[Federal Register Volume 61, Number 20 (Tuesday, January 30, 1996)]
[Rules and Regulations]
[Pages 2908-2914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1677]



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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 10, 113, 141, 144 and 181

[T.D. 96-14]
RIN 1515-AB87


North American Free Trade Agreement (NAFTA)--Implementation of 
Duty-Deferral Program Provisions

AGENCY: Customs Service, Treasury.

ACTION: Interim regulations; solicitation of comments.

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SUMMARY: In response to comments received on the final rule 
implementing NAFTA, this document sets forth interim regulations 
establishing procedural and other requirements that apply to the 
collection, waiver and reduction of duties under the duty-deferral 
program provisions of the North American Free Trade Agreement. The 
document prescribes the documentary and other requirements that must be 
followed when merchandise is withdrawn from a U.S. duty-deferral 
program either for exportation to another NAFTA country or for entry 
into a duty-deferral program of another NAFTA country, the procedures 
that must be followed in filing a claim for a waiver or reduction of 
duties collected on such merchandise, and the procedures for 
finalization of duty collections and duty waiver or reduction claims.

DATES: Interim rule effective January 1, 1996; comments must be 
submitted by April 1, 1996.

ADDRESSES: Written comments (preferably in triplicate) may be addressed 
to the Regulations Branch, U.S. Customs Service, Franklin Court, 1301 
Constitution Avenue, N.W., Washington, D.C. 20229. Comments submitted 
may be inspected at the Regulations Branch, Office of Regulations and 
Rulings, Franklin Court, 1099 14th Street, NW., Suite 4000, Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Angela Downey, Office of Field 
Operations (202-927-1082).

SUPPLEMENTARY INFORMATION:

Background

    On September 6, 1995, Customs published in the Federal Register (60 
FR 46334) a document which adopted, as a final rule, interim 
regulations implementing the Customs-related provisions of the North 
American Free Trade Agreement (NAFTA) which was adopted by the United 
States with the enactment of the North American Free Trade Agreement 
Implementation Act (the ``Act''), Public Law 103-182, 107 Stat. 2057. 
The majority of the NAFTA implementing regulations are set forth in 
Part 181 of the Customs Regulations (19 CFR Part 181) which includes, 
in Subpart E, regulations implementing the NAFTA drawback (including 
duty-deferral) provisions of Article 303 of the NAFTA and section 203 
of the Act which apply to goods imported into the United States and 
then subsequently exported from the United States to Canada on or after 
January 1, 1996, or to Mexico on or after January 1, 2001.
    Within Subpart E of Part 181, Sec. 181.53 specifically addresses 
the provisions concerning the collection, and waiver or reduction, of 
duty on goods imported into the United States pursuant to a duty-
deferral program (that is, imported into a manipulation warehouse, 
manufacturing warehouse, smelting or refining warehouse or foreign 
trade zone, or imported under a temporary importation bond) and 
subsequently exported, or used as a material in the production of 
another good that is exported, to Canada or Mexico. Paragraph (a)(1) 
defines the term ``duty-deferral program'' for purposes of the section. 
Paragraph (a)(2) provides that the exported good shall be treated as if 
it had been entered or withdrawn for consumption and thus subject to 
duty. Paragraph (a)(3) states that Customs shall waive or reduce, in 
accordance with paragraphs (b) through (f), the duties paid or owed 
under paragraph (a)(2) provided that evidence of exportation and 
satisfactory evidence of duties paid in Canada or Mexico are submitted 
within 60 calendar days of the date of exportation. Paragraphs (b) 
through (f) set forth the duty assessment and waiver or reduction rules 
with reference to each type of duty-deferral program, and each of these 
paragraphs provides that the duty shall be waived or reduced in an 
amount that does not exceed the lesser of the total amount of duty 
payable under the section or the total amount of customs duties paid to 
Canada or Mexico.
    In the discussion of public comments submitted on the interim NAFTA 
implementing regulations, the September 6, 1995, final rule document 
noted that a number of commenters raised questions regarding the 
procedures, including documentary requirements, that would apply for 
purposes of the collection and waiver or reduction of duty under 
Sec. 181.53. In responding to these comments, Customs agreed that the 
regulations should specifically address such procedural issues. Customs 
further stated that it would be preferable to address these issues in a 
separate Federal Register document, with a view to having appropriate 
regulations in place on January 1, 1996, when the Subpart E regulations 
go into effect (that is, with regard to goods exported to or entered 
into a duty-deferral program in Canada). The regulatory amendments set 
forth in this document are intended to accomplish that purpose.

Discussion of Amendments

Section 10.31

    In Sec. 10.31, which concerns temporary importations under bond, 
paragraph (h) is amended by adding at the end a new sentence regarding 
merchandise imported under subheading 9813.00.05, HTSUS, that is 
exported to Canada or Mexico, because the entry and bond requirements 
under amended Sec. 181.53 may apply to such merchandise.

Section 113.62

    In Sec. 113.62, which sets forth the basic importation and entry 
bond conditions, paragraphs (a) and (b) are amended by the addition of 
references to the withdrawal of merchandise from a duty-deferral 
program either for exportation to Canada or Mexico or for entry into a 
duty-deferral program in Canada or Mexico because such transactions 
will involve the filing of an entry under amended Sec. 181.53 as 
discussed below. Paragraph (a) concerns the agreement to pay duties, 
taxes and fees, and paragraph (b) concerns the agreement to make or 
complete entry.

Section 141.0a

    The definition of ``entry'' in paragraph (a) and the definition of 
``entered for consumption'' in paragraph (f) have been expanded by the 
addition of a sentence at the end referring to documentation required 
under amended Sec. 181.53 as discussed below.

Section 141.68

    A new paragraph (i) has been added to Sec. 141.68 (time of entry) 
regarding merchandise covered by the entry procedures contained in 
amended Sec. 181.53 as discussed below. 

[[Page 2909]]


Section 144.38

    In Sec. 144.38, which concerns withdrawals for consumption, a new 
paragraph (b) has been added to cover withdrawals either for 
exportation to Canada or Mexico or for entry into a duty-deferral 
program in Canada or Mexico.

Section 181.53

    Section 181.53 is retitled to reflect that the section also covers 
collection (rather than only waiver or reduction) of duty, and the 
section text is extensively revised in order to accommodate the 
necessary documentation and other procedural requirements regarding the 
collection and waiver or reduction of duty under the NAFTA duty-
deferral provisions. In addition to editorial, nonsubstantive changes 
to enhance the clarity of the text, the revised text incorporates a 
number of organizational and substantive changes that are outlined 
below.
    Paragraph (a)(1) is retitled as a definitions paragraph and a new 
definition of ``date of exportation'' has been added as subparagraph 
(i) thereof.
    Paragraph (a)(2) still concerns the ``treatment as entered or 
withdrawn for consumption'' principle but is divided into the following 
subparagraphs:
    1. Subparagraph (i) incorporates the provisions of former paragraph 
(a)(2) and also includes two new principles stating that the 
documentation required to be filed under the section shall constitute 
an entry or withdrawal for consumption for purposes of the Customs 
Regulations and that any assessment of duty under this section shall 
include the duties and fees referred to in Secs. 181.42 (a)-(c) (that 
is, antidumping and countervailing duties, premiums on quota, tariff 
rate quota or tariff preference level goods, and fees under section 22 
of the Agricultural Adjustment Act) and the fees provided for in 
Sec. 24.23 (that is, fees for processing merchandise). Subparagraph (i) 
refers to goods withdrawn for exportation to Canada or Mexico 
(subparagraph (i)(A)) and goods withdrawn and entered into a duty-
deferral program in Canada or Mexico (subparagraph (i)(B)) because 
Canada, Mexico and the United States (the three NAFTA Parties) agreed 
that goods withdrawn from a duty-deferral program in one NAFTA country 
and entered into a duty-deferral program in another NAFTA country shall 
be deemed not to have been exported (see section F, article X of the 
``Regulatory Standards for Implementation of the North American Free 
Trade Agreement'' published in the Federal Register on September 6, 
1995, at 60 FR 46464).
    2. Subparagraph (ii) is new and provides for application of the 
bond provisions of Sec. 142.4 to each withdrawal and exportation 
transaction under Sec. 181.53.
    3. Subparagraph (iii) is a new provision covering documentation 
filing and duty payment procedures. Subparagraph (A) thereunder 
specifies the persons who must file the documentation required under 
the section. Subparagraph (B) provides for the filing of a Customs Form 
7501 within 10 working days of the date of exportation or within 10 
working days after being entered into a duty-deferral program in Canada 
or Mexico. Subparagraph (C) concerns duty payment and requires that the 
duty be deposited with Customs at any time prior to, but no later than, 
60 calendar days after the date of exportation of the good or 60 
calendar days after the date the good is entered into a duty-deferral 
program in Canada or Mexico, and subparagraph (C) also provides for the 
calculation of interest from the applicable 60th calendar day.
    Paragraph (a)(3) is retitled ``waiver or reduction of duties'' and 
is divided into the following subparagraphs:
    1. Subparagraph (i) incorporates the provisions of former paragraph 
(a)(3) but also includes two new substantive provisions. The first of 
these new provisions consists of an exception clause at the beginning 
of the subparagraph regarding duties and fees referred to in 
Secs. 181.42 (a)-(c) and fees provided for in Sec. 24.23, because such 
duties and fees may not be waived or reduced under the NAFTA drawback 
(including duty-deferral) provisions. The second of these new 
substantive provisions requires the filing of a ``claim'' for waiver or 
reduction of duties and states that the claim shall be ``based on'' 
evidence of exportation to Canada or Mexico or of entry into a duty-
deferral program in Canada or Mexico and satisfactory evidence of 
duties paid in Canada or Mexico. The ``based on'' provision replaces 
the former requirement of submission of such evidence, is modeled on 
the approach used for NAFTA preferential duty claims (see 
Sec. 181.21(a) of the NAFTA regulations), and is intended to reduce the 
paperwork burden and to facilitate electronic filings.
    2. Subparagraph (ii) is a new provision covering the procedures for 
filing claims and paying reduced duties. This subparagraph requires 
that the claim be filed on Customs Form 7501 which must include 
specified Canadian or Mexican import information and provides that any 
reduced duties must be deposited with Customs when a claim for reduced 
duties is filed.
    3. Subparagraph (iii) is a new provision which provides for the 
filing of a drawback claim if goods entered into a Canadian or Mexican 
duty-deferral program are subsequently withdrawn from that duty-
deferral program.
    Paragraph (a)(4) is a new provision setting forth procedures 
regarding the liquidation of entries filed under Sec. 181.53 both if no 
claim for waiver or reduction of duties is filed (subparagraph (i)) and 
if a claim is filed (subparagraph (ii)). This paragraph generally 
reflects existing statutory and regulatory standards regarding 
liquidations, including notices of liquidation, deemed liquidations, 
and the time for filing protests after liquidation. In addition, in 
cases in which a claim is filed, this paragraph provides for an 
automatic 3-year extension of liquidation, because Customs will require 
additional time to obtain any information from Canadian or Mexican 
Customs necessary to verify a claim (see Sec. 181.50(b) which provides 
for a 3-year delay in liquidation of drawback claims).
    Former paragraphs (b) through (f) are redesignated as subparagraphs 
(1) through (5) under a new paragraph (b) titled ``assessment and 
waiver or reduction of duty''. The introductory texts and/or examples 
in newly designated paragraphs (b) (1)-(5), each of which still deals 
with a separate type of duty-deferral program, have been modified as 
follows: (1) by replacing the references to evidence of exportation and 
payment of duty by references to the filing of a proper claim under 
paragraph (a)(3) of the section; (2) to refer, where appropriate, to 
the filing of Customs Form 7501; and (3) by revising the examples to 
more accurately reflect a NAFTA duty-deferral context. In addition, the 
example concerning manipulation in warehouse (former paragraph (b), now 
paragraph (b)(1)) has been removed because it no longer reflects 
current law as interpreted by the courts (see Tropicana Products Inc. 
v. U.S., 789 F.Supp. 1154, 16 CIT 155 (1992)). Finally, an exception 
regarding a good imported from Canada or Mexico for repair or 
alteration has been added at the beginning of the text covering 
temporary importation under bond (former paragraph (f), now paragraph 
(b)(5)), in order to reflect the terms of article 307(2) of the NAFTA.
    Paragraph (c) concerns recordkeeping and corresponds to former 
paragraph (g) but includes a new requirement that evidence of 
exportation or of entry into a Canadian or Mexican duty-deferral 

[[Page 2910]]
program and payment of Canadian or Mexican duty be maintained by the 
person who files a claim for waiver or reduction of duty under the 
section.
    Paragraph (d) corresponds to former paragraph (h) and differs from 
the former text in referring to a failure to file a proper claim 
(rather than to a failure to provide evidence of duties paid or owed to 
Canada or Mexico) and also in referring more specifically to the 
persons who are liable for the payment of full duties.
    Finally, paragraph (e) corresponds to former paragraph (i) but has 
been modified to refer to reliquidation of the ``entry filed under this 
section pursuant to 19 U.S.C. 1508(b)(2)(B)(iii) even after liquidation 
of the entry has become final'' (see Sec. 181.50(b)).

Comments

    Before adopting these interim regulations as a final rule, 
consideration will be given to any written comments timely submitted to 
Customs. Comments submitted will be available for public inspection in 
accordance with the Freedom of Information Act (5 U.S.C. 552), 
Sec. 1.4, Treasury Department Regulations (31 CFR 1.4), and 
Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)), on regular 
business days between the hours of 9 a.m. and 4:30 p.m. at the 
Regulations Branch, Office of Regulations and Rulings, U.S. Customs 
Service, Franklin Court, 1099 14th Street, NW., Suite 4000, Washington, 
DC.

Inapplicability of Notice and Delayed Effective Date Requirements

    Pursuant to the provisions of 5 U.S.C. 553(a), public notice is 
inapplicable to these interim regulations because they are within the 
foreign affairs function of the United States. The United States is 
obligated under Chapter Three of the NAFTA to implement the NAFTA duty-
deferral provisions with respect to exportation to Canada on January 1, 
1996. Furthermore, for the same reason, it is determined that good 
cause exists under the provisions of 5 U.S.C. 553(d)(3) for dispensing 
with a delayed effective date.

Executive Order 12866

    Because this document involves a foreign affairs function of the 
United States and implements an international agreement, it is not 
subject to the provisions of E.O. 12866.

Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for interim 
regulations, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
601 et seq.) do not apply.

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collections of information contained in these 
regulations have been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget in 
accordance with the requirements of the Paperwork Reduction Act (44 
U.S.C. 3507) under control number 1515-0208.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    The collection of information in these regulations is in 
Sec. 181.53. This information is required in connection with the 
withdrawal of goods from U.S. duty deferral programs for export to 
Canada or Mexico and will be used by the U.S. Customs Service both to 
determine the amount of duty to be collected on the exported goods and 
to determine eligibility for a waiver or reduction of such duty. The 
likely respondents are business organizations including importers, 
exporters and manufacturers.
    Estimated total annual reporting and/or recordkeeping burden: 
405,070 hours.
    Estimated average annual burden per respondent/recordkeeper: 227 
hours.
    Estimated number of respondents and/or recordkeepers: 1783.
    Estimated annual frequency of responses: 1,069,800.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information shall have practical utility; (b) the 
accuracy of the agency's estimate of the burden of the collection of 
information; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (d) ways to minimize the burden of 
the collection of information on respondents, including through the use 
of automated collection techniques or other forms of information 
technology. Comments should be directed to the Office of Management and 
Budget, Attention: Desk Officer for the Department of the Treasury, 
Office of Information and Regulatory Affairs, Washington, DC 20503. A 
copy should also be sent to the Regulations Branch, Office of 
Regulations and Rulings, U.S. Customs Service, 1301 Constitution 
Avenue, NW., Washington, DC 20229.

    Drafting Information. The principal author of this document was 
Francis W. Foote, Office of Regulations and Rulings, U.S. Customs 
Service. However, personnel from other offices participated in its 
development.

List of Subjects

19 CFR Part 10

    Alterations, Bonds, Customs duties and inspection, Exports, 
Imports, Preference programs, Repairs, Reporting and recordkeeping 
requirements, Trade agreements.

19 CFR Part 113

    Air carriers, Bonds, Customs duties and inspection, Exports, 
Foreign commerce and trade statistics, Freight, Imports, Reporting and 
recordkeeping requirements, Vessels.

19 CFR Part 141

    Bonds, Customs duties and inspection, Entry of merchandise, 
Invoices, Powers of attorney, Packaging, Release of merchandise, 
Reporting and recordkeeping requirements.

19 CFR Part 144

    Bonds, Customs duties and inspection, Reporting and recordkeeping 
requirements, Warehouses.

19 CFR Part 181

    Administrative practice and procedure, Canada, Customs duties and 
inspection, Exports, Imports, Mexico, Reporting and recordkeeping 
requirements, Trade agreements (North American Free-Trade Agreement).

Amendments to the Regulations

    Accordingly, parts 10, 113, 141, 144 and 181, Customs Regulations 
(19 CFR parts 10, 113, 141, 144 and 181), are amended as set forth 
below.

PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE, 
ETC.

    1. The authority citation for part 10 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508, 
1623, 1624, 3314;
* * * * *
    2. In Sec. 10.31, paragraph (h) is amended by adding a new sentence 
at the end to read as follows:


Sec. 10.31  Entry; bond.

* * * * *
    (h) * * * However, a TIB importer may be required to file an entry 
for consumption and pay duties, or pay liquidated damages under its 
bond for a failure to do so, in the case of 

[[Page 2911]]
merchandise imported under subheading 9813.00.05, HTSUS, and 
subsequently exported to Canada or Mexico (see Sec. 181.53 of this 
chapter).

PART 113--CUSTOMS BONDS

    1. The authority citation for part 113 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1623, 1624.
* * * * *
    2. In Sec. 113.62, the introductory texts of paragraphs (a)(1) and 
(b) are revised to read as follows:


Sec. 113.62  Basic importation and entry bond conditions.

* * * * *
    (a) Agreement to Pay Duties, Taxes, and Charges.
    (1) If merchandise is imported and released from Customs custody or 
withdrawn from a Customs bonded warehouse into the commerce of, or for 
consumption in, the United States, or under Sec. 181.53 of this chapter 
is withdrawn from a duty-deferral program for exportation to Canada or 
Mexico or for entry into a duty-deferral program in Canada or Mexico, 
the obligors (principal and surety, jointly and severally) agree to:
* * * * *
    (b) Agreement to Make or Complete Entry. If all or part of imported 
merchandise is released before entry under the provisions of the 
special delivery permit procedures under 19 U.S.C. 1448(b), or released 
before the completion of the entry under 19 U.S.C. 1484(a), or 
withdrawn from a duty-deferral program for either exportation to Canada 
or Mexico or for entry into a duty-deferral program in Canada or Mexico 
before the filing of the documentation provided for in 
Sec. 181.53(a)(2) of this chapter, the principal agrees to file within 
the time and in the manner prescribed by law and regulation, 
documentation to enable Customs to:
* * * * *

PART 141--ENTRY OF MERCHANDISE

    1. The authority citation for part 141 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1448, 1484, 1624.
* * * * *
    Section 141.68 also issued under 19 U.S.C. 1315;
* * * * *
    2. In Sec. 141.0a, paragraphs (a) and (f) are amended by adding a 
sentence at the end to read as follows:


Sec. 141.0a  Definitions.

* * * * *
    (a) Entry. * * * ``Entry'' also means that documentation required 
by Sec. 181.53 of this chapter to be filed with Customs to withdraw 
merchandise from a duty-deferral program in the United States for 
exportation to Canada or Mexico or for entry into a duty-deferral 
program in Canada or Mexico.
* * * * *
    (f) Entered for consumption. * * * ``Entered for consumption'' also 
means the necessary documentation has been filed with Customs to 
withdraw merchandise from a duty-deferral program in the United States 
for exportation to Canada or Mexico or for entry into a duty-deferral 
program in Canada or Mexico (see Sec. 181.53 of this chapter).
* * * * *
    3. Section 141.68 is amended by adding a new paragraph (i) to read 
as follows:


Sec. 141.68  Time of entry.

* * * * *
    (i) Exportation to Canada or Mexico of goods imported into the 
United States under a duty-deferral program defined in Sec. 181.53 of 
this chapter. When merchandise in a U.S. duty-deferral program is 
withdrawn for exportation to Canada or Mexico or for entry into a duty-
deferral program in Canada or Mexico, the date of entry is the date the 
entry is required to be filed under Sec. 181.53(a)(2)(iii) of this 
chapter.

PART 144--WAREHOUSE AND REWAREHOUSE ENTRIES AND WITHDRAWALS

    1. The authority citation for part 144 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1484, 1557, 1559, 1624.
* * * * *
    2. Section 144.38 is amended by adding a new paragraph (b) to read 
as follows:


Sec. 144.38  Withdrawal for consumption.

* * * * *
    (b) Withdrawal for exportation to Canada or Mexico. A withdrawal 
for exportation to Canada or Mexico or for entry into a duty-deferral 
program in Canada or Mexico is considered a withdrawal for consumption 
pursuant to Sec. 181.53 of this chapter.
* * * * *

PART 181--NORTH AMERICAN FREE TRADE AGREEMENT

    1. The authority citation for part 181 continues to read as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1624, 3314.

    2. Section 181.53 is revised to read as follows:


Sec. 181.53  Collection and waiver or reduction of duty under duty-
deferral programs.

    (a) General.
    (1) Definitions. The following definitions shall apply for purposes 
of this section:
    (i) Date of exportation. ``Date of exportation'' means the date of 
importation into Canada or Mexico as reflected on the applicable 
Canadian or Mexican entry document (see Sec. 181.47(c) (1) and (2)).
    (ii) Duty-deferral program. A ``duty-deferral program'' means any 
measure which postpones duty payment upon arrival of a good in the 
United States until withdrawn or removed for exportation to Canada or 
Mexico or for entry into a Canadian or Mexican duty-deferral program. 
Such measures govern manipulation warehouses, manufacturing warehouses, 
smelting and refining warehouses, foreign trade zones, and those 
temporary importations under bond that are specified in paragraph 
(b)(5) of this section.
    (2) Treatment as entered or withdrawn for consumption.
    (i) General.
    (A) Where a good is imported into the United States pursuant to a 
duty-deferral program and is subsequently withdrawn from the duty-
deferral program for exportation to Canada or Mexico or is used as a 
material in the production of another good that is subsequently 
withdrawn from the duty-deferral program for exportation to Canada or 
Mexico, and provided that the good is a ``good subject to NAFTA 
drawback'' within the meaning of 19 U.S.C. 3333 and is not described in 
Sec. 181.45 of this part, the documentation required to be filed under 
this section in connection with the exportation of the good shall, for 
purposes of this chapter, constitute an entry or withdrawal for 
consumption and the exported good shall be subject to duty which shall 
be assessed in accordance with paragraph (b) of this section.
    (B) Where a good is imported into the United States pursuant to a 
duty-deferral program and is subsequently withdrawn from the duty-
deferral program and entered into a duty-deferral program in Canada or 
Mexico or is used as a material in the production of another good that 
is subsequently withdrawn from the duty-deferral program and entered 
into a duty-

[[Page 2912]]
deferral program in Canada or Mexico, and provided that the good is a 
``good subject to NAFTA drawback'' within the meaning of 19 U.S.C. 3333 
and is not described in Sec. 181.45, the documentation required to be 
filed under this section in connection with the withdrawal of the good 
from the U.S. duty-deferral program shall, for purposes of this 
chapter, constitute an entry or withdrawal for consumption and the 
withdrawn good shall be subject to duty which shall be assessed in 
accordance with paragraph (b) of this section.
    (C) Any assessment of duty under this section shall include the 
duties and fees referred to in Sec. 181.42 (a) through (c) and the fees 
provided for in Sec. 24.23 of this chapter; these inclusions shall not 
be subject to refund, waiver, reduction or drawback.
    (ii) Bond requirements. The provisions of Sec. 142.4 of this 
chapter shall apply to each withdrawal and exportation transaction 
described in paragraph (a)(2)(i) of this section. However, in applying 
the provisions of Sec. 142.4 of this chapter in the context of this 
section, any reference to release from Customs custody in Sec. 142.4 of 
this chapter shall be taken to mean exportation to Canada or Mexico.
    (iii) Documentation filing and duty payment procedures.
    (A) Persons required to file. In the circumstances described in 
paragraph (a)(2)(i) of this section, the documentation described in 
paragraph (a)(2)(iii)(B) of this section must be filed by one of the 
following persons:
    (1) In the case of a withdrawal of the goods from a warehouse, the 
person who has the right to withdraw the goods;
    (2) In the case of a temporary importation under bond (TIB) 
specified in paragraph (b)(5) of this section, the TIB importer whether 
or not he sells the goods for export to Canada or Mexico unless 
Sec. 10.31(h) of this chapter applies; or
    (3) In the case of a withdrawal from a foreign trade zone, the 
person who has the right to make entry. However, if a zone operator is 
not the person with the right to make entry of the good, the zone 
operator shall be responsible for the payment of any duty due in the 
event the zone operator permits such other person to remove the goods 
from the zone and such other person fails to comply with Secs. 146.67 
and 146.68 of this chapter.
    (B) Documentation required to be filed and required filing date. 
The person required to file shall file Customs Form 7501 no later than 
10 working days after the date of exportation to Canada or Mexico or 10 
working days after being entered into a duty-deferral program in Canada 
or Mexico. Except where the context otherwise requires and except as 
otherwise specifically provided in this paragraph, the procedures for 
completing and filing Customs Form 7501 in connection with the entry of 
merchandise under this chapter shall apply for purposes of this 
paragraph. For purposes of completing Customs Form 7501 under this 
paragraph, any reference on the form to the entry date shall be taken 
to refer to the date of exportation of the good or the date the goods 
are entered into a duty-deferral program in Canada or Mexico. The 
Customs Form 7501 required under this paragraph may be transmitted 
electronically.
    (C) Duty payment. The duty estimated to be due under paragraph (b) 
of this section shall be deposited with Customs 60 calendar days after 
the date of exportation of the good. If a good is entered into a duty-
deferral program in Canada or Mexico, the duty estimated to be due 
under paragraph (b) of this section, but without any waiver or 
reduction provided for in that paragraph, shall be deposited with 
Customs 60 calendar days after the date the good is entered into such 
duty-deferral program. Nothing shall preclude the deposit of such 
estimated duty at the time of filing the Customs Form 7501 under 
paragraph (a)(2)(iii)(B) of this section or at any other time within 
the 60-day period prescribed in this paragraph. However, any interest 
calculation shall run from the date the duties are required to be 
deposited.
    (3) Waiver or reduction of duties.
    (i) General. Except in the case of duties and fees referred to in 
Secs. 181.42(a) through (c) and fees provided for in Sec. 24.23 of this 
chapter, Customs shall waive or reduce the duties paid or owed under 
paragraph (a)(2) of this section by the person who is required to file 
the Customs Form 7501 (see paragraph (a)(2)(iii)(A) of this section) in 
accordance with paragraph (b) of this section, provided that a claim 
for waiver or reduction of the duties is filed with Customs within the 
appropriate 60-day time frame. The claim shall be based on evidence of 
exportation or entry into a Canadian or Mexican duty-deferral program 
and satisfactory evidence of duties paid in Canada or Mexico (see 
Sec. 181.47(c)).
    (ii) Filing of claim and payment of reduced duties. A claim for a 
waiver or reduction of duties under paragraph (a)(3)(i) of this section 
shall be made on Customs Form 7501 which shall set forth, in addition 
to the information required under paragraph (a)(2)(iii)(B) of this 
section, a description of the good exported to Canada or Mexico and the 
Canadian or Mexican import entry number, date of importation, tariff 
classification number, rate of duty and amount of duty paid. If a claim 
for reduction of duties is filed under this paragraph, the reduced 
duties shall be deposited with Customs when the claim is filed.
    (iii) Drawback on goods entered into a duty-deferral program in 
Canada or Mexico. After goods in a duty-deferral program in the United 
States which have been sent from the United States and entered into a 
duty-deferral program in Canada or Mexico are then withdrawn from that 
Canadian or Mexican duty-deferral program either for entry into Canada 
or Mexico or for export to a non-NAFTA country, the person who filed 
the Customs Form 7501 (see paragraph (a)(2)(iii)(A) of this section) 
may file a claim for drawback if the goods are withdrawn within 5 years 
from the date of the original importation of the good into the United 
States. If the goods are entered for consumption in Canada or Mexico, 
drawback will be calculated in accordance with Sec. 181.44 of this 
part.
    (4) Liquidation of entry.
    (i) If no claim is filed. If no claim for a waiver or reduction of 
duties is filed in accordance with paragraph (a)(3) of this section, 
Customs shall determine the final duties due under paragraph (a)(2)(i) 
of this section and shall post a bulletin notice of liquidation of the 
entry filed under this section in accordance with Sec. 159.9 of this 
chapter. Where no claim was filed in accordance with this section and 
Customs fails to liquidate, or extend liquidation of, the entry filed 
under this section within 1 year from the date of the entry, upon the 
date of expiration of that 1-year period the entry shall be deemed 
liquidated by operation of law in the amount asserted by the exporter 
on the Customs Form 7501 filed under paragraph (a)(2)(iii)(A) of this 
section. A protest under section 514, Tariff Act of 1930, as amended 
(19 U.S.C. 1514), and part 174 of this chapter shall be filed within 90 
days from the date of posting of the notice of liquidation under this 
section.
    (ii) If a claim is filed. If a claim for a waiver or reduction of 
duties is filed in accordance with paragraph (a)(3) of this section, an 
extension of liquidation of the entry filed under this section shall 
take effect for a period not to exceed 3 years from the date the entry 
was filed. Before the close of the extension period, Customs shall 
liquidate the entry filed under this section and shall post a bulletin 
notice 

[[Page 2913]]
of liquidation in accordance with Sec. 159.9 of this chapter. If 
Customs fails to liquidate the entry filed under this section within 4 
years from the date of the entry, upon the date of expiration of that 
4-year period the entry shall be deemed liquidated by operation of law 
in the amount asserted by the exporter on the Customs Form 7501 filed 
under paragraph (a)(3)(ii) of this section. A protest under section 
514, Tariff Act of 1930, as amended (19 U.S.C. 1514), and part 174 of 
this chapter shall be filed within 90 days from the date of posting of 
the notice of liquidation under this section.
    (b) Assessment and waiver or reduction of duty.
    (1) Manipulation in warehouse. Where a good subject to NAFTA 
drawback under this subpart is withdrawn from a bonded warehouse (19 
U.S.C. 1562) after manipulation for exportation to Canada or Mexico or 
for entry into a duty-deferral program in Canada or Mexico, duty shall 
be assessed on the good in its condition and quantity, and at its 
weight, at the time of such withdrawal from the warehouse and with such 
additions to, or deductions from, the final appraised value as may be 
necessary by reason of its change in condition. Such duty shall be paid 
no later than 60 calendar days after the date of exportation or of 
entry into the duty-deferral program of Canada or Mexico, except that, 
upon filing of a proper claim under paragraph (a)(3) of this section, 
the duty shall be waived or reduced in an amount that does not exceed 
the lesser of the total amount of duty payable on the good under this 
section or the total amount of customs duties paid to Canada or Mexico.
    (2) Bonded manufacturing warehouse. Where a good is manufactured in 
a bonded warehouse (19 U.S.C. 1311) with imported materials and is then 
withdrawn for exportation to Canada or Mexico or for entry into a duty-
deferral program in Canada or Mexico, duty shall be assessed on the 
materials in their condition and quantity, and at their weight, at the 
time of their importation into the United States. Such duty shall be 
paid no later than 60 calendar days after either the date of 
exportation or of entry into a duty-deferral program of Canada or 
Mexico, except that, upon filing of a proper claim under paragraph 
(a)(3) of this section, the duty shall be waived or reduced in an 
amount that does not exceed the lesser of the total amount of duty 
payable on the materials under this section or the total amount of 
customs duties paid to Canada or Mexico.

    Example. Company N imports tea into the United States and makes 
a Class 6 warehouse entry. Company N manufactures sweetened ice tea 
mix by combining the imported tea with refined cane sugar and other 
flavorings and packaging it in retail size canisters. Upon 
withdrawal of the ice tea mix from the warehouse for exportation to 
Canada, a Customs Form 7501 is filed showing $900 in estimated U.S. 
duties on the basis of the unmanufactured tea. Upon entry into 
Canada, the equivalent of US$800 is assessed on the exported ice tea 
mix. Company N submits to Customs a proper claim under paragraph 
(a)(3) of this section showing payment of the US$800 equivalent in 
duties to Canada. Company N will only be required to pay $100 in 
U.S. duties out of the $900 amount reflected on the Customs Form 
7501.

    (3) Bonded smelting or refining warehouse. For any qualifying 
imported metal-bearing materials (19 U.S.C. 1312), duty shall be 
assessed on the imported materials and the charges against the bond 
canceled no later than 60 calendar days after either the date of 
exportation of the treated materials to Canada or Mexico or the date of 
entry of the treated materials into a duty-deferral program of Canada 
or Mexico, either from the bonded smelting or refining warehouse or 
from such other customs bonded warehouse after the transfer of the same 
quantity of material from a bonded smelting or refining warehouse. 
However, upon filing of a proper claim under paragraph (a)(3) of this 
section, the duty on the imported materials shall be waived or reduced 
in an amount that does not exceed the lesser of the total amount of 
duty payable on the imported materials under this section or the total 
amount of customs duties paid to Canada or Mexico.

    Example. Company Z imports 47 million pounds of electrolytic 
zinc which is entered into a bonded smelting and refining warehouse 
(Class 7) for processing. Thereafter, Company Z withdraws the 
merchandise for exportation to Canada and files a Customs Form 7501 
showing $90,000 in estimated U.S. duty on the dutiable quantity of 
metal contained in the imported metal-bearing materials. Upon entry 
of the processed zinc into Canada, the equivalent of US$50,000 in 
duties are assessed. Within 60 days of exportation Company Z files a 
proper claim under paragraph (a)(3) of this section and Customs 
liquidates the entry with duty due in the amount of $40,000.

    (4) Foreign trade zone. For a good that is manufactured or 
otherwise changed in condition in a foreign trade zone (19 U.S.C. 
81c(a)) and then withdrawn from the zone for exportation to Canada or 
Mexico or for entry into a Canadian or Mexican duty-deferral program, 
the duty assessed, as calculated under paragraph (e)(1) or (e)(2) of 
this section, shall be paid no later than 60 calendar days after either 
the date of exportation of the good to Canada or Mexico or the date of 
entry of the good into a duty-deferral program of Canada or Mexico, 
except that, upon filing of a proper claim under paragraph (a)(3) of 
this section, the duty shall be waived or reduced in an amount that 
does not exceed the lesser of the total amount of duty payable on the 
good under this section or the total amount of customs duties paid to 
Canada or Mexico.
    (i) Nonprivileged foreign status. In the case of a nonprivileged 
foreign status good, duty is assessed on the good in its condition and 
quantity, and at its weight, at the time of its exportation from the 
zone to Canada or Mexico or its entry into a duty-deferral program of 
Canada or Mexico.

    Example. CMG imports $1,000,000 worth of auto parts from Korea 
and admits them into Foreign-Trade Subzone number 00, claiming 
nonprivileged foreign status. (If the auto parts had been regularly 
entered they would have been dutiable at 4 percent, or $40,000.) CMG 
manufactures subcompact automobiles. Automobiles are dutiable at 2.5 
percent ($25,000) if entered for consumption in the United States. 
CMG withdraws the automobiles from the zone and exports them to 
Mexico. Upon entry of the automobiles in Mexico, CMG pays the 
equivalent of US$20,000 in duty. Before the expiration of 60 
calendar days from the date of exportation, CMG files a proper claim 
under paragraph (a)(3) of this section and pays $5,000 in duty to 
Customs representing the difference between the $25,000 which would 
have been paid if the automobiles had been entered for consumption 
from the zone and the US$20,000 equivalent paid to Mexico.

    (ii) Privileged foreign status. In the case of a privileged foreign 
status good, duty is assessed on the good in its condition and 
quantity, and at its weight, at the time privileged status is granted 
in the zone.

    Example. O&G, Inc. admits Kuwaiti crude petroleum into its zone 
and requests, one month later, privileged foreign status on the 
crude before refining the crude into motor gasoline and kerosene. 
Upon withdrawal of the refined goods from the zone by O&G, Inc. for 
exportation to Canada, a Customs Form 7501 is filed showing $700 in 
estimated duties on the imported crude petroleum (rather than on the 
refined goods which would have been assessed $1,200). D&O is the 
consignee in Canada and pays the Canadian customs duty assessment of 
the equivalent of US$1,500 on the goods. O&G, Inc. is entitled to a 
waiver of the full $700 in duties upon filing of a proper claim 
under paragraph (a)(3) of this section.

    (5) Temporary importation under bond. Except in the case of a good 
imported from Canada or Mexico for repair or alteration, where a good, 
regardless of its origin, was imported temporarily free of duty for 
repair, 

[[Page 2914]]
alteration or processing (subheading 9813.00.05, Harmonized Tariff 
Schedule of the United States) and is subsequently exported to Canada 
or Mexico, duty shall be assessed on the good on the basis of its 
condition at the time of its importation into the United States. Such 
duty shall be paid no later than 60 calendar days after either the date 
of exportation or the date of entry into a duty-deferral program of 
Canada or Mexico, except that, upon filing of a proper claim under 
paragraph (a)(3) of this section, the duty shall be waived or reduced 
in an amount that does not exceed the lesser of the total amount of 
duty payable on the good under this section or the total amount of 
customs duties paid to Canada or Mexico.

    Example. Company A imports glassware under subheading 
9813.00.05, HTSUS. The glassware is from France and would be 
dutiable under a regular consumption entry at $6,000. Company A 
alters the glassware by etching hotel logos on the glassware. Two 
weeks later, Company A sells the glassware to Company B, a Mexican 
company, and ships the glassware to Mexico. Company B enters the 
glassware and is assessed duties in an amount equivalent to US$6,200 
and claims NAFTA preferential tariff treatment. Company B provides a 
copy of the Mexican landing certificate to Company A showing that 
the US$6,200 equivalent in duties was assessed but not yet paid to 
Mexico. If Mexico ultimately denies Company B's NAFTA claim and the 
Mexican duty payment becomes final, Company A, upon submission to 
Customs of a proper claim under paragraph (a)(3) of this section, is 
entitled to a waiver of the full $6,000 in U.S. duty.

    (c) Recordkeeping requirements. If a person intends to claim a 
waiver or reduction of duty on goods under this section, that person 
shall maintain records concerning the value of all involved goods or 
materials at the time of their importation into the United States and 
concerning the value of the goods at the time of their exportation to 
Canada or Mexico or entry into a duty-deferral program of Canada or 
Mexico, and if a person files a claim under this section for a waiver 
or reduction of duty on goods exported to Canada or Mexico or entered 
into a Canadian or Mexican duty-deferral program, that person shall 
maintain evidence of exportation or entry into a Canadian or Mexican 
duty-deferral program and satisfactory evidence of the amount of any 
customs duties paid to Canada or Mexico on the good (see 
Sec. 181.47(c)). Failure to maintain adequate records will result in 
denial of the claim for waiver or reduction of duty.
    (d) Failure to file proper claim. If the person identified in 
paragraph (a)(2)(iii)(A) of this section fails to file a proper claim 
within the 60-day period specified in this section, that person, or the 
FTZ operator pursuant to paragraph (a)(2)(iii)(A)(3) of this section, 
will be liable for payment of the full duties assessed under this 
section and without any waiver or reduction thereof.
    (e) Subsequent claims for preferential tariff treatment. If a claim 
for a refund of duties is allowed by the Canadian or Mexican customs 
administration under Article 502(3) of the NAFTA or under any other 
circumstance after duties have been waived or reduced under this 
section, Customs may reliquidate the entry filed under this section 
pursuant to 19 U.S.C. 1508(b)(2)(B)(iii) even after liquidation of the 
entry has become final.
George J. Weise,
Commissioner of Customs.

    Approved: January 24, 1996.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 96-1677 Filed 1-29-96; 8:45 am]
BILLING CODE 4820-02-P