Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15831

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 19, 113 and 144

[T.D. 97–19]

RIN 1515–AB86

Duty-Free Stores

AGENCY: Customs Service, Department

of the Treasury.

ACTION: Final rule.

SUMMARY: This document amends the

Customs Regulations principally with

respect to duty-free stores in order to

reduce the overall paperwork burden for

proprietors thereof as well as for

Customs. In particular, for purposes of

Customs audit of, and control over, such

facilities, greater reliance is placed on

the use of records generated and

maintained by proprietors and

importers in the ordinary course of

business, instead of on the use of

specially prepared Customs forms. The

amendments provide benefits in this

regard to other classes of Customs

bonded warehouses as well.

EFFECTIVE DATE: May 5, 1997.

FOR FURTHER INFORMATION CONTACT:

Steven T. Soggin, Program Officer,

Office of Field Operations, (202–927–

0765).

SUPPLEMENTARY INFORMATION:

Background

By a final rule document published in

the Federal Register as T.D. 92–81 on

August 20, 1992 (57 FR 37692), the

Customs Regulations were amended to

designate duty-free stores as a new class

of Customs bonded warehouse, and to

incorporate operating procedures for the

administration of these facilities.

However, in letters dated October 6

and 13, 1992, a major trade association

voiced a number of concerns with

respect to the final rule. Prompted by

this correspondence, and following

lengthy study, Customs published a

notice of proposed rulemaking in the

Federal Register on June 6, 1996, 61 FR

28808, setting forth specific revisions to

the duty-free store regulations. The

proposed changes also provided some

benefits to other classes of bonded

warehouses, and were intended to

reduce the overall paperwork burden

both for warehouse proprietors and for

Customs.

In brief, under the proposed rule, the

following sections of the Customs

Regulations were to be affected: §§ 19.1,

19.2, 19.4, 19.6, 19.11, 19.12, 19.35,

19.36, 19.37, 19.39, 113.63, 144.34,

144.36, 144.37, 144.39 and 144.41.

Seven commenters responded to the

notice of proposed rulemaking. A

description, together with Customs

analysis, of the comments they made is

set forth below.

Discussion of Comments (Part 19)

Comment: Two commenters stated

that the term ‘‘exclusively’’ in proposed

§ 19.1(a)(9) limits the operation of a

warehouse to that of a duty-free store

providing only conditionally duty-free

merchandise to another duty-free store.

It was requested that proposed

§ 19.1(a)(9) be amended by deleting

‘‘exclusively’’ to allow continued

operations of multi-class warehouses.

Customs Response: The wording of

§ 19.1(a)(9) is correct. Section 19.1(a)(9)

states: ‘‘All distribution warehouses

used exclusively to provide individual

duty-free sales locations and storage

cribs with conditionally duty-free

merchandise are also Class 9

warehouses.’’ While the term

‘‘exclusively’’ in this context defines a

warehouse solely distributing

merchandise to a duty-free store as a

Class 9 warehouse, this does not

preclude a multi-class warehouse which

distributes merchandise to duty-free

stores from also conducting other

functions of a different class for which

it is approved.

Comment: One commenter suggested

amending proposed § 19.2(a) to make

specific provision for facilitating the

approval of a common inventory and

recordkeeping system in use at multiple

storage locations. The commenter stated

in this regard that Customs was required

to approve a proprietor’s inventory and

recordkeeping system in every location,

even though it might be the same

system, which was redundant.

Customs Response: Customs believes

that the commenter’s concern is already

addressed in § 144.34(c)(2), and that this

matter need not specifically be

addressed as well in § 19.2(a). Section

144.34(c)(2) allows a proprietor to file a

single application with the director of

the port in which the applicant’s

centralized inventory control system is

located, with copies to all affected port

directors. This procedure eliminates

duplicative work for both Customs and

the trade by initiating the Customs

approval process solely at the port

where the applicant’s centralized

inventory control system exists.

Comment: One commenter objected to

the proposed elimination from § 19.2(g)

of the cross-reference therein to

§ 19.3(f), which, as such, provided for

an administrative hearing in the case of

a decision by a port director to deny an

initial application for a bonded

warehouse. This commenter stated that

eliminating a hearing, though rarely

needed, would increase the chance of

costly and time-consuming litigation.

Customs Response: Customs

disagrees, to the extent that the citation

in § 19.2(g) to § 19.3(f) does arguably

accord the right to an administrative

hearing as well in the case of the denial

of an application to bond a warehouse.

Formal administrative hearings are

themselves costly to the Government,

often requiring the services of an

administrative law judge. Customs

believes that administrative resources

for such a hearing are best limited to

those instances involving the revocation

or suspension of bonded warehouse

status, as expressly provided for under

§ 19.3(f).

Comment: One commenter

recommended that proposed § 19.4(b)(5)

reducing the storage time from 5 years

to 6 months for original duty-free sales

tickets be amended to eliminate all time

requirements for retention of original

duty-free sales tickets.

Customs Response: Customs

disagrees. The record retention period of

6 months is already a marked time

reduction from the current sales ticket

storage requirement of 5 years. Customs

believes a 6-month time period for

storage of original duty-free sales tickets

is the minimum time necessary for both

the trade and Customs to verify the

accuracy of original sales ticket

information with sales information

generated by electronic or other

approved alternative means.

Comment: One commenter suggested

that proposed § 19.4(b)(7) delete the

requirement to establish and maintain

aisles in bonded warehouses. The

commenter stated that space was a

precious commodity, and proposed an

alternative, whereby Customs would

give a proprietor a reasonable time to

produce merchandise subject to a spot

check or audit.

Customs Response: Customs agrees.

The second sentence of § 19.4(b)(7) is

changed to read as follows: ‘‘Doors and

entrances shall be left unblocked for

access by Customs officers and

warehouse proprietor personnel.’’ Also,

to this end, § 19.4(b)(2) is changed to

read as follows: ‘‘The warehouse

proprietor shall permit access to the

warehouse and present merchandise

within a reasonable time after request by

any Customs officer.’’

Comment: One commenter asked that

the last sentence of § 19.4(b)(8)(ii) be

amended to include the term ‘‘unique

identifier’’, so that it would read as

follows: ‘‘The proprietor must provide,

upon request by a Customs officer, a

record balance of goods, specifying the

quantity in each storage location,
15832 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

covered by any warehouse entry,

general order, seizure, or unique

identifier so a physical count can be

made to verify the accuracy of the

record balance.’’

Customs Response: Customs agrees,

and the section is so changed.

Comment: One commenter stated that

proposed § 19.4(b)(9) should be

amended to delete the word

‘‘destruction’’, because miscellaneous

requirements for destruction pertain

only to a few classes of warehouses. The

commenter further observed that,

should general order merchandise

remain in a warehouse beyond 6

months, responsibility should not rest

with the warehouse to maintain

destruction records.

Customs Response: Customs

disagrees. The term ‘‘destruction’’ needs

to remain in this section. An owner of

merchandise in any warehouse may, at

any time, lawfully request that

merchandise be destroyed under

Customs supervision. Requests for the

destruction of merchandise in a

warehouse must be accounted for by the

warehouse proprietor.

Comment: Two commenters requested

that proposed § 19.6(a)(1) granting a 5-

day time limit within which to file a

copy of any joint discrepancy report

with the port director, be amended so as

to allow warehouse proprietors a 30-day

limit in which to do so. The

commenters thought that this increased

time extension would ease a restrictive

time burden by allowing a month to

prepare a discrepancy report for

Customs.

Customs Response: Customs believes

that the 5-day time requirement for

filing a joint discrepancy report is not

unduly burdensome. Indeed, this 5-day

time limit itself represents a reasonable

extension from the previous

requirement in the Customs Regulations

that such discrepancy reports be filed

within 2 days. However, a 30-day time

limit within which to submit these

reports is too long. A joint discrepancy

report involves sensitive custody

transfers, and Customs believes the

reasonably prompt reporting of

discrepancies in this regard is essential.

Comment: One commenter called for

the deletion of the requirement for a

procedures manual in proposed

§ 19.12(b), on the basis that the

preparation and maintenance of such a

manual constituted an unjustified

paperwork burden.

Customs Response: Customs

disagrees. The proprietor’s certification

at the time of application to bond that

a procedures manual describing the

warehouse’s inventory and

recordkeeping system meets the

requirements of 19 CFR 19.12 plays a

significant role in the license approval

process. The importance of this

requirement extends into the areas of

compliance and audit activities. The

manual serves as a critical tool to

Customs by demonstrating the

proprietor has established a

methodology for inventory control and

recordkeeping.

Comment: One commenter observed

that proposed § 19.12(d)(2)(ii) would in

effect require a warehouse proprietor to

maintain as part of an inventory

recordkeeping system the cost or value

of general order merchandise, and that

a proprietor would often have no idea

as to the cost or value of such

merchandise.

Customs Response: Customs agrees.

Section 19.12(d)(2)(ii) is changed by

adding at the beginning thereof the

phrase, ‘‘Except for merchandise in

general order,’’.

Comment: Two commenters

recommended that Customs amend

proposed § 19.12(d)(3) to allow the

option of accelerated payment of

revenue for non-extraordinary shortages

prior to the filing of the annual CF 300

or certification of annual reconciliation.

Customs Response: Customs agrees.

The last sentence of § 19.12(d)(3) is

changed to allow a proprietor the option

of submitting payment of duties and

fees for non-extraordinary shortages any

time prior to the annual filing of the CF

300 or certified annual reconciliation.

Comment: One commenter advocated,

with respect to proposed § 19.12(d)(5),

that there be no physical inventory

requirement to account for merchandise,

because non-government bonded

warehouses did not have such a

requirement. One commenter asserted

that an annual reconciliation required in

proposed § 19.12(h) need not be

undertaken at the same time as the

physical inventory.

Customs Response: The physical

inventory requirement in § 19.12(d)(5)

requires that a proprietor conduct at

least one physical inventory during the

year. This need not necessarily take

place at the time of the annual

reconciliation. Customs believes that an

annual physical inventory is necessary

to gauge the accuracy of the proprietor’s

inventory control system. Section

19.12(h) does not itself deal with the

requirement for a physical inventory.

Comment: One commenter stated that

proposed § 19.12(f)(3) prohibited the

application of First-In-First-Out (FIFO)

procedures to various types of

merchandise, including quota and

restricted merchandise. Specifically, the

commenter declared that Headquarters

Ruling 225837 exempted textile quota

requirements on merchandise for

export; therefore, no basis existed to

prohibit use of FIFO procedures to such

merchandise subject to textile quotas.

Customs Response: Customs agrees, to

the extent that such merchandise is for

export only. To this end, accordingly,

the following sentence is added to

§ 19.12(f)(2): ‘‘Fungible textile and

textile products which are withdrawn

from a Class 9 warehouse may be

accounted for using FIFO inventory

procedures, inasmuch as such articles

would be exempt from textile quotas.’’

In this regard, a Class 9 warehouse

(duty-free store) may only sell and

deliver merchandise for export to

individuals departing the Customs

territory.

The Committee for the

Implementation of Textile Agreements

(CITA), U.S. Department of Commerce,

has been consulted and agrees with

Customs treatment of textiles in Class 9

bonded warehouses or duty-free stores

as not being subject to quota and visa

requirements.

However, it is understood that any

textile articles exported from a Class 9

warehouse and thereafter reimported

into the U.S. would be subject to the

laws and regulations of the U.S.

affecting imported merchandise,

including any applicable quotas.

Comment: One commenter suggested

that Customs amend proposed

§ 19.12(h)(2) to allow a proprietor to

reconcile merchandise under an item’s

unique identifier number for annual

reconciliation, instead of tracking by

entry number. The commenter

explained that it was not possible to

comply with the proposed section under

the FIFO inventory because units

transferred to warehouses in other ports

could not be posted or identified to an

entry until disposed of.

Customs Response: All merchandise

accounted for as sold, damaged, short,

or otherwise disposed of, receive a

designated entry number. For annual

reconciliation of FIFO eligible

merchandise not disposed of, a list of all

open and closed warehouse entries shall

be presented to Customs to account for

merchandise.

Comment: One commenter requested

that the address requirement be

eliminated from proposed

§§ 19.39(c)(5)(i) and 144.37(h)(2)(v) for

Class 9 warehouses at airports. The

commenter noted in this connection

that few duty-free stores routinely

obtained the address of a purchaser and

that the address requirement had little

utility in the context of airport duty-free

store operations.

Customs Response: Customs agrees

with this request. The risk of diversion
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15833

of goods purchased at an airport dutyfree store is minimal. Hence,

§§ 19.39(c)(5)(i) and 144.37(h)(2)(v) are

changed to eliminate any requirement

that an airport duty-free store submit to

Customs upon request the address of a

purchaser.

Warehouse Withdrawals And

Rewarehouse Entries

Comment: One commenter asked that

proposed § 144.34(c) be amended to

permit all classes of warehouses to

participate in alternative transfer

procedures as opposed to only Class 2

and Class 9 warehouses. The commenter

stated that as long as the warehouse is

owned by the same legal entity

maintaining a centralized inventory

control system, and has the consent of

the surety, such transfer operations

could easily be controlled in the same

manner as those for Class 2 and Class 9

warehouses.

Customs Response: Various custody

transfer and liability issues are primary

concerns preventing the extension of

transfer procedures under § 144.34(c) to

other classes of Customs bonded

warehouses.

Comment: One commenter suggested

that Customs delete the requirements in

paragraphs (c)(4)(iv) and (c)(4)(vi) of

proposed § 144.34, respectively, that a

warehouse proprietor operating

multiple storage locations under a

centralized inventory system document

all intracompany transfers of

merchandise by means of the

appropriate warehouse entry number, as

well as maintain a subordinate permit

file folder at all intracompany locations

where merchandise is transferred. The

commenter stated that under FIFO

inventory procedures, units cannot be

assigned an entry number, there being

no withdrawal or rewarehouse entry

made at the time of transfer to place in

the subordinate permit file.

Customs Response: Customs

disagrees. Customs does not require an

assigned entry number at the time of

transfer. Section 144.34(c)(4)(vi) allows

up to 7 days to provide required

warehouse entry documentation after

transfer. Maintaining records in a

subordinate permit file allows a

proprietor to account for transactions

such as shortages, overages, damages,

and the like, resulting from

intracompany movements. The

documents required are set forth in

§ 19.12(d)(4).

Comment: Two commenters observed

that proposed §§ 144.34(c)(6)(ii),

144.36(c)(2), and 144.41(c)(2) appeared

to suggest that ‘‘restricted’’ merchandise

could not be included in the alternative

inventory control system. The

commenters believed that it was not

intended to exclude alcoholic products

from this privilege.

Customs Response: The commenters

are correct that alcohol and tobacco

products may be included as part of an

approved alternative inventory control

and transfer system. To make this clear,

§§ 144.34(c)(6)(ii), 144.36(c)(2) and

144.41(c)(2) are revised to state: ‘‘With

the exception of alcohol and tobacco

products* * *’’.

Comment: One commenter

recommended that proposed § 144.34(c)

include transfers of merchandise from a

foreign trade zone to a Class 9

warehouse.

Customs Response: Customs has such

a proposal under active consideration.

Such proposal will be a subject of a

separate publication, if Customs decides

to proceed therewith.

Conclusion

In view of the foregoing, and

following careful consideration of the

comments received and further review

of the matter, Customs has concluded

that the proposed amendments with the

modifications discussed above should

be adopted.

In addition, § 19.35(e)(2) is changed to

reflect current statutory law (19 U.S.C.

1555(b), as amended by sections 3(a)(8)

and 29, Pub. L. 104–295), which permits

merchandise purchased in a duty-free

store, if thereafter returned to the United

States, to be subject to the personal

exemption of the arriving party under

either item 9804.00.65, 9804.00.70 or

9804.00.72, Harmonized Tariff Schedule

of the United States.

Also, § 19.12(d)(3) is changed to

provide that the amount of duty, taxes,

and any interest applicable to each

warehouse entry involved in multiple

shortages detected in a warehouse must

be separately specified, even though

such duty and taxes may have been

tendered in one consolidated payment.

This provision is needed because such

duty may be claimed for drawback, and

Customs must have this information in

order to process the claim.

Furthermore, for the sake of editorial

clarity, the last two sentences of

§ 19.12(d)(5) are moved to § 19.12(d)(3),

and a cross reference to § 19.4(b)(8)(ii) is

added thereto, in order to properly

reflect the fact that the terms ‘‘unique

identifier’’ and ‘‘inventory category’’ are

interrelated. Also, for editorial clarity

and consistency, the term ‘‘specific

identifier, wherever it appeared in the

document, is changed to ‘‘unique

identifier’’.

Regulatory Flexibility Act and

Executive Order 12866

This final rule document is intended

to simplify recordkeeping requirements

for duty-free stores and other Customs

bonded warehouses. To this end, greater

reliance is placed on the use of records

generated and maintained by

proprietors and importers in the

ordinary course of business, instead of

on the use of specially prepared

Customs forms. As such, pursuant to the

provisions of the Regulatory Flexibility

Act (5 U.S.C. 601 et seq.), it is certified

that this rule does not have a significant

economic impact on a substantial

number of small entities. Accordingly, it

is not subject to the regulatory analysis

or other requirements of 5 U.S.C. 603 or

604. Nor does the rule result in a

‘‘significant regulatory action’’ under

E.O. 12866.

Paperwork Reduction Act

The collection of information in this

final rule document is contained in

§§ 19.2, 19.4, 19.6, 19.11, 19.12, 19.36,

19.37, 19.39, 144.36, 144.37 and 144.41.

This information is required and will be

used to ensure the exportation of

merchandise from duty-free stores and

other Customs bonded warehouses, and

to otherwise satisfy the requirements of

law and the protection of the revenue.

The rule is intended to simplify

recordkeeping requirements for dutyfree stores and other Customs bonded

warehouses. The likely respondents

and/or recordkeepers are business or

other for-profit institutions.

The collection of information

contained in this final rule document

has already been approved by the Office

of Management and Budget (OMB)

under 1515–0005. The estimated

average annual burden associated with

this collection is 10 hours per

respondent or recordkeeper. Comments

concerning the accuracy of this burden

estimate and suggestions for reducing

this burden should be directed to the

Office of Management and Budget,

Attention: Desk Officer of the

Department of the Treasury, Office of

Information and Regulatory Affairs,

Washington, DC 20503.

Drafting Information

The principal author of this document

was Russell Berger, Regulations Branch,

U.S. Customs Service. However,

personnel from other offices

participated in its development.

List of Subjects

19 CFR Part 19

Customs duties and inspection,

Imports, Exports, Warehouses.
15834 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

19 CFR Part 113

Customs bonds.

19 CFR Part 144

Customs duties and inspection,

Imports, Warehouses.

Amendments to the Regulations

Parts 19, 113 and 144, Customs

Regulations (19 CFR parts 19, 113 and

144) are amended as set forth below.

PART 19—CUSTOMS WAREHOUSES,

CONTAINER STATIONS AND

CONTROL OF MERCHANDISE

THEREIN

1. The general authority citation for

part 19 and the specific authority for

§§ 19.1, 19.6, 19.11, and 19.35—19.39

continue to read as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202

(General Note 20, Harmonized Tariff

Schedule of the United States), 1624;

Section 19.1 also issued under 19 U.S.C.

1311, 1312, 1555, 1556, 1557, 1560, 1561,

1562;

Section 19.6 also issued under 19 U.S.C.

1555;

* * * * *

Section 19.11 also issued under 19 U.S.C.

1556, 1562;

* * * * *

Sections 19.35–19.39 also issued under 19

U.S.C. 1555;

* * * * *

2. Section 19.1 is amended by adding

a sentence at the end of paragraph (a)(9)

to read as set forth below, and by

removing paragraph (c).

§ 19.1 Classes of customs warehouses.

(a) * * *

(9) * * * All distribution warehouses

used exclusively to provide individual

duty-free sales locations and storage

cribs with conditionally duty-free

merchandise are also Class 9

warehouses.

* * * * *

3. Section 19.2 is amended by revising

its heading, by adding three sentences at

the end of paragraph (a), and by revising

paragraphs (b)(2) and (g), to read as

follows:

§ 19.2 Applications to bond.

(a) * * * The applicant must prepare

and have available at the warehouse a

procedures manual describing the

inventory control and recordkeeping

system that will be used in the

warehouse. A certification by the

proprietor that the inventory control

and recordkeeping system meets the

requirements of § 19.12 will be

submitted with the application. The

physical security of the facility must

meet the approval of the port director.

(b) * * *

(2) A description of the store’s

procedures, which includes inventory

control, recordkeeping, and delivery

methods. These procedures must be set

forth in the proprietor’s procedures

manual. Such manual and subsequent

changes therein must be furnished to

the port director upon request. The

procedures in the manual shall provide

reasonable assurance that conditionally

duty-free merchandise sold therein will

be exported;

* * * * *

(g) The port director shall promptly

notify the applicant in writing of his

decision to approve or deny the

application to bond the warehouse. If

the application is denied the

notification shall state the grounds for

denial. The decision of the port director

will be the final Customs administrative

determination in the matter.

4. Section 19.4 is revised to read as

follows:

§ 19.4 Customs and proprietor

responsibility and supervision over

warehouses.

(a) Customs supervision. The

character and extent of Customs

supervision to be exercised in

connection with any warehouse facility

or transaction provided for in this part

shall be in accordance with § 161.1 of

this chapter. Independent of any need to

appraise or classify merchandise, the

port director may authorize a Customs

officer to supervise any transaction or

procedure at the bonded warehouse

facility. Such supervision may be

performed through periodic audits of

the warehouse proprietor’s records,

quantity counts of goods in warehouse

inventories, spot checks of selected

warehouse transactions or procedures or

reviews of conditions of recordkeeping,

storage, security, or safety in a

warehouse facility.

(b) Proprietor responsibility and

supervision—(1) Supervision. The

proprietor shall supervise all

transportation, receipts, deliveries,

sampling, recordkeeping, repacking,

manipulation, destruction, physical and

procedural security, conditions of

storage, and safety in the warehouse as

required by law and regulations.

Supervision by the proprietor shall be

that which a prudent manager of a

storage and manipulation facility would

be expected to exercise.

(2) Customs access. The warehouse

proprietor shall permit access to the

warehouse and present merchandise

within a reasonable time after request by

any Customs officer.

(3) Safekeeping of merchandise and

records. The proprietor is responsible

for safekeeping of merchandise and

records concerning merchandise entered

in Customs bonded warehouses. The

proprietor or his employees shall

safeguard and shall not disclose

proprietary information contained in or

on related documents to anyone other

than the importer, importer’s transferee,

or owner of the merchandise to whom

the document relates or their authorized

agent.

(4) Records maintenance.—(i)

Maintenance. The proprietor shall:

(A) Maintain the inventory control

and recordkeeping system in accordance

with the provisions of § 19.12 of this

part;

(B) Retain all records required in this

part and defined in § 162.1(a) of this

chapter, pertaining to bonded

merchandise for 5 years after the date of

the final withdrawal under the entry;

and

(C) Protect proprietary information in

its custody from unauthorized

disclosure.

(ii) Availability. Records shall be

readily available for Customs review at

the warehouse. In addition, a proprietor

may keep records at another location for

Customs review, but only if the

proprietor first receives written

approval for such storage from the port

director.

(5) Record retention in lieu of

originals. A warehouse proprietor may

utilize alternative storage methods in

lieu of maintaining records in their

original formats, if such storage is

approved by Customs under paragraph

(b)(5)(i) of this section. For Customs

purposes, original records may be stored

in alternate form at any time after the

final withdrawal under the entry

number to which these records pertain,

except that duty-free store operators

may store original sales tickets in

alternate form at any time beginning six

months after date of sale. If the

proprietor chooses to use alternative

storage methods, the following

conditions must be met:

(i) Approval. The proprietor may

request approval to maintain records in

an alternative format by writing and

describing the system of storage, the

conversion techniques used and the

security safeguards to be employed to

prevent alteration, to the director of the

regulatory audit field office closest to

the party’s headquarters operation. If

satisfied that the alternative storage

proposed will ensure the accuracy and

availability of the records when

required, the director will grant written

approval.

(ii) Retention of reproductions. The

proprietor shall retain and keep

available an original and one duplicate
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15835

of each microfilm, microfiche, cd ROM

(compact disk, Read-Only Memory), or

other storage medium used, for five

years from the date of the final

withdrawal under the entry number to

which these records pertain. Duty-free

store operators must keep alternate

storage media containing sales tickets

for five years from the date of the final

withdrawal or five years from the date

of the sale, whichever is shorter.

(iii) Hard-copy reproductions. The

proprietor must have the capability of

making direct hard-copy reproductions

of the data stored on the microfilm,

microfiche, cd ROM, or other storage

medium. The proprietor shall bear the

expense of making hard-copy

reproductions of any or all records

required by any proper official of the

U.S. Customs Service for the audit or

inspection of books and records.

(iv) Standards required for

reproducing records. Proprietors shall

maintain the integrity of the original

records by insuring that copies are true

reproductions of the original records

and serve the purpose for which such

records were created. The following

shall be observed: Copies shall contain

all significant record detail shown on

the original; copies of the record shall

be so arranged, identified, and indexed

that any individual document or

component of the records can be located

with reasonable facility; any indexes,

registers, or other finding aids shall be

contained on the storage medium at the

beginning of the records to which they

relate; each time reproductions are

made, a written certification will be

executed by a responsible company

official (see § 191.6(a) of this chapter;

the same parties who have authority to

sign drawback documents are

‘‘responsible company officials’’ for

purposes of this section), stating that the

reproductions stored on the microfilm,

microfiche, cd ROM, or other storage

medium constitute a true, complete and

accurate reproduction of the original

documents; and the proprietor shall

maintain and make available a manual

describing procedures for reproducing

original records on alternative storage

media and controls in effect for assuring

completeness and accuracy of the

reproductions. The procedures shall

incorporate reasonable controls for

assuring accuracy and completeness of

alternative records. The proprietor is

responsible for assuring that these

controls are executed each time original

records are reproduced.

(v) Revocation of alternative record

storage method. Failure to maintain the

records in accordance with these

conditions and requirements will

constitute a breach of the proprietor’s

bond and may result in the revocation

by Customs of the privilege of

maintaining records in a form other than

the original format.

(6) Warehouse and merchandise

security. The warehouse proprietor shall

maintain the warehouse facility in a safe

and sanitary condition and establish

procedures adequate to ensure the

security of all merchandise under

Customs custody stored in the facility.

The warehouse construction will be a

factor that will be considered by the

port director in deciding whether to

approve the application. The facility

shall be built in such a manner as to

render it impossible for unauthorized

personnel to enter the premises without

such violence as to make the entry easy

to detect. If a portion of the facility is

to be used for the storage of non-bonded

merchandise, the port director shall

designate the means for effective

separation of the bonded and nonbonded merchandise, such as a wall,

fence, or painted line. All inlets and

outlets to bonded tanks shall be secured

with locks and/or in-bond seals.

(7) Storage conditions. Merchandise

in the bonded area shall be stored in a

safe and sanitary manner to minimize

damage to the merchandise, avoid

hazards to persons, and meet local,

state, and Federal requirements

applicable to specific kinds of goods.

Doors and entrances shall be left

unblocked for access by Customs

officers and warehouse proprietor

personnel.

(8) Manner of storage. Packages shall

be received in the warehouse and

recorded in the proprietor’s inventory

and accounting records according to

their marks and numbers. Packages

containing weighable or gaugeable

merchandise not bearing shipping

marks and numbers shall be received

under the weigher’s or gauger’s

numbers. Packages with exceptions due

to damage or loss of contents, or not

identical as to quantity or quality of

contents shall be stored separately until

the discrepancy is resolved with

Customs. Merchandise received in the

warehouse shall be stored in a manner

directly identifying the merchandise

with the entry, general order, or seizure

number; using a unique identifier for

inventory categories composed of

fungible merchandise accounted for on

a First-In-First-Out (FIFO) basis; or

using a unique identifier for inventory

categories composed of fungible

merchandise accounted for using

another approved alternative inventory

method.

(i) Direct identification. The

warehouse proprietor shall mark all

shipments for identification, showing

the general order or warehouse entry

number or seizure number and the date

of the general order, entry, or delivery

ticket in the case of seizures. Containers

covered by a given warehouse entry,

general order or seizure shall not be

mixed with goods covered by any other

entry, general order or seizure.

Merchandise covered by a given

warehouse entry, general order or

seizure may be stored in multiple

locations within the warehouse if the

proprietor’s inventory control system

specifically identifies all locations

where merchandise for each entry,

general order or seizure is stored and

the quantity in each location. The

proprietor must provide, upon request

by a Customs officer, a record balance

of goods, specifying the quantity in each

storage location, covered by any

warehouse entry, general order, or

seizure so a physical count can be made

to verify the accuracy of the record

balance.

(ii) FIFO. A proprietor may account

for fungible merchandise on a First-InFirst-Out (FIFO) basis instead of specific

identification by warehouse entry

number, provided the merchandise

meets the criteria for fungibility and the

recordkeeping requirements contained

in § 19.12 of this part are met. As of the

beginning date of FIFO procedures, each

kind of fungible merchandise in the

warehouse under FIFO shall constitute

a separate inventory category. Each

inventory category shall be assigned a

unique number or other identifier by the

proprietor to distinguish it from all

other inventory categories under FIFO.

All of the merchandise in a given

inventory category shall be physically

placed so as to be segregated from

merchandise under other inventory

categories or merchandise accounted for

under other inventory methods. The

unique identifier shall be marked on the

merchandise, its container, or the

location where it is stored so as to

clearly show the inventory category of

each article under FIFO procedures.

Merchandise covered by a given unique

identifier may be stored in multiple

locations within the warehouse if the

proprietor’s inventory control system

specifically identifies all locations

where merchandise for a specific unique

identifier is stored and the quantity in

each location. The proprietor must

provide, upon request by a Customs

officer, a record balance of goods,

specifying the quantity in each storage

location, covered by any warehouse

entry, general order, seizure, or unique

identifier so a physical count can be

made to verify the accuracy of the

record balance.
15836 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

(iii) Other alternative inventory

methods. Other alternative inventory

systems may be used, if Customs

approval is obtained. Importers or

proprietors who wish to use an

alternative inventory method other than

FIFO must apply to Customs

Headquarters, Office of Regulations and

Rulings, for approval.

(9) Miscellaneous responsibilities. The

proprietor is responsible for complying

with requirements for transport to his

warehouse, deposit, manipulation,

manufacture, destruction, shortage or

overage, inventory control and

recordkeeping systems, and other

requirements as specified in this part.

5. Section 19.6 is amended by revising

the fourth sentence of paragraph (a)(1),

paragraph (d)(1), and the sixth sentence

of paragraph (d)(2), by redesignating

paragraph (d)(4) as (d)(5) and by adding

a new paragraph (d)(4), to read as

follows:

§ 19.6 Deposits, withdrawals, blanket

permits to withdraw and sealing

requirements.

(a)(1) Deposit in warehouse. * * * A

copy of any joint report of discrepancy

shall be made within five business days

of agreement and provided to the port

director on the appropriate cartage

documents as set forth in § 125.31 of

this chapter. * * *

* * * * *

(d) Blanket permits to withdraw—(1)

General. (i) Blanket permits may be

used to withdraw merchandise from

bonded warehouses for:

(A) Delivery to individuals departing

directly from the Customs territory for

exportation under the sales ticket

procedure of § 144.37(h) of this chapter

(Class 9 warehouses only);

(B) Aircraft or vessel supplies under

§ 309 or 317, Tariff Act of 1930, as

amended (19 U.S.C. 1309, 1317); or

(C) The personal or official use of

personnel of foreign governments and

international organizations set forth in

subpart I, part 148 of this chapter; or

(D) A combination of the foregoing.

(ii) Blanket permits to withdraw may

be used only for delivery at the port

where withdrawn and not for

transportation in bond to another port,

except for a withdrawal for

transportation to another port by a dutyfree sales enterprise which meets the

requirements for exemption as stated in

§ 144.34(c) of this chapter. Blanket

permits to withdraw may not be used

for delivery to a location for retention or

splitting of shipments under the

provisions of § 18.24 of this chapter. A

withdrawer who desires a blanket

permit shall state in capital letters on

the warehouse entry, or on the

warehouse entry/entry summary when

used as an entry, that ‘‘Some or all of

the merchandise will be withdrawn

under blanket permit per section

19.6(d), C.R.’’ Customs acceptance of the

entry will constitute approval of the

blanket permit. A copy of the entry will

be delivered to the proprietor,

whereupon merchandise may be

withdrawn under the terms of the

blanket permit. The permit may be

revoked by the port director in favor of

individual applications and permits if

the permit is found to be used for other

purposes, or if necessary to protect the

revenue or properly enforce any law or

regulation Customs is charged with

administering. Merchandise covered by

an entry for which a blanket permit was

issued may be withdrawn for purposes

other than those specified in this

paragraph if a withdrawal is properly

filed as required in subpart D, part 144,

of this chapter.

(2) Withdrawals under blanket permit.

* * * A copy of the withdrawal shall be

retained in the records of the proprietor

as provided in § 19.12(d)(4) of this part.

* * *

* * * * *

(4) Withdrawals under blanket permit

for aircraft or vessel supplies. Multiple

withdrawals under a blanket permit for

aircraft or vessel supplies, if consigned

to the same daily aircraft flight number

or vessel sailing, may be filed on one

Customs Form 7512; however, an

attachment form, developed by the

warehouse proprietor and approved by

the port director may be used for all

withdrawals. This attachment form shall

provide a sufficient summary of the

goods being withdrawn, and shall

include the warehouse entry number,

the quantity and weight being

withdrawn, the Harmonized Tariff

Schedule of the United States

number(s), the value of the goods,

import and export lading information,

the duty rate and amount, and any

applicable Internal Revenue tax

calculation, for each warehouse entry

being withdrawn. A copy of Customs

Form 7512 and the summary attachment

must be attached to each permit file

folder unless the warehouse proprietor

qualifies for the permit file folder

exemption under § 19.12(d)(4)(iii) of

this part.

* * * * *

6. Section 19.11 is amended by

revising paragraph (h) to read as

follows:

§ 19.11 Manipulation in bonded

warehouses and elsewhere.

* * * * *

(h) Merchandise which has been

entered for warehouse and placed in a

Class 9 warehouse (duty-free store) may

be unpacked into its smallest

irreducible unit for sale without a prior

permit issued by the port director. The

port director may issue a blanket permit

to a duty-free store for up to one year

permitting the destruction of

merchandise covered by any entry and

found to be nonsaleable, if the

merchandise to be destroyed is valued

at less than 5 percent of the value of the

merchandise at time of entry or $1,250,

whichever is less, in its undamaged

condition. Such permit may be revoked

in favor of a permit for each entry and/

or destruction whenever necessary to

assure proper destruction and

protection of the revenue. The

proprietor shall maintain a record of

unpacking merchandise into saleable

units and destruction of nonsaleable

merchandise in its inventory and

accounting records.

7. Section 19.12 is revised to read as

follows:

§ 19.12 Inventory control and

recordkeeping system.

(a) Systems capability. The proprietor

shall maintain either manual or

automated inventory control and

recordkeeping systems or combination

manual and automated systems capable

of:

(1) Accounting for all merchandise

transported, deposited, stored,

manipulated, manufactured, smelted,

refined, destroyed in or removed from

the bonded warehouse and all

merchandise collected by a proprietor or

his agent for transport to his warehouse.

The records shall provide an audit trail

from deposit through manipulation,

manufacture, destruction, and

withdrawal from the bonded warehouse

either by specific identification or other

Customs authorized inventory method.

The records to be maintained are those

which a prudent businessman in the

same type of business can be expected

to maintain. The records are to be kept

in sufficient detail to permit effective

and efficient determination by Customs

of the proprietor’s compliance with

these regulations and correctness of his

annual submission or reconciliation;

(2) Producing accurate and timely

reports and documents as required by

this part; and

(3) Identifying shortages and overages

of merchandise in sufficient detail to

determine the quantity, description,

tariff classification and value of the

missing or excess merchandise so that

appropriate reports can be filed with

Customs on a timely basis.

(b) Procedures manual. (1) The

proprietor shall have available at the

warehouse an English language copy of
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15837

its written inventory control and

recordkeeping systems procedures

manual in accordance with the

requirements of this part.

(2) The proprietor shall keep current

its procedures manual and shall submit

to the port director a new certification

at the time any change in the system is

implemented.

(c) Entry of merchandise into a

warehouse.—(1) Identification. All

merchandise collected by a proprietor or

his agent for transport to his warehouse

shall be receipted. In addition, all

merchandise entered in a warehouse

will be recorded in a receiving report or

document using a Customs entry

number or unique identifier if an

alternate inventory control method has

been approved. All merchandise will be

traceable to a Customs entry and

supporting documentation.

(2) Quantity verification. Quantities

received will be reconciled to a

receiving report or document such as an

invoice with any discrepancy reported

to the port director as provided in

§ 19.6(a).

(3) Recordation. Merchandise

received will be accurately recorded in

the accounting and inventory system

records from the receiving report or

document using the Customs entry

number or unique identifier if an

alternative inventory control method

has been approved.

(d) Accountability for merchandise in

a warehouse.—(1) Identification of

merchandise. The Customs entry

number or unique identifier, as

applicable under § 19.4(b)(8), will be

used to identify and trace merchandise.

(2) Inventory records. The inventory

records will specify by Customs entry

number or unique identifier if an

alternative inventory control method is

approved:

(i) The location of the merchandise

within the warehouse;

(ii) Except for merchandise in general

order, the cost or value of the

merchandise, unless the proprietor’s

financial records maintain cost or value

and the records are made available for

Customs review; and

(iii) The beginning balance,

cumulative receipts and withdrawals,

adjustments, destructions, and current

balance on hand by date and quantity.

(3) Theft, shortage, overage or

damage. Any theft or suspected theft or

overage or any extraordinary shortage or

damage (equal to one percent or more of

the value of the merchandise in an entry

or covered by a unique identifier; or if

the missing merchandise is subject to

duties and taxes in excess of $100) shall

be immediately brought to the attention

of the port director, and confirmed in

writing within five business days after

the shortage, overage, or damage has

been brought to the attention of the port

director. An entry for warehouse must

be filed for all overages by the person

with the right to make entry within five

business days of the date of discovery.

The applicable duties, taxes and interest

on thefts and shortages so reported shall

be paid by the responsible party to

Customs within 20 calendar days

following the end of the calendar month

in which the shortage is discovered. The

port director may allow the

consolidation of duties and taxes

applicable to multiple shortages into

one payment; however, the amount

applicable to each warehouse entry is to

be listed on the submission and shall

specify the applicable duty, tax and

interest. These same requirements shall

apply when cumulative thefts, shortages

or overages under a specific entry or

unique identifier total one percent or

more of the value of the merchandise or

if the duties and taxes owed exceed

$100. Upon identification, the

proprietor shall record all shortages and

overages in its inventory control and

recordkeeping system, whether or not

they are required to be reported to the

port director at the time. The proprietor

shall also record all shortages and

overages as required in the Customs

Form 300 or annual reconciliation

report under paragraphs (f) or (g) of this

section, as appropriate. Duties and taxes

applicable to any non-extraordinary

shortage or damage and not required to

be paid earlier shall be submitted to the

port director at the time the Warehouse

Proprietor’s Submission, Customs Form

300 is due or at the time the certification

of preparation of the annual

reconciliation report is due, as

prescribed in paragraphs (g) and (h) of

this section, or at any time prior to the

annual filing of the CF 300 or certified

annual reconciliation. Discrepancies

found in a Class 9 warehouse with

integrated locations as set forth in

§ 19.35(c) will be the net discrepancies

for a unique identifier (see

§ 19.4(b)(8)(ii) of this part) such that

overages within one sales location will

be offset against shortages in another

location that is within the integrated

location. A Class 9 proprietor who

transfers merchandise between facilities

in different ports without being required

to file a rewarehouse entry in

accordance with § 144.34 of this chapter

may offset overages and shortages

within the same unique identifier for

merchandise located in stores in

different ports (see § 19.4(b)(8)(ii) of this

part).

(4) Permit file folders.—(i)

Maintenance. Permit file folders shall be

maintained and kept up to date by filing

all receipts, damage or shortage reports,

manipulation requests, withdrawals,

removals and blanket permit summaries

within five business days after the event

occurs. The permit file folders shall be

kept in a secure area and shall be made

available for inspection by Customs at

all reasonable hours.

(ii) Review. When the final

withdrawal of merchandise relating to a

specific warehouse entry, general order

or seizure occurs, the warehouse

proprietor shall: review the permit file

folder to ensure that all necessary

documentation is in the file folder

accounting for the merchandise covered

by the entry; notify Customs of any

merchandise covered by the warehouse

entry, general order or seizure which

has not been withdrawn or removed;

and file the permit file folder with

Customs within 30 calendar days after

final withdrawal, except as allowed by

paragraph (b)(4)(iv) of this section. The

permit file folder for merchandise not

withdrawn during the general order

period shall be submitted to the port

director upon receipt from Customs of

the Customs Form 6043.

(iii) Exemption to maintenance

requirement. Maintenance of permit file

folders will not be required, if the

proprietor has an automated system

capable of: satisfactorily summarizing

all actions by Customs warehouse entry;

providing upon demand by Customs an

entry activity summary report which

lists all individual receipts,

withdrawals, destructions,

manipulations and adjustments by

warehouse entry and is cross-referenced

to the source documents for each

transaction; and maintaining source

documents so that the documents can be

readily retrieved upon request. Failure

to provide the entry activity summary

report or documentation supporting the

entry activity summary report upon

demand by the port director or the field

director of regulatory audit could result

in reinstatement by the port director of

the requirement to maintain the permit

file folder for all warehouse entries.

When final withdrawal is made, the

proprietor must submit the entry

activity summary report to Customs.

Prior to submission, the proprietor must

ensure the accuracy of the summary

report and assure that all supporting

documentation is on file and available

for review if requested by Customs.

(iv) Exemption to submission

requirement. At the discretion of the

port director, a proprietor may be

allowed to furnish formal notification of

final withdrawal in lieu of the
15838 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

requirement to submit the permit file

folder or entry activity summary within

30 calendar days of each final

withdrawal. If approved to use this

procedure the proprietor could be

required by the port director to submit

permit file folders or entry activity

summaries on a selective basis. Failure

to promptly provide the permit file

folder or entry activity summary upon

request by the port director or the field

director of regulatory audit could result

in withdrawal of this privilege.

(5) Physical inventory. The proprietor

shall take at least an annual physical

inventory of all merchandise in the

warehouse, or periodic cycle counts of

selected categories of merchandise such

that each category is counted at least

once during the year, with prior

notification of the date(s) given to

Customs so that Customs personnel may

observe or participate in the inventory

if deemed necessary. If the proprietor of

a Class 2 or Class 9 warehouse has

merchandise covered by one warehouse

entry, but stored in multiple warehouse

facilities as provided for under § 144.34

of this chapter, the facility where the

original entry was filed must reconcile

the on-hand balances at all locations

with the record balance for those entries

with merchandise in multiple locations.

The proprietor shall notify the port

director of any discrepancies, record

appropriate adjustments in the

inventory control and recordkeeping

system, and make required payments

and entries to Customs, in accordance

with paragraph (d)(3) of this section.

(e) Withdrawal of merchandise from a

warehouse. All bonded merchandise

withdrawn from a warehouse will be

accurately recorded within the

inventory control and recordkeeping

system. The inventory control and

recordkeeping system must have the

capability to trace all withdrawals back

to a Customs entry and to ultimate

disposition of the merchandise by the

proprietor.

(f) Special provisions for use of FIFO

inventory procedures.—(1) Notification.

A proprietor who wishes to use FIFO

procedures for all or part of the

merchandise in a bonded warehouse

shall provide the port director a written

certification that: The proprietor has

read and understands Customs FIFO

procedures set forth in this section; the

proprietor’s procedures are in

accordance with Customs FIFO

procedures, and the proprietor agrees to

abide by those procedures; and the

proprietor of a public warehouse will

obtain the written consent of any

importer using the warehouse before

applying FIFO procedures to their

merchandise.

(2) Qualifying merchandise. FIFO

inventory procedures may be used only

for fungible merchandise. For purposes

of this section, ‘‘fungible merchandise’’

means merchandise which is identical

and interchangeable for all commercial

purposes. While commercial

interchangeability is usually decided

between buyer and seller or between

proprietor and importer, Customs is the

final arbiter of fungibility in bonded

warehouses. The criteria for

determining whether merchandise is

fungible include, but are not limited to,

Governmental and recognized industrial

standards, part numbers, tariff

classification, value, brand name, unit

of quantity (such as barrels, gallons,

pounds, pieces), model number, style

and same kind and quality. Fungible

textile and textile products which are

withdrawn from a Class 9 warehouse

may be accounted for using FIFO

inventory procedures, inasmuch as such

articles would be exempt from textile

quotas.

(3) Merchandise specifically excluded.

FIFO procedures cannot be applied to

the following merchandise, as well as

any other merchandise which does not

comply with the requirements of

paragraph (f)(2) of this section:

(i) Merchandise subject to quota, visa

or export restrictions chargeable to

different countries of origin;

(ii) Textile and textile products of

different quota categories;

(iii) Merchandise with different tariff

classifications or rates of duty, except

where the difference is within the

merchandise itself (such as kits,

merchandise in unusual containers) or

where the tariff classification or

dutiability is determined only by

conditions upon withdrawal (for

example, withdrawal for vessel

supplies, bonded wool transactions);

(iv) Merchandise with different legal

requirements for marking, labeling or

stamping;

(v) Merchandise with different

trademarks;

(vi) Merchandise of different grades or

qualities;

(vii) Merchandise with different

importers of record;

(viii) Damaged or deteriorated

merchandise;

(ix) Restricted merchandise; or

(x) General order, abandoned or

seized merchandise.

(4) Maintenance of FIFO. FIFO

procedures used for merchandise in any

inventory category, must be used

consistently throughout the warehouse

storage and recordkeeping practices and

procedures for the merchandise. For

example, merchandise may not be

added to inventory by FIFO but

withdrawn by bypassing certain

inventory layers to reach a specific

warehouse entry other than the oldest

one. However, this does not preclude

the use of specific identification for

some merchandise in a warehouse entry

and FIFO for other merchandise, so long

as they are segregated in physical

storage and clearly distinguished in the

inventory and accounting records.

(5) FIFO recordkeeping. In the

inventory and accounting records, the

proprietor shall establish an inventory

layer for each warehouse entry

represented in each inventory category.

The layers shall be established in the

order of time of acceptance of the entry

or by the date of importation of

merchandise covered by each applicable

warehouse entry. There shall be no

mixing of layering both by time of

acceptance and date of importation in

the same warehouse. Records for each

layer shall, as a minimum, show the

warehouse entry number, date of

acceptance, date of importation,

quantity and unit of quantity. They shall

also show for each entry the type of

warehouse withdrawal number or other

specific removal event charged against

the entry, by date and quantity. Each

addition to or deduction from the

inventory category shall be posted in the

appropriate inventory category within 2

business days after the event occurs. All

FIFO records and documentation shall

consistently use the same unit of

quantity within each inventory category.

(6) Entry requirements. Warehouse

entries covering any merchandise to be

accounted for under FIFO must be

prominently marked ‘‘FIFO’’ on the face

of the entry document. The entry

document or an attachment thereto shall

show the unique identifier of each

inventory category to be accounted for

under FIFO, the quantity in each

inventory category and the unit of

quantity.

(7) Receipts. Any shortages, overages,

or damage found upon receipt shall be

attributed to the entry under which the

merchandise was received. FIFO

procedures will not take effect until the

merchandise is physically placed in the

storage location for the inventory

category represented in the entry.

(8) Manipulation. When manipulation

results in a product with a different

unique identifier, the inventory and

accounting records shall show the

quantities of merchandise in each

inventory category appearing in the

product covered by the new unique

identifier. The withdrawal shall show

the unique identifiers of both the

materials used in the manipulation and

the product as manipulated. The

quantities of the original unique
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15839

identifiers will be deducted from their

respective warehouse entries on a FIFO

basis when the resultant product is

withdrawn.

(9) Discontinuance of FIFO. A

proprietor may voluntarily discontinue

the use of FIFO procedures for all or

part of the merchandise currently under

FIFO by providing written notification

to the port director. The notification

shall clearly describe the merchandise,

by commercial names and unique

identifiers, to be removed from FIFO.

Following notification, the merchandise

shall be segregated in both the

recordkeeping system and the physical

location by warehouse entry number

and the quantities so removed shall be

deducted from the appropriate FIFO

inventory category balances.

Merchandise so removed shall be

maintained under the specific

identification inventory method. FIFO

procedures which were voluntarily

discontinued may be reinstated, but not

for merchandise covered by any

warehouse entry for which FIFO was

discontinued.

(g) Warehouse proprietor submission.

Except as otherwise provided in

paragraph (h) of this section or

§ 19.19(b) of this part, the warehouse

proprietor shall file with the field

director of regulatory audit within 45

calendar days from the end of his

business year a Warehouse Proprietor’s

Submission on Customs Form 300. If the

proprietor of a Class 2 or Class 9

warehouse has merchandise covered by

one warehouse entry, but stored in

multiple warehouse facilities as

provided for under § 144.34 of this

chapter, the CF 300 shall cover all

locations and warehouses of the

proprietor. An alternative format may be

used for providing the information

required on the CF 300, if prior written

approval is obtained from the field

director of regulatory audit.

(h) Annual reconciliation.—(1)

Report. Instead of filing Customs Form

300 as required under paragraph (g) of

this section, the proprietor of a class 2,

importers’ private bonded warehouse,

and proprietors of classes 4, 5, 6, 7, 8,

and 9 warehouses if the warehouse

proprietor and the importer are the same

party, shall prepare a reconciliation

report within 90 days after the end of

the fiscal year unless the field director

authorizes an extension for reasonable

cause. The proprietor shall retain the

annual reconciliation report for 5 years

from the end of the fiscal year covered

by the report. The report must be

available for a spot check or audit by

Customs, but need not be furnished to

Customs unless requested. There is no

form specified for the preparation of the

report.

(2) Information required. The report

must contain the company name;

address of the warehouse; class of

warehouse; date of inventory or

information on cycle counts; a

description of merchandise for each

entry or unique identifier, quantity on

hand at the beginning of the year,

cumulative receipts and transfers (by

unit), quantity on hand at the end of the

year, and cumulative positive and

negative adjustments (by unit) made

during the year. If the proprietor of a

Class 2 or Class 9 warehouse has

merchandise covered by one warehouse

entry, but stored in multiple warehouse

facilities as provided for under § 144.34

of this chapter, the reconciliation shall

cover all locations and warehouses of

the proprietor at the same port. If the

annual reconciliation includes entries

for which merchandise was transferred

to a warehouse without filing a

rewarehouse entry, as allowed under

§ 144.34, the annual reconciliation must

contain sufficient detail to show all

required information by location where

the merchandise is stored. For example,

if merchandise covered by a single entry

is stored in warehouses located in 3

different ports, the annual reconciliation

should specify individually the

beginning and ending inventory

balances, cumulative receipts, transfers,

and positive and negative adjustments

for each location.

(3) Certification. The proprietor shall

submit to the field director of regulatory

audit within 10 business days after

preparation of the annual reconciliation

report, a letter signed by the proprietor

certifying that the annual reconciliation

has been prepared, is available for

Customs review, and is accurate. The

certification letter must contain the

proprietor’s IRS number; date of fiscal

year end; the name and street address of

the warehouse; the name, title, and

telephone number of the person having

custody of the records; and the address

where the records are stored. Reporting

of shortages and overages based on the

annual reconciliation will be made in

accordance with paragraph (d)(3) of this

section. Any previously unreported

shortages and overages should be

reported to the port director and any

unpaid duties, taxes and fees should be

paid at this time.

(i) System review. The proprietor shall

perform an annual internal review of the

inventory control and recordkeeping

system and shall prepare and maintain

on file a report identifying any

deficiency discovered and corrective

action taken, to ensure that the system

meets the requirements of this part.

(j) Special requirements. A warehouse

proprietor submission (CF 300) or

annual reconciliation must be prepared

for each facility or location as defined

in §§ 19.2(a) and 19.35(c) of this part.

When merchandise is transferred from

one facility or location to another

without filing a rewarehouse entry, as

provided for in § 144.34(c) of this

chapter, the submission/reconciliation

for the warehouse where the entry was

originally filed should account for all

merchandise under the warehouse

entry, indicating the quantity in each

location.

8. Section 19.13 is amended by

revising the fourth sentence of

paragraph (g) to read as follows:

§ 19.13 Requirements for establishment of

warehouses.

* * * * *

(g) Secure storage. * * * The areas for

storage of bonded material and

manufactured products shall be secured

in accordance with the standards

prescribed in § 19.4(b)(6) of this part.

* * *

* * * * *

9. Section 19.13a is amended by

revising the first sentence of its

introductory text and by revising

paragraph (b) to read as follows:

§ 19.13a Recordkeeping requirements.

The proprietor of a manufacturing

warehouse shall comply with the

recordkeeping requirements of

§§ 19.4(b) and 19.12. * * *

* * * * *

(b) Take an annual physical inventory

of the merchandise as provided in

§ 19.12(d)(5) in conjunction with the

annual submission required by

§ 19.12(g); and

* * * * *

10. Section 19.35 is amended by

revising the introductory text of

paragraph (c) and by revising

paragraphs (c)(2), (e)(2) and (f) to read

as follows:

§ 19.35 Establishment of duty-free stores

(Class 9 warehouses).

* * * * *

(c) Integrated locations. A Class 9

warehouse with multiple noncontiguous

sales and crib locations (see § 19.37(a) of

this part) containing conditionally dutyfree merchandise and requested by the

proprietor may be treated by Customs as

one location if:

* * * * *

(2) The recordkeeping system is

centralized up to the point where a sale

is made so as to automatically reduce

the sale quantity by location from

centralized inventory or inventory

records must be updated no less
15840 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

frequently than at the end of each

business day to reflect that day’s

activity.

* * * * *

(e) * * *

(2) If brought back to the United

States must be declared and is subject

to U.S. Federal duty and tax with

personal exemption; and,

* * * * *

(f) Security of sales rooms and cribs.

The physical and procedural security

requirements of § 19.4(b)(6) of this part

shall be applied to the security of the

sales rooms and cribs by the port

director. The proprietor shall establish

procedures to safeguard the

merchandise so as to accommodate the

movement of purchasers and

prospective purchasers of conditionally

duty-free merchandise contained in

duty-free sales rooms and cribs.

* * * * *

11. Section 19.36 is amended by

revising the last sentence of paragraph

(e) and the third sentence of paragraph

(g) to read as follows:

§ 19.36 Requirements for duty-free store

operations.

* * * * *

(e) Merchandise eligible for

warehousing. * * * However, such

merchandise must be either identified

or marked ‘‘DUTY-PAID’’ or ‘‘U.S.-

ORIGIN’’, or similar markings, as

applicable, so that Customs officers can

easily distinguish conditionally dutyfree merchandise from other

merchandise in the sales or crib area.

* * * * *

(g) Inventory procedure. * * * The

inventory shall be reconcilable with the

accounting and inventory records and

the permit file folder requirements of

§ 19.12 (d), (e) and (f) of this part. * * *

12. Section 19.37 is amended by

revising the first and fourth sentences,

and the fifth (and last) sentence of

paragraph (a) to read as follows:

§ 19.37 Crib operations.

(a) Crib. A crib means a bonded area,

separate from the storage area of a Class

9 warehouse, for the retention of a

supply of articles for delivery to persons

departing from the United States. * * *

The quantity of goods in the crib may

be an amount requested by the

proprietor which is commercially

necessary for the delivery operations for

a period, if approved by the port

director. The port director may increase

or decrease the quantity as deemed

necessary for the protection of the

revenue and proper administration of

U.S. laws and regulations, or may order

the return to the storage area of goods

remaining unsold.

* * * * *

13. Section 19.39 is amended by

removing the last three sentences of

paragraph (c)(2); § 19.39 is further

amended by revising the first sentence

of paragraph (c)(3), by redesignating

paragraphs (c)(4)(ii), (c)(4)(iii) and

(c)(4)(iv), as (c)(4)(iii), (c)(4)(iv) and

(c)(4)(v), respectively, and adding a new

paragraph (c)(4)(ii), and by revising

paragraphs (c)(5) and (e), to read as set

forth below:

§ 19.39 Delivery for exportation.

* * * * *

(c) * * *

(3) Aircraft delivery. The merchandise

will be delivered by a licensed cartman

for lading as baggage directly on the

aircraft on which the passenger will

depart. * * *;

(4) Unit-load delivery. * * *

(ii) Merchandise shall be placed on

the aircraft on which the passenger

departs the United States for carriage as

passenger baggage;

* * * * *

(5) Cancelled or aborted flights or noshow passengers—(i) Cancelled or

aborted flights. The proprietor shall,

upon request, make available to

Customs the purchaser’s name, the

purchaser’s airline ticket number and

the identity and quantity of the

merchandise delivered by the proprietor

to the purchaser (if the merchandise was

delivered to the airline rather than the

passenger, the name of the airline

employee to whom the merchandise

was delivered), and the date and time of

that delivery in lieu of retrieving the

merchandise for safekeeping until the

purchaser actually departs.

(ii) No-show passengers. A proprietor

who delivers merchandise directly to an

airline for delivery to a passenger who

does not board the flight shall establish

a procedure to obtain redelivery of that

merchandise from the airline.

* * * * *

(e) Delivery method. Delivery of

conditionally duty-free merchandise to

persons for exportation will be made by

licensed cartmen or bonded carriers

under the procedures in subpart D, part

125, and § 144.34(a), of this chapter, or

under a local control system approved

by the port director wherein any

discrepancy found in the merchandise

will be treated as if it occurred in the

bonded warehouse.

* * * * *

PART 113—CUSTOMS BONDS

1. The general authority citation for

part 113 continues to read as follows:

Authority: 19 U.S.C. 66, 1623, 1624.

* * * * *

2. Section 113.63 is amended by

redesignating paragraph (a)(4) as (a)(5)

and adding a new paragraph (a)(4), by

removing the word ‘‘and’’ from the end

of paragraph (b)(2), and by adding the

word ‘‘and’’ at the end of paragraph

(b)(3), by adding a new paragraph (b)(4),

and by revising the first sentence of

paragraph (d), to read as follows:

§ 113.63 Basic custodial bond conditions.

(a) * * *

(4) If authorized to use the alternative

transfer procedure set forth in

§ 144.34(c) of this chapter, to operate as

constructive custodian for all

merchandise transferred under those

procedures, thereby assuming primary

responsibility for the continued proper

custody of the merchandise

notwithstanding its geographical

location;

* * * * *

(b) * * *

(4) If authorized to use the alternative

transfer procedure set forth in

§ 144.34(c) of this chapter, to keep safe

any merchandise so transferred.

* * * * *

(d) Agreement to Redeliver

Merchandise to Customs. If the

principal is designated a bonded carrier,

or licensed to operate a cartage or

lighterage business, or authorized to use

the alternative transfer procedure set

forth in § 144.34(c) of this chapter, the

principal agrees to redeliver timely, on

demand by Customs, any merchandise

delivered to unauthorized locations or

to the consignee without the permission

of Customs. * * *

* * * * *

PART 144—WAREHOUSE AND

REWAREHOUSE ENTRIES AND

WITHDRAWALS

1. The general authority citation for

part 144 and the specific authority for

§ 144.37 continue to read as follows:

Authority: 19 U.S.C. 66, 1484, 1557, 1559,

1624;

* * * * *

Section 144.37 also issued under 19 U.S.C.

1555, 1562.

2. Section 144.34 is amended by

adding a new paragraph (c) to read as

follows:

§ 144.34 Transfer to another warehouse.

* * * * *

(c) Transfers between integrated

bonded warehouses—(1) Eligibility. (i)

Only an importer who will transfer

warehoused merchandise among Class 2

and 9 warehouses listed on the
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15841

application in paragraph (c)(2) of this

section is eligible to participate.

(ii) The importer must have a

centralized inventory control system

that shows the location of all of the

warehoused merchandise at all times,

including merchandise in transit.

(iii) The importer and its surety must

sign the application. If the application

to use this alternative procedure is

approved by the appropriate port

director, the importer’s entry bond

containing the conditions provided

under § 113.62 of this chapter will

continue to attach to any merchandise

transferred under these alternative

procedures.

(iv) Each proprietor of a warehouse

listed on the application and each

surety who underwrites that proprietor’s

custodial bond coverage under § 113.63

of this chapter shall sign the

application.

(2) Application. Application must be

made in writing to the port director of

the port in which the applicant’s

centralized inventory control system

exists, with copies to all affected port

directors, for exemptions from the

requirements for transfer of

merchandise from one bonded

warehouse to another set forth in

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

The application must list all bonded

warehouses to and from which the

merchandise may be transferred; all

such warehouses must be covered by

the same centralized inventory control

system. Only blanket exemption

requests will be considered; exemptions

will not be considered for individual

transfers. The application may be in

letter form, signed by all participants,

and contain a certification to the port

director by the applicant that he

maintains accounting records,

documents and financial statements and

reports that adequately support Customs

activities.

(3) Operation. An importer who

receives approval to transfer

merchandise between bonded

warehouses in accordance with the

provisions of this section may, after

entry into the first warehouse, transfer

that merchandise to any other

warehouse without filing a withdrawal

from warehouse or a rewarehouse entry.

The warehoused merchandise will be

treated as though it remains in the first

warehouse so long as the actual location

of the merchandise at all times is

recorded as provided under the

provisions of this section.

(4) Inventory control requirements.

The records required to be maintained

must include a centralized inventory

control system and supporting

documentation which meets the

following requirements:

(i) Provide Customs upon demand

with the proper on-hand balance of each

inventory item in each warehouse

facility and each storage location within

each warehouse;

(ii) Provide Customs upon demand

with the proper on-hand balance for

each open warehouse entry and the

actual quantity in each warehouse

facility;

(iii) If an alternative inventory system

has been approved, provide Customs

upon demand with the proper on-hand

balance for each unique identifier and

the quantity related to each open

warehouse entry and the quantity in

each warehouse facility;

(iv) Maintain documentation for all

intracompany movements, including

authorizations for the movement,

shipping documents and receiving

reports. These documents must show

the appropriate warehouse entry

number or unique identifier, the

description and quantity of the

merchandise transferred, and must be

properly authorized and signed

evidencing shipment from and delivery

to each location;

(v) Maintain a consolidated permit

file folder at the location where the

merchandise was originally

warehoused. The consolidated permit

file folder must meet the requirements

of § 19.12(d)(4) of this chapter regardless

of the warehouse facility in which the

action occurred. Documentation for all

intracompany movements, including

authorizations for movement, shipping

documents, receiving reports, as well as

documentation showing ultimate

disposition of the merchandise must be

filed in the consolidated permit file

folder within seven business days;

(vi) Maintain a subordinate permit file

at all intracompany locations where

merchandise is transferred containing

copies of documentation required by

§ 19.12(d)(4) of this chapter and by

paragraph (c)(3)(v) of this section

relating to merchandise quantities

transferred to the location. A copy of all

documents in the subordinate permit

file folder must be filed in the

consolidated permit file folder within

seven business days; no exceptions will

be granted to this requirement. When

the final withdrawal is made on the

respective entry, the subordinate permit

file shall be considered closed and filed

at the intracompany location to which

the merchandise was transferred; and

(vii) File the withdrawal from

Customs custody at the original

warehouse location at which the

merchandise was entered.

(5) Waiver of permit file folder

requirements. The permit file folder

requirements of paragraphs (c)(3)(v) and

(c)(3)(vi) of this section may be waived

if the proprietor’s recordkeeping and

inventory control system qualifies under

the requirements of § 19.12(d)(4)(iii) of

this chapter at all locations where

bonded merchandise is stored.

(6) Procedure not available—(i) Liens.

The transfer procedures permitted

under paragraph (c) of this section shall

not be available for merchandise with

respect to which Customs is notified of

the existence of a lien, as prescribed in

§ 141.112 of this chapter (see 19 U.S.C.

1564), until proof shall be produced at

the original warehouse location that the

lien has been satisfied or discharged.

(ii) Restricted merchandise. With the

exception of alcohol and tobacco

products, merchandise subject to a

restriction on release such as covered by

a licensing, quota or visa requirement, is

not eligible.

3. Section 144.36 is amended by

revising paragraphs (c) and (f), by

removing the word ‘‘or’’ from the end of

paragraph (g)(4), and by adding the

word ‘‘or’’ at the end of paragraph (g)(5)

and adding a new paragraph (g)(6)

thereafter, to read as follows:

§ 144.36 Withdrawal for transportation.

* * * * *

(c) Form. (1) A withdrawal for

transportation shall be filed on Customs

Form 7512 in five copies. An extra copy

or copies of the Customs Form 7512

may be required for use in connection

with the delivery of the merchandise to

the bonded carrier and, in the case of

alcoholic beverages, two extra copies

shall be required for use in furnishing

the duty statement to the port director

at destination.

(2) Separate withdrawals for

transportation from a single warehouse,

via a single conveyance, consigned to

the same consignee, and deposited into

a single warehouse, can be filed on one

Customs Form 7512, under one control

number, provided that there is an

attachment, to be certified by a Customs

officer, providing the information for

each withdrawal, as required in

paragraph (d) of this section. With the

exception of alcohol and tobacco

products, this procedure shall not be

allowed for merchandise which is in

any way restricted (for example, quota/

visa).

(3) The requirement that a Customs

Form 7512 be filed and the information

required in paragraph (d) of this section

be shown shall not be required if the

merchandise qualifies under the

exemption in § 144.34(c).

* * * * *
15842 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

(f) Forwarding procedure. The

merchandise shall be forwarded in

accordance with the general provisions

for transportation in bond (§§ 18.1

through 18.8 of this chapter). However,

when the alternate procedures under

§ 144.34(c) are employed, the

merchandise need not be delivered to a

bonded carrier for transportation, and

an entry for transportation (Customs

Form 7512) and a rewarehouse entry

will not be required.

(g) Procedure at destination. * * *

(5) * * *; or

(6) Deposited into the proprietor’s

bonded warehouse or duty free store

warehouse without rewarehouse entry

as required in § 144.41, if the

merchandise qualifies for the exemption

specified in § 144.34(c).

* * * * *

4. Section 144.37 is amended by

revising paragraph (h)(2)(v), and by

revising the fourth sentence and the last

sentence in the concluding text of

paragraph (h)(3), to read as follows:

§ 144.37 Withdrawal for exportation.

* * * * *

(h) * * *

(2) * * *

(v) The full name and address of the

purchaser. However, the port director

may waive the address requirement for

all merchandise except for alcoholic

beverages in quantities in excess of 4

liters and cigarettes in quantities in

excess of 3 cartons. Also, the address

requirement is not applicable with

respect to purchasers at airport duty-free

enterprises; and

* * * * *

(3) Sales ticket register. * * *

* * * The sales ticket register shall be

included in the permit file folder with

or in lieu of the blanket permit

summary, as provided in § 19.6(d)(5) of

this chapter. * * * In lieu of placing a

copy of sales tickets in each permit file

folder, the warehouse proprietor may

keep all sales tickets in a readily

retrievable manner in a separate file.

5. Section 144.39 is amended by

revising its first sentence to read as

follows:

§ 144.39 Permit to transfer and withdraw

merchandise.

With the exception of merchandise

transferred under the procedures of

§ 144.34(c), if all legal and regulatory

requirements are met, the appropriate

Customs officer shall approve the

application to transfer or withdraw

merchandise from a bonded warehouse

by endorsing the permit copy and

returning it to the applicant. * * *

6. Section 144.41 is amended by

revising paragraph (c) to read as follows:

§ 144.41 Entry for rewarehouse.

* * * * *

(c) Combining separate shipments. (1)

Separate shipments consigned to the

same consignee and received under

separate withdrawals for transportation

may be combined into one rewarehouse

entry if the warehouse withdrawals are

from the same original warehouse entry.

(2) Shipments covered by multiple

warehouse entries, and shipped from a

single warehouse under separate

withdrawals for transportation, via a

single conveyance, may be combined

into one rewarehouse entry if consigned

to the same consignee and deposited

into a single warehouse. With the

exception of alcohol and tobacco

products, this procedure shall not be

allowed for merchandise which is in

any way restricted (for example, quota/

visa). The combined rewarehouse entry

shall have attached either copies of each

warehouse entry package which is being

combined into the single rewarehouse

entry or a summary with pertinent

information, that is, the date of

importation, commodity description,

size, HTSUS and entry numbers, for all

entries withdrawn for consolidation as

one rewarehouse entry. Any combining

of separate withdrawals into one

rewarehouse entry shall result in the

rewarehouse entry being assigned the

import date of the oldest entry being

combined into the rewarehouse entry.

(3) Combining of separate shipments

shall be prohibited in all other

circumstances.

* * * * *

Approved: March 5, 1997.

George J. Weise,

Commissioner of Customs.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 97–8447 Filed 4–2–97; 8:45 am]

BILLING CODE 4820–02–P

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Part 117

[CGD07–96–069]

RIN 2115–AE47

Drawbridge Regulations; St. Johns

River, FL

AGENCY: Coast Guard, DOT.

ACTION: Interim rule with request for

comments.

SUMMARY: The Coast Guard is changing

the regulations governing the operation

of the Fuller Warren (I10/I95)

drawbridge, located in Jacksonville,

Florida, by limiting the number of

openings during certain periods. This

change is being made because of

complaints of delays to vehicular traffic

on Interstate 95. This action is necessary

to accommodate the needs of vehicular

traffic flow and still provide for the

reasonable needs of navigation.

DATES: This rule is effective April 3,

1997. Comments must be received on or

before June 2, 1997.

ADDRESSES: Comments may be mailed to

the Commander (oan), Seventh Coast

Guard District, Bridge Section, Brickell

Plaza Federal Building, 909 S.E. First

Avenue, Miami, Florida 33131–3050, or

may be delivered to room 406 at the

same address between 7:30 a.m. and 4

p.m., Monday through Friday, except

Federal holidays. The telephone number

is (305) 536–4103.

FOR FURTHER INFORMATION CONTACT:

Mr. Gary D. Pruitt, Project Manager,

Seventh Coast Guard District, Bridge

Section, at (305) 536–7331.

SUPPLEMENTARY INFORMATION: This rule

is being published as an interim rule

and is being made effective on the date

of publication. This rule is being

promulgated without an NPRM because

this proposed regulation change is

needed immediately due to the large

increase on highway traffic on Interstate

95 and the greater number of bridge

openings being caused by increased

vessel traffic along this reach of the St.

Johns River. This interim rule was

tested by a ninety day temporary

deviation with request for comments (62

FR 3461, January 23, 1997) from

November 8, 1996, through February 8,

1997. The change in opening schedules

helped to relieve traffic congestion

without unreasonably impacting

navigation. The Coast Guard did not

receive any objections to the temporary

deviation during the test period. The

interim rule has not changed from the

previously tested temporary deviation.

Request for Comments

The Coast Guard encourages

interested persons to participate in this

rulemaking by submitting written data,

views, or arguments. Persons submitting

comments should include their names

and addresses, identify this rulemaking

(CGD07–96–069) and the specific

section of this rule to which each

comment applies, and give the reason

for each comment. Please submit two

copies of all comments and attachments

in an unbound format, no larger than

81⁄2 by 11 inches, suitable for copying

and electronic filing. Persons wanting

acknowledgment of receipt of comments

should enclose stamped, self-addressed

postcards or envelopes.