[Code of Federal Regulations]
[Title 19, Volume 2, Parts 141 to 199]
[Revised as of April 1, 1997]
From the U.S. Government Printing Office via GPO Access
[CITE: 19CFR146]

[Page 88-124]

TITLE 19--CUSTOMS DUTIES

CHAPTER I--UNITED STATES CUSTOMS SERVICE,
DEPARTMENT OF THE TREASURY

PART 146--FOREIGN TRADE ZONES


    Authority: 19 U.S.C. 66, 81a-81u, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States (HTSUS)), 1623, 1624.

    Source:  T.D. 86-16, 51 FR 5049, Feb. 11, 1986, unless otherwise 
noted.
  

Sec. 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.

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                      Subpart A--General Provisions
  
Sec. 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 
port 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 Note 2, Harmonized Tariff 
Schedule 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.

[[Page 90]]

    (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 numbers 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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 89-1, 53 FR 
51263, Dec. 21, 1988]

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Sec. 146.2  Port director as Board representative.

    The port director where the zone is located shall be in charge of 
the zone as the representative of the Board.

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Sec. 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 Sec. 161.1 of this 
chapter. The port 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.

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Sec. 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

[[Page 91]]

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 Sec. 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 port 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. If the operator elects to 
transfer merchandise from within the port limits (see definition of 
``district'' at Sec. 112.1) to his zone, he shall receipt for the 
merchandise at the time he picks it up for transportation to his 
facility. He becomes liable for the merchandise at that time.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 94-81, 59 FR 
51496, Oct. 12, 1994; T.D. 95-77, 60 FR 50020, Sept. 27, 1995]


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Sec. 146.5  [Reserved]

  
Sec. 146.6  Procedure for activation.

    (a) Application. A zone operator, or where there is no operator, a 
grantee, shall make written application to the port director 
geographically nearest to where 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. The port 
director may also require the operator or grantee to submit fingerprints 
on Standard Form 87 at the time of filing the application. If the 
operator is an individual, that individual's fingerprints may be 
required. If the operator or grantee is a business entity, fingerprints 
of all officers and managing officials may be required.
    (b) Supporting documents. The application must be accompanied by the 
following:
    (1)  [Reserved]
    (2) A blueprint of the area approved by the Board to be activated 
showing

[[Page 92]]

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 port director. As a condition of approval of the 
application, the port 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 port director. The port 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 Sec. 146.82. The decision of the port 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 
Sec. 113.73 of this chapter.
    (e) Activation. Upon the port 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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 93-18, 58 FR 
15773, Mar. 24, 1993; T.D. 95-99, 60 FR 62733, Dec. 7, 1995]

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Sec. 146.7  Zone changes.

    (a) Alteration of an activated area. An operator shall make written 
application to the port 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 supporting 
document requirements specified in Sec. 146.6, as applicable. The port 
director may review the security, suitability, and fitness of the area, 
and shall reply to the applicant as provided for in Sec. 146.6.
    (b) Deactivation or reactivation. A grantee, or an operator with the 
concurrence of a grantee, shall make written application to the port 
director for deactivation of a zone site, indicating by layout or 
blueprint the exact site to be deactivated. The port 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 port 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 Sec. 146.6(d).
    (c) Suspension of activated site. When approval of an activated 
status has been suspended through the procedure in subpart G, the port 
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 port 
director considers that transfer advisable to protect the revenue or 
administer any Federal law or regulation.
    (d) New bond. The port 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

[[Page 93]]

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 port 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 port director may order an inquiry 
into the qualifications, character, and experience of the operator and 
its principal officers.
    (f) The bond in Sec. 146.6 shall be submitted by the operator before 
the operating agreement may become effective in respect to merchandise 
in zone status. The port 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 port 
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 port 
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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 95-99, 60 FR 
62733, Dec. 7, 1995]

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Sec. 146.8  Seals, authority of operator to break and affix.

    The port director may authorize an operator to break a Customs in-
bond seal affixed under Sec. 18.4 of this chapter, or under any Customs 
order or 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 port 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 port director. If the operator does not obtain the written 
concurrence of the carrier as to the condition of the seal or delivering 
conveyance, the port director shall deem the seal or delivering 
conveyance to be intact.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986; 51 FR 11012, Apr. 1, 1986]

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Sec. 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 port director to the operator for 
delivery from the zone, as provided in Sec. 146.71 (a).

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Sec. 146.10  Authority to examine merchandise.

    The port director may cause any merchandise to be examined before or 
at the time of admission to a zone, or

[[Page 94]]

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.

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Sec. 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 Sec. 144.37(g) of this chapter 
and transferred to a zone for admission in zone-restricted status.

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Sec. 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.

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Sec. 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 
port director, except as otherwise specified in this part.

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Sec. 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.

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          Subpart B--Inventory Control and Recordkeeping System

  
Sec. 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 port 
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 port director any change at the time of its 
implementation.

[[Page 95]]

    (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 port 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 port 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.

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Sec. 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 Sec. 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 port director as provided in Sec. 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 Sec. 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.
    (e) Harbor maintenance fee. When imported cargo is unloaded from a 
commercial vessel at a U.S. port and admitted into a foreign trade zone, 
the applicant for admission of that cargo into the zone may be subject 
to the harbor maintenance fee as set forth in Sec. 24.24 of this 
chapter.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 87-44, 52 FR 
10211, Mar. 30, 1987; 52 FR 10970, Apr. 6, 1987]

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Sec. 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, cumulative 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 port director of any discrepancies in accordance with Sec. 146.53.

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Sec. 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.

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Sec. 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 port 
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 port 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 Sec. 146.53. These 
reports must accompany the certification letter.

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Sec. 146.26  System review.

    The operator shall perform an annual internal review of the 
inventory control and recordkeeping system and shall report to the port 
director any deficiency discovered and corrective action taken, to 
ensure that the system meets the requirements of this part.

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              Subpart C--Admission of Merchandise to a Zone

  
Sec. 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. Port directors shall not admit 
prohibited merchandise. If there is a question as to whether the 
merchandise may be prohibited, port 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.

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Sec. 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 port director. Exceptions to the Customs Form 214 requirement are 
for merchandise temporarily deposited (Sec. 146.33), transiting 
merchandise (Sec. 146.34), or domestic merchandise admitted without 
permit (Sec. 146.43). The applicant for admission shall present the 
application to the port director and shall include a statistical copy on 
Customs Form 214-A for

[[Page 97]]

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 Sec. 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 Sec. 141.11 or Sec. 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 Sec. 141.11 of this chapter). When a release order is 
required, it will be made on any of the forms specified in Sec. 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 Sec. 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 port 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 port 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 port director, 
except for merchandise for direct delivery to a zone under Secs. 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 Sec. 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 port 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.

[[Page 98]]

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Sec. 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 Sec. 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.

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Sec. 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 port director on Customs Form 3171 prior to transfer 
of the merchandise into the zone.
    (b) Permit. The port 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 Sec. 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 Sec. 146.32, or it must be removed from the zone.

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Sec. 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 Sec. 146.36.
    (b) Application. An application for temporary deposit will be made 
to the port 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 port director shall approve the application for 
temporary deposit of merchandise in a zone if the provisions of 
paragraphs (b) and (c) of this section are met.
    (e) Submission of Customs Form 214. A complete and accurate Customs 
Form 214 will be submitted, as provided in Sec. 146.32, within 5 working 
days plus any extension granted by the port director, or the merchandise 
shall be placed in general order.

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Sec. 146.36  Examination of merchandise.

    Except for direct delivery procedures provided for in Sec. 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 port director. The port director may 
authorize release of the merchandise without examination, as provided in 
Sec. 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.

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Sec. 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 used, 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 port 
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 port 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 port director may authorize the 
receipt of zone status merchandise at a zone without physical 
supervision by a Customs officer (see Sec. 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 port director.

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Sec. 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 port 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.

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Sec. 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 port 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 port 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 port director shall promptly notify 
the operator, in writing, of Customs decision on

[[Page 100]]

the application. If the application is denied, the port director shall 
specify the reason for denial in his reply. The port director's decision 
will constitute the final Customs administrative determination 
concerning the application.
    (e) Revocation of approval. The port 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.

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Sec. 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 port 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 
port 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 port director, by annotation on the Customs Form 214, 
when the entire contents of a shipment have been admitted.
    (b) Transportation by operator. If merchandise is transported to a 
subzone or zone site by the foreign trade zone operator from a location 
in the district (see definition of ``district'' at Sec. 112.1) in which 
the subzone or zone site is situated, the merchandise is deemed admitted 
at the time the foreign trade zone operator picks it up. At the time of 
pick-up, the operator is responsible for:
    (1) Receipting for the merchandise and recording on the appropriate 
document any discrepancies regarding quantity, condition or the status 
of the seals;
    (2) Transporting the merchandise to the zone or subzone; and
    (3) Ensuring that the zone records reflect that the merchandise is 
received in the zone.
    (c) 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 port director each business day a properly signed and 
uniquely numbered Customs Form 214 listing all merchandise except for 
domestic status merchandise admitted under Sec. 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 port 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 port 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:

[[Page 101]]

    (i) The port 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 port 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 port director can determine 
whether there is liability for the discrepancy under the bond of any 
party to the importation.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 94-81, 59 FR 
51497, Oct. 12, 1994; T.D. 95-77, 60 FR 50020, Sept. 27, 1995]

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               Subpart D--Status of Merchandise in a Zone

  
Sec. 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 port 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 port director, with the application, an invoice notated as 
provided for in Sec. 141.90 of this chapter.
    (d) Determination of duties and taxes. Upon receipt of the 
application and accompanying invoice, the port director may examine the 
merchandise to determine whether to approve the application. The 
merchandise will be subject to classification and valuation as provided 
in Sec. 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 
Sec. 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 
Secs. 146.67 and 146.69.

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Sec. 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 port 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.

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Sec. 146.43  Domestic status.

    (a) General. Domestic status may be granted to merchandise:

[[Page 102]]

    (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.

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Sec. 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 port 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 Sec. 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.

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              Subpart E--Handling of Merchandise in a Zone

  
Sec. 146.51  Customs control of merchandise.

    No merchandise, other than domestic status merchandise provided for 
in Sec. 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 port director may 
require segregation of any zone status merchandise whenever necessary to 
protect the revenue or properly administer U.S. laws or regulations.

[[Page 103]]

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Sec. 146.52  Manipulation, manufacture, exhibition or destruction; 
          Customs Form 216.

    (a) Application. Prior to any action, the operator shall file with 
the port 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 port 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 port 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 port director is authorized to approve a blanket application 
for a period of up to one year for a continuous or repetitive operation. 
The port director may disapprove 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 port director for any reason, the 
applicant or grantee may appeal the adverse ruling pursuant to the 
hearing provisions of Sec. 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 port 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 port 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.

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Sec. 146.53  Shortages and overages.

    (a) Report required. The operator shall report, in writing, to the 
port 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 identifier, 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 port 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 Sec. 146.25.
    (b) Certain domestic merchandise. Except in a case of theft or 
suspected theft, the operator need not file a report with the port 
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 port director is satisfied that the merchandise 
was:
    (i) Never received in the zone;
    (ii) Removed from the zone under proper permit;

[[Page 104]]

    (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 port 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 port 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.

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             Subpart F--Transfer of Merchandise From a Zone

  
Sec. 146.61  Constructive transfer to Customs territory.

    The port 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.

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Sec. 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 Sec. 146.64(c), Sec. 146.66(b), or Sec. 146.70(c).
    (c) Waiver of supporting documents. The port 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 port director or maintains and makes 
those records available for examination by Customs.

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Sec. 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

[[Page 105]]

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 port 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 port 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 Sec. 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 
Sec. 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.

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Sec. 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 Sec. 146.63(d) may be entered 
for warehouse only if the entry is endorsed by the port 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.

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Sec. 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

[[Page 106]]

the higher non-quota duty rate in effect on the date privileged foreign 
status was granted. Notwithstanding the grant of privileged status, 
Customs may correct any misclassification of any such entered 
merchandise when it posts the bulletin notice of liquidation under 
Sec. 159.9 of this chapter.
    (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, plus the statutory additions contained in 
section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade 
Agreements Act of 1979 (19 U.S.C. 1401a(b)(1)), 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 or of the statutory additions, 
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 
Sec. 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 port 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 port 
director.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 91-79, 56 FR 
46372, Sept. 12, 1991; T.D. 95-35, 60 FR 20632, Apr. 27, 1995]

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Sec. 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 or a bonded carrier as provided for in 
Sec. 112.2(b) of this chapter or by the operator of the zone for which 
the merchandise is destined 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 port 
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

[[Page 107]]

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 Sec. 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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 94-81, 59 FR 
51497, Oct. 12, 1994]

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Sec. 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

[[Page 108]]

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 Sec. 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 Sec. 18.26 of this 
chapter.
    (d) Textiles and textile products. Textiles and textile products 
which have been changed as provided for in Sec. 146.63(d) may be 
exported and returned to Customs territory for warehousing provided the 
entry for warehouse is endorsed by the port 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 Chapter 98, Subchapter 
I, Harmonized Tariff Schedule of the United States (19 U.S.C. 1202).

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 89-1, 53 FR 
51263, Dec. 21, 1988

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Sec. 146.68  Transfer for transportation or exportation; estimated 
          production.

    (a) Weekly permit. The port director may allow the person making 
entry for merchandise provided for in Sec. 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 port director. The application must be accompanied by a pro 
forma invoice or schedule like that required in Sec. 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 port 
director.
    (b) Individual entries. After approval of the application for a 
weekly permit by the port 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 Sec. 18.2(c) of this 
chapter. The operator also shall ensure that the port 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 port 
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.

[[Page 109]]

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.

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Sec. 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 Secs. 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 5512 (see Sec. 10.60 of this chapter). The person making 
entry shall furnish a bond on Customs Form 301 containing the bond 
conditions provided for in Sec. 113.62 of this chapter.
    (b) Merchandise for delivery within zone. Upon acceptance of the 
entry and bond, the port 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 port 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.

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Sec. 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 port director to 
show the authority under which it was made, and that the merchandise is 
subject to the provisions of Chapter 98, Subchapter I, Harmonized Tariff 
Schedule 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 port 
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 port 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

[[Page 110]]

Act of 1930, as amended (19 U.S.C. 1309, 1317).

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 89-1, 53 FR 
51263, Dec. 21, 1988]

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Sec. 146.71  Release and removal of merchandise from zone.

    (a) General. Except as provided for in Sec. 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 port director may authorize transfer from a zone without 
physical supervision or examination by a Customs officer. Upon issuance 
of a permit, the port 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 port 
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 port 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 or return of merchandise to zone for consumption. (1) 
The port 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 
port director has reason to believe any new entry would be cancelled 
under the provisions of this paragraph, 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 
paragraph 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 port 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 port 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 Sec. 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 paragraph (d)(1) of this section, it shall be admitted in domestic 
status.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986; 51 FR 11012, Apr. 1, 1986]

[[Page 111]]

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              Subpart G--Penalties; Suspension; Revocation

 
Sec. 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 port director under this 
section will be reviewed by the Director, International Trade Compliance 
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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 91-77, 56 FR 
46115, Sept. 10, 1991]

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Sec. 146.82  Suspension.

    (a) For cause. The port 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 commited 
acts which would constitute a felony, or misdemeanor involving theft, 
smuggling, or a theft-connected crime. Any change in the employment 
status of the corporate officer (e.g., discharge, resignation, demotion, 
or promotion) prior to conviction of a felony or prior to conviction of 
a misdemeanor involving theft, smuggling, or a theft-connected crime, 
resulting from acts committed while a corporate officer, will not 
preclude application of this provision;
    (4) The operator fails to furnish a current list of names, 
addresses, or other information as required by Sec. 146.7;
    (5) The operator does not provide a secure facility or properly 
safeguard merchandise within a zone;
    (6)  [Reserved]
    (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 port 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 port 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

[[Page 112]]

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 Assistant 
Commissioner, Office of Field Operations, or designee, together with a 
recommendation for final action.
    (3) Decision of Assistant 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 Assistant Commissioner, 
Office of Field Operations, or designee, in writing any additional views 
or arguments. The Assistant Commissioner, Office of Field Operations, or 
designee, 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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 88-63, 53 FR 
40220, Oct. 14, 1988; T.D. 95-99, 60 FR 62733, Dec. 7, 1995]

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Sec. 146.83  Revocation of zone grant.

    (a) Recommendation of port director. The port 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 port 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, Tariff Classification 
Appeals 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.

[T.D. 86-16, 51 FR 5049, Feb. 11, 1986, as amended by T.D. 91-77, 56 FR 
46115, Sept. 10, 1991]

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        Subpart H--Petroleum Refineries in Foreign-Trade Subzones

    Source:  T.D. 95-35, 60 FR 20632, Apr. 27, 1995, unless otherwise 
noted.
  
Sec. 146.91  Applicability.

    This subpart applies only to a petroleum refinery (as defined 
herein) engaged in refining petroleum in a foreign-trade zone or 
subzone. Further, the provisions relating to zones generally, which are 
set forth elsewhere in this part, including documentation and document 
retention requirements, and entry procedures, such as weekly entry, 
shall apply as well to a refinery subzone, insofar as applicable to and 
not inconsistent with the specific provisions of this subpart. It does 
not cover zone-to-zone transfers in which the fact of removal from one 
zone is ignored.

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Sec. 146.92  Definitions.

    (a) Attribution. ``Attribution'' means the association of a final 
product with its source material.
    (b) Feedstocks. ``Feedstocks'' means crude petroleum or intermediate 
product that is used in a petroleum refinery to make a final product.
    (c) Feedstock factor. ``Feedstock factor'' means the relative value 
of final products utilizing T.D. 66-16 (see Sec. 146.92(h)), and which 
takes into account any volumetric loss or gain.
    (d) Final product. ``Final product'' means any petroleum product 
that is produced in a refinery subzone and thereafter removed therefrom 
or consumed within the zone.
    (e) Manufacturing period. ``Manufacturing period'' means a period 
selected by the refiner which must be no more than a calendar month 
basis, for which

[[Page 113]]

attribution to a source feedstock must be made for every final product 
made, consumed in, or removed from the refinery subzone.
    (f) Petroleum refinery. ``Petroleum refinery'' means a facility that 
refines a feedstock listed on the top line of the tables set forth in 
T.D. 66-16 into a product listed in the left column of the tables set 
forth in T.D. 66-16.
    (g) Price of product. ``Price of product'' means the average per 
unit market value of each final product for a given manufacturing period 
or the published standard product value if updated each month.
    (h) Producibility. ``Producibility'' is a method of attributing 
products to feedstocks for petroleum manufacturing in accordance with 
the Industry Standards of Potential Production set forth in T.D. 66-16.
    (i) Relative value. ``Relative value'' means a value assigned to 
each final product attributed to the separation from a privileged 
foreign feedstock based on the ratio of the final product's value 
compared to the privileged foreign feedstock's duty.
    (j) Time of Separation. ``Time of separation'' means the 
manufacturing period in which a privileged foreign status feedstock is 
deemed to have been separated into two or more final products.
    (k) Weighted Average. ``Weighted average'' means the relative value 
of merchandise, which is determined by dividing the total value of 
shipments in a given period by the total quantity shipped in the same 
given period. See example in section VI of the appendix to this part.

Return to Top

 
Sec. 146.93  Inventory control and recordkeeping system.

    (a) Attribution. All final products removed from or consumed within 
a petroleum refinery subzone must be attributed to feedstock admitted 
into said petroleum refinery subzone in the current or prior 
manufacturing period. Attribution must be based on records maintained by 
the operator. Attribution may be made by applying one of the authorized 
methods set forth in this section. Records must be maintained on a 
weight or volume basis.
    (1) Producibility. The producibility method of attribution requires 
that records be kept to attribute final products to feedstocks which are 
eligible for attribution as set forth in this section during the current 
or prior manufacturing period.
    (2) Actual production records. An operator may use its actual 
production records as provided for under Sec. 146.95(b) of this subpart.
    (3) Other inventory method. An operator may use the FIFO (first-in, 
first-out) method of accounting (see Sec. 191.22(c) of this chapter). 
The use of this method is illustrated in the appendix to this part.
    (b) Feedstock eligible for attribution. Only a feedstock that has 
been admitted into the refinery subzone is eligible for attribution. For 
a given manufacturing period, the quantity of feedstock eligible for 
attribution may be computed as beginning inventory, plus receipts less 
shipments of feedstock out of the subzone, and less ending inventory.
    (c) Consumption or removal of final product. Each final product that 
is consumed in or removed from a refinery subzone must be attributed to 
a feedstock eligible for attribution during the current or a prior 
manufacturing period. Each final product attributed as being produced 
from the separation of a privileged foreign status feedstock must be 
assigned the proper relative value as set forth in paragraph (d) of this 
section.
    (d) Relative value. A relative value calculation is required when 
two or more final products are produced as the result of the separation 
of privileged foreign status feedstock. Ad valorem and compound rates of 
duty must be converted to specific rates of duty in order to make a 
relative value calculation.
    (e) Privileged status after admission. Nonprivileged status 
feedstock is eligible for privileged status only if the request shows to 
the satisfaction of the Customs Service that there was no manipulation 
or manufacture of the feedstock to change its tariff classification 
before the request is granted. The absence of such manipulation or 
manufacture can be shown by demonstrating that the feedstock was placed 
in an

[[Page 114]]

empty tank, in a tank that contained only feedstock with the same 
nominal specifications or providing a sample which shows there was no 
change in tariff status. The existence of negligible amounts of other 
feedstocks may be disregarded only in accordance with Sec. 146.95(b). A 
request for after-admission privileged foreign status shall be denied 
unless the feedstock's tank records from admission to the time that the 
request is made accompany the request. A refiner who makes such a 
request shall not put any other feedstock having different nominal 
specifications into the tank until the request for privileged status is 
granted. The Customs Service will deny or revoke a post-admission 
request if a refiner fails to retain the integrity of the feedstock in 
the tank.
    (f) Consistent use required. The operator must use the selected 
method, measurement (weight or volume), and the price of product 
consistently (see Sec. 146.92(g) of this subpart and paragraph (a) of 
this section).

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Sec. 146.94  Records concerning establishment of manufacturing period.

    (a) Feedstock admitted into the refinery subzone. The operator must 
maintain appropriate inventory records during the manufacturing period 
to substantiate the feedstock(s) eligible for attribution under 
Sec. 146.93(b) and in accordance with the operator's selected 
attribution method.
    (b) Final product consumed in or removed from subzone. The operator 
must record the date and amount of each final product consumed in, or 
removed from the subzone.
    (c) Consumption or removal. The consumption or removal of a final 
product during a week may be considered to have occurred on the last day 
of that week for purposes of attribution and relative value calculation 
instead of the actual day on which the removal or consumption occurred, 
unless the refiner elects to attribute using the FIFO method (see 
section II of the appendix to this part).
    (d) Gain or loss. A gain or loss that occurs during a manufacturing 
period must be taken into account in determining the attribution of a 
final product to a feedstock and the relative value calculation of 
privileged foreign feedstocks. Any gain in a final product attributed to 
a non-privileged foreign status feedstock is dutiable if entered for 
consumption unless otherwise exempt from duty.
    (e) Determining gain or loss; acceptable methods.--(1) Converting 
volume to weight. Volume measurements may be converted to weight 
measurements using American Petroleum Institute conversion factors to 
account for gain or loss.
    (2) Calculating feedstock factor to account for volume gain or loss. 
A feedstock factor may be calculated by dividing the value per barrel of 
production per product category by the quotient of the total value of 
production divided by all feedstock consumed. This factor would be 
applied to a finished product that has been attributed to a feedstock to 
account for volume gain.
    (3) Calculating volume difference. Volume difference may be 
determined by comparing the amount of feedstocks introduced for a given 
period with the amount of final products produced during the period, and 
then assigning the volume change to each final product proportionately.

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Sec. 146.95  Methods of attribution.

    (a) Producibility.--(1) General. A subzone operator must attribute 
the source of each final product. The operator is limited in this regard 
to feedstocks which were eligible for attribution during the current or 
prior manufacturing period. Attribution of final products is allowable 
to the extent that the quantity of such products could have been 
produced from such feedstocks, using the industry standards of potential 
production on a practical operating basis, as published in T.D. 66-16. 
Once attribution is made for a particular product, that attribution is 
binding. Subsequent attributions of feedstock to product must take prior 
attributions into account. Each refiner shall keep records showing each 
attribution.
    (2) Industry standards of potential production. The industry 
standards of potential production on a practical operating basis 
necessary for the producibility attribution method are

[[Page 115]]

contained in tables published in T.D. 66-16. With these tables, a 
subzone operator may attribute final products consumed in, or removed 
from, the subzone to feedstocks during the current or a prior 
manufacturing period.
    (3) Attribution to product or feedstock not listed in T.D. 66-16. 
(i) For purposes of attribution, where a final product or a feedstock is 
not listed in T.D. 66-16, the operator must submit a proposed 
attribution schedule, supported by a technical memorandum, to the 
appropriate port director. The port director shall refer the request to 
the Director, Office of Regulatory Audit (``ORA''), who will verify the 
refiner's records and will coordinate with the Director, Office of 
Laboratories and Scientific Services (``OLSS''). The Director, ORA, 
shall either approve or deny the request. If the request is approved, 
the Director, ORA, shall publish a modification of T.D. 66-16. If an 
operator elects to show attribution on a producibility basis, but fails 
to keep records on that basis, the operator shall use its actual 
operating records to determine attribution and any necessary relative 
value calculation upon the Customs Service demand and subject to 
verification.
    (ii) An operator may attribute a final product to a feedstock in 
excess of the amount allowed under T.D. 66-16, when authorized by 
Customs, without losing the ability to attribute under T.D. 66-16 for 
all other feedstock-final product combinations. The operator must use 
its actual production records for the requested feedstock-final product 
combination. The operator must agree in writing that it will not, and it 
will not enable any other person, to file a drawback claim under 19 
U.S.C. 1313 inconsistent with those actual production records for that 
feedstock-final product combination. The operator shall file its request 
in accordance with paragraph (a)(3) of this section. The Director, ORA, 
and the Director, OLSS, must determine whether T.D. 66-16 needs to be 
modified and shall publish in the Customs Bulletin each approval granted 
under this paragraph and request public comments with each such 
approval.
    (4) Attribution to privileged foreign feedstock; relative value. If 
a final product is attributed to the separation of a privileged foreign 
feedstock a relative value must be assigned (see section IV of the 
appendix to this part).
    (b) Refinery operating records. An operator may use the actual 
refinery operating records to attribute the feedstocks used to the 
removed or consumed products. Customs shall accept the operator's 
operating conventions to the extent that the operator demonstrates that 
it actually uses these conventions in its refinery operations. Whatever 
conventions are elected by the operator, they must be used consistently 
in order to be acceptable to Customs. Additionally, Customs may use 
these records to test the validity of admissions into the subzone, 
consumption within and removals from the subzone.

    Example. If the operator mixes three equal quantities of material in 
a day tank and treats that product as a three-part mixture in its 
production unit, Customs will accept the resulting product as composed 
of the three materials. If, in the alternative, the operator assumes 
that the three products do not mix and treats the first product as being 
composed of the first material put into the day tank, the second product 
as composed of the second material put into the day tank, and the third 
product as being composed of the third material put into the day tank, 
Customs will accept that convention also.

Return to Top

  
Sec. 146.96  Approval of other recordkeeping systems.

    (a) Approval procedure. An operator must seek prior approval of 
another recordkeeping procedure by submitting the following to the 
Director, Office of Regulatory Audit:
    (1) An explanation of the method describing how attribution will be 
made when a finished product is removed from or consumed in the subzone, 
and how and when the feedstocks will be decremented;
    (2) A mathematical example covering at least two months which shows 
the amounts attributed, all necessary relative value calculations, the 
dates of consumption and removal, and the amounts and dates that the 
transactions are reported to Customs.

[[Page 116]]

    (b) Failure to comply. Requests received that fail to comply with 
paragraph (a) of this section will be returned to the requester with the 
defects noted by the Director, Office of Regulatory Audit.
    (c) Determination by Director. When the Director, Office of 
Regulatory Audit, determines that the recordkeeping procedures provide 
an acceptable basis for verifying the admissions and removals from or 
consumption in a refinery subzone, the Director will issue a written 
approval to the applicant.

Return to Top

  
   Appendix to Part 146--Guidelines for Determining Producibility and 
                 Relative Values for Oil Refinery Zones

    Where an example is set out in this appendix, the example is for 
purposes of illustrating the application of a provision, and where there 
is any inconsistency between the example and the provision, the 
provision prevails to the extent of the inconsistency. Alternative 
formats are also acceptable so long as they are consistent with the 
provisions of this part.

 I. Attribution Using Producibility Showing Manufacturing Periods From 
              Admission to Removal Within a Calender Month.

    Volume losses and gains accounted for by weight.

                                  Day 1

    Receipt into the refinery subzone during a 30-day month:

50,000 pounds privileged foreign (PF) class II crude oil.
50,000 pounds PF class III crude oil.
50,000 pounds domestic status class III crude oil.

                                 Day 10

    Removal from the refinery subzone for exportation of 50,000 pounds 
of aviation gasoline.
    The period of manufacture for the aviation gasoline is Day 1 to Day 
10. The refiner must first attribute the designated source of the 
aviation gasoline.
    In order to maximize the duty benefit conferred by the zone 
operation, the refiner chooses to attribute the exported aviation 
gasoline to the privileged foreign status crude oil. Under the tables 
for potential production (T.V. 66-16), class II crude has a 30% 
potential, and class III has a 40% potential. The maximum aviation 
gasoline producible from the class II crude oil is 15,000 pounds (50,000 
 x  .30). The maximum aviation gasoline producible from the privileged 
foreign status class III crude oil is 20,000 pounds (50,000  x  .40). 
The domestic class III crude would also make 20,000 pounds of aviation 
gasoline.
    The refiner could attribute 15,000 pounds of the privileged foreign 
class II crude oil, 20,000 pounds of the privileged foreign class III 
crude oil, and 15,000 pounds of the domestic class III crude oil as the 
source of the 50,000 pounds of the aviation gasoline that was exported; 
35,000 pounds of class II crude oil would be available for further 
production for other than aviation gasoline, 30,000 pounds of privileged 
foreign class III crude oil would be available for further production 
for other than aviation gasoline, and 35,000 pounds of domestic status 
class III crude oil would be available for further production, of which 
up to 5,000 pounds could be attributed to aviation gasoline.

                                 Day 21

    Receipt in the refinery subzone:

50,000 pounds PF status class I crude oil.
50,000 pounds PF status class IV crude oil.

                                 Day 30

    Removal from the refinery subzone:
30,000 pounds of motor gasoline for consumption.
10,000 pounds of jet fuel sold to the US Air Force for use in military 
aircraft.
10,000 pounds of aviation gasoline sold to a U.S. commuter airline for 
domestic flights.
10,000 pounds of kerosene for exportation.

    To the extent that the crude oils that entered production on Day 1 
are attributed as the designated sources for the products removed on Day 
30, the period of manufacture is Day 1 to Day 30. If the refiner chooses 
to attribute the crude oils that were admitted on Day 21 as the 
designated sources of the products removed on Day 30 using the 
production standards published in T.D. 66-16, the manufacturing period 
is Day 21 to Day 30. This choice will be important if a relative value 
calculation on the privileged foreign status crude oil is required, 
because the law requires the value used for computing the relative value 
to be the average per unit value of each product for the manufacturing 
period. Relative value must be calculated if a source feedstock is 
separated into two or more products that are removed from the subzone 
refinery. If the average per unit value for each product differs between 
the manufacturing period from Day 1 to Day 30 and the manufacturing 
period from Day 21 to Day 30, the correct period must be used in the 
calculation.
    In order to minimize duty liability, the refiner would try to 
attribute the production of the exported kerosene and the sale of the 
jet fuel to the US Air Force to the privileged foreign crude oils. For 
the same reason, the refiner would try to attribute the removed motor 
gasoline and the aviation gasoline for

[[Page 117]]

the commuter airline to the domestic crude oil.
    Accordingly, the refiner chooses to attribute up to 5,000 pounds of 
the domestic status class III crude as the source of the 10,000 pounds 
of aviation gasoline removed from the subzone refinery for the commuter 
airline. Since no other aviation gasoline could have been produced from 
the crude oils that were admitted into the refinery subzone Day 1, the 
refiner must attribute the remainder to the crude oils that entered 
production on Day 21. Again, using the production standards from T.D. 
66-16, the class I crude could produce aviation gasoline in an amount up 
to 10,000 pounds (50,000  x  .20). Likewise, the class IV crude oil 
could produce aviation gasoline in an amount up to 8,500 pounds (50,000 
x  .17).
    The refiner selects use of the class I crude as the source of the 
aviation gasoline. The refiner could attribute up to 27,300 pounds 
(35,000-5,000  x  .91) of the domestic class III crude oil as the source 
of the motor gasoline. This would leave 2,700 pounds of domestic class 
III crude available for further production for other than aviation 
gasoline or motor gasoline. The remaining motor gasoline removed (also 
2,700 pounds) must be attributed to a privileged foreign crude oil. The 
refiner selects the privileged foreign class II crude oil that entered 
production on Day 1 as the source for the remaining 2,700 pounds of 
motor gasoline.
    This would leave 32,300 pounds of privileged foreign class II crude 
oil available for further production, of which no more than 27,400 
pounds could be designated as the source of motor gasoline. The refiner 
attributes the jet fuel that is removed from the refinery subzone for 
the US Air Force for use in military aircraft to the privileged foreign 
class II crude oil. The refiner could attribute up to 20,995 pounds of 
jet fuel from that class II crude oil (32,300  x  .65). Designating that 
class II crude oil as the source of the 10,000 pounds of jet fuel leaves 
22,300 pounds of privileged foreign class II crude oil available for 
further production, of which up to 10,995 pounds could be attributed as 
the source of the jet fuel. Because the motor gasoline and the jet fuel, 
under the foregoing attribution, would be considered to have been 
separated from the privileged foreign class II crude oil, a relative 
value calculation would be required.
    The jet fuel is eligible for removal from the subzone free of duty 
by virtue of 19 U.S.C. 1309(a)(1)(A). The refiner could attribute the 
privileged foreign class II crude oil as being the source of the 10,000 
pounds of jet fuel (22,300  x  .65). The refiner chooses to attribute 
the privileged foreign class III crude oil as the source of the jet 
fuel. The refiner could attribute to that class III crude oil up to 
15,000 pounds of kerosene (30,000  x  .50).

                     II. Attribution on a FIFO Basis

(Accounting for volume losses or gains by the weight method)

                                 Day 1-5

    Transfer, into the Refinery Subzone, from one or more storage tanks 
into process 150 barrels of Privileged Foreign (PF) Class II crude oil, 
equivalent to 50,000 pounds.

                                  Day 6

    Removal from the refinery subzone 119 barrels of residual oils to 
customs territory, equivalent to 40,000 pounds.
    Since the operator uses the FIFO method of attribution, as the 
product is removed from the subzone, or consumed or lost within the 
subzone, attribution must be to the oldest feedstock available for 
attribution. Accordingly, the 40,000 pounds of residual oils will be 
attributed to 40,000 pounds of the PF Class II crude oil from Day 1-5.

                                 Day 10

    Transfer, into the refinery subzone, from one or more storage tanks 
4 barrels of domestic motor gasoline blend stock, equivalent to 1,000 
pounds to motor gasoline blending tank.

                                Day 6-15

    Transfer, into the refinery subzone, from one or more storage tanks 
into process 320 barrels of Domestic Class III crude oil, equivalent to 
100,000 pounds.

                                 Day 16

    Removal from the refinery subzone 14 barrels of asphalt to customs 
territory, equivalent to 5,000 pounds.
    The 5,000 pounds of asphalt will be attributed to 5,000 pounds of PF 
Class II crude oil from Day 1-5.

                                 Day 17

    Removal from the refinery subzone, 324 barrels of motor gasoline to 
customs territory, equivalent to 81,000 pounds.
    The 81,000 pounds of motor gasoline will be attributed to 1,000 
pounds of domestic motor gasoline blend stock from Day 10, to the 
remaining 5,000 pounds of PF Class II crude oil from Day 1-5 and 75,000 
pounds of domestic Class III crude oil from Day 6-15.

                                Day 16-20

    Transfer, into the refinery subzone, from one or more storage tanks 
into process 169 barrels of Privileged Foreign (PF) Class III crude oil, 
equivalent to 50,000 pounds.

[[Page 118]]

                                 Day 22

    Removal from the refinery subzone, 214 barrels of jet fuel for 
exportation, equivalent to 60,000 pounds.
    The 60,000 pounds of jet fuel will be attributed to the remaining 
25,000 pounds of domestic Class III crude oil from Day 6-15 and 35,000 
pounds of PF Class III crude oil from Day 16-20.

                                Day 21-25

    Transfer, into the refinery subzone from one or more storage tanks 
into process, 143 barrels of domestic Class I crude oil, equivalent to 
50,000 pounds.

                Day 30 (End of the Manufacturing Period)

    It is determined that during the manufacturing period just ended, 
that 34 barrels of fuel, equivalent to 10,000 pounds was consumed, and 5 
barrels of oil, equivalent to 1,500 pounds was lost in the refining 
production process within the refinery subzone.
    The 10,000 pounds of fuel consumed will be attributed 10,000 pounds 
of PF Class III crude oil from Day 16-20. The 1,500 pounds of oil lost 
in the refining production process will be attributed to 1,500 pounds of 
PF Class III crude oil from Day 16-20. The remaining 3,500 pounds of PF 
Class III crude oil from Day 16-20 will be the first to be attributed 
during the next manufacturing period.

                     III. Relative Value Calculation

    Because privileged foreign feedstocks transferred into process 
during Day 1-5 and Day 16-20 have two or more products attributed to 
them, each feedstock will require a relative value calculation.
    Relative value calculation for UIN Day 1-5, 50,000 pounds, 
equivalent to 150 barrels.

----------------------------------------------------------------------------
				      D Product  E R.V.          G Dutiable
		A Lbs  B BBLS  C $/BBL	value	Factor	F R.V.BBL   BBL    
----------------------------------------------------------------------------
Residual oil...40,000   119    15.00   1,785   .9047      108      108
Asphalt........ 5,000    14    13.00     182   .7840       11       11
Motor gasoline. 5,000    20    26.00     520   1.5682      31       31
		 -----------------------------------------------------------
      Totals...50,000   153   .......  2,487   .......    150      150 
----------------------------------------------------------------------------
A=Pounds Attributed.
B=Equivalent Barrels.
C=Price of Product.
D=B x C.
E=C/(Total of Column D/Attributed Crude BBLS).
Residual Oil RV Factor=15.00/(2,487/150)=.9047.
F=B x E.
G=Dutiable Barrels.

    Since all products attributed to the 50,000 pounds (150 BBLS) of PF 
Class II crude entered customs territory duty equals $7.88 
(150 x .0525).
    Feedstock factor calculation for UIN Day 16-20, 46,500 pounds 
equivalent to 157 barrels.

----------------------------------------------------------------------------
			    Product 	     Feedstock             Dutiable 
	     Lbs     BBLS    $/BBL   value    factor    R.V. BBL   BBL    
----------------------------------------------------------------------------
Jet Fuel.... 35,000   125   27.00    3,375    1.1030      138        0
Fuel........ 10,000    34   12.00      408    0.4902       17        0
Consumed 
Process Loss. 1,500     5   12.00       60    0.4902        2        0
  --------------------------------------------------------------------------
     Totals.  46,500  164   ......   3,843    ......      157        0
----------------------------------------------------------------------------

    Since jet fuel was exported, no duty is applicable. Fuel consumed 
for refinery process was consumed within the subzone premises and did 
not enter customs territory, thus no duty is applicable (assume refinery 
not barred by duty-free consumption restriction). Likewise, the process 
loss occurred entirely within the subzone. Therefore, no duty is 
applicable.

IV. Attribution to Privileged Foreign Feedstock; Relative Value; Monthly 
  Manufacturing Period, Weekly Entries, Attribution to a Prior Period; 
            Volume Loss or Gain Shown by Volume Differences.

    An operator who elects to attribute on a monthly basis files the 
following estimated removal of final products for the first week in 
September:

Jet Fuel (deemed exported on international flights)...........    20,000
Gasoline--Domestic Consumption................................    15,000
Duty-free certified as emergency war material.................    10,000
Petroleum coke exportations...................................    10,000
Distillate for consumption....................................     5,000
Petrochemicals exported.......................................    10,000
                                                                 --------
      Total removals..........................................    70,000
                                                                        


[[Page 119]]

    Because it does not elect to make attributions for feedstocks that 
were charged to operating units during the same week, the operator 
attributes the estimated removals to final products made during August 
from the following feedstocks:

Class II PF (privileged foreign) crude........................   20,000
Class III PF crude............................................   35,000
Class III D (domestic) crude..................................   20,000
Class III NPF (nonprivileged foreign crude....................   20,000
                                                               ---------
                                                                 95,000
                                                                        

    During August the operator produced from those feedstocks:

Jet..........................................................     35,000
Gasoline.....................................................     40,000
Petroleum Coke...............................................     10,000
Distillate...................................................      5,000
Petrochemicals...............................................     15,000
                                                               ----------
                                                                 105,000
                                                                        

There is a gain of 105,000-95,000=10,000................................

    Using the tables in T.D. 66-16, the following choices are available 
for attribution:

----------------------------------------------------------------------------
                                               Petrolum              Petro-  
                    Charged    Jet    Gasoline   coke   Distillate  chemical 
----------------------------------------------------------------------------
Class II PF Crude...20,000   13,000   17,200    4,400    17,200      5,000
Class III PF Crude..35,000   24,500   31,850   14,000    31,150     10,150
Class III D Crude...20,000   14,000   18,200    8,000    17,800      5,800
Class III NPF Crude.20,000   14,000   18,200    8,000    17,800      5,800
----------------------------------------------------------------------------

    Feedstock factors are calculated:

----------------------------------------------------------------------------
                                   Value                   Feedstock 
                        Barrels      barrels         Value       factors  
----------------------------------------------------------------------------
Gasoline.............   40,000          $25        $1,000,000        .9117
Jet Fuel.............   35,000           23           805,000        .8388
Distillate...........    5,000           20           100,000        .7294
Petroleum Coke.......   10,000           10           100,000        .3647
Petrochemicals.......   15,000           40           600,000       1.4587
                       -----------------------------------------------------
                       105,000       .......         2,605,000             
                       -----------------------------------------------------
Gain.................  -10,000                      $2,605,000  ........... 
                                                ----------------------------
      Total.......... \1\ 95,000                                       
(2)=$27.42 average value p/bbl                                             
----------------------------------------------------------------------------

    Using the feedstock factor the refiner makes the following 
attributions:

                                                                        
                                                                        
                                                                        
Jet Fuel.........................       24,192  (20,291 feedstock       
                                                 attributed to Class III
                                                 PF Crude).             
                                        10,808  Class III NPF Crude     
                                                 (attribution of 9066   
                                                 solely for purpose of  
                                                 accounting for the     
                                                 amount of NPF used).   
                                  -------------                         
                                        35,000                          
  Gasoline.......................        5,000  (4,559 feedstock        
                                                 attributed to Class III
                                                 PF Crude).             
                                         5,000  Class III NPF Crude     
                                                 (attribution of 4599   
                                                 solely for purpose of  
                                                 accounting for the     
                                                 amount of NPF used).   
                                        15,000  (13,676 feedstock       
                                                 attributed to Class III
                                                 D Crude).              
                                  -------------                         
Petroleum Coke...................        8,418  (3,070 feedstock        
                                                 attributed to Class II 
                                                 PF Crude).             
                                         1,582  Class III NPF Crude     
                                                 (attribution of 577    
                                                 solely for purposes of 
                                                 accounting for the     
                                                 amount of NPF used).   
                                  -------------                         
                                        10,000                          
Distillate.......................        5,000  (3,647 feedstock        
                                                 attributed to Class III
                                                 Domestic).             
Petrochemicals...................        3,975  (5,800 feedstock        
                                                 attributed to Class III
                                                 NPF Crude).            
                                         6,025  (8,789 feedstock        
                                                 attributed to Class III
                                                 PF Crude).             
                                  -------------                         
                                        10,000                          
                                                                        


[[Page 120]]

   V. Weekly Entry, Weekly Manufacturing Period, and Relative Values 
Calculated on the Actual Weighted Average Values at the End of the Week.

    On the weekly estimated production CF 3461, the refiner is required 
to provide 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. For example, on CF 3461 the refiner estimates the 
following shipments and relative values for the next week and files this 
on the preceding Friday.

----------------------------------------------------------------------------
                                             PF shipments      Value/barrel
Product week 1                 (MBBLS)        (platts)         Total value 
----------------------------------------------------------------------------
Motor Gasoline...............  20,000           $35              $700,000
Total Alkylate...............  25,000            35               875,000
Heavy Reformate..............  60,000            35             2,100,000
Reformer Feed................ 110,000            35             3,850,000
Raffinates................... 200,000            35             7,000,000
Jet Fuel..................... 200,000            35             7,000,000
                             --------------                   -------------
      Total.................. 615,000        .............     $21,525,000
---------------------------------------------------------------------------

    Attributed Feedstock--Class III Crude: 615,000@ $105=$64,575 
(estimated duties)
    During that week the refiner actually removes the following products 
and reports those on the CF 7501 filed within 10 business days after the 
CF 3461 is filed. Column 3 is the actual ``weighted average'' value for 
the manufacturing period, therefore, no reconciliation is necessary.

-----------------------------------------------------------------------------
                2  PF     3 Value/ 4 Total   5  Relative 6 Feedstock  7 Liq.
1  Product      Shipments barrel    value   value factor distribu.   duties
                (mbbls)   wt.avg.) (2)x(3)   (3)/(8)     (5)x(2)   6)x(10)(9)
-----------------------------------------------------------------------------
Week 1:                                                                    
  Motor Gasoline.19,977  $35.70    $713,179   1.104545   22,065      $2,317
  Total Alkylate.22,907   42.50     973,548   1.314935   30,121       3,163
  Heavy Reformate.58,164  31.42   1,827,513    .972123   56,542       5,937
  Reformer Feed.100,279   31.42   3,150,766    .972123   97,484      10,235
  Raffinates....170,293   29.55   5,032,158    .914266  155,693      16,348
  Jet Fuel......168,433   30.04   5,059,727    .929426  156,546      16,437
-----------------------------------------------------------------------------
      Total.....540,053 .......   16,756,891   .......  518,451      54,437
                                                         (9)          (10)
-----------------------------------------------------------------------------

Class III Crude Consumed 518,451 x $.105 = $54,437......................
Volumetric Gain 21,602..................................................
Avg. Value/Barrel Crude Consumed=$16,756,891518,451=$32.321 (8).
    This example shows volumetric gain of 21,602 mbbls. However, in that 
PF was requested, liquidated duties are only on actual feedstock (class 
III crude) used in the refining process. (518,451 @ $.105=$54,437).

  VI. Weekly Entry, Monthly Manufacturing Period, and Relative Values 
   Calculated on the Actual Weighted Average Values at the End of the 
                                 Month.

    For example, on the CF 3461 the refiner estimates the following 
shipments and relative values for the next week and files this on the 
preceding Friday.

-------------------------------------------------------------------------
                                              3 Value/                   
1 Product                 2 PF shipments      barrel       4 Total value
                                              (mbbls)          (platts)  
-------------------------------------------------------------------------
Week 1:                                                                 
    Motor Gasoline......... 20,000              $35             $700,000
    Total Alkylate......... 25,000               35              875,000
    Heavy Reformate........ 60,000               35            2,100,000
    Reformer Feed......... 110,000               35            3,850,000
    Raffinates............ 200,000               35            7,000,000
    Jet Fuel.............. 200,000               35            7,000,000
                          ----------------                   ------------
      Total............... 615,000        ..............      21,525,000
-------------------------------------------------------------------------

Attributed Feedstock--Class III Crude: 615,000 @ $.105=$64,575 
(estimated duties)......................................................

    During the week the refiner actually removes the following products 
and reports those on the CF 7501 filed within 10 business days after the 
CF 3461 is filed. The reported relative values may be an estimate based 
on Platts, prior period actual prices, or the refiner's transfer prices. 
For this example, the estimates are based on the refiner's actual 
transfer prices. Listed below are the data to be shown on the weekly CF 
7501s with actual quantities shipped and estimated values for weeks 1-5.

[[Page 121]]



----------------------------------------------------------------------------
                2 PF    3 Value/ 4 Total  5 Relative   6 Feedstock  7 Liq
 1 Product    shipments barrel    value   value factor  distrib.   duties (6)
               (mbbls)  (est.)   (2)x(3)    (3)/(8)      (5)x(2)   x(10)(9)
----------------------------------------------------------------------------
Week 1:                                                                    
Motor Gasoline..19,977  $35.70   $713,179  1.104545     22,065       $2,317
Total Alkylate..22,907   42.50    973,548  1.314935     30,121        3,163
Heavy Reformate.58,164   31.42  1,827,513   .972123     56,542        5,937
Reformer Feed..100,279   31.42  3,150,766   .972123     97,484       10,235
Raffinates.....170,293   29.55  5,032,158   .914266    155,693       16,348
Jet Fuel.......168,433   30.04  5,059,727   .929426    156,546       16,437
----------------------------------------------------------------------------
      Total....540,053  ...... 16,756,891  ........    518,451      $54,437
                                                        (9)         (10)
----------------------------------------------------------------------------

Class III Crude Consumed 518,451 x $.105=$54,437........................
Volumetric Gain 21,602..................................................
Avg. Value/Barrel Crude Consumed=$16,756,891518,451=$32.321 (8).


----------------------------------------------------------------------------
                2  PF   3 Value/ 4 Total                           7 Liq 
1 Product     shipments  barrel   value    5 Relative 6 Feedstock  duties
                (mbbls) (est.)                value     factor     distrib.
----------------------------------------------------------------------------
Week 2:                                                                  
 Motor Gasoline..20,651  $36.90   $762,022   1.145429    23,654    $2,484
 Total Alkylate..23,435   44.25  1,036,999   1.373584    32,190     3,380
 Heavy Reformate.59,819   30.35  1,815,507    .942108    56,358     5,918
 Reformer Feed..101,167   30.10  3,045,127    .934347    94,526     9,925
 Raffinates.....172,317   29.30  5,048,888    .909514   156,726    16,456
 Jet fuel.......165,291   30.70  5,074,434    .952972   157,519    16,539
                ------------------------------------------------------------
   Total........542,680  ...... $16,782,977   ........  520,973   $54,702
----------------------------------------------------------------------------

Class III Crude Consumed 520,973 x $.105 = $54,702......................
Volumetric Gain 21,707..................................................
Avg. Value/Barrel Crude Consumed = $32.215..............................

---------------------------------------------------------------------------
                 2  PF    3 Value/  4 Total                         7 Liq. 
 1 Product     shipments   barrel    value  5 Relative 6 Feedstock  duties
                (mbbls)    (est.)              value     factor     distrib. 
----------------------------------------------------------------------------
Week 3:                                                                    
 Motor Gasoline..18,689   $34.90   $652,246   1.091819    20,405     $2,142
 Total Alkylate..21,511    40.25    865,818   1.259190    27,087      2,844
 Heavy Reformate.57,371    30.90   1,772,764   .966682    55,460      5,823
 Reformer Feed...99,707    30.90   3,080,946   .966682    96,386     10,121
 Raffinates.....168,112    29.65   4,984,521   .927577   155,938     16,374
 Jet Fuel.......172,092    29.85   5,136,946   .933834   160,707     16,874
----------------------------------------------------------------------------
  Total.........537,482  ....... $16,493,241 .........   515,983    $54,178
----------------------------------------------------------------------------

Class III Crude Consumed 515,983  x $.105 = $54,178.....................
Volumetric Gain 21,499..................................................
Avg. Value/Barrel Crude Consumed = $31.965..............................

---------------------------------------------------------------------------
                2  PF    3 Value/  4 Total                          7 Liq  
 1 Product     shipments barrel     value   5 Relative 6 Feedstock  duties
                 (mbbls)  (est.)              value      factor     distrib. 
---------------------------------------------------------------------------
Week 4:                                                                   
 Motor Gasoline..21,905  $32.85   $719,579   1.027237     22,502    $2,363
 Total Alkylate..22,552   38.75    873,890   1.211733     27,327     2,869
 Heavy Reformate.58,116   29.60  1,720,234   0.925607     53,791     5,648
 Reformer Feed..101,058   29.40  2,971,105   0.919353     92,908     9,755
 Raffinates.....169,823   30.15  5,120,163   0.942806    160,110    16,812
 Jet Fuel.......171,493   31.05  5,324,858   0.970949    166,511    17,484
---------------------------------------------------------------------------
   Total....... 544,947  ..... $16,729,829  ..........   523,149   $54,931
---------------------------------------------------------------------------

Class III Crude Consumed 523,149  x $.105 = $54,931.....................
Gain 21,798.............................................................
Avg. Value/Barrel Crude Consumed = $31.979

[[Page 122]]

........................................................................

---------------------------------------------------------------------------
                2  PF    3 Value/   4 Total                          7 Liq 
 1 Product     shipments  barrel      value  5 Relative  6 Feedstock duties
                (mbbls)   (est.)                value      factor    distrib
----------------------------------------------------------------------------
Week 5:                                                                     
 Motor Gasoline.. 8,990   $37.25     $334,878   1.136260   10,215     $1,073
 Total Alkylate.. 9,984    45.10      450,278   1.375713   13,735      1,442
 Heavy Reformate.25,351    31.50      798,557   0.960864   24,360      2,558
 Reformer Feed...43,492    31.35    1,363,474   0.956288   41,592      4,367
 Raffinates......75,172    29.95    2,251,401   0.913583   68,677      7,211
 Jet fuel........75,795    30.56    2,316,295   0.932190   70,654      7,418
----------------------------------------------------------------------------
   Total.........238,784  ........ $7,514,883  .........  229,233    $24,069
----------------------------------------------------------------------------

Class III Crude Consumed 229,233  x $.105 = $24,069.....................
Gain 9,551..............................................................
Avg. Value/Barrel Crude Consumed = $32.783..............................
    As provided in the regulations, the refiner files an amended CF 7501 
for each week based on the refiner's actual weighted average values for 
the month, as shown below.

------------------------------------------------------------------------
                                                                Value/  
                          Product                               barrel  
                                                               (MBBLS)  
------------------------------------------------------------------------
Month End:                                                              
    Motor Gasoline.........................................       $35.27
    Total Alkylate.........................................        41.84
    Heavy Reformate........................................        30.66
    Reformer Feed..........................................        30.54
    Raffinates.............................................        29.69
    Jet Fuel...............................................        30.42
------------------------------------------------------------------------


Reconciliation of Week 1 Using Month's End Actual Weighted Average Values
----------------------------------------------------------------------------
							   6 Feed- 7 Amended  
               2  PF    3  Value/  4  Total   5 Relative   stock   wt.avg.   
1  Product    shipments  barrel    value(2)x  value factor distri. duties
               (mbbls)  (wt. avg.) actual(3)   (3)/(8)     (5)x(2)  (6)x  
                                                                    (10)(9)  
----------------------------------------------------------------------------
Motor Gasoline..19,977  $35.27    $704,589    1.095716     21,889     $2,298
Total Alkylate..22,907   41.84     958,429    1.299823     29,775      3,126
Heavy Reformate.58,164   30.66   1,783,308     .952499     55,401      5,817
Reformer Feed..100,279   30.54   3,062,521     .948771     95,141      9,990
Raffinates.....170,293   29.69   5,055,999     .922365    157,072     16,493
Jet Fuel.......168,433   30.42   5,123,732     .945043    159,176     16,713
----------------------------------------------------------------------------
    Total......540,053  .....  $16,688,578   .........    518,454     54,437
                                                          (9)          (10)
----------------------------------------------------------------------------

Class III Crude Consumed = 518,454  x  $.105 = $54,437..................
Volumetric Gain 21,599..................................................
Avg.Value/Bbl Crude Consumed = $16,688,578  518,454 = $32.189 
(8).....................................................................

    Note: No change in amended total duties, because duty is computed on 
total quantity of class III crude used. The difference is amongst the 
various products, i.e., estimated weekly CF 7501 duties paid for Motor 
Gasoline was $2,317, while the reconciled amount as shown above is 
$2,298. Additional duties owed or refunds due would depend on the 
reconciliation of the weekly entry as an entirety.

    VII. Weekly entry, monthly manufacturing period, relative values 
   calculated on prior manufacturing period's actual weighted average 
        values. The prior period (PP) values are set forth below:

------------------------------------------------------------------------
                                                           Value/Barrel 
                         Product                            (wt. avg.)  
------------------------------------------------------------------------
Motor Gasoline..........................................     Sec.  35.28
Total Alkylate..........................................           41.90
Heavy Reformate.........................................           31.78
Reformer Feed...........................................           30.02
Raffinates..............................................           31.10
Jet Fuel................................................           28.80
------------------------------------------------------------------

    Thereafter, the information provided or both the CF 3461 and CF 7501 
filed for each weekly entry with respect to relative values would remain 
the same. The only estimated amount would be the quantity to be removed 
on the CF 3461 as shown

[[Page 123]]

below. On the CF 3461 the refiner estimates the following shipments and 
uses a prior manufacturing period's actual weighted average values.

---------------------------------------------------------------------------
                                  2  PF         3  Value/                  
  1  Product                    shipments     barrel  (PP)      4  Total   
                                 (mbbls)       (wt. avg.)         value    
---------------------------------------------------------------------------
Week 1                                                                     
    Motor Gasoline............       20,000          $35.28        $705,600
    Total Alkylate............       25,000           41.90       1,047,500
    Heavy Reformate...........       60,000           31.78       1,906,800
    Reformer Feed.............      110,000           30.02       3,302,200
    Raffinates................      200,000           31.10       6,220,000
    Jet Fuel..................      200,000           28.80       5,760,000
                              ----------------------------------------------
      Total...................      615,000  ..............      18,942,100
----------------------------------------------------------------------------

Attributed Feedstock--Class III Crude: 615,000 @ $.105 = $64,575 
(estimated duties)......................................................

    On the CF 7501, the refiner reports the following shipments and uses 
a prior manufacturing period's actual average values.

---------------------------------------------------------------------------
                                              5 Relative            7 Liq.   
                2  PF   3 Value/  4 Total     distri.    Feedstock  duties 
1  Product    shipments  barrel   (PP)Value   factor     (5)x(2)    (6)x     
               (mbbls)  (wt.avg.)  (2)x(3)    (3)/(8)               (10) (9)
---------------------------------------------------------------------------
Week 1:                                                                   
Motor Gasoline..19,977  $35.28    $704,789   1.097219      21,919   $2,902
Total Alkylate..22,907   41.90     959,803   1.303104      29,850    3,134
Heavy Reformate.58,164   31.78   1,848,452    .988368      57,486    6,036
Reformer Feed..100,279   30.02   3,010,376    .933632      93,623    9,830
Raffinates.....170,293   31.10   5,296,112    .967220     164,710   17,295
Jet Fuel.......168,433   28.80   4,850,870    .895689     150,863   15,840
---------------------------------------------------------------------------
      Total....540,053  ...... $16,670,402  .........     518,451  $54,437
                                                           (9)       (10)
---------------------------------------------------------------------------

Class III Crude Used 518,451  x  $.105 = $54,437........................
Volumetric Gain 21,602..................................................
Avg. Value/Barrel Crude Used = $16,670,402  518,451 = $32.154 
(8).....................................................................

-------------------------------------------------------------------------
                                             5 Relative            7 Liq.   
               2  PF   3 Value/  4  Total    Value      Feedstock  duties 
1  Product   shipments  barrel   (PP) value  factor     distri.    (6)x  
              (mbbls)  (wt.avg.) (2)x(3)     (3)/(8)    (5)x(2)    (10) (9)
-------------------------------------------------------------------------
Week 2:                                                                  
Motor Gasoline..20,651  $35.28    $728,567   1.096128    22,636    $2,377
Total Alkylate..23,435   41.90     981,926   1.301808    30,508     3,203
Heavy Reformate.59,819   31.78   1,901,048    .987386    59,064     6,202
Reformer Feed..101,167   30.02   3,037,033    .932704    94,359     9,908
Raffinates.....172,317   31.10   5,359,059    .966259   166,503    17,483
Jet Fuel.......165,291   28.80   4,760,381    .894799   147,903    15,529
-------------------------------------------------------------------------
     Total....542,680  ....... 16,768,014   ........    520,973    54,702
-------------------------------------------------------------------------

Class III Crude Used 520,973 x $.105=$54,702............................
Volumetric Gain 21,707..................................................
Avg. Value/Barrel Crude Used=$32.186....................................

--------------------------------------------------------------------------
                                  4 Total   5 Relative             7 Liq.   
             2 PF      3 Value/   (PP)      Value       Feedstock  duties 
1  Product   shipments  barrel    value     factor      distri.    (6)x  
             (mbbls)   (wt.avg.)  (2)x(3)   (3)/(8)     (5)x(2)    (10) (9)
--------------------------------------------------------------------------
Week 3:                                                                   
Motor Gasoline..18,689  $35.28   $659,348   1.099168     20,542    $2,157
Total Alkylate..21,511   41.90    901,311   1.305418     28,081     2,948
Heavy Reformate.57,371   31.78  1,823,250    .990124     56,803     5,964
Reformer Feed...99,707   30.02  2,993,204    .935290     93,254     9,792
Raffinates.....168,112   31.10  5,228,283    .968938    162,889    17,103
Jet Fuel.......172,092   28.80  4,956,250    .897280    154,414    16,214
--------------------------------------------------------------------------
      Total....537,482  ...... 16,561,646   ........    515,983    54,178
--------------------------------------------------------------------------

Class III Crude Used 515,983 x $.105=$54,178............................

[[Page 124]]

Volumetric Gain 21,499..................................................
Avg. Value/Barrel Crude Used=$32.097....................................

--------------------------------------------------------------------------
                                  4 Total    5 Relative            7 Liq.   
               2 PF     3 Value/  (PP)       Value      Feedstock  duties
1  Product    shipments  barrel   value      factor     distri.    (6)x   
              (mbbls)  (wt.avg.)  (2)x(3)    (3)/(8)    (5)x(2)    (10) (9)
--------------------------------------------------------------------------
Week 4:                                                                   
Motor Gasoline..21,905  $35.28   $772,808   1.097390    24,038     $2,524
Total Alkylate..22,552   41.90    944,929   1.303306    29,391      3,086
Heavy Reformate.58,116   31.78  1,846,926    .988522    57,447      6,032
Reformer Feed..101,058   30.02  3,033,761    .933777    94,365      9,908
Raffinates.....169,823   31.10  5,281,495    .967371   164,281     17,250
Jet Fuel.......171,493   28.80  4,938,998    .895829   153,627     16,131
--------------------------------------------------------------------------
      Total....544,947  ...... 16,818,917  ........    523,149     54,931
--------------------------------------------------------------------------

Class III Crude Used 523,149 x $.105=$54,931............................
Volumetric Gain 21,798..................................................
Avg. Value/Barrel Crude Used=$32.149....................................

--------------------------------------------------------------------------
                                  4 Total   5 Relative              7 Liq.   
               2 PF     3 Value/  (PP)      Value        Feedstock  duties
1  Product   shipments  barrel    value     factor       distri.    (6)x  
               (mbbls) (wt.avg.)  (2)x(3)   (3)/(8)      (5)x(2)    (10) (9)
--------------------------------------------------------------------------
Week 5:                                                                   
Motor Gasoline...8,990  $35.28    $317,167   1.097698     9,868     $1,036
Total Alkylate...9,984   41.90     418,330   1.303671    13,016      1,367
Heavy Reformate.25,351   31.78     805,655    .988799    25,067      2,632
Reformer Feed...43,492   30.02   1,305,630    .934039    40,623      4,265
Raffinates......75,172   31.10   2,337,849    .967642    72,740      7,638
Jet Fuel........75,795   28.80   2,182,896    .896080    67,919      7,131
--------------------------------------------------------------------------
      Total....238,784  ........ 7,367,527  .........  229,233     24,069
--------------------------------------------------------------------------

Class III Crude Used 229,233 x $.105=$24,069............................
Volumetric Gain 9,551...................................................
Avg. Value/Barrel Crude Used=$32.14.....................................

    At the end of the month, the refiner must calculate its actual 
weighted average values for use in the subsequent period.

  Reconciliation of Relative Value for the Subsequent Period                
---------------------------------------------------------------------------
                                  4 Total     5 Relative            7 Liq.   
               2 PF     3 Value/  (PP)        Value       Feedstock duties 
1  Product   shipments  barrel    value       factor      distri.   (6)x   
               (mbbls) (wt.avg.)  (2)x(3)     (3)/(8)     (5)x(2)   (10) (9)
---------------------------------------------------------------------------
Month End:                                                                 
Motor Gasoline...90,212  $35.27   $3,181,777  1.095682      98,844  $10,379
Total Alkylate..100,389   41.84    4,200,276  1.299783     130,484   13,701
Heavy Reformate.258,821   30.66    7,935,452   .952470     246,519   25,885
Reformer Feed...445,703   30.54   13,611,770   .948742     422,857   44,400
Raffinates......755,717   29.69   22,437,238   .922336     697,025   73,188
Jet Fuel........753,104   30.42   22,909,424   .945014     711,694   74,726
---------------------------------------------------------------------------
      Total...2,403,946  ........ 74,275,937  ........  2,307,423   242,279
                                                         (9)          (10)
---------------------------------------------------------------------------

Class III Crude Used 2,307,423 x $.105=$242,279.........................
Volumetric Gain 96,523..................................................
Avg. Value/Barrel Crude Used=$74,275,9372,307,423=$32.19 (8)....

    Note: Actual monthly reconciliation data could result in 
attributions on a product basis that are less than or greater than 
weekly distributions. This is due to the ``weighing'' of the data i.e., 
motor gasoline on a weekly basis was $10,996 as compared to $10,379 as 
above. No additional duties are due to the averaging.