Enforcement and Compliance
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last update: September 2002 
                           DEPARTMENT OF THE TREASURY 
                    Bureau of Alcohol, Tobacco and Firearms 
             AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), 
                                   Treasury. 
 
                          27 CFR Parts 19, 20 and 252 
            Manufacture of Articles in a Foreign-Trade Zone -- Using 
                      Domestic Denatured Distilled Spirits 
 
                                 [T.D. ATF-274] 
 
                                  53 FR 25155 
 
                                  July 5, 1988 
 
 
ACTION: Treasury decision, final rule. 
 
 
SUMMARY: This rule revises regulations in order to implement section 1894 of
the Tax Reform Act of 1986, Pub. L. 99-514.  Section 1894 amended the fifth
proviso of Section 3 of the Foreign-Trade Zones Act (19 U.S.C. 81c) so that
commencing October 22, 1986, articles may be manufactured in a foreign-trade
zone from domestic denatured distilled spirits, and articles thereof.  
 
 
EFFECTIVE DATE: These regulations are effective retroactive to October 22, 
1986.  
 
 
FOR FURTHER INFORMATION CONTACT: Robert L. Petrangelo, Distilled Spirits 
and Tobacco Branch, (202) 566-7531, Bureau of Alcohol, Tobacco and Firearms,
Ariel Rios Federal Building, 1200 Pennsylvania Avenue, NW., Washington, DC 
20226.  
 
TEXT: SUPPLEMENTARY INFORMATION: 
 
 
Background 
 
   The fifth proviso of section 3 of the Foreign-Trade Zones Act, 19 U.S.C.
81c, provides that neither the rectification of distilled spirits and wine,
nor the manufacture or production of alcoholic products unfit for beverage
purposes shall be permitted in a zone. However, the Act was amended by 
Section 1894 of the Tax Reform Act of 1986, Pub. L. 99-514, to provide that
notwithstanding the provisions of the fifth proviso, any article, within the
meaning of 26 U.S.C. 5002(a)(14) may be manufactured or produced from 
domestic denatured distilled spirits, and articles thereof, in a zone. The
alcohol in domestic denatured distilled spirits must be produced entirely 
in the United States, including Puerto Rico. The basic purpose of Section 
1894 was to make certain types of manufacturing operations in the United 
States as desirable, from an investment point of view, as the same types of
operations in foreign countries.  
 
 
Requirements 
 
   In order to implement the new law, the regulations which govern the use
of denatured spirits have been amended to extend to operations involving the
manufacture of articles from domestic denatured distilled spirits in a 
foreign-trade zone. Persons who wish to manufacture products in a 
foreign-trade zone from domestic specially denatured distilled spirits are 
required to hold a permit and to otherwise comply with statutory and 
regulatory provisions pertaining to the procurement or use of such spirits.
These permits are issued by ATF under the provisions of 26 U.S.C. 5271(a)(2).
Implementing regulations appear at 27 CFR Part 20. In addition, permittees 
intending to withdraw more than 5000 gallons of specially denatured spirits 
per annum must file a bond with ATF. There is no requirement for a permit 
covering the use (without recovery) of completely denatured spirits. However,
other sections of Part 20 are applicable to users of completely denatured 
spirits. The provisions of 27 CFR Part 252 relating to the transfer of 
specially denatured spirits to a foreign-trade zone for exportation, or 
storage pending exportation, do not apply to domestic denatured spirits 
which are transferred to qualified users in a foreign-trade zone free of tax
under the provisions of 27 CFR Part 20. Domestic denatured spirits 
transferred to a foreign-trade zone for use in the manufacture of articles 
pursuant to the provisions of Part 20 may subsequently be transferred 
domestically from the zone. Specially denatured spirits and completely 
denatured spirits are formulations specifically prescribed in 27 CFR Part 
21, Subparts D and C, respectively.  
 
Statutory References Expanded 
 
   The informational cites at the end of 27 CFR 19.540, 20.2 and 20.161 are
expanded to include a reference to the Foreign-Trade Zones Act.  
 
 
Regulatory Flexibility Act 
 
   The provisions of the Regulatory Flexibility Act relating to a final 
regulatory flexibility analysis (5 U.S.C. 604) are not applicable to this 
final rule because the agency was not required to publish a general notice
of proposed rulemaking under 5 U.S.C. 553 or any other law. 
 
 
Executive Order 12291 
 
   In compliance with Executive Order 12291, ATF has determined that this
final rule is not a "major rule" since it will not result in: 
 
   (a) An annual effect on the economy of $100 million or more;  
 
   (b) A major increase in costs or prices for consumers, individual 
industries, Federal, state or local government agencies, or geographic 
regions; or  
 
   (c) Significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of the United States-based 
enterprises to compete with foreign-based enterprises in domestic or export
markets. 
 
 
Paperwork Reduction Act 
 
   The provisions of the Paperwork Reduction Act of 1980, Pub. L.  96-511, 
44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR Part 1320, are
satisfied because reporting requirements under 27 CFR Part 20 (Distribution
and Use of Denatured Alcohol and Rum) have been approved by the Office of 
Management and Budget under control number 1512-0336. Similarly, 
recordkeeping requirements under 27 CFR Part 20 have been approved by the 
Office of Management and Budget under control number 1512-0337. 
 
 
Administrative Procedure Act 
 
   Since this final rule merely extends existing procedures for permit and 
bonding requirements with respect to the manufacture of articles in 
foreign-trade zones, it is found to be unnecessary to issue this final rule
with notice and public procedure thereon under 5 U.S.C. 553(b), or subject 
to the effective date limitation of 5 U.S.C. 553(d). 
 
 
Drafting Information 
 
   The principal author of this document is Robert Petrangelo of the 
Distilled Spirits and Tobacco Branch, Bureau of Alcohol, Tobacco and 
Firearms.  
 
 
List Of Subjects 
 
 
27 CFR Part 19 
 
   Administrative practice and procedure, Alcohol and alcoholic beverages, 
Authority delegations, Claims, Chemicals, Customs duties and inspection, 
Electronic funds transfers, Excise taxes, Exports, Gasohol, Imports, 
Labeling, Liquors, Packaging and containers, Puerto Rico, Reporting and 
recordkeeping requirements, Research, Security measures, Spices and 
flavorings, Surety bonds, Transportation, Virgin Islands, Warehouses, Wine.
 
 
27 CFR Part 20 
 
   Administrative practice and procedure, Advertising, Alcohol, Authority 
delegations, Chemicals, Claims, Cosmetics, Labeling, Packaging and 
containers, Reporting and recordkeeping requirements, Surety bonds, 
Transportation.  
 
 
27 CFR Part 252 
 
   Aircraft, Alcohol and alcoholic beverages, Armed forces, Authority 
delegations, Beer, Claims, Excise taxes, Exports, Fishing vessels, Foreign-
trade zones, Labeling, Liquors, Packaging and containers, Reporting and 
recordkeeping requirements, Surety bonds, Vessels, Warehouses, Wine 
Issuance.  
 
   Title 27 CFR is amended to read as follows: 
 
   PART 19 -- [AMENDED] 
 
   1. The authority citation for Part 19 continues to read as follows:  
 
   Authority: 19 U.S.C. 81c, 1311; 26 U.S.C. 5001, 5002, 5004-5006, 5008, 
5041, 5061, 5062, 5066, 5101, 5111-5113, 5171-5173, 5175, 5176, 5178-5181,
5201-5207, 5211-5215, 5221-5223, 5231, 5232, 5235, 5236, 5241-5243, 
5271-5273, 5301, 5311-5313, 5362, 5370, 5373, 5501-5505, 5551-5555, 5559, 
5561, 5562, 5601, 5612, 5682, 6001, 6065, 6109, 6302, 6311, 6676, 7510, 
7805; 31 U.S.C. 9301, 9303, 9304, 9306. 
 
   2. Section 19.540(a), and the informational cite at the end of the 
section, are revised to read as follows: 
 
   @ 19.540 Removal of denatured spirits and articles. 
 
   (a) Specially denatured spirits. (1) Specially denatured spirits 
withdrawn free of tax under @ 19.536(d) shall be shipped in approved 
containers to the consignee designated on the permit. If such spirits are 
for export or for transfer to a foreign-trade zone for export or for storage
pending exportation, they shall be withdrawn under the applicable provisions
of Part 252 of this chapter. 
 
   (2) Domestic specially denatured spirits may be transferred to qualified
users located in a foreign-trade zone for use in the manufacture of articles
under the applicable provisions of Part 20 of this chapter. The alcohol, as
defined in 27 CFR Part 20, in domestic specially denatured spirits must be 
produced entirely in the United States, including Puerto Rico.  
 
   (3) When specially denatured spirits are shipped to a qualified user, 
dealer, or an applicant or prospective applicant under paragraph (c)(2)(ii)
of this section, the proprietor shall prepare a record of shipment in 
accordance with @ 19.779. Bulk conveyances used to transport specially 
denatured spirits shall be secured in accordance with the provisions of @ 
19.96. 
 
 
* * * * * 
 
 
(48 Stat. 999, as amended, 72 Stat. 1362, as amended, 1370, as amended (19 
U.S.C. 81c; 26 U.S.C. 5214, 5271)) 
 
   PART 20 -- [AMENDED] 
 
   3. The authority citation for Part 20 is revised to read as follows:  
 
   Authority: 19 U.S.C. 81c; 26 U.S.C. 5001, 5206, 5214, 5271-5275, 5311, 
5552, 5555, 5607, 6055, 7805. 
 
   4. Section 20.2 is revised and an informational cite is added at the end
of the section, to read as follows: 
 
   @ 20.2 Territorial extent. 
 
   (a) This part applies to the several States of the United States, the 
District of Columbia and to denatured spirits and articles coming into the 
United States from Puerto Rico or the Virgin Islands. 
 
   (b) For the purposes of this part, operations in a foreign-trade zone 
located in any State of the United States or the District of Columbia are 
regulated in the same manner as operations in any other part of such State 
or the District of Columbia, with the exception that under this part only 
domestic denatured spirits may be used in the manufacture of articles in a 
foreign-trade zone.  
 
 
(48 Stat. 999, as amended (19 U.S.C. 81c)) 
 
   5. Section 20.161(a) and the informational cite at the end of the section
are revised to read as follows: 
 
   @ 20.161 Withdrawals under permit. 
 
   (a) General. The permit, Form 5150.9, issued under Subpart D of this part,
authorizes a person to withdraw specially denatured spirits from the bonded
premises of a distilled spirits plant or a dealer. If the permittee is 
located in a foreign-trade zone, the permit will be qualified so that the 
permittee may obtain domestic specially denatured spirits only.  The alcohol
in domestic denatured spirits must be produced entirely in the United 
States, including Puerto Rico. 
 
 
* * * * * 
 
 
(19 U.S.C. 81c; Sec. 201, Pub. L. 85-859, 72 Stat. 1370, as amended, 1395, 
as amended (26 U.S.C. 5271, 5555)) 
 
   PART 252 -- [AMENDED] 
 
   6. The authority citation for Part 252 is revised to read as follows:  
 
   Authority: 5 U.S.C. 552(a); 19 U.S.C. 81c, 1309, 1311; 26 U.S.C. 5008, 
5051, 5053, 5055, 5056, 5062, 5066, 5114, 5173, 5175-5177, 5204-5207, 5214, 
5223, 5301, 5354, 5362, 5367, 5370, 5371, 5401, 5415, 5551, 5552, 5555, 
6065, 7302, 7805; 31 U.S.C.  9301, 9303, 9304, 9306; 44 U.S.C. 3504(h).  
 
   7. Section 252.30 is revised, to read as follows: 
 
   @ 252.30 Export status. 
 
   (a) Distilled spirits and wines manufactured, produced, bottled in 
bottles packed in containers, or packaged in casks or other bulk containers 
in the United States, and beer brewed or produced in the United States may 
be transferred to a foreign-trade zone for the sole purpose of exportation,
or storage pending exportation. Liquors deposited in a foreign-trade zone 
under this part solely for such purposes are considered to be exported. 
Export status is not acquired until application on Form 214 for admission 
of the liquors into the zone has been approved by the district director of 
customs under the appropriate provision of 19 CFR Chapter I, and the 
required certification of deposit has been made on the ATF form prescribed 
in this part.  
 
   (b) The provisions of Subpart H of this part do not apply to specially 
denatured spirits transferred to a foreign-trade zone for use in the 
manufacture of articles pursuant to the provisions of 19 U.S.C. 81c(c). 
Transfer of domestic specially denatured spirits to a qualified user in a 
foreign-trade zone is made free of tax under the provisions of Part 20 of 
this chapter. Such transfer does not place the domestic specially denatured
spirits in an export status. 
 
 
(48 Stat. 999, as amended (19 U.S.C. 81c)) 
 
   8. The informational cite following @ 252.122 is revised to read as 
follows:  
 
 
* * * * * 
 
 
(Sec. 201, Pub. L. 85-859, 72 Stat. 1380, as amended (26 U.S.C.  5362))  
 
   Signed: March 30, 1988. 
 
 
Stephen E. Higgins, 
 
   Director. 
 
   Approved: April 14, 1988. 
 
 
John P. Simpson, 
 
   Acting Assistant Secretary (Enforcement).  
[FR Doc. 88-14885 Filed 7-1-88; 8:45 am] 
 
   BILLING CODE 4810-31-M