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

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followed when merchandise is withdrawn from a U.S. duty-deferral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