for delivery to the qualified vessel or aircraft for lading in
the zone.
(c) Merchandise for delivery outside zone. Upon acceptance of the
entry and bond, the district director shall release the merchandise to
the operator for delivery to the bonded cartmen, lighterman, or carrier,
for transportation through the Customs territory to the qualified lading
vessel or aircraft.
@ 146.70 Transfer of zone -- restricted merchandise into Customs
territory.
(a) General. Zone-restricted merchandise may be transferred to Customs
territory only for entry for exportation, for entry for transportation
and exportation, for warehousing pending exportation, for destruction
(except destruction of distilled spirits, wines and fermented malt
liquors), for transfer from one zone to another, or for delivery to a
qualified vessel or aircraft or as ground equipment of a qualified
aircraft under section 309 or 317, Tariff Act of 1930, as amended (19
U.S.C. 1309, 1317), unless the Board has ruled that the return of the
merchandise to Customs territory for domestic consumption is in the
public interest. With Board approval (See 15 CFR Part 400), that
merchandise may be entered for consumption, for warehousing, for immediate
transportation without appraisement, or under any other provision of the
Customs laws, unless the Board has specified the form of entry to be made.
(b) For consumption. If the return of zone-restricted merchandise to
Customs territory for consumption has been ruled by the Board to be in
the public interest, the entry shall be endorsed by the district director
to show the authority under which it was made, and that the merchandise
is subject to the provisions of Schedule 8, Part 1, Tariff Schedules of
the United States (19 U.S.C. 1202).
(c) For warehousing. Zone-restricted merchandise may be transferred
from a zone to a Customs bonded warehouse for storage pending exportation.
The Customs Form 7501 shall be endorsed by the district director to show
that the merchandise may not be withdrawn for consumption. In the case of
zone-restricted merchandise transported in bond to another port for
warehousing and exportation, Customs Form 7512 shall be endorsed by the
district director to show that the merchandise is foreign trade zone
merchandise in zone-restricted status, which shall be entered for
warehouse with proper endorsement on Customs Form 7501, and which may not
be withdrawn for consumption. Zone-restricted merchandise transferred from
a zone to a Customs bonded warehouse may not be manipulated, except for
packing or unpacking incidental to exportation.
(d) For other purposes. Upon acceptance of an entry or withdrawal for
zone-restricted merchandise for any purpose other than that described in
a Board order, the entry shall be endorsed by the person making entry to
show that actual exportation of the merchandise is required by the fourth
proviso to section 3 of the Act, as amended, or the entry endorsed to
require delivery to a qualified vessel or aircraft, under section 309 or
317, Tariff Act of 1930, as amended (19 U.S.C. 1309, 1317).
@ 146.71 Release and removal of merchandise from zone.
(a) General. Except as provided for in @ 146.43, no merchandise will be
transferred from a zone without a Customs permit on the appropriate entry
or withdrawal form or other document as required in this part. This
district director may authorize transfer from a zone without physical
supervision or examination by a Customs officer. Upon issuance of a
permit, the district director will authorize delivery of the merchandise
only to the operator, who then may release the merchandise to the importer
or carrier.
(b) Liability for discrepancy. When a transfer is not physically
supervised by a Customs officer, the operator will be relieved of
responsibility only for the merchandise in a zone in the condition and
quantity as shown on the entry, withdrawal, or other appropriate form.
The operator will be relieved of responsibility only if it receives the
signed receipt on the document of the importer or the carrier named in
that document. The responsibility of the operator may be adjusted by any
discrepancy report made jointly by the operator and the bonded cartman,
lighterman, or carrier, or the importer, and signed by the above or an
authorized representative within 15 days after transfer of the merchandise
from the zone. Any adjustment must be noted on the permit copy of the
entry, withdrawal, or other appropriate form or document. A copy of any
joint report of discrepancy must be submitted to the district director
within 10 working days of signing by the parties.
(c) Time limit. Except in the case of articles for use in a zone,
merchandise for which a Customs permit for transfer to Customs territory
has been issued must be physically removed from the zone within 5 working
days of issuance of that permit. The district director, upon request of
the operator, may extend that period for good cause. Merchandise awaiting
removal within the required time limit will not be further manipulated or
manufactured in the zone, but will be segregated or otherwise identified
by the operator as merchandise that has been constructively transferred
to Customs territory.
(d) Retention of return or merchandise to zone for consumption.
(1) The district director shall cancel any entry for consumption where:
(i) The merchandise is not removed from the zone within the period
specified in paragraph (c) of this section, or (ii) the merchandise was
removed from the zone but did not enter the commerce of the U.S. in
Customs territory and was subsequently readmitted to a zone in domestic
status. If the district director has reason to believe any new entry would
be cancelled under the provisions of this subparagraph, he may reject the
entry or demand a written stipulation, as a condition of entry acceptance,
that the merchandise will not be returned to a zone in domestic status.
Merchandise covered by an entry which has been cancelled under this
subparagraph shall be restored to its last foreign status.
(2) A component of merchandise which has been entered, but not
physically removed from a zone, shall be restored to its last zone status,
provided the district director determines that the component was included
in the entry through clerical error, mistake of fact, or other
inadvertence not amounting to an error in the construction of the law.
Such an error, including that in appraisement of any entry or liquidation
due to the above circumstances, may be corrected pursuant to section 520(c)
(1), Tariff Act of 1930, as amended (19 U.S.C. 1520(c)(1)), in accordance
with the procedures described in Part 173 of this chapter. If the district
director decides there has been no error, mistake, or inadvertence, or that
the information was not timely provided, the component will be considered
as an overage and subject to the provisions of @ 146.53(d).
(3) When merchandise which has been entered for consumption is
subsequently returned to a zone for a reason other than that specified in
subparagraph (d)(1), it shall be admitted in domestic status.
Subpart G -- Penalties; Suspension; Revocation
@ 146.81 Penalties.
(a) Amount. Upon violation of the Act, or any regulation issued under
the Act, by the grantee, or any officer, agent, operator or employee
thereof, the person responsible for or permitting the violation shall be
subject to a fine of not more than $1,000. Each day during which a
violation continues will constitute a separate offense. Liquidated
damages, where applicable, will be imposed in addition to the fine
(19 U.S.C. 81s).
(b) Review. All fines assessed by the district director under this
section will be reviewed by the Director, Entry Procedures and Penalties
Division, Headquarters, to determine whether further action against the
grantee or operator, such as suspension or a recommendation for
revocation of the grant, is warranted.
@ 146.82 Suspension.
(a) For cause. The district director may suspend for cause the
activated status of a zone or zone site, or the privilege to admit,
manufacture, manipulate, exhibit, destroy, transfer or remove merchandise
at a zone or zone site for a period not to exceed 90 days. Upon order of
the Board the suspension may be continued. If appropriate, the suspension
may be limited to an individual user or users and not to the zone or zone
site as a whole, or may be limited to a particular activity of an operator
or user, such as suspension of the privilege to admit merchandise or the
privilege to manufacture. An action to suspend will be taken in accordance
with the procedure in paragraph (b) of this section if:
(1) The approval of the application to activate the zone was obtained
through fraud or the misstatement of a material fact;
(2) The operator neglects or refuses to obey any proper order of a
Customs officer or any Customs order, rule, or regulation relating to the
operation or administration of a zone;
(3) The operator, or any officer of a corporation which has been
granted the right to operate a zone, is convicted of or has committed an
act that would constitute a felony, or would constitute a misdemeanor
involving theft.
(4) The operator fails to furnish a current list of names, addresses,
or other information as required by @ 146.7;
(5) The operator does not provide a secure facility or properly
safeguard merchandise within a zone;
(6) The operator fails to pay, within 30 days after the due date, all
annual fees associated with the operation of a zone;
(7) The operator, or any officer, agent, or employee of the operator,
discloses to an unauthorized person proprietary information contained on
a Customs form or in the inventory control and recordkeeping system; or
(8) The inventory control and recordkeeping system is impaired to the
point where the identity of merchandise in zone status has been lost and
cannot be reestablished without a suspension of zone operations.
(b) Procedure. -- (1) Notice. The district director may, at any time,
serve notice, in writing, upon an operator to show cause why its right to
continue operation of a zone should not be suspended or why an individual
user or activities of an individual user should not be suspended, as
provided for in paragraph (a) of this section. The notice will advise the
operator of the grounds for the proposed action and will afford the
operator an opportunity to respond, in writing, within 15 days after
receipt of the notice. Thereafter, the district director shall consider
the allegations and any response made by the operator and issue a
decision, unless the operator requests a hearing in the matter.
(2) Hearing. If the operator requests a hearing, it will be held
before a hearing officer designated by the Commissioner of Customs or his
designee within 30 days following the operator's request. The operator
may be represented by counsel at the hearing, and any evidence and
testimony of witnesses in the proceeding, including substantiation of
the allegations and the response thereto, will be presented. The right of
cross-examination will be available to both parties. A stenographic record
of the proceeding will be made and a copy will be delivered to the
operator. At the conclusion of the hearing, the hearing officer shall
transmit promptly all papers and the stenographic record of the hearing
to the regional commissioner of the region in which the zone is located,
together with a recommendation for final action.
(3) Decision of regional commissioner. Within 10 calendar days after
delivery to the operator of a copy of the stenographic record of the
hearing, the operator may submit to the regional commissioner in writing
any additional views or arguments. The regional commissioner shall then
render a written decision stating his reasons therefor. That decision
will be served on the operator and will be considered the final Customs
administrative action in the case.
(4) Grantee. If the grantee of the zone is not the operator, a copy of
the notice to show cause will be served upon the grantee. The grantee, as
a party-in-interest, may join the operator in any proceedings under this
section.
@ 146.83 Revocation of zone grant.
(a) Recommendation of district director. The district director may at
any time recommend to the Board that the privilege of establishing,
operating, and maintaining a zone or subzone under Customs jurisdiction
be revoked for willful and repeated violations of the Act (19 U.S.C. 81r).
If the district director believes that a substantial question of law
exists as to whether willful and repeated violations of the Act have
occurred, that officer may request internal advice under the provisions
of Part 177 of this chapter from the Director, Carriers, Drawback and
Bonds Division, Headquarters. A recommendation to the Board that a zone
or subzone grant be revoked does not preclude, and may be in addition to,
any liquidated damages, penalty, or suspension for cause.
(b) Decision of the Board. The procedure for revocation of a grant,
the decision of the Board, and appeal is covered by the provisions of
the Act and Title 15, Chapter IV, Part 400, Code of Federal Regulations.
Conforming Amendments -- Parts 18, 24, 112, 113, 141, 144, 178, and 191
To conform the Customs Regulations to the changes made by the revision
of Part 146, Customs Regulations (19 CFR Part 146), Parts 18, 24, 112,
113, 141, 144, 178, and 191, Customs Regulations (19 CFR Parts 18, 24,
112, 113, 141, 144, 178, and 191) are amended in the following manner:
PART 18 -- TRANSPORTATION IN BOND AND MERCHANDISE IN TRANSIT
1. The authority citation for Part 18 continues to read as follows:
Authority: 5 U.S.C. 301, 19 U.S.C. 66, 1202 (Gen. Hdnote 11, Tariff
Schedules of the United States), 1551-1553, 1624.
@ 18.2 [Amended]
2. Section 18.2 is amended in the following manner:
a. By revising the heading to paragraph (a)(1) to read "Merchandise
other than from warehouse or foreign trade zone delivered to bonded carrier."
b. By removing the words "paragraph (a)(2)" in the first sentence of
paragraph (a)(1) and inserting, in their place, the words "paragraphs
(a)(2) and (a)(3) of this section."
c. By adding a new paragraph (a)(4) to read as follows:
@ 18.2 Receipt by carrier manifest.
(a) * * *
(4) Merchandise delivered from foreign trade zone. When merchandise is
delivered from a foreign trade zone to a bonded carrier for transportation
in bond, supervision of lading will be accomplished in accordance with
the procedure set forth in @ 146.71(a) of this chapter.
* * * * *
PART 24 -- CUSTOMS FINANCIAL AND ACCOUNTING PROCEDURE
1. The authority citation for Part 24 continues to read as follows:
Authority: 5 U.S.C. 301, 19 U.S.C. 66, 1202 (Gen. Hdnote 11, Tariff
Schedules of the United States), 1624, 31 U.S.C. 9701.
@ 24.13 [Amended]
2. Section 24.13 is amended by inserting in the first sentence of
paragraphs (c) and (f), the words "a foreign trade zone operator," before
the words "and bonded warehouse proprietor," in paragraph (c) and before
the words "bonded warehouse proprietor" in paragraph (f).
PART 112 -- CARRIERS, CARTMEN, AND LIGHTERMEN
1. The authority citation for Part 112 is revised to read as follows:
Authority: 19 U.S.C. 66, 1551, 1565, 1623, 1624.
2. All other statutory authority cited at the end of various sections
in Part 112 is removed.
3. The last sentence of @ 112.12(b)(3) is revised to read as follows:
@ 112.12 Application for authorization. * * *
(b) Special requirements.
* * * * *
(3) Private carriers. * * * If the private carrier is the proprietor of
one or more Customs bonded warehouses or bonded container stations, or the
operator of a foreign trade zone, to which imported merchandise will be
transported, he shall accompany the bond and copies of the bond by a
statement showing the location of each warehouse, container station, or
zone.
* * * * *
PART 113 -- CUSTOMS BONDS
1. The authority citation for Part 113 continues to read as follows:
Authority: 19 U.S.C. 66, 1623, 1624.
2. Section 113.73 is amended by revising paragraphs (a)(1) and (a)(2),
and by adding paragraph (d), to read as follows:
@ 113.73 Foreign trade zone operator bond conditions.
* * * * *
(a) Receipt, Handling, and Disposition of Merchandise. The principal
agrees to comply with:
(1) The law and Customs Regulations relating to the receipt, admission,
status, handling, transfer, and removal of merchandise from the foreign
trade zone or subzone, and
(2) The Customs Regulations concerning the maintenance of inventory
control and recordkeeping systems covering merchandise in the foreign
trade zone or subzone. If the principal defaults and the default involves
merchandise other than domestic merchandise for which no permit for
admission is required, the obligors (principal and surety) agree to pay
liquidated damages equal to the value of the merchandise involved in the
default, or three times the value of the merchandise involved in the
default if the merchandise is restricted merchandise or alcoholic
beverages, or such other amount as may be authorized by law or regulation.
It is understood and agreed that whether the default involves merchandise
is a determination made by Customs, that the amount to be collected under
this condition shall be based upon the quantity and value of the
merchandise as determined by Customs, and that value as used in these
provisions means value as determined under 19 U.S.C. 1401a. If the
principal defaults and the default does not involve merchandise, the
obligors agree to pay liquidated damages of $1,000 for each default, or
such other amount as may be authorized by law or regulations.
* * * * *
(d) Payment of Annual Fee. The principal agrees to pay timely any
annual fee or fees as provided in the Customs Regulations. If the
principal defaults, the obligors agree to pay liquidated damages equal to
the amount of the annual fee due but not paid and an amount equal to one
percent of the annual fee for each of the first seven days the annual fee
is in arrears, two percent of the annual fee for each of the succeeding
seven days the annual fee is in arrears, and three percent of the annual
fee for each day thereafter in which the annual fee is in arrears.
PART 141 -- ENTRY OF MERCHANDISE
1. The authority citation for Part 141 continues to read as follows:
Authority: 19 U.S.C. 66, 1448, 1484, 1624.
2. Section 141.111(d) is revised to read as follows:
@ 141.111 Carrier's release order.
* * * * *
(d) Qualified release order. In the case of merchandise which is entered
for warehousing, for transportation in bond, for exportation, or is to be
admitted to a foreign trade zone, the release order may be qualified as
follows:
(1) "For transfer to the bonded warehouse designated in the warehouse
entry," if the merchandise is entered for warehousing;
(2) "For transfer to the bonded carrier designated in the transportation
entry," if the merchandise is entered for transportation in bond;
(3) "For transfer to the carrier designated in the export entry," if
the merchandise is entered for exportation; or
(4) "For transfer to the foreign trade zone designated in Customs Form
214," if the merchandise is to be admitted to a foreign trade zone.
PART 144 -- WAREHOUSE AND REWAREHOUSE ENTRIES AND WITHDRAWALS
1. The authority citation for Part 144 is revised to read as follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1854, 19 U.S.C. 66, 1311, 1312, 1484,
1552, 1553, 1555, 1556, 1557, 1559, 1562, 1563, 1623, 1624, 1646(a), 26
U.S.C. 5214; Pub. L. 95-410; Pub. L. 95-176; Pub. L. 96-511.
2. All other statutory authority cited at the end of various sections
in Part 144 is removed.
3. Section 144.36(g) is revised to read as follows:
@ 144.36 Withdrawal for transportation.
* * * * *
(g) Procedure at destination. Upon arrival at destination, the
merchandise may be:
(1) Entered for rewarehouse in accordance with @ 144.41;
(2) Entered for combined rewarehouse and withdrawal for consumption in
accordance with @ 144.42;
(3) Exported in accordance with paragraph (h) of this section;
(4) Forwarded to another port or returned to the port of origin in
accordance with @ 18.5 (c) or (d) of this chapter; or
(5) Admitted to a foreign trade zone in zone-restricted status as
provided in Part 146 of this chapter.
* * * * *
4. Section 144.37 is amended by adding a new paragraph (g), to read as
follows:
@ 144.37 Withdrawal for exportation
* * * * *
(g) Exportation at a foreign trade zone. Merchandise may be withdrawn
for exportation at a foreign trade zone in the same or at a different
port. The merchandise will be considered exported upon admission to a
zone in zone-restricted status, as provided in @ 146.44(c) of this chapter.
PART 178 -- APPROVAL OF INFORMATION COLLECTION REQUIREMENTS
1. The authority citation for Part 178 continues to read as follows:
Authority: 5 U.S.C. 301, 19 U.S.C. 1624, 44 U.S.C. 3501 et seq.
2. Section 178.2 is amended by inserting the following in the
appropriate numerical sequence according to the section number under the
columns indicated:
@ 178.2 Listing of OMB Control Numbers.
19 CFR section Description OMB Control No.
Procedures for
activation of
a foreign
trade zone;
procedures for
zone changes,
including
alteration,
deactivation
146.6, 146.7 and suspension 1515-0151
PART 191 -- DRAWBACK
1. The authority citation for Part 191 continues to read as follows:
Authority: 5 U.S.C. 301, 19 U.S.C. 66, 1202 (Gen. Hdnote 11), 1313,
1624.
@@ 191.163-191.165 also issued under 19 U.S.C. 81c.
@ 191.162 [Amended]
2. Section 191.162 is amended by removing reference to "@ 146.25," and
inserting, in its place, reference to "@ 146.44."
3. Section 191.163(c) and (d) are revised to read as follows:
@ 191.163 Articles manufactured or produced in the U.S.
* * * * *
(c) Action of the district director on the notice of transfer. The
district director shall assign a number to each notice of transfer,
return one copy to the transferor and forward another copy to the zone
operator at the foreign trade zone.
(d) Action of foreign trade zone operator. After articles have been
received in the zone, the zone operator at the zone shall certify on a
copy of the notice of transfer the receipt of the articles (see @
191.164(d)(2)) and forward the notice to the transferor or the person
designated by the transferor. The transferor shall verify that
the notice has been certified before filing it with the drawback entry.
* * * * *
4. Paragraphs (b) and (c) of @ 191.164 are revised to read as follows:
@ 191.164 Merchandise transferred from continuous Customs custody.
* * * * *
(b) Drawback entry. Before the transfer of merchandise from continuous
Customs custody to a foreign trade zone, the importer or a person
designated in writing by the importer for that purpose shall file with
the district director a direct export entry on Customs Form 7512 in
duplicate. The district director shall forward one copy of Customs Form
7512 to the zone operator at the zone.
(c) Certification by zone operator. After the merchandise has been
received in the zone, the zone operator at the zone shall certify on the
copy of Customs Form 7512 the receipt of the merchandise (see paragraph
(d)(2) of this section) and forward the form to the transferor or the
person designated by the transferor. After executing the certifications
provided for in paragraph (d)(3) of this section, the transferor shall
resubmit Customs Form 7512 to the district director in place of the bill
of lading required by @ 191.136. * * * * *
5. Paragraphs (b) and (c) of @ 191.165 are revised to read as follows:
@ 191.165 Same condition drawback merchandise and merchandise not
conforming to sample or specifications or shipped without the consent of
the consignee.
* * * * *
(d) Drawback entry. Before transfer of the merchandise to a foreign
trade zone, the importer or a person designated in writing by the importer
for that purpose shall file with the district director an entry on
Customs Form 7539 in duplicate. The district director shall forward one
copy of Customs Form 7539 to the zone operator at the zone.
(c) Certification by zone operator. After the merchandise has been
received in the zone, the zone operator at the zone shall certify on the
copy of Customs Form 7539 the receipt of the merchandise and forward the
form to the transferor or the person designated by the transferor. After
executing the certifications provided for in paragraph (d)(3) of this
section, the transferor shall resubmit Customs Form 7539 to the district
director in place of the bill of lading required by @ 191.136.
* * * * *
William von Raab,
Commissioner of Customs.
Approved: December 10, 1985.
David D. Queen,
Acting Assistant Secretary of the Treasury.
Note. -- This -- -- -- Table will be shown in the Code of Federal
Regulations.
Parallel Reference Table -- (This Table Shows the Relationship of
Sections in Revised Part 146 of Superseded Part 146)
Revised section Superseded section
146.0 146.0.
146.1(a) New.146.1(b)(2), (3),
(4), (6), (7), (8), (12), (13), (14), (15), (16), (17), (18), (19), (20),
(21), (22), (23) New.
146.1(b)(1) 146.1(a).
146.1(b)(5) 146.1(c).
146.1(b)(9) 146.1(e).
146.1(b)(10) 146.1(e)(1).
146.5 146.4.
146.6 New.
146.7 New.
146.8 New.
146.9 146.5.
146.10 146.6.
146.11 (a), (b), and (c) 146.7 (a), (b), and (c).
146.11(d) New.
146.12 146.8.
146.13 New.
146.14 New.
146.21 New.
146.22 New.
146.23 New.
146.24 New.
146.25 New.
146.26 New.
146.31 146.11.
146.32(a) 146.12(a).
146.32(b)(1) New.
146.32(b)(2) 146.12(b)(1)(ii).
146.32(b)(3) 146.12(b)(1)(i).
146.32(b)(4) 146.12(b)(2).
146.32(b)(5) New.
146.32(c) (1), (2) & (4) 146.12(c) (1), (2) & (3).
146.32(c)(3) New.
146.32(d) New.
146.33 146.13.
146.34 146.14.
146.35 New.
146.36 New.
146.37 New.
146.38 146.15.
146.39 New.
146.40 New.
146.21 (a), (b), and (c)(1)
146.41 (a), (b), and (c) and (2).
146.41(d) 146.21(c)(3) (i) and (v).
146.41(e) 146.21(d).
146.42 146.23.
146.43 146.22, 146.24.
146.44 146.25.
146.51 146.31 (a), (b).
146.21(f), 146.32(a),
146.52(a) 146.33(a).
146.21(f), 146.32(b),
146.52(b) 146.33(b).
146.52(c) 146.32(c).
146.52(d)(1) New.
146.52(d)(2) 146.32(d).
146.52(e) 146.33(b).
146.63(b) 146.47.
146.63(c) New.
146.63(d) 146.49.
146.64(a) 146.48(c).
146.64(b) 146.47(e)(4).
146.64(c), (d) New.
146.65(a)(1) 146.21(c)(3)(iv).
146.65(a)(2) 146.48(e)(1).
146.65(b) 146.48(e)(2).
146.65(c) New.
146.66(a) 146.43(b)(1).
146.66(b) 146.43(b)(1).
146.66(c) 146.43(b)(2).
146.66(d) New.
146.67(a) 146.41.
146.67 (b), (c) 146.45(d), 146.46(d).
146.67(d) New.
146.67(e) 146.46(e).
146.68 New.
146.69 146.42.
146.70(a) 146.47(a).
146.70(b) 146.47(e)(3).
146.70(c) 146.47(e)(4).
146.70(d) 146.47(e)(3).
146.71 New.
146.81 New.
146.82 New.
146.83 New.
Old section New section
146.0 146.0.
146.1(a) 146.1(b)(1).
146.1(b) Removed.
146.1(c) 146.1(b)(5).
146.1(d) Removed.
146.1(e) 146.1(b)(9).
146.1(e)(1) 146.1(b)(10).
146.1(e)(2) 146.1(b)(11).
146.1(f) Removed.
146.2 146.2.
146.3 146.3(a).
146.4 146.5.
146.5 146.9.
146.6 146.10.
146.7 (a), (b), & (c) 146.11 (a), (b), & (c).
146.8 146.12.
146.11 146.31.
146.12(a) 146.32(a).
146.12(b)(1)(i) 146.32(b)(3).
146.12(b)(1)(ii) 146.32(b)(2).
146.12(b)(2) 146.32(b)(4).
146.21 (c) (3), (i) and (v) 146.41 (d); 146.65 (a) (1)
146.21(c)(3)(iv) 146.65(a)(1).
146.21 (c) (3) (ii) and (iii) Removed.
146.21(d) 146.41(e).
146.21(e) Removed.
146.21(f) 146.52 (a) and (b) .
146.22 146.43.
146.23 146.42.
146.24 146.43.
146.25 146.44.
146.31 (a) and (b) 146.51.
146.31(c) 146.53 (a), (b).
146.32a 146.52(a).
146.32(b) 146.52(b).
146.32(c) 146.52(c).
146.32(d) 146.52(d)(2).
146.33(a) 146.52(a).
146.33(b) 146.52(b).
146.41 146.67(a) .
146.42 146.69.
146.43(a) Removed.
146.43(b) (1) 146.66(b).
146.43(b)(2) 146.66(c).
146.44 Removed.
146.45 (a), (b), and (c) 146.63.
146.45(d) 146.67 (b), (c).
146.46 (a), (b) and (c) 146.63.
146.46(d) 146.67 (b), (c).
146.46(e) 146.67(e).
146.47(a) 146.70(a) .
146.47(b), (d), and (e) (1) and (2) Removed.
146.47(c) 146.61.
146.47(e)(3) 146.70 (b) and (d) .
146.47(e)(4) 146.64, 146.70(c).
146.47(f) Removed.
146.48(a) Removed.
146.48(b) 146.61.
146.48(c) 146.63 (a) and 146.64(a).
146.48(d) Removed.
146.48(e)(1) 146.65(a)(2).
146.48(e)(2) 146.65(b).
146.48(f) Removed.
146.49 146.63(d)
Note. -- This appendix will not appear in the Code of Federal
Regulations.
Appendix -- Final Regulatory Flexibility Analysis on Proposed Customs
Regulations Amendments Relating to Foreign Trade Zones
Introduction
The economic impact review below constitutes the Customs Service final
regulatory flexibility analysis in compliance with the requirements of
section 3 of the Regulatory Flexibility Act (5 U.S.C. 603). The Act
requires that regulatory effects be analyzed so as to determine and
quantify, if possible, the economic effects of proposals on small
business operations. The Act's key concepts revolve around identifying
"significant economic impacts on a substantial number of small entities."
The initial analysis was modified as necessary into a final regulatory
flexibility analysis upon receipt and review of public comments resulting
from Federal Register publication of this rule as a notice of proposed
rulemaking.
Rationale
The number of Foreign Trade Zones, complexity of operations and volume
of trade passing through zones has increased significantly in recent
years. From less than 20 zones in the early 1970's, activated zones and
sub-zones reporting activity at the end of 1984 numbered 88 (57 general
purpose zones and 31 sub-zones), with 83 other zones approved but not
reporting activity (see table 1).
Meanwhile, Customs inspection and supervision of zone activity has
changed little in practice. Secular reductions in agency resources have
combined with unchanged practices to produce (1) operational hardships
on zone grantees and users and (2) uncertain inspection and control of
zone activity.
The proposed revisions to 19 CFR Parts 18, 24, 112, 141, 144, 146, and
191 (relating to Customs administration of foreign trade zones) is an
administrative attempt to update zone supervision in accordance with
current business practices.
Objectives
The proposal is intended to bring about three fundamental changes:
1. the method of accountability of merchandise admitted, stored,
manipulated, exhibited, manufactured and removed from zones;
2. the method of enforcement of Customs laws through audits and spot
checks instead of more costly physical presence of inspectional resources;
and
3. the method of reimbursing Customs for its zone-related operational
expenses.
Legal Basis For Proposal
This regulatory project is initiated under the authority of R.S. 251,
as amended, Sections 1-21, 48 Stat. 998, 999, as amended, 1000, 1002, as
amended, 1003, 77A Stat. 14, section 624, 46 Stat. 759 (19 U.S.C. 66,
81a-81u, 1202 (General Headnote 11), 1624).
Estimated Number of Small Entities Affected
Tallies of zone activity in Customs regions indicated that
approximately 1,500 users occupy space in zones and carry out the range
of permitted manipulation, manufacturing and storage activities. Of these,
600 operate on a full-time, year-round basis. The remaining 900 operate
on a part-time basis. These estimates do not include users in foreign
trade sub-zones. Sub-zone users tend to be large (oftentimes
multinational) corporations and thus do not fit within the purview of
the requirements of the Regulatory Flexibility act which concentrate on
small business concerns.
Economic Effects of Compliance With the Proposal
After review of the proposal's work plan, we have identified within the
proposal the following seven procedural/administrative and fee-related
changes likely to affect economic concerns of small business:
A. Procedural administrative changes
1. inventory control and record keeping system
2. operator's control over admission and removal of goods
3. elimination of customs forms 7502/7505/215
B. Fee changes
1. elimination of present form of reimbursement to Customs
2. implementation of annual fee covering audits and spot checks
3. zone activation and boundary alteration fee
Table I. -- Number of Foreign Trade Zones in the United States*
Approved Reporting No reported
activity activity
Total 171 88 83
General purpose zones 111 57 54
Sub-zones 60 31 29
*As of the end of FY 1984.
Source: Foreign Trade Zones Board, U.S. Department of Commerce and
special reports from U.S. Customs Service Regions.
A. Procedural/Administrative Changes
Inventory Control and Record Keeping System
An inventory control and record keeping system with Customs prescribed
data will result from this proposal. A similar system (Alternative
Inventory Control System) has been in effect since 1976 and currently
operates at 7 general purpose zones. Data required for the new system
will consist of standard business data currently collected and tabulated
for small users by each zone's operator/grantee. We do not anticipate a
significant net reporting burden on users or operators as a result of
this segment of the proposal.
Operators' Control Over Admission and Removal of Goods
Under present Customs supervision, a Customs officer must be present
to clear admissions of merchandise to and removals of merchandise from a
zone, thus limiting these transactions to the availability of a Customs
officer. Under the present proposal, an operator will be able to admit
and remove merchandise without a Customs officer being present, after
receiving Customs approval. However, Customs approval for admission will
require an invoice in support of the application for admission on CF 214
and that the merchandise be retained for Customs examination at the place
of unlading, the zone, or other location designated by the district
director. Upon admittance to a zone, textile goods subject to visa
controls will require a CF 214 with an invoice annotated by a Customs
officer. Withdrawal of those goods will require the visa, either the
original if withdrawn in its original lot size or new visas if withdrawn
in break bulk, partial quantities. Presentation of an invoice and
merchandise examination prior to admission are not currently required and
will represent an additional paperwork requirement and possible delay in
the arrival of merchandise at the zone. Customs approval for removals will
be simplified by a reduction in paperwork as outlined in the next section.
In total, the additional admission requirements will be offset by the
simplified removal procedure and the enhanced business flexibility
derived from being able to admit or remove merchandise freely into and
out of the zone after Customs approval has been received.
Forms Reduction -- Customs Forms 7501/7505/215
Under present practice, Customs forms 7501 and 214 are required to
obtain privileged foreign status. Removal of privileged foreign status
merchandise from a zone requires filing CF 7505 for consumption. CF 215
is required to remove all zone status merchandise, except merchandise in
privileged status or wholly composed of merchandise in privileged status.
The estimated number of forms filed in FY 1984 appear in Table 2 below.
Table II
Form Number of
forms
7501* 15,000
7505 20,000
215 45,000
*The present CF 7501 requires data previously requested on the CF 7502.
Under a provision of this proposal, a request for privileged foreign
status would require a CF 214 and invoice (as before) but would eliminate
the CF 7501. Upon removal of privileged foreign status goods from a zone,
the applicable entry form would replace the 7505 (no net gain or loss).
Further, the CF 215 will be eliminated under this proposal. Current
clerical, data base management and brokerage costs for an estimated
60,000 forms 7501/215 would be eliminated, giving small businesses a net
gain on the order of $650,000 yearly from this procedural change.
Mandatory Bonding
One of the major proposed changes in zone administration is to involve
the operator/grantee in data keeping and reporting. A new mandatory bond
at a minimum level of $50,000 would be required in another provision of
the proposal, with the goal of encouraging operator/grantee accuracy in
compliance with his new responsibilities. The new bond would cover non-
compliance with these proposed regulations as well as losses of
merchandise. In terms of practical effects of this provision on small
businesses, we anticipate no net appreciable added burden or cost. Most
activated zones currently have bonds which meet or exceed the proposed
minimum level.
B. Fee Changes
Elimination of Present Form of Customs Reimbursement
Under present practices, operators/grantees reimburse Customs for
inspectional services rendered at zones. In fiscal year 1984, payments to
Customs totaled an estimated $1.7 million, of which $1.3 million pertain
to operations at general purpose zones. Assuming operators charge users
flat fees to recover these payments, then each small user pays an average
of $870 per year for these present Customs services.The proposed revisions
would eliminate this $1.3 million present fee, substituting in its place
(see below) tiered fees which would cover Customs costs in carrying out
audits and spot checks.
A particular concern is underscored at this point, concerning the
distribution of this $1.3 million benefits (eliminated Customs
reimbursement). The 57 general purpose zones at the end of FY 1984 are
widely distributed around the country. A small business interested in
participating in a foreign trade zone generally finds itself limited to
one and only one zone provider in its operating area. The offering of
foreign trade zone services could thus be regarded as a monopolistic market
condition. Significant regulatory requirements and administrative and
application costs in seeking approval and setting up a zone essentially
prevents access by (especially small) businesses. In essence, then, they
must generally contract with the sole established zone operator in the
geographic area.
In economic theory, the pricing practices of a good/service provided
under monopolistic conditions are oriented towards extracting a maximum
profit for the unique provider, and, in practice, the level of fees
charged by some zone operators/grantees is a known concern of the Commerce
Department's Foreign Trade Zone Board.
As stated above, average savings per user from elimination of Customs
reimbursement is expected to approximate $870 per year. Based on actual
trade zone market conditions, however, real actual savings to users may
total well below the average $870/year. We expect that zone operator/
grantees will pass through to small users only a portion (quite possibly
small) of the total $1.3 estimated benefit of this provision of the
proposed regulation. In the public comments, no commenters (largely major
general purpose and sub-zone operators) addressed this issue. We expect
that in most cases operators will neglect to pass on savings to small
users. The Foreign Trade Zone Board has authority to review fees and
charges to users if those fees are challenged as unreasonable.
The fiscal year 1984-based fee schedule is tiered. The purpose of the
annual fee is to recover Customs costs incurred in carrying out the audit-
inspection supervision program. The annual fee to be charged each zone is
a function of the degree of complexity in Customs auditing and inspection
of zones. In order to account for those distinct operating conditions,
each zone will fall into a distinct size/complexity tier, with a specific
fee for each tier. In this way, small, less operationally complex zones
will not subsidize large zones. The tiers are based on operational
complexity as measured by the number of admissions and removals of
foreign and zone restricted merchandise
A zone will be classified as to its fee tier according to the following
simple criteria if admissions/transfers of foreign and zone restricted
merchandise:
(i) Are less than 300 per year, then TIER I ($1,400 per year fee);
(ii) Fall between 300 and 3,000 per year, then TIER II ($15,500 per
year fee);
(iii) Are greater than 3,000 per year, then TIER III ($33,800 per year
fee).
We expect general purpose zones to be largely skewed towards the TIER
I level (see Table 3).
The annual fee is due and payable on the effective date of final Rule
and on January 1 of each subsequent year. For existing zones the tier
will be based on the number of admissions and transfers of foreign and
zone restricted merchandise made during fiscal year ending September 30,
1984. Zones currently under a voluntary audit-inspection agreement need
not pay an additional annual fee for calendar year 1985, nor will there
be any refunds of fees paid. For subsequent years the tier will be based
on the number of admissions and transfers of foreign and zone restricted
merchandise made during the previous fiscal year ending September 30.
Each zone operator is responsible for determining the appropriate tier.
The operator's determination is subject to Customs verification. Operators
of zones activated during a calendar year will be responsible for paying
an annual fee based on tier I.
Table 3. -- Distribution of Foreign Trade Zones by Annual Fee Tiers
Tier Tier Tier Small
I 1 II 2 III 3 business
users
Total 44 33 11 1,500
General purpose zones 30 18 8 1,300
Sub-zones 14 15 3 200
1 $1,400 fee per year.
2 $15,500 fee per year.
3 $33,800 fee per year.
Under the present inspectional system Customs bills general purpose
zone operators approximately $1.3 million annually for inspectional
services. Zone operators recover this expense in their fee and rental/
lease billings to zone users. As above, we estimate that the Customs
component of these fees paid by zone users averages $870 per year per
user.
Under the proposed audit-inspection system with different fee tiers,
Customs billings to general purpose operators will amount to approximately
$591,000 per year, versus the estimated $1.3 million at present. The
Customs component of small business users' payments to operators will
average $450 per year per user, versus the $870 per year per user at
present. Future increases in the annual fee will reflect cost increases
incurred by Customs in delivering audit and inspection services. These
increases will consist largely of annual rises in labor costs. It is
expected that labor costs, and thus annual fees charged zone operators,
will rise by a moderate 2-4% per year.
Since sub-zone users are generally large companies, the effects of
fees on them do not fall within the purview of the RFA and this analysis
and thus will not be considered in this economic review. The burden on
small business from this fee schedule (yielding $591,000/yr.) would be
an average $450 per small user. Elimination of the current reimbursement
method ($870 per small user annually), even under the caveats noted above,
would more than cover these new audit-inspection approach fees.
New Zone Activation and Boundary Alteration Fees.
Under present procedures, zone applicants are not billed for necessary
Customs preparatory work prior to a zone's activation or alteration. The
proposed revisions contain a provision allowing Customs to recover its
costs for such tasks, among others, as site surveys, background
investigations, zone approval processing, inventory systems review and
associated clerical costs. These fees would be applicable to zones which
are activated, relocated or altered on or after the effective date of
final rulemaking.
Prospective fees are currently estimated at the following:
(a) $1,021 for zone activation;
(b) $442 for zone relocation; and
(c) $442 for zone alterations.
Concerning effects on small businesses, we expect average added cost
pass-through from this source to be insignificant.
Overlapping Rules
None identifiable.
Alternative Proposals
None feasible. The Status Quo becomes more untenable as complex zone
manufacturing operations increase in number, while Customs resources
diminish.
Summary of Economic Effects
Based on present available data, the proposed revisions would appear to
provide net yearly benefits to zone operators and users of $1.3 million,
as summarized below:
Quantified Cost (-) Benefits (+)
[In dollars]
Document reduction +650,000
Current reimbursement eliminated +1,300,000
01New annual fees for audit approach -591,000
Total +1,359,000
Non-Quantified Factors
Added New Neutral
costs benefits effect
Admission of goods X
Removal of goods X
Inventory control and record keeping system X
Mandatory bonding X
[FR Doc. 86-2399 Filed 2-10-86; 8:45 am]
BILLING CODE 4820-02-M