12112 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 

DEPARTMENT OF COMMERCE 

Foreign-Trade Zones Board 

15 CFR Part 400 

[Docket No. 090210156–1664–02; Order No. 

1815] 

RIN 0625–AA81 

Foreign-Trade Zones in the United 

States 

AGENCY: Foreign-Trade Zones Board, 

International Trade Administration, 

Commerce. 

ACTION: Final rule. 

SUMMARY: The Foreign-Trade Zones 

Board (the Board) hereby revises its 

regulations issued pursuant to the 

Foreign-Trade Zones (FTZ) Act of 1934, 

as amended (the Act), concerning the 

authorization and regulation of foreigntrade zones and zone activity in the 

United States. The rule is 

comprehensive and constitutes a 

complete revision, replacing the present 

version of 15 CFR part 400. The changes 

simplify many of the Board’s 

procedures, including those for users to 

obtain authority related to 

manufacturing and value-added activity, 

and include new rules designed to 

address compliance with the Act’s 

requirement for a grantee to provide 

uniform treatment for the users of a 

zone. The new rules improve flexibility 

for U.S.-based operations, including 

export-oriented activity; enhance 

clarity; and strengthen compliance and 

enforcement. The revisions also 

reorganize the regulations in the interest 

of ease-of-use and transparency. 

DATES: Effective Date: April 30, 2012, 

except for §§ 400.21–400.23, 400.25 and 

400.43(f) which contain information 

collection requirements that have not 

yet been submitted for OMB review. The 

Board will publish a document in the 

Federal Register announcing the 

effective date. 

FOR FURTHER INFORMATION CONTACT: 

Andrew McGilvray, Executive 

Secretary, Foreign Trade Zones Board, 

International Trade Administration, 

U.S. Department of Commerce, 1401 

Constitution Avenue NW., Room 2111, 

Washington, DC 20230, (202) 482–2862 

or Matthew Walden, Senior Attorney, 

Office of Chief Counsel for Import 

Administration, U.S. Department of 

Commerce, 1401 Constitution Avenue 

NW., Room 4610, Washington, DC 

20230, (202) 482–2963. 

SUPPLEMENTARY INFORMATION: 

Background 

Foreign-Trade Zones (FTZs or zones) 

are restricted-access sites in or near U.S. 

Customs and Border Protection (CBP) 

ports of entry. The zones are licensed by 

the Board and operated under the 

supervision of CBP (see 19 CFR part 

146). Specifically, zones are physical 

areas into which foreign and domestic 

merchandise may be moved for 

operations involving storage, exhibition, 

assembly, manufacture or other 

processing not otherwise prohibited by 

law. Zone areas ‘‘activated’’ by CBP are 

considered outside of U.S. customs 

territory for purposes of CBP entry 

procedures. Therefore, the usual formal 

CBP entry procedure and payment of 

duties is not required on the foreign 

merchandise in FTZs unless and until it 

enters U.S. customs territory for U.S. 

domestic consumption. In fact, U.S. 

duties can be avoided on foreign 

merchandise re-exported from a FTZ, 

including after incorporation into a 

downstream product through activity in 

the FTZ. Zones have as their public 

policy objective the creation and 

maintenance of employment through 

the encouragement of operations in the 

United States which, for customs 

reasons, might otherwise have been 

carried on abroad. 

Domestic goods moved into a zone for 

export may be considered exported 

upon entering the zone for purposes of 

excise tax rebates and drawback. 

‘‘Subzones,’’ sites established for 

specific uses, are authorized by the 

Board through grantees of generalpurpose zones, including where certain 

requirements, such as ‘‘adjacency’’ 

(distance/driving time), for generalpurpose zone sites cannot be met. Goods 

that are in a zone for a bona fide 

customs reason are exempt from State 

and local ad valorem taxes. 

Zones and subzones are operated by 

corporations that have met certain 

regulatory criteria for submitting 

applications to the Board to operate 

zones. Under the FTZ Act, zones must 

be operated under public utility 

principles, and provide uniform 

treatment to all that apply to use the 

zone. The Board reviews and approves 

applications for authority to establish 

zone locations and to conduct certain 

activity within zones, and oversees zone 

grantees’ compliance with the Board’s 

regulations. The Board can limit or deny 

zone use on a case-by-case basis on 

public interest grounds. In response to 

applications and notifications, the 

Board can also provide the applicant 

with specific authority to choose 

whether to pay duties either on the 

original foreign material or on a 

downstream product incorporating the 

foreign material. 

To receive approval to operate a zone, 

an applicant must demonstrate the need 

for zone services, a workable plan that 

includes suitable physical facilities for 

zone operations, and financing for the 

operation. Successful applicants are 

granted licenses to operate zones. 

License grantees’ sponsorship of 

specific sites for proposed FTZ 

designation is based on the grantees’ 

determinations regarding the sites’ 

appropriateness and potential for FTZ 

use, and a grantee may subsequently 

request removal of FTZ designation 

from a site based on factors such as the 

grantee’s determination that projected 

FTZ use has not occurred. 

Through this action, the Board is 

updating and modifying the rules for 

FTZs. Continued interest in zones, on 

the part of both communities providing 

zone access as part of their economic 

development efforts and firms using 

zone procedures to help improve their 

international competitiveness, 

demonstrates zones’ importance to 

international trade and to investment in 

the domestic economy. These 

regulations generally simplify and 

clarify requirements pertaining to FTZ 

use, while also helping to ensure 

compliance with specific statutory and 

regulatory requirements. The 

regulations are also intended to improve 

access and flexibility for U.S. 

manufacturing and value-added 

operations, and to enhance safeguards 

in order to avoid potential negative 

economic consequences from certain 

zone activity. 

In developing the final rule, the Board 

considered all of the comments received 

in response to its Federal Register 

notice of December 30, 2010 (75 FR 

82340) proposing revisions to 15 CFR 

part 400. The comments received in 

response to the notice and the Board’s 

positions on the points raised in the 

comments are summarized below. The 

sections listed in the headings are those 

of the final rule, and references are 

made to the previous Federal Register 

notice when appropriate. 

Discussion of Comments Received 

Based on substantive changes made in 

response to comments submitted (as 

described below), a number of sections 

of the proposed regulations have been 

renumbered and certain section titles 

have been modified. Key changes to 

section numbers include: Adopted 

§§ 400.14(b), (d) and (e) parallel 

proposed §§ 400.14(c), (f) and (g), 

respectively; adopted §§ 400.22 and 

400.23 replace proposed § 400.22(a); 

adopted § 400.24 was renumbered from 

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Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 12113 

proposed § 400.23; adopted § 400.25 

replaces proposed § 400.22(b); adopted 

§ 400.26 replaces proposed §§ 400.24 

and 400.25(b); adopted § 400.27 replaces 

proposed § 400.25(a); adopted 

§ 400.41(b) replaces proposed § 400.44; 

adopted §§ 400.28, 400.29. 400.36, and 

400.38 were renumbered from 

§§ 400.26, 400.27, 400.35 and 400.36, 

respectively; adopted §§ 400.44, 400.45, 

400.46, 400.47, 400.48 and 400.49 were 

renumbered from proposed §§ 400.45, 

400.46, 400.47, 400.48, 400.49 and 

400.38, respectively; and adopted 

§ 400.63 was renumbered from proposed 

§ 400.64. 

Section 400.1—Scope 

Section 400.1(a) 

Comment: One commenter proposed 

adding a sentence regarding the Board’s 

policy objective of encouraging activity 

in the United States that might 

otherwise be conducted abroad. 

Board position: The policy objective 

in question is addressed in the 

Preamble. Duplication in this section is 

not warranted. 

Section 400.1(c) 

Comment: Numerous commenters 

proposed inserting language regarding 

the status of FTZs and zone 

merchandise relative to certain trade 

agreements and program(s), and deleting 

a phrase regarding production activity. 

Board position: It is not necessary to 

address or describe in the Board’s 

regulations trade agreements and trade 

programs, which may change during the 

effective period of the regulations. The 

phrase regarding production activity has 

been retained because it clarifies that 

production activity is the mechanism 

through which a product emerging from 

a zone could differ from the material 

admitted to the zone. Retaining the 

phrase helps reinforce that production 

activity is subject to specific 

requirements in these regulations. 

Section 400.2—Definitions 

Comments: Numerous commenters 

proposed adding definitions for the 

following terms: Activation; 

administrator (to replace the term 

‘‘agent’’); alternative site framework 

(ASF); Board Order; domestic status; 

free trade agreement; general-purpose 

zone; inverted tariff; modification; 

NAFTA; non-privileged foreign status; 

privileged foreign status; service area; 

Special Tariff Treatment Program; 

traditional site framework; grantee; and 

zone restricted status. One or more 

commenters stated that the proposed 

definition of agent is or may be too 

broad, may potentially extend beyond 

the statutory reach of the Board, and 

appears to be focused on an agent of the 

grantee although there are other agency 

relationships in the FTZ program. 

Board position: We have added 

definitions for the terms alternative site 

framework, Board Order, inverted tariff, 

modification, and service area in 

response to comments submitted. We 

have not defined either ‘‘agent’’ or 

‘‘administrator.’’ We have not adopted 

the term ‘‘administrator’’ as a substitute 

for the proposed term ‘‘agent’’ because 

the final provisions of section 400.43 

instead simply refer to a party that 

undertakes a function ‘‘on behalf of a 

grantee’’ (thereby eliminating the need 

to use or define any more specific 

term(s) such as agent or administrator). 

Regarding addition of a definition for 

‘‘grantee,’’ the proposed regulations 

already contained a definition of ‘‘zone 

grantee.’’ We have retained that term 

and definition to help clarify that the 

zone grantee is the overall sponsor of 

the zone and recipient of the authority 

from the FTZ Board, and that zone 

participants are not also ‘‘grantees’’ of 

some sort. 

The terms, activation, domestic status, 

non-privileged foreign status, privileged 

foreign status, and zone restricted status 

are defined in CBP’s FTZ regulations (19 

CFR part 146), and CBP is the primary 

agency using these terms. Defining these 

terms in two agencies’ separate 

regulations would significantly 

complicate any potential refinement or 

redefinition of them that might prove 

necessary in the future. In addition, the 

commenters’ proposed definition of 

activation differs from the definition of 

that term in the FTZ regulations of CBP, 

the agency responsible for activation. 

For these reasons, we have not added 

definitions of the terms in question. 

It is not clear we need to add 

definitions for the terms free trade 

agreement, NAFTA, and Special Tariff 

Treatment Program. These terms are not 

used elsewhere in the Board’s 

regulations. Further, these terms may be 

defined by other agencies that make use 

of the terms, so that any definition 

adopted by the Board could create a risk 

of inconsistency with the other 

agencies’ definitions. Therefore, we 

have not added definitions for these 

terms. 

We have not added a definition for 

general-purpose zone because the 

specific use of this term is tied to 

comments submitted regarding the need 

to simplify the Board’s structure and 

processes for designating zone sites. In 

a subsequent rule, we intend to evaluate 

adding a definition of this term in 

concert with simplifying the parallel 

site-designation frameworks that 

currently exist, as noted in response to 

comments on § 400.11. As a result of our 

intent to simplify the site-designation 

frameworks, the specific implications of 

a definition of traditional site 

framework might evolve. Therefore, at 

this point we have not added a 

definition of traditional site framework 

for this final rule. 

Comments: Numerous commenters 

proposed revising the definitions for the 

following terms: Foreign-trade zone; 

grant of authority; person; port of entry; 

site; subzone; zone; zone operator; zone 

participant; zone project; zone site; and 

zone user. One commenter stated that 

the definition of zone operator should 

not be limited to an entity physically 

on-site at the zone or subzone. 

Board position: We have modified the 

definitions of foreign-trade zone, grant 

of authority, and person in response to 

comments submitted. For the term ‘‘port 

of entry,’’ commenters proposed adding 

‘‘customs station’’ to the definition, but 

did not explain the implications or 

impact of their proposed change. The 

term ‘‘port of entry’’ has long had a 

specific meaning, but the meaning of the 

proposed additional phrase is unclear 

and not explained by the commenters. 

In that context, we have left the 

definition of port of entry unchanged. 

In response to comments submitted 

and taking into account changes 

adopted elsewhere in these regulations 

in response to comments (e.g., 

§ 400.24(c) allowing designation of 

general-purpose zone space as a 

subzone, where warranted), we have 

revised the definition of subzone. Our 

tying subzone designation to a specific 

use should provide some additional 

flexibility relative to commenters’ 

suggested language tying a subzone to a 

specific company. Our definition also 

reflects our agreement with commenters 

that a subzone can have multiple sites. 

The definition of a subzone may also be 

addressed in a subsequent rule 

simplifying the parallel site-designation 

frameworks that currently exist, as 

noted in response to comments on 

§ 400.11. In harmony with changes 

adopted elsewhere in these regulations 

(e.g., § 400.36(f)), we have also adopted 

a definition of ‘‘activation limit.’’ Key 

implications of that term are examined 

in response to comments on § 400.36. 

For the terms ‘‘zone’’ and ‘‘zone 

user,’’ we have retained the definitions 

we proposed because changes suggested 

in comments did not, in our view, 

improve clarity or usability. For the 

term, ‘‘zone participant,’’ we have 

simplified the definition to improve 

clarity, in response to comments 

submitted. However, we have retained 

‘‘property owners’’ within the definition 

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because the provisions of these 

regulations in which the term ‘‘zone 

participant’’ is used have relevance to 

property owners as well as to operators 

and users. We have also replaced the 

definition of ‘‘zone project’’ with a 

definition of ‘‘zone plan’’ (a term 

previously referenced within the 

definition of zone project) based on the 

zone plan’s function as the benchmark 

that the Executive Secretary must use in 

gauging whether a modification is major 

or minor under § 400.24(a)(2). Based on 

the comments received, we have 

combined the definitions of zone site 

and site under the former term, so that 

the two terms will be interchangeable. 

We have also adopted a suggested 

change to replace the phrase, ‘‘organized 

as an entity,’’ with the phrase, 

‘‘organized and functioning as an 

integrated unit.’’ Based on comments 

submitted, we have also added 

‘‘contiguous’’ to the definition but have 

modified it with ‘‘generally’’ to allow for 

unusual circumstances in which parcels 

are in close proximity to each other and 

appropriately constitute a single site, 

although they are not actually 

contiguous. 

We have not added suggested 

language to the definition of zone 

operator because the language could 

have the unintended effect of reducing 

flexibility in local zone oversight and 

related arrangements at individual 

zones. However, given the elimination 

of proposed § 400.43(b)’s requirement 

for agreements to be made directly with 

a zone’s grantee, we have modified the 

definition of zone operator to reflect that 

an operator’s activity could be under the 

terms of an agreement with a third party 

that acts on behalf of a grantee. With 

regard to the comment that a zone 

operator should not be limited to an 

entity physically on-site at the zone or 

subzone, the comment accurately 

characterizes the intent of the definition 

of zone operator for purposes of the 

Board’s regulations. Nothing in that 

definition should be construed as 

requiring a zone operator to be an entity 

physically on-site at the zone or 

subzone site being operated. Finally, we 

have modified the definition of private 

corporation (adding the words 

‘‘operating and maintaining’’) to parallel 

the statutory definition of that term. 

Comments: Two commenters 

supported the proposed definition of 

production, while numerous 

commenters suggested various revisions 

to the proposed definition. 

Board position: We have revised the 

definition of production based on 

comments submitted, including those 

expressing concerns about defining 

companies’ authorized production 

entirely on the basis of customs 

classifications. Our revised definition of 

production therefore incorporates 

language from the definition of 

manufacturing in the FTZ Board’s prior 

regulations but also includes language 

from our proposed definition of 

production and from comments 

submitted. This revised definition is 

intended to reinforce the fact that any 

operation engaged in manufacturing 

activity authorized under prior FTZ 

Board regulations would not need to 

request new authority based solely on 

this revised definition. Further, the 

requirements in other sections of these 

regulations pertaining to application 

and notification documents (e.g., 

§§ 400.23 and 400.24) maintain the 

Board’s existing practice of requiring a 

description of materials, components, 

and finished products (accompanied by 

the 6-digit HTSUS category that 

constitutes the best match for the 

material, component, or finished 

product). Therefore, the changes 

reflected in this and other productionrelated provisions have no effect on a 

zone operation’s existing scope of 

authority in terms of materials, 

components, and their associated 

finished products described in a 

notification or application authorized by 

the Board. The Board may address 

through a subsequent notice-andcomment rulemaking process a further 

simplified definition of production. 

Comment: One commenter requested 

clear definitions of capacity and 

fraudulent intent, and also asked 

whether convenience of commerce and 

public interest are interchangeable and 

whether it is possible to define one of 

those terms and apply it uniformly. 

Board position: We have not added 

definitions of ‘‘capacity’’ and 

‘‘fraudulent intent.’’ Capacity has a 

commonly understood meaning, and 

only one commenter requested addition 

of a specific definition to this section of 

the regulations. Further, our revised 

approach to production authority no 

longer incorporates capacity as an 

ordinary element of a production 

operation’s scope of authority. In this 

context, there is no need to include a 

definition of capacity. The sole use in 

the proposed regulations of the phrase 

‘‘fraudulent intent’’ was in the section 

allowing for prior disclosure of 

violations. That section has been 

eliminated from these regulations for 

the reasons delineated in response to 

comments on § 400.62, thereby 

eliminating any need to define 

fraudulent intent. The terms 

‘‘convenience of commerce’’ and 

‘‘public interest’’ appear in distinct 

contexts in the FTZ Act, and are by no 

means interchangeable. Public interest 

is a commonly used concept (i.e., it 

exists in many contexts outside the FTZ 

Act) that is associated with the wellbeing of the general public. 

Convenience of commerce is a distinct 

phrase in the FTZ Act that pertains to 

whether the needs of businesses 

engaged in international trade are 

adequately served by zones. 

Section 400.3—Authority of the Board 

Comment: Numerous commenters 

proposed adding a section stating that 

the Board has the authority to award the 

lowest available duty rate including 

trade agreement preferences and 

deleting language stating that Board 

decisions must be by unanimous vote 

and be recorded. 

Board position: We have not made the 

proposed change pertaining to trade 

agreement preferences. The Board does 

not have the authority to ‘‘award’’ a 

duty rate. The Board may allow activity 

to occur in a zone that results in the 

entry of a finished product with a 

customs classification that is different 

than the customs classification of a 

component admitted to the zone. The 

applicability of duty rates specific to 

one or more particular trade agreements 

to entries from a zone is statutorily 

determined rather than a matter for 

decision by the Board. Finally, we have 

retained language stating that Board 

decisions must be by unanimous vote 

and be recorded. Recording Board votes 

is essential to proper record-keeping for 

the program. However, based on the 

comments submitted and in light of 

changes to other sections (such as the 

adoption of the process for notifications 

under § 400.37), we have deleted the 

provision stating that Board decisions in 

proceedings will take the form of Board 

Orders. 

Comment: One commenter stated that 

the authority to fulfill the Assistant 

Secretary for Import Administration’s 

responsibilities when that position is 

vacant should be clarified. 

Board position: The authority to carry 

out actions for the Assistant Secretary 

for Import Administration is not a 

matter of Board policy, but rather of 

delegation carried out within the 

Department of Commerce. That 

delegation could be subject to change 

over time, and is not an appropriate 

matter for delineation within the FTZ 

Board’s regulations. 

Section 400.4—Authority and 

Responsibilities of the Executive 

Secretary 

Comment: Numerous commenters 

suggested adding a neutrality 

requirement and general authority to 

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give temporary approvals pending 

Board action. 

Board position: We have not adopted 

the specific suggested revisions which, 

in our view, would not improve the 

clarity or effectiveness of the 

regulations. However, the Board has 

given a relatively narrow authority to 

the Executive Secretary to allow 

production activity to occur on an 

interim basis in certain circumstances 

(see § 400.37(d)). 

Comment: One commenter proposed 

defining a process and timeline for 

issuance of forms and other documents 

pertaining to the submission of 

applications. 

Board position: As noted in response 

to a comment on § 400.21, in these 

regulations, the Board has allowed an 

application format to remain in use for 

a period of one year after it has been 

superseded by a revised format. That 

period provides zone users with 

significantly more time to adapt than 

the 30-day period proposed by the 

commenter. Further, as originally 

proposed, any revised application 

format would be published in the 

Federal Register. That requirement 

should provide the written notice 

sought by the commenter. 

Section 400.5—Authority To Restrict or 

Prohibit Certain Zone Operations 

Comments: Numerous commenters 

proposed changing the order of this 

section’s two subsections, as well as 

changing one word within one 

subsection. One commenter suggested 

adding a word to clarify that the section 

would only apply to ‘‘zone’’ operations 

in a zone. 

Board position: We have reordered 

the content of the subsections, added 

the word ‘‘zone’’ as proposed, and 

combined the subsections. 

Section 400.7—CBP Officials as Board 

Representatives 

Comment: Numerous commenters 

proposed adding a section explaining 

the CBP port director’s role as the 

Board’s representative, including 

timeframes for the port director’s 

response to a request from the Board 

and for activation of a zone operation 

that the Board has expedited for public 

policy reasons. Those commenters also 

proposed revising the definition in these 

regulations of the term ‘‘port director.’’ 

Board position: We have adopted the 

commenters’ proposal for a separate 

section specifically concerning CBP’s 

role as the Board’s representative. This 

section substantively parallels and 

replaces the content of the sentence in 

§ 400.41 of the proposed regulations 

pertaining to the role of the CBP port 

director. We have revised the language 

proposed by the commenters for this 

section (and made adjustments to other 

sections which had references to the 

port director) to reflect the fact that the 

specific official within CBP with 

responsibility for a particular matter 

may vary over time for CBP operational 

reasons. Therefore, we have adopted 

language making a general reference to 

CBP, and we have eliminated from these 

regulations a definition of port director. 

We have not incorporated into the 

section commenters’ proposed 

timeframes. Timeframes for responses to 

requests for FTZ authority are already 

addressed in the application-specific 

sections of the regulations. Details of the 

activation process are addressed by the 

customs regulations, and therefore are 

not appropriate for inclusion in the FTZ 

Board’s regulations. 

Subpart B 

Comment: Numerous commenters 

proposed changing the word ‘‘ability’’ to 

‘‘authority’’ in the title of Subpart B. nn 

Board position: We have not adopted 

the proposed change. Subpart B 

addresses matters pertaining to whether 

parties are able to apply to establish a 

zone or subzone. Therefore, the word 

‘‘ability’’ is appropriate for the title. 

Section 400.11—Number and Location 

of Zones and Subzones 

Comment: Numerous commenters 

proposed that adjacency-related 

measurements be conducted by the 

grantee or zone participant with the 

concurrence of the CBP port director. 

Board position: Based on the 

comments received, we have modified 

the language of this section to allow the 

CBP official with oversight authority to 

concur on a measurement of adjacency. 

Comments: One commenter suggested 

eliminating the distinct concept of 

subzone and allowing the adjacency 

standard specifically proposed for 

subzones to be applied to any zone site. 

Another commenter proposed 

eliminating the term ‘‘subzone,’’ and 

treating authority for production activity 

as a distinct matter from designation of 

a site. In response to a comment 

submitted, one commenter objected to 

the idea of eliminating the subzone 

concept, because of potential CBP 

operational advantages for subzones and 

the dependence of a number of grantees 

on the subzone mechanism so long as 

those grantees remain under the 

traditional site framework. One 

commenter stated that both subzones 

and ASF usage-driven sites should be 

treated equally in a manner that 

minimizes burden and facilitates 

administration of the facilities in 

question. 

Board position: The Board received 

several comments pertaining to various 

sections of the regulations indicating 

that current distinctions between types 

of zone sites may not constitute the 

most efficient and effective mechanism 

for facilitating zone use. Given those 

considerations and the importance of 

adopting the least burdensome 

mechanism to accomplish the Board’s 

regulatory objectives, the Board plans to 

simplify the parallel site-designation 

frameworks in a subsequent rule. 

Further, recognizing the overall 

functional equivalence between 

subzones and ASF usage-driven sites, 

and the importance of enabling zone 

users to maximize operational 

efficiencies, we have changed the minor 

modification provision (§ 400.24(c)) so 

that an existing or potential usagedriven site could be designated as a 

subzone if such designation would 

better meet the needs of the zone 

grantee and zone participant(s). 

Section 400.12—Eligible Applicants 

Comment: Numerous commenters 

proposed modifying the standard for 

applications to be ‘‘not inconsistent’’ 

with the applicant’s charter or 

organizational papers rather than 

‘‘consistent.’’ 

Board position: We have made the 

proposed change to state that 

applications must be ‘‘not inconsistent’’ 

with the charter or organizational 

papers. This language reflects the reality 

that many grantees’ charters or 

organizational papers provide for broad 

powers; a requirement to demonstrate 

consistency would be excessively 

burdensome in that context. 

Section 400.13—General Conditions, 

Prohibitions and Restrictions Applicable 

to Authorized Zones 

Comments: Numerous commenters 

proposed the following revisions to this 

section: changing the order of certain 

subsections; removing the concurrence 

of the CBP port director from the 

subsection pertaining to erection of 

buildings; applying the five-year lapse 

provision on a site-specific basis; 

requiring expedited review of any 

application to reestablish designation at 

a lapsed zone; stating that private 

ownership is allowed of a zone ‘‘site’’ 

rather than zone ‘‘land;’’ adding 

evidentiary standards for Board actions 

to prohibit or restrict activity; and 

adding a paragraph allowing certain 

activities to take place at an operator’s 

site under the operator’s responsibility. 

One commenter stated that the five-year 

lapse provision does not take into 

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12116 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 

account the three-year ‘‘sunset lapse’’ 

for usage-driven sites designated under 

the ASF. 

Board position: Based on comments 

received, we have reordered certain of 

the subsections and modified the 

reference to the CBP port director to 

clarify that concurrence only applies to 

activated zone space. We have not 

adopted the proposal to expedite 

reviews of applications to reestablish 

FTZ designation at lapsed zones 

because it is appropriate for the Board 

to evaluate the individual circumstances 

prior to determining whether to give 

priority to a particular application to 

reestablish a zone that has lapsed. 

However, we have added a specific 

reference to Board Order 849, which 

addresses conditions for 

‘‘reinstatement’’ of FTZ authority. We 

have made minor language changes 

pertaining to the procedures and the 

standards for Board actions to prohibit 

or restrict activity, including to reflect 

the revised approach to production 

authority adopted in § 400.14(a). 

However, we have not accepted most of 

the proposed changes because the 

statutory authority is broad and the 

proposed language could 

inappropriately preclude the Board from 

addressing future situations in 

circumstances that no one can currently 

foresee. 

We have not accepted the proposed 

substitution of the word ‘‘site’’ for the 

word ‘‘land,’’ because we want to 

emphasize that no one may own the 

FTZ designation associated with a 

particular parcel of land. The FTZ Act 

states that zone designation is a 

privilege that the Board authorizes. The 

Board’s authorization of designation for 

a piece of land, therefore, belongs to no 

one. The regulatory provision at issue 

simply clarifies that FTZ designation 

may be authorized for privately owned 

land under certain conditions. 

The Board plans in a subsequent rule 

to simplify the lapse provision, which 

commenters proposed be applied on a 

site-specific basis, and that one 

commenter claims fails to take into 

account the three-year ‘‘sunset lapse’’ 

for usage-driven sites under the ASF. 

This simplification is expected to 

encompass questions of lapse and 

sunset provisions. Until we issue a final 

rule on that issue, the lapse provision 

will continue to apply as it has since its 

institution in 1991 to a zone (or 

individual subzone) based on activation. 

The lapse provision that applies to an 

overall zone (or individual subzone) on 

a one-time basis is distinct from the 

‘‘sunset’’ time limits that the Board has 

commonly imposed via Board Order as 

a site-specific condition on approval of 

new sites of a zone. A sunset limit 

automatically removes zone designation 

from a site at the end of the sunset 

period if the site has not been used for 

zone activity during the period. 

Finally, for activity that does not 

require specific Board authorization, 

questions of whether the activity may be 

conducted at an operator’s site under 

the operator’s responsibility fall within 

the jurisdiction of CBP. Therefore, a 

provision pertaining to such activity 

would not be relevant for inclusion in 

the Board’s regulations. 

Comment: One commenter stated that 

under the Board’s authority to review 

zone activity and prohibit or restrict 

activity found not to be in the public 

interest, an existing zone operation 

previously approved by the Board 

would be at risk of losing its authority. 

Board position: Inherent in the 

Board’s ability to review and restrict or 

prohibit ongoing FTZ activity is the 

possibility that an existing zone 

operation approved by the Board could 

lose its authority. Given that it is 

impossible to foresee every type of 

circumstance at the time that the Board 

evaluates an application, it could be 

necessary at some later point in time for 

the Board to restrict or prohibit the 

activity in question. However, such 

circumstances have been extremely rare 

in the history of the FTZ program. 

Further, based on comments received on 

other sections of the proposed 

regulations, we have incorporated in 

certain sections of the regulations 

additional language designed to 

appropriately balance the interests of 

zone users and of parties that might be 

concerned about negative impacts from 

certain zone uses. 

Section 400.14—Production— 

Requirement for Prior Authorization; 

Restrictions 

Comments: We received a broader 

range of comments on this section than 

on any other. Commenters were 

concerned with numerous aspects of the 

production-related provisions and, as 

discussed below, we have significantly 

modified this section based on their 

comments. Although the comments are 

numerous and diverse, we summarize 

them all here because they are all 

related to § 400.14. 

Numerous commenters proposed a 

major overhaul of this section to require 

FTZ users apply for and the Board issue 

on an expedited basis approvals for 

production activity. Those commenters 

stated that applicants’ and FTZ users’ 

uncertainties should be minimized, and 

that advance approvals are necessary in 

most cases because use of zone 

procedures requires significant upfront 

investment. They proposed requiring 

that a Board Order approving 

production activity for export be issued 

within 30 days of the submission of an 

application, and that the Board Order be 

published within 15 days after issuance. 

Those commenters also proposed the 

following changes: authorizing the 

Executive Secretary to approve certain 

other production-related benefits on an 

interim basis pending Board action; 

eliminating the Board’s proposed 

provision for production changes; and 

delegating authority to the Executive 

Secretary to approve production activity 

when (1) the applicant demonstrates the 

activity could be conducted under CBP 

bonded procedures, (2) the sole benefit 

is for scrap/waste, or (3) the activity is 

the same in terms of intermediate/ 

finished products as activity recently 

approved by the Board and similar in 

circumstances. One commenter 

supported authorizing the use of any 

components needed to make the 

intermediate or finished products 

approved by the Board unless certain 

categories of components are excluded 

by the Board, with the Board listing 

excluded components on its Web site 

for compliance by all operators/users. 

One commenter supported the proposed 

regulations’ approaches to advance 

approval requirements and authority to 

review and restrict activity. 

Numerous commenters suggested 

shifting the proposed delegation of 

authority for certain approvals from the 

Assistant Secretary for Import 

Administration to the Executive 

Secretary, as well as adding a provision 

largely paralleling prior § 400.32(b)(1)(i), 

which pertained to activity that is the 

same as activity recently approved by 

the Board. Three commenters indicated 

that, for interim approval of production 

authority, it is not necessary to have the 

CBP port director concur since the port 

director’s approval would be required 

for activation of the operation in 

question. One commenter specifically 

supported the interim authority 

provision as proposed. One commenter 

stated that companies will not make 

decisions to invest in production 

activity based on temporary or interim 

approvals from the Board, so the Board 

should shorten its docketing and review 

times for applications. 

One commenter stated that the 

production-change provisions in 

proposed §§ 400.14 and 400.37 seem 

unnecessarily complicated and difficult 

to administer. That commenter 

proposed simply allowing FTZ users to 

notify the Board of any component not 

subject to an AD/CVD or Section 337 

order, and that deadlines should be the 

same for notifications of production 

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changes and capacity increases. 

Numerous commenters proposed 

eliminating the proposed procedures for 

notifications and adopting a different 

approach to authority for production 

activity focused on intermediate and 

finished products (rather than 

specifying inputs to be used in 

production activity). Those commenters 

state that § 400.37 as proposed would 

create a significant new burden both 

initially and quarterly. One commenter 

indicated that the proposed notification 

provision would be unmanageable and 

proposed that the Board focus 

production authority on end products. 

For any required notifications of a new 

input, the commenter proposed a de 

minimis standard tied to FTZ savings 

associated with the new input, with 

changes below the de minimis threshold 

reported to the Board in the zone’s 

annual report. One commenter stated 

that the requirement for prior approval 

of a 4-digit HTSUS list for use of the 

notification provision is not practical, 

and that the public comment period 

following any notifications would allow 

for adequate oversight. The commenter 

also expressed concern that the 

retrospective nature of the notifications 

would create uncertainty for FTZ 

manufacturers, given that there would 

be a real potential for denial of the FTZ 

benefits, and a possibility that duties 

would be applied retroactively. One 

commenter requested clarification of the 

meaning of ‘‘production change,’’ and 

proposed shifting reporting from a 

quarterly basis to an annual basis. 

Several commenters stated that the 

requirements for the proposed annual 

reporting of production activity should 

be clarified and take into account that 

companies do not necessarily track 

foreign-sourced components that are in 

domestic (duty-paid) status. 

Three commenters stated that 

requiring what they characterized as a 

one-time re-filing of a manufacturer’s 

scope of authority, and then quarterly 

reports thereafter, is excessively 

burdensome for users, especially 

because failing to re-file the scope 

would potentially subject users to fines. 

One commenter claimed that the 

proposed notification procedure for 

production changes would result in 

temporary/interim authorization, and 

that the procedure could only be used 

after the completion of a process that 

would subject all of the operation’s 

current activity to new public review 

and comment. One commenter stated 

that quarterly filings would add to 

workload and the retrospective nature of 

notifications would create uncertainty 

for users. The same commenter stated 

that, in the context of quarterly 

retrospective filings, the Board should 

only deny FTZ benefits prospectively. 

Another commenter stated that what it 

characterized as quarterly reports 

should not be required. As an 

alternative to quarterly retrospective 

reporting, one commenter proposed a 

provision similar to the prospective 

notification provision in the original 

§ 400.28(a)(3), but expanded to allow for 

new finished products. One commenter 

also proposed a notification procedure 

for all activity not requiring advance 

approval, with the Board issuing written 

confirmation of each notification. 

Another commenter stated that if a 

Board Order is not possible for export 

authority, the Board should increase 

certainty for users and for CBP by 

allowing a standardized submission 

from the company to the Board, and for 

a standard response from the Executive 

Secretary. One commenter stated that 

companies must be able to obtain 

written confirmation of authority from 

the Board for CBP and other purposes. 

One commenter requested 

clarification whether advance approval 

is required for all production activity 

and, in the context of production 

activity already authorized by the 

Board, for new inputs used to produce 

an approved product, for new part 

numbers associated with a component 

under an approved HTSUS category, 

and for new inputs under HTSUS 

categories not already approved but 

used to produce an approved product. 

Several commenters stated that reliance 

on HTSUS numbers to track which 

components are authorized for a 

production operation is too burdensome 

or impractical. One commenter stated 

that even the use of 6-digit HTSUS 

categories is impractical. Another 

commenter proposed that the Board 

provide public access to a database of 

components and finished products for 

approved production operations. 

Numerous commenters proposed 

eliminating the Board’s proposed 

provision concerning capacity increases 

and eliminating capacity as an element 

of production authority. One commenter 

proposed that, if capacity cannot be 

eliminated as a constraint on ongoing 

production activity, the Board should 

adopt an annual reporting requirement 

for capacity increased beyond a specific 

threshold. Another commenter 

proposed that capacity be reported to 

the Board annually. One commenter 

proposed including a clear statement 

that production only for export would 

generally not require application to and 

authorization by the Board. One 

commenter proposed including a 

provision concerning the Board’s 

temporary/interim manufacturing 

(T/IM) procedure. 

One commenter proposed that foreign 

components subject to AD/CVD orders 

be exempt from the requirement for 

advance approval when they are used in 

production for export, maintaining that 

to do otherwise would run contrary to 

what the commenter claimed is 

longstanding Board policy that 

admission to zones of merchandise 

subject to AD/CVD orders is noncontroversial. The commenter further 

stated that the Board’s proposed 

approach for production activity 

involving a component subject to an 

AD/CVD order will significantly 

complicate the Board’s proceedings, 

requiring more extensive factual records 

and decision documents, create 

additional burden for the Board, and 

substantially increase complexity and 

costs for zone users. One commenter 

stated that the Board should not require 

new approval due to changes in the 

HTSUS or due to imposition of an AD/ 

CVD order on a component already 

approved by the Board. One commenter 

also questioned the practicality of 

requiring further Board approval when 

an AD/CVD order is imposed on a 

component already approved by the 

Board, and suggested that quarterly 

retrospective notifications may be 

adequate in such circumstances. 

One commenter stated that because 

merchandise subject to an AD/CVD 

order must be admitted to a zone in 

privileged-foreign status, requiring an 

approval process for ongoing production 

involving such merchandise adds no 

benefit and is excessively burdensome. 

Another commenter stated that the 

Board’s prior regulations adequately 

provided for approval and ongoing 

oversight of changes in AD/CVD status 

of components already authorized or 

changes in duty rates and capacity, and 

that the proposed regulations could 

result in duplicative public comment 

processes and evaluating activity 

already approved by the Board. One 

commenter stated that the prior 

regulations’ requirement for election of 

privileged-foreign status on admission 

of merchandise subject to AD/CVD 

orders reflected an appropriate balance 

of avoiding circumvention of AD/CVD 

orders while enabling export-oriented 

activity to take place in FTZs. Another 

commenter stated that the privileged 

foreign-status requirement for 

merchandise subject to AD/CVD orders 

should be adequate to address potential 

concerns pertaining to ongoing activity, 

and proposed a blanket Board Order 

authorizing any production for export 

provided the components are placed in 

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privileged-foreign status prior to the 

production activity. 

Several commenters supported the 

proposed requirement for advance 

approval from the Board for any new 

production activity involving a 

component subject to an AD/CVD order. 

Those commenters also supported the 

proposed requirement that a production 

operation with existing authority obtain 

additional approval from the Board to 

use any component subject to an AD/ 

CVD order that was not in effect at the 

time of the Board’s prior authorization 

action. One commenter proposed that 

the requirement for additional approval 

from the Board be extended to a 

component (1) not identified at all—or 

not identified as being subject to an AD/ 

CVD order—in the production 

operation’s original application; or (2) 

identified but not sourced from a 

country subject to an AD/CVD order at 

the time of the application, and that will 

now be sourced from a country subject 

to an AD/CVD order. Several 

commenters also proposed requiring 

reporting and related procedures to 

ensure notice to affected parties. Certain 

commenters further proposed modifying 

practices to ensure compliance with 

authority approved by the Board. One 

commenter proposed requiring 

applicants for production authority 

involving a component subject to an 

AD/CVD order to demonstrate that the 

authority would not adversely affect the 

AD/CVD relief in place. 

One commenter stated that provisions 

requiring further approval from the 

Board if a component already used by 

a zone manufacturing operation 

becomes subject to a new or increased 

rate of duty, a new AD/CVD order, or a 

new order of the International Trade 

Commission pursuant to 19 U.S.C. 1337 

(section 337), would be disruptive to 

current zone operations, and that there 

should be a transition rule. Another 

commenter indicated that notification 

should not be required as envisioned in 

§ 400.14(a)(4) for new AD/CVD or 

Section 337 orders and that, if 

necessary, zones’ annual reports could 

be used to report the information in 

question. One commenter stated that the 

absence of an advance approval process 

for production activity would mean the 

Board might be unaware of merchandise 

subject to certain Department of 

Agriculture requirements and be unable 

to alert the grantee or operator to those 

requirements. 

In response to other comments 

submitted, one commenter supported 

only requiring advance approval for 

production activity involving inverted 

tariffs. That commenter also supported 

the provision for advance approval of a 

broad list of categories to enable future 

notifications, but opposed other 

commenters’ proposals to modify the 

application process to focus purely on 

intermediate and finished products. One 

commenter stated that a proposal from 

other commenters requiring the Board to 

issue an Order approving export activity 

within 30 days of receiving an 

application should not apply to activity 

involving a component subject to an 

AD/CVD order. That commenter stated 

that the Board has recognized that such 

activity may raise public-interest 

concerns and that the proposed 30-day 

process would eliminate all of the 

procedural safeguards in the proposed 

regulations. The commenter opposed 

another commenter’s proposal that no 

advance approval be required for 

production for export involving a 

component subject to an AD/CVD order, 

stating that the change would negate the 

Board’s ability to evaluate whether such 

activity would undermine trade relief 

measures in effect. That commenter also 

disagreed with another commenter’s 

claim that the Board’s proposed 

approach for production activity 

involving a component subject to AD/ 

CVD order will significantly complicate 

proceedings, create additional burden 

for the Board and increase complexity 

and costs for zone users. 

In response to other comments 

submitted, multiple commenters 

supported the requirement for advance 

approval for any production activity 

involving a component subject to an 

AD/CVD order, with one of those 

commenters supporting such a 

requirement when a component 

previously authorized for a zone 

production operation becomes newly 

subject to an AD/CVD order. One 

commenter stated that concerns 

expressed by only a few commenters 

should not lead the Board to adopt 

unduly burdensome processes for 

applications and management of 

ongoing operations. The commenter 

stated that the proposed processes 

would be detrimental to many program 

users, discourage overall FTZ use, 

discourage domestic manufacturing for 

both the U.S. and export markets, and 

also create significant burden for the 

Board’s staff. One commenter stated that 

there is no reason to impose additional 

conditions or restrictions on the use in 

production of material subject to AD/ 

CVD orders beyond those already 

proposed by the Board. That commenter 

cited Executive Order 13563 as 

instructing agencies to achieve policy 

goals through the least burdensome 

means. 

One commenter opposed the proposal 

from other commenters requiring 

advance approval for production 

involving a component subject to an 

AD/CVD order, and stated that the 

requirement for the election of 

privileged-foreign status at the time 

merchandise is admitted to a zone is 

adequate to ensure that AD/CVD duties 

are not circumvented. One commenter 

opposed any requirement for companyspecific advance approval of production 

for export. That commenter also 

recommended the Board retain what the 

commenter claimed was the prior 

regulations’ presumption that 

production for export is in the public 

interest. 

Board position: After considering all 

comments submitted and the 

importance of adopting the least 

burdensome mechanisms to accomplish 

the Board’s policy objectives, we have 

modified this section (with related 

changes in other sections, including 

§§ 400.22 and 400.37) to implement a 

revised approach to authorizing 

production activity. The foundation for 

the revised approach is a simple 

notification process in advance of any 

new production activity (including use 

of new materials/components at a 

previously approved production 

operation). This approach also 

incorporates a more extensive 

application process for circumstances 

where the Board reviews a notification 

and determines that further review is 

warranted. 

Among other considerations, the 

revised procedures balance the need 

expressed by many commenters for 

generally shorter timeframes for action 

on requests for production authority and 

the perspective emphasized by other 

commenters that potentially affected 

parties must be able to provide 

comments to the Board regarding the 

impact of proposed production activity. 

Although the FTZ Act does not require 

companies to obtain approval prior to 

conducting production (manufacturing) 

activity in zones, the Act authorizes the 

Board to prohibit activity that ‘‘in its 

judgment is detrimental to the public 

interest, health, or safety’’ (19 U.S.C. 

81o(c)). Since 1972, the Board has 

required either notification or 

application in advance of the conduct of 

manufacturing activity (this type of 

requirement was first implemented 

through conditions of individual Board 

Orders and then adopted in the Board’s 

1991 regulations). The revised approach 

continues to require zone users to obtain 

approval in advance from the Board 

before conducting manufacturing 

activity. Consistent with the many 

comments submitted regarding the need 

for simplified, expedited processes, our 

revised approach generally reduces both 

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the burden associated with a company’s 

standard submission to the Board 

requesting authorization to conduct 

production activity and the standard 

timeframe for processing that request. 

This rule’s simple notification process is 

akin to that suggested in certain 

comments, and incorporates a standard 

120-day timeframe for the Board to 

process notifications received. That 

timeframe cuts by two-thirds the oneyear standard timeframe in both the 

prior regulations and the proposed 

regulations to process applications for 

manufacturing (production) authority. 

This revision also significantly reduces 

the information burden associated with 

authorizing production activity. As 

noted above, these regulations also 

include a detailed application process 

for cases that are determined to warrant 

further review as a result of the initial 

notification. Further, unlike the 

application process suggested by many 

commenters for certain categories of 

production activity, all notifications for 

production authority would be subject 

to a public comment period before any 

potential Board action to authorize the 

activity. Allowing public comments on 

all proposed production activity is the 

cornerstone of procedures designed to 

ensure that production activity 

conducted in FTZs is in the public 

interest. Recognizing the time-sensitive 

nature of some requests for authority to 

conduct production activity, we have 

also adopted a provision enabling 

authorization on an interim basis until 

the Board is able to complete its 

processing of a notification. Unlike the 

Board’s prior process for giving 

temporary/interim manufacturing (T/ 

IM) authority, the new provision is not 

constrained by a requirement that 

activity meet a specific standard for 

similarity to previous applications; the 

adopted provision therefore should be 

more flexible and more useful than the 

T/IM procedure. 

The procedures adopted in this 

section are designed to simplify and 

increase certainty of the procedures for 

approving production authority. The 

prospective nature of the notification 

process—in contrast to the retrospective 

process delineated in the proposed 

regulations—enables the Board to 

eliminate the proposed requirement for 

advance approval of a list of 4-digit 

HTSUS headings within which future 

notifications would be made. In 

addition, the basic notification process 

for all production activity should 

generally enable zone users to obtain a 

formal decision on authorization of the 

activity within 120 days of requesting it, 

thereby accelerating certainty in order to 

better meet the needs of zone users. We 

have not made provision for extensions 

of comment periods on notifications 

because the review procedures are 

designed to allow the Board to 

determine within the 120-day timeframe 

which notifications warrant further 

review. (Further review requires 

submission of a detailed application and 

then a period for public comment on the 

application, which is subject to requests 

for extensions.) Therefore, if concerns 

about notifications arise—including as a 

result of comment submissions 

explaining why additional time is 

needed for public comment or for 

affected parties to assess the impact of 

proposed activity—the Board would be 

able to conduct further review and 

trigger the more extensive requirements 

for such a review. 

By requiring FTZ users to provide us 

with information through the 

notification process, we can eliminate 

the reporting requirement we proposed 

in this section (although production 

activity will remain subject to the 

general requirements of § 400.51). The 

requirement for prospective 

notifications and the associated 

publication of a Federal Register notice 

for each notification also effectively 

addresses the concern raised by one 

commenter that eliminating public 

notice could lead to compliance 

problems pertaining to certain 

Department of Agriculture 

requirements. Finally, it should be 

noted that the adopted procedures 

create no new requirements for activity 

approved under the prior regulations 

(i.e., approved activity that was the 

subject of prior applications and 

notifications remains authorized, as 

limited by any restrictions associated 

with the specific proceedings in 

question). 

We have also added a subsection 

(§ 400.14(c)) mandating that information 

regarding authorized production 

operations be made available on the 

Board’s Web site. This provision will 

enhance the transparency of the FTZ 

program and enable parties to assess 

whether changed circumstances exist 

that would warrant review by the FTZ 

Board under § 400.49(a). Requiring 

advance approval from the FTZ Board 

for authority to continue activity 

whenever certain circumstances have 

changed (such as proposed 

§§ 400.14(a)(4)(i)–(iii)) is not the least 

burdensome means for the Board to 

accomplish its policy objectives of 

enhancing U.S. competitiveness through 

the availability of zone procedures, 

while ensuring that zone activity 

remains in the public interest. With 

regard to materials or components 

subject to AD/CVD orders or 

proceedings, these regulations provide 

no special application-related 

procedures. We have determined that 

the standard procedures applicable to 

any material/component for which 

authorization is requested will allow the 

Board to address concerns about 

negative impacts from the proposed 

activity. Therefore, we have adopted 

neither (1) the approaches proposed by 

certain commenters to eliminate any 

advance approval process for exportoriented activity involving materials/ 

components subject to AD/CVD orders/ 

proceedings, or to make a presumption 

in favor of authorizing such activity, nor 

(2) provisions proposed by certain 

commenters to create new carve-outs 

from the general framework for 

production authority, with additional 

procedural burdens imposed with 

respect to those carve-outs. Under the 

new rule, materials/components cannot 

be used in a zone production operation 

without specific prior authorization 

through the notification process (and 

subsequent application process, where 

warranted), including publication of a 

notice in the Federal Register and 

invitation for public comment. The 

adopted procedure substantively 

parallels the requirements of the Board’s 

prior regulations, which did not permit 

any manufacturing activity without 

Board approval. The Board’s prior 

regulations also contained a standard 

provision for a public comment period 

on applications requesting 

manufacturing authority, so that the 

Board could evaluate the comments of 

potentially affected parties in 

determining whether to approve a given 

application. Practice has shown those 

types of requirements to be adequate to 

enable the Board to determine whether 

negative impacts would result from 

proposed zone activity. 

Section 400.14(b)—Scope of Authority 

Comments: Numerous commenters 

proposed focusing the scope of 

authority for a production operation on 

intermediate and finished products 

rather than the components used in the 

operation, with any component used to 

make an authorized intermediate or 

finished product considered within the 

scope of approved authority. One 

commenter proposed clarifying that this 

provision’s reference to inputs is limited 

to imported inputs. One commenter 

stated that the Board should not use 

HTSUS numbers to define a production 

operation’s scope of authority because 

HTSUS numbers are subject to change 

beyond the company’s control, with 

such changes potentially leading to noncompliance with approved scope and 

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requiring further FTZ Board processes 

to rectify. Two commenters expressed 

concerns about other commenters’ 

proposals to focus applications for 

production authority on intermediate 

and finished products without 

specifying the components to be used in 

such production, stating that the change 

would defeat the purpose and 

undermine the effectiveness of the 

advance approval requirement. 

Board position: We have not adopted 

commenters’ proposal to define a zone 

user’s authorized scope for production 

activity based on intermediate and 

finished products, with no delineation 

of the materials or components to be 

used in producing the intermediate or 

finished products. We agree with the 

commenters that stated that this change 

would defeat the purpose and 

undermine the effectiveness of the 

advance approval requirement. As a 

general matter, the potential impact of 

proposed production activity on U.S. 

producers of materials or components is 

tied to the identities of the specific 

foreign-status materials/components 

that would receive the benefits of zone 

use. Identifying only the intermediate or 

finished products would not allow 

affected parties or the Board to assess 

the impact of the proposed zone 

activity, because the component or 

input materials would be unknown. 

Based on comments received, we have 

clarified that this section only applies to 

imported materials or components 

admitted in foreign status for a 

production operation in a zone. With 

regard to the use of HTSUS numbers to 

define scope of authority, these 

regulations focus scope of authority first 

on the written descriptions of the 

materials, components and finished 

products, with HTSUS numbers 

primarily serving to supplement the 

written descriptions. This approach 

continues the Board’s existing practice 

and reflects our recognition of the 

practical difficulties that shifting to an 

HTSUS-driven approach would create 

for zone users. 

Based on the comments submitted, we 

have eliminated the provision on 

notification of increases in production 

capacity (as well as inclusion of 

production capacity as a standard 

element of scope of authority). Since 

1991, FTZ users have had to obtain the 

Board’s prior authorization to 

manufacture beyond the level of 

capacity already approved by the Board 

for the operation in question. However, 

in the twenty years that the requirement 

has been in effect, actual increases in 

capacity have not proven to be 

controversial or to result in negative 

impacts. Consequently, there is no 

justification for requiring companies 

ordinarily to provide a capacity level to 

the Board for authorization, and then 

requiring additional authorization for 

subsequent activity at higher capacity 

levels. If zone activity ultimately raises 

public interest concerns, the Board 

retains the ability to conduct reviews 

pursuant to § 400.49. 

Section 400.14(e)—Restrictions on Items 

Subject to Antidumping and 

Countervailing Duty Actions 

Comments: Numerous commenters 

proposed adding a requirement that the 

Board approve production activity for 

exports of products incorporating 

components subject to antidumping 

duty or countervailing duty (AD/CVD) 

orders whenever it finds that there 

would be a positive impact on U.S. 

competitiveness, and that similar 

activities are authorized in other 

countries. Two commenters stated that 

the additional language proposed for 

this section by certain commenters 

would undercut the Board’s policy of 

preventing the use of zones to 

circumvent AD/CVD orders and negate 

the standards the Board applies in 

determining whether proposed zone 

activity is in the public interest. 

Board position: We have not adopted 

the suggested additional language for 

this section, which could result in 

applications involving components that 

are subject to AD/CVD orders benefiting 

from an evaluative standard more 

favorable than the standards applied to 

all other types of cases involving 

production activity. The proponents of 

that approach have not presented a 

substantive justification for giving 

preferential treatment to activity 

involving components subject to AD/ 

CVD duties. 

Section 400.15—Production Equipment 

Comments: Numerous commenters 

proposed modifying this section to 

apply to all zone activity (rather than 

only production activity) for reasons of 

the Congressional intent claimed by the 

commenters. One commenter stated that 

such a modification would result in all 

zone operators being treated uniformly. 

Numerous commenters proposed adding 

a subsection providing for expedited 

temporary approvals of zone 

designation to enable use of the 

production equipment benefit (with 

zone designation to be terminated once 

entry is made on the production 

equipment). One commenter supported 

the proposed provision as published. 

Board position: We have not adopted 

the changes proposed in these 

comments. In September 2010, the 

Executive Secretary examined the 

applicability of the production 

equipment provision in depth, and 

issued a memorandum to FTZ grantees 

detailing the analysis and findings. The 

memo has been available on the Board’s 

Web site since its issuance. No 

arguments have been presented to alter 

the memorandum’s fundamental 

findings that the clearest indications 

based on the record associated with the 

passage of the statutory provision are 

that Congress intended the provision to 

apply to equipment used in production 

(as the term is commonly understood) in 

zones. Further, the proposed provision 

to allow expedited temporary zone 

designations to enable use of the 

production equipment provision 

appears to envision obtaining FTZ 

benefits on the assembly of equipment 

that will then be used for non-zone 

activity. Our position is that the 

statutory provision is intended to 

provide benefits solely on equipment 

that will be used in zone activity. 

Section 400.16—Exemption From State 

and Local Ad Valorem Taxation of 

Tangible Personal Property 

Comments: Numerous commenters 

proposed revising this provision to 

simply repeat the statutory provision. 

Two commenters suggested reviewing 

this provision based on a concern that 

the meaning could be more restrictive 

than the statutory provision, and 

potentially confuse affected parties. 

Two commenters proposed specific 

revised language for this section to 

clearly harmonize its meaning with 

§ 400.1(c) of the prior regulations and 

eliminate any confusion. 

Board position: Given the concerns 

raised in comments, we have modified 

this section to use the statutory language 

verbatim. 

Section 400.21—Application to 

Establish a Zone 

Comments: Numerous commenters 

proposed changes that: characterize the 

section as applying only to the 

establishment of new general-purpose 

zones; indicate that applications will 

conform to instructions and guidelines 

set out in the regulations; require 

application letters and resolutions to be 

dated no more than six months prior to 

submission of the application; remove 

language specific to explanation of the 

degree to which a proposed site 

duplicates types of facilities at other 

sites, to environmentally sensitive areas, 

and to encouraging submission of draft 

applications; and add certain language 

pertaining to the ASF. Several 

commenters stated that the ASF should 

be detailed in the regulations. One 

commenter stated that the requirements 

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and distinctions of the ASF relative to 

the traditional site framework should be 

delineated in the regulations and that 

both frameworks should be maintained. 

One commenter agreed that applications 

should comply with instructions and 

related documents published in the 

Federal Register and made available on 

the Board’s Web site, but suggested 

requiring a 30-day minimum written 

notice before implementing such 

changes in cases where notice in the 

Federal Register is not warranted. One 

commenter stated that full information 

about the ASF should be included in the 

regulations, that application processes 

should be defined, and that there should 

be some control on the web-based 

application guidelines developed by the 

Board. 

Board position: This section 

establishes general requirements for 

applications to the Board, with 

variations specific to certain types of 

authority described in subsequent 

sections. Based on the comments 

received, we have made several changes 

to this section. In reference to the dating 

of the application letter and the 

resolution, we replaced the words 

‘‘currently’’ or ‘‘current’’ with language 

allowing for the documents to be dated 

up to six months prior to submission of 

the application. 

We have also added basic references 

to key concepts under the ASF in 

recognition of the certainty that grantees 

and program users seek as they consider 

or use the ASF. However, given that the 

ASF had only recently become part of 

the Board’s practice at the time that the 

proposed regulations were drafted, no 

attempt was made to incorporate the 

details of the ASF in the proposal. 

Comments have not only proposed that 

the regulations include details of the 

ASF and contrast the ASF with the 

traditional site framework (TSF), but 

have also proposed simplifying the 

parallel ASF and TSF approaches 

within the Board’s practice. As noted in 

response to comments on § 400.11, 

recognizing that codifying the 

intricacies of current practice in 

regulations may not be the least 

burdensome means to accomplish the 

Board’s policy goals, the Board plans to 

propose simplifying the site-designation 

frameworks in a subsequent rule. We 

have retained the proposed approach of 

having the Executive Secretary develop 

formats for individual types of 

applications based on the regulations’ 

requirements. This provision is 

specifically designed to enable us to 

adopt user-friendly question-andanswer formats while also allowing 

occasional adjustments to those formats 

if certain questions prove unsuccessful 

in eliciting the needed information from 

applicants. Recognizing potential 

concerns about transparency and 

parties’ need to ensure that a particular 

application format will be accepted by 

the Board, the provision also stated that 

application formats will be published 

both in the Federal Register and on the 

Board’s Web site. The provision for 

publication in the Federal Register was 

specifically designed to maximize 

transparency. However, based on one 

comment noted above, and to ensure 

that changes in formats do not impose 

undue burdens on applicants, we have 

specifically stated that the Board will 

continue to accept applications for a 

period of one year after a given format 

has been superseded; this is a 

significantly longer period than the 30 

days suggested by a commenter, and 

should provide zone users with ample 

time to adapt to any format revision. We 

also have not made suggested changes 

that would have further burdened 

applicants by adding elements to the 

requirements for application letters or 

application contents. Finally, we have 

not followed suggestions that we 

remove language specific to 

explanations of the extent to which 

facilities at a proposed site duplicate the 

types of facilities at other sites, to 

environmentally sensitive areas, and to 

encouraging submission of draft 

applications. Except for sites designed 

to serve specific, existing tenants, any 

proposal to add a new site to a zone 

should include a justification of the 

need for the site when there are already 

sites authorized for the zone. There are 

a significant number of entirely unused 

FTZ sites nationwide. Such sites appear 

to constitute a large majority of all FTZ 

sites. Given that each such site was 

approved by the FTZ Board based on 

information from the grantee that the 

site was needed to serve trade-related 

needs, it is entirely appropriate for the 

FTZ Board to require that a proposal for 

a new site explain the services or 

amenities to be provided by the new site 

that are not provided by the grantee’s 

existing sites. Separately, given the 

commercial and industrial uses that 

FTZs serve, there appears to be no need 

to make allowance for the inclusion of 

environmentally sensitive areas within 

designated FTZs. Finally, submitting a 

draft application can be a useful tool for 

any organization that is preparing an 

application, and it is appropriate for the 

regulations to provide for that tool. 

Section 400.23—Application for 

Production Authority 

Comments: Numerous commenters 

proposed establishing a stand-alone 

section concerning applications for 

production authority. Those 

commenters proposed replacing most of 

the proposed § 400.22 with the Board’s 

current application format for 

establishing manufacturing subzones 

and for obtaining manufacturing 

authority for existing zone space. 

Addressing the requirement in proposed 

§ 400.22 for certain information 

regarding products or materials/ 

components, one commenter proposed 

that zone users be allowed to notify the 

Board of the HTSUS chapters within 

which new products or components fall. 

For any application for production 

authority involving a component subject 

to an AD/CVD order, one commenter 

supported requiring that the application 

state that the proposed authority 

involves a component subject to an AD/ 

CVD order. That commenter also 

proposed requiring that the applicant 

demonstrate that its requested authority 

would not reduce the effectiveness of 

the AD/CVD remedy. 

Board position: In response to 

comments received, we have created 

new §§ 400.22 and 400.23 specifically 

setting forth requirements for 

notifications and applications for 

production authority (distinct from 

requirements for subzone applications 

in § 400.25, which only pertain to 

approving FTZ designation for a specific 

location without addressing the separate 

matter of production authority). As with 

§ 400.25, we have not incorporated in 

this section questions from the current 

application format for manufacturing 

subzones, in part for the reasons noted 

in our response to comments on 

§§ 400.21 and 400.25. We have not 

adopted the proposed change to 

notifications of new products or 

components because comments 

submitted have led us to adopt a revised 

approach to the application process for 

production authority. Finally, for both 

notifications and applications for 

production authority under revised 

§ 400.14, we have maintained the 

requirement that the applicant state 

whether any component is subject to an 

AD/CVD order. We have not adopted 

the proposed requirement that the 

applicant address whether its proposed 

activity under FTZ procedures would 

reduce the effectiveness of the AD/CVD 

remedy because that requirement would 

increase the burden on applicants even 

in situations where the activity may not 

be of concern to an AD/CVD petitioner. 

The Board would be able to assess the 

potential impact on AD/CVD remedies if 

public comments in response to a 

notification or application for 

production authority raise concerns 

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12122 Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 

about proposed FTZ production 

activity. 

Section 400.24—Application for 

Expansion or Other Modification to 

Zone 

Comment: Numerous commenters 

indicated that they proposed significant 

changes to this section (which those 

commenters also proposed renumbering 

to become § 400.25); however, the 

proposed text provided by those 

commenters was in fact identical to the 

text proposed by the Board, with the 

sole exception of the deletion of the 

original Federal Register citations for 

the Board’s adoption of the ASF. As 

noted above regarding § 400.11, one 

commenter indicated that there are 

potential CBP operational advantages 

for subzones relative to usage-driven 

sites (which are most commonly 

designated through a minormodification process). One commenter 

stated that the Board should clarify that 

there is no functional distinction 

between subzones and usage-driven 

sites under the ASF. Another 

commenter stated that both subzones 

and ASF usage-driven sites should be 

treated in an equal manner that 

minimizes burden and facilitates 

administration of the facilities in 

question. 

Board position: We have retained the 

ASF-related Federal Register citations 

because, as detailed in response to 

comments on § 400.21, we have not 

attempted to incorporate details of the 

ASF in these regulations given the need 

that has emerged for the Board to 

simplify the site-designation 

frameworks in a subsequent rule. 

However, as noted in response to 

comments on § 400.11, we have 

modified § 400.24(c) to allow an actual 

or potential usage-driven site to be 

designated as a subzone if such 

designation would better meet the needs 

of the zone grantee and zone 

participants. The modification 

recognizes the overall functional 

equivalence between subzones and ASF 

usage-driven sites and the importance of 

enabling zone users to maximize 

operational efficiencies. However, for 

the reasons described in response to 

comments on § 400.36, allowance for 

designation of a usage-driven site as a 

subzone is contingent on the subzone’s 

remaining subject to the Boardestablished, zone-wide activation limit 

that applied to the usage-driven site. 

Section 400.25—Application for 

Subzone Designation 

Comments: Numerous commenters 

suggested limiting proposed § 400.22 to 

applications for subzones and 

establishing a separate section for 

applications for production authority. 

Those commenters suggested removing 

most of the language proposed by the 

Board and instead incorporating 

language from the Board’s current 

application format for establishing 

manufacturing subzones and for 

obtaining manufacturing authority for 

existing zone space. One commenter 

proposed simplifying application 

requirements for subzones that would 

not be used for production activity 

based on what that commenter 

characterized as a dissimilar treatment 

under the proposed regulations for 

similar types of operations in subzones 

versus general-purpose zone sites. 

Board position: In response to 

comments submitted and in recognition 

of the complete separation of 

production authority from subzone 

designation under these regulations, we 

have limited this section to subzone 

applications and have further simplified 

the application requirements. We have 

also made minor changes in other 

sections in order to implement this 

section properly. New §§ 400.22 and 

400.23 are specific to the separate 

requirements for notifications and 

applications for production authority, as 

described in our response to comments 

on § 400.14. We have not incorporated 

into this section questions from the 

current application format for 

manufacturing subzones for the reasons 

noted in our response to comments on 

§ 400.21, in part. A number of those 

questions pertain only to applications 

involving manufacturing (production) 

activity and therefore would be 

irrelevant to the many subzones that are 

used solely for distribution-related 

activities. Finally, several of those 

questions duplicate the requirements set 

forth in § 400.21. We have opted to 

include such requirements by reference 

rather than repeat the language in full. 

Section 400.26—Criteria for Evaluation 

of Proposals, Including Expansions, 

Subzones or Other Modifications of 

Zones 

Comments: Numerous commenters 

proposed the following changes: 

Eliminating reference to the port of 

entry area in proposed § 400.24(a); 

eliminating reference to compatibility 

with a master plan or economic 

development goals in proposed 

§ 400.24(d); modifying proposed 

§ 400.24(e) to consider views of those 

materially affected by FTZ benefits; and 

renumbering the section to become 

§ 400.26. Those commenters also 

proposed replacing the separate criteria 

for subzone proposals in proposed 

§ 400.25(b) with the criteria in proposed 

§ 400.24, which would apply to both 

zone and subzone proposals that do not 

involve production activity. One 

commenter proposed modifying the 

criteria applicable to subzones (other 

than proposals involving production) to 

focus on disapproval if the proposed 

activity were not permissible under the 

FTZ Act, U.S. law, or a specific Board 

Order. Two commenters recommended 

that the Board no longer consider in 

evaluating subzone proposals whether 

the activity could be accommodated in 

multi-purpose FTZ facilities serving the 

area. 

Board position: Based on the 

comments received, we have eliminated 

the separate criteria for evaluating 

subzone proposals (including whether 

activity could be accommodated in 

multi-purpose FTZ facilities serving the 

area). This change reflects a recognition 

that the types of distribution activities 

conducted in non-production subzones 

are indistinguishable from the types of 

activities that can be conducted in 

general-purpose sites (separate criteria 

will apply to applications for authority 

involving production activity). The 

separate criteria proposed for evaluation 

of subzone proposals did not represent 

the least burdensome means to 

accomplish the Board’s policy objective 

of facilitating FTZ use in order to 

maximize the creation and retention of 

domestic economic activity and 

employment. 

With regard to the specific text of 

proposed § 400.24, we have retained the 

reference to the port of entry area 

because the establishment of a zone 

under the FTZ Act is tied to the 

proposed zone’s adjacency to a port of 

entry. We have also retained the 

reference to compatibility with master 

plans or economic development goals 

because it is relevant for the Board to 

consider the degree to which a zone 

proposal is linked to, and consistent 

with, official documents pertaining to a 

community’s economic development 

planning. We have adopted the 

substance of the proposed change to 

consider the views of those ‘‘materially 

affected’’ rather than those merely 

‘‘affected’’ by a proposal because the 

original, lower standard would 

potentially impose a burden on 

applicants to respond to comments from 

any person claiming to be affected by an 

application regardless of whether there 

would be a material impact on that 

person. We have also made a minor 

modification to the section’s title to 

improve clarity. 

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Section 400.27—Criteria Applicable to 

Evaluation of Applications for 

Production Authority 

Comments: Numerous commenters 

stated that proposed § 400.25 (which 

they would renumber to become 

§ 400.24) should apply only to 

production activity. Those commenters 

proposed requiring the Board to 

consider companies’ ability to conduct 

the same activity offshore, the 

precedential effect of prior Board 

decisions, and the effect on the U.S. 

economy, as well as revising the 

statement of Board policy to include 

reference to promoting U.S. 

competitiveness. Those commenters 

also proposed deleting a reference to 

ongoing activity in § 400.25(a)(1) and 

deleting the word ‘‘significant’’ from 

§ 400.25(a)(3). One commenter stated 

that the Board should equalize tariff 

treatment for U.S. manufacturing 

operations relative to offshore 

alternatives, and should not give 

differential treatment to competitors 

within an industry or else potential 

users may no longer view the FTZ 

program as a viable option. That 

commenter also stated that U.S.-based 

manufacturing and exports are 

inherently in the public interest and 

should be treated as such, absent direct 

evidence of a net negative economic 

effect. 

Board position: In response to 

comments received, we have limited 

this section to criteria for evaluating 

applications involving production 

activity and have required the Board to 

take into account companies’ ability to 

conduct the same activity offshore and 

the effect on the U.S. economy. We have 

also added references to analyses 

carried out in connection with prior 

Board actions. We have not referred to 

the precedential effect of prior Board 

actions because such language could, 

inter alia, create a mistaken impression 

that the situation within a given 

industry inherently remains static over 

time. We have not modified the 

statement of Board policy to include a 

reference to promoting U.S. 

competitiveness, because the focus of 

the section is emphasizing that the 

Board’s actions are consistent with 

broader trade-related public policy. For 

similar reasons, we have retained the 

statement that Board policy applies to 

‘‘ongoing’’ activity in addition to 

proposed activity. We also have not 

modified the requirement that an 

application for production authority 

demonstrate a ‘‘significant public 

benefit.’’ However, the significance of 

the public benefit may be relative, 

depending on the size and employment 

level of the facility involved, so this 

standard is not inherently 

discriminatory against smaller facilities. 

With regard to other comments 

received, the FTZ program can be used 

to equalize tariff treatment relative to 

offshore alternatives. However, 

obtaining authority for a given FTZ 

production use cannot be guaranteed. 

Rather, the Board’s function continues 

to be ensuring that zone activity is in 

the public interest; assessing a range of 

factors is appropriate in making that 

determination. As for differential 

treatment for competitors in a given 

industry, the Board naturally seeks to 

avoid such differential treatment. 

However, one factor that some observers 

may fail to take into appropriate account 

is the cumulative effect of FTZ 

applications from multiple participants 

in a given industry, which could differ 

from the effect of an application from a 

single participant. The Board must 

continue to base its decisions on the 

facts and circumstances present at the 

time that a given decision is made. 

Finally, while the changes to the 

production-related sections of these 

regulations should dramatically 

simplify and expedite the process of 

obtaining Board authorization for 

production authority in most cases, the 

regulations maintain appropriate 

procedures to ensure that the activity 

conducted is in the public interest. The 

Board does not need to shift 

presumptions about production activity 

for there to be an appropriately 

simplified and expedited process, as 

noted above. 

Section 400.28—Burden of Proof 

Comments: Numerous commenters 

proposed dividing this section into 

three subsections (general, comments, 

and rebuttal), requiring opponents of 

FTZ activity to demonstrate standing 

and submit evidence that would meet a 

specific standard that closely resembles 

the standard for applicants’ responses to 

opponents’ submissions, and 

eliminating the word ‘‘significant’’ 

preceding ‘‘public benefit.’’ One 

commenter stated that, for applications 

involving manufacturing or exports, the 

burden of proof should be shifted to any 

opponents. 

Board position: As a result of the 

comments received, we have divided 

this section into four subsections: in 

general; comments on applications; 

requests for extensions of comment 

periods; and, responses to comments on 

applications. We have stated that parties 

submitting comments on FTZ 

applications should submit evidence 

that meets a standard closely resembling 

the standard for applicants’ responses to 

such submissions. However, we have 

not adopted the suggested requirement 

that parties opposing FTZ applications 

demonstrate standing. Although the 

suggested standing requirement 

involved the addition of only a few 

words, the requirement could 

significantly complicate the processing 

of FTZ applications, and would appear 

to add more complexity and burden 

than can be justified based on the 

procedural benefits it might bring. We 

also have retained the full phrase 

‘‘significant public benefit’’ to mirror 

the standard retained in § 400.27; that 

standard was addressed in response to 

comments on that section. Finally, the 

definitive wording of this section 

reflects a balancing of the standards 

applicable to both applicants and 

parties submitting comments on 

applications. It would not be 

appropriate to abandon that evenhanded 

approach for certain types of 

applications. 

Section 400.31—General Application 

Provisions and Pre-Docketing Review 

Comments: Numerous commenters 

proposed reducing standard timeframes 

to require the Board ordinarily complete 

its action on applications involving 

production authority within six months, 

and that Board action on other 

applications ordinarily be completed 

within five months. Those commenters 

also proposed the following changes: 

30-day periods for responses from zone 

participants contacted by the Executive 

Secretary, and for the Executive 

Secretary to complete pre-docketing 

review after receiving additional 

information from an applicant; and 

returning pre-docketing applications to 

the applicant rather than discarding the 

application if noted deficiencies have 

not been corrected within 30 days. In 

response to other comments, two 

commenters stated that the suggestion to 

reduce timeframes for Board action was 

unreasonable. Those commenters stated 

that the reduced timeframes would 

impede potentially affected parties from 

receiving proper notice or having an 

adequate opportunity to comment, and 

would also prevent the Board from 

adequately developing a factual record, 

analyzing comments, and performing a 

thorough analysis of the application in 

question. 

Board position: Based on the 

comments received and recognizing the 

need to provide expedited processing of 

requests, we have made a number of 

changes to procedures and timeframes. 

As noted in comments on § 400.14, we 

have adopted a revised approach to 

requests for authority to conduct 

production activity that incorporates a 

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standard notification process designed 

to take no more than 120 days 

(including a 40-day comment period). 

However, the revised approach also 

retains the full application process 

delineated in the proposed regulations, 

which would apply to any notification 

that is determined to require further 

review, as set forth in § 400.37. Given 

that such applications will tend to 

involve complex or controversial 

circumstances, we have retained in this 

section an ordinary 12-month timeframe 

to process such applications. 

Based on changes to the subzone 

application requirements in response to 

comments received, we have also 

significantly modified the procedures 

for processing subzone applications. 

Those modified procedures are 

delineated in § 400.35. Based on the 

inherently less complex analysis 

associated with a single-user subzone 

proposal as compared with proposals to 

establish or expand general-purpose 

zones, § 400.35 sets forth simplified 

procedures designed to facilitate 

expedited processing of subzone 

applications. Expedited processing for 

subzone applications, like notifications 

for production authority, focuses on 

operations in existence or under 

construction that are or will be engaged 

in international trade-related activities. 

Establishing and reorganizing zones 

under the ASF similarly enables 

grantees to gain quick, simple access to 

FTZ procedures for operations actually 

engaged in such activities. In contrast, 

evidence indicates that other types of 

applications tend to be more speculative 

with regard to actual zone use. The 

procedures and timeframes contained in 

these regulations prioritize resources 

toward actual trade-related operations 

in order to maximize their positive 

competitiveness and employment 

impacts. 

We have not made other changes to 

this section to reflect comments 

received because the changes proposed 

would not improve the efficiency of the 

overall application process. In 

particular, we have retained the 

provision for discarding an application 

if corrections are not made within the 

allotted timeframe, because it is 

appropriate to eliminate the burden 

associated with returning applications 

as one element of optimizing resource 

use towards rapid processing of 

docketed applications. 

Section 400.32—Procedures for 

Docketing Applications and 

Commencement of Case Review 

Comments: Numerous commenters 

proposed changes which would: 

Provide that untimely comments would 

not be considered; limit the number of 

parties that may submit rebuttals; 

broaden references to the applicant to 

include zone participants; limit the 

timeframe within which hearings could 

be arranged to 60 days after the end of 

the initial comment period on an 

application; and modify the timeframe 

for CBP’s input on a pending 

application. One commenter proposed a 

reduction in the standard comment 

period for applications to either 15 days 

or 30 days, while another commenter 

proposed eliminating the public 

comment period for subzone 

applications. For any application for 

production authority involving a 

component subject to an AD/CVD order, 

one commenter proposed requiring the 

component be identified in the notice 

announcing review of the application, 

and that the applicant provide the 

names and addresses of each known 

U.S. producer of the component and 

send notice of the application to each 

such U.S. producer. Another commenter 

proposed that Federal Register notices 

announcing applications for production 

authority indicate the grantee of the 

zone and the nature of the activity but 

omit the identity of the zone user. 

Board position: As a result of the 

comments received, we have added a 

requirement that a Federal Register 

notice announcing an application for 

production authority include 

information regarding any component 

subject to a trade-related measure or 

proceeding (such as an AD/CVD order). 

However, we have not adopted the 

proposed requirement that applicants 

provide the names and addresses of 

each known U.S. producer of the 

component in question and to send 

notice of the application to each such 

U.S. producer. This approach creates 

transparency through the enhanced 

requirement for information in Federal 

Register notices without imposing the 

potentially significant new burdens 

associated with the other proposed 

requirements. We also have not adopted 

the proposal that Federal Register 

notices of proposed production 

authority omit the identity of the zone 

user because such identifying 

information can be useful to other 

parties that wish to gauge the potential 

competitive impacts of the proposed 

authority. 

We have not eliminated the public 

comment period on subzone 

applications, as proposed by one 

commenter. The ordinary procedure to 

designate a subzone, therefore, will 

differ in this regard from the procedure 

to designate usage-driven sites under 

the ASF (with the exception of 

situations under § 400.24(c) in which a 

site clearly eligible for usage-driven 

designation is instead being designated 

as a subzone based on the circumstances 

presented). Usage-driven sites can only 

be designated within a specific service 

area already authorized for the zone 

grantee through a Board process that 

includes a public comment period. 

However, in response to another 

comment, we have reduced the standard 

length of the comment period for 

subzone applications from 60 days to 40 

days (the same duration as comment 

periods on notifications for production 

authority pursuant to § 400.37). The 

standard length of comment periods on 

other types of applications remains 60 

days. The shorter comment period for 

subzone applications reflects the fact 

that these applications focus solely on 

designating the zone space needed for a 

single operation. Other types of 

applications inherently are broader in 

focus and, therefore, it is appropriate to 

allow additional time for the public to 

develop comments on such 

applications. In response to comments 

submitted, we have set the standard 

deadline for CBP comments on an 

application to match the end of the 

period for public comment; however, 

the wording of this provision reflects a 

recognition that additional time may be 

needed in exceptional circumstances. 

To help ensure the proper balance 

between the interests of applicants and 

the interests of parties potentially 

opposed to applications, we have not 

adopted the proposed limit on the types 

of parties that may submit rebuttal 

comments. For the same reason, we 

have revised this section to refer to the 

standard that applies to submitted 

comments under § 400.27(b), and to 

further clarify that new evidence, new 

factual information, and written 

arguments submitted by parties, other 

than the applicant, after the comment 

period will not be considered. As noted 

in this section, new evidence or 

information submitted by the applicant 

could trigger the (re)opening of a 

comment period. We also have not 

imposed a limit on the period of time 

during which a hearing may be 

arranged. Although the need for such a 

hearing is generally rare, it is 

appropriate for the Board to clearly 

retain the flexibility to arrange a hearing 

at any point in time regarding any 

matter pending before the Board. 

We have not adopted the proposed 

changes that would broaden references 

to the applicant to include zone 

participants. Such changes would 

inappropriately shift the emphasis away 

from the applicant. Further, for a given 

application, the number of zone 

participants could be significant (for 

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example, if the zone operator that is the 

subject of the application has a 

significant number of users). Therefore, 

the number of parties that would be 

involved in the process as a result of the 

proposed changes could represent an 

exponential increase in burden on the 

Board staff without necessarily leading 

to an improved outcome. Any applicant 

remains free to coordinate with zone 

participants on the matters addressed in 

this section. 

Section 400.33—Examiner’s Review— 

Application To Establish or Modify a 

Zone 

Comments: Numerous commenters 

proposed reducing the timeframe for an 

examiner’s development of a report and 

recommendations from 120 days to 60 

days after the close of the comment 

period and removing explicit allowance 

for further comments from the CBP port 

director, when necessary. 

Board position: In general, we have 

not adopted the proposed reduction in 

the timeframe for an examiner to 

develop a report and recommendations. 

Rather, in concert with changes to the 

timeframes for action on applications 

involving production authority, we have 

set the timeframe for development of the 

examiner’s report/recommendations at 

150 days (with the exception of 

reorganizations of zones under the ASF, 

for which we are setting the timeframe 

at 75 days in recognition of the 

generally simpler analysis involved and 

the greater potential for direct positive 

effects resulting from approval). The 

overall impact of adjustments to this 

section is to generally maintain the prior 

overall 10-month standard timeframe to 

process the cases subject to this section 

(with a general 75-day reduction in that 

timeframe for ASF reorganizations). As 

noted above in response to comments 

on § 400.31, this approach reflects a 

necessary prioritization of overall 

resources towards cases involving 

production authority and subzone 

designation, or which would facilitate 

future usage-driven designations, all of 

which tend to involve more significant 

direct positive competitiveness and 

employment effects. 

We have retained explicit allowance 

for further comments from CBP because 

such a step may be warranted in certain 

cases. In that context, we believe that it 

is important to include a specific 

provision addressing that procedure 

(although the Board’s broad, general 

authority would allow for such a step to 

be taken, when necessary, even in the 

absence of a specific regulatory 

provision). 

Section 400.34—Examiner’s Review— 

Application for Production Authority 

Comments: Numerous commenters 

proposed the following changes to 

§ 400.34(a): Reducing the general 

timeframe for an examiner’s 

development of a report and 

recommendations from 150 days to 75 

days after the close of the comment 

period; adding language regarding 

taking into account consistency with 

prior decisions; and replacing provision 

for industry surveys with language 

regarding conduct of independent and 

objective research. For § 400.34(b), those 

commenters proposed the following 

changes: Deleting the reference to 

ongoing activity in § 400.34(b)(1); 

adding a sentence from prior regulations 

regarding the process by which the net 

economic effect is determined; and 

adding language stating the objective of 

preventing competitive disadvantages 

between companies in the same 

industry as a result of Board actions. 

One commenter stated that the Board 

should reject changes proposed by other 

commenters that would skew the 

application process in favor of 

applicants for production authority. 

Board position: We have not reduced 

the general timeframe for development 

of an examiner’s report and 

recommendations consistent with the 

revised approach to proposed 

production authority established in 

§ 400.14(a). Under that approach, 

applications subject to this section will 

involve circumstances that have been 

determined to warrant further review. 

Such applications will tend to be 

complex or controversial in nature. In 

that context, reducing our proposed 

standard timeframes would be 

inappropriate. Further, we have 

explicitly noted that certain 

circumstances (such as when the 

applicant or another party has obtained 

a time extension for a particular 

procedural step) may result in the 

processing of the application extending 

beyond the ordinary timeframe. 

We have revised the provision on 

requests to parties for additional 

information to emphasize its broad 

potential reach, depending on the 

circumstances of an individual case. We 

have also broadened the provision to 

allow both industry surveys and 

industry research to be used as tools in 

evaluating potential impacts of 

proposed production activity. We have 

not stated that research or surveys 

would be independent and objective, 

because those qualities inherently are 

objectives for all of the work carried out 

by the Board and its staff. Nor have we 

referenced consistency with prior Board 

decisions, because such language could 

create a mistaken impression that the 

situation within a given industry 

inherently remains static over time. For 

similar reasons, we have not referred to 

potential competitive disadvantages as a 

result of Board actions, because the 

language of the proposed rule already 

contains an adequate provision 

establishing that prior decisions would 

be considered. We have retained the 

reference to ‘‘ongoing activity’’ because 

the provisions of this section may at 

times be used for reviews of ongoing 

activity. Finally, we have not adopted 

the suggested reinsertion of a sentence 

from the prior regulations regarding the 

process of determining the net economic 

effect. That sentence was intentionally 

removed in the proposed rule because 

we believe that weighing positive and 

negative effects is inherent in the 

definition of a ‘‘net’’ economic effect, 

thereby rendering the suggested 

sentence superfluous. 

Sections 400.33 and 400.34— 

Examiner’s Reviews of Applications 

Comments: For both §§ 400.33 and 

400.34, numerous commenters proposed 

the following changes: Broadening 

references to the applicant to include 

zone participants; allowing requests to 

extend the period for response to a 

preliminary negative recommendation, 

with such an extension not 

unreasonably withheld; and removing 

explicit allowance for notice and public 

comment on preliminary 

recommendations. 

Board position: We have modified 

§§ 400.33 and 400.34 to allow an 

applicant to request extensions of the 

period of time to respond to a 

preliminary negative recommendation, 

with such extensions not unreasonably 

withheld. We have continued to allow 

notice and public comment on 

preliminary recommendations because 

such a step may be warranted in certain 

cases. In that context, we believe that it 

is important to include specific 

provisions addressing such allowance 

(although the Board’s broad, general 

authority would allow for such a step to 

be taken, when necessary, even in the 

absence of specific regulatory 

provisions). 

We have not adopted the proposed 

changes that would broaden references 

to the applicant to include zone 

participants. Such changes would 

inappropriately shift the emphasis away 

from the applicant. Further, for a given 

application, the number of zone 

participants could be significant (for 

example, if an affected zone operator 

has a significant number of users). 

Therefore, the number of parties that 

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would be involved in the process as a 

result of the proposed changes could 

represent an exponential increase that 

would create new burden without 

necessarily providing for an improved 

outcome. Any applicant remains free to 

coordinate with zone participants on the 

matters addressed in this section. 

Section 400.36—Completion of Case 

Review 

Comments: Numerous commenters 

proposed the following changes: Adding 

a deadline for CBP headquarters to 

concur with proposed Board actions, 

and to assume concurrence if it is not 

received by the deadline; notifying the 

grantee and directly affected zone 

participants and allowing for a meeting 

request if a Board decision is not 

favorable, or if the Board is not able to 

reach a unanimous decision; adding a 

reference to affected zone participant for 

failure to timely provide necessary 

information; allowing an extension of 

the period to provide necessary 

information when requested by the 

applicant or an affected zone 

participant, with such an extension not 

unreasonably withheld; deleting the 

provision allowing for termination of 

review if the Board is unable to reach a 

unanimous decision; when 

circumstances presented in an 

application are no longer applicable, 

limiting termination to situations where 

the applicant or an affected zone 

participant has notified the Board; and 

confirming termination of review in 

writing to the applicant and affected 

zone participant. Several commenters 

indicated that the applicant should 

always be notified (in writing) of the 

intent to terminate a review, with 30 

days allowed for a response from the 

applicant. One commenter also stated 

that the term ‘‘material change’’ should 

either be defined or deleted. One 

commenter indicated that it did not 

understand the reason for allowing the 

review of an application to be 

terminated and, in particular, where the 

Board is unable to reach a unanimous 

decision. 

Board position: In response to these 

comments, we have added a specific 

timeframe for CBP headquarters to 

provide its comments on applications to 

the Board. We have not adopted the 

proposal for CBP headquarters’ 

concurrence to be assumed after 30 days 

have elapsed. There is no evidence of 

any actual need for that suggested 

provision. 

The Board may only approve an 

application for Board action on a 

unanimous decision of the Board’s 

members. If the Board is unable to reach 

a unanimous decision, approval is not 

possible. In those circumstances, it is 

more appropriate to terminate the 

review of the application than to 

maintain the application as technically 

pending before the Board. Similarly, if 

the overall circumstances presented in 

an application no longer exist as a result 

of a material change (e.g., when the zone 

participant on whose behalf the 

application was submitted has 

subsequently vacated the facility), it 

would not be appropriate for the Board 

to consider approving the application. 

Therefore, if the applicant does not opt 

to withdraw the application, it would be 

appropriate to terminate the review of 

the application. For these reasons we 

have maintained the proposed 

provisions pertaining to such 

termination actions, but we have 

adopted certain changes to the language 

of this section in response to comments 

submitted. 

Based on comments submitted, we 

have included a provision requiring 

notification to the applicant and 

allowing for a meeting at the request of 

the applicant if the Board is not able to 

reach a unanimous decision. That 

provision accords basic procedural 

rights in such a circumstance. However, 

we have not extended that provision to 

cover unfavorable decisions by the 

Board because §§ 400.33–400.35 already 

include procedural rights for the 

applicant in that circumstance (i.e., 

when a case examiner has made an 

unfavorable recommendation on which 

the Board will be basing a decision). We 

have also retained the requirement that 

an applicant be notified of the Board’s 

intent to terminate a review, clarified 

that such notification would be in 

writing, and continued to allow a 30- 

day period for a response. We also have 

adopted the substance of suggested 

changes pertaining to allowances for 

extending the period to provide 

necessary information and for 

confirming termination of a review in 

writing to the applicant. 

We have not extended the provisions 

of this section to apply to zone 

participants because, as noted in 

response to comments on § 400.33, such 

changes would inappropriately shift the 

emphasis of the Board’s procedures 

away from the applicant. Further, for a 

given application, the number of zone 

participants could be significant. 

Therefore, the number of parties that 

would be involved in the process as a 

result of the proposed changes could 

increase exponentially and create 

substantial new burden without 

necessarily providing for an improved 

outcome. Any applicant remains free to 

coordinate with zone participants on the 

matters addressed in this section. 

Based on a public comment, we have 

also delegated authority to the Executive 

Secretary to approve applications for 

subzone designation. However, we have 

limited that delegation to the 

circumstance where an approved 

subzone will be subject to the overall 

activation limit for the sponsoring zone 

as established by prior Board action 

(with certain language also added to 

§ 400.24(d) specific to the establishment 

or modification of such activation 

limits). That limitation reflects the FTZ 

Act’s requirement that ‘‘[a]ny expansion 

of the area of an established zone shall 

be made and approved in the same 

manner as an original application.’’ The 

meaning of the term ‘‘zone’’ in the FTZ 

Act is the physical space in which zone 

procedures are in use. For example, 

‘‘[f]oreign and domestic merchandise 

* * * may, without being subject to the 

customs laws of the United States * * * 

be brought into a zone and may be 

stored * * * and be exported, 

destroyed, or sent into customs territory 

of the United States therefrom * * * but 

when foreign merchandise is so sent 

from a zone into customs territory of the 

United States it shall be subject to the 

laws and regulations of the United 

States affecting imported merchandise’’ 

(section 3 of the Act, 19 U.S.C. 81c). 

Given the separation in the 1970s of the 

FTZ Board zone-site designation process 

from the U.S. Customs Service (now 

CBP) process of activating portions of 

designated zone sites, the term ‘‘zone’’ 

as used in the FTZ Act now only applies 

to physical space that has been both 

designated and activated. In that 

context, designating a subzone would 

only require action by the Board if the 

subzone were not subject to an existing 

Board limit on the amount of space that 

could be activated (i.e., used as a ‘‘zone’’ 

under the FTZ Act) within the zone in 

question. It should be noted that a 

similar analysis of the significance of 

the term ‘‘zone’’ in the FTZ Act was a 

basis for the FTZ Board’s adoption of 

the ASF in 2008. The ASF allows 

designation of additional sites for 

specific operators/users without Board 

action provided that the additional sites 

will remain subject to a specific limit set 

by the Board on the overall amount of 

space that can be activated (thereby 

preserving the Board-approved ‘‘area’’ 

that functions as a ‘‘zone’’). 

Finally, the Board received a number 

of comments pertaining to various 

sections of the regulations indicating 

that existing processes and distinctions 

between types of zone sites may not 

constitute the most efficient and 

effective mechanism for facilitating zone 

use. As noted in our response to 

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comments on § 400.11, a streamlining of 

the existing site-designation frameworks 

is a matter that the Board plans to 

address in a subsequent proposed rule. 

Section 400.38—Procedure for 

Application for Minor Modification of 

Zone 

Comments: Numerous commenters 

proposed that, when the CBP port 

director’s concurrence does not 

accompany a request for a minor 

modification, the Executive Secretary 

should notify the port director of the 

request, and 15 days should be allowed 

for the port director’s concurrence. One 

commenter stated that the 20-day 

timeframe for CBP port directors’ 

reports provided in the prior regulations 

(15 CFR 400.27(f)(2)) should be 

maintained. 

Board position: In response to these 

comments, we have incorporated a 

specific timeframe for CBP input on 

requests (i.e., the 20-day period 

provided in the prior regulations). In 

addition, in this section and similar 

sections, we have used the general term 

‘‘comments’’ in place of the more 

specific terms ‘‘concurrence’’ or 

‘‘report’’ to reflect that any CBP input 

pertaining to a request may vary in 

nature and scope depending on the type 

of request and the specific 

circumstances involved. 

Section 400.41—General Operation of 

Zones; Requirements for 

Commencement of Operations 

Comments: Numerous commenters 

proposed the following revisions to this 

section: Changing the requirement for a 

grantee’s approval for activation to a 

requirement for the grantee’s 

concurrence; removing the reference to 

the grantee from the requirement that 

permits be obtained from governmental 

authorities; adding a reference to 

administrators; and removing the 

reference to CBP port directors due to 

those commenters’ proposed creation of 

a separate section specific to the port 

director’s role as a representative of the 

Board. 

Board position: This section now 

combines proposed § 400.41 

(‘‘Operation of zones; general’’) and 

proposed § 400.44 (‘‘Requirements for 

commencement of operations in a 

zone’’). Combining the two sections 

does not affect the substance of the 

provisions contained therein. Regarding 

changes proposed by commenters, we 

have not added a reference to 

administrators in this section. Although 

a grantee may engage a third party to 

conduct certain functions on its behalf, 

it remains the grantee’s responsibility to 

ensure that the reasonable zone needs of 

the business community are served by 

the grantee’s zone. We have modified 

this section to indicate that a grantee 

may either approve or concur on 

activation. That change is consistent 

with other regulations pertaining to the 

activation process. We have eliminated 

the reference to the grantee’s obtaining 

permits because meeting any 

requirements concerning activity in a 

given zone operation should be the 

direct responsibility of the operator. We 

have retained the reference to the role 

of CBP because it usefully reinforces the 

language of new § 400.7. 

Section 400.42—Operation as Public 

Utility 

Comments: Numerous commenters 

expressed concerns about what they 

characterize as significant new 

requirements in proposed § 400.42, 

indicating that the requirements would 

demand additional staffing and funding 

at grantee organizations at a time when 

such resources are scarce, and that the 

requirements could lead to grantees’ 

relinquishing their roles due to the 

added burden. Those commenters 

proposed the following specific 

changes: using the phrase ‘‘public utility 

principles’’ to clarify that zones are not 

public utilities; deleting the word 

‘‘agent’’ in general; adding the word 

‘‘administrator’’ in several contexts; 

removing language indicating that 

grantees’ fees recover costs incurred by 

those grantees; removing a requirement 

that any cost passed on to a zone 

participant based on a function that a 

grantee contracts to a third party must 

be based on going rates for such a 

function; and removing a requirement 

for fees to be paid directly to grantees 

(or public entities). 

One commenter indicated that greater 

specificity on the public utility 

requirement was overdue and essential. 

One commenter agreed that rates and 

charges should be fair and reasonable 

and based on costs incurred by the 

grantee in the administration of the 

zone. One commenter stated that return 

on investment should be able to take 

into account past subsidies that an 

economic development organization 

provided to keep a zone active and 

viable. 

One commenter stated that proposed 

§ 400.42 appears to impose excessive 

burden and give rise to an inordinate 

amount of scrutiny over the internal 

management of a zone, and that each 

grantee should be allowed to operate in 

a way that best suits its zone. Another 

commenter stated that the regulations 

cite public utility as the basis for 

proposed changes, but that the FTZ 

program today is very different from the 

time when Congress originally 

envisioned the program (when the 

public utility concept made sense). The 

commenter stated that the proposed 

section takes away from grantees the 

authority to develop zone financing 

plans, that the Board should not try to 

take such authority away from grantees, 

and that a zone should be paid for by 

its users. That commenter also stated 

that the proposed regulations assume 

that zone users themselves must be 

allowed to act as operators, but that the 

assumption is not balanced against the 

interests of the grantee. 

Addressing the proposed requirement 

that fees and penalties related to grantee 

functions be payable only to a zone’s 

grantee (or a public agency under 

contractual arrangement), certain 

commenters stated that the provision 

should allow payment to private nonprofit organizations under contractual 

arrangement, or to an ‘‘administrator’’ 

engaged by a grantee. Addressing the 

payment of fees and penalties to a 

zone’s administrator, certain 

commenters stated that such an 

arrangement reduces a grantee’s burden, 

provides incentive to the zone’s 

administrator, and allows for provision 

of technical help to users. Those 

commenters concluded that precluding 

the payment of fees and penalties to an 

administrator needlessly intrudes on a 

grantee’s management of its zone. One 

commenter stated that the changes 

proposed in § 400.42 would do more 

harm than good. 

Additionally, one commenter 

proposed stating that each zone be 

operated as a public utility, and that the 

referenced rates and charges are specific 

to zone use and must be uniform. The 

same commenter indicated that there 

are many formulas that a grantee should 

be able to use to develop its fees, that 

basing fees on the benefits derived by a 

user should be an acceptable formula, 

and that there is no basis for authorizing 

the Board to decide which formula(s) 

are correct. 

One commenter disagreed with the 

proposed approach in § 400.42, stating 

that it is contrary to Executive Order 

12866, which requires agencies to assess 

available alternatives to regulations, and 

that the proposal would require grantees 

to establish rates based only on costs 

without taking into account funding 

sources available. The commenter stated 

that the provision would reduce a 

grantee’s flexibility to set up an 

independent rate structure based on the 

area’s economic development strategy. 

That commenter recommended giving 

grantees the flexibility to establish rate 

structures allowing distinct rates for 

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pilot projects, target industries, or 

differing types of zone operations. 

Regarding a grantee’s development of 

its fees, one commenter suggested that 

the Board provide clearer guidance on 

the time period over which costs could 

be recovered and how often the grantee 

would need to recalculate its fees. It 

specifically suggested allowing the 

grantee to recalculate fees at five-year 

intervals. The commenter proposed 

applying the ‘‘going rate’’ standard only 

to administrative service contracts due 

to difficulties in determining going rates 

for occasional, more specialized 

activities or functions. That commenter 

also sought Board guidance on 

acceptable methods for apportioning 

costs across users, noting that various 

grantees currently appear to use 

differing methods. The same commenter 

proposed that a grantee be allowed to 

discount its fees based on a range of 

circumstances, as long as the criteria for 

such discounts were published in the 

grantee’s zone schedule and applied 

uniformly. 

In response to other comments, one 

commenter stated that technical or other 

services are sometimes included or 

bundled into the fees paid by a zone 

user, that such services carry a real cost 

and that zone users should not, in effect, 

be required to contract with a particular 

technical expert in order to be able to 

operate within a zone. 

Board position: We have made a 

number of revisions to this section 

based on public comments. We have 

retained the language stating that ‘‘each 

zone shall be operated as a public 

utility’’ because that language was 

drawn verbatim from the FTZ Act. We 

have also slightly modified the 

remainder of the sentence following the 

reference to the public utility 

requirement, so it now is also drawn 

verbatim from the FTZ Act. 

In addition, in response to comments 

on uniform treatment and related issues, 

and the comment that zone users should 

not effectively be required to contract 

with a particular technical expert, we 

have stated that users may not be 

required to use or pay for a particular 

provider’s zone-related products or 

services. Any effective requirement for a 

user to pay for additional products or 

services in order to be permitted to use 

the zone would be inconsistent with the 

principles associated with the Act’s 

public utility requirement. This bar 

extends both to a direct requirement to 

procure a product or service and to an 

indirect requirement for such 

procurement (e.g., through including 

costs associated with the availability of 

technical expertise as part of the zone’s 

mandatory fees, or through favorable 

treatment given by, or on behalf of, the 

grantee to purchasers of a product/ 

service from a particular vendor). 

In response to the comment claiming 

that the evolution of the FTZ program 

has made the public utility concept less 

relevant, it is important to emphasize 

that the law continues to require that 

‘‘[e]ach zone shall be operated as a 

public utility’’ (section 14 of the Act, 19 

U.S.C. 81n); the Board has no discretion 

to authorize the operation of the 

program in a manner inconsistent with 

that requirement. The Board has never 

been a ‘‘rate making’’ agency (i.e., it 

does not try to set specific fees of 

individual grantees). However, given the 

public utility requirement of the Act 

and grantees’ specific requests for 

guidance on the implications of that 

requirement, it is appropriate to 

delineate in the regulations the general 

principles embodied in the requirement. 

We have modified the provision on 

recovery of costs through fees to clarify 

that fees may be imposed to recover 

costs, but that a grantee is not obligated 

to impose fees to recover its costs. The 

public utility requirement has the effect 

of setting a ceiling on grantees’ fees at 

a general level that allows for recovery 

of costs associated with the grantee 

function plus a reasonable return on 

investment but not monopoly profittaking (by the grantee or by a party 

contracted by the grantee for a zonerelated function). The public utility 

requirement in no way mandates that a 

grantee collect fees for all or part of the 

costs associated with the grantee 

function if the grantee would prefer to 

subsidize that function or has alternate 

funding sources available to defray 

those costs. 

Because cost recovery is at the heart 

of the public utility concept, we have 

retained the prohibition on a grantee’s 

basing its fees on the benefits derived by 

those who make use of the zone. The 

public utility concept is inherently 

driven by the sponsoring organization’s 

being able to recover the costs it incurs 

in making the zone available to users 

through fees paid by those users. Basing 

users fees on the level of benefit those 

users derive from the program is an 

entirely different model that is not 

inherently cost-based, and that is 

inconsistent with the Act’s public utility 

requirement. 

Certain commenters raised the issue 

of acceptable methods for a grantee to 

apportion costs to different categories of 

users. The Act’s requirement that a 

grantee afford users uniform treatment 

under like conditions can also have 

implications for the apportionment of 

costs. Based on the public utility and 

uniform treatment requirements, a 

grantee may legitimately establish 

different levels of fees for (i.e., 

apportion costs differently to) different 

categories of zone participants based on 

certain criteria (e.g., an operator’s square 

footage of activated FTZ space, the 

value of the operator’s merchandise 

admitted to the zone in a given year, 

whether the operator qualifies as a small 

business under Small Business 

Administration (SBA) criteria, or 

whether the operator is in an industry 

sector targeted for attraction based on 

community economic development 

plans) so long as the criteria are applied 

uniformly to each zone participant, and 

the resulting fee structure is published 

in the grantee’s zone schedule (see 

§ 400.44). However, consistent with the 

provision that ‘‘zone participants shall 

not be required (either directly or 

indirectly) to utilize or pay for a 

particular provider’s zone-related 

products or services,’’ different fees may 

not be applied to zone participants by 

(or on behalf of) a grantee based on 

whether a given zone participant has 

engaged a particular third party to 

provide FTZ-related services. Applying 

different fees on that basis would 

effectively require zone participants to 

procure products or services from a 

particular third party in order to qualify 

for a lower fee imposed by (or on behalf 

of) the grantee, which would be 

inconsistent with the principles 

established in section 3 of the Act (19 

U.S.C. 81n). Within a legitimately 

differentiated category of zone 

participants (e.g., those that qualify as 

small businesses under SBA criteria), a 

single level of fee(s) must be applied. 

In response to comments, we have 

removed references to ‘‘agent’’ in this 

section but have not incorporated 

certain commenters’ proposed 

references to ‘‘administrator.’’ Instead, 

where appropriate, we have simply 

mentioned that certain actions can be 

performed ‘‘on behalf of’’ a grantee. We 

also have removed both the requirement 

that third party costs passed on to zone 

participants be based on going rates, and 

the requirement for fees to be paid 

directly to grantees (or public entities). 

Both of those requirements were 

intended to bolster enforcement of the 

public utility requirement, but they do 

not represent the least burdensome 

means to accomplish the Board’s policy 

goals. Combined with provisions such 

as § 400.45, which allows complaints 

pertaining to public utility, this section 

should be sufficient to ensure 

compliance with that the Act’s public 

utility requirement. 

We agree with commenters that return 

on investment may take into account 

past subsidies that a grantee provided to 

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sustain its zone. It does not seem 

appropriate to delineate a specific 

maximum period of time for cost 

recovery. Only one comment suggested 

a specific time period, and specifying a 

period in a regulation could affect a 

large number of grantees (the vast 

majority of which have not addressed 

this point). However, the five-year 

interval proposed by one grantee for 

recalculating its fees (which could 

include recapturing prior subsidies by 

the grantee to sustain the zone over that 

five-year period) is one reasonable 

approach. The fees in the resulting zone 

schedule could incorporate the recovery 

of costs incurred over the five-year 

period in question. 

Finally, contrary to one commenter’s 

assertion, the proposed regulations were 

not based on an assumption that zone 

users must be allowed to operate for 

themselves (rather than leaving the 

possibility open for the grantee to serve 

as operator). However, multiple 

comments on § 400.43 proposed 

providing potential and existing users 

the right to operate their own zone sites 

directly or through one or more 

contractors. We believe that this issue is 

properly within the realm of the Act’s 

public utility requirement but, because 

it was not directly addressed in the 

proposed rule and is of potential 

interest to numerous parties, the Board 

intends to address it through a 

subsequent rule. 

Section 400.43—Uniform Treatment 

Comments: Numerous commenters 

supported the general concept of 

uniform treatment delineated in 

§ 400.43, but expressed concerns about 

negative impacts that would result from 

specific provisions (especially the 

preclusion of conflicts of interest in 

§ 400.43(e)). They perceived, inter alia, 

that grantees’ ability to obtain needed 

zone-related advice and services would 

be adversely affected. Those 

commenters proposed an alternative 

approach that would require conflicted 

parties to disclose the conflict of interest 

and recuse themselves from decisions. 

The same commenters also proposed the 

following range of changes: adding the 

term ‘‘administrator’’ accompanying 

‘‘grantee;’’ stating that zone participants 

include only operators and users, with 

property owners treated as a distinct 

category; including the right to modify 

standard contractual terms and stating 

that those terms should be specific to 

zone participation; replacing the 

requirement for standard contractual 

provisions to be included in a grantee’s 

zone schedule with a requirement that 

standard provisions be provided to the 

public and the Board on request; 

modifying the provision on neutral 

criteria to be applied by grantees in 

evaluating proposals for FTZ 

sponsorship; adding that users may not 

be required to use or pay for zonerelated products or services that they do 

not elect to procure; and allowing 

potential and existing users the right to 

operate their own zone sites directly or 

through one or more contractors. Two 

commenters stated that a grantee should 

not be forced to sponsor any project 

proposed for its zone. One commenter 

indicated a need for authority or a 

directive to require modification of 

operators’ agreements that would be 

non-compliant under proposed § 400.43. 

One commenter stated that 

regulations directing how a grantee 

manages services associated with its 

zone are likely to be counterproductive 

at both the local and national level. That 

commenter proposed revisions 

including that, in a given zone, there 

could not be a requirement that zone 

participants purchase zone-related 

services (such as inventory control 

systems, application preparation, or 

customs-related brokerage or consulting) 

from the zone’s administrator or any 

other specific party. Another commenter 

stated that proposed § 400.43 appears to 

impose excessive burden and create 

inordinate scrutiny of the internal 

management of a zone, and that each 

grantee should be allowed to operate in 

a way that best suits its zone. 

Two commenters stated that the 

regulations should continue to allow 

operator’s agreements between the 

operator and the zone’s administrator, 

with one commenter indicating that this 

existing type of arrangement can be 

more responsive to operators’ needs 

when the grantee is a public agency 

with inherently time-consuming 

internal processes. One commenter 

indicated that the regulations should 

not preclude payment of fees to the 

zone’s administrator rather than the 

grantee, stating that a public agency may 

prefer not to mingle zone-related fees 

with broader public finances. 

One commenter stated that the 

Board’s approach in § 400.43 reflects a 

failure to enforce existing law and 

punish wrongdoers, with the Board 

instead proposing to deny numerous 

rights and protections embodied in law 

and equity through an approach that is 

discriminatory, arbitrary and capricious. 

The commenter further states that 

§ 400.43 contravenes the FTZ Act, 

claiming that the FTZ Act requires the 

Board to provide ‘‘uniform treatment’’ to 

those who ‘‘participate in’’ a zone. The 

commenter also states that the proposed 

provision would have a negative impact 

on the entire FTZ program. 

One commenter stated that the 

proposed approach to uniform treatment 

ignores the positive role that third-party 

expertise has played in the success of 

various zones, and instead proposes allencompassing mandates that would 

cripple grantees’ abilities to adjust to 

local circumstances. Another 

commenter proposed to address uniform 

treatment by simply requiring contracts 

include a stipulation that all 

participants will be treated fairly and 

equally under the uniform treatment 

and public utility requirements of the 

FTZ Act. 

One commenter stated that many 

grantees may not currently have 

evaluation criteria for reviewing FTZ 

proposals, and that the subsection on 

neutral criteria for evaluating proposals 

would seem to require grantees to 

develop such criteria, creating a burden 

that is unnecessary given other 

protections proposed in § 400.43, and 

also creating potential additional risks 

or liability for grantees. 

One commenter supported the 

enhanced enforcement provisions 

proposed in this section but stated that 

the Board should not limit the conflictof-interest preclusion to the proposed 

list of grantee functions. 

Board position: The FTZ Act 

establishes a core requirement that a 

zone grantee afford ‘‘uniform treatment 

under like conditions’’ to zone 

participants. Therefore, a grantee may 

not manage its zone in any manner that 

it chooses. Management of a zone is 

constrained by the uniform treatment 

requirement (as well as other 

requirements of the Act, such as to 

operate the zone as a public utility). 

Given that grantees must comply with 

the law, it is beneficial to grantees for 

the Board’s regulations to provide detail 

regarding the operational implications 

of the FTZ Act’s requirements. 

Nevertheless, in response to comments 

submitted, we have simplified this 

section and removed several provisions. 

This section establishes requirements 

for (1) the application of uniform 

treatment in the evaluation of proposals 

from zone participants by grantees (and 

other parties acting on behalf of 

grantees, where applicable), in 

§ 400.43(b), and (2) justification for any 

differing treatment afforded, in 

§ 400.43(c). The range of functions 

targeted in proposed § 400.43(e) has 

been narrowed, and the provision has 

also been supplemented by allowing the 

Board to authorize waivers (see 

discussion below specific to adopted 

§ 400.43(d) and in response to several 

additional comments). Therefore, as 

adopted, this section substantively 

addresses the concerns expressed about 

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potential impacts on the ability of 

grantees or zone participants to procure 

zone-related services while maintaining 

safeguards to ensure the integrity of the 

FTZ program. 

In response to multiple commenters’ 

proposals that the regulations state that 

users may not be required to use or pay 

for zone-related products or services 

that they do not elect to procure, we 

have inserted a new final sentence in 

§ 400.42(a). We have also reinforced that 

principle by stating that treatment of a 

zone participant may not vary 

depending on whether the zone 

participant has procured any particular 

product or service, including from a 

particular supplier. In response to a 

comment, we have eliminated the 

requirement that a grantee apply neutral 

criteria in evaluating proposals from 

zone participants. The requirement 

seemed to imply that each grantee must 

establish such criteria, but many 

grantees in fact may not currently have 

specific criteria they apply. Developing 

those criteria would create a significant 

burden for grantees. Rather than impose 

such a new requirement on grantees, our 

revised approach focuses on gauging 

performance rather than dictating 

behavior. 

We also have eliminated the 

requirement that agreements be made 

solely with the zone’s grantee. That 

proposed provision would have affected 

a number of existing contractual 

arrangements and increased burden on 

a number of zone grantees. The 

provision did not represent the least 

burdensome means to accomplishing 

the Board’s policy objectives. In concert 

with changes made elsewhere in these 

regulations, we also have substituted a 

reference to ‘‘any person undertaking a 

zone-related function(s) on behalf of the 

grantee’’ for the term ‘‘agent’’ in 

§ 400.43(h). 

We have retained the requirements for 

agreements to be made in writing. 

Evidence indicates that the vast majority 

of agreements between zone grantees 

and zone participants are already in 

writing, but a limited number of 

examples of purely oral agreements 

exist. The Board’s ability to gauge the 

uniformity of treatment afforded by a 

grantee depends on agreements being in 

writing. This provision as adopted will 

also establish a foundation for enabling 

the Board to consider proposing in a 

subsequent rule a requirement that a 

grantee disclose to a zone participant 

contractual provisions concluded with 

other zone participants that differ from 

the provisions in effect or being offered 

to the zone participant in question. 

As requested, we have retained the 

statement in § 400.43(b) that uniform 

treatment does not require acceptance of 

all proposals by zone participants. That 

subsection also requires that the bases 

for a grantee’s decision on a proposal 

must be consistent with the uniform 

treatment requirement. However, we 

have not adopted in this section and in 

the definition section (at § 400.2(x)) 

commenters’ proposed limitation of the 

term zone participant to exclude 

property owners. Given the role of the 

grantee (and other party acting on behalf 

of the grantee, where applicable) in 

evaluating proposals from property 

owners for participation in a zone, 

uniformity of treatment under like 

conditions should not be limited to zone 

operators and zone users. 

Comment: Regarding the proposed 

requirement for a grantee to have 

standard contractual provisions that if 

offers to zone participants, one 

commenter stated that a grantee should 

have some limited latitude to change 

standard contract provisions through 

negotiation with individual zone 

participants and should make all 

participants aware of the provisions for 

which the grantee is willing to make 

changes. The commenter also stated that 

Board guidance would be helpful 

regarding which types of provisions 

should not be subject to negotiation. 

Board position: We have eliminated 

the requirement for a grantee to have 

standard contractual provisions because 

of the new burden that it could create 

for a number of grantees. Further, 

grantee negotiations with zone 

participants regarding contractual 

provisions are commonplace, with the 

provisions of actual contracts often 

diverging in some manner from the 

standard provisions offered to zone 

participants. That divergence reflects 

the reality of the business environment, 

but also renders pointless a requirement 

for grantees to offer standard contractual 

provisions. As noted above, the Board 

will instead consider proposing in a 

subsequent rule a requirement that 

grantees disclose to zone participants 

contractual provisions concluded with 

other zone participants that differ from 

the provisions in effect or being offered 

to the zone participant in question. That 

requirement would be targeted directly 

to the disclosure of actual differences in 

treatment afforded to zone participants, 

thereby enabling them to evaluate 

whether a grantee’s contracting 

practices violate the uniform treatment 

requirements of the FTZ Act and of 

these regulations. 

400.43(d)—Avoidance of Non-Uniform 

Treatment 

Comments: Numerous commenters 

opposed the proposed provisions in 

§ 400.43(e) (‘‘preclusion of conflicts of 

interest’’) for reasons including: Likely 

reduction or elimination of grantees’ 

ability to obtain needed professional 

advice and assistance; causing more 

harm than good; the Board should 

establish principles rather than attempt 

‘‘one-size-fits-all’’ solutions; zone users 

are capable of defending their own 

interests without government 

interference in the guise of protection 

that is not actually needed; the 

provisions would limit freedom of 

choice for users and have a negative 

impact on grantees’ operational costs 

and efficiencies; and the most talented 

and experienced experts would find 

representing users more lucrative than 

representing grantees, leaving grantees 

with either lower quality representation 

or higher costs to obtain quality 

representation. Certain commenters 

recommended that the Board find an 

alternative approach to ensuring 

uniform treatment. One of these 

commenters stated that legitimate 

concerns about uniform treatment 

should be addressed by stating clear 

performance objectives, with grantees 

and contractors given discretion as to 

how they meet those objectives. One 

commenter stated that this provision is 

not consistent with the basic regulatory 

philosophy and principles expressed in 

Executive Order 12866, which requires 

consideration of the costs to grantees 

and users, a focus on performance 

objectives rather than specific behavior, 

and narrow tailoring to impose the least 

burden. 

One commenter indicated that 

§ 400.43(e) was drafted too broadly and 

proposed an alternative approach in 

which the Board could review situations 

believed to be problematic and, after 

notice and appropriate due process, 

potentially restrict identified activities 

on a case-by-case basis. The commenter 

provided specific language that could be 

used to implement its approach. 

Another commenter stated that it 

generally supports the concept of 

preventing conflicts of interest, but 

expressed concern about the proposed 

provision’s putting grantees at a 

competitive disadvantage in obtaining 

needed professional services. The 

commenter recommended modifying 

this provision either to define the 

targeted conflicts of interest more 

precisely or to limit the provision’s 

effect to zones that have demonstrated 

actual uniform treatment problems 

(with the Board potentially reviewing 

zones’ performance of key functions to 

determine whether non-uniform 

treatment exists). Another commenter 

stated that the proposed preclusion of 

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conflicts of interest would 

unintentionally restrict business 

relationships that are not actually of 

concern to the Board. This commenter 

proposed a revised provision that would 

allow the Board to review situations that 

may be problematic, gather relevant 

facts after notice and appropriate due 

process, and then restrict particular 

activities on a case-by-case basis as 

warranted. 

One commenter stated that this 

provision appears to be overreaching 

and inconsistent with rules pertaining 

to conflicts of interest that already apply 

to attorneys, and could interfere with a 

party’s right to select counsel of its 

choice. The commenter proposed a 

replacement provision based on the 

principle of informed consent by both 

parties. Another commenter stated that 

this provision as written, in 

combination with the proposed 

definition of agent in § 400.2(b), could 

unintentionally preclude zone operators 

from providing zone-related services 

(such as handling of merchandise or 

inventory management) to zone 

participants. Another commenter stated 

that the proposed provision precluding 

conflicts of interest is excessive and 

would deny operators freedom of choice 

in contracting for outside services. 

In response to comments submitted, 

one commenter stated that zone users 

should not be forced, or feel implied 

pressure, to pay for consulting or expert 

services as a condition of participating 

in the federal FTZ program. 

Board position: In response to 

comments, we have removed from this 

subsection one of the originally targeted 

functions (‘‘collecting/evaluating annual 

report data from zone participants’’) and 

narrowed the focus of another of the 

targeted functions (now limited to 

‘‘taking action on behalf of a grantee, or 

making recommendations to a grantee, 

regarding the disposition of proposals or 

requests by zone participants pertaining 

to FTZ authority or activity (including 

activation by CBP)’’). To counterbalance 

the elimination of proposed 

§ 400.43(b)’s requirement for agreements 

to be made directly with grantees, we 

have added to this subsection the 

additional key function of ‘‘approving, 

or being a party to, a zone participant’s 

agreement with the grantee (or person 

acting on behalf of the grantee) 

pertaining to FTZ authority or activity 

(including activation by CBP).’’ 

Finally, in response to comments 

received, we have added new § 400.43(f) 

that will allow the Board to issue caseby-case waivers of the provision in 

§ 400.43(d) that bars certain categories 

of persons from performing certain key 

functions. This approach strikes an 

appropriate balance in order to avoid 

the types of broad, negative impacts 

projected by commenters while 

continuing to reflect the fact that a zone 

grantee often has a monopoly in its 

region for valuable access to the federal 

privilege of FTZ use (with zone 

participants reluctant to make uniform 

treatment-related complaints to the FTZ 

Board because of a perceived risk of 

jeopardizing key relationships with 

grantees or with third parties 

undertaking key functions on behalf of 

grantees). The adopted provision 

reflects the Board’s intended use of a 

standard format for applications for 

waivers, but also recognizes that the 

Board may need to ask follow-up 

questions before deciding on a given 

application (depending on the 

circumstances presented in the 

application). In considering whether to 

approve an individual application for a 

waiver, the Board will take into account 

the specific circumstances presented, 

and the Board will also impose 

conditions on individual waivers, as 

warranted. As raised by one commenter, 

a key factor the Board will consider is 

whether a grantee’s specific 

arrangement presents a significant risk 

that zone users will experience implied 

pressure to procure a particular private 

party’s services as a condition of 

obtaining access to the federal FTZ 

program. In total, the adopted 

provisions will allow the Board to 

respond to individual circumstances, 

and should avoid the ‘‘one-size-fits-all’’ 

impact about which some commenters 

expressed concern. 

Section 400.44—Zone Schedule 

Comments: Numerous commenters 

proposed the following revisions to this 

section: Eliminating the requirement for 

the zone schedule to be submitted to the 

CBP port director; including references 

to a zone’s administrator (where 

applicable); removing the name of the 

preparer from the zone schedule; 

eliminating the requirement for a 

grantee to make its zone schedule 

available on its Web site; and not 

allowing the Board to amend the 

requirements of this section by Board 

Order, if warranted. 

One commenter stated that the zone 

schedule should be required to include 

a summary of the grantee’s standard 

contractual provisions, but not to 

contain the grantee’s contract 

document(s). A number of commenters 

proposed eliminating the requirement 

for zone operators’ fees to be included 

in the zone schedule. One commenter 

recommended that grantees instead 

retain copies of their operators’ rates, 

charges and procedures and make them 

available to users on request. One 

commenter stated that a grantee’s fees 

for zone operations should be included 

in the zone schedule if the grantee is the 

operator of the zone. 

Another commenter expressed a 

concern about the potential impacts of 

requiring publication of zone schedules 

on the Internet. One commenter stated 

that it would be fair and reasonable for 

the Board to post all zone schedules on 

the Board’s Web site. One commenter 

supported both the requirement for a 

grantee to post its zone schedule on the 

grantee’s Web site and the provision for 

the Board to make zone schedules 

available on the Board’s Web site. 

Board position: We have eliminated 

the proposed requirement for a zone 

schedule to include a grantee’s standard 

contractual provisions, which was 

intended to help ensure that zone 

participants receive uniform treatment. 

These regulations adopt other measures 

designed to ensure uniform treatment 

that will not increase burden for all 

grantees (see, e.g., § 400.43), unlike the 

proposed requirement. We also have 

eliminated the requirement that a 

grantee make its zone schedule available 

on its Web site. The Board will instead 

make zone schedules available on its 

Web site, which should create 

transparency without placing a burden 

on each grantee to place its zone 

schedule on its own Web site. 

In response to the comments, we have 

eliminated the requirement for the zone 

schedule to be submitted to CBP. Any 

CBP official will be able to request a 

copy of a grantee’s zone schedule or 

access that zone schedule via the 

Internet, as needed. We have also 

eliminated the requirement to include 

the name of the preparer and have 

modified this section to allow for a zone 

schedule to contain information about 

any party that acts on behalf of the 

zone’s grantee. We have not included 

the proposed requirement that a zone 

schedule’s title page name a zone’s 

administrator. The list of required 

elements for the title page in no way 

prevents a grantee from including other 

information on the title page. The 

decision regarding whether additional 

information is appropriate for inclusion 

on the title page is left to the grantee’s 

judgment. 

We have retained the provision 

allowing the Board to amend the 

requirements of this section via Board 

Order, if warranted. Although it 

currently appears unlikely that the 

Board would need to amend the 

requirements, it is important for the 

Board to have the ability to do so more 

quickly than the rulemaking processes 

would allow, should the need arise. At 

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the same time, the Board intends that 

any such amendment would only be 

made after an appropriate opportunity 

for the public to comment. Separately, 

we have added a phrase to § 400.44(a) 

further clarifying that amendments to 

zone schedules will not be effective 

until submitted to the Executive 

Secretary. 

Finally, in response to a comment 

pertaining to the requirement for 

standard contractual provisions in 

proposed § 400.43, the Board intends to 

address through a subsequent rule 

potential mechanisms for a grantee to 

disclose to a zone participant 

substantive variations in contracted 

provisions. Such a provision would 

provide transparency in order to enable 

zone participants to assess whether 

uniform treatment had been afforded by 

the grantee, and should do so in manner 

that is less potentially problematic and 

burdensome than the proposed 

requirement that standard contractual 

provisions be published in zone 

schedules. 

Section 400.45—Complaints Related to 

Public Utility and Uniform Treatment 

Comments: Numerous commenters 

proposed requiring that affected 

grantees (and the grantee’s 

administrator, as applicable) receive 

information in a complaint and have an 

opportunity to respond. Those 

commenters also proposed adding a 

provision for the Board or the Executive 

Secretary to initiate a review for cause 

based on a claim that no such provision 

existed in the proposed regulations. The 

same commenters also proposed 

revising the first factor for reviews of 

fairness and reasonableness by replacing 

the reference to actual costs incurred 

with a reference to the methodology 

supporting the rates and charges. One 

commenter recommended that the 

Board not apply the second factor for 

reviews of fairness and reasonableness, 

which cites the rates at like zone 

operations at similarly situated zones, 

until (1) the Board has classified zones 

into categories that enable grantees to 

determine which other zones are 

similarly situated, and (2) grantees are 

able to review other grantees’ zone 

schedules once those schedules are 

made available on the Board’s Web site. 

One commenter stated that the right 

to due process requires that a complaint 

be disclosed to a party before any fine 

or ‘‘other consequence’’ could be 

imposed on that party as a result of the 

complaint. One commenter stated that 

allowing confidential complaints could 

lead to incorrect or misleading 

information being submitted to the 

Board without the affected grantee being 

able to counterbalance it or to prevent 

prejudicial conclusions from being 

reached. That commenter stated that the 

provision could lead to lawsuits or 

undermine transparency that the Board 

might be seeking to create. In response 

to other comments, one commenter 

expressed concern about allowing 

submission of confidential complaints 

and stated that due process should 

require that the target of a complaint be 

able to address the complaint before 

being subject to an unfavorable action. 

Board position: We have retained the 

proposed provision allowing for 

confidential complaints and have not 

added any requirement for the 

disclosure of such complaints. Given 

the monopoly that a zone grantee 

generally has on access to FTZ benefits 

in the region served by the grantee, zone 

participants may fear direct 

repercussions from submitting a 

complaint to the FTZ Board pertaining 

to a grantee’s compliance with law and 

regulations. To help ensure the integrity 

of the operation of the FTZ program, it 

is important for zone participants to 

have the ability to submit such 

complaints without fear of less favorable 

treatment or even retribution. However, 

commenters also have raised valid 

concerns about due process if a grantee 

or other party were to be subject to 

penalties based on complaints that 

remained confidential (i.e., unavailable 

for review and response). Recognizing 

those concerns, the Board simply 

intends to use confidential complaints 

as a basis for determining whether the 

actions of a particular grantee or other 

party should be examined in more 

detail. Such an examination would 

enable the Board to gather information 

in a process transparent to the grantee 

(or other affected party) and then use 

the information gathered through that 

process to evaluate what further 

action(s) by the Board might be 

warranted. The Board would only use 

information gathered through the 

transparent investigation process as a 

basis for further Board action or 

restriction; information that is unknown 

to the affected party would not be used. 

Regarding reviews of fairness and 

reasonableness, we have not replaced 

the reference to actual costs incurred. 

Numerous commenters proposed we 

reference the methodology supporting 

the rates and charges. The Board would 

indeed examine the methodology a 

grantee used to develop its rates and 

charges as part of any examination that 

might occur. However, the fairness and 

reasonableness of a rate or charge are 

questions that must be addressed under 

the public utility requirement of the 

FTZ Act. As described in response to 

comments on § 400.42, the public utility 

concept is fundamentally based on cost 

recovery. As such, the actual costs 

incurred are appropriate for the Board to 

consider in evaluating whether a rate or 

charge is fair and reasonable. In 

response to comments, we have 

eliminated the proposed second factor 

for reviews of fairness and 

reasonableness. We have instead 

incorporated language enabling the 

Board, where applicable, to examine if 

a fee a party charges to a grantee for 

undertaking a function on the grantee’s 

behalf (passed on by the grantee to zone 

participants through the grantee’s fees) 

represents a form of monopoly rentseeking that would be inconsistent with 

the statutory public utility requirement. 

Section 400.46—Grantee Liability 

Comments: Numerous commenters 

proposed eliminating the word 

‘‘ordinarily’’ and separately adding the 

term ‘‘administrator’’ to this section. 

One commenter supported this section 

as providing welcome clarification for 

public sector grantees. One commenter 

stated that the limitations on grantee 

liability in this section are obscured by 

penalty provisions in § 400.62, with the 

addition of penalties and the lack of 

clarity regarding grantee obligations 

leading to concern among grantees. One 

commenter stated that some degree of 

liability in specific situations is an 

appropriate tool to promote compliance, 

but did not elaborate on what those 

specific situations would be. One 

commenter stated that a grantee must be 

afforded the opportunity to oversee a 

zone user in order to protect the grantee 

and other zone users. One commenter 

stated that the regulations need to 

define more clearly which oversight 

activities are ‘‘detailed’’ and which are 

not. 

One commenter stated that the 

proposed provision would do more 

harm to grantees than to operators or 

users that commit violations. The 

commenter recommended revising this 

section to state that a grantee should 

only be liable as an operator if the 

grantee acts as operator under its own 

CBP bond and under a user agreement 

with the grantee’s customer. The 

commenter distinguished that situation 

from one where a grantee has signed an 

operator’s agreement with a company 

that acts as its own operator and 

operates under its own CBP bond, in 

which case the company should be held 

liable for any violations attributed to the 

company’s actions. 

Board position: We have modified 

this section based on these comments. 

Specifically, we have eliminated the 

word ‘‘ordinarily’’ and added language 

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to clarify the circumstances in which 

the actions of a grantee (or a grantee’s 

administrator, where applicable) could 

create liability that would not otherwise 

exist. Specifically, a grantee could 

create liability where it does not 

otherwise exist if it undertakes detailed 

operational oversight of or direction to 

zone participants. Detailed operational 

oversight of zone participants would 

place the grantee in a position to be 

aware of specific violations (with an 

obligation to ensure the violations are 

corrected, and liability if the violations 

are not), while detailed operational 

direction to zone participants (e.g., 

dictating specific operational 

procedures) would make the grantee 

responsible for ensuring that the 

direction did not result in violations. 

We have included in this rule key 

examples of detailed operational 

oversight or direction, such as review of 

an operator’s inventory-control or 

record-keeping systems and specifying 

requirements for such a system to be 

used by an operator. 

Section 400.47—Retail Trade 

Comments: Numerous commenters 

proposed replacing the concurrence of 

the CBP port director with notification 

to the port director, and adding 

statements that the retail trade provision 

only applies to activated zone space and 

does not apply to order fulfillment. One 

commenter proposed that the 

regulations define ‘‘retail trade’’ based 

on the activity covered by the North 

American Industry Classification 

System subsections pertaining to ‘‘store 

based retail trade.’’ One commenter 

stated that if CBP will no longer issue 

binding rulings pertaining to retail 

trade, the Executive Secretary should 

follow precedent established by existing 

CBP decisions, with the principles 

contained in binding rulings remaining 

authoritative unless modified or 

revoked pursuant to 19 CFR 177.12 (e.g., 

subject to notice requirements). The 

commenter also recommended that the 

Executive Secretary’s decisions on retail 

trade be made available to the public. 

That commenter also stated that order 

fulfillment should not be considered 

retail trade. 

Board position: The specific concerns 

raised by commenters about order 

fulfillment are significant. Therefore, 

the Board intends to propose a revised 

section specifically addressing order 

fulfillment in a subsequent rule. In the 

interim, we have adopted this section 

with changes and additions to language 

based on public comments. In 

particular, we have included language 

regarding the ongoing effect of decisions 

made by CBP and the type of procedures 

to be followed for any determination 

that might affect the impact of prior 

decisions. We have also provided that 

determinations made pursuant to this 

section will be available on the Board’s 

Web site. 

Section 400.49—Monitoring and 

Reviews of Zone Operations and 

Activity 

Comments: Numerous commenters 

proposed moving this section to subpart 

E of the regulations, which pertains to 

zone operations. Those commenters 

proposed the following additional 

changes: Adding a significant public 

detriment standard for reviews; 

notifying the grantee and affected zone 

participants and allowing them to 

submit evidence in response when 

threshold factors result in a negative 

recommendation; requiring parties 

requesting reviews to provide evidence 

that is probative and substantial; 

requiring decisions be based on 

evidence on the record if the decision 

would be inconsistent with the original 

examiner’s report for the operation in 

question; requiring negative 

determinations be supported by 

evidence on the record of direct 

negative impact on a U.S. manufacturer; 

allowing an affected zone participant to 

meet with the Board upon request prior 

to issuance of a negative Board decision; 

removing the ability to impose a 

restriction after a preliminary review; 

and removing the Assistant Secretary for 

Import Administration’s authority to 

impose restrictions. 

One commenter stated that a party’s 

request for a review should be disclosed 

to the affected zone participant prior to 

initiation of the review. The commenter 

also stated that reviews should be 

subject to the notice and hearing 

requirements of § 400.52. That 

commenter further proposed 

eliminating allowing restrictions to be 

imposed after a preliminary review or, 

in the alternative, making restrictions 

contingent on a showing that: (1) the 

requesting party had a substantial 

likelihood of obtaining a restriction 

following full review; (2) the requesting 

party would suffer irreparable injury 

without the preliminary restriction; (3) 

the preliminary restriction would not 

substantially harm the zone participant 

or other parties, and (4) the preliminary 

restriction would further the public 

interest, with the burden of proof on the 

party requesting the review. Finally, 

that commenter stated that a zone 

participant should be entitled to a 

refund of duties or fees paid as a result 

of the restriction imposed based on a 

preliminary review if the restriction is 

not maintained after full review by the 

Board. 

Board position: In response to these 

comments, we have moved this section 

to Subpart E, as § 400.49. In addition, 

we have modified subsection (b) to 

indicate that a party requesting a review 

should provide information that is 

‘‘probative and substantial in addressing 

the matter in issue.’’ This standard 

mirrors the standard applied both to 

comments submitted on applications 

and to responses to those comments. We 

also have added a sentence to 

subsection (c) indicating specific 

procedures to be followed (i.e., 

notification to the zone grantee and a 

time period for response) prior to any 

final action to impose a prohibition or 

restriction under this section. These 

changes are responsive to specific 

comments submitted, although the 

actual approach or language adopted 

may differ from those proposed by 

commenters. 

We have not adopted other changes 

proposed by commenters. The added 

provision described above provides a 

basic procedural right to the grantee of 

an affected zone to provide a response 

to the Board regarding proposed final 

action to impose a prohibition or 

restriction. The additional changes 

proposed by commenters would either 

dilute the effectiveness and utility of the 

provision or add significant complexity. 

Additional complexity is contrary to the 

Board’s and multiple commenters’ 

desire to simplify these regulations. 

Further, reviews under the 

corresponding provision in the prior 

regulations (§ 400.31(d)) have been very 

rare, and there is no evidence indicating 

that such reviews are likely to become 

more common in the future. Therefore, 

there does not appear to be a need to 

include significant additional 

procedural requirements. 

Section 400.51—Accounts, Records and 

Reports 

Comments: Numerous commenters 

proposed deleting the reference to 

generally accepted accounting 

principles for zone accounts. For the 

annual report provision, those 

commenters proposed the following 

revisions: Changing the proposed 

90-day filing period to the 120-day 

period that has been the Board’s recent 

practice; allowing the Executive 

Secretary to extend the filing period; 

directing grantees to submit timely 

reports (with such reports noting 

whether any zone participants have not 

timely provided their data for inclusion 

in the reports); and stating that data 

submitted by zone participants will be 

treated as ‘‘business proprietary.’’ Those 

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commenters stated that the Board’s 

annual report to Congress should not 

provide company-specific data. One 

commenter proposed a 90-day 

timeframe for a zone user to submit its 

data to the zone grantee, with the 

grantee allowed an additional 30 days 

for submission of its report to the Board. 

Alternatively, the commenter proposed 

allowing a user or a grantee to obtain a 

30-day extension. 

One commenter stated that the format 

for zones’ annual reports should be 

revised to take domestic material, labor, 

overhead and profit into account for 

export figures. One commenter stated 

that the Board should require annual 

reports to include information about 

admission of merchandise subject to 

AD/CVD orders for production activity, 

any production activity involving a 

foreign article subject to an AD/CVD 

order and approval of such activity by 

the Board, or a certification that no 

production activity occurred involving a 

foreign article subject to an AD/CVD 

order. The commenter stated that the 

Board should obtain data from CBP 

annually on admission of merchandise 

subject to AD/CVD orders into zones or 

subzones with production authority. 

That commenter also stated that the 

Board should publish a report each year 

summarizing data obtained from 

grantees and from CBP to enable parties 

to identify discrepancies that should be 

examined by the Board. 

Board position: In response to these 

comments, we have made a number of 

revisions to this section. We have 

deleted the reference to generally 

accepted accounting principles in favor 

of simply stating that zone records must 

comply with the requirements of 

governmental agencies with appropriate 

jurisdiction. Regarding the annual 

report provisions, we have retained our 

proposed 90-day timeframe for grantees’ 

reports to the Board, but have 

specifically allowed requests for time 

extensions, indicating factors for the 

Executive Secretary to consider in 

evaluating such requests. In addition, 

we have allowed a grantee to submit a 

timely report to the Board without 

information from an operator that has 

failed to timely provide information to 

the grantee. With regard to the specific 

format and contents of reports to the 

Board or of reports produced by the 

Board, as well as the treatment of 

specific information provided in reports 

to the Board, these are administrative 

matters that appropriately should 

continue to be handled as part of the 

ordinary functioning of the Board and 

its staff. 

Section 400.52—Notices and Hearings 

Comments: Numerous commenters 

proposed the following revisions to this 

section: Limiting invitation for public 

comment to specific identified 

situations; eliminating the requirement 

for local public notice to be published 

in a manner that allows at least 30 days 

for submission of public comments; 

limiting a determination on the need for 

a hearing initiated by the Board to a 

period ending 60 days after the end of 

the initial public comment period in a 

proceeding; establishing a ‘‘materially 

impacted’’ standard for any party 

requesting a hearing; requiring the 

Board to allow any party to present at 

a hearing, provided the party has given 

seven days advance notice; requiring the 

Executive Secretary to notify the grantee 

and affected zone participants of all 

parties that will be presenting at a 

hearing; and requiring that the applicant 

and its witnesses be allowed to present 

first and rebut last at any hearing. 

Board position: Based on public 

comments, we are requiring that local 

public notice allow at least 15 days for 

public comment on an application 

submitted to the Board (rather than the 

30 days in the proposed rule). We also 

have narrowed the standard for parties 

that may request public hearings by 

stating that only parties that may be 

materially affected may make such a 

request. We have not adopted other 

suggested revisions to this section. It is 

not appropriate to limit the types of 

situations in which the Board may 

invite public comment or the timeframe 

during which a determination may be 

made to hold a hearing. Given that 

certain Board proceedings may result in 

the development of an extensive record 

over a significant period of time, the 

Board must maintain the ability to 

invite comment or hold a hearing 

whenever the need to do so presents 

itself. The remaining changes suggested 

for this section have not been adopted 

because they would not improve the 

effectiveness of processes in question 

and, in the case of the order of 

presentations at a hearing, would create 

the appearance of an unbalanced 

process. 

Section 400.53—Official Records; Public 

Access 

Comments: Numerous commenters 

proposed adding the word 

‘‘confidential’’ immediately before the 

word ‘‘proprietary’’ in the final sentence 

of this section. 

Board position: We have not made the 

change proposed by commenters 

because the term ‘‘confidential’’ has a 

specific significance as an official 

classification action by government 

agencies. The information subject to this 

provision would not have been 

classified by a government agency, but 

rather would be considered by an 

outside entity to be ‘‘business 

proprietary’’ in nature. Therefore, the 

continued application of the 

terminology from the proposed 

regulations, which has been in use in 

the prior regulations since 1991, is 

appropriate. 

Section 400.54—Information 

Comments: Numerous commenters 

proposed allowing submission of 

business proprietary information in 

applications and stated that data 

submitted in annual reports shall 

generally be considered ‘‘business 

proprietary.’’ 

Board position: We have not made 

these changes. The FTZ Board’s 

application process is inherently a 

public process, and includes publishing 

notices of applications in the Federal 

Register and inviting comments. 

Therefore, it is appropriate for the FTZ 

Board to focus the application process 

on submission of information that will 

be available for public review. With 

regard to data submitted in annual 

reports, some of those data may well be 

considered ‘‘business proprietary’’ by 

the zone operators/users that submit the 

data through their zones’ grantees. 

However, the FTZ Board cannot assume 

that all data submitted are indeed 

business proprietary. Rather, the Board 

has been implementing a new system 

for submission of annual report data 

that specifically allows an individual 

operator/user to indicate whether it 

considers its data business proprietary, 

in which case only a ranged version of 

the data would be reported publicly. 

Section 400.61—Revocation of 

Authority 

Comments: Numerous commenters 

proposed adding the phrase ‘‘in whole 

or in part’’ to § 400.61(b)(4) and 

requiring notice to zone or subzone 

operators. One commenter stated that 

§ 400.61(b)(3) should specify the 

adjudicative standard that will govern 

the hearing and that the grantee or 

operator will be able to call and cross 

examine witnesses. 

Board position: We have added 

language pertaining to notification of 

any known operators to § 400.61(b)(1), 

and added the phrase ‘‘in whole or in 

part’’ to § 400.61(b)(4) to enhance 

clarity. We have not included additional 

procedural provisions or details (such as 

the adjudicative standard that would 

apply to hearings) because the need for 

such additional details—with their 

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attendant increase in complexity—is 

unclear given that actual use of the 

revocation provision has been very rare. 

If additional procedural details become 

necessary, they could be implemented 

through a future rulemaking action. 

Section 400.62—Fines, Penalties and 

Instructions To Suspend Activated 

Status 

Comments: Numerous commenters 

stated that this section would likely 

have a chilling effect on the FTZ 

program, particularly at a time of 

dwindling resources of both grantees 

and operators. Those commenters 

proposed the following specific 

revisions: deleting the inflationadjustment provision and related 

references because it is not provided for 

in the FTZ Act and does not act as a 

deterrent to violations; adding 

references to ‘‘administrators’’ and 

changing references of ‘‘operators’’ to 

‘‘zone participants;’’ stating that the 

$1,000 per day maximum for fines 

would include any CBP fines, penalties 

or liquidated damages for the same 

violations; stating that filing and 

obtaining approval of a ‘‘voluntary 

disclosure’’ would eliminate or reduce 

any penalty; modifying the productionrelated language to bring it in line with 

changes proposed by those commenters 

for other sections of the regulations; 

stating that a grantee would not be 

subject to a fine under the annual 

report-related provision so long as the 

grantee had filed a timely report 

identifying any operators that have not 

submitted complete or timely 

information to the grantee; stating that 

requests for extensions of the periods to 

provide responses or mitigating 

evidence will not be unreasonably 

withheld; changing the delegation of 

certain fine-imposition authority to the 

Assistant Secretary for Import 

Administration (from the Executive 

Secretary); inserting references to 

affected parties for actions pertaining to 

suspension of activated status; and 

stating that the Board will give due 

consideration for allowing transfers of 

affected merchandise from a site for 

which a determination has been made to 

suspend activated status. 

Two commenters proposed that the 

Board clarify that operational activities 

within zones are within the sole 

purview of CBP, limit penalties under 

this section to specifically defined 

violations, and state normal ranges for 

penalties for each type of defined 

violation. Two commenters requested 

that the regulations explicitly preclude 

both the Board and the CBP from 

imposing fines on the same party 

resulting from the same offense. One 

commenter proposed that the Board: 

confine suspensions of activated status 

and processing of requests solely to the 

specific non-compliant operations; 

clarify who the responsible parties are 

for certain violations, to eliminate the 

potential for double fines for a single 

violation; eliminate ambiguity regarding 

the timeframe for operators to submit 

their annual reports to grantees; clarify 

the meaning of ‘‘conflict of interest;’’ for 

responses to notifications of violations, 

allow parties 30 days and two 

extensions of 30 days each if requested 

in writing; and treat ‘‘inaccurate written 

advice provided by a Board staff 

member’’ as binding on the government 

rather than as a mitigating factor. 

One commenter opposed adopting the 

proposed section, proposing instead that 

the Board retain the existing penalties 

provision and insert a brief provision 

addressing fine amounts for violations 

involving production, annual reports 

and conflicts of interest. The commenter 

also stated that penalties should only be 

assessed pursuant to a transparent 

process. Two commenters stated that 

the Board should notify a zone’s grantee 

of any penalty action initiated against 

an operator within the zone. One 

commenter stated that the regulations 

should clearly define circumstances that 

could lead to penalties. Another 

commenter supported this proposed 

section as rectifying an omission in the 

Board’s oversight and monitoring of 

zone activity. That commenter proposed 

that the Board expand this section to 

include details of the judicial review 

process, provide more comprehensive 

explanation of decisions, and consider a 

formal, adjudicative process for dispute 

resolution. 

One commenter expressed concern 

that the detailed section pertaining to 

fines changes the Board’s focus from 

gatekeeper of zone access to policing 

agent over day-to-day zone 

management. Another commenter stated 

that this section as proposed obscures 

the limitations on liability expressed in 

§ 400.46. One commenter asked that the 

Board clarify whether a confidentiality 

clause in a grantee’s contract with a 

zone participant can be relied on by that 

participant to prevent a grantee from 

disclosing to the Board a potential 

violation pertaining to that participant, 

such as the untimeliness of an 

operator’s annual report to the grantee. 

One commenter stated that the Board 

should not accept other commenters’ 

proposed changes that would reduce the 

impact of the penalty provisions. 

One commenter stated that this 

section should be reviewed carefully to 

ensure conformity with 19 U.S.C. 81s. 

That commenter also stated that the 

regulations should clarify the approach 

to be taken when multiple parties may 

be subject to penalty for the same 

violation; specify the adjudicative 

standard that will govern any hearing 

and that the grantee or operator will be 

able to call and cross examine 

witnesses; and state a clear limitations 

period on enforcement of any fine, 

penalty or sanction. 

One commenter stated that fines 

should not be imposed on any party for 

an offense that is not the result of the 

party’s negligence (for example, clerical 

error or a grantee’s inability to collect 

information from an operator for the 

grantee’s annual report). 

Board position: It is appropriate for 

these regulations to contain detailed 

procedures for imposing penalties 

authorized by the FTZ Act. Delineating 

such procedures provides important 

clarity and predictability for all 

potentially affected parties. The 

provisions of this section target key 

areas for which the potential imposition 

of penalties is an important compliance 

tool. 

In response to the public’s comments, 

we have narrowed the focus of fining 

actions pursuant to this section to two 

specific types of violations: untimely 

submissions of annual reports and 

failure to afford uniform treatment 

under like conditions to parties using 

(or seeking to use) a zone. We have 

specifically excluded violations for 

production activity because such 

violations are already subject to fines by 

CBP and we want to avoid subjecting a 

zone participant to fines from two 

different agencies for a single action. 

Further, the proposal to include fines 

pertaining to production activity created 

a need for the proposed separate section 

allowing ‘‘prior disclosure’’ of violations 

in order to encourage disclosure and 

rectification of any non-compliant 

activity. However, the effect of 

implementing the proposed sections 

would have been to require zone 

operators to disclose violations to two 

separate agencies under two distinct 

sets of procedures. Doubling the 

disclosure burden on zone operators 

would have tended to discourage zone 

use (with resulting negative impacts on 

U.S. competitiveness) without 

contributing to improved compliance. 

Based on the narrowed focus on 

§ 400.62, we have eliminated the 

proposed prior disclosure provision 

from the regulations. As a consequence, 

we have not addressed detailed 

comments pertaining to the proposed 

section allowing for prior disclosure 

(§ 400.63). Although a number of 

commenters supported the inclusion of 

this type of provision, the provision was 

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relevant to violations involving 

production activity, which are no longer 

targeted in § 400.62. The remaining 

types of violations targeted in § 400.62 

are not of a nature for which prior 

disclosure would be relevant or 

appropriate. 

Because the Board is not adopting the 

prior disclosure provision, we do not 

need to address comments pertaining to 

the interaction of the provisions of 

§ 400.62 with the prior disclosure 

provision. Similarly, given that 

production activity is no longer targeted 

by § 400.62, we do not need to consider 

changes to the language of this section 

that would flow from changes related to 

production in other sections of the 

regulations. Based on the narrower 

focus of this revised section, we have 

also eliminated ‘‘inaccurate written 

advice provided by a Board staff 

member’’ as a mitigating factor, because 

it is irrelevant to the types of violations 

that are now targeted by this section. 

The revisions to this section should 

help to ensure that a fine is only 

imposed on the party(ies) with direct 

responsibility for the violation that 

results in the fine. Based on the 

comments, we have added language to 

this section indicating that a grantee 

will not be subject to a fine for an 

untimely annual report if the grantee 

has filed a timely report identifying any 

operator that has not submitted 

complete or timely information to the 

grantee. The range of changes we have 

made to this section should also provide 

clarity and be in harmony with the 

limitations on grantee liability 

explained in § 400.46. 

We have not deleted the inflationadjustment provision and related 

references because Congress mandated 

the adjustment of these types of 

penalties in the Federal Civil Penalties 

Inflation Adjustment Act of 1990 (Pub. 

L. 101–410), as amended by the Debt 

Collection Improvement Act of 1996 

(Pub. L. 104–134). Based on public 

comments, we have added language to 

notify the zone’s grantee, in addition to 

the parties responsible for a violation. 

We have added certain references to 

an ‘‘administrator’’ as an example of a 

‘‘person undertaking one or more 

functions on behalf of the grantee’’ in 

concert with changes made to § 400.43. 

We have also indicated that parties at a 

hearing may call and cross examine 

witnesses, and that requests for 

extensions of the periods to provide 

responses or mitigating evidence will 

not be unreasonably withheld. We have 

not changed certain references from 

‘‘zone operators’’ to ‘‘zone participants’’ 

because, apart from grantees and 

persons undertaking functions on behalf 

of grantees (such as administrators), 

zone operators are the only other 

category of party relevant to the specific 

types of violations now targeted by this 

section. We also have not changed the 

delegation of certain fine-imposition 

authority from the Executive Secretary 

to the Assistant Secretary for Import 

Administration because the authority in 

question is for relatively minor offenses. 

In light of the narrowed focus of the 

fining provision, we have broadened the 

potential reach of suspension of 

activated status to encompass any 

‘‘repeated and willful failure to comply 

with a requirement of the FTZ Act or 

the Board’s regulations.’’ Given the 

‘‘repeated and willful’’ standard, we do 

not anticipate frequent use of this 

provision, but it will be available as an 

enforcement mechanism, if needed. We 

have not added the proposed additional 

references to ‘‘affected parties’’ for 

actions pertaining to suspension of 

activated status. We have instead added 

references to the grantee of a zone. A 

zone’s grantee would be in a position to 

notify affected parties. The FTZ Board 

would not necessarily have information 

regarding the range of parties that might 

be affected by suspension of activated 

status. 

We have added that the Board will 

give due consideration to and make 

allowance for the transfer of 

merchandise prior to the suspension of 

activated status, because such 

consideration is appropriate. We have 

not included additional procedural 

provisions or details (such as the 

adjudicative standard that would apply 

to hearings) because the proposed 

provisions already provide a significant 

increase in the level of procedural detail 

pertaining to penalty actions. The Board 

should develop a practice under the 

procedural details provided in these 

regulations before deciding whether to 

adopt additional provisions or details. 

We have added language clarifying 

that suspensions of activated status and 

processing of requests will be targeted to 

the specific non-compliant operations. 

We have also clarified who will be the 

responsible parties for specific 

violations, so that there should be no 

potential for a violator’s being subject to 

double fines for a single violation. 

In response to comments, we have 

modified § 400.51 to specify a timeframe 

for operators’ submission of annual 

reports to grantees. That change should 

clarify various parties’ potential 

liabilities for untimely reports. We have 

also modified this section and § 400.51 

in response to comments to require that 

grantees disclose to the FTZ Board 

whether each of the grantee’s operators 

has submitted the information required 

for the Board’s report to Congress. Such 

required disclosure could not be 

avoided by an agreement between an 

operator and a grantee. 

In light of modifications made to 

§ 400.43, we have made harmonizing 

changes to § 400.62(c). Those changes, 

in combination with elimination of use 

of the term ‘‘agent,’’ should help to 

clarify the specific types of parties that 

would be subject to § 400.62(c). 

The provisions of this section would 

apply equally to any party with 

responsibility for a violation. Therefore, 

it is possible that multiple parties could 

be penalized for the same violation. 

However, given that the provisions of 

this section are now focused narrowly 

on failures to submit annual reports on 

time and on violations of the uniform 

treatment requirements, the number of 

parties potentially affected by this 

section is dramatically reduced relative 

to the proposed rule. Further, an 

untimely annual report is likely to be 

the fault of a single party. Therefore, the 

sole category of violation for which 

multiple parties are potentially likely to 

share responsibility is the uniform 

treatment requirements. Given the 

importance of enforcing compliance 

with the statutory uniform treatment 

requirement, it would be appropriate to 

fine any parties that share responsibility 

for such a violation. Finally, we have 

not adopted a limitations period for 

fines or penalties. Given that this 

section is new, and the potential 

variation in circumstances for which 

fines or penalties prove to be 

appropriate, it is not feasible at this time 

to provide a single limitations period for 

enforcement. However, the Board’s 

focus in applying this section will be to 

encourage compliance rather than to 

penalize past actions for which 

corrective action has already been taken. 

Section 400.63—Appeals to the Board of 

Decisions of the Assistant Secretary for 

Import Administration and the 

Executive Secretary 

Comments: Numerous commenters 

proposed providing an opportunity for 

input by the affected grantee and zone 

participant, issuing a report regarding 

the Board’s decision, and identifying the 

court to which judicial appeal could be 

made. 

Board position: The suggested 

procedural changes in this section fail to 

take into account the nature of the 

section. Additional opportunity for 

input by an affected grantee or zone 

participant is unnecessary because this 

provision is limited to appeals to the 

Board by such parties, who will be able 

to include all desired input in the 

appeal documents they present for the 

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Board’s consideration. For similar 

reasons, no additional procedures are 

needed stemming from the Board’s 

decision regarding the appeal. The 

regulations already contain substantial 

procedural requirements pertaining to 

potential actions by, or on behalf of, the 

Board. Finally, we have not included 

language identifying the court to which 

judicial appeal could be made because 

the Board does not have the authority to 

confer, limit, or otherwise delineate the 

jurisdiction of Federal courts. 

Other Comments 

Comments: Numerous commenters 

suggested edits to individual sections 

that were minor or essentially nonsubstantive. 

Board position: We have adopted 

suggested edits where they would 

improve the clarity or effectiveness of 

the provisions in question. Given their 

minor or essentially non-substantive 

nature, we have not addressed such 

edits individually in this summary. 

Comments: Multiple commenters 

expressed concern about complexity or 

additional burden that they perceived 

the proposed regulations would create. 

Board position: Concerns about 

complexity and additional burden have 

been considered in the development of 

these regulations and have resulted in 

our making changes, including 

significantly simplifying the process 

and requirements for notifications to 

request production authority. Other 

changes that reduce complexity or 

burden include eliminating potential 

FTZ Board penalties pertaining to 

production activity, and eliminating 

certain provisions and substantially 

modifying others pertaining to uniform 

treatment (§ 400.43). Although these 

regulations contain additional detail on 

certain topics, that detail provides 

guidance and clarity for grantees and 

zone participants in a manner that 

should ultimately facilitate those 

parties’ participation in the FTZ 

program. 

Comments: Numerous commenters 

stated that the two sentences from the 

Preamble to the prior regulations 

regarding the public policy objective of 

the FTZ program should be included in 

the Preamble of any future Board 

regulations. One commenter proposed 

that one of those sentences be included 

within § 400.1 of the regulations. 

Board position: The Preamble of the 

proposed regulations already contained 

the primary sentence that is the focus of 

the comments in question. We have 

retained that sentence in the Preamble 

for these regulations. We have not 

included in the Preamble the second 

sentence that certain commenters 

proposed because it could be misread as 

implying we would apply different 

evaluative or procedural standards than 

the ones contained in these regulations. 

Comment: Numerous commenters 

proposed adding a new section with 

language designating certain offices of 

the U.S. Commercial Service as 

representatives of the Board for export 

promotion activities and stating that the 

Board and its representatives will act in 

a manner that prioritizes government 

export promotion objectives. 

Board position: We have not adopted 

this proposal. The proposed section 

deals with matters beyond the statutory 

authority of the Board. 

Comment: Numerous commenters 

proposed adding a new section stating 

that the Board will mandate the 

development of updated, written 

procedures by agencies that require 

reporting pertaining to zone activity. 

Board position: We have not added 

the proposed new section. The proposed 

section could affect the policies and 

procedures of a range of government 

agencies that fall outside the scope of 

the FTZ Act, and the Board cannot 

require other agencies or bureaus to act. 

Comment: One commenter proposed 

redefining what constitutes a foreigntrade zone, as well as zone, generalpurpose zone and subzone, to focus on 

conferring a status rather than 

designating a geographic location. 

Board position: We have not adopted 

the type of revisions proposed by this 

commenter because the FTZ Act is 

focused on the designation of 

geographic locations as foreign-trade 

zone sites, and because the commenter’s 

submission does not indicate a clear 

advantage to an approach based on 

status. However, as noted in our 

response to comments on § 400.11, we 

intend to address through a subsequent 

rule simplifying the parallel sitedesignation frameworks that currently 

exist. The intended effect of this change 

is to enhance the ability of the FTZ 

program to improve the competitiveness 

of U.S. facilities. 

Comments: One commenter stated 

that grantees may be unwilling to 

jeopardize the ‘‘permanent’’ status of 

current sites through a transition to the 

ASF, which has standard ‘‘sunset’’ 

periods that can be too short. The 

commenter proposed grandfathering 

existing permanent sites into the ASF. 

That commenter also proposed changing 

the process for designating usage-driven 

sites to an automatic designation once 

CBP had approved activation for a 

location, with the Board simply notified 

of that designation. 

Board position: As noted in responses 

to certain other comments, the Board 

intends to address through a subsequent 

rule simplifying the parallel sitedesignation frameworks that currently 

exist. In that process, the Board will be 

able to evaluate provisions affecting 

existing zone sites. We have not 

established an automatic mechanism for 

designating usage-driven sites based on 

CBP approval for activation. That 

change would effectively shift authority 

to designate sites from the Board and its 

staff to CBP officials at various ports 

nationwide, with a range of potential 

policy implications for both the Board 

and CBP. Given the quick, simple 

process already available for designating 

usage-driven sites, it is not clear that a 

need exists for the shift in authority 

proposed by the commenter. 

Comment: One commenter expressed 

concern that the proposed regulations 

concentrate more power in the hands of 

the Executive Secretary and Board staff 

to intrude on zone operations and 

policy decisions made by grantees and 

users. 

Board position: These regulations 

reflect the same fundamental 

assignment of responsibilities as the 

prior regulations. They include sections 

providing new specificity regarding 

compliance with the FTZ Act’s 

requirements that a zone operate as a 

public utility and afford uniform 

treatment to zone participants. Inherent 

in the functioning of some of the 

specific provisions is a greater role for 

the Board’s Executive Secretary and the 

Board’s staff. In practice, the adopted 

provisions do not constitute ‘‘intrusion’’ 

on grantees or users but, rather, reflect 

balanced measures designed to ensure 

that zones comply with the 

requirements established by Congress 

through the FTZ Act. 

Comment: One commenter requested 

a process by which the Board would 

obtain feedback before publication of 

further notice pertaining to this 

rulemaking. 

Board position: The Administrative 

Procedure Act (APA), 5 U.S.C. 553, 

provides the procedural basis for this 

action. Accordingly, we provided 

interested persons with notice of the 

proposed rule and almost 150 days to 

participate in the rulemaking by 

commenting on it during the comment 

period. Further, the public comment 

period exceeded the requirements of the 

APA. In addition, during the public 

comment period, the Board staff held 

detailed public seminars at eight 

regional hubs across the United States, 

as well as in Washington, DC, at which 

numerous parties received extensive 

explanations of the intent of proposed 

provisions and answers to their 

questions. The Board staff also made 

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such information available interactively 

via the Internet. In addition to the 

lengthy comment period on the 

proposed regulations, the Board allowed 

parties a subsequent 32-day period to 

submit comments responding to other 

parties’ comments that had been 

submitted during the initial comment 

period. More than 100 parties submitted 

comments on the proposed regulations. 

These regulations include key 

changes that provide dramatically 

simplified and expedited procedures 

designed to boost the competiveness of 

U.S. manufacturers and exporters. It is 

important for those changes to be 

implemented as soon as possible. Given 

the extensive comment process to date, 

it is unclear that an additional notice 

and comment/consultative process 

would yield benefits that would offset 

losses due to delayed implementation of 

the key changes made through these 

regulations. Therefore, we are not 

seeking additional comment/ 

consultation prior to publishing these 

regulations. 

Comment: One commenter stated that 

the application and approval process is 

susceptible to undue influence that can 

result in unfair advantages to certain 

parties, and that the Board must limit 

the influence of certain parties to ensure 

that zone status results in positive 

economic effects. 

Board position: These regulations 

contain extensive provisions aimed at 

establishing neutral, balanced 

procedures for evaluating applications 

received by the FTZ Board. The 

commenter presented no evidence of 

unfair advantages for any parties 

resulting from the Board’s processes. In 

the absence of such evidence, we have 

found that the provisions of these 

regulations are sufficient to ensure that 

the Board’s processes are fair and 

equitable. 

Comments: One commenter stated 

that Board decisions should be fair and 

reasonable, that a need exists for 

uniform treatment from the FTZ Board 

given what the commenter characterized 

as frequent changes in the ASF structure 

and different application of territorial 

standards in different regions, and that 

the primary intended constituency of 

the proposed regulations appears to be 

grantees rather than the companies that 

use the FTZ program. 

Board position: Decisions of the Board 

and its staff consistently reflect high 

standards of fairness and 

reasonableness. The commenter has 

provided no examples to support its 

claims but, as a general matter, a party’s 

disagreement with a Board decision 

does not imply that the decision was 

unfair or unreasonable. Similarly, a 

party may perceive a Board decision on 

an ASF-related matter—such as 

pertaining to the service area for a 

zone—as inconsistent with other Board 

decisions. However, a party to a 

particular Board case generally is 

unfamiliar with the details of other 

cases decided by the Board. In that 

context, what may appear to one party 

as inconsistent or non-uniform 

treatment is more likely to be consistent 

application of policy to circumstances 

that are superficially similar but that 

actually differ substantively. Given that 

the Board has only adopted a single set 

of modifications (November 2010) since 

its adoption of the ASF in 2008, a claim 

of frequent changes in the ASF structure 

would also appear to reflect a lack of 

adequate familiarity with the Board’s 

ASF practice. Finally, the statement that 

the primary intended constituency of 

the proposed regulations seems to be 

grantees would appear not to reflect a 

substantive assessment. The proposed 

regulations contain certain provisions 

that focus on grantees and on enhancing 

their abilities to perform their functions 

because 1) the FTZ Act provides for the 

Board to grant authority to zone 

grantees, not to other zone participants, 

and 2) the grantee, as a local agency or 

organization engaged in promoting trade 

and economic development, is in the 

best position to enable firms in the 

region it serves to reap the 

competitiveness benefits available 

through the FTZ program. 

Comment: One commenter proposed 

allowing companies engaged in FTZ 

production to temporarily remove 

merchandise under the FTZ operator’s 

bond for special processing in the 

United States that cannot be 

accommodated in the FTZ. 

Board position: The type of procedure 

proposed by the commenter is properly 

in the realm of CBP. CBP’s regulations 

govern FTZ operations and contain 

detailed provisions concerning the 

movement of merchandise into and out 

of FTZs. 

Changes From Proposed Rule 

In addition to the substantive changes 

mentioned above that we have made in 

response to comments, we have made 

various grammatical and similar 

changes to the rule from its proposed 

form, to increase clarity and accuracy 

and reduce potential public confusion. 

Executive Orders 12866 and 13563 

This rule has been determined to be 

significant for purposes of Executive 

Order 12866. Consistent with Executive 

Order 13563, we held public seminars 

across the country to help maximize 

public participation in the rulemaking 

process (as cited above in response to a 

comment), and we adopted approaches 

designed to impose the least burden on 

society while attaining the regulatory 

objectives (see e.g., the responses to 

comments on §§ 400.14, 400.26, 400.42, 

400.43 and 400.62). 

This rule is also consistent with 

section 5 of EO 12866, which instructs 

agencies to ‘‘periodically review their 

significant regulations to determine 

whether any such regulations should be 

modified or eliminated * * * to make 

the agency’s regulatory program more 

effective,’’ and section 6 of EO 13563, 

which instructs agencies to ‘‘consider 

how best to promote retrospective 

analysis of rules that may be outmoded, 

ineffective, insufficient, or excessively 

burdensome, and to modify, streamline, 

expand, or repeal them in accordance 

with what has been learned.’’ This final 

rule replaces FTZ regulations that have 

not changed since 1991, and reflects the 

FTZ Board’s view, following a review of 

those regulations, that modifying the 

1991 rules will help to ensure that FTZs 

remain competitive, efficient, and 

flexible in the modern, 21st Century 

global economy. 

Regulatory Flexibility Act 

At the proposed rule stage of this 

rulemaking, the Acting Chief Counsel 

for Regulation of the Department of 

Commerce certified to the Chief Counsel 

for Advocacy of the Small Business 

Administration that this rule will not 

have a significant economic impact on 

a substantial number of small entities. (5 

U.S.C. 605(b)). The factual basis for the 

certification was published in the 

proposed regulations and is not 

repeated here. We did not receive any 

public comments on the certification. 

As a result, a regulatory flexibility 

analysis was not required, and none was 

prepared. 

Executive Order 13132 

This final rule does not contain 

policies with Federalism implications 

sufficient to warrant preparation of a 

Federalism assessment under Executive 

Order 13132. 

Paperwork Reduction Act 

This rule contains information 

collection activities subject to the 

Paperwork Reduction Act. The overall 

burden on the public is reduced 

significantly as a result of the provisions 

adopted in this rule. 

There is no impact on the collection 

that falls under the Office of 

Management and Budget (OMB) Control 

No. 0625–0109 (Annual Report to 

Foreign-Trade Zones Board). This rule 

amends the collection under OMB 

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Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 12139 

Control No. 0625–0139 (Application to 

Foreign-Trade Zones Board). Under this 

rule, the application requirements 

associated with the latter collection for 

zone applicants, grantees, operators, and 

users are significantly simplified, and 

there is a large overall reduction of the 

burden on those parties. The Board will 

be seeking OMB approval of these 

changes, and will notify the public 

when these amendments have been 

approved. After publication of the 

proposed rule, the FTZ Board renewed 

its OMB information-collection 

authority and reduced the overall 

burden estimate for applications from 

6,651 to 4,969 hours based on recent 

simplifications to the Board’s practice. 

The changes in this rule will further 

reduce burden by shifting future 

production (manufacturing) 

applications to a simple notification as 

an initial stage. A more detailed 

application will only need to be 

submitted if review of the notification 

results in a determination that the 

additional application step is necessary. 

We estimate that the average annual 

number of notifications will be 33 (an 

increase from 25 manufacturing 

applications under the prior 

regulations), with 5 of those 

notifications requiring the additional 

application stage. Shifting applications 

for production authority to the 

notification process (with few 

applications needed as a subsequent 

step) is expected to reduce the total 

annual burden associated with 

requesting production authority from 

850 to 351.5 hours (a reduction of 498.5 

hours). As a result of this significantly 

reduced burden, the FTZ program 

should be much more accessible to all 

companies involved in production 

activity. 

In addition to changes pertaining 

directly to production activity, the rule 

also specifically adopts the alternative 

site framework (ASF) authorized by the 

FTZ Board in December 2008. The ASF 

procedures reduce the time and 

complexity involved in designating FTZ 

sites for many companies. With 

increased use of the ASF by zones, there 

is expected to be a decline in the 

number of expansion applications in 

favor of a significant number of much 

simpler minor boundary modifications. 

The annual number of expansion 

applications over time should decline 

by half (from 20 to 10) which, combined 

with some simplified requirements in 

this rule, will reduce the burden from 

1,980 to 990 hours. We project an 

annual average of 120 minor boundary 

modifications (simple ‘‘administrative’’ 

cases that can be approved by the 

Board’s staff), with an annual burden of 

420 hours. 

This rule includes also radically 

simplifies application requirements for 

subzone designation so that the average 

annual burden for the estimated 15 

subzone applications should fall from 

1,695 to 67.5 hours. We note that, unlike 

the prior rule, this rule entirely 

separates the procedures for production 

authority and subzone designation. As a 

result, some applicants which only 

needed to meet the subzone application 

requirements under the prior rule will 

need to meet both the subzone and 

production application requirements 

under this rule. Nonetheless, the 

combined application burden for 

subzone and production 

(manufacturing) notifications/ 

applications should fall from 2,545 

hours under the prior rule to 419 hours. 

This rule also allows parties to apply 

pursuant to § 400.43(f) for a waiver from 

the effect of § 400.43(d)), which bars 

parties that provide products/services to 

zone users from performing key 

functions associated with the zonegrantee role. We estimate that the 

average annual number of applications 

for waivers will be 25, with an average 

burden of one hour per application, for 

a total of 25 burden hours annually 

associated with the waiver provision. 

Finally, the burden-hours estimate for 

applications for new zones is unaffected 

by this rule, with three applications 

projected to result in 444 burden hours 

annually. The total burden of the 

various applications subject to this rule 

is 2,298 hours (the sum of 444 for new 

zones, 990 for expansions, 67.5 for 

subzones, 351.5 for production 

notifications and applications, 420 for 

minor boundary modifications, and 25 

for waivers pursuant to § 400.43(f)). In 

sum, there is a net reduction of 2,671 

application-related burden hours 

annually (from 4,969 to 2,298 hours) 

through the provisions adopted in this 

rule. 

List of Subjects in 15 CFR Part 400 

Administrative practice and 

procedure, Confidential business 

information, Customs duties and 

inspection, Foreign-trade zones, 

Harbors, Imports, Reporting and 

recordkeeping requirements. 

By order of the Board, Washington, DC, 

this 16th day of February 2012. 

Paul Piquado, 

Assistant Secretary of Commerce for Import 

Administration, Alternate Chairman, ForeignTrade Zones Board. 

For the reasons set forth in the 

preamble, 15 CFR part 400 is revised to 

read as follows: 

PART 400—REGULATIONS OF THE 

FOREIGN-TRADE ZONES BOARD 

Subpart A—Scope, Definitions and 

Authority 

400.1 Scope. 

400.2 Definitions. 

400.3 Authority of the Board. 

400.4 Authority and responsibilities of the 

Executive Secretary. 

400.5 Authority to restrict or prohibit 

certain zone operations. 

400.6 Board headquarters. 

400.7 CBP officials as Board 

representatives. 

Subpart B—Ability To Establish Zone; 

Limitations and Restrictions on Authority 

Granted 

400.11 Number and location of zones and 

subzones. 

400.12 Eligible applicants. 

400.13 General conditions, prohibitions 

and restrictions applicable to authorized 

zones. 

400.14 Production—requirement for prior 

authorization; restrictions. 

400.15 Production equipment. 

400.16 Exemption from state and local ad 

valorem taxation of tangible personal 

property. 

Subpart C—Applications To Establish and 

Modify Authority 

400.21 Application to establish a zone. 

400.22 Notification for production 

authority. 

400.23 Application for production 

authority. 

400.24 Application for expansion or other 

modification to zone. 

400.25 Application for subzone 

designation. 

400.26 Criteria for evaluation of proposals, 

including expansions, subzones or other 

modifications of zones. 

400.27 Criteria applicable to evaluation of 

applications for production authority. 

400.28 Burden of proof. 

400.29 Application fees. 

Subpart D—Procedures for Application 

Evaluation and Reviews 

400.31 General application provisions and 

pre-docketing review. 

400.32 Procedures for docketing 

applications and commencement of case 

review. 

400.33 Examiner’s review—application to 

establish or modify a zone. 

400.34 Examiner’s review—application for 

production authority. 

400.35 Examiner’s review—application for 

subzone designation. 

400.36 Completion of case review. 

400.37 Procedure for notification of 

proposed production activity. 

400.38 Procedure for application for minor 

modification of zone. 

Subpart E—Operation of Zones and 

Administrative Requirements 

400.41 General operation of zones; 

requirements for commencement of 

operations. 

400.42 Operation as public utility. 

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400.43 Uniform treatment. 

400.44 Zone schedule. 

400.45 Complaints related to public utility 

and uniform treatment. 

400.46 Grantee liability. 

400.47 Retail trade. 

400.48 Zone-restricted merchandise. 

400.49 Monitoring and reviews of zone 

operations and activity. 

Subpart F—Records, Reports, Notice, 

Hearings and Information 

400.51 Accounts, records and reports. 

400.52 Notices and hearings. 

400.53 Official records; public access. 

400.54 Information. 

Subpart G—Penalties and Appeals to the 

Board 

400.61 Revocation of authority. 

400.62 Fines, penalties and instructions to 

suspend activated status. 

400.63 Appeals to the Board of decisions of 

the Assistant Secretary for Import 

Administration and the Executive 

Secretary. 

Authority: Foreign-Trade Zones Act of 

June 18, 1934, as amended (Pub. L. 73–397, 

48 Stat. 998–1003 (19 U.S.C. 81a–81u)). 

Subpart A—Scope, Definitions and 

Authority 

§ 400.1 Scope. 

(a) This part sets forth the regulations, 

including the rules of practice and 

procedure, of the Foreign-Trade Zones 

Board with regard to foreign-trade zones 

(FTZs or zones) in the United States 

pursuant to the Foreign-Trade Zones 

Act of 1934, as amended (19 U.S.C. 81a– 

81u). It includes the substantive and 

procedural rules for the authorization of 

zones and for the Board’s regulation of 

zone activity. The purpose of zones as 

stated in the Act is to ‘‘expedite and 

encourage foreign commerce, and other 

purposes.’’ The regulations provide the 

legal framework for accomplishing this 

purpose in the context of evolving U.S. 

economic and trade policy, and 

economic factors relating to 

international competition. 

(b) Part 146 of the customs regulations 

(19 CFR part 146) governs zone 

operations, including the admission of 

merchandise into zones, zone activity 

involving such merchandise, and the 

transfer of merchandise from zones. 

(c) To the extent zones are ‘‘activated’’ 

under U.S. Customs and Border 

Protection (CBP) procedures in 19 CFR 

part 146, and only for the purposes 

specified in the Act (19 U.S.C. 81c), 

zones are treated for purposes of the 

tariff laws and customs entry 

procedures as being outside the customs 

territory of the United States. Under 

zone procedures, foreign and domestic 

merchandise may be admitted into 

zones for operations such as storage, 

exhibition, assembly, manufacture and 

processing, without being subject to 

formal customs entry procedures and 

payment of duties, unless and until the 

foreign merchandise enters customs 

territory for domestic consumption. At 

that time, the importer ordinarily has a 

choice of paying duties either at the rate 

applicable to the foreign material in its 

condition as admitted into a zone, or if 

used in production activity, to the 

emerging product. Quota restrictions do 

not normally apply to foreign goods in 

zones. The Board can deny or limit the 

use of zone procedures in specific cases 

on public interest grounds. Merchandise 

moved into zones for export (zonerestricted status) may be considered 

exported for purposes such as federal 

excise tax rebates and customs 

drawback. Foreign merchandise 

(tangible personal property) admitted to 

a zone and domestic merchandise held 

in a zone for exportation are exempt 

from certain state and local ad valorem 

taxes (19 U.S.C. 81o(e)). Articles 

admitted into zones for purposes not 

specified in the Act shall be subject to 

the tariff laws and regular entry 

procedures, including the payment of 

applicable duties, taxes, and fees. 

§ 400.2 Definitions. 

(a) Act means the Foreign-Trade 

Zones Act of 1934, as amended (19 

U.S.C. 81a–81u). 

(b) Activation limit is the size of the 

physical area of a particular zone or 

subzone authorized by the Board to be 

simultaneously in activated status with 

CBP pursuant to 19 CFR 146.6. The 

activation limit for a particular zone/ 

subzone is a figure explicitly specified 

by the Board in authorizing the zone 

(commonly 2,000 acres) or subzone or, 

in the absence of a specified figure, the 

total of the sizes of the approved sites 

of the zone/subzone. 

(c) Alternative site framework (ASF) is 

an optional approach to designation and 

management of zone sites allowing 

greater flexibility and responsiveness to 

serve single-operator/user locations. The 

ASF was adopted by the Board as a 

matter of practice in December 2008 (74 

FR 1170, January 12, 2009; correction 74 

FR 3987, January 22, 2009) and 

modified by the Board in November 

2010 (75 FR 71069, November 22, 2010). 

(d) Board means the Foreign-Trade 

Zones Board, which consists of the 

Secretary of the Department of 

Commerce (chairman) and the Secretary 

of the Treasury, or their designated 

alternates. 

(e) Board Order is a type of document 

that indicates a final decision of the 

Board. Board Orders are generally 

published in the Federal Register after 

issuance. 

(f) CBP means U.S. Customs and 

Border Protection. 

(g) Executive Secretary is the 

Executive Secretary of the ForeignTrade Zones Board. 

(h) Foreign-trade zone (FTZ or zone) 

includes one or more restricted-access 

sites, including subzones, in or adjacent 

(as defined by § 400.11(b)(2)) to a CBP 

port of entry, operated as a public utility 

(within the meaning of § 400.42) under 

the sponsorship of a zone grantee 

authorized by the Board, with zone 

operations under the supervision of 

CBP. 

(i) Grant of authority is a document 

issued by the Board that authorizes a 

zone grantee to establish, operate and 

maintain a zone, subject to limitations 

and conditions specified in this part and 

in 19 CFR part 146. The authority to 

establish a zone includes the 

responsibility to manage it. 

(j) Magnet site means a site intended 

to serve or attract multiple operators or 

users under the ASF. 

(k) Modification: A major 

modification is a proposed change to a 

zone that requires action by the FTZ 

Board; a minor modification is a 

proposed change to a zone that may be 

authorized by the Executive Secretary. 

(l) Person includes any individual, 

corporation, or entity. 

(m) Port of entry means a port of entry 

in the United States, as defined by part 

101 of the customs regulations (19 CFR 

part 101), or a user fee airport 

authorized under 19 U.S.C. 58b and 

listed in part 122 of the customs 

regulations (19 CFR part 122). 

(n) Private corporation means any 

corporation, other than a public 

corporation, which is organized for the 

purpose of establishing, operating and 

maintaining a zone and which is 

chartered for this purpose under a law 

of the state in which the zone is located. 

(o) Production, as used in this part, 

means activity involving the substantial 

transformation of a foreign article 

resulting in a new and different article 

having a different name, character, and 

use, or activity involving a change in the 

condition of the article which results in 

a change in the customs classification of 

the article or in its eligibility for entry 

for consumption. 

(p) Public corporation means a state, 

a political subdivision (including a 

municipality) or public agency thereof, 

or a corporate municipal 

instrumentality of one or more states. 

(q) Service area means the 

jurisdiction(s) within which a grantee 

proposes to be able to designate sites via 

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minor boundary modifications under 

the ASF. 

(r) State includes any state of the 

United States, the District of Columbia, 

and Puerto Rico. 

(s) Subzone means a site (or group of 

sites) established for a specific use. 

(t) Usage-driven site means a site tied 

to a single operator or user under the 

ASF. 

(u) Zone means a foreign-trade zone 

established under the provisions of the 

Act and these regulations. Where used 

in this part, the term also includes 

subzones, unless the context indicates 

otherwise. 

(v) Zone grantee is the corporate 

recipient of a grant of authority for a 

zone. Where used in this part, the term 

‘‘grantee’’ means ‘‘zone grantee’’ unless 

otherwise indicated. 

(w) Zone operator is a person that 

operates within a zone or subzone under 

the terms of an agreement with the zone 

grantee (or third party on behalf of the 

grantee), with the concurrence of CBP. 

(x) Zone participant is a current or 

prospective zone operator, zone user, or 

property owner. 

(y) Zone plan includes all the zone 

sites that a single grantee is authorized 

to establish. 

(z) Zone site (site) means a physical 

location of a zone or subzone. A site is 

composed of one or more generally 

contiguous parcels of land organized 

and functioning as an integrated unit, 

such as all or part of an industrial park 

or airport facility. 

(aa) Zone user is a party using a zone 

under agreement with a zone operator. 

§ 400.3 Authority of the Board. 

(a) In general. In accordance with the 

Act and procedures of this part, the 

Board has authority to: 

(1) Prescribe rules and regulations 

concerning zones; 

(2) Issue grants of authority for zones, 

and approve subzones and 

modifications to the original zone; 

(3) Authorize production activity in 

zones and subzones as described in this 

part; 

(4) Make determinations on matters 

requiring Board decisions under this 

part; 

(5) Decide appeals in regard to certain 

decisions of the Commerce 

Department’s Assistant Secretary for 

Import Administration or the Executive 

Secretary; 

(6) Inspect the premises, operations 

and accounts of zone grantees, operators 

and users (and persons undertaking 

zone-related functions on behalf of 

grantees, where applicable); 

(7) Require zone grantees and 

operators to report on zone operations; 

(8) Report annually to the Congress on 

zone operations; 

(9) Restrict or prohibit zone 

operations; 

(10) Terminate reviews of 

applications under certain 

circumstances pursuant to § 400.36(g); 

(11) Authorize under certain 

circumstances the entry of ‘‘zonerestricted merchandise’’ (19 CFR 146.44) 

into the customs territory pursuant to 

§ 400.48; 

(12) Impose fines for violations of the 

Act and this part; 

(13) Instruct CBP to suspend activated 

status pursuant to § 400.62(h); 

(14) Revoke grants of authority for 

cause; 

(15) Determine, as appropriate, 

whether zone activity is or would be in 

the public interest or detrimental to the 

public interest, health or safety; and 

(16) Issue and discontinue waivers 

pursuant to § 400.43(f). 

(b) Authority of the Chairman of the 

Board. The Chairman of the Board 

(Secretary of the Department of 

Commerce) has the authority to: 

(1) Appoint the Executive Secretary of 

the Board; 

(2) Call meetings of the Board, with 

reasonable notice given to each member; 

and 

(3) Submit to the Congress the Board’s 

annual report as prepared by the 

Executive Secretary. 

(c) Alternates. Each member of the 

Board shall designate an alternate with 

authority to act in an official capacity 

for that member. 

(d) Authority of the Assistant 

Secretary for Import Administration 

(Alternate Chairman). The Commerce 

Department’s Assistant Secretary for 

Import Administration has the authority 

to: 

(1) Terminate reviews of applications 

under certain circumstances pursuant to 

§ 400.36(g); 

(2) Mitigate and assess fines pursuant 

to §§ 400.62(e) and (f) and instruct CBP 

to suspend activated status pursuant to 

§ 400.62(h); and 

(3) Restrict the use of zone procedures 

under certain circumstances pursuant to 

§ 400.49(c). 

(e) Determinations of the Board. 

Determinations of the Board shall be by 

the unanimous vote of the members (or 

alternate members) of the Board, which 

shall be recorded. 

§ 400.4 Authority and responsibilities of 

the Executive Secretary. 

The Executive Secretary has the 

following responsibilities and authority: 

(a) Represent the Board in 

administrative, regulatory, operational, 

and public affairs matters; 

(b) Serve as director of the Commerce 

Department’s Foreign-Trade Zones staff; 

(c) Execute and implement orders of 

the Board; 

(d) Arrange meetings and direct 

circulation of action documents for the 

Board; 

(e) Arrange with other sections of the 

Department of Commerce and other 

governmental agencies for studies and 

comments on zone issues and proposals; 

(f) Maintain custody of the seal, 

records, files and correspondence of the 

Board, with disposition subject to the 

regulations of the Department of 

Commerce; 

(g) Issue notices on zone matters for 

publication in the Federal Register; 

(h) Direct processing of applications 

and reviews, including designation of 

examiners and scheduling of hearings, 

under various sections of this part; 

(i) Make determinations on questions 

pertaining to grantees’ applications for 

subzones as provided in § 400.12(d); 

(j) Make recommendations in cases 

involving questions as to whether zone 

activity should be prohibited or 

restricted for public interest reasons, 

including proceedings and reviews 

under § 400.5; 

(k) Determine questions of scope 

under § 400.14(d); 

(l) Determine whether additional 

information is needed for evaluation of 

applications and other requests for 

decisions under this part, as provided 

for in various sections of this part, 

including §§ 400.21–400.25; 

(m) Issue instructions, guidelines, 

forms and related documents specifying 

time, place, manner and formats for 

applications and notifications in various 

sections of this part, including 

§§ 400.21(b) and 400.43(f); 

(n) Determine whether proposed 

modifications are major modifications 

or minor modifications under 

§ 400.24(a)(2); 

(o) Determine whether applications 

meet pre-docketing requirements under 

§ 400.31(b); 

(p) Terminate reviews of applications 

under certain circumstances pursuant to 

§ 400.36(g); 

(q) Authorize minor modifications to 

zones under § 400.38, commencement of 

production activity under § 400.37(d) 

and subzone designation under 

§ 400.36(f); 

(r) Review notifications for 

production authority under § 400.37; 

(s) Direct monitoring and reviews of 

zone operations and activity under 

§ 400.49; 

(t) Review rate schedules and 

determine their sufficiency under 

§ 400.44(c); 

(u) Assess potential issues and make 

recommendations pertaining to uniform 

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treatment under § 400.43 and review 

and decide complaint cases under 

§ 400.45; 

(v) Make certain determinations and 

authorizations pertaining to retail trade 

under § 400.47; 

(w) Authorize under certain 

circumstances the entry of ‘‘zonerestricted merchandise’’ into the 

customs territory under § 400.48; 

(x) Determine the format and 

deadlines for the annual reports of zone 

grantees to the Board and direct 

preparation of an annual report from the 

Board to Congress under § 400.51(c); 

(y) Make recommendations and 

certain determinations regarding 

violations and fines, and undertake 

certain procedures related to the 

suspension of activated status, as 

provided in § 400.62; and 

(z) Designate an acting Executive 

Secretary. 

§ 400.5 Authority to restrict or prohibit 

certain zone operations. 

The Board may conduct a proceeding, 

or the Executive Secretary a review, to 

consider a restriction or prohibition on 

zone activity. Such proceeding or 

review may be either self-initiated or in 

response to a complaint made to the 

Board by a person directly affected by 

the activity in question and showing 

good cause. After a proceeding or 

review, the Board may restrict or 

prohibit any admission of merchandise 

or process of treatment in an activated 

FTZ site when it determines that such 

activity is detrimental to the public 

interest, health or safety. 

§ 400.6 Board headquarters. 

The headquarters of the Board are 

located within the U.S. Department of 

Commerce (Herbert C. Hoover Building), 

1401 Constitution Avenue NW., 

Washington, DC 20230, within the office 

of the Foreign-Trade Zones staff. 

§ 400.7 CBP officials as Board 

representatives. 

CBP officials with oversight 

responsibilities for a port of entry 

represent the Board with regard to the 

zones adjacent to the port of entry in 

question and are responsible for 

enforcement, including physical 

security and access requirements, as 

provided in 19 CFR part 146. 

Subpart B—Ability To Establish Zone; 

Limitations and Restrictions on 

Authority Granted 

§ 400.11 Number and location of zones 

and subzones. 

(a) Number of zones—port of entry 

entitlement. 

(1) Provided that the other 

requirements of this part are met: 

(i) Each port of entry is entitled to at 

least one zone; 

(ii) If a port of entry is located in more 

than one state, each of the states in 

which the port of entry is located is 

entitled to a zone; and 

(iii) If a port of entry is defined to 

include more than one city separated by 

a navigable waterway, each of the cities 

is entitled to a zone. 

(2) Applications pertaining to zones 

in addition to those approved under the 

entitlement provision of paragraph (a)(1) 

of this section may be approved by the 

Board if it determines that the existing 

zone(s) will not adequately serve the 

convenience of commerce. 

(b) Location of zones and subzones— 

port of entry adjacency requirements. 

(1) The Board may approve ‘‘zones in 

or adjacent to ports of entry’’ (19 U.S.C. 

81b). 

(2) The ‘‘adjacency’’ requirement is 

satisfied if: 

(i) A general-purpose zone site is 

located within 60 statute miles or 90 

minutes’ driving time (as determined or 

concurred upon by CBP) from the outer 

limits of a port of entry boundary as 

defined in 19 CFR 101.3. 

(ii) A subzone meets the following 

requirements relating to CBP 

supervision: 

(A) Proper CBP oversight can be 

accomplished with physical and 

electronic means; 

(B) All electronically produced 

records are maintained in a format 

compatible with the requirements of 

CBP for the duration of the record 

period; and 

(C) The operator agrees to present 

merchandise for examination at a CBP 

site selected by CBP when requested, 

and further agrees to present all 

necessary documents directly to the 

relevant CBP oversight office. 

§ 400.12 Eligible applicants. 

(a) In general. Subject to the other 

provisions of this section, public or 

private corporations may apply for 

grants of authority to establish zones. 

The Board shall give preference to 

public corporations. 

(b) Public corporations and private 

non-profit corporations. The eligibility 

of public corporations and private nonprofit corporations to apply for a grant 

of authority shall be supported by 

enabling legislation of the legislature of 

the state in which the zone is to be 

located, indicating that the corporation, 

individually or as part of a class, is 

authorized to so apply. Any application 

must not be inconsistent with the 

charter or organizational papers of the 

applying entity. 

(c) Private for-profit corporations. The 

eligibility of private for-profit 

corporations to apply for a grant of 

authority shall be supported by a special 

act of the state legislature naming the 

applicant corporation and by evidence 

indicating that the corporation is 

chartered for the purpose of establishing 

a zone. 

(d) Applicants for subzones (except 

pursuant to § 400.24(c))—(1) Eligibility. 

The following entities are eligible to 

apply to establish a subzone: 

(i) The grantee of the closest zone in 

the same state; 

(ii) The grantee of another zone in the 

same state, which is a public 

corporation (or a non-public corporation 

if no such other public corporation 

exists), if the Board, or the Executive 

Secretary, finds that such sponsorship 

better serves the public interest; or 

(iii) A state agency specifically 

authorized to submit such an 

application by an act of the state 

legislature. 

(2) Notification of closest grantee. If 

an application is submitted under 

paragraph (d)(1)(ii) or (iii) of this 

section, the Executive Secretary shall: 

(i) Notify, in writing, the grantee 

specified in paragraph (d)(1)(i) of this 

section, which may, within 30 days, 

object to such sponsorship, in writing, 

with supporting information as to why 

the public interest would be better 

served by its acting as sponsor; 

(ii) Review such objections prior to 

docketing the application to determine 

whether the proposed sponsorship is in 

the public interest, taking into account: 

(A) The objecting zone’s structure and 

operation; 

(B) The views of state and local public 

agencies; and 

(C) The views of the proposed 

subzone operator; 

(iii) Notify the applicant and objecting 

zone in writing of the Executive 

Secretary’s determination; 

(iv) If the Executive Secretary 

determines that the proposed 

sponsorship is in the public interest, 

docket the application (see § 400.63 

regarding appeals of decisions of the 

Executive Secretary). 

§ 400.13 General conditions, prohibitions 

and restrictions applicable to authorized 

zones. 

(a) In general. Grants of authority 

issued by the Board for the 

establishment of zones and any 

authority subsequently approved for 

such zones, including those already 

issued, are subject to the Act and this 

part and the following general 

conditions or limitations: 

(1) Prior to activation of a zone, the 

zone grantee or operator shall obtain all 

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necessary permits from federal, state 

and local authorities, and except as 

otherwise specified in the Act or this 

part, shall comply with the 

requirements of those authorities. 

(2) A grant of authority approved 

under this part includes authority for 

the grantee to permit the erection of 

buildings necessary to carry out the 

approved zone (subject to concurrence 

of CBP for an activated area of a zone). 

(3) Approvals from the grantee (or 

other party acting on behalf of the 

grantee, where applicable) and CBP, 

pursuant to 19 CFR part 146, are 

required prior to the activation of any 

portion of an approved zone. 

(4) Authority for a zone or a subzone 

shall lapse unless the zone (in case of 

subzones, the subzone facility) is 

activated, pursuant to 19 CFR part 146, 

and in operation not later than five 

years from the authorization of the zone 

or subzone, subject to the provisions of 

Board Order 849 (61 FR 53305, October 

11, 1996). 

(5) Zone grantees, operators, and users 

(and persons undertaking zone-related 

functions on behalf of grantees, where 

applicable) shall permit federal 

government officials acting in an official 

capacity to have access to the zone and 

records during normal business hours 

and under other reasonable 

circumstances. 

(6) Activity involving production is 

subject to the specific provisions in 

§ 400.14. 

(7) A grant of authority may not be 

sold, conveyed, transferred, set over, or 

assigned (FTZ Act, section 17; 19 U.S.C. 

81q). 

(8) Private ownership of zone land 

and facilities is permitted, provided the 

zone grantee retains the control 

necessary to implement the approved 

zone. Such permission shall not 

constitute a vested right to zone 

designation, nor interfere with the 

Board’s regulation of the grantee or the 

permittee, nor interfere with or 

complicate the revocation of the grant 

by the Board. Should title to land or 

facilities be transferred after a grant of 

authority is issued, the zone grantee 

must retain, by agreement with the new 

owner, a level of control which allows 

the grantee to carry out its 

responsibilities as grantee. The sale of 

zone-designated land/facility for more 

than its fair market value without zone 

designation could, depending on the 

circumstances, be subject to the 

prohibitions set forth in section 17 of 

the Act (19 U.S.C. 81q). 

(b) Board authority to restrict or 

prohibit activity. Pursuant to section 

15(c) of the Act (19 U.S.C. 81o(c)), the 

Board has authority to ‘‘order the 

exclusion from [a] zone of any goods or 

process of treatment that in its judgment 

is detrimental to the public interest, 

health, or safety.’’ In approvals of 

proposed production authority pursuant 

to § 400.14(a), the Board may adopt 

restrictions to protect the public 

interest, health, or safety. When 

evaluating production activity, either as 

proposed in an application or as part of 

a review of an operation, the Board shall 

determine whether the activity is in the 

public interest by reviewing it in 

relation to the evaluation criteria 

contained in § 400.27. 

(c) Additional conditions, 

prohibitions and restrictions. Other 

conditions/requirements, prohibitions 

and restrictions under Federal, State or 

local law may apply to authorized zones 

and subzones. 

§ 400.14 Production—requirement for prior 

authorization; restrictions. 

(a) In general. Production activity in 

zones shall not be conducted without 

prior authorization from the Board. To 

obtain authorization, the notification 

process provided for in §§ 400.22 and 

400.37 shall be used. If Board review of 

a notification under § 400.37 results in 

a determination that further review is 

warranted for all or part of the notified 

activity, the application process 

pursuant to §§ 400.23, 400.31–400.32, 

400.34 and 400.36 shall apply to the 

activity. 

(b) Scope of authority. Production 

activity that may be conducted in a 

particular zone operation is limited to 

the specific foreign-status materials and 

components and specific finished 

products described in notifications and 

applications that have been authorized 

pursuant to paragraph (a) of this section, 

including any applicable prohibitions or 

restrictions. A determination may be 

requested pursuant to paragraph (d) of 

this section as to whether particular 

activity falls within the scope of 

authorized activity. Unauthorized 

activity could be subject to penalties 

pursuant to the customs regulations on 

foreign-trade zones (19 CFR part 146). 

(c) Information about authorized 

production activity. The Board shall 

make available via its Web site 

information regarding the materials, 

components, and finished products 

associated with individual production 

operations authorized under these and 

previous regulations, as derived from 

applications and notifications submitted 

to the Board. 

(d) Scope determinations. 

Determinations may be made by the 

Executive Secretary as to whether 

changes in activity are within the scope 

of the production activity already 

authorized under this part. When 

warranted, the procedures of §§ 400.32 

and 400.34 shall be followed. 

(e) Restrictions on items subject to 

antidumping and countervailing duty 

actions. 

(1) Board policy. Zone procedures 

shall not be used to circumvent 

antidumping duty (AD) and 

countervailing duty (CVD) actions under 

19 CFR part 351. 

(2) Admission of items subject to AD/ 

CVD actions. Items subject to AD/CVD 

orders, or items which would be 

otherwise subject to suspension of 

liquidation under AD/CVD procedures 

if they entered U.S. customs territory, 

shall be placed in privileged foreign 

status (19 CFR 146.41) upon admission 

to a zone or subzone. Upon entry for 

consumption, such items shall be 

subject to duties under AD/CVD orders 

or to suspension of liquidation, as 

appropriate, under 19 CFR part 351. 

§ 400.15 Production equipment. 

(a) In general. Pursuant to section 

81c(e) of the FTZ Act, merchandise that 

is admitted into a foreign-trade zone for 

use within such zone as production 

equipment or as parts for such 

equipment, shall not be subject to duty 

until such merchandise is completely 

assembled, installed, tested, and used in 

the production for which it was 

admitted. Payment of duty may be 

deferred until such equipment goes into 

use as production equipment as part of 

zone production activity, at which time 

the equipment shall be entered for 

consumption as completed equipment. 

(b) Definition of production 

equipment. Eligibility for this section is 

limited to equipment and parts of 

equipment destined for use in zone 

production activity as defined in 

§ 400.2(o) of this part. Ineligible for 

treatment as production equipment 

under this section are general materials 

(that are used in the installation of 

production equipment or in the 

assembly of equipment) and materials 

used in the construction or modification 

of the plant that houses the production 

equipment. 

(c) Equipment not destined for zone 

activity. Production equipment or parts 

that are not destined for use in zone 

production activity shall be treated as 

normal merchandise eligible for 

standard zone-related benefits (i.e., 

benefits not subject to the requirements 

of § 400.14(a)), provided the equipment 

is entered for consumption or exported 

prior to its use. 

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§ 400.16 Exemption from state and local 

ad valorem taxation of tangible personal 

property. 

Tangible personal property imported 

from outside the United States and held 

in a zone for the purpose of storage, 

sale, exhibition, repackaging, assembly, 

distribution, sorting, grading, cleaning, 

mixing, display, manufacturing, or 

processing, and tangible personal 

property produced in the United States 

and held in a zone for exportation, 

either in its original form or as altered 

by any of the above processes, shall be 

exempt from state and local ad valorem 

taxation. 

Subpart C—Applications To Establish 

and Modify Authority 

§ 400.21 Application to establish a zone. 

(a) In general. An application for a 

grant of authority to establish a zone 

(including pursuant to the ASF 

procedures adopted by the Board; see 74 

FR 1170, Jan. 12, 2009, 74 FR 3987, Jan. 

22, 2009, and 75 FR 71069, Nov. 22, 

2010) shall consist of an application 

letter and detailed contents to meet the 

requirements of this part. 

(b) Application format. Applications 

pursuant to this part shall comply with 

any instructions, guidelines, and forms 

or related documents, published in the 

Federal Register and made available on 

the Board’s Web site, as established by 

the Executive Secretary specific to the 

type of application in question. An 

application submitted that uses a 

superseded format shall be processed 

unless the format has not been current 

for a period in excess of one year. 

(c) Application letter. The application 

letter shall be dated within six months 

prior to the submission of the 

application and signed by an officer of 

the corporation authorized in the 

resolution for the application (see 

§ 400.21(d)(1)(iii)). The application 

letter shall also describe: 

(1) The relationship of the proposal to 

the state enabling legislation and the 

grantee’s charter; 

(2) The specific authority requested 

from the Board; 

(3) The proposed zone site(s) and 

facility(ies) and any larger project of 

which the zone is a part; 

(4) The project background; 

(5) The relationship of the project to 

the community’s and state’s 

international trade-related goals and 

objectives; 

(6) Any production authority 

requested; and 

(7) Any additional pertinent 

information needed for a complete 

summary description of the proposal. 

(d) Detailed contents. 

(1) Legal authority for the application 

shall be documented with: 

(i) A current copy of the state enabling 

legislation described in §§ 400.12(b) and 

(c); 

(ii) A copy of the relevant sections of 

the applicant’s charter or organization 

papers; and 

(iii) A certified copy of a resolution of 

the applicant’s governing body specific 

to the application authorizing the 

official signing the application letter. 

The resolution must be dated no more 

than six months prior to the submission 

of the application. 

(2) Site descriptions (including a table 

with site designations when more than 

one site is involved) shall be 

documented with: 

(i) A detailed description of the zone 

site, including size, location, and 

address (and legal description or its 

equivalent in instances where the 

Executive Secretary determines it is 

needed to supplement the maps in the 

application), as well as dimensions and 

types of existing and proposed 

structures, master planning, and 

timelines for construction of roads, 

utilities and planned buildings; 

(ii) Where applicable, a summary 

description of the larger project of 

which the site is a part, including type, 

size, location and address; 

(iii) A statement as to whether the site 

is within or adjacent to a CBP port of 

entry (including distance from the limits 

of the port of entry and, if the distance 

exceeds 60 miles, driving time from the 

limits of the port of entry); 

(iv) A description of existing or 

proposed site qualifications, including 

appropriate land-use zoning (with 

environmentally sensitive areas 

avoided) and physical security; 

(v) A description of current and 

planned activities associated with the 

site; 

(vi) A summary description of 

transportation systems, facilities, and 

services, including connections from 

local and regional transportation hubs to 

the zone; 

(vii) A statement regarding the 

environmental aspects of the proposal; 

(viii) The estimated time schedules 

for construction and activation; and 

(ix) A statement as to the possibilities 

and plans for future expansion of the 

site. 

(3) Operation and financing shall be 

documented with: 

(i) A statement as to site ownership (if 

not owned by the applicant or proposed 

operator, evidence as to their legal right 

to use the site); 

(ii) A discussion of plans for 

operations at the site; 

(iii) A commitment to satisfy the 

requirements for CBP automated 

systems; and 

(iv) A summary of the plans for 

financing the project. 

(4) Economic justification shall be 

documented with: 

(i) A statement of the community’s 

overall economic and trade-related goals 

and strategies in relation to those of the 

region and state, including a reference 

to the plan or plans on which the goals 

are based and how they relate to the 

zone project; 

(ii) An economic profile of the 

community including discussion of: 

(A) Dominant sectors in terms of 

employment or income; 

(B) Area strengths and weaknesses; 

(C) Unemployment rates; and 

(D) Area foreign trade statistics; 

(iii) A statement as to the role and 

objective of the zone project and a 

discussion of the anticipated economic 

impact, direct and indirect, of the zone 

project, including references to public 

costs and benefits, employment, and 

U.S. international trade; 

(iv) A separate justification for each 

proposed site, including a specific 

explanation addressing the degree to 

which the site may duplicate types of 

facilities at other proposed or existing 

sites in the zone; 

(v) A statement as to the need for zone 

services in the community, with specific 

expressions of interest from proposed 

zone users and letters of intent from 

those firms that are considered prime 

prospects for each specific proposed 

site; and 

(vi) For any production activity to be 

conducted at a proposed site, the 

separate requirements of § 400.14(a) 

must also be met. 

(5) Maps and site plans shall include 

the following documents: 

(i) State and county maps showing the 

general location of the proposed site(s) 

in terms of the area’s transportation 

network; 

(ii) For any proposed site, a legible, 

detailed site plan of the zone area 

showing zone boundaries in red, with 

street name(s), and showing existing 

and proposed structures; and 

(iii) For proposals involving a change 

in existing zones, one or more maps 

showing the relationship between 

existing zone sites and the proposed 

changes. 

(e) ASF applications. In addition to 

the general application requirements of 

this section, applications under the ASF 

shall include the following, where 

applicable: 

(1) Service area. 

(2) Appropriate information regarding 

magnet sites. 

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(3) Appropriate information regarding 

usage-driven sites. 

(f) Additional information. The Board 

or the Executive Secretary may require 

additional information needed to 

evaluate proposals adequately. 

(g) Amendment of application. The 

Board or the Executive Secretary may 

allow amendment of an application. 

Amendments which substantively 

expand the scope of an application shall 

be subject to comment period 

requirements such as those of 

§ 400.32(c)(2) with a minimum 

comment period of 30 days. 

(h) Drafts. Applicants are encouraged 

to submit a draft application to the 

Executive Secretary for review. A draft 

application must be complete with the 

possible exception of the application 

letter and/or resolution from the 

grantee. 

(i) Format and number of copies. 

Unless the Executive Secretary alters the 

requirements of this paragraph, the 

applicant shall submit an original 

(including original documents to meet 

the requirements of paragraphs (c) and 

(d)(1)(iii) of this section) and one copy 

of the application, both on 81⁄2′′ x 11′′ 

(216 x 279 mm) paper, and an electronic 

copy. 

(j) Where to submit an application: 

Executive Secretary, Foreign-Trade 

Zones Board, U.S. Department of 

Commerce, 1401 Constitution Avenue 

NW., Washington, DC 20230. Options 

for submission of electronic copies are 

described on the FTZ Board’s Web site. 

§ 400.22 Notification for production 

authority. 

Notifications requesting production 

authority pursuant to § 400.14(a) shall 

comply with any instructions, 

guidelines, and forms or related 

documents, published in the Federal 

Register and made available on the 

Board’s Web site, as established by the 

Executive Secretary. Notifications shall 

contain the following information: 

(a) Identity of the user and its 

location; 

(b) Materials, components and 

finished products associated with the 

proposed activity, including the tariff 

schedule categories (6-digit HTSUS) and 

tariff rates; and 

(c) Information as to whether any 

material or component is subject to a 

trade-related measure or proceeding 

(e.g., AD/CVD order or proceeding, 

suspension of liquidation under AD/ 

CVD procedures). 

§ 400.23 Application for production 

authority. 

In addition to any applicable 

requirements set forth in § 400.21, an 

application requesting production 

authority pursuant to § 400.37(c) shall 

include: 

(a) A summary as to the reasons for 

the application and an explanation of its 

anticipated economic effects; 

(b) Identity of the user and its 

corporate affiliation; 

(c) A description of the proposed 

activity, including: 

(1) Finished products; 

(2) Imported (foreign-status) materials 

and components; 

(3) For each finished product and 

imported material or component, the 

tariff schedule category (6-digit HTSUS), 

tariff rate, and whether the material or 

component is subject to a trade-related 

measure or proceeding (e.g., AD/CVD 

order or proceeding, suspension of 

liquidation under AD/CVD procedures); 

(4) Domestic inputs, foreign inputs, 

and plant value added as percentages of 

finished product value; 

(5) Projected shipments to domestic 

market and export market (percentages); 

(6) Estimated total or range of annual 

value of benefits to proposed user 

(broken down by category), including as 

a percent of finished product value; 

(7) Annual production capacity 

(current and planned) for the proposed 

FTZ activity, in units; 

(8) Information to assist the Board in 

making a determination under 

§§ 400.27(a)(3) and 400.27(b); 

(9) Information as to whether 

alternative procedures have been 

considered as a means of obtaining the 

benefits sought; 

(10) Information on the industry 

involved and extent of international 

competition; and 

(11) Economic impact of the operation 

on the area; and 

(d) Any additional information 

requested by the Board or the Executive 

Secretary in order to conduct the 

review. 

§ 400.24 Application for expansion or 

other modification to zone. 

(a) In general. (1) A grantee may apply 

to the Board for authority to expand or 

otherwise modify its zone (including 

pursuant to the ASF procedures adopted 

by the Board; see 74 FR 1170, Jan. 12, 

2009, 74 FR 3987, Jan. 22, 2009, and 75 

FR 71069, Nov. 22, 2010). 

(2) The Executive Secretary, in 

consultation with CBP as appropriate, 

shall determine whether the proposed 

modification involves a major change in 

the zone plan and is thus subject to 

paragraph (b) of this section, or is minor 

and subject to paragraph (c) of this 

section. In making this determination 

the Executive Secretary shall consider 

the extent to which the proposed 

modification would: 

(i) Substantially modify the plan 

originally approved by the Board; or 

(ii) Expand the physical dimensions 

of the approved zone area as they relate 

to the scope of operations envisioned in 

the original plan. 

(b) Major modification to zone. An 

application for a major modification of 

an approved zone shall be submitted in 

accordance with the requirements of 

§ 400.21, except that the content 

submitted pursuant to § 400.21(d)(4) 

(economic justification) shall relate 

specifically to the proposed change. 

(c) Minor modification to zone. Other 

applications or requests under this 

subpart shall be submitted in letter form 

with information and documentation 

necessary for analysis, as determined by 

the Executive Secretary, who shall 

determine whether the proposed change 

is a minor one subject to this paragraph 

(c) instead of paragraph (b) of this 

section (see § 400.38). Such applications 

or requests include those for minor 

revisions of general-purpose zone or 

subzone boundaries based on immediate 

need, as well as for designation as a 

subzone of all or part of an existing zone 

site(s) (or site(s) that qualifies for usagedriven status), where warranted by the 

circumstances and so long as the 

subzone activity remains subject to the 

activation limit (see § 400.2(b)) for the 

zone in question. 

(d) Applications for other revisions to 

authority. Applications or requests for 

other revisions to authority, such as for 

Board action to establish or modify an 

activation limit for a zone, modification 

of a restriction or reissuance of a grant 

of authority, shall be submitted in letter 

form with information and 

documentation necessary for analysis, 

as determined by the Executive 

Secretary. If the change involves the 

removal or significant modification of a 

restriction included by the Board in its 

approval of authority or the reissuance 

of a grant of authority, the review 

procedures of §§ 400.31–400.34 and 

400.36 shall be followed, where 

relevant. If not, the procedure set forth 

in § 400.38 shall generally apply 

(although the Executive Secretary may 

elect to follow the procedures of 

§§ 400.31–400.34 and 400.36 when 

warranted). 

§ 400.25 Application for subzone 

designation. 

In addition to the requirements of 

§§ 400.21(d)(1)(i) and (ii) pertaining to 

legal authority, § 400.21(d)(2)(vii) 

pertaining to environmental aspects of 

the proposal, and §§ 400.21(d)(3)(i) and 

(iii) pertaining to operation, a grantee’s 

application for subzone designation 

shall contain the following information: 

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(a) The name of the operator/user for 

which subzone designation is sought; 

(b) The nature of the activity at the 

proposed subzone; 

(c) The address(es) and physical size 

(acreage or square feet) of the proposed 

subzone location(s); and 

(d) One or more maps conforming to 

the requirements of section 

§ 400.21(d)(5)(ii). For any production 

activity to be conducted at a proposed 

subzone, the separate requirements of 

§ 400.14(a) must be met. 

§ 400.26 Criteria for evaluation of 

applications for expansions, subzones or 

other modifications of zones. 

The Board shall consider the 

following factors in determining 

whether to approve an application 

pertaining to a zone: 

(a) The need for zone services in the 

port of entry area, taking into account 

existing as well as projected 

international trade-related activities and 

employment impact; 

(b) The suitability of each proposed 

site and its facilities based on the plans 

presented for the site, including existing 

and planned buildings, zone-related 

activities, and the timeframe for 

development of the site; 

(c) The specific need and justification 

for each proposed site, taking into 

account existing sites and/or other 

proposed sites; 

(d) The extent of state and local 

government support, as indicated by the 

compatibility of the zone project with 

the community’s master plan or stated 

goals for economic development and the 

views of state and local public officials 

involved in economic development. 

Such officials shall avoid commitments 

that anticipate the outcome of Board 

decisions; 

(e) The views of persons likely to be 

materially affected by proposed zone 

activity; and 

(f) If the application involves 

production activity, the criteria in 

§ 400.27. 

§ 400.27 Criteria applicable to evaluation 

of applications for production authority. 

The Board shall apply the criteria set 

forth in this section in determining 

whether to approve an application for 

authority to conduct production activity 

pursuant to § 400.23. The Board’s 

evaluation shall take into account such 

factors as market conditions, price 

sensitivity, degree and nature of foreign 

competition, intra-industry and intrafirm trade, effect on exports and 

imports, ability to conduct the proposed 

activity outside the United States with 

the same U.S. tariff impact, analyses 

conducted in connection with prior 

Board actions, and net effect on U.S. 

employment and the U.S. economy: 

(a) Threshold factors. It is the policy 

of the Board to authorize zone activity 

only when it is consistent with public 

policy and, in regard to activity 

involving foreign merchandise subject 

to quotas or inverted tariffs, when zone 

procedures are not the sole determining 

cause of imports. Thus, without 

undertaking a review of the economic 

factors enumerated in § 400.27(b), the 

Board shall deny or restrict authority for 

proposed or ongoing activity if it 

determines that: 

(1) The activity is inconsistent with 

U.S. trade and tariff law, or policy 

which has been formally adopted by the 

Executive branch; 

(2) Board approval of the activity 

under review would seriously prejudice 

U.S. tariff and trade negotiations or 

other initiatives; or 

(3) The activity involves items subject 

to quantitative import controls or 

inverted tariffs, and the use of zone 

procedures would be the direct and sole 

cause of imports that, but for such 

procedures, would not likely otherwise 

have occurred, taking into account 

imports both as individual items and as 

components of imported products. 

(b) Economic factors. After its review 

of threshold factors, if there is a basis for 

further consideration of the application, 

the Board shall consider the following 

factors in determining the net economic 

effect of the proposed activity: 

(1) Overall employment impact; 

(2) Exports and re-exports; 

(3) Retention or creation of valueadded activity; 

(4) Extent of value-added activity; 

(5) Overall effect on import levels of 

relevant products; 

(6) Extent and nature of foreign 

competition in relevant products; 

(7) Impact on related domestic 

industry, taking into account market 

conditions; and 

(8) Other relevant information relating 

to the public interest and net economic 

impact considerations, including 

technology transfers and investment 

effects. 

(c) The significant public benefit(s) 

that would result from the production 

activity, taking into account the factors 

in paragraphs (a) and (b) of this section. 

(d) Contributory effect. In assessing 

the significance of the economic effect 

of the proposed zone activity as part of 

the consideration of economic factors, 

and considering whether it would result 

in a significant public benefit(s), the 

Board may consider the contributory 

effect zone savings have as an 

incremental part of cost-effectiveness 

programs adopted by companies to 

improve their international 

competitiveness. 

§ 400.28 Burden of proof. 

(a) In general. An applicant must 

demonstrate to the Board that its 

application meets the criteria set forth 

in these regulations. Applications for 

production-related authority shall 

contain evidence regarding the positive 

economic effect(s) and significant public 

benefit(s) that would result from the 

proposed activity and may submit 

evidence and comments concerning 

policy considerations. 

(b) Comments on applications. 

Comments submitted regarding 

applications should provide information 

that is probative and substantial in 

addressing the matter at issue relative to 

the nature of the proceeding, including 

any evidence of the projected direct 

impact of the proposed authority. 

(c) Requests for extensions of 

comment periods. Requests for 

extensions of comment periods shall 

include a description of the potential 

impact of the proposed authority and 

the specific actions or steps for which 

additional time is necessary. 

(d) Responses to comments on 

applications. Submissions in response 

to comments received during the public 

comment period or pursuant to 

§ 400.33(e)(1) or § 400.34(a)(5)(iv)(A) 

should contain evidence that is 

probative and substantial in addressing 

the matter at issue. 

§ 400.29 Application fees. 

(a) In general. This section sets forth 

a uniform system of charges in the form 

of fees to recover some costs incurred by 

the Foreign-Trade Zones staff of the 

Department of Commerce in processing 

the applications listed in paragraph (b) 

of this section. The legal authority for 

the fees is 31 U.S.C. 9701, which 

provides for the collection of user fees 

by agencies of the Federal Government. 

(b) Uniform system of user fee 

charges. The following fee schedule 

establishes fees for certain types of 

applications and requests for authority 

on the basis of their estimated average 

processing time. Applications 

combining requests for more than one 

type of approval are subject to the fee 

for each category. 

(1) Additional general-purpose zones 

(§ 400.21; § 400.11(a)(2))—$3,200 

(2) Special-purpose subzones 

(§ 400.25): 

(i) Not involving production activity 

or involving production activity with 

fewer than three products—$4,000 

(ii) Production activity with three or 

more products—$6,500 

(3) Expansions (§ 400.24(b))—$1,600 

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(c) Applications submitted to the 

Board shall include a currently dated 

check drawn on a national or state bank 

or trust company of the United States or 

Puerto Rico in the amount called for in 

paragraph (b) of this section. Uncertified 

checks must be acceptable for deposit 

by the Board in a Federal Reserve bank 

or branch. 

(d) Applicants shall make their checks 

payable to the U.S. Department of 

Commerce ITA. The checks will be 

deposited by ITA into the Treasury 

receipts account. If applications are 

found deficient under § 400.31(b), or are 

withdrawn by applicants prior to formal 

docketing, refunds will be made. 

Subpart D—Procedures for Application 

Evaluation and Reviews 

§ 400.31 General application provisions 

and pre-docketing review. 

(a) In general. Sections 400.31–400.36 

and 400.38 outline the procedures to be 

followed in docketing and processing 

applications submitted under §§ 400.21, 

400.23, 400.24(b), and 400.25. In 

addition, these sections set forth the 

time schedules which will ordinarily 

apply in processing applications. The 

schedules will guide applicants with 

respect to the time frames for each of the 

procedural steps involved in the Board’s 

review. Under these schedules, 

applications for subzone designation 

will generally be processed within 5 

months (3 months for applications 

subject to § 400.36(f)) and applications 

to establish or expand zones will 

generally be processed within 10 

months. The general timeframe to 

process applications for production 

authority is 12 months, but additional 

time is most likely to be required for 

applications requesting production 

authority when a complex or 

controversial issue is involved or when 

the applicant or other party has 

obtained a time extension for a 

particular procedural step. The 

timeframes specified apply from the 

time of docketing. Each applicant is 

responsible for submitting an 

application that meets the docketing 

requirements in a timeframe consistent 

with the applicant’s need for action on 

its request. 

(b) Pre-docketing review. The grantee 

shall submit a single complete copy of 

an application for pre-docketing review. 

(For requests relating to production in 

already approved zone or subzone 

space, the request may be submitted by 

the operator, provided the operator at 

the same time furnishes a copy of the 

request to the grantee.) The Executive 

Secretary shall determine whether the 

application satisfies the requirements of 

§§ 400.12, 400.21, 400.23–400.25, and 

other applicable provisions of this part 

such that the application is sufficient for 

docketing. If the pre-docketing copy of 

the application is deficient, the 

Executive Secretary shall notify the 

applicant within 30 days of receipt of 

the pre-docketing copy, specifying the 

deficiencies. An affected zone 

participant may also be contacted 

regarding relevant application elements 

requiring additional information or 

clarification. If the applicant does not 

correct the deficiencies and submit a 

corrected pre-docketing application 

copy within 30 days of notification, the 

pre-docketing application (single copy) 

shall be discarded. 

§ 400.32 Procedures for docketing 

applications and commencement of case 

review. 

(a) Once the pre-docketing copy of the 

application is determined to be 

sufficient, the Executive Secretary shall 

notify the applicant within 15 days so 

that the applicant may then submit the 

original and requisite number of copies 

(which shall be dated upon receipt at 

the headquarters of the Board) for 

docketing by the Board. For applications 

subject to § 400.29, the original shall be 

accompanied with a check in 

accordance with that section. 

(b) After the procedures described in 

paragraph (a) of this section are 

completed, the Executive Secretary shall 

within 15 days of receipt of the original 

and required number of copies of the 

application: 

(1) Formally docket the application, 

thereby initiating the proceeding or 

review; 

(2) Assign a case-docket number; and 

(3) Notify the applicant of the formal 

docketing action. 

(c) After initiating a proceeding based 

on an application under §§ 400.21 and 

400.23–400.25, the Executive Secretary 

shall: 

(1) Designate an examiner to conduct 

a review and prepare a report or 

memorandum with recommendations 

for the Board; 

(2) Publish in the Federal Register a 

notice of the formal docketing of the 

application and initiation of the review. 

The notice shall include the name of the 

applicant, a description of the proposal, 

and an invitation for public comment. If 

the application requests authority for 

production activity and indicates that a 

component to be used in the activity is 

subject to a trade-related measure or 

proceeding (e.g., AD/CVD order or 

proceeding, suspension of liquidation 

under AD/CVD procedures), the notice 

shall include that information. For 

applications to establish or expand a 

zone or for production authority, the 

comment period shall normally close 60 

days after the date the notice appears. 

For applications for subzone 

designation, the comment period shall 

normally close 40 days after the date the 

notice appears. However, if a hearing is 

held (see § 400.52), the comment period 

shall not close prior to 15 days after the 

date of the hearing. The closing date for 

general comments shall ordinarily be 

followed by an additional 15-day period 

for rebuttal comments. Requests for 

extensions of a comment period will be 

considered, subject to the standards of 

§ 400.28(c). Submissions must meet the 

requirements of § 400.28(b). With the 

exception of submissions by the 

applicant, any new evidence or new 

factual information and any written 

arguments submitted after the deadlines 

for comments shall not be considered by 

the examiner or the Board. Submission 

by the applicant of new evidence or new 

factual information may result in the 

(re)opening of a comment period. A 

comment period may otherwise be 

opened or reopened for cause; 

(3) Transmit or otherwise make 

available copies of the docketing notice 

and the application to CBP; 

(4) Arrange for hearings, as 

appropriate; 

(5) Transmit the report and 

recommendations of the examiner and 

any comments by CBP to the Board for 

appropriate action; and 

(6) Notify the applicant in writing (via 

electronic means, where appropriate) 

and publish notice in the Federal 

Register of the Board’s determination. 

(d) CBP review. Any comments by 

CBP pertaining to the application shall 

be submitted to the Executive Secretary 

by the conclusion of the public 

comment period described in paragraph 

(c)(2) of this section. 

§ 400.33 Examiner’s review—application to 

establish or modify a zone. 

An examiner assigned to review an 

application to establish, reorganize or 

expand a zone shall conduct a review 

taking into account the factors 

enumerated in § 400.26 and other 

appropriate sections of this part, which 

shall include: 

(a) Conducting or participating in 

hearings scheduled by the Executive 

Secretary; 

(b) Reviewing case records, including 

public comments; 

(c) Requesting information and 

evidence from parties of record; 

(d) Developing information and 

evidence necessary for evaluation and 

analysis of the application in 

accordance with the criteria of the Act 

and this part; and 

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(e) Developing recommendations to 

the Board and submitting a report to the 

Executive Secretary, generally within 

150 days of the close of the period for 

public comment (75 days for 

reorganizations under the ASF) (see 

§ 400.32): 

(1) If the recommendations are 

unfavorable to the applicant, they shall 

be considered preliminary and the 

applicant shall be notified in writing 

(via electronic means, where 

appropriate) of the preliminary 

recommendations and the factors 

considered in their development. The 

applicant shall be given 30 days from 

the date of notification, subject to 

extensions upon request by the 

applicant, which shall not be 

unreasonably withheld, in which to 

respond to the recommendations and 

submit additional evidence pertinent to 

the factors considered in the 

development of the preliminary 

recommendations. Public comment may 

be invited on preliminary 

recommendations when warranted. 

(2) If the response contains new 

evidence on which there has been no 

opportunity for public comment, the 

Executive Secretary shall publish a 

notice in the Federal Register after 

completion of the review of the 

response. The new material shall be 

made available for public inspection 

and the Federal Register notice shall 

invite further public comment for a 

period of not less than 30 days, with an 

additional 15-day period for rebuttal 

comments. 

(3) If the bases for an examiner’s 

recommendation(s) change as a result of 

new evidence, the applicable 

procedures of §§ 400.33(e)(1) and (2) 

shall be followed. 

(4) When necessary, a request may be 

made to CBP to provide further 

comments, which shall be submitted 

within 45 days after the request. 

§ 400.34 Examiner’s review—application 

for production authority. 

(a) The examiner shall conduct a 

review taking into account the factors 

enumerated in this section, § 400.27, 

and other appropriate sections of this 

part, which shall include: 

(1) Conducting or participating in 

hearings scheduled by the Executive 

Secretary; 

(2) Reviewing case records, including 

public comments; 

(3) Requesting information and 

evidence from parties of record and 

others, as warranted; 

(4) Developing information and 

evidence necessary for analysis of the 

threshold factors and the economic 

factors enumerated in § 400.27; and 

(5) Conducting an analysis to include: 

(i) An evaluation of policy 

considerations pursuant to 

§§ 400.27(a)(1) and (2); 

(ii) An evaluation of the economic 

factors enumerated in §§ 400.27(a)(3) 

and 400.27(b), which shall include an 

evaluation of the economic impact on 

domestic industry, considering both 

producers of like products and 

producers of components/materials 

used in the production activity; 

(iii) Conducting appropriate industry 

research and surveys, as necessary; and 

(iv) Developing recommendations to 

the Board and submitting a report to the 

Executive Secretary, generally within 

150 days of the close of the period for 

public comment (although additional 

time may be required in circumstances 

such as when the applicant or other 

party has obtained a time extension for 

a particular procedural step): 

(A) If the recommendations are 

unfavorable to the applicant, they shall 

be considered preliminary and the 

applicant shall be notified in writing 

(via electronic transmission where 

appropriate) of the preliminary 

recommendations and the factors 

considered in their development. The 

applicant shall be given 45 days from 

the date of notification in which to 

respond to the recommendations and 

submit additional evidence pertinent to 

the factors considered in the 

development of the preliminary 

recommendations. Public comment may 

be invited on preliminary 

recommendations when warranted. 

(B) If the response contains new 

evidence on which there has not been 

an opportunity for public comment, the 

Executive Secretary shall publish notice 

in the Federal Register after completion 

of the review of the response. The new 

material shall be made available for 

public inspection and the Federal 

Register notice shall invite further 

public comment for a period of not less 

than 30 days, with an additional 15-day 

period for rebuttal comments. 

(C) If the bases for an examiner’s 

recommendation(s) change as a result of 

new evidence, the applicable 

procedures of §§ 400.34(a)(5)(iv)(A) and 

(B) shall be followed. 

(b) Methodology and evidence. The 

evaluation of an application for 

production authority shall include the 

following steps: 

(1) The first phase (§ 400.27(a)) 

involves consideration of threshold 

factors. If an examiner or reviewer 

makes a negative finding on any of the 

factors in § 400.27(a) in the course of a 

review, the applicant shall be informed 

pursuant to § 400.34(a)(5)(iv)(A). When 

threshold factors are the basis for a 

negative recommendation in a review of 

ongoing activity, the zone grantee and 

directly affected party shall be notified 

and given an opportunity to submit 

evidence pursuant to 

§ 400.34(a)(5)(iv)(A). If the Board 

determines in the negative regarding 

any of the factors in § 400.27(a), it shall 

deny or restrict authority for the 

proposed or ongoing activity. 

(2) The second phase (§ 400.27(b)) 

involves consideration of the 

enumerated economic factors, taking 

into account their relative weight and 

significance under the circumstances. 

Previous evaluations in similar cases 

shall be considered. 

§ 400.35 Examiner’s review—application 

for subzone designation. 

The examiner shall develop a 

memorandum with a recommendation 

on whether to approve the application, 

taking into account the criteria 

enumerated in § 400.26. To develop that 

memorandum, the examiner shall 

review the case records including public 

comments, and may request information 

and evidence from parties of record, as 

necessary. The examiner’s 

memorandum shall generally be 

submitted to the Board within 30 days 

of the close of the period for public 

comment. However, additional time 

may be taken as necessary for analysis 

of any public comment in opposition to 

the application or if other complicating 

factors arise. 

(a) If the examiner’s recommendation 

is unfavorable to the applicant, it shall 

be considered preliminary and the 

applicant shall be notified in writing 

(via electronic means, where 

appropriate) of the preliminary 

recommendation and the factors 

considered in its development. The 

applicant shall be given 30 days from 

the date of notification, subject to 

extensions upon request by the 

applicant, which shall not be 

unreasonably withheld, in which to 

respond to the recommendation and 

submit additional evidence pertinent to 

the factors considered in the 

development of the preliminary 

recommendations. Public comment may 

be invited on preliminary 

recommendations when warranted. 

(b) If the response contains new 

evidence on which there has not been 

an opportunity for public comment, the 

Executive Secretary shall publish notice 

in the Federal Register after completion 

of the review of the response. The new 

material shall be made available for 

public inspection and the Federal 

Register notice shall invite further 

public comment for a period of not less 

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than 30 days, with an additional 15-day 

period for rebuttal comments. 

(c) If the bases for an examiner’s 

recommendation(s) change as a result of 

new evidence, the applicable 

procedures of §§ 400.35(a) and (b) shall 

be followed. 

(d) The CBP adviser shall be 

requested, when necessary, to provide 

further comments, which shall be 

submitted within 45 days after the 

request. 

§ 400.36 Completion of case review. 

(a) The Executive Secretary shall 

circulate the examiner’s report 

(memorandum in the case of subzone 

applications) with recommendations to 

CBP headquarters staff and to the 

Treasury Board member for review and 

action. 

(b) In its advisory role to the Board, 

CBP headquarters staff shall provide any 

comments within 15 days. 

(c) The vote of the Treasury Board 

member shall be returned to the 

Executive Secretary within 30 days, 

unless a formal meeting is requested 

(see, § 400.3(b)). 

(d) The Commerce Department shall 

complete the decision process within 15 

days of receiving the vote of the 

Treasury Board member, and the 

Executive Secretary shall publish the 

Board decision. 

(e) If the Board is unable to reach a 

unanimous decision, the grantee shall 

be notified and provided an opportunity 

to meet with the Board members or their 

delegates. 

(f) Delegation of authority to approve 

subzone designation. The Board 

delegates to the Executive Secretary 

authority to approve applications 

requesting subzone designation, on the 

condition that such approved subzones 

will be subject to the activation limit for 

the zone in question. 

(g) The Board or the Commerce 

Department’s Assistant Secretary for 

Import Administration may opt to 

terminate review of an application with 

no further action if the applicant has 

failed to provide in a timely manner 

information needed for evaluation of the 

application. A request from an applicant 

for an extension of time to provide 

information needed for evaluation of an 

application shall not be unreasonably 

withheld. The Executive Secretary may 

terminate review of an application 

where the overall circumstances 

presented in the application no longer 

exist as a result of a material change, 

and shall notify the applicant in writing 

of the intent to terminate review and 

allow 30 days for a response prior to 

completion of any termination action. 

The Executive Secretary shall confirm 

the termination in writing (by electronic 

means, where appropriate) to the 

applicant. 

§ 400.37 Procedure for notification of 

proposed production activity. 

(a) Submission of notification. A 

notification for production authority 

pursuant to §§ 400.14(a) and 400.22 

shall be submitted simultaneously to the 

Board’s Executive Secretary and to CBP 

(as well as to the grantee of the zone, if 

the grantee is not the party making the 

submission). 

(b) Initial processing of notification. 

Upon receipt of a complete notification 

conforming to the requirements of the 

notification format established by the 

Executive Secretary pursuant to 

§ 400.22, the Executive Secretary shall 

commence processing the notification. 

Unless the Executive Secretary 

determines, based on the content of the 

notification, to recommend further 

review to the Board without inviting 

public comment on the notification, the 

Executive Secretary shall transmit to the 

Federal Register a notice inviting public 

comment on the notification (with such 

comment subject to the standards of 

§ 400.28(b)). The notice shall be 

transmitted to the Federal Register 

within 15 days of the commencement of 

the processing of the notification, and 

the comment period shall normally 

close 40 days after the date the notice 

appears. If the notification indicates that 

a material or component to be used in 

the activity is subject to an AD/CVD 

order or proceeding, or suspension of 

liquidation under AD/CVD procedures, 

the notice shall include that 

information. Evidence, factual 

information and written arguments 

submitted in response to the notice 

must be submitted by the deadline for 

comments. Any comments by CBP 

pertaining to the notification shall be 

submitted to the Executive Secretary by 

the end of the comment period. Within 

80 days of receipt of the notification, the 

Executive Secretary shall submit to the 

Board a recommendation on whether 

further review of all or part of the 

activity subject to the notification is 

warranted. The Executive Secretary’s 

recommendation shall consider 

comments submitted during the 

comment period, any guidance from 

specialists within government, and 

other relevant factors based on the 

Board staff’s assessment of the 

notification, in the context of the factors 

set forth in § 400.27. 

(c) Determinations regarding further 

review. Within 30 days of receipt of the 

Executive Secretary’s recommendation, 

the Board members shall provide to the 

Executive Secretary their 

determinations on whether further 

review is warranted concerning all or 

part of the activity that is the subject of 

the notification. If either Board member 

makes a determination that further 

review is warranted, the activity that is 

subject to further review (which may 

constitute all or part of the notified 

activity) shall not be conducted without 

authorization pursuant to the 

application requirements of § 400.23 

and the procedural requirements of 

§§ 400.31–400.34 and 400.36 (or the 

provisions of paragraph (d) of this 

section, where applicable). Within 120 

days of receipt of the notification, the 

Executive Secretary shall notify the 

party that submitted the notification 

(and the zone grantee, if it did not 

submit the notification) that: 

(1) Further review is not needed for 

all or part of the activity that is the 

subject of the notification, and that the 

activity in question may be conducted; 

or 

(2) Further review is needed for all or 

part of the activity that is the subject of 

the notification, with such activity 

precluded absent specific authorization. 

(d) Authorization for commencement 

of an activity on an interim basis. For 

an activity notified pursuant to 

§ 400.14(a), the Executive Secretary may 

authorize the commencement of some or 

all of the activity on an interim basis. 

Such authorization shall only be made 

based on a showing that commencement 

of the activity is time-sensitive, with 

such showing to include comments 

from CBP that specifically address the 

projected timeframe for commencement 

of the activity. Interim authorization 

shall not apply to materials or 

components subject to an AD/CVD order 

or proceeding or suspension of 

liquidation under AD/CVD procedures. 

As warranted, a determination that 

further review is needed for all or some 

of the notified activity pursuant to 

§ 400.37(c) may also revoke the interim 

authorization until the Board makes a 

determination after conduct of that 

further review. 

§ 400.38 Procedure for application for 

minor modification of zone. 

(a) The Executive Secretary shall 

make a determination in cases under 

§ 400.24(c) involving minor 

modifications of zones that do not 

require Board action, such as boundary 

modifications, including certain 

relocations, and shall notify the 

applicant in writing of the decision 

within 30 days of the determination that 

the application or request can be 

processed under § 400.24(c). The 

applicant shall submit a copy of its 

application/request to CBP no later than 

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the time of the applicant’s submission of 

the application/request to the Executive 

Secretary. 

(b) If not previously provided to the 

applicant for inclusion with the 

applicant’s submission of the 

application/request to the Executive 

Secretary, any CBP comments on the 

application/request shall be provided to 

the Executive Secretary within 20 days 

of the applicant’s submission of the 

application/request to the Executive 

Secretary. 

Subpart E—Operation of Zones and 

Administrative Requirements 

§ 400.41 General operation of zones; 

requirements for commencement of 

operations. 

(a) In general. Zones shall be operated 

by or under the general management of 

zone grantees, subject to the 

requirements of the FTZ Act and this 

part, as well as those of other federal, 

state and local agencies having 

jurisdiction over the site(s) and 

operation(s). Zone grantees shall ensure 

that the reasonable zone needs of the 

business community are served by their 

zones. CBP officials with oversight 

responsibilities for a port of entry 

represent the Board with regard to the 

zones adjacent to the port of entry in 

question and are responsible for 

enforcement, including physical 

security and access requirements, as 

provided in 19 CFR part 146. 

(b) Requirements for commencement 

of operations in a zone. The following 

actions are required before operations in 

a zone may commence: 

(1) The grantee shall submit the zone 

schedule to the Executive Secretary, as 

provided in § 400.44. 

(2) Approval or concurrence from the 

grantee and approval from CBP, 

pursuant to 19 CFR part 146, are 

required prior to the activation of any 

portion of an approved zone; and 

(3) Prior to activation of a zone, the 

operator shall obtain all necessary 

permits from federal, state and local 

authorities, and except as otherwise 

specified in the Act or this part, shall 

comply with the requirements of those 

authorities. 

§ 400.42 Operation as public utility. 

(a) In general. Pursuant to Section 14 

of the FTZ Act (19 U.S.C. 81n), each 

zone shall be operated as a public 

utility, and all rates and charges for all 

services or privileges within the zone 

shall be fair and reasonable. A rate or 

charge (fee) may be imposed on zone 

participants to recover costs incurred by 

or on behalf of the grantee for the 

performance of the grantee function. 

Such a rate or charge must be directly 

related to the service provided by the 

grantee (for which the fee recovers some 

or all costs incurred) to the zone 

participants. Rates or charges may 

incorporate a reasonable return on 

investment. Rates or charges may not be 

tied to the level of benefits derived by 

zone participants. Other than the 

uniform rates and charges assessed by, 

or on behalf of, the grantee, zone 

participants shall not be required (either 

directly or indirectly) to utilize or pay 

for a particular provider’s zone-related 

products or services. 

(b) Delayed compliance date. The 

compliance date for the requirements of 

paragraph (a) of this section shall be 

February 28, 2014. 

§ 400.43 Uniform treatment. 

Pursuant to Section 14 of the FTZ Act 

(19 U.S.C. 81n), a grantee shall afford to 

all who may apply to make use of or 

participate in the zone uniform 

treatment under like conditions. 

Treatment of zone participants within a 

zone (including application of rates and 

charges) shall not vary depending on 

whether a zone participant has procured 

any zone-related product or service or 

engaged a particular supplier to provide 

any such product or service. 

(a) Agreements to be made in writing. 

Any agreement or contract related to 

one or more grantee function(s) and 

involving a zone participant (e.g., 

agreements with property owners and 

agreements with zone operators) must 

be in writing. 

(b) Evaluation of proposals. A grantee 

(or person undertaking a zone-related 

function(s) on behalf of a grantee, where 

applicable) shall apply uniform 

treatment in the evaluation of proposals 

from zone participants. Uniform 

treatment does not require acceptance of 

all proposals by zone participants, but 

the bases for a grantee’s decision on a 

particular proposal must be consistent 

with the uniform treatment requirement. 

(c) Justification for differing 

treatment. Given the requirement for 

uniform treatment under like 

conditions, for any instance of different 

treatment of different zone participants, 

a grantee (or person undertaking a zonerelated function(s) on behalf of a 

grantee, where applicable) must be able 

to provide upon request by the 

Executive Secretary a documented 

justification for any difference in 

treatment. 

(d) Avoidance of non-uniform 

treatment. To avoid non-uniform 

treatment of zone participants, persons 

(as defined in § 400.2(l)) within key 

categories set out in paragraph (d)(2) of 

this section shall not undertake any of 

the key functions set out in paragraph 

(d)(1) of this section (except in specific 

circumstances where the Board has 

authorized a waiver pursuant to 

paragraph (f) of this section). 

(1) Key functions are: 

(i) Taking action on behalf of a 

grantee, or making recommendations to 

a grantee, regarding the disposition of 

proposals or requests by zone 

participants pertaining to FTZ authority 

or activity (including activation by 

CBP); 

(ii) Approving, or being a party to, a 

zone participant’s agreement with the 

grantee (or person acting on behalf of 

the grantee) pertaining to FTZ authority 

or activity (including activation by 

CBP); or 

(iii) Overseeing zone participants’ 

operations on behalf of a grantee. 

(2) Key categories of persons are: 

(i) A person that currently engages in, 

or which has during the preceding 

twelve months engaged in, offering/ 

providing a zone-related product/ 

service to or representing a zone 

participant in the grantee’s zone; 

(ii) Any person that stands to gain 

from a person’s offer/provision of a 

zone-related product/service to or 

representation of a zone participant in 

the zone; or 

(iii) Any person related, as defined in 

paragraph (e) of this section, to the 

person identified in paragraphs (d)(2)(i) 

and (ii) of this section. 

(e) Definition of related persons. For 

purposes of this section, persons that 

are related include: 

(1) Members of a family or members 

of a household. The term members of a 

family means spouses, parents, 

grandparents, children, grandchildren, 

siblings (including half-siblings and 

step-siblings), aunts, uncles, nieces, 

nephews, and first cousins, as well as 

the parents, children, and siblings of a 

spouse, and the spouse of a sibling, 

child or parent; 

(2) Organizations that are wholly or 

majority-owned by members of the same 

family or members of the same 

household; 

(3) An officer or director of an 

organization and that organization; 

(4) Partners; 

(5) Employers and their employees; 

(6) An organization and any person 

directly or indirectly owning, 

controlling, or holding with power to 

vote, 20 percent or more of the 

outstanding voting stock or shares of 

that organization; 

(7) Any person that controls any other 

person and that other person (the term 

control means the power, direct or 

indirect, whether or not exercised, 

through any means, to determine, direct, 

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or decide important matters affecting an 

entity); or 

(8) Any two or more persons who 

directly control, are controlled by, or are 

under common control with, any person 

(see definition of control in paragraph 

(e)(7) of this section). 

(f) Waivers. The grantee or other 

person subject to paragraph (d) of this 

section may submit an application 

requesting that the Board issue a waiver 

exempting from the prohibition of that 

paragraph a person’s undertaking a 

specific key function(s) listed in 

paragraph (d)(1) of this section. Using 

the format developed by the Executive 

Secretary, an application for a waiver 

shall explain in detail how the person 

falls within a key category(ies) set out in 

paragraph (d)(2) of this section, and the 

specific key function(s) listed in 

paragraph (d)(1) of this section that 

would be undertaken by the person. 

After receipt of an application 

requesting a waiver, the Executive 

Secretary may solicit additional 

information or clarification, as 

necessary, including from the person 

submitting the application and from the 

grantee. Based on the information 

presented in the application, the 

Executive Secretary shall make a 

recommendation to the Board. A waiver 

shall be authorized only by an 

affirmative vote by the Board. If the 

Board votes not to authorize a waiver or 

to discontinue a waiver, the applicant 

shall be notified in writing and allowed 

30 days to present evidence in response. 

In deciding whether to grant a waiver, 

the Board shall determine whether there 

is an unacceptable risk that the waiver 

would result in non-uniform treatment 

being afforded by the person 

undertaking a key function(s) listed in 

paragraph (d)(1) of this section. In its 

assessment, the Board shall consider the 

specific circumstances presented, 

including the nature and extent of the 

person’s involvement in undertaking a 

key function(s) listed in paragraph (d)(1) 

of this section. In general, the more 

significant the requester’s involvement 

or interest in the undertaking of a key 

function(s) listed in paragraph (d)(1) of 

this section or activity(ies) identified in 

paragraph (d)(2)(i) of this section, the 

greater the risk will be that non-uniform 

treatment will be afforded and, thus, the 

less likely it will be that a waiver will 

be granted. The Board may attach to 

individual waivers such conditions or 

limitations (including, for example, the 

length of time a waiver is to be effective) 

as it deems necessary. 

(g) Requests for determinations. A 

grantee or other party may request a 

determination by the Executive 

Secretary regarding the consistency of 

an actual or potential arrangement with 

the requirements of this section. 

(h) Identification of person 

undertaking function(s) on behalf of 

grantee. The Board, the Commerce 

Department’s Assistant Secretary for 

Import Administration, or the Executive 

Secretary, may require a zone grantee to 

identify any person undertaking a zonerelated function(s) on behalf of the 

grantee. 

(i) Delayed compliance date. If, as of 

April 30, 2012, existing business 

arrangements do not comply with the 

requirements of paragraphs (a) and (d) 

of this section, such existing 

arrangements shall be terminated or 

brought into compliance no later than 

February 28, 2014. 

§ 400.44 Zone schedule. 

(a) In general. The zone grantee shall 

submit to the Executive Secretary (in 

both paper and electronic copies) a zone 

schedule which sets forth the elements 

required in this section. No element of 

a zone schedule (including any 

amendment to the zone schedule) may 

be considered to be in effect until such 

submission has occurred. If warranted, 

the Board may subsequently amend the 

requirements of this section by Board 

Order. 

(b) Each zone schedule shall include: 

(1) A title page, which shall include 

the name of the zone grantee and the 

date of the current schedule; 

(2) A table of contents; 

(3) Internal rules/regulations and 

policies for the zone; 

(4) All rates or charges assessed by or 

on behalf of the grantee; 

(5) Information regarding any operator 

which has an agreement with the 

grantee to offer services to the public, 

including the operator’s rates or charges 

for all zone-specific services offered; 

and 

(6) An appendix with definitions of 

any FTZ-related terms used in the zone 

schedule (as needed). 

(c) The Executive Secretary may 

review the zone schedule (or any 

amendment to the zone schedule) to 

determine whether it contains sufficient 

information for zone participants 

concerning the operation of the zone 

and the grantee’s rates and charges as 

provided in paragraphs (b)(3) and (b)(4) 

of this section. If the Executive 

Secretary determines that the zone 

schedule (or amendment) does not 

satisfy these requirements, the 

Executive Secretary shall notify the 

zone grantee. The Executive Secretary 

may also conduct a review under 

400.45(b). 

(d) Amendments to the zone schedule 

shall be prepared and submitted in the 

manner described in paragraph (a) of 

this section, and listed in the 

concluding section of the zone 

schedule, with dates. No rates/charges 

or other provisions required for the zone 

schedule may be applied by, or on 

behalf of, the grantee unless those 

specific rates/charges or provisions are 

included in the most recent zone 

schedule submitted to the Board and 

made available to the public in 

compliance with paragraph (e) of this 

section. 

(e) Availability of zone schedule. A 

complete copy of the zone schedule 

shall be freely available for public 

inspection at the offices of the zone 

grantee and any operator offering FTZ 

services to the user community. The 

Board shall make copies of zone 

schedules available on its Web site. 

(f) Delayed compliance date. The 

compliance date for the requirements of 

this section shall be February 28, 2014. 

§ 400.45 Complaints related to public 

utility and uniform treatment. 

(a) In general. A zone participant may 

submit to the Executive Secretary a 

complaint regarding conditions or 

treatment that the complaining party 

believes are inconsistent with the public 

utility and uniform treatment 

requirements of the FTZ Act and these 

regulations. Complaints may be made 

on a confidential basis, if necessary. 

Grantees (and persons undertaking 

zone-related functions on behalf of 

grantees, where applicable) shall not 

enter into or enforce provisions of 

agreements or contracts with zone 

participants that would require zone 

participants to disclose to other parties, 

including the grantee (or person 

undertaking a zone-related function(s) 

on behalf of a grantee, where 

applicable), any confidential 

communication with the Board under 

this section. 

(b) Objections to rates and charges. A 

zone participant showing good cause 

may object to any rate or charge related 

to the zone on the basis that it is not fair 

and reasonable by submitting to the 

Executive Secretary a complaint in 

writing with supporting information. If 

necessary, such a complaint may be 

made on a confidential basis pursuant to 

§ 400.45(a). The Executive Secretary 

shall review the complaint and issue a 

report and decision, which shall be final 

unless appealed to the Board within 30 

days. The Board or the Executive 

Secretary may otherwise initiate a 

review for cause. The primary factor 

considered in reviewing fairness and 

reasonableness is the cost of the specific 

services rendered. Where those costs 

incorporate charges to the grantee by 

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one or more parties undertaking 

functions on behalf of the grantee, the 

Board may consider the costs incurred 

by those parties (using best estimates, as 

necessary). The Board will also give 

consideration to any extra costs 

incurred relative to non-zone 

operations, including return on 

investment and reasonable out-of-pocket 

expenses. 

§ 400.46 Grantee liability. 

(a) Exemption from liability. A grant 

of authority, per se, shall not be 

construed to make the zone grantee 

liable for violations by zone 

participants. The role of the zone 

grantee under the FTZ Act and the 

Board’s regulations is to provide general 

management of the zone to ensure that 

the reasonable needs of the business 

community are served. It would not be 

in the public interest to discourage 

public entities from zone sponsorship 

because of concern about liability 

without fault. 

(b) Exception to exemption from 

liability. A grantee could create liability 

for itself that otherwise would not exist 

if the grantee undertakes detailed 

operational oversight of or direction to 

zone participants. Examples of detailed 

operational oversight or direction 

include review of an operator’s 

inventory-control or record-keeping 

systems, specifying requirements for 

such a system to be used by an operator, 

and review of CBP documentation 

related to an operator’s zone receipts 

and shipments. 

§ 400.47 Retail trade. 

(a) In general. Retail trade is 

prohibited in activated areas of zones, 

except that 1) sales or other commercial 

activity involving domestic, duty-paid, 

and duty-free goods may be conducted 

within an activated area of a zone under 

a permit issued by the zone grantee and 

approved by the Board, and 2) no 

permits shall be necessary for sales 

involving domestic, duty-paid or dutyfree food and non-alcoholic beverage 

products sold within the zone or 

subzone for consumption on premises 

by individuals working therein. The 

Executive Secretary shall determine 

whether an activity is retail trade, 

subject to review by the Board when the 

zone grantee requests such a review 

with a good cause. Determinations on 

whether an activity constitutes retail 

trade shall be based on precedent 

established through prior rulings by 

CBP, as appropriate. Such prior rulings 

shall remain effective unless a 

determination is issued to modify their 

effect (after a notice-and-comment 

process, as appropriate). Determinations 

made by the Executive Secretary 

pursuant to this section shall be made 

available to the public via the Board’s 

Web site. 

(b) Procedure. Requests for Board 

approval under this section shall be 

submitted in letter form, with 

supporting documentation, to the 

Executive Secretary, who is authorized 

to act for the Board in these cases, after 

consultation with CBP as necessary. 

(c) Criteria. In evaluating requests 

under this section, the Executive 

Secretary and CBP shall consider factors 

that may include: 

(1) Whether any public benefits 

would result from approval; and 

(2) The economic effect such activity 

would have on the retail trade outside 

the zone in the port of entry area. 

§ 400.48 Zone-restricted merchandise. 

(a) In general. Merchandise in zonerestricted status (19 CFR 146.44) may be 

entered into the customs territory of the 

United States only when the Board 

determines that the entry would be in 

the public interest. Such entries are 

subject to the customs laws and the 

payment of applicable duties and excise 

taxes (19 U.S.C. 81c(a), 4th proviso). 

(b) Criteria. In making the 

determination described in paragraph 

(a) of this section, the Board shall 

consider: 

(1) The intent of the parties; 

(2) Why the merchandise cannot be 

exported; 

(3) The public benefit involved in 

allowing entry of the merchandise; and 

(4) The recommendation of CBP. 

(c) Procedure. (1) A request for 

authority to enter ‘‘zone-restricted’’ 

merchandise into U.S. customs territory 

shall be made to the Executive Secretary 

in letter form by the zone grantee or by 

the operator responsible for the 

merchandise (with copy to the grantee), 

with supporting information and 

documentation. 

(2) The Executive Secretary shall 

investigate the request and prepare a 

report for the Board. 

(3) The Executive Secretary may act 

for the Board under this section with 

respect to requests that involve 

merchandise valued at 500,000 dollars 

or less and that are accompanied by a 

letter of concurrence from CBP. 

§ 400.49 Monitoring and reviews of zone 

operations and activity. 

(a) In general. Ongoing zone 

operation(s) and activity may be 

reviewed by the Board or the Executive 

Secretary at any time to determine 

whether they are in the public interest 

and in compliance and conformity with 

the Act and regulations, as well as 

authority approved by the Board. 

Reviews involving production activity 

may also be conducted to determine 

whether there are changed 

circumstances that raise questions as to 

whether the activity is detrimental to 

the public interest, taking into account 

the factors enumerated in § 400.27. The 

Board may prescribe special monitoring 

requirements in its decisions when 

appropriate. 

(b) Conduct of reviews. Reviews may 

be initiated by the Board, the Commerce 

Department’s Assistant Secretary for 

Import Administration, or the Executive 

Secretary; or, they may be undertaken in 

response to requests from parties 

directly affected by the activity in 

question showing good cause based on 

the provision of information that is 

probative and substantial in addressing 

the matter in issue. After initiation of a 

review, any affected party shall provide 

in a timely manner any information 

requested as part of the conduct of the 

review. If a party fails to timely provide 

information requested as part of such a 

review, a presumption unfavorable to 

that party may be made. 

(c) Prohibition or restriction. Upon 

review, if a finding is made that zone 

activity is no longer in the public 

interest (taking into account the factors 

enumerated in § 400.27 where 

production activity is involved), the 

Board or the Commerce Department’s 

Assistant Secretary for Import 

Administration may prohibit or restrict 

the activity in question. Such 

prohibitions or restrictions may be put 

in place after a preliminary review (e.g., 

prior to potential steps such as a public 

comment period) if circumstances 

warrant such action until further review 

can be completed. The procedures of 

§ 400.34(a)(5)(iv)(A) shall be followed to 

notify the grantee of the affected zone 

and allow for a response prior to the 

final imposition of a prohibition or 

restriction. The appropriateness of a 

delayed effective date shall be 

considered. 

Subpart F—Records, Reports, Notice, 

Hearings and Information 

§ 400.51 Records and reports. 

(a) Records and forms. Zone records 

and forms shall be prepared and 

maintained in accordance with the 

requirements of CBP and the Board, 

consistent with documents issued by 

the Board specific to the zone in 

question, and the zone grantee shall 

retain copies of applications/requests it 

submits to the Board in electronic or 

paper format. 

(b) Maps and drawings. Zone grantees 

or operators, and CBP, shall keep 

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current layout drawings of approved 

sites as described in § 400.21(d)(5), 

showing activated portions, and a file 

showing required activation approvals. 

The zone grantee shall furnish necessary 

maps to CBP. 

(c) Annual reports. (1) Each zone 

grantee shall submit a complete and 

accurate annual report to the Board 

within 90 days after the end of the 

reporting period. Each zone operator 

shall submit a complete and accurate 

annual report to the zone grantee in a 

timeframe that will enable the grantee’s 

timely submission of a complete and 

accurate annual report to the Board. A 

zone grantee may request an extension 

of the deadline for its report, as 

warranted. The Executive Secretary may 

authorize such extensions, with 

decisions on such authorizations taking 

into account both the circumstances 

presented and the importance of the 

Board submitting its annual report to 

Congress in a timely manner. Annual 

reports must be submitted in accordance 

with any instructions, guidelines, forms 

and related documents specifying place, 

manner and format(s) prescribed by the 

Executive Secretary. In the event that a 

grantee has not received all necessary 

annual report information from an 

operator in a timely manner, the grantee 

may submit its annual report on time 

and note the absence of the missing 

information. 

(2) The Board shall submit an annual 

report to Congress. 

§ 400.52 Notices and hearings. 

(a) In general. The Executive 

Secretary shall publish notice in the 

Federal Register inviting public 

comment on applications and 

notifications for Board action (see, 

§§ 400.32 and 400.37(b)), and with 

regard to other reviews or matters 

considered under this part when public 

comment is necessary. An applicant 

under §§ 400.21, 400.24(b) and 400.25 

shall give appropriate notice of its 

proposal in a local, general-circulation 

newspaper at least 15 days prior to the 

close of the public comment period for 

the proposal in question. The Board, the 

Secretary of Commerce, the Commerce 

Department’s Assistant Secretary for 

Import Administration, or the Executive 

Secretary, as appropriate, may schedule 

and/or hold hearings during any 

proceedings or reviews conducted 

under this part whenever necessary or 

appropriate. 

(b) Requests for hearings. (1) A party 

who may be materially affected by the 

zone activity in question and who 

shows good cause may request a hearing 

during a proceeding or review. 

(2) The request must be made within 

30 days of the beginning of the period 

for public comment (see § 400.32) and 

must be accompanied by information 

establishing the need for the hearing 

and the basis for the requesting party’s 

interest in the matter. 

(3) A determination as to the need for 

the hearing shall be made by the 

Commerce Department’s Assistant 

Secretary for Import Administration 

within 15 days after the receipt of such 

a request. 

(c) Procedure for public hearings. The 

Board shall publish notice in the 

Federal Register of the date, time and 

location of a public hearing. All 

participants shall have the opportunity 

to make a presentation. Applicants and 

their witnesses shall ordinarily appear 

first. The presiding officer may adopt 

time limits for individual presentations. 

§ 400.53 Official records; public access. 

(a) Content. The Executive Secretary 

shall maintain at the location stated in 

§ 400.54(e) an official record of each 

proceeding within the Board’s 

jurisdiction. The Executive Secretary 

shall include in the official record all 

timely evidence, factual information, 

and written argument, and other 

material developed by, presented to, or 

obtained by the Board in connection 

with the proceeding. While there is no 

requirement that a verbatim record shall 

be kept of public hearings, the 

proceedings of such hearings shall 

ordinarily be recorded and transcribed 

when significant opposition to a 

proposal is involved. 

(b) Opening and closing of official 

record. The official record opens on the 

date the Executive Secretary dockets an 

application or receives a request or 

notification that satisfies the applicable 

requirements of this part and closes on 

the date of the final determination in the 

proceeding or review, as applicable. 

(c) Protection of the official record. 

Unless otherwise ordered in a particular 

case by the Executive Secretary, the 

official record shall not be removed 

from the Department of Commerce. A 

certified copy of the record shall be 

made available to any court before 

which any aspect of a proceeding is 

under review, with appropriate 

safeguards to prevent disclosure of 

business proprietary or privileged 

information. 

§ 400.54 Information. 

(a) Request for information. The 

Executive Secretary, on behalf of the 

Board, may request submission of any 

information, including business 

proprietary information, and written 

argument necessary or appropriate to 

the proceeding. 

(b) Public information. Except as 

provided in paragraph (c) of this 

section, the Board shall consider all 

information submitted in a proceeding 

to be public information, and if the 

person submitting the information does 

not agree to its public disclosure, the 

Board shall return the information and 

not consider it in the proceeding. 

Information to meet the basic 

requirements of §§ 400.21–400.25 is 

inherently public information to allow 

meaningful public evaluation pursuant 

to those sections and § 400.32. 

(c) Business proprietary information. 

Persons submitting business proprietary 

information and requesting that it be 

protected from public disclosure shall 

mark the cover page, as well as the top 

of each page on which such information 

appears, ‘‘business proprietary.’’ Any 

business proprietary document 

submitted for a proceeding other than 

pursuant to § 400.45 shall contain 

brackets at the beginning and end of 

each specific piece of business 

proprietary information contained in the 

submission. Any such business 

proprietary submission shall also be 

accompanied by a public version that 

contains all of the document’s contents 

except the information bracketed in the 

business proprietary version, with the 

cover page and the top of each 

additional page marked ‘‘public 

version.’’ Any information for which 

business proprietary treatment is 

claimed must be ranged (i.e., presented 

as a number or upper and lower limits 

that approximate the specific business 

proprietary figure) or summarized in the 

public version. If a submitting party 

maintains that certain information is not 

susceptible to summarization or 

ranging, the public version must 

provide a full explanation specific to 

each such piece of information 

regarding why summarization or 

ranging is not feasible. 

(d) Disclosure of information. 

Disclosure of public information shall 

be governed by 15 CFR part 4. 

(e) Availability of information. Public 

information in the official record shall 

be available at the Office of the 

Executive Secretary, Foreign-Trade 

Zones Board, U.S. Department of 

Commerce Building, 1401 Constitution 

Avenue NW., Washington, DC 20230 

and may also be available electronically 

over the Internet via http:// 

www.trade.gov/ftz (or a successor 

Internet address). 

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Subpart G—Penalties and Appeals to 

the Board 

§ 400.61 Revocation of authority. 

(a) In general. As provided in this 

section, the Board can revoke in whole 

or in part authority for a zone or 

subzone whenever it determines that the 

zone grantee has violated, repeatedly 

and willfully, the provisions of the Act. 

(b) Procedure. When the Board has 

reason to believe that the conditions for 

revocation, as described in paragraph (a) 

of this section, are met, the Board shall: 

(1) Notify the grantee of the zone in 

question in writing stating the nature of 

the alleged violations, provide the 

grantee an opportunity to request a 

hearing on the proposed revocation, and 

notify any known operators in the zone; 

(2) Conduct a hearing, if requested or 

otherwise if appropriate; 

(3) Make a determination on the 

record of the proceeding not earlier than 

four months after providing notice to 

the zone grantee under paragraph (b)(1) 

of this section; and 

(4) If the Board’s determination is 

affirmative, publish a notice of 

revocation of authority, in whole or in 

part, in the Federal Register. 

(c) As provided in section 18 of the 

Act (19 U.S.C. 81r(c)), the grantee of the 

zone or subzone in question may appeal 

an order of the Board revoking 

authority. 

§ 400.62 Fines, penalties and instructions 

to suspend activated status. 

(a) In general. Fines are authorized 

solely for specific violations of the FTZ 

Act or the Board’s regulations as 

detailed in §§ 400.62(b) and (c). Each 

specific violation is subject to a fine of 

not more than 1,000 dollars (as adjusted 

for inflation pursuant to § 400.62(j)), 

with each day during which a violation 

continues constituting a separate offense 

subject to imposition of such a fine (FTZ 

Act, section 19; 19 U.S.C. 81s). This 

section also establishes the party subject 

to the fine which, depending on the 

type of violation, would be the zone 

operator, grantee, or a person 

undertaking one or more zone-related 

functions on behalf of the grantee, 

where applicable. In certain 

circumstances, the Board or the 

Assistant Secretary for Import 

Administration could instruct CBP to 

suspend the activated status of all or 

part of a zone or subzone. Violations of 

the FTZ Act or the Board’s regulations 

(including the sections pertaining to 

uniform treatment and submission of 

annual reports), failure to pay fines, or 

failure to comply with an order 

prohibiting or restricting activity may 

also result in the Executive Secretary’s 

suspending the processing of any 

requests to the Board and staff relating 

to the zone or subzone in question. In 

circumstances where non-compliance 

pertains to only a subset of the 

operations in a zone, suspensions of 

activated status and suspensions of the 

processing of requests shall be targeted 

to the specific non-compliant 

operation(s). 

(b) Violations involving requirement 

to submit annual report. A grantee’s 

failure to submit a complete and 

accurate annual report pursuant to 

section 16 of the FTZ Act (19 U.S.C. 

81p(b)) and § 400.51(c)(1) of these 

regulations constitutes a violation 

subject to a fine, with each day of 

continued failure to submit the report 

constituting a separate offense subject to 

a fine of not more than 1,000 dollars (as 

adjusted for inflation pursuant to 

§ 400.62(j)). Further, each day during 

which a zone operator fails to submit to 

the zone’s grantee the information 

required for the grantee’s timely 

submission of a complete and accurate 

annual report to the Board shall 

constitute a separate offense subject to 

a fine of not more than 1,000 dollars (as 

adjusted for inflation pursuant to 

§ 400.62(j)). Consistent with § 400.46, if 

the grantee submits a timely report to 

the Board identifying any operator that 

has not provided complete and timely 

information in response to a timely 

request(s) by the grantee, the grantee 

shall not be subject to a fine-assessment 

action stemming from the operator’s 

failure to timely provide its report. 

(c) Violations involving uniform 

treatment. Failure by a grantee or a 

person undertaking one or more zonerelated functions on behalf of the 

grantee to comply with the uniform 

treatment requirement of section 14 of 

the FTZ Act (19 U.S.C. 81n) or the 

provisions of § 400.43 of these 

regulations constitutes a violation, with 

each day of continued violation 

constituting a separate offense subject to 

a fine of not more than 1,000 dollars (as 

adjusted for inflation pursuant to 

§ 400.62(j)). 

(d) Procedures for determination of 

violations and imposition of fines. 

When the Board or the Executive 

Secretary has reason to believe that a 

violation pursuant to §§ 400.62(b) and 

(c) has occurred and that the violation 

warrants the imposition of a fine (such 

as a situation where a party has 

previously been notified of action 

required for compliance and has failed 

to take such action within a reasonable 

period of time), the following steps shall 

be taken: 

(1) The Executive Secretary shall 

notify the party or parties responsible 

for the violation and the zone grantee in 

writing stating the nature of the alleged 

violation, and provide the party(ies) a 

specified period (no less than 30 days, 

with consideration given to any requests 

for an extension, which shall not be 

unreasonably withheld) to respond in 

writing; 

(2) The Executive Secretary shall 

conduct a hearing, if requested or 

otherwise if appropriate. Parties may be 

represented by counsel at the hearing, 

and any evidence and testimony of 

witnesses in the proceeding shall be 

presented. A transcript of the hearing 

shall be produced and a copy shall be 

made available to the parties; 

(3) The Executive Secretary shall 

make a recommendation on the record 

of the proceeding not earlier than the 

later of 15 days after the deadline for the 

party(ies)’s response under paragraph 

(d)(1) of this section or 15 days after the 

date of a hearing held under paragraph 

(d)(2) of this section. If the 

recommendation is for an affirmative 

determination of a violation, the 

Executive Secretary shall also 

recommend the amount of the fine to be 

imposed; and 

(4) The Board shall make a 

determination regarding the finding of a 

violation and imposition of a fine based 

on the Executive Secretary’s 

recommendation under paragraph (d)(3) 

of this section. For related actions where 

the total sum of recommended fines is 

no more than 10,000 dollars (50,000 

dollars in the case of violations 

pursuant to paragraph (b) of this 

section), the Board delegates to the 

Executive Secretary the authority to 

make a determination. 

(e) Mitigation—(1) In general. The 

Commerce Department’s Assistant 

Secretary for Import Administration 

may approve the mitigation (reduction 

or elimination) of an imposed fine based 

on specific evidence presented by the 

affected party. Authority is delegated to 

the Executive Secretary to mitigate a 

fine where the total sum of fines 

imposed on a party for related actions 

does not exceed 10,000 dollars (50,000 

dollars in the case of violations 

pursuant to paragraph (b) of this 

section). Mitigating evidence and 

argument pertaining to mitigating 

factors must be submitted within 30 

days of the determination described in 

paragraph (d)(4) of this section, subject 

to requests for extension for cause, the 

granting of which shall not be 

unreasonably withheld. 

(2) Mitigating factors. Factors to be 

taken into account in evaluating 

potential mitigation include: 

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Federal Register / Vol. 77, No. 39 / Tuesday, February 28, 2012 / Rules and Regulations 12155 

(i) A good record of a violator over the 

preceding five years with regard to the 

type of violation(s) at issue; 

(ii) The violation was due to the 

action of another party despite violator’s 

adherence to the requirements of the 

FTZ Act and the Board’s regulations; 

(iii) Immediate remedial action by the 

violator to avoid future violations; 

(iv) A violator’s cooperation with the 

Board (beyond the degree of cooperation 

expected from a person under 

investigation for a violation) in 

ascertaining the facts establishing the 

violation; 

(v) A violation’s resulting from a 

clerical error or similar unintentional 

negligence; and 

(vi) Such other factors as the Board, 

or the Executive Secretary, deems 

appropriate to consider in the specific 

circumstances presented. 

(f) Assessment of fines. After 

evaluating submitted mitigating 

evidence and argument, where 

applicable, the Commerce Department’s 

Assistant Secretary for Import 

Administration may assess an imposed 

fine (in whole or in part). Authority is 

delegated to the Executive Secretary to 

assess a fine where the total sum of the 

imposed fines for related actions does 

not exceed 10,000 dollars (50,000 

dollars in the case of violations 

pursuant to paragraph (b) of this 

section). 

(g) Time for payment. Full payment of 

an assessed fine must be made within 

30 days of the date of the assessment or 

within such longer period of time as 

may be specified. Payment shall be 

made in the manner specified by the 

Commerce Department’s Assistant 

Secretary for Import Administration or 

the Executive Secretary. 

(h) Procedures for instruction to 

suspend activated status. If a fine 

assessed pursuant to §§ 400.62(d) 

through (g) has not been paid within 90 

days of the specified deadline for 

payment, if there is a repeated and 

willful failure to comply with a 

requirement of the FTZ Act or the 

Board’s regulations, or if there is a 

repeated and willful failure to comply 

with a prohibition or restriction on 

activity imposed by an order of the 

Board or an order of the Commerce 

Department’s Assistant Secretary for 

Import Administration pursuant to 

§ 400.49(c), the Board or the Commerce 

Department’s Assistant Secretary for 

Import Administration may instruct 

CBP to suspend the activated status of 

the zone operation(s) in question (or, if 

appropriate, the suspension may be 

limited to a particular activity of a zone 

operator, such as suspension of the 

privilege to admit merchandise), and the 

suspension shall remain in place until 

the failure to pay a fine, failure to 

comply with a requirement of the FTZ 

Act or the Board’s regulations, or failure 

to comply with an order’s prohibition or 

restriction on activity has been 

remedied. In determining whether to 

instruct CBP to suspend the activated 

status of a zone operation in the 

circumstances noted, the following 

steps shall be taken: 

(1) Notification of party(ies). The 

Executive Secretary shall notify the 

responsible party(ies) in writing stating 

the nature of the failure to timely pay a 

fine, to comply with a requirement of 

the FTZ Act or the Board’s regulations 

or to comply with a prohibition or 

restriction on activity imposed by an 

order of the Board or an order of the 

Commerce Department’s Assistant 

Secretary for Import Administration. If 

the grantee is not one of the responsible 

parties notified, the Executive Secretary 

shall also provide a copy of the 

notification to the grantee. The 

responsible party(ies) shall be provided 

a specified period (of not less than 

15 days) to respond in writing to the 

notification; 

(2) Hearing. If the notified responsible 

party(ies) or the zone’s grantee requests 

a hearing (or if a hearing is determined 

to be warranted by the Board, the 

Commerce Department’s Assistant 

Secretary for Import Administration or 

the Executive Secretary), it shall be held 

before the Executive Secretary (or a 

member of the Board staff designated by 

the Executive Secretary) within 30 days 

following the request for a hearing (or 

the determination by the Board, the 

Commerce Department’s Assistant 

Secretary for Import Administration or 

the Executive Secretary). Parties may be 

represented by counsel at the hearing, 

and any evidence and testimony of 

witnesses in the proceeding shall be 

presented. A transcript of the hearing 

shall be produced and a copy shall be 

made available to the parties; 

(3) The Executive Secretary shall 

make a recommendation on the record 

of the proceeding not earlier than 

15 days after the later of: 

(i) The deadline for the party(ies)’s 

response under paragraph (h)(1) of this 

section; or 

(ii) The date of a hearing held under 

paragraph (h)(2) of this section; and 

(4) The Board or the Commerce 

Department’s Assistant Secretary for 

Import Administration shall determine 

whether to instruct CBP to suspend the 

activated status of the zone operation(s) 

in question. If the determination is 

affirmative, the Executive Secretary 

shall convey the instruction to CBP, 

with due consideration to allow for the 

transfer of any affected merchandise 

from the applicable zone site(s). 

(i) Enforcement of assessment. Upon 

any failure to pay an assessed fine, the 

Board may request the U.S. Department 

of Justice to recover the amount 

assessed in any appropriate district 

court of the United States or may 

commence any other lawful action. 

(j) Adjustment for inflation. The 

maximum dollar value of a fine for a 

violation of the FTZ Act or the Board’s 

regulations is subject to adjustment for 

inflation pursuant to the Federal Civil 

Penalties Inflation Adjustment Act of 

1990 (Pub. L. 101–410), as amended by 

the Debt Collection Improvement Act of 

1996 (Pub. L. 104–134). 

§ 400.63 Appeals to the Board of decisions 

of the Assistant Secretary for Import 

Administration and the Executive Secretary. 

(a) In general. Decisions of the 

Commerce Department’s Assistant 

Secretary for Import Administration and 

the Executive Secretary made pursuant 

to this part may be appealed to the 

Board by adversely affected parties 

showing good cause. 

(b) Procedures. Parties appealing a 

decision under paragraph (a) of this 

section shall submit a request for review 

to the Board in writing, stating the basis 

for the request, and attaching a copy of 

the decision in question, as well as 

supporting information and 

documentation. After a review, the 

Board shall notify the appealing party of 

its decision in writing. 

[FR Doc. 2012–4249 Filed 2–27–12; 8:45 am] 

BILLING CODE P 

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