[Federal Register Volume 62, Number 64 (Thursday, April 3, 1997)]
[Rules and Regulations]
[Pages 15831-15842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8447]
[[Page 15831]]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Parts 19, 113 and 144
[T.D. 97-19]
RIN 1515-AB86
Duty-Free Stores
AGENCY: Customs Service, Department of the Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document amends the Customs Regulations principally with
respect to duty-free stores in order to reduce the overall paperwork
burden for proprietors thereof as well as for Customs. In particular,
for purposes of Customs audit of, and control over, such facilities,
greater reliance is placed on the use of records generated and
maintained by proprietors and importers in the ordinary course of
business, instead of on the use of specially prepared Customs forms.
The amendments provide benefits in this regard to other classes of
Customs bonded warehouses as well.
EFFECTIVE DATE: May 5, 1997.
FOR FURTHER INFORMATION CONTACT: Steven T. Soggin, Program Officer,
Office of Field Operations, (202-927-0765).
SUPPLEMENTARY INFORMATION:
Background
By a final rule document published in the Federal Register as T.D.
92-81 on August 20, 1992 (57 FR 37692), the Customs Regulations were
amended to designate duty-free stores as a new class of Customs bonded
warehouse, and to incorporate operating procedures for the
administration of these facilities.
However, in letters dated October 6 and 13, 1992, a major trade
association voiced a number of concerns with respect to the final rule.
Prompted by this correspondence, and following lengthy study, Customs
published a notice of proposed rulemaking in the Federal Register on
June 6, 1996, 61 FR 28808, setting forth specific revisions to the
duty-free store regulations. The proposed changes also provided some
benefits to other classes of bonded warehouses, and were intended to
reduce the overall paperwork burden both for warehouse proprietors and
for Customs.
In brief, under the proposed rule, the following sections of the
Customs Regulations were to be affected: Secs. 19.1, 19.2, 19.4, 19.6,
19.11, 19.12, 19.35, 19.36, 19.37, 19.39, 113.63, 144.34, 144.36,
144.37, 144.39 and 144.41.
Seven commenters responded to the notice of proposed rulemaking. A
description, together with Customs analysis, of the comments they made
is set forth below.
Discussion of Comments (Part 19)
Comment: Two commenters stated that the term ``exclusively'' in
proposed Sec. 19.1(a)(9) limits the operation of a warehouse to that of
a duty-free store providing only conditionally duty-free merchandise to
another duty-free store. It was requested that proposed Sec. 19.1(a)(9)
be amended by deleting ``exclusively'' to allow continued operations of
multi-class warehouses.
Customs Response: The wording of Sec. 19.1(a)(9) is correct.
Section 19.1(a)(9) states: ``All distribution warehouses used
exclusively to provide individual duty-free sales locations and storage
cribs with conditionally duty-free merchandise are also Class 9
warehouses.'' While the term ``exclusively'' in this context defines a
warehouse solely distributing merchandise to a duty-free store as a
Class 9 warehouse, this does not preclude a multi-class warehouse which
distributes merchandise to duty-free stores from also conducting other
functions of a different class for which it is approved.
Comment: One commenter suggested amending proposed Sec. 19.2(a) to
make specific provision for facilitating the approval of a common
inventory and recordkeeping system in use at multiple storage
locations. The commenter stated in this regard that Customs was
required to approve a proprietor's inventory and recordkeeping system
in every location, even though it might be the same system, which was
redundant.
Customs Response: Customs believes that the commenter's concern is
already addressed in Sec. 144.34(c)(2), and that this matter need not
specifically be addressed as well in Sec. 19.2(a). Section 144.34(c)(2)
allows a proprietor to file a single application with the director of
the port in which the applicant's centralized inventory control system
is located, with copies to all affected port directors. This procedure
eliminates duplicative work for both Customs and the trade by
initiating the Customs approval process solely at the port where the
applicant's centralized inventory control system exists.
Comment: One commenter objected to the proposed elimination from
Sec. 19.2(g) of the cross-reference therein to Sec. 19.3(f), which, as
such, provided for an administrative hearing in the case of a decision
by a port director to deny an initial application for a bonded
warehouse. This commenter stated that eliminating a hearing, though
rarely needed, would increase the chance of costly and time-consuming
litigation.
Customs Response: Customs disagrees, to the extent that the
citation in Sec. 19.2(g) to Sec. 19.3(f) does arguably accord the right
to an administrative hearing as well in the case of the denial of an
application to bond a warehouse. Formal administrative hearings are
themselves costly to the Government, often requiring the services of an
administrative law judge. Customs believes that administrative
resources for such a hearing are best limited to those instances
involving the revocation or suspension of bonded warehouse status, as
expressly provided for under Sec. 19.3(f).
Comment: One commenter recommended that proposed Sec. 19.4(b)(5)
reducing the storage time from 5 years to 6 months for original duty-
free sales tickets be amended to eliminate all time requirements for
retention of original duty-free sales tickets.
Customs Response: Customs disagrees. The record retention period of
6 months is already a marked time reduction from the current sales
ticket storage requirement of 5 years. Customs believes a 6-month time
period for storage of original duty-free sales tickets is the minimum
time necessary for both the trade and Customs to verify the accuracy of
original sales ticket information with sales information generated by
electronic or other approved alternative means.
Comment: One commenter suggested that proposed Sec. 19.4(b)(7)
delete the requirement to establish and maintain aisles in bonded
warehouses. The commenter stated that space was a precious commodity,
and proposed an alternative, whereby Customs would give a proprietor a
reasonable time to produce merchandise subject to a spot check or
audit.
Customs Response: Customs agrees. The second sentence of
Sec. 19.4(b)(7) is changed to read as follows: ``Doors and entrances
shall be left unblocked for access by Customs officers and warehouse
proprietor personnel.'' Also, to this end, Sec. 19.4(b)(2) is changed
to read as follows: ``The warehouse proprietor shall permit access to
the warehouse and present merchandise within a reasonable time after
request by any Customs officer.''
Comment: One commenter asked that the last sentence of
Sec. 19.4(b)(8)(ii) be amended to include the term ``unique
identifier'', so that it would read as follows: ``The proprietor must
provide, upon request by a Customs officer, a record balance of goods,
specifying the quantity in each storage location,
[[Page 15832]]
covered by any warehouse entry, general order, seizure, or unique
identifier so a physical count can be made to verify the accuracy of
the record balance.''
Customs Response: Customs agrees, and the section is so changed.
Comment: One commenter stated that proposed Sec. 19.4(b)(9) should
be amended to delete the word ``destruction'', because miscellaneous
requirements for destruction pertain only to a few classes of
warehouses. The commenter further observed that, should general order
merchandise remain in a warehouse beyond 6 months, responsibility
should not rest with the warehouse to maintain destruction records.
Customs Response: Customs disagrees. The term ``destruction'' needs
to remain in this section. An owner of merchandise in any warehouse
may, at any time, lawfully request that merchandise be destroyed under
Customs supervision. Requests for the destruction of merchandise in a
warehouse must be accounted for by the warehouse proprietor.
Comment: Two commenters requested that proposed Sec. 19.6(a)(1)
granting a 5-day time limit within which to file a copy of any joint
discrepancy report with the port director, be amended so as to allow
warehouse proprietors a 30-day limit in which to do so. The commenters
thought that this increased time extension would ease a restrictive
time burden by allowing a month to prepare a discrepancy report for
Customs.
Customs Response: Customs believes that the 5-day time requirement
for filing a joint discrepancy report is not unduly burdensome. Indeed,
this 5-day time limit itself represents a reasonable extension from the
previous requirement in the Customs Regulations that such discrepancy
reports be filed within 2 days. However, a 30-day time limit within
which to submit these reports is too long. A joint discrepancy report
involves sensitive custody transfers, and Customs believes the
reasonably prompt reporting of discrepancies in this regard is
essential.
Comment: One commenter called for the deletion of the requirement
for a procedures manual in proposed Sec. 19.12(b), on the basis that
the preparation and maintenance of such a manual constituted an
unjustified paperwork burden.
Customs Response: Customs disagrees. The proprietor's certification
at the time of application to bond that a procedures manual describing
the warehouse's inventory and recordkeeping system meets the
requirements of 19 CFR 19.12 plays a significant role in the license
approval process. The importance of this requirement extends into the
areas of compliance and audit activities. The manual serves as a
critical tool to Customs by demonstrating the proprietor has
established a methodology for inventory control and recordkeeping.
Comment: One commenter observed that proposed Sec. 19.12(d)(2)(ii)
would in effect require a warehouse proprietor to maintain as part of
an inventory recordkeeping system the cost or value of general order
merchandise, and that a proprietor would often have no idea as to the
cost or value of such merchandise.
Customs Response: Customs agrees. Section 19.12(d)(2)(ii) is
changed by adding at the beginning thereof the phrase, ``Except for
merchandise in general order,''.
Comment: Two commenters recommended that Customs amend proposed
Sec. 19.12(d)(3) to allow the option of accelerated payment of revenue
for non-extraordinary shortages prior to the filing of the annual CF
300 or certification of annual reconciliation.
Customs Response: Customs agrees. The last sentence of
Sec. 19.12(d)(3) is changed to allow a proprietor the option of
submitting payment of duties and fees for non-extraordinary shortages
any time prior to the annual filing of the CF 300 or certified annual
reconciliation.
Comment: One commenter advocated, with respect to proposed
Sec. 19.12(d)(5), that there be no physical inventory requirement to
account for merchandise, because non-government bonded warehouses did
not have such a requirement. One commenter asserted that an annual
reconciliation required in proposed Sec. 19.12(h) need not be
undertaken at the same time as the physical inventory.
Customs Response: The physical inventory requirement in
Sec. 19.12(d)(5) requires that a proprietor conduct at least one
physical inventory during the year. This need not necessarily take
place at the time of the annual reconciliation. Customs believes that
an annual physical inventory is necessary to gauge the accuracy of the
proprietor's inventory control system. Section 19.12(h) does not itself
deal with the requirement for a physical inventory.
Comment: One commenter stated that proposed Sec. 19.12(f)(3)
prohibited the application of First-In-First-Out (FIFO) procedures to
various types of merchandise, including quota and restricted
merchandise. Specifically, the commenter declared that Headquarters
Ruling 225837 exempted textile quota requirements on merchandise for
export; therefore, no basis existed to prohibit use of FIFO procedures
to such merchandise subject to textile quotas.
Customs Response: Customs agrees, to the extent that such
merchandise is for export only. To this end, accordingly, the following
sentence is added to Sec. 19.12(f)(2): ``Fungible textile and textile
products which are withdrawn from a Class 9 warehouse may be accounted
for using FIFO inventory procedures, inasmuch as such articles would be
exempt from textile quotas.'' In this regard, a Class 9 warehouse
(duty-free store) may only sell and deliver merchandise for export to
individuals departing the Customs territory.
The Committee for the Implementation of Textile Agreements (CITA),
U.S. Department of Commerce, has been consulted and agrees with Customs
treatment of textiles in Class 9 bonded warehouses or duty-free stores
as not being subject to quota and visa requirements.
However, it is understood that any textile articles exported from a
Class 9 warehouse and thereafter reimported into the U.S. would be
subject to the laws and regulations of the U.S. affecting imported
merchandise, including any applicable quotas.
Comment: One commenter suggested that Customs amend proposed
Sec. 19.12(h)(2) to allow a proprietor to reconcile merchandise under
an item's unique identifier number for annual reconciliation, instead
of tracking by entry number. The commenter explained that it was not
possible to comply with the proposed section under the FIFO inventory
because units transferred to warehouses in other ports could not be
posted or identified to an entry until disposed of.
Customs Response: All merchandise accounted for as sold, damaged,
short, or otherwise disposed of, receive a designated entry number. For
annual reconciliation of FIFO eligible merchandise not disposed of, a
list of all open and closed warehouse entries shall be presented to
Customs to account for merchandise.
Comment: One commenter requested that the address requirement be
eliminated from proposed Secs. 19.39(c)(5)(i) and 144.37(h)(2)(v) for
Class 9 warehouses at airports. The commenter noted in this connection
that few duty-free stores routinely obtained the address of a purchaser
and that the address requirement had little utility in the context of
airport duty-free store operations.
Customs Response: Customs agrees with this request. The risk of
diversion
[[Page 15833]]
of goods purchased at an airport duty-free store is minimal. Hence,
Secs. 19.39(c)(5)(i) and 144.37(h)(2)(v) are changed to eliminate any
requirement that an airport duty-free store submit to Customs upon
request the address of a purchaser.
Warehouse Withdrawals And Rewarehouse Entries
Comment: One commenter asked that proposed Sec. 144.34(c) be
amended to permit all classes of warehouses to participate in
alternative transfer procedures as opposed to only Class 2 and Class 9
warehouses. The commenter stated that as long as the warehouse is owned
by the same legal entity maintaining a centralized inventory control
system, and has the consent of the surety, such transfer operations
could easily be controlled in the same manner as those for Class 2 and
Class 9 warehouses.
Customs Response: Various custody transfer and liability issues are
primary concerns preventing the extension of transfer procedures under
Sec. 144.34(c) to other classes of Customs bonded warehouses.
Comment: One commenter suggested that Customs delete the
requirements in paragraphs (c)(4)(iv) and (c)(4)(vi) of proposed
Sec. 144.34, respectively, that a warehouse proprietor operating
multiple storage locations under a centralized inventory system
document all intracompany transfers of merchandise by means of the
appropriate warehouse entry number, as well as maintain a subordinate
permit file folder at all intracompany locations where merchandise is
transferred. The commenter stated that under FIFO inventory procedures,
units cannot be assigned an entry number, there being no withdrawal or
rewarehouse entry made at the time of transfer to place in the
subordinate permit file.
Customs Response: Customs disagrees. Customs does not require an
assigned entry number at the time of transfer. Section 144.34(c)(4)(vi)
allows up to 7 days to provide required warehouse entry documentation
after transfer. Maintaining records in a subordinate permit file allows
a proprietor to account for transactions such as shortages, overages,
damages, and the like, resulting from intracompany movements. The
documents required are set forth in Sec. 19.12(d)(4).
Comment: Two commenters observed that proposed
Secs. 144.34(c)(6)(ii), 144.36(c)(2), and 144.41(c)(2) appeared to
suggest that ``restricted'' merchandise could not be included in the
alternative inventory control system. The commenters believed that it
was not intended to exclude alcoholic products from this privilege.
Customs Response: The commenters are correct that alcohol and
tobacco products may be included as part of an approved alternative
inventory control and transfer system. To make this clear,
Secs. 144.34(c)(6)(ii), 144.36(c)(2) and 144.41(c)(2) are revised to
state: ``With the exception of alcohol and tobacco products* * *''.
Comment: One commenter recommended that proposed Sec. 144.34(c)
include transfers of merchandise from a foreign trade zone to a Class 9
warehouse.
Customs Response: Customs has such a proposal under active
consideration. Such proposal will be a subject of a separate
publication, if Customs decides to proceed therewith.
Conclusion
In view of the foregoing, and following careful consideration of
the comments received and further review of the matter, Customs has
concluded that the proposed amendments with the modifications discussed
above should be adopted.
In addition, Sec. 19.35(e)(2) is changed to reflect current
statutory law (19 U.S.C. 1555(b), as amended by sections 3(a)(8) and
29, Pub. L. 104-295), which permits merchandise purchased in a duty-
free store, if thereafter returned to the United States, to be subject
to the personal exemption of the arriving party under either item
9804.00.65, 9804.00.70 or 9804.00.72, Harmonized Tariff Schedule of the
United States.
Also, Sec. 19.12(d)(3) is changed to provide that the amount of
duty, taxes, and any interest applicable to each warehouse entry
involved in multiple shortages detected in a warehouse must be
separately specified, even though such duty and taxes may have been
tendered in one consolidated payment. This provision is needed because
such duty may be claimed for drawback, and Customs must have this
information in order to process the claim.
Furthermore, for the sake of editorial clarity, the last two
sentences of Sec. 19.12(d)(5) are moved to Sec. 19.12(d)(3), and a
cross reference to Sec. 19.4(b)(8)(ii) is added thereto, in order to
properly reflect the fact that the terms ``unique identifier'' and
``inventory category'' are interrelated. Also, for editorial clarity
and consistency, the term ``specific identifier, wherever it appeared
in the document, is changed to ``unique identifier''.
Regulatory Flexibility Act and Executive Order 12866
This final rule document is intended to simplify recordkeeping
requirements for duty-free stores and other Customs bonded warehouses.
To this end, greater reliance is placed on the use of records generated
and maintained by proprietors and importers in the ordinary course of
business, instead of on the use of specially prepared Customs forms. As
such, pursuant to the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), it is certified that this rule does not have a
significant economic impact on a substantial number of small entities.
Accordingly, it is not subject to the regulatory analysis or other
requirements of 5 U.S.C. 603 or 604. Nor does the rule result in a
``significant regulatory action'' under E.O. 12866.
Paperwork Reduction Act
The collection of information in this final rule document is
contained in Secs. 19.2, 19.4, 19.6, 19.11, 19.12, 19.36, 19.37, 19.39,
144.36, 144.37 and 144.41. This information is required and will be
used to ensure the exportation of merchandise from duty-free stores and
other Customs bonded warehouses, and to otherwise satisfy the
requirements of law and the protection of the revenue. The rule is
intended to simplify recordkeeping requirements for duty-free stores
and other Customs bonded warehouses. The likely respondents and/or
recordkeepers are business or other for-profit institutions.
The collection of information contained in this final rule document
has already been approved by the Office of Management and Budget (OMB)
under 1515-0005. The estimated average annual burden associated with
this collection is 10 hours per respondent or recordkeeper. Comments
concerning the accuracy of this burden estimate and suggestions for
reducing this burden should be directed to the Office of Management and
Budget, Attention: Desk Officer of the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC 20503.
Drafting Information
The principal author of this document was Russell Berger,
Regulations Branch, U.S. Customs Service. However, personnel from other
offices participated in its development.
List of Subjects
19 CFR Part 19
Customs duties and inspection, Imports, Exports, Warehouses.
[[Page 15834]]
19 CFR Part 113
Customs bonds.
19 CFR Part 144
Customs duties and inspection, Imports, Warehouses.
Amendments to the Regulations
Parts 19, 113 and 144, Customs Regulations (19 CFR parts 19, 113
and 144) are amended as set forth below.
PART 19--CUSTOMS WAREHOUSES, CONTAINER STATIONS AND CONTROL OF
MERCHANDISE THEREIN
1. The general authority citation for part 19 and the specific
authority for Secs. 19.1, 19.6, 19.11, and 19.35--19.39 continue to
read as follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,
Harmonized Tariff Schedule of the United States), 1624;
Section 19.1 also issued under 19 U.S.C. 1311, 1312, 1555, 1556,
1557, 1560, 1561, 1562;
Section 19.6 also issued under 19 U.S.C. 1555;
* * * * *
Section 19.11 also issued under 19 U.S.C. 1556, 1562;
* * * * *
Sections 19.35-19.39 also issued under 19 U.S.C. 1555;
* * * * *
2. Section 19.1 is amended by adding a sentence at the end of
paragraph (a)(9) to read as set forth below, and by removing paragraph
(c).
Sec. 19.1 Classes of customs warehouses.
(a) * * *
(9) * * * All distribution warehouses used exclusively to provide
individual duty-free sales locations and storage cribs with
conditionally duty-free merchandise are also Class 9 warehouses.
* * * * *
3. Section 19.2 is amended by revising its heading, by adding three
sentences at the end of paragraph (a), and by revising paragraphs
(b)(2) and (g), to read as follows:
Sec. 19.2 Applications to bond.
(a) * * * The applicant must prepare and have available at the
warehouse a procedures manual describing the inventory control and
recordkeeping system that will be used in the warehouse. A
certification by the proprietor that the inventory control and
recordkeeping system meets the requirements of Sec. 19.12 will be
submitted with the application. The physical security of the facility
must meet the approval of the port director.
(b) * * *
(2) A description of the store's procedures, which includes
inventory control, recordkeeping, and delivery methods. These
procedures must be set forth in the proprietor's procedures manual.
Such manual and subsequent changes therein must be furnished to the
port director upon request. The procedures in the manual shall provide
reasonable assurance that conditionally duty-free merchandise sold
therein will be exported;
* * * * *
(g) The port director shall promptly notify the applicant in
writing of his decision to approve or deny the application to bond the
warehouse. If the application is denied the notification shall state
the grounds for denial. The decision of the port director will be the
final Customs administrative determination in the matter.
4. Section 19.4 is revised to read as follows:
Sec. 19.4 Customs and proprietor responsibility and supervision over
warehouses.
(a) Customs supervision. The character and extent of Customs
supervision to be exercised in connection with any warehouse facility
or transaction provided for in this part shall be in accordance with
Sec. 161.1 of this chapter. Independent of any need to appraise or
classify merchandise, the port director may authorize a Customs officer
to supervise any transaction or procedure at the bonded warehouse
facility. Such supervision may be performed through periodic audits of
the warehouse proprietor's records, quantity counts of goods in
warehouse inventories, spot checks of selected warehouse transactions
or procedures or reviews of conditions of recordkeeping, storage,
security, or safety in a warehouse facility.
(b) Proprietor responsibility and supervision--(1) Supervision. The
proprietor shall supervise all transportation, receipts, deliveries,
sampling, recordkeeping, repacking, manipulation, destruction, physical
and procedural security, conditions of storage, and safety in the
warehouse as required by law and regulations. Supervision by the
proprietor shall be that which a prudent manager of a storage and
manipulation facility would be expected to exercise.
(2) Customs access. The warehouse proprietor shall permit access to
the warehouse and present merchandise within a reasonable time after
request by any Customs officer.
(3) Safekeeping of merchandise and records. The proprietor is
responsible for safekeeping of merchandise and records concerning
merchandise entered in Customs bonded warehouses. The proprietor or his
employees shall safeguard and shall not disclose proprietary
information contained in or on related documents to anyone other than
the importer, importer's transferee, or owner of the merchandise to
whom the document relates or their authorized agent.
(4) Records maintenance.--(i) Maintenance. The proprietor shall:
(A) Maintain the inventory control and recordkeeping system in
accordance with the provisions of Sec. 19.12 of this part;
(B) Retain all records required in this part and defined in
Sec. 162.1(a) of this chapter, pertaining to bonded merchandise for 5
years after the date of the final withdrawal under the entry; and
(C) Protect proprietary information in its custody from
unauthorized disclosure.
(ii) Availability. Records shall be readily available for Customs
review at the warehouse. In addition, a proprietor may keep records at
another location for Customs review, but only if the proprietor first
receives written approval for such storage from the port director.
(5) Record retention in lieu of originals. A warehouse proprietor
may utilize alternative storage methods in lieu of maintaining records
in their original formats, if such storage is approved by Customs under
paragraph (b)(5)(i) of this section. For Customs purposes, original
records may be stored in alternate form at any time after the final
withdrawal under the entry number to which these records pertain,
except that duty-free store operators may store original sales tickets
in alternate form at any time beginning six months after date of sale.
If the proprietor chooses to use alternative storage methods, the
following conditions must be met:
(i) Approval. The proprietor may request approval to maintain
records in an alternative format by writing and describing the system
of storage, the conversion techniques used and the security safeguards
to be employed to prevent alteration, to the director of the regulatory
audit field office closest to the party's headquarters operation. If
satisfied that the alternative storage proposed will ensure the
accuracy and availability of the records when required, the director
will grant written approval.
(ii) Retention of reproductions. The proprietor shall retain and
keep available an original and one duplicate
[[Page 15835]]
of each microfilm, microfiche, cd ROM (compact disk, Read-Only Memory),
or other storage medium used, for five years from the date of the final
withdrawal under the entry number to which these records pertain. Duty-
free store operators must keep alternate storage media containing sales
tickets for five years from the date of the final withdrawal or five
years from the date of the sale, whichever is shorter.
(iii) Hard-copy reproductions. The proprietor must have the
capability of making direct hard-copy reproductions of the data stored
on the microfilm, microfiche, cd ROM, or other storage medium. The
proprietor shall bear the expense of making hard-copy reproductions of
any or all records required by any proper official of the U.S. Customs
Service for the audit or inspection of books and records.
(iv) Standards required for reproducing records. Proprietors shall
maintain the integrity of the original records by insuring that copies
are true reproductions of the original records and serve the purpose
for which such records were created. The following shall be observed:
Copies shall contain all significant record detail shown on the
original; copies of the record shall be so arranged, identified, and
indexed that any individual document or component of the records can be
located with reasonable facility; any indexes, registers, or other
finding aids shall be contained on the storage medium at the beginning
of the records to which they relate; each time reproductions are made,
a written certification will be executed by a responsible company
official (see Sec. 191.6(a) of this chapter; the same parties who have
authority to sign drawback documents are ``responsible company
officials'' for purposes of this section), stating that the
reproductions stored on the microfilm, microfiche, cd ROM, or other
storage medium constitute a true, complete and accurate reproduction of
the original documents; and the proprietor shall maintain and make
available a manual describing procedures for reproducing original
records on alternative storage media and controls in effect for
assuring completeness and accuracy of the reproductions. The procedures
shall incorporate reasonable controls for assuring accuracy and
completeness of alternative records. The proprietor is responsible for
assuring that these controls are executed each time original records
are reproduced.
(v) Revocation of alternative record storage method. Failure to
maintain the records in accordance with these conditions and
requirements will constitute a breach of the proprietor's bond and may
result in the revocation by Customs of the privilege of maintaining
records in a form other than the original format.
(6) Warehouse and merchandise security. The warehouse proprietor
shall maintain the warehouse facility in a safe and sanitary condition
and establish procedures adequate to ensure the security of all
merchandise under Customs custody stored in the facility. The warehouse
construction will be a factor that will be considered by the port
director in deciding whether to approve the application. The facility
shall be built in such a manner as to render it impossible for
unauthorized personnel to enter the premises without such violence as
to make the entry easy to detect. If a portion of the facility is to be
used for the storage of non-bonded merchandise, the port director shall
designate the means for effective separation of the bonded and non-
bonded merchandise, such as a wall, fence, or painted line. All inlets
and outlets to bonded tanks shall be secured with locks and/or in-bond
seals.
(7) Storage conditions. Merchandise in the bonded area shall be
stored in a safe and sanitary manner to minimize damage to the
merchandise, avoid hazards to persons, and meet local, state, and
Federal requirements applicable to specific kinds of goods. Doors and
entrances shall be left unblocked for access by Customs officers and
warehouse proprietor personnel.
(8) Manner of storage. Packages shall be received in the warehouse
and recorded in the proprietor's inventory and accounting records
according to their marks and numbers. Packages containing weighable or
gaugeable merchandise not bearing shipping marks and numbers shall be
received under the weigher's or gauger's numbers. Packages with
exceptions due to damage or loss of contents, or not identical as to
quantity or quality of contents shall be stored separately until the
discrepancy is resolved with Customs. Merchandise received in the
warehouse shall be stored in a manner directly identifying the
merchandise with the entry, general order, or seizure number; using a
unique identifier for inventory categories composed of fungible
merchandise accounted for on a First-In-First-Out (FIFO) basis; or
using a unique identifier for inventory categories composed of fungible
merchandise accounted for using another approved alternative inventory
method.
(i) Direct identification. The warehouse proprietor shall mark all
shipments for identification, showing the general order or warehouse
entry number or seizure number and the date of the general order,
entry, or delivery ticket in the case of seizures. Containers covered
by a given warehouse entry, general order or seizure shall not be mixed
with goods covered by any other entry, general order or seizure.
Merchandise covered by a given warehouse entry, general order or
seizure may be stored in multiple locations within the warehouse if the
proprietor's inventory control system specifically identifies all
locations where merchandise for each entry, general order or seizure is
stored and the quantity in each location. The proprietor must provide,
upon request by a Customs officer, a record balance of goods,
specifying the quantity in each storage location, covered by any
warehouse entry, general order, or seizure so a physical count can be
made to verify the accuracy of the record balance.
(ii) FIFO. A proprietor may account for fungible merchandise on a
First-In-First-Out (FIFO) basis instead of specific identification by
warehouse entry number, provided the merchandise meets the criteria for
fungibility and the recordkeeping requirements contained in Sec. 19.12
of this part are met. As of the beginning date of FIFO procedures, each
kind of fungible merchandise in the warehouse under FIFO shall
constitute a separate inventory category. Each inventory category shall
be assigned a unique number or other identifier by the proprietor to
distinguish it from all other inventory categories under FIFO. All of
the merchandise in a given inventory category shall be physically
placed so as to be segregated from merchandise under other inventory
categories or merchandise accounted for under other inventory methods.
The unique identifier shall be marked on the merchandise, its
container, or the location where it is stored so as to clearly show the
inventory category of each article under FIFO procedures. Merchandise
covered by a given unique identifier may be stored in multiple
locations within the warehouse if the proprietor's inventory control
system specifically identifies all locations where merchandise for a
specific unique identifier is stored and the quantity in each location.
The proprietor must provide, upon request by a Customs officer, a
record balance of goods, specifying the quantity in each storage
location, covered by any warehouse entry, general order, seizure, or
unique identifier so a physical count can be made to verify the
accuracy of the record balance.
[[Page 15836]]
(iii) Other alternative inventory methods. Other alternative
inventory systems may be used, if Customs approval is obtained.
Importers or proprietors who wish to use an alternative inventory
method other than FIFO must apply to Customs Headquarters, Office of
Regulations and Rulings, for approval.
(9) Miscellaneous responsibilities. The proprietor is responsible
for complying with requirements for transport to his warehouse,
deposit, manipulation, manufacture, destruction, shortage or overage,
inventory control and recordkeeping systems, and other requirements as
specified in this part.
5. Section 19.6 is amended by revising the fourth sentence of
paragraph (a)(1), paragraph (d)(1), and the sixth sentence of paragraph
(d)(2), by redesignating paragraph (d)(4) as (d)(5) and by adding a new
paragraph (d)(4), to read as follows:
Sec. 19.6 Deposits, withdrawals, blanket permits to withdraw and
sealing requirements.
(a)(1) Deposit in warehouse. * * * A copy of any joint report of
discrepancy shall be made within five business days of agreement and
provided to the port director on the appropriate cartage documents as
set forth in Sec. 125.31 of this chapter. * * *
* * * * *
(d) Blanket permits to withdraw--(1) General. (i) Blanket permits
may be used to withdraw merchandise from bonded warehouses for:
(A) Delivery to individuals departing directly from the Customs
territory for exportation under the sales ticket procedure of
Sec. 144.37(h) of this chapter (Class 9 warehouses only);
(B) Aircraft or vessel supplies under Sec. 309 or 317, Tariff Act
of 1930, as amended (19 U.S.C. 1309, 1317); or
(C) The personal or official use of personnel of foreign
governments and international organizations set forth in subpart I,
part 148 of this chapter; or
(D) A combination of the foregoing.
(ii) Blanket permits to withdraw may be used only for delivery at
the port where withdrawn and not for transportation in bond to another
port, except for a withdrawal for transportation to another port by a
duty-free sales enterprise which meets the requirements for exemption
as stated in Sec. 144.34(c) of this chapter. Blanket permits to
withdraw may not be used for delivery to a location for retention or
splitting of shipments under the provisions of Sec. 18.24 of this
chapter. A withdrawer who desires a blanket permit shall state in
capital letters on the warehouse entry, or on the warehouse entry/entry
summary when used as an entry, that ``Some or all of the merchandise
will be withdrawn under blanket permit per section 19.6(d), C.R.''
Customs acceptance of the entry will constitute approval of the blanket
permit. A copy of the entry will be delivered to the proprietor,
whereupon merchandise may be withdrawn under the terms of the blanket
permit. The permit may be revoked by the port director in favor of
individual applications and permits if the permit is found to be used
for other purposes, or if necessary to protect the revenue or properly
enforce any law or regulation Customs is charged with administering.
Merchandise covered by an entry for which a blanket permit was issued
may be withdrawn for purposes other than those specified in this
paragraph if a withdrawal is properly filed as required in subpart D,
part 144, of this chapter.
(2) Withdrawals under blanket permit. * * * A copy of the
withdrawal shall be retained in the records of the proprietor as
provided in Sec. 19.12(d)(4) of this part. * * *
* * * * *
(4) Withdrawals under blanket permit for aircraft or vessel
supplies. Multiple withdrawals under a blanket permit for aircraft or
vessel supplies, if consigned to the same daily aircraft flight number
or vessel sailing, may be filed on one Customs Form 7512; however, an
attachment form, developed by the warehouse proprietor and approved by
the port director may be used for all withdrawals. This attachment form
shall provide a sufficient summary of the goods being withdrawn, and
shall include the warehouse entry number, the quantity and weight being
withdrawn, the Harmonized Tariff Schedule of the United States
number(s), the value of the goods, import and export lading
information, the duty rate and amount, and any applicable Internal
Revenue tax calculation, for each warehouse entry being withdrawn. A
copy of Customs Form 7512 and the summary attachment must be attached
to each permit file folder unless the warehouse proprietor qualifies
for the permit file folder exemption under Sec. 19.12(d)(4)(iii) of
this part.
* * * * *
6. Section 19.11 is amended by revising paragraph (h) to read as
follows:
Sec. 19.11 Manipulation in bonded warehouses and elsewhere.
* * * * *
(h) Merchandise which has been entered for warehouse and placed in
a Class 9 warehouse (duty-free store) may be unpacked into its smallest
irreducible unit for sale without a prior permit issued by the port
director. The port director may issue a blanket permit to a duty-free
store for up to one year permitting the destruction of merchandise
covered by any entry and found to be nonsaleable, if the merchandise to
be destroyed is valued at less than 5 percent of the value of the
merchandise at time of entry or $1,250, whichever is less, in its
undamaged condition. Such permit may be revoked in favor of a permit
for each entry and/or destruction whenever necessary to assure proper
destruction and protection of the revenue. The proprietor shall
maintain a record of unpacking merchandise into saleable units and
destruction of nonsaleable merchandise in its inventory and accounting
records.
7. Section 19.12 is revised to read as follows:
Sec. 19.12 Inventory control and recordkeeping system.
(a) Systems capability. The proprietor shall maintain either manual
or automated inventory control and recordkeeping systems or combination
manual and automated systems capable of:
(1) Accounting for all merchandise transported, deposited, stored,
manipulated, manufactured, smelted, refined, destroyed in or removed
from the bonded warehouse and all merchandise collected by a proprietor
or his agent for transport to his warehouse. The records shall provide
an audit trail from deposit through manipulation, manufacture,
destruction, and withdrawal from the bonded warehouse either by
specific identification or other Customs authorized inventory method.
The records to be maintained are those which a prudent businessman in
the same type of business can be expected to maintain. The records are
to be kept in sufficient detail to permit effective and efficient
determination by Customs of the proprietor's compliance with these
regulations and correctness of his annual submission or reconciliation;
(2) Producing accurate and timely reports and documents as required
by this part; and
(3) Identifying shortages and overages of merchandise in sufficient
detail to determine the quantity, description, tariff classification
and value of the missing or excess merchandise so that appropriate
reports can be filed with Customs on a timely basis.
(b) Procedures manual. (1) The proprietor shall have available at
the warehouse an English language copy of
[[Page 15837]]
its written inventory control and recordkeeping systems procedures
manual in accordance with the requirements of this part.
(2) The proprietor shall keep current its procedures manual and
shall submit to the port director a new certification at the time any
change in the system is implemented.
(c) Entry of merchandise into a warehouse.--(1) Identification. All
merchandise collected by a proprietor or his agent for transport to his
warehouse shall be receipted. In addition, all merchandise entered in a
warehouse will be recorded in a receiving report or document using a
Customs entry number or unique identifier if an alternate inventory
control method has been approved. All merchandise will be traceable to
a Customs entry and supporting documentation.
(2) Quantity verification. 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. 19.6(a).
(3) Recordation. Merchandise received will be accurately recorded
in the accounting and inventory system records from the receiving
report or document using the Customs entry number or unique identifier
if an alternative inventory control method has been approved.
(d) Accountability for merchandise in a warehouse.--(1)
Identification of merchandise. The Customs entry number or unique
identifier, as applicable under Sec. 19.4(b)(8), will be used to
identify and trace merchandise.
(2) Inventory records. The inventory records will specify by
Customs entry number or unique identifier if an alternative inventory
control method is approved:
(i) The location of the merchandise within the warehouse;
(ii) Except for merchandise in general order, the cost or value of
the merchandise, unless the proprietor's financial records maintain
cost or value and the records are made available for Customs review;
and
(iii) The beginning balance, cumulative receipts and withdrawals,
adjustments, destructions, and current balance on hand by date and
quantity.
(3) Theft, shortage, overage or damage. Any theft or suspected
theft or overage or any extraordinary shortage or damage (equal to one
percent or more of the value of the merchandise in an entry or covered
by a unique identifier; or if the missing merchandise is subject to
duties and taxes in excess of $100) shall be immediately brought to the
attention of the port director, and confirmed in writing within five
business days after the shortage, overage, or damage has been brought
to the attention of the port director. An entry for warehouse must be
filed for all overages by the person with the right to make entry
within five business days of the date of discovery. The applicable
duties, taxes and interest on thefts and shortages so reported shall be
paid by the responsible party to Customs within 20 calendar days
following the end of the calendar month in which the shortage is
discovered. The port director may allow the consolidation of duties and
taxes applicable to multiple shortages into one payment; however, the
amount applicable to each warehouse entry is to be listed on the
submission and shall specify the applicable duty, tax and interest.
These same requirements shall apply when cumulative thefts, shortages
or overages under a specific entry or unique identifier total one
percent or more of the value of the merchandise or if the duties and
taxes owed exceed $100. Upon identification, the proprietor shall
record all shortages and overages in its inventory control and
recordkeeping system, whether or not they are required to be reported
to the port director at the time. The proprietor shall also record all
shortages and overages as required in the Customs Form 300 or annual
reconciliation report under paragraphs (f) or (g) of this section, as
appropriate. Duties and taxes applicable to any non-extraordinary
shortage or damage and not required to be paid earlier shall be
submitted to the port director at the time the Warehouse Proprietor's
Submission, Customs Form 300 is due or at the time the certification of
preparation of the annual reconciliation report is due, as prescribed
in paragraphs (g) and (h) of this section, or at any time prior to the
annual filing of the CF 300 or certified annual reconciliation.
Discrepancies found in a Class 9 warehouse with integrated locations as
set forth in Sec. 19.35(c) will be the net discrepancies for a unique
identifier (see Sec. 19.4(b)(8)(ii) of this part) such that overages
within one sales location will be offset against shortages in another
location that is within the integrated location. A Class 9 proprietor
who transfers merchandise between facilities in different ports without
being required to file a rewarehouse entry in accordance with
Sec. 144.34 of this chapter may offset overages and shortages within
the same unique identifier for merchandise located in stores in
different ports (see Sec. 19.4(b)(8)(ii) of this part).
(4) Permit file folders.--(i) Maintenance. Permit file folders
shall be maintained and kept up to date by filing all receipts, damage
or shortage reports, manipulation requests, withdrawals, removals and
blanket permit summaries within five business days after the event
occurs. The permit file folders shall be kept in a secure area and
shall be made available for inspection by Customs at all reasonable
hours.
(ii) Review. When the final withdrawal of merchandise relating to a
specific warehouse entry, general order or seizure occurs, the
warehouse proprietor shall: review the permit file folder to ensure
that all necessary documentation is in the file folder accounting for
the merchandise covered by the entry; notify Customs of any merchandise
covered by the warehouse entry, general order or seizure which has not
been withdrawn or removed; and file the permit file folder with Customs
within 30 calendar days after final withdrawal, except as allowed by
paragraph (b)(4)(iv) of this section. The permit file folder for
merchandise not withdrawn during the general order period shall be
submitted to the port director upon receipt from Customs of the Customs
Form 6043.
(iii) Exemption to maintenance requirement. Maintenance of permit
file folders will not be required, if the proprietor has an automated
system capable of: satisfactorily summarizing all actions by Customs
warehouse entry; providing upon demand by Customs an entry activity
summary report which lists all individual receipts, withdrawals,
destructions, manipulations and adjustments by warehouse entry and is
cross-referenced to the source documents for each transaction; and
maintaining source documents so that the documents can be readily
retrieved upon request. Failure to provide the entry activity summary
report or documentation supporting the entry activity summary report
upon demand by the port director or the field director of regulatory
audit could result in reinstatement by the port director of the
requirement to maintain the permit file folder for all warehouse
entries. When final withdrawal is made, the proprietor must submit the
entry activity summary report to Customs. Prior to submission, the
proprietor must ensure the accuracy of the summary report and assure
that all supporting documentation is on file and available for review
if requested by Customs.
(iv) Exemption to submission requirement. At the discretion of the
port director, a proprietor may be allowed to furnish formal
notification of final withdrawal in lieu of the
[[Page 15838]]
requirement to submit the permit file folder or entry activity summary
within 30 calendar days of each final withdrawal. If approved to use
this procedure the proprietor could be required by the port director to
submit permit file folders or entry activity summaries on a selective
basis. Failure to promptly provide the permit file folder or entry
activity summary upon request by the port director or the field
director of regulatory audit could result in withdrawal of this
privilege.
(5) Physical inventory. The proprietor shall take at least an
annual physical inventory of all merchandise in the warehouse, or
periodic cycle counts of selected categories of merchandise such that
each category is counted at least once during the year, with prior
notification of the date(s) given to Customs so that Customs personnel
may observe or participate in the inventory if deemed necessary. If the
proprietor of a Class 2 or Class 9 warehouse has merchandise covered by
one warehouse entry, but stored in multiple warehouse facilities as
provided for under Sec. 144.34 of this chapter, the facility where the
original entry was filed must reconcile the on-hand balances at all
locations with the record balance for those entries with merchandise in
multiple locations. The proprietor shall notify the port director of
any discrepancies, record appropriate adjustments in the inventory
control and recordkeeping system, and make required payments and
entries to Customs, in accordance with paragraph (d)(3) of this
section.
(e) Withdrawal of merchandise from a warehouse. All bonded
merchandise withdrawn from a warehouse will be accurately recorded
within the inventory control and recordkeeping system. The inventory
control and recordkeeping system must have the capability to trace all
withdrawals back to a Customs entry and to ultimate disposition of the
merchandise by the proprietor.
(f) Special provisions for use of FIFO inventory procedures.--(1)
Notification. A proprietor who wishes to use FIFO procedures for all or
part of the merchandise in a bonded warehouse shall provide the port
director a written certification that: The proprietor has read and
understands Customs FIFO procedures set forth in this section; the
proprietor's procedures are in accordance with Customs FIFO procedures,
and the proprietor agrees to abide by those procedures; and the
proprietor of a public warehouse will obtain the written consent of any
importer using the warehouse before applying FIFO procedures to their
merchandise.
(2) Qualifying merchandise. FIFO inventory procedures may be used
only for fungible merchandise. For purposes of this section, ``fungible
merchandise'' means merchandise which is identical and interchangeable
for all commercial purposes. While commercial interchangeability is
usually decided between buyer and seller or between proprietor and
importer, Customs is the final arbiter of fungibility in bonded
warehouses. The criteria for determining whether merchandise is
fungible include, but are not limited to, Governmental and recognized
industrial standards, part numbers, tariff classification, value, brand
name, unit of quantity (such as barrels, gallons, pounds, pieces),
model number, style and same kind and quality. Fungible textile and
textile products which are withdrawn from a Class 9 warehouse may be
accounted for using FIFO inventory procedures, inasmuch as such
articles would be exempt from textile quotas.
(3) Merchandise specifically excluded. FIFO procedures cannot be
applied to the following merchandise, as well as any other merchandise
which does not comply with the requirements of paragraph (f)(2) of this
section:
(i) Merchandise subject to quota, visa or export restrictions
chargeable to different countries of origin;
(ii) Textile and textile products of different quota categories;
(iii) Merchandise with different tariff classifications or rates of
duty, except where the difference is within the merchandise itself
(such as kits, merchandise in unusual containers) or where the tariff
classification or dutiability is determined only by conditions upon
withdrawal (for example, withdrawal for vessel supplies, bonded wool
transactions);
(iv) Merchandise with different legal requirements for marking,
labeling or stamping;
(v) Merchandise with different trademarks;
(vi) Merchandise of different grades or qualities;
(vii) Merchandise with different importers of record;
(viii) Damaged or deteriorated merchandise;
(ix) Restricted merchandise; or
(x) General order, abandoned or seized merchandise.
(4) Maintenance of FIFO. FIFO procedures used for merchandise in
any inventory category, must be used consistently throughout the
warehouse storage and recordkeeping practices and procedures for the
merchandise. For example, merchandise may not be added to inventory by
FIFO but withdrawn by bypassing certain inventory layers to reach a
specific warehouse entry other than the oldest one. However, this does
not preclude the use of specific identification for some merchandise in
a warehouse entry and FIFO for other merchandise, so long as they are
segregated in physical storage and clearly distinguished in the
inventory and accounting records.
(5) FIFO recordkeeping. In the inventory and accounting records,
the proprietor shall establish an inventory layer for each warehouse
entry represented in each inventory category. The layers shall be
established in the order of time of acceptance of the entry or by the
date of importation of merchandise covered by each applicable warehouse
entry. There shall be no mixing of layering both by time of acceptance
and date of importation in the same warehouse. Records for each layer
shall, as a minimum, show the warehouse entry number, date of
acceptance, date of importation, quantity and unit of quantity. They
shall also show for each entry the type of warehouse withdrawal number
or other specific removal event charged against the entry, by date and
quantity. Each addition to or deduction from the inventory category
shall be posted in the appropriate inventory category within 2 business
days after the event occurs. All FIFO records and documentation shall
consistently use the same unit of quantity within each inventory
category.
(6) Entry requirements. Warehouse entries covering any merchandise
to be accounted for under FIFO must be prominently marked ``FIFO'' on
the face of the entry document. The entry document or an attachment
thereto shall show the unique identifier of each inventory category to
be accounted for under FIFO, the quantity in each inventory category
and the unit of quantity.
(7) Receipts. Any shortages, overages, or damage found upon receipt
shall be attributed to the entry under which the merchandise was
received. FIFO procedures will not take effect until the merchandise is
physically placed in the storage location for the inventory category
represented in the entry.
(8) Manipulation. When manipulation results in a product with a
different unique identifier, the inventory and accounting records shall
show the quantities of merchandise in each inventory category appearing
in the product covered by the new unique identifier. The withdrawal
shall show the unique identifiers of both the materials used in the
manipulation and the product as manipulated. The quantities of the
original unique
[[Page 15839]]
identifiers will be deducted from their respective warehouse entries on
a FIFO basis when the resultant product is withdrawn.
(9) Discontinuance of FIFO. A proprietor may voluntarily
discontinue the use of FIFO procedures for all or part of the
merchandise currently under FIFO by providing written notification to
the port director. The notification shall clearly describe the
merchandise, by commercial names and unique identifiers, to be removed
from FIFO. Following notification, the merchandise shall be segregated
in both the recordkeeping system and the physical location by warehouse
entry number and the quantities so removed shall be deducted from the
appropriate FIFO inventory category balances. Merchandise so removed
shall be maintained under the specific identification inventory method.
FIFO procedures which were voluntarily discontinued may be reinstated,
but not for merchandise covered by any warehouse entry for which FIFO
was discontinued.
(g) Warehouse proprietor submission. Except as otherwise provided
in paragraph (h) of this section or Sec. 19.19(b) of this part, the
warehouse proprietor shall file with the field director of regulatory
audit within 45 calendar days from the end of his business year a
Warehouse Proprietor's Submission on Customs Form 300. If the
proprietor of a Class 2 or Class 9 warehouse has merchandise covered by
one warehouse entry, but stored in multiple warehouse facilities as
provided for under Sec. 144.34 of this chapter, the CF 300 shall cover
all locations and warehouses of the proprietor. An alternative format
may be used for providing the information required on the CF 300, if
prior written approval is obtained from the field director of
regulatory audit.
(h) Annual reconciliation.--(1) Report. Instead of filing Customs
Form 300 as required under paragraph (g) of this section, the
proprietor of a class 2, importers' private bonded warehouse, and
proprietors of classes 4, 5, 6, 7, 8, and 9 warehouses if the warehouse
proprietor and the importer are the same party, shall prepare a
reconciliation report within 90 days after the end of the fiscal year
unless the field director authorizes an extension for reasonable cause.
The proprietor shall retain the annual reconciliation report for 5
years from the end of the fiscal year covered by the report. The report
must be available for a spot check or audit by Customs, but need not be
furnished to Customs unless requested. There is no form specified for
the preparation of the report.
(2) Information required. The report must contain the company name;
address of the warehouse; class of warehouse; date of inventory or
information on cycle counts; a description of merchandise for each
entry or unique identifier, 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. If the proprietor of a Class 2 or Class
9 warehouse has merchandise covered by one warehouse entry, but stored
in multiple warehouse facilities as provided for under Sec. 144.34 of
this chapter, the reconciliation shall cover all locations and
warehouses of the proprietor at the same port. If the annual
reconciliation includes entries for which merchandise was transferred
to a warehouse without filing a rewarehouse entry, as allowed under
Sec. 144.34, the annual reconciliation must contain sufficient detail
to show all required information by location where the merchandise is
stored. For example, if merchandise covered by a single entry is stored
in warehouses located in 3 different ports, the annual reconciliation
should specify individually the beginning and ending inventory
balances, cumulative receipts, transfers, and positive and negative
adjustments for each location.
(3) Certification. The proprietor shall submit to the field
director of regulatory audit within 10 business days after preparation
of the annual reconciliation report, a letter signed by the proprietor
certifying that the annual reconciliation has been prepared, is
available for Customs review, and is accurate. The certification letter
must contain the proprietor's IRS number; date of fiscal year end; the
name and street address of the warehouse; the name, title, and
telephone number of the person having custody of the records; and the
address where the records are stored. Reporting of shortages and
overages based on the annual reconciliation will be made in accordance
with paragraph (d)(3) of this section. Any previously unreported
shortages and overages should be reported to the port director and any
unpaid duties, taxes and fees should be paid at this time.
(i) System review. The proprietor shall perform an annual internal
review of the inventory control and recordkeeping system and shall
prepare and maintain on file a report identifying any deficiency
discovered and corrective action taken, to ensure that the system meets
the requirements of this part.
(j) Special requirements. A warehouse proprietor submission (CF
300) or annual reconciliation must be prepared for each facility or
location as defined in Secs. 19.2(a) and 19.35(c) of this part. When
merchandise is transferred from one facility or location to another
without filing a rewarehouse entry, as provided for in Sec. 144.34(c)
of this chapter, the submission/reconciliation for the warehouse where
the entry was originally filed should account for all merchandise under
the warehouse entry, indicating the quantity in each location.
8. Section 19.13 is amended by revising the fourth sentence of
paragraph (g) to read as follows:
Sec. 19.13 Requirements for establishment of warehouses.
* * * * *
(g) Secure storage. * * * The areas for storage of bonded material
and manufactured products shall be secured in accordance with the
standards prescribed in Sec. 19.4(b)(6) of this part. * * *
* * * * *
9. Section 19.13a is amended by revising the first sentence of its
introductory text and by revising paragraph (b) to read as follows:
Sec. 19.13a Recordkeeping requirements.
The proprietor of a manufacturing warehouse shall comply with the
recordkeeping requirements of Secs. 19.4(b) and 19.12. * * *
* * * * *
(b) Take an annual physical inventory of the merchandise as
provided in Sec. 19.12(d)(5) in conjunction with the annual submission
required by Sec. 19.12(g); and
* * * * *
10. Section 19.35 is amended by revising the introductory text of
paragraph (c) and by revising paragraphs (c)(2), (e)(2) and (f) to read
as follows:
Sec. 19.35 Establishment of duty-free stores (Class 9 warehouses).
* * * * *
(c) Integrated locations. A Class 9 warehouse with multiple
noncontiguous sales and crib locations (see Sec. 19.37(a) of this part)
containing conditionally duty-free merchandise and requested by the
proprietor may be treated by Customs as one location if:
* * * * *
(2) The recordkeeping system is centralized up to the point where a
sale is made so as to automatically reduce the sale quantity by
location from centralized inventory or inventory records must be
updated no less
[[Page 15840]]
frequently than at the end of each business day to reflect that day's
activity.
* * * * *
(e) * * *
(2) If brought back to the United States must be declared and is
subject to U.S. Federal duty and tax with personal exemption; and,
* * * * *
(f) Security of sales rooms and cribs. The physical and procedural
security requirements of Sec. 19.4(b)(6) of this part shall be applied
to the security of the sales rooms and cribs by the port director. The
proprietor shall establish procedures to safeguard the merchandise so
as to accommodate the movement of purchasers and prospective purchasers
of conditionally duty-free merchandise contained in duty-free sales
rooms and cribs.
* * * * *
11. Section 19.36 is amended by revising the last sentence of
paragraph (e) and the third sentence of paragraph (g) to read as
follows:
Sec. 19.36 Requirements for duty-free store operations.
* * * * *
(e) Merchandise eligible for warehousing. * * * However, such
merchandise must be either identified or marked ``DUTY-PAID'' or
``U.S.-ORIGIN'', or similar markings, as applicable, so that Customs
officers can easily distinguish conditionally duty-free merchandise
from other merchandise in the sales or crib area.
* * * * *
(g) Inventory procedure. * * * The inventory shall be reconcilable
with the accounting and inventory records and the permit file folder
requirements of Sec. 19.12 (d), (e) and (f) of this part. * * *
12. Section 19.37 is amended by revising the first and fourth
sentences, and the fifth (and last) sentence of paragraph (a) to read
as follows:
Sec. 19.37 Crib operations.
(a) Crib. A crib means a bonded area, separate from the storage
area of a Class 9 warehouse, for the retention of a supply of articles
for delivery to persons departing from the United States. * * * The
quantity of goods in the crib may be an amount requested by the
proprietor which is commercially necessary for the delivery operations
for a period, if approved by the port director. The port director may
increase or decrease the quantity as deemed necessary for the
protection of the revenue and proper administration of U.S. laws and
regulations, or may order the return to the storage area of goods
remaining unsold.
* * * * *
13. Section 19.39 is amended by removing the last three sentences
of paragraph (c)(2); Sec. 19.39 is further amended by revising the
first sentence of paragraph (c)(3), by redesignating paragraphs
(c)(4)(ii), (c)(4)(iii) and (c)(4)(iv), as (c)(4)(iii), (c)(4)(iv) and
(c)(4)(v), respectively, and adding a new paragraph (c)(4)(ii), and by
revising paragraphs (c)(5) and (e), to read as set forth below:
Sec. 19.39 Delivery for exportation.
* * * * *
(c) * * *
(3) Aircraft delivery. The merchandise will be delivered by a
licensed cartman for lading as baggage directly on the aircraft on
which the passenger will depart. * * *;
(4) Unit-load delivery. * * *
(ii) Merchandise shall be placed on the aircraft on which the
passenger departs the United States for carriage as passenger baggage;
* * * * *
(5) Cancelled or aborted flights or no-show passengers--(i)
Cancelled or aborted flights. The proprietor shall, upon request, make
available to Customs the purchaser's name, the purchaser's airline
ticket number and the identity and quantity of the merchandise
delivered by the proprietor to the purchaser (if the merchandise was
delivered to the airline rather than the passenger, the name of the
airline employee to whom the merchandise was delivered), and the date
and time of that delivery in lieu of retrieving the merchandise for
safekeeping until the purchaser actually departs.
(ii) No-show passengers. A proprietor who delivers merchandise
directly to an airline for delivery to a passenger who does not board
the flight shall establish a procedure to obtain redelivery of that
merchandise from the airline.
* * * * *
(e) Delivery method. Delivery of conditionally duty-free
merchandise to persons for exportation will be made by licensed cartmen
or bonded carriers under the procedures in subpart D, part 125, and
Sec. 144.34(a), of this chapter, or under a local control system
approved by the port director wherein any discrepancy found in the
merchandise will be treated as if it occurred in the bonded warehouse.
* * * * *
PART 113--CUSTOMS BONDS
1. The general authority citation for part 113 continues to read as
follows:
Authority: 19 U.S.C. 66, 1623, 1624.
* * * * *
2. Section 113.63 is amended by redesignating paragraph (a)(4) as
(a)(5) and adding a new paragraph (a)(4), by removing the word ``and''
from the end of paragraph (b)(2), and by adding the word ``and'' at the
end of paragraph (b)(3), by adding a new paragraph (b)(4), and by
revising the first sentence of paragraph (d), to read as follows:
Sec. 113.63 Basic custodial bond conditions.
(a) * * *
(4) If authorized to use the alternative transfer procedure set
forth in Sec. 144.34(c) of this chapter, to operate as constructive
custodian for all merchandise transferred under those procedures,
thereby assuming primary responsibility for the continued proper
custody of the merchandise notwithstanding its geographical location;
* * * * *
(b) * * *
(4) If authorized to use the alternative transfer procedure set
forth in Sec. 144.34(c) of this chapter, to keep safe any merchandise
so transferred.
* * * * *
(d) Agreement to Redeliver Merchandise to Customs. If the principal
is designated a bonded carrier, or licensed to operate a cartage or
lighterage business, or authorized to use the alternative transfer
procedure set forth in Sec. 144.34(c) of this chapter, the principal
agrees to redeliver timely, on demand by Customs, any merchandise
delivered to unauthorized locations or to the consignee without the
permission of Customs. * * *
* * * * *
PART 144--WAREHOUSE AND REWAREHOUSE ENTRIES AND WITHDRAWALS
1. The general authority citation for part 144 and the specific
authority for Sec. 144.37 continue to read as follows:
Authority: 19 U.S.C. 66, 1484, 1557, 1559, 1624;
* * * * *
Section 144.37 also issued under 19 U.S.C. 1555, 1562.
2. Section 144.34 is amended by adding a new paragraph (c) to read
as follows:
Sec. 144.34 Transfer to another warehouse.
* * * * *
(c) Transfers between integrated bonded warehouses--(1)
Eligibility. (i) Only an importer who will transfer warehoused
merchandise among Class 2 and 9 warehouses listed on the
[[Page 15841]]
application in paragraph (c)(2) of this section is eligible to
participate.
(ii) The importer must have a centralized inventory control system
that shows the location of all of the warehoused merchandise at all
times, including merchandise in transit.
(iii) The importer and its surety must sign the application. If the
application to use this alternative procedure is approved by the
appropriate port director, the importer's entry bond containing the
conditions provided under Sec. 113.62 of this chapter will continue to
attach to any merchandise transferred under these alternative
procedures.
(iv) Each proprietor of a warehouse listed on the application and
each surety who underwrites that proprietor's custodial bond coverage
under Sec. 113.63 of this chapter shall sign the application.
(2) Application. Application must be made in writing to the port
director of the port in which the applicant's centralized inventory
control system exists, with copies to all affected port directors, for
exemptions from the requirements for transfer of merchandise from one
bonded warehouse to another set forth in paragraphs (a) and (b) of this
section. The application must list all bonded warehouses to and from
which the merchandise may be transferred; all such warehouses must be
covered by the same centralized inventory control system. Only blanket
exemption requests will be considered; exemptions will not be
considered for individual transfers. The application may be in letter
form, signed by all participants, and contain a certification to the
port director by the applicant that he maintains accounting records,
documents and financial statements and reports that adequately support
Customs activities.
(3) Operation. An importer who receives approval to transfer
merchandise between bonded warehouses in accordance with the provisions
of this section may, after entry into the first warehouse, transfer
that merchandise to any other warehouse without filing a withdrawal
from warehouse or a rewarehouse entry. The warehoused merchandise will
be treated as though it remains in the first warehouse so long as the
actual location of the merchandise at all times is recorded as provided
under the provisions of this section.
(4) Inventory control requirements. The records required to be
maintained must include a centralized inventory control system and
supporting documentation which meets the following requirements:
(i) Provide Customs upon demand with the proper on-hand balance of
each inventory item in each warehouse facility and each storage
location within each warehouse;
(ii) Provide Customs upon demand with the proper on-hand balance
for each open warehouse entry and the actual quantity in each warehouse
facility;
(iii) If an alternative inventory system has been approved, provide
Customs upon demand with the proper on-hand balance for each unique
identifier and the quantity related to each open warehouse entry and
the quantity in each warehouse facility;
(iv) Maintain documentation for all intracompany movements,
including authorizations for the movement, shipping documents and
receiving reports. These documents must show the appropriate warehouse
entry number or unique identifier, the description and quantity of the
merchandise transferred, and must be properly authorized and signed
evidencing shipment from and delivery to each location;
(v) Maintain a consolidated permit file folder at the location
where the merchandise was originally warehoused. The consolidated
permit file folder must meet the requirements of Sec. 19.12(d)(4) of
this chapter regardless of the warehouse facility in which the action
occurred. Documentation for all intracompany movements, including
authorizations for movement, shipping documents, receiving reports, as
well as documentation showing ultimate disposition of the merchandise
must be filed in the consolidated permit file folder within seven
business days;
(vi) Maintain a subordinate permit file at all intracompany
locations where merchandise is transferred containing copies of
documentation required by Sec. 19.12(d)(4) of this chapter and by
paragraph (c)(3)(v) of this section relating to merchandise quantities
transferred to the location. A copy of all documents in the subordinate
permit file folder must be filed in the consolidated permit file folder
within seven business days; no exceptions will be granted to this
requirement. When the final withdrawal is made on the respective entry,
the subordinate permit file shall be considered closed and filed at the
intracompany location to which the merchandise was transferred; and
(vii) File the withdrawal from Customs custody at the original
warehouse location at which the merchandise was entered.
(5) Waiver of permit file folder requirements. The permit file
folder requirements of paragraphs (c)(3)(v) and (c)(3)(vi) of this
section may be waived if the proprietor's recordkeeping and inventory
control system qualifies under the requirements of
Sec. 19.12(d)(4)(iii) of this chapter at all locations where bonded
merchandise is stored.
(6) Procedure not available--(i) Liens. The transfer procedures
permitted under paragraph (c) of this section shall not be available
for merchandise with respect to which Customs is notified of the
existence of a lien, as prescribed in Sec. 141.112 of this chapter (see
19 U.S.C. 1564), until proof shall be produced at the original
warehouse location that the lien has been satisfied or discharged.
(ii) Restricted merchandise. With the exception of alcohol and
tobacco products, merchandise subject to a restriction on release such
as covered by a licensing, quota or visa requirement, is not eligible.
3. Section 144.36 is amended by revising paragraphs (c) and (f), by
removing the word ``or'' from the end of paragraph (g)(4), and by
adding the word ``or'' at the end of paragraph (g)(5) and adding a new
paragraph (g)(6) thereafter, to read as follows:
Sec. 144.36 Withdrawal for transportation.
* * * * *
(c) Form. (1) A withdrawal for transportation shall be filed on
Customs Form 7512 in five copies. An extra copy or copies of the
Customs Form 7512 may be required for use in connection with the
delivery of the merchandise to the bonded carrier and, in the case of
alcoholic beverages, two extra copies shall be required for use in
furnishing the duty statement to the port director at destination.
(2) Separate withdrawals for transportation from a single
warehouse, via a single conveyance, consigned to the same consignee,
and deposited into a single warehouse, can be filed on one Customs Form
7512, under one control number, provided that there is an attachment,
to be certified by a Customs officer, providing the information for
each withdrawal, as required in paragraph (d) of this section. With the
exception of alcohol and tobacco products, this procedure shall not be
allowed for merchandise which is in any way restricted (for example,
quota/visa).
(3) The requirement that a Customs Form 7512 be filed and the
information required in paragraph (d) of this section be shown shall
not be required if the merchandise qualifies under the exemption in
Sec. 144.34(c).
* * * * *
[[Page 15842]]
(f) Forwarding procedure. The merchandise shall be forwarded in
accordance with the general provisions for transportation in bond
(Secs. 18.1 through 18.8 of this chapter). However, when the alternate
procedures under Sec. 144.34(c) are employed, the merchandise need not
be delivered to a bonded carrier for transportation, and an entry for
transportation (Customs Form 7512) and a rewarehouse entry will not be
required.
(g) Procedure at destination. * * *
(5) * * *; or
(6) Deposited into the proprietor's bonded warehouse or duty free
store warehouse without rewarehouse entry as required in Sec. 144.41,
if the merchandise qualifies for the exemption specified in
Sec. 144.34(c).
* * * * *
4. Section 144.37 is amended by revising paragraph (h)(2)(v), and
by revising the fourth sentence and the last sentence in the concluding
text of paragraph (h)(3), to read as follows:
Sec. 144.37 Withdrawal for exportation.
* * * * *
(h) * * *
(2) * * *
(v) The full name and address of the purchaser. However, the port
director may waive the address requirement for all merchandise except
for alcoholic beverages in quantities in excess of 4 liters and
cigarettes in quantities in excess of 3 cartons. Also, the address
requirement is not applicable with respect to purchasers at airport
duty-free enterprises; and
* * * * *
(3) Sales ticket register. * * *
* * * The sales ticket register shall be included in the permit file
folder with or in lieu of the blanket permit summary, as provided in
Sec. 19.6(d)(5) of this chapter. * * * In lieu of placing a copy of
sales tickets in each permit file folder, the warehouse proprietor may
keep all sales tickets in a readily retrievable manner in a separate
file.
5. Section 144.39 is amended by revising its first sentence to read
as follows:
Sec. 144.39 Permit to transfer and withdraw merchandise.
With the exception of merchandise transferred under the procedures
of Sec. 144.34(c), if all legal and regulatory requirements are met,
the appropriate Customs officer shall approve the application to
transfer or withdraw merchandise from a bonded warehouse by endorsing
the permit copy and returning it to the applicant. * * *
6. Section 144.41 is amended by revising paragraph (c) to read as
follows:
Sec. 144.41 Entry for rewarehouse.
* * * * *
(c) Combining separate shipments. (1) Separate shipments consigned
to the same consignee and received under separate withdrawals for
transportation may be combined into one rewarehouse entry if the
warehouse withdrawals are from the same original warehouse entry.
(2) Shipments covered by multiple warehouse entries, and shipped
from a single warehouse under separate withdrawals for transportation,
via a single conveyance, may be combined into one rewarehouse entry if
consigned to the same consignee and deposited into a single warehouse.
With the exception of alcohol and tobacco products, this procedure
shall not be allowed for merchandise which is in any way restricted
(for example, quota/visa). The combined rewarehouse entry shall have
attached either copies of each warehouse entry package which is being
combined into the single rewarehouse entry or a summary with pertinent
information, that is, the date of importation, commodity description,
size, HTSUS and entry numbers, for all entries withdrawn for
consolidation as one rewarehouse entry. Any combining of separate
withdrawals into one rewarehouse entry shall result in the rewarehouse
entry being assigned the import date of the oldest entry being combined
into the rewarehouse entry.
(3) Combining of separate shipments shall be prohibited in all
other circumstances.
* * * * *
Approved: March 5, 1997.
George J. Weise,
Commissioner of Customs.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 97-8447 Filed 4-2-97; 8:45 am]
BILLING CODE 4820-02-P
