[Federal Register Volume 61, Number 110 (Thursday, June 6, 1996)]
[Proposed Rules]
[Pages 28808-28821]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14125]
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DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Parts 19, 113 and 144
RIN 1515-AB86
Duty-Free Stores
AGENCY: U.S. Customs Service, Department of the Treasury.
ACTION: Proposed rule.
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SUMMARY: This document proposes to amend 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 would be 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 proposed amendments would provide
[[Page 28809]]
benefits in this regard to other classes of Customs bonded warehouses
as well.
DATES: Comments must be received on or before August 5, 1996.
ADDRESSES: Written comments (preferably in triplicate) must be
submitted to the U.S. Customs Service, ATTN: Regulations Branch,
Franklin Court, 1301 Constitution Avenue, NW., Washington, DC 20229,
and may be inspected at the Regulations Branch, 1099 14th Street, NW.,
Suite 4000, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Michael Jackson, Customs Management
Center, Seattle, (206-553-6944).
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 these correspondences, Customs, by a document published in
the Federal Register (57 FR 47409) on October 16, 1992, delayed the
October 19, 1992, effective date of the final rule until further
notice, in order to review various aspects of the duty-free store
rules. Before any changes could be made to the final rule, however,
Customs concluded that its indefinite suspension was legally
inoperative and proceeded to reinstate the original effective date
thereof, by a document published in the Federal Register (58 FR 29349)
on May 20, 1993.
After lengthy study, Customs has now determined that specific
revisions to the duty-free store regulations are in order. The proposed
changes would also provide some benefits to other classes of bonded
warehouses, and are intended to reduce the overall paperwork burden
both for warehouse proprietors and for Customs.
Discussion of Principal Changes
The following sections of the Customs Regulations would be amended:
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.
Proposed Changes to Part 19
A sentence would be added to Sec. 19.1(a)(9) to clarify that 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.
Section 19.1(c) would be deleted. While language concerning
warehouse security would be added to Sec. 19.4(b)(6), warehouse
construction requirements will not be set forth in the regulations. The
warehouse construction is a factor that will be considered by the port
director in deciding whether to approve the application.
Section 19.2(a) would be amended to require that all bonded
warehouse applicants have available an inventory control and
recordkeeping system procedures manual. Also, the application would
have to include a certification that the inventory control and
recordkeeping system meets the requirements of Sec. 19.12.
Section 19.2(b) would be modified to specify that the procedures
for inventory control, recordkeeping and delivery methods must be set
forth in the proprietor's procedures manual which must be furnished to
Customs upon request.
References to Sec. 19.3 (e) and (f) would be deleted from
Sec. 19.2(g).
Sections 19.4 and 19.12 would be reformatted to move the storage
and security requirements from Sec. 19.12 and consolidate them in
Sec. 19.4. Section 19.12 would be devoted to the inventory control and
recordkeeping system requirements.
The heading of Sec. 19.4 would be changed to ``Customs and
proprietor responsibility and supervision over warehouses'', and two
subsections would be added: (a) Customs supervision and (b)
``Proprietor responsibility and supervision. Subsection (b) is divided
into nine sections: (1) Supervision, (2) Customs access, (3)
Safekeeping of merchandise and records, (4) Records maintenance, (5)
Record retention in lieu of originals, (6) Warehouse and merchandise
security, (7) Storage conditions, (8) Manner of storage, and (9)
Miscellaneous responsibilities. The intent of these proposed changes is
to clarify the proprietors' responsibilities.
Proposed Sec. 19.4(a), entitled ``Customs supervision'', and
proposed Sec. 19.4(b)(2), entitled ``Customs access'', contain the
current Sec. 19.4 language relating to Customs supervision over
warehouses.
The requirements of current Sec. 19.12(b)(1), concerning
supervision by the warehouse proprietor, would be moved to
Sec. 19.4(b)(1) and expanded to cover all activities that a bonded
warehouse proprietor is authorized to perform.
The restrictions on unauthorized disclosure of proprietary
information would be moved from current Sec. 19.12(a)(7) to
Sec. 19.4(b)(3). The last sentence in current Sec. 19.12(a)(7) has been
deleted because the consequence of unauthorized disclosure is covered
by Sec. 19.3(e)(8).
Proposed Sec. 19.4(b)(4) summarizes the proprietor's
responsibilities relating to records maintenance.
Proposed Sec. 19.4(b)(5), dealing with the retention of copies of
records in lieu of the originals, provides proprietors with the
convenience of storing required records on microfilm, microfiche, CD
ROM (compact disk, read-only memory), or other medium. Those approved
for this storage method could do so any time after the final withdrawal
of merchandise covered by the entry to which the records pertain. Duty-
free store operators could use the aforementioned means to store sales
ticket information after six months from the date of sale. This
provision would greatly reduce the physical space required to maintain
the volumes of hard-copy originals. Proprietors would be required to
provide authenticated copies upon demand for audit purposes. Approval
would be obtained from the appropriate regulatory audit field director.
Proposed Sec. 19.4(b)(6), concerning warehouse and merchandise
security, incorporates the requirements of current Sec. 19.12(b) (3)
and (4) relating to security of warehouses and bonded tanks. Specific
reference to T.D. 72-56 is replaced with references to more general
security standards.
The ``safe and sanitary storage'' requirements would be moved from
Sec. 19.12(b)(5) to Sec. 19.4(b)(7). The sentences concerning prompt
removal of trash and waste and prohibition of fires would be deleted
because Customs believes that the first sentence in this paragraph
provides adequate coverage.
Proposed Sec. 19.4(b)(8), entitled ``Manner of storage'', is based
on current Sec. 19.12(b)(6), and would allow proprietors to store
merchandise covered by a single entry number or unique identifier in
more than one location within the warehouse, provided the inventory
control system could identify the quantities in each location upon
demand by Customs. It also provides regulatory recognition of First-In-
First-Out (FIFO) inventory control systems for the first time.
Section 19.6(a)(1) would be amended to change the time requirement
for filing a discrepancy report from two business days to five business
days.
Section 19.6(d)(1) would be amended to allow a duty-free sales
enterprise to use a blanket permit for withdrawal for transportation to
another port.
[[Page 28810]]
Section 19.6(d)(2) would be amended to reflect a new cross-
reference.
Section 19.6(d)(4), entitled ``Blanket permit summary'', would be
redesignated as Sec. 19.6(d)(5). A proposed new Sec. 19.6(d)(4) would
add a provision describing procedures under which blanket withdrawals
for aircraft and vessel supplies from more than one warehouse entry
could be combined on one Customs Form 7512.
Section 19.11(h) would be amended to change the phrase ``saleable
units'' to ``smallest irreducible unit'', for purposes of
clarification. Under the provisions for blanket permit to destroy, the
phrase ``upon receipt'' would be deleted. Goods may be determined
``nonsaleable'' long after receipt. The dollar amount covered by a
blanket permit for destruction would be increased from $100 to less
than 5 percent of the value of the merchandise at the time of entry or
$1250, whichever is less, in its undamaged condition. This increase is
being proposed in order to reduce the number of permits for destruction
that would otherwise be required under the circumstances.
Proposed Sec. 19.12 is based on the inventory control and
recordkeeping requirements in current Sec. 19.12 which would thus be
modified to more clearly describe the proprietor's responsibilities and
what constitutes an adequate inventory control and recordkeeping
system.
Proposed Sec. 19.12(c)(1) includes the requirement for a proprietor
receipt for merchandise transported to his warehouse by himself or his
agent, as provided for by T.D. 94-81. Proposed changes to subsection
(d)(1) and (d)(2) clarify the requirements for accounting for
merchandise entered in the warehouse.
Proposed Sec. 19.12(d)(3) modifies existing requirements relating
to theft, shortage, overage or damage. To accommodate proprietors, the
proposed modification extends the time for providing written
confirmation for any theft, overage, extraordinary shortage or damage
from two business days to five business days after the discrepancy is
discovered. The definition of extraordinary shortage or damage would be
expanded to cover missing merchandise on which duties and taxes in
excess of $100 are due. The time for paying applicable duties and taxes
on thefts and shortages would be extended from 10 business days after
discovery to 20 calendar days following the end of the calendar month
in which the shortage is discovered.
The following new requirements would be added by Customs under
proposed Sec. 19.12(d)(3) in order to clarify that the proprietor
should ensure that the following actions are taken when discovered
discrepancies occur: (1) An entry must be filed for all overages within
five business days of the date of discovery; (2) 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
cumulative duties and taxes are in excess of $100, the reporting and
payment requirements of this paragraph must be met; (3) All shortages
and overages must be recorded in the inventory control and
recordkeeping system at the time of discovery, whether or not they must
be reported to Customs at that time; (4) Duties and taxes applicable to
any non-extraordinary shortage or damage, and not required to be paid
earlier, shall be submitted at the time the Customs Form 300 is due or
at the time the certification of preparation of the annual
reconciliation report is due.
A proposed new Sec. 19.12(d)(4)(ii), entitled ``Review'', the
substance of which is currently set forth in Sec. 19.12(a)(4), would
change the permit file folder filing requirement for entries after
final withdrawal from 30 business days to 30 calendar days. This is
intended to provide greater ease in calculating the due date.
In an effort to reduce paperwork requirements for both warehouse
proprietors and Customs, proposed Sec. 19.12(d)(4)(iii), contains new
provisions which would allow for exemption from maintaining the permit
file folder (PFF), if the proprietor has a system which can provide a
summary of all transactions relating to an entry, appropriately cross-
referenced to supporting documents which are readily retrievable.
Proposed Sec. 19.12(d)(4)(iv) would also allow port directors to accept
formal notification of final withdrawal in lieu of submission of the
PFF or entry activity summary and only require submission of the PFF or
alternative documentation on a selective basis. Failure to provide
requested documentation would result in reinstatement of the
requirements to maintain PFFs and to submit the PFF to Customs upon
final withdrawal. This change would eliminate the current requirement
that the proprietor maintain records in a specified method required by
Customs and would allow the proprietor to use his normal recordkeeping
system to satisfy Customs requirements. It would also allow the port
director the option to review the number of permit file folders or the
approved alternative system on a selective basis.
Proposed Sec. 19.12(d)(5) would add a new requirement that
proprietors must take at least an annual physical inventory, report any
discrepancies discovered to the port director, record appropriate
adjustments in the inventory control and recordkeeping system, and make
any required entries and payments to Customs. The proprietor would have
to advise Customs in advance of dates that the inventories would be
taken so that Customs could observe or participate in the inventory
process, if deemed necessary.
Although many warehouses currently use the FIFO inventory method
for fungible merchandise, the current regulations do not provide any
guidance for use of inventory control systems other than direct
identification by Customs entry number. The acceptability of a FIFO
inventory system has been recognized by Customs since issuance of
C.S.D. 83-63, 17 Cust. Bull. 869 (1983), but the regulations were never
revised to cover FIFO systems. Proposed Sec. 19.12(f) is based on
appropriate sections of the Bonded Warehouse Manual and would
incorporate requirements into the regulations governing an acceptable
FIFO inventory control system.
Proposed Sec. 19.12(g) contains the requirement for the annual
warehouse proprietor submission currently set forth in
Sec. 19.12(a)(5). A provision is added to allow use of an alternative
format if prior written approval is obtained from the Customs field
director of regulatory audit. Additional instructions are included for
proprietors who have merchandise covered by one entry, but stored in
multiple locations as provided for under proposed Sec. 144.34.
To reduce paperwork requirements for the proprietor and handling by
Customs, proposed Sec. 19.12(h) discontinues the requirement to file a
Customs Form 300, Warehouse Proprietor's Submission, for class 2,
importers' private bonded warehouses and classes 4, 5, 6, 7, 8 and 9
warehouses if the warehouse proprietor and the importer are the same
party. Instead, under the proposed revision, they must prepare a
reconciliation report at the end of each fiscal year which will be kept
on file. A certification would have to be sent to the field director,
regulatory audit, stating that the reconciliation has been performed
and is accurate.
Proposed Sec. 19.12(i) requires all proprietors to perform an
annual internal review of the inventory control and recordkeeping
system, and to prepare and maintain on file a report
[[Page 28811]]
identifying deficiencies discovered and the corrective action taken.
Proposed Sec. 19.12(j) provides special instructions for
preparation of the Customs Form 300 or reconciliation when merchandise
transferred from one warehouse continues to be accounted for under the
original warehouse entry rather than under a rewarehouse entry, as
provided for under proposed Sec. 144.34(c).
In proposed Sec. 19.13(g), specific reference to T.D. 72-56 is
replaced with reference to the more general security standards
contained in proposed Sec. 19.4(b)(6).
Section 19.13a would be modified to delete the reference to
Sec. 19.12(a) and substitute references to Secs. 19.4(b) and 19.12.
Section 19.13a(b) would be modified to delete the reference to
Sec. 19.12(a)(5) and substitute reference to Sec. 19.12(g).
Section 19.35(c), entitled ``Integrated locations'', would be
modified to accommodate duty-free stores which do not have inventory
control systems which automatically reduce inventory balances on a real
time basis. Proposed Sec. 19.35(c) would allow multiple noncontiguous
sales and crib locations to be treated by Customs as one location if
inventory records are updated no less frequently than at the end of
each business day to reflect that day's activity. Integrated locations
are defined as separate sales and storage locations within a close
proximity to one another, e.g., multiple outlets at an airport. Under
the proposed revision, language is added to allow the proprietor
discretion in determining if integrated status is desired and the word
``will'' is replaced with ``may'' in ``* * * may be treated by Customs
as one location * * *''.
Section 19.35(f) would be modified to delete the reference to
Sec. 19.12(b)(3) and substitute a reference to Sec. 19.4(b)(6).
Section 19.36(e) would be modified by deleting the requirement that
purchasers know whether or not a commodity is either duty-paid or U.S.-
origin.
Section 19.36(g) would be modified to replace the reference to
Sec. 19.12(a) with Sec. 19.12 (d), (e) and (f).
Section 19.37(a), dealing with crib operations, would be modified
by deleting the word ``small'' in the first sentence. Concerning the
amount of goods which may be stored in a crib, the phrase, ``* * *
limited to an amount estimated to be a two weeks' supply * * *'',
appearing in the fourth sentence of Sec. 19.37(a) would be removed, and
the following phrase would be added in its place: ``* * * an amount
requested by the proprietor which is commercially necessary for the
delivery operations for a period, if approved by the port director.''.
Section 19.39(c)(2), entitled ``Passenger delivery'', would be
modified by deleting the last three sentences to eliminate the
requirement for airline officials to certify the proprietor's
certificate of lading. It is the proprietor's responsibility to
establish procedures to ensure exportation. The regulation as currently
written creates an undue burden on both the proprietor and the airline.
Section 19.39(c)(3), entitled ``Aircraft delivery'', would be
modified to include the statutory language that duty-free purchases
must be laden on board the same aircraft on which the passenger will
depart. It is the proprietor's obligation to establish procedures
satisfactory to the port director to provide reasonable assurance of
exportation.
A proposed new Sec. 19.39(c)(4)(ii) would be added to clarify that
unit-load delivery methods could be used only on the same aircraft as
the passenger who purchased the conditionally duty-free merchandise
will depart the United States. Existing paragraphs (c)(4) (ii)-(iv) of
Sec. 19.39 would be renumbered.
A revision of paragraph (c)(5) of Sec. 19.39 is proposed to
establish procedures to handle deliveries of duty-free merchandise to
passengers whose flights have to be rescheduled by the airline. Customs
believes that the rescheduling of a cancelled or aborted flight should
not require the proprietor to retrieve the goods until the passenger
departs on the rescheduled flight. The Customs Service believes that
the revenue risk is minimal because the passenger has no control over
rescheduling a flight that is cancelled by the airline. Merchandise
would only be delivered to a passenger who has already bought a ticket
that usually is far in excess of any possible duty savings. Customs
believes that to monitor the period between the cancellation of the
passenger's original flight and the departure of the passenger on the
rescheduled flight is wasteful of Customs and trade resources because
of that risk assessment. With respect to merchandise delivered to an
airline on behalf of a passenger who fails to board the flight, the
proprietor must coordinate with the airline to establish a procedure to
retrieve the merchandise because in that situation the passenger has
acted contrary to the stated intention to export the goods and there is
no reason to believe that the passenger will reschedule a different
flight.
Also, Sec. 19.39(e) would be modified by adding the phrase, ``or
bonded carriers'', after the reference to ``licensed cartmen''. See
T.D. 94-81, 59 FR 51496.
Warehouse Withdrawals and Rewarehouse Entries
An extensive change to the procedures governing transfers of
warehoused merchandise is proposed.
Currently, the procedure to transfer warehoused merchandise
requires the transfer to be done by Customs bonded cartage operators or
carriers. The transfer in the same port may require a rewarehouse entry
into the destination warehouse when both warehouses are within the same
port. A rewarehouse entry is required if the transfer is between
warehouses in different ports. The current procedure will be retained
in Sec. 144.34 (a) and (b).
An alternative procedure for merchandise in Class 2 or Class 9
warehouses is proposed in a new paragraph (c) to Sec. 144.34. Under the
alternative, the merchandise would be treated as remaining in the
warehouse in which it was originally entered for warehouse. The
importer and the proprietor of that warehouse would be liable for
duties and for the proprietor's custodial responsibilities,
respectively. To ensure that the parties in interest are fully aware of
their responsibilities, the proposal requires the importer, all
proprietors, and their sureties to sign the application to use the
alternative procedure. Section 113.63 would be revised by adding new
paragraphs (a)(4) and (b)(4), and by revising paragraph (d), in order
to secure the obligors' custodial performance here.
The primary attribute of the proposed alternative is the
eligibility requirement that the applicant have a centralized inventory
control system so that Customs is able to spot check and verify the
status of warehoused merchandise, by location, at all times. Although
the proposal requires that each warehouse location keep subordinate or
secondary records of merchandise at the location, the concept of the
proposal is that the importer and the warehouse into which the
merchandise was first entered remain liable as though the merchandise
was present in that warehouse. That concept, implemented by the
required centralized inventory system, is expected to ensure that
Customs can administer its obligations to protect the revenue and
ensure that no merchandise is released from Customs custody before any
required charge, such as a lien, has been satisfied.
The alternative would eliminate the documentary transfers of
liability for custodians because conceptually the
[[Page 28812]]
warehoused merchandise is treated as not having left the original
warehouse. For that reason, no significant change to Sec. 144.39 is
proposed as a result of the alternative to the procedures in paragraphs
(a) and (b) of Sec. 144.34.
Section 144.36(c) would be substantially revised to allow for
withdrawals for transportation from a single warehouse, via a single
conveyance, consigned to the same consignee and to be deposited into a
single warehouse to be combined on one Customs Form 7512. The exemption
contained in proposed Sec. 144.34(c), addressed above, would be
incorporated into Secs. 144.36 (f) and (g).
The signature requirement on sales tickets contained in
Sec. 144.37(h)(2)(v) would be deleted for all purchases. Also, the
address requirement would be deleted for all purchases except alcoholic
beverages in quantities in excess of 4 liters and cigarettes in
quantities in excess of 3 cartons.
Section 144.37(h)(3) would be modified by deleting the reference
``Sec. 19.6(d)(4)'' and substituting a reference to ``Sec. 19.6(d)(5)''
in place thereof.
Section 144.41(c), entitled ``Combining separate shipments'', would
be modified and expanded to allow multiple withdrawals from a single
warehouse which are transported on a single conveyance to be
rewarehoused, at the proprietor's discretion, as one or more
rewarehouse entries. To ensure the five-year provision of 19 U.S.C.
1557 is met, the combined rewarehouse entries will assume the import
date of the oldest warehouse entry in the new combined entry. This
provision will reduce the number of rewarehouse entry transactions at
the receiving port.
Comments
Before adopting the proposed amendments, consideration will be
given to any written comments that are timely submitted to Customs.
Comments submitted will be available for public inspection in
accordance with the Freedom of Information Act (5 U.S.C. 552),
Sec. 1.4, Treasury Department Regulations (31 CFR 1.4), and
Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)), on regular
business days between the hours of 9 a.m. and 4:30 p.m. at the
Regulations Branch, Franklin Court, 1099 14th Street, NW., Suite 4000,
Washington, DC.
Regulatory Flexibility Act and Executive Order 12866
For the reasons set forth in the preamble, pursuant to the
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), it
is certified that, if adopted, the proposed amendments will not have a
significant economic impact on a substantial number of small entities.
Accordingly, the proposed amendments are not subject to the regulatory
analysis or other requirements of 5 U.S.C. 603 or 604. Nor would the
proposed amendments result in a ``significant regulatory action'' under
E.O. 12866.
Paperwork Reduction Act
The collection of information in this 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. This notice of proposed
rulemaking 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 notice of proposed
rulemaking has already been approved by the Office of Management and
Budget (OMB) under 1515-0005. An Inventory Control Worksheet will be
submitted to OMB, which will reflect any changes in the information
collection burdens occasioned by this rule, together with a request for
a suitable extension of the existing approval.
Estimated annual reporting and/or recordkeeping burden: 61,000
hours.
Estimated average annual burden per respondent/recordkeeper: 10
hours.
Estimated number of respondents and/or recordkeepers: 10,000.
Estimated annual frequency of responses: On-Occasion.
Comments on the collection of information should be sent 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. A copy should also be sent to the
Regulations Branch, Office of Regulations and Rulings, U.S. Customs
Service, 1301 Constitution Avenue, NW., Washington, DC 20229. Comments
should be submitted within the time frame that comments are due
regarding the substance of the proposal.
Comments are invited on: (a) Whether the collection is necessary
for the proper performance of the functions of the agency, including
whether the information shall have practical utility; (b) the accuracy
of the agency's estimate of the burden of the collection of the
information; (c) ways to enhance the quality, utility, and clarity of
the information to be collected; and (d) ways to minimize the burden of
the collection of information on respondents, including through the use
of automated collection techniques or other forms of information
technology.
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.
19 CFR Part 113
Customs bonds.
19 CFR Part 144
Customs duties and inspection, Imports, Warehouses.
Proposed Amendments
It is proposed to amend parts 19, 113 and 144, Customs Regulations
(19 CFR parts 19, 113 and 144) 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 would 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. It is proposed to amend Sec. 19.1 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
[[Page 28813]]
duty-free sales locations and storage cribs with conditionally duty-
free merchandise are also Class 9 warehouses.
* * * * *
3. It is proposed to amend Sec. 19.2 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. It is proposed to revise Sec. 19.4 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 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 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 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 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,
[[Page 28814]]
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. Aisles
shall be established and maintained, and doors and entrances 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 weighers or gaugers 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, or seizure so
a physical count can be made to verify the accuracy of the record
balance.
(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. It is proposed to amend Sec. 19.6 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 section 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
[[Page 28815]]
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. It is proposed to amend Sec. 19.11 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 entry or $1250, 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. It is proposed to revise Sec. 19.12 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 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;
[[Page 28816]]
(ii) 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 (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. 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.
(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 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. 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 specific identifier 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 specific identifier for
merchandise located in stores in different ports.
(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
[[Page 28817]]
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.
(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,
labelling 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 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 port 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
[[Page 28818]]
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. It is proposed to amend Sec. 19.13 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. It is proposed to amend Sec. 19.13a 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. It is proposed to amend Sec. 19.35 by revising the introductory
text of paragraph (c) and by revising paragraphs (c)(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 frequently than at the end of each business day to
reflect that day's activity.
* * * * *
(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. It is proposed to amend Sec. 19.36 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. It is proposed to amend Sec. 19.37 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. It is proposed to amend Sec. 19.39 by removing the last three
sentences of
[[Page 28819]]
paragraph (c)(2); it is further proposed to amend Sec. 19.39 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 and address, 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 would continue to
read as follows:
Authority: 19 U.S.C. 66, 1623, 1624.
* * * * *
2. It is proposed to amend Sec. 113.63 by redesignating paragraph
(a)(4) as (a)(5) and adding a new paragraph (a)(4), 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) * * * 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 would 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. It is proposed to amend Sec. 144.34 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 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
[[Page 28820]]
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; and
(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.
(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. Merchandise subject to a restriction
on release such as covered by a licensing, quota or visa requirement,
is not eligible.
3. It is proposed to amend Sec. 144.36 by revising paragraphs (c)
and (f), 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. 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).
* * * * *
(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. It is proposed to amend Sec. 144.37 by revising paragraph
(h)(2)(v), and by revising the fourth sentence and the sixth (and last)
sentence of paragraph (h)(3), concluding text, 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; 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. It is proposed to amend Sec. 144.39 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. It is proposed to amend Sec. 144.41 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
[[Page 28821]]
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.
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.
* * * * *
Michael H. Lane,
Acting Commissioner of Customs.
Approved: April 8, 1996.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 96-14125 Filed 6-5-96; 8:45 am]
BILLING CODE 4820-02-P
