Duty-Free Treatment of Articles Imported From U.S. Insular Possessions

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 7, 10, 148 and 178

[T.D. 97-75]

RIN 1515-AB14

Duty-Free Treatment of Articles Imported From U.S. Insular

Possessions

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document adopts as a final rule, with some modifications,

proposed amendments to the Customs Regulations to clarify and update

the legal requirements and procedures that apply for purposes of

obtaining duty-free treatment on articles imported from

[[Page 46434]]

insular possessions of the United States other than Puerto Rico. The

final regulatory amendments include certain organizational changes to

improve the layout of the regulations and also clarify and update the

personal exemption provisions applicable to returning residents.

EFFECTIVE DATE: October 3, 1997.

FOR FURTHER INFORMATION CONTACT: Monika Rice, Office of Regulations and

Rulings (202-482-7049).

SUPPLEMENTARY INFORMATION:

Background

On July 27, 1993, Customs published in the Federal Register (58 FR

40095) a notice of proposed rulemaking to amend parts 7, 10 and 148 of

the Customs Regulations (19 CFR parts 7, 10 and 148) as regards duty-

free treatment of articles imported from insular possessions of the

United States other than Puerto Rico. The proposed amendments to part 7

included replacement of present Sec. 7.8 by two new Secs. 7.2 and 7.3,

the latter section representing an update and elaboration of the

substantive requirements and procedures for obtaining duty-free

treatment on products of U.S. insular possessions under General Note

3(a)(iv) of the Harmonized Tariff Schedule of the United States

(HTSUS). The proposed Part 10 amendments involved primarily the

transfer to part 7 of a section of the regulations dealing with watches

and watch movements from U.S. insular possessions. The proposed Part

148 amendments involved an updating of the regulations that implement

the personal duty exemption or reduction provisions applicable to

returning residents and other persons arriving from certain U.S.

insular possessions or from Caribbean Basin Initiative (CBI)

beneficiary countries as provided for in Subchapters IV and XVI of

Chapter 98, HTSUS.

With particular regard to the requirements and procedures for

obtaining duty-free treatment under General Note 3(a)(iv), HTSUS, the

July 27, 1993, notice pointed out that, as compared to the regulations

implementing the Generalized System of Preferences (GSP), set forth as

Secs. 10.171-10.178, Customs Regulations (19 CFR 10.171-10.178), and

the regulations implementing the CBI, set forth as Secs. 10.191-10.198,

Customs Regulations (19 CFR 10.191-10.198), Sec. 7.8 did not reflect

all of the provisions of General Note 3(a)(iv), HTSUS, and did not

provide adequate guidance concerning the legal effect of those

provisions, particularly as to the determination of the origin of goods

imported from insular possessions, the meaning of direct shipment to or

from an insular possession, and the application of the maximum foreign

materials content limitation. Thus, subject to variances to reflect a

General Note 3(a)(iv) insular possession context, the proposed Sec. 7.3

text adopted the more detailed approach used in the GSP and CBI

regulations in setting forth, among other things, specific origin

determination language (for example, ``growth or product'',

``substantially transformed'', ``new and different article of

commerce'') applicable to goods from insular possessions and materials

incorporated in such goods (paragraphs (b) and (c)) as well as a

specific rule regarding direct shipment to or from an insular

possession (paragraph (e)).

Discussion of Comments

A total of seven comments were submitted in response to the notice.

All of the commenters generally favored the proposed regulatory

changes, particularly with regard to the reduced documentary burden and

the inclusion of the Commonwealth of the Northern Mariana Islands.

However, some commenters suggested certain changes to the proposed

Sec. 7.3 texts which are discussed in detail below.

Comment: Several commenters indicated that the words ``may be

eligible'' in proposed Sec. 7.3(a) should be replaced with the words

``shall be eligible.'' Otherwise, despite compliance with the

provisions of General Note 3(a)(iv), HTSUS, Customs would have

impermissible discretion in allowing duty-free treatment.

Customs response: Customs disagrees. While goods imported from U.S.

insular possessions which satisfy the requirements and conditions set

forth in General Note 3(a)(iv), HTSUS, ``are exempt from duty'', and

even though proposed Secs. 7.3(a) (1) and (2) state which goods are

eligible for duty-free treatment, documentary requirements were

included in proposed Sec. 7.3(f) for the specific purpose of

demonstrating that the imported goods meet the statutory requirements

for duty-free entry. See Maple Leaf Petroleum, Ltd. v. United States,

25 C.C.P.A. 5, 8, 9, T.D. 48976 (1937), for the proposition that it has

long been the sound policy of our Government that when such grants and

privileges as those involved here were allowed in customs matters, they

were granted only upon the condition that there should be a compliance

with regulations to be prescribed by the Secretary of the Treasury. See

also McDonnell Douglas Corp. v. United States, 75 Cust. Ct. 6 (1975),

C.D. 4604, and General Note 20, HTSUS. Accordingly, Sec. 7.3(a) should

not be revised by substituting the word ``may'' with ``shall.''

Comment: Proposed Sec. 7.3(b)(2) provides that goods shall be

considered the product of an insular possession if they ``became a new

and different article of commerce as a result of processing performed

in the insular possession.'' Two comments suggested including ``a

change in name, character, or use, as a result of an operation

including, but not limited to, assembly, manufacturing, and processing,

performed in the insular possession.'' It was claimed that such a

revision would clarify that a change in any one or more of the three

criteria is sufficient to produce a new and different article of

commerce. This revision would also clarify any ambiguity concerning the

meaning of the word ``processing'', by using the word ``operation'' and

providing three non-exhaustive examples (i.e., assembly, manufacturing,

and processing) to indicate that various methods can be used to bring

about a substantial transformation.

Customs response: Proposed Sec. 7.3(b)(2) sets forth the basic

substantial transformation rule. Customs does not believe that specific

exemplars are necessary to establish how a new and different article of

commerce is created because there are ample court cases and Customs

rulings that explain the substantial transformation rule. Therefore, it

is the opinion of Customs that specific exemplars are not appropriate

for Sec. 7.3(b)(2). However, for the sake of clarity, Customs believes

that the word ``processing'' in Sec. 7.3(b)(2) should be replaced with

the words ``production or manufacture'' which more closely reflect the

terminology used in General Note 3(a)(iv), HTSUS, and in proposed

Sec. 7.3(c)(2). Section 7.3(b)(2) as set forth below has been modified

accordingly.

Comment: Proposed Sec. 7.3(b) should be revised to recognize that

duty-free treatment under General Note 3(a)(iv) is to be afforded to

products deemed to be products of an insular possession pursuant to

U.S. Note 2, Subchapter II, Chapter 98, HTSUS (under which products of

the United States returned to the United States after having been

advanced in value or improved in condition abroad by any process of

manufacture or other means, and imported articles assembled abroad in

whole or in part from U.S. products, are to be treated as foreign

articles), and which otherwise meet the requirements of General Note

3(a)(iv) (but are not necessarily substantially transformed in the

insular possession). Specifically, this commenter recommended inclusion

[[Page 46435]]

of the following as a third origin standard:

(3) The goods were a product of the United States which were

returned to the United States after having been advanced in value or

improved in condition in an insular possession, or assembled in an

insular possession, pursuant to U.S. Note 2, Subchapter II, Chapter

98, HTSUS.

The commenter argued that this revision would clarify that goods

which are not ``wholly obtained or produced'' or ``substantially

transformed'' may still become a product of an insular possession and

be eligible for duty-free treatment under General Note 3(a)(iv), as

determined in Headquarters Ruling Letter (HRL) 557481 dated September

24, 1993, which reconsidered HRL 556381 dated March 2, 1991. In HRL

556381, Customs ruled that certain garments, produced on the U.S.

mainland and screen printed or embroidered in the Virgin Islands using

printing or embroidery materials produced on the U.S. mainland or

Puerto Rico, were not eligible for duty-free treatment under General

Note 3(a)(iv). Although no foreign-origin materials were employed in

these operations, Customs held that the printed or embroidered garments

were not eligible for duty-free treatment under General Note 3(a)(iv)

because they were not ``products of'' the Virgin Islands and had not

undergone a substantial transformation.

In HRL 557481, Customs reconsidered HRL 556381 and determined that,

under the facts, the garments in question were products of the Virgin

Islands and thus eligible for duty-free treatment under General Note

3(a)(iv). Specifically, Customs ruled that under 19 CFR 12.130(c) and

U.S. Note 2, Subchapter II, Chapter 98, HTSUS, the U.S. good returned

must be deemed a product of the non-U.S. jurisdiction in which they

were advanced in value (i.e., the U.S. Virgin Islands). Because the

goods were a product of the Virgin Islands and otherwise met the

requirements of General Note 3(a)(iv), they were entitled to duty-free

treatment under that provision.

Customs response: Customs cannot agree to the regulatory text

change suggested by this commenter. Pursuant to T.D. 90-17, paragraph

(c) of Sec. 12.130, Customs Regulations (19 CFR 12.130), supersedes all

other provisions of Sec. 12.130 with regard to determining the origin

of textile goods. This position, however, has not been extended to

other goods on a general basis. See the May 5, 1995, notice of proposed

rulemaking (discussed below in this document under the Other Changes to

the Regulatory Texts section) in which Customs noted that it has

reconsidered its previously stated position that U.S. Note 2(a),

Subchapter II, Chapter 98, HTSUS, has application for general country

of origin purposes. Therefore, the regulatory text change suggested by

this commenter would have an impermissibly broad effect since it would

apply to all goods rather than only to textile goods.

Comment: It was suggested that Sec. 7.3(c)(2), which twice uses the

phrase ``new and different article of commerce'' to establish the

principle of double substantial transformation, should be followed by

the phrase ``that is, one which underwent a change in name, character,

or use.'' This would ensure a consistent meaning of the term ``new and

different article of commerce'' throughout Sec. 7.3.

Customs response: Customs disagrees, for the same reasons stated

above in response to the comment regarding the use of exemplars to

explain the creation of a new and different article. Customs also notes

that the use of the words ``new and different article of commerce'' in

Sec. 7.3(c)(2), without further explanation, is consistent with the

approach used in the GSP and CBI regulations (see 19 CFR 10.177(a)(2)

and 19 CFR 10.195(a), respectively) which have not given rise to

interpretive problems in this regard.

Comment: General Note 3(a)(iv)(A) provides for the duty-free entry

of goods from an insular possession containing foreign material up to

70 percent of their value, unless they are among the products not

eligible for duty-free entry under the CBI, in which case duty-free

entry is only allowed if the foreign materials do not exceed 50 percent

of the value of the goods. General Note 3(a)(iv)(B) sets forth rules

for identifying materials not to be considered as foreign

(specifically, certain duty-free materials) for purposes of determining

whether goods produced or manufactured in any such insular possession

contain ``foreign materials to the value of more than 70 percent''.

One commenter suggested that Sec. 7.3(c)(3), which defines certain

materials which are not considered as ``foreign materials'' in

determining the 70 percent foreign content limitation, is contrary to

the legislative history of General Note 3(a)(iv) and its predecessor

provisions and is contrary to longstanding practice, since it is not

equally applicable to the 50 percent limitation. This commenter

acknowledged that Sec. 7.3(c)(3) is limited because General Note

3(a)(iv)(B) only refers to the ``70 percent'' value mentioned in

paragraph (A); however, notwithstanding the strict language of

paragraph (B), the commenter suggested that Congress intended that the

rule regarding the use of duty-free foreign materials be equally

applicable to products to which the 50 percent limitation applies. The

commenter set forth the following analysis in support of this position:

Section 3 of the Act of March 3, 1917, Pub. L. 64-389, 39 Stat.

1133 (1917) (``the 1917 Act''), accorded duty-free treatment to

products from the U.S. Virgin Islands as long as the value of the

foreign materials did not exceed 20 percent. In 1950, the 1917 Act was

amended to exclude from ``foreign material'' any material which could

be entered into the United States free of duty. Pub. L. 81-766, 64

Stat. 784 (1950). The purpose of the legislation was to encourage the

establishment of new industries in the U.S. Virgin Islands, thereby

providing increased employment and revenues. S. Rep. No. 2368, 81st

Cong., 2d Sess. 2 (1950). In 1954, the Customs Simplification Act, Pub.

L. 83-768, title IV, section 401, 68 Stat. 1139 (1954), increased the

foreign content limitation to 50 percent and continued the treatment of

materials as not ``foreign'' if they could be entered into the United

States free of duty.

General Headnote 3(a), Tariff Schedules of the United States

(TSUS), effective August 31, 1963, continued the 50 percent foreign

material limitation and the treatment of a material as not foreign if

the material could be entered into the United States free of duty.

Section 214 of the Caribbean Basin Economic Recovery Act (the CBI

statute), Pub. L. 98-67 (1983), amended General Headnote 3(a), TSUS, by

increasing the foreign materials value allowable in insular possession

goods from 50 percent to 70 percent. However, for those goods that were

not entitled to CBI preferential duty treatment, General Headnote 3(a),

TSUS, was further amended to specify a 50 percent foreign materials

value limitation for such products. In amending General Headnote 3(a),

TSUS, to include the 70 percent foreign materials value limitation,

Congress stated that it intended to ``maintain the competitive position

of Puerto Rico and the U.S. insular possessions which might otherwise

be adversely affected by the Caribbean Basin Initiative.'' However,

since CBI-exempt products ``are excluded from duty-free treatment . .

., it is not necessary to increase the foreign content potential under

general headnote 3(a) as an equalizing measure for the insular

possessions. . . .'' H.R. Rep. No. 266, 98th Cong., 1st Sess. 22

(1983), reprinted in 1983 U.S. Code Cong. & Admin. News 645, 663.

[[Page 46436]]

Based on the above, this commenter suggested that under proposed

Sec. 7.3(c)(3), materials should also not be considered foreign

materials for purposes of calculating the 50 percent foreign materials

value limitation (in addition to the 70 percent value provision) if the

materials may be entered into the U.S. free of duty. Therefore, despite

the lack of any reference to the 50 percent value limitation in

paragraph (B) of the present statutory provision, the only logical

reading of paragraph (B), consistent with the congressional intent and

longstanding practice, is to include in Sec. 7.3(c)(3) the 50 percent

foreign materials value reference contained in paragraph (A) of the

statute.

This commenter further suggested that liberally construing this

remedial statute will carry out the congressional intent. See Atchison,

Topeka and Santa Fe Railroad Co. v. Buell, 480 U.S. 557, 561 (1987)

(with a remedial statute, Congress adopts a ``standard of liberal

construction in order to accomplish [Congress'] objects.''); see also

United States v. Carolina Transformer Co., 978 F.2d 832, 838 (4th Cir.

1992) (the provision of a remedial statute ``should be construed

broadly to avoid frustrating the legislative purpose.''). Furthermore,

where the literal interpretation of a statute is inconsistent with the

legislative intent, the words of the statute should give way to the

legislative intent. Florida Department of Banking v. Board of

Governors, 760 F.2d 1135, 1139 (11th Cir. 1985).

Therefore, this commenter suggested that Sec. 7.3(c)(3) be revised

to read as follows:

(3) In the case of imported goods to which the 70 percent or 50

percent foreign materials value limitation applies as set forth in

paragraph (a)(1)(i) of this section, a material which may be

imported into the customs territory of the United States from a

foreign country and entered free of duty either:

Customs response: Customs agrees with the commenter's suggestion to

fill a gap in General Note 3(a)(iv)(B) by these regulations. Although

paragraph (B) of General Note 3(a)(iv), HTSUS, clearly states that in

regard to the 70 percent value, a material shall not be considered a

``foreign material'' if it may be imported into the United States and

entered free of duty, that statutory provision does not address whether

the same ``foreign material'' definition is applicable in the case of

the 50 percent value limitation that applies to CBI-excluded goods

under paragraph (A). However, based on a reading of General Note

3(a)(iv), HTSUS, and its predecessor provisions and the legislative

history relating thereto, it appears that a material which could be

entered into the United States free of duty has never been intended to

be considered ``foreign material'' since the 1950 amendment of the 1917

Act.

As pointed out by the commenter and for the reasons stated in the

comment, section 214(a) of the CBI statute amended General Headnote

3(a)(i), TSUS, by increasing the foreign materials value limitation

from 50 percent to 70 percent for most goods and by retaining the 50

percent foreign materials value limitation for articles not eligible

for CBI preferential treatment. However, while section 214(a) of the

CBI statute also amended General Headnote 3(a)(ii), TSUS, (which

referred to materials not considered foreign if they could be entered

into the United States free of duty) by replacing the 50 percent value

reference with a reference to 70 percent value, a reference to 50

percent value (to cover CBI-excluded goods) was not retained in this

context for reasons that are not apparent from a reading of the

applicable legislative history.

The above-mentioned Congressional intention of maintaining the

competitive viability of the insular possessions is also consistent

with the intent behind paragraphs (C), (D), and (E) of General Note

3(a)(iv), HTSUS, which were added when the GSP and CBI statutes and the

Andean Trade Preference Act (ATPA) were enacted. The legislative

history of what is now General Note 3(a)(iv)(C), HTSUS, indicates that

the designation of beneficiary developing countries under section 502

of the GSP statute (19 U.S.C. 2462) was not intended to impair any

benefits that insular possessions receive by reason of (former) General

Headnote 3(a), TSUS. S. Rep. 93-1298, reprinted in 1974 U.S. Code Cong.

Admin. New. 7186, 7352. ``The Committee strongly believes that the

products of U.S. insular possessions should under no circumstances be

treated less advantageously than those of foreign countries. To the

extent that such products would be entitled to better treatment under

headnote 3(a), than under this title, they should receive treatment

under 3(a).'' Id.

If the ``foreign material'' definition in General Note 3(a)(iv)(B),

HTSUS, is not applied to the 50 percent value limitation, the insular

possessions will receive ``no less favorable'' treatment than CBI

countries since the CBI-excluded goods are dutiable. However, before

the enactment of the CBI, most goods from the insular possessions,

including the ``CBI-excluded'' goods, received duty-free treatment if

the 50 percent value was satisfied, to which the ``foreign material''

definition applied at that time. Therefore, it would seem that if

Congress had intended to remove a benefit existing prior to the CBI, it

would have indicated such intent.

Prior to the amendment of General Headnote 3(a), TSUS, by section

214 of the CBI statute, another noteworthy amendment to this provision

was added by Pub. L. 94-88, title I, section 1, 2, 89 Stat. 433 (1975),

which increased the 50 percent foreign materials value limitation to 70

percent with respect to watches and watch movements because of a

setback in both production and employment in the insular possessions.

When this 70 percent value for watches was inserted into subparagraph

(i) of General Headnote 3(a), subparagraph (ii) thereof remained the

same. Therefore, for purposes of applying the 50 percent value then in

effect, materials were not considered foreign if they could be entered

into the United States free of duty, but no reference was made to the

increased 70 percent value limitation for watches. However, Sec. 7.8(d)

of the Customs Regulations (19 CFR 7.8(d)) was amended to refer both to

the 50 percent value and to the 70 percent value for watches in the

context of determining whether a material was a foreign material.

Therefore, it is the opinion of Customs that since the legislative

history of General Note 3(a)(iv), HTSUS, does not discuss the omission

of a reference to the 50 percent foreign materials value limitation for

CBI-excluded products from paragraph (B), and because it is apparent

that since 1950 materials were not considered ``foreign materials'' in

all respects if they could be entered into the United States free of

duty, the 50 percent foreign materials value limitation should be

referred to in Sec. 7.3(c)(3). Thus, Customs has determined it

appropriate to amend the regulations not because General Note 3 is

``remedial'' legislation which must be liberally construed, as the

commenter suggested, but rather because a strict construction of this

special exemption leads Customs to conclude there is an inadvertent

``gap'' in that note which Congress did not clearly intend to result in

a preclusion of favorable treatment. See, e.g., United States v. Allen,

163 U.S. 499, 503 (1896) (duty exemptions must be strictly construed as

a general principle). The omission of the 50 percent value reference

appears to have been an oversight stemming from the addition of the 70

percent value reference for watches rather than from a clear intention

to remove a benefit in existence since 1950. There is also nothing in

the legislative history

[[Page 46437]]

relating to these amendments which specifically precludes more

favorable treatment for an insular possession good under General Note

3(a)(iv), HTSUS, as compared to the GSP, CBI, or ATPA. In order to

reflect this position and also simplify the text, Sec. 7.3(c)(3) as set

forth below has been modified by removing the ``[I]n the case of * *

*'' clause which is no longer necessary in this regulatory context.

Comment: The ``direct shipment'' standard on goods from U.S.

insular possessions in proposed Sec. 7.3(e) should be the same as in

the case of the CBI, GSP, or ATPA, which allow goods to be transshipped

through third countries under certain conditions. Otherwise,

Sec. 7.3(e) is contrary to the statutory mandate of General Note

3(a)(iv) (C), (D) and (E), HTSUS, that goods from insular possessions

receive no less favorable duty treatment than GSP-, CBI-, or ATPA-

eligible articles. The Customs rationale not to allow exceptions to

direct movement to or from an insular possession through a foreign

territory or country is not compelling since goods from all CBI

countries may be shipped to the United States either by water or air

without passing through intervening countries.

Customs response: Customs agrees with the commenter on both points.

First, none of the CBI countries are land-locked and thus shipment to

the United States would not necessarily require transshipment through a

foreign territory or country. Second, although General Note 3(a)(iv),

HTSUS, is a more liberal provision than the GSP or CBI statutes or the

ATPA, as already noted in this comment discussion, General Note

3(a)(iv) (C), (D) and (E) provide that, subject to the provisions of

sections 503(b) and 504(c) of the GSP statute, section 213 of the CBI

statute, and section 204 of the ATPA, goods imported from an insular

possession of the United States shall receive duty treatment no less

favorable than the treatment afforded such goods when they are imported

from a beneficiary country under the GSP, CBI or ATPA. The GSP and CBI

statutes and the ATPA require that the goods, in order to receive

preferential duty treatment, meet certain qualifications including

direct shipment from the beneficiary country into the United States.

Sections 10.175 and 10.193 of the Customs Regulations (19 CFR 10.175

and 10.193) allow certain exceptions to the direct movement standard.

Therefore, it appears that not allowing any exceptions to the strict

direct shipment standard in the case of goods from insular possessions

would be contrary to General Note 3(a)(iv) (C), (D), and (E), HTSUS.

Accordingly, Sec. 7.3(e) as set forth below has been modified to

include exceptions to the strict direct shipment standard and to

provide for evidence of direct shipment. The modified text is based on

the corresponding CBI regulatory provisions which appear to be more

appropriate in an insular possession context than are the corresponding

GSP regulations, but no reference is made to a waiver of evidence of

direct shipment since simply having provision for not requiring

submission of such evidence is a less burdensome approach.

Comment: One comment concerned the use of the Certificate of Origin

(Customs Form 3229) in the case of goods which incorporate a material

described in General Note 3(a)(iv)(B)(2), HTSUS, which requires

``adequate documentation * * * to show that the material has been

incorporated into such goods during the 18-month period after the date

on which such material is imported into the insular possession.'' The

commenter noted that the Certificate of Origin would require

modification because it does not currently establish the use of the

material within the 18-month period. The commenter also suggested that

the district director be given discretion to waive the Certificate of

Origin or to accept other documentation including a blanket statement

that applies to several entries, since General Note 3(a)(iv)(B)(2),

HTSUS, does not describe ``adequate documentation'' or specifically

require a Certificate of Origin with each shipment.

Customs response: Customs disagrees. While it was recognized in the

notice of proposed rulemaking that the Certificate of Origin must be

revised to reflect all current legal requirements under General Note

3(a)(iv), HTSUS, it is General Note 3(a)(iv)(B)(2), HTSUS, and not the

Certificate of Origin that specifically establishes the requirement for

submission of adequate documentation to show that the material was

incorporated into the goods during the 18-month period after the date

on which it was imported into the insular possession. While General

Note 3(a)(iv)(B)(2), HTSUS, does not define ``adequate documentation'',

it is the position of Customs that the use of the Certificate of Origin

with which importers are already familiar, combined with the Customs

officer's verification at the port of shipment, provide adequate

assurance that the material described in General Note 3(a)(iv)(B)(2),

HTSUS, was, in fact, incorporated in the goods within the specified 18-

month period.

Comment: One comment concerned proposed Sec. 7.3(g) which, in

accordance with existing law, allows warehouse withdrawals of goods for

shipment to any insular possession without the payment of duty, or with

a refund of duty if duties have been paid, but denies drawback of

duties or internal revenue taxes on goods produced in the United States

and shipped to any insular possession. This commenter suggested that

Sec. 7.3(g) should include the restrictions on shipments from foreign

trade zones to insular possessions as specified in HRL 223828 dated

July 1, 1992. That ruling held that merchandise transferred from a

foreign trade zone for shipment to an insular possession is dutiable

when transferred from the zone and that shipments from such a zone to

an insular possession do not meet the exportation requirement of 19

U.S.C. 81c(a).

Customs response: Customs disagrees. In Rothschild & Co. v. United

States, 16 Ct. Cust. App. 422 (1929), it was held that the term

``exportation'' in section 557, Tariff Act of 1922 (the predecessor

provision of section 557, Tariff Act of 1930), did not include

shipments to Guam. As a result of this determination, hearings before

the Ways and Means Committee of the House of Representatives in 1929

resulted in a recommendation that section 557 be amended to provide

that merchandise may be withdrawn for shipment to insular possessions

without the payment of duties. See Mitsubishi International Corp. v.

United States, 55 Cust. Ct. 319, C.D. 2597 (1965). Accordingly, section

557, Tariff Act of 1930, as amended (19 U.S.C. 1557), which permits

merchandise to be entered for warehouse and withdrawn for shipment to

Guam and other named possessions without payment of duties or, if

duties have been paid, with a refund thereof, was the basis for 19 CFR

7.8(f) (the provision which was the basis for proposed Sec. 7.3(g)).

The term ``exportation'' as defined by Sec. 101.1 of the Customs

Regulations (19 CFR 101.1), and as interpreted by the courts, is linked

to a foreign country rather than to the Customs territory of the United

States. Thus, shipments from the United States to a U.S. insular

possession are not exports. Customs is of the opinion that there is no

need to repeat this position in the regulatory provision at issue with

respect to shipments to a U.S. insular possession from a foreign trade

zone located within the United States.

Comment: General Note 3(a)(iv), HTSUS, contains provisions (i.e.,

[[Page 46438]]

paragraphs (C), (D) and (E)), which guarantee no less favorable duty

treatment for goods from the insular possessions than for goods

imported from GSP, CBI or ATPA beneficiary countries. It was suggested

these paragraphs should at least be replicated in the regulations.

Customs response: Customs disagrees. There is little use in simply

duplicating General Notes 3(a)(iv) (C), (D), and (E), HTSUS, in the

regulations where there is no need for an interpretation or other

explanation of the statutory provision. It is clear that the statute,

which controls, requires that goods from insular possessions be granted

no less favorable duty treatment than goods imported from GSP, CBI, or

ATPA beneficiary countries and the regulations set forth in this

document reflect that result-oriented statutory principle.

Comment: One comment questioned the conclusion in the notice of

proposed rulemaking under the heading ``Regulatory Flexibility Act''

that there is no ``major rule'' since a substantial number of small

entities may have significant economic impacts as a result of these

amendments.

Customs response: The regulatory amendments will not have a

significant economic impact on a substantial number of small entities

because these regulations primarily reflect statutory requirements and

administrative practices that have been in place for many years for

purposes of duty-free treatment of articles imported from insular

possessions of the United States.

Other Changes to the Regulatory Texts

In addition to the changes to the proposed regulatory texts

discussed above in connection with the public comments, Customs has

determined that a number of other changes to the proposed texts should

be reflected in this final rule document.

Two of these changes involve proposed Secs. 7.3 (b)(1) and (c)(1)

which referred, respectively, to goods and materials that were ``wholly

obtained or produced * * * within the meaning of Sec. 102.1(e) of this

chapter''. These provisions were included in the proposed texts based

on, and were identified in the document as being subject to final

adoption of, an earlier proposal published in the Federal Register on

September 25, 1991 (56 FR 48448) to set forth, in a new Part 102 of the

Customs Regulations (19 CFR Part 102), uniform rules governing the

determination of the country of origin of imported merchandise.

Subsequently, on January 3, 1994, Customs published two documents in

the Federal Register. The first document, published at 59 FR 110,

consisted of T.D. 94-4 which amended the Customs Regulations on an

interim basis to implement Annex 311 of the North American Free Trade

Agreement (NAFTA); the majority of the T.D. 94-4 regulatory amendments

involved the adoption of a new Part 102 of the Customs Regulations

setting forth the NAFTA Marking Rules. The second document published on

January 4, 1994 (at 59 FR 141) consisted of a notice of proposed

rulemaking setting forth proposed amendments to the scope of interim

Part 102, as well as to other provisions of the Customs Regulations, in

order to establish within Part 102 uniform rules governing the

determination of the country of origin of imported merchandise. The

latter document replaced the September 25, 1991, uniform origin rules

proposal and thus included, among other things, proposed conforming

changes to the GSP and CBI regulations involving appropriate cross-

references to the uniform rules that would be reflected in the amended

Part 102 texts, but no proposed conforming changes to the Part 7

insular possession regulations were included since final action had not

been taken on the regulatory proposals that are the subject of this

document. On May 5, 1995, Customs published a document in the Federal

Register (60 FR 22312) which set forth proposed changes to the interim

regulatory amendments contained in T.D. 94-4 and which republished,

with some changes, the January 4, 1994, uniform origin rule regulatory

proposals, for purposes of further public comment.

On June 6, 1996, Customs published in the Federal Register (61 FR

28932) T.D. 96-48 which adopted as a final rule, with some

modifications, the NAFTA Marking Rules and other interim regulatory

amendments published as T.D. 94-4 on January 3, 1994, but which did not

adopt as a final rule the May 5, 1995, proposals regarding the uniform

origin rule concept (including the proposed amendments to the GSP and

CBI regulations). The Background portion of T.D. 96-48 stated (at 61 FR

28933) that Customs had decided that the proposal to extend the Part

102 regulations to all trade ``should remain under consideration for

implementation at a later date.'' In the light of this deferral of the

decision on whether to apply a uniform method of determining origin to

all trade, it would not be appropriate in this document to adopt the

texts of Secs. 7.3 (b)(1) and (c)(1) as proposed. Accordingly,

Secs. 7.3 (b)(1) and (c)(1) as set forth below have been modified to

remove the references to the Part 102 regulation and, similar to the

present GSP and CBI regulatory approach, to refer instead to goods and

materials that are ``wholly the growth or product'' of the insular

possession. If in the future a final decision is taken to adopt the

proposed uniform method of determining origin for all trade, the

necessary regulatory amendments will include appropriate changes to the

text of Sec. 7.3.

Finally, in order to align on technical corrections made to the

Customs Regulations in T.D. 95-78 (published in the Federal Register on

September 27, 1995, at 60 FR 50020) to reflect the new organizational

structure of Customs, Sec. 7.3 as set forth below has been modified by

inserting ``port director'' in place of each reference to ``district

director''.

Conclusion

Accordingly, based on the comments received and the analysis of

those comments as set forth above, and after further review of this

matter, Customs believes that the proposed regulatory amendments should

be adopted as a final rule with certain changes thereto as discussed

above and as set forth below. This document also includes an

appropriate update of the list of information collection approvals

contained in Sec. 178.2 of the Customs Regulations (19 CFR 178.2).

Executive Order 12866

This document does not meet the criteria for a ``significant

regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

Pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that the amendments will not have

a significant economic impact on a substantial number of small

entities. The amendments primarily reflect statutory requirements and

administrative practices that have been in place for many years and,

thus, any economic impact arising out of these amendments would be

negligible at best. Accordingly, they are not subject to the regulatory

analysis or other requirements of 5 U.S.C. 603 and 604.

Paperwork Reduction Act

The collection of information contained in this final rule has been

reviewed and approved by the Office of Management and Budget (OMB) in

accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d))

under control number 1515-0200. An agency may not conduct or sponsor,

and a person is not required to

[[Page 46439]]

respond to, a collection of information unless it displays a valid

control number assigned by OMB.

The collection of information in this final rule is in Sec. 7.3.

This information is required in connection with claims for duty-free

treatment under General Note 3(a)(iv), HTSUS. This information will be

used by Customs to determine whether goods imported from insular

possessions are entitled to duty-free entry under that General Note.

The collection of information is required to obtain a benefit. The

likely respondents are business organizations including importers,

exporters, and manufacturers.

The estimated average burden associated with the collection of

information in this final rule is 11.3 hours per respondent or

recordkeeper. Comments concerning the accuracy of this burden estimate

and suggestions for reducing this burden should be directed to the U.S.

Customs Service, Paperwork Management Branch, Room 6316, 1301

Constitution Avenue, N.W., Washington, D.C. 20229, and to OMB,

Attention: Desk Officer for the Department of the Treasury, Office of

Information and Regulatory Affairs, Washington, D.C. 20503.

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 7

Customs duties and inspection, Imports, Insular possessions.

19 CFR Part 10

Customs duties and inspection, Imports.

19 CFR Part 148

Customs duties and inspection, Imports, Personal exemptions.

19 CFR Part 178

Administrative practice and procedure, Exports, Imports, Reporting

and recordkeeping requirements.

Amendments to the Regulations

Accordingly, for the reasons stated in the preamble, parts 7, 10,

148 and 178, Customs Regulations (19 CFR parts 7, 10, 148 and 178), are

amended as set forth below:

PART 7--CUSTOMS RELATIONS WITH INSULAR POSSESSIONS AND GUANTANAMO

BAY NAVAL STATION

1. The authority citation for part 7 is revised to read as follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1623, 1624; 48 U.S.C. 1406i.

2. Sections 7.2 and 7.3 are added to read as follows:

Sec. 7.2 Insular possessions of the United States other than Puerto

Rico.

(a) Insular possessions of the United States other than Puerto Rico

are also American territory but, because those insular possessions are

outside the customs territory of the United States, goods imported

therefrom are subject to the rates of duty set forth in column 1 of the

Harmonized Tariff Schedule of the United States (HTSUS) except as

otherwise provided in Sec. 7.3 or in part 148 of this chapter. The

principal such insular possessions are the U.S. Virgin Islands, Guam,

American Samoa, Wake Island, Midway Islands, and Johnston Atoll.

Pursuant to section 603(c) of the Covenant to Establish a Commonwealth

of the Northern Mariana Islands in Political Union With the United

States of America, Public Law 94-241, 90 Stat. 263, 270, goods imported

from the Commonwealth of the Northern Mariana Islands are entitled to

the same tariff treatment as imports from Guam and thus are also

subject to the provisions of Sec. 7.3 and of part 148 of this chapter.

(b) Importations into Guam, American Samoa, Wake Island, Midway

Islands, Johnston Atoll, and the Commonwealth of the Northern Mariana

Islands are not governed by the Tariff Act of 1930, as amended, or the

regulations contained in this chapter. The customs administration of

Guam is under the Government of Guam. The customs administration of

American Samoa is under the Government of American Samoa. The customs

administration of Wake Island is under the jurisdiction of the

Department of the Air Force (General Counsel). The customs

administration of Midway Islands is under the jurisdiction of the

Department of the Navy. There is no customs authority on Johnston

Atoll, which is under the operational control of the Defense Nuclear

Agency. The customs administration of the Commonwealth of the Northern

Mariana Islands is under the Government of the Commonwealth.

(c) The Secretary of the Treasury administers the customs laws of

the U.S. Virgin Islands through the United States Customs Service. The

importation of goods into the U.S. Virgin Islands is governed by Virgin

Islands law; however, in situations where there is no applicable Virgin

Islands law or no U.S. law specifically made applicable to the Virgin

Islands, U.S. laws and regulations shall be used as a guide and be

complied with as nearly as possible. Tariff classification of, and

rates of duty applicable to, goods imported into the U.S. Virgin

Islands are established by the Virgin Islands legislature.

Sec. 7.3 Duty-free treatment of goods imported from insular

possessions of the United States other than Puerto Rico.

(a) General. Under the provisions of General Note 3(a)(iv),

Harmonized Tariff Schedule of the United States (HTSUS), the following

goods may be eligible for duty-free treatment when imported into the

customs territory of the United States from an insular possession of

the United States:

(1) Except as provided in Additional U.S. Note 5 to Chapter 91,

HTSUS, and except as provided in Additional U.S. Note 2 to Chapter 96,

HTSUS, and except as provided in section 423 of the Tax Reform Act of

1986, as amended (19 U.S.C. 2703 note), goods which are the growth or

product of any such insular possession, and goods which were

manufactured or produced in any such insular possession from materials

that were the growth, product or manufacture of any such insular

possession or of the customs territory of the United States, or of

both, provided that such goods:

(i) Do not contain foreign materials valued at either more than 70

percent of the total value of the goods or, in the case of goods

described in section 213(b) of the Caribbean Basin Economic Recovery

Act (19 U.S.C. 2703(b)), more than 50 percent of the total value of the

goods; and

(ii) Come to the customs territory of the United States directly

from any such insular possession; and

(2) Goods previously imported into the customs territory of the

United States with payment of all applicable duties and taxes imposed

upon or by reason of importation, provided that:

(i) The goods were shipped from the United States directly to the

insular possession and are returned from the insular possession to the

United States by direct shipment; and

(ii) There was no remission, refund or drawback of such duties or

taxes in connection with the shipment of the goods from the United

States to the insular possession.

(b) Origin of goods. For purposes of this section, goods shall be

considered to be the growth or product of, or manufactured or produced

in, an insular possession if:

[[Page 46440]]

(1) The goods are wholly the growth or product of the insular

possession; or

(2) The goods became a new and different article of commerce as a

result of production or manufacture performed in the insular

possession.

(c) Foreign materials. For purposes of this section, the term

``foreign materials'' covers any material incorporated in goods

described in paragraph (b)(2) of this section other than:

(1) A material which was wholly the growth or product of an insular

possession or of the customs territory of the United States;

(2) A material which was substantially transformed in an insular

possession or in the customs territory of the United States into a new

and different article of commerce which was then used in an insular

possession in the production or manufacture of a new and different

article which is shipped directly to the United States; or

(3) A material which may be imported into the customs territory of

the United States from a foreign country and entered free of duty

either:

(i) At the time the goods which incorporate the material are

entered; or

(ii) At the time the material is imported into the insular

possession, provided that the material was incorporated into the goods

during the 18-month period after the date on which the material was

imported into the insular possession.

(d) Foreign materials value limitation. For purposes of this

section, the determination of whether goods contain foreign materials

valued at more than 70 or 50 percent of the total value of the goods

shall be made based on a comparison between:

(1) The landed cost of the foreign materials, consisting of:

(i) The manufacturer's actual cost for the materials or, where a

material is provided to the manufacturer without charge or at less than

fair market value, the sum of all expenses incurred in the growth,

production, or manufacture of the material, including general expenses,

plus an amount for profit; and

(ii) The cost of transporting those materials to the insular

possession, but excluding any duties or taxes assessed on the materials

by the insular possession and any charges which may accrue after

landing; and

(2) The final appraised value of the goods imported into the

customs territory of the United States, as determined in accordance

with section 402 of the Tariff Act of 1930, as amended (19 U.S.C.

1401a).

(e) Direct shipment--(1) General. For purposes of this section,

goods shall be considered to come to the United States directly from an

insular possession, or to be shipped from the United States directly to

an insular possession and returned from the insular possession to the

United States by direct shipment, only if:

(i) The goods proceed directly to or from the insular possession

without passing through any foreign territory or country;

(ii) The goods proceed to or from the insular possession through a

foreign territory or country, the goods do not enter into the commerce

of the foreign territory or country while en route to the insular

possession or the United States, and the invoices, bills of lading, and

other shipping documents show the insular possession or the United

States as the final destination; or

(iii) The goods proceed to or from the insular possession through a

foreign territory or country, the invoices and other shipping documents

do not show the insular possession or the United States as the final

destination, and the goods:

(A) Remained under the control of the customs authority of the

foreign territory or country;

(B) Did not enter into the commerce of the foreign territory or

country except for the purpose of sale other than at retail, and the

port director is satisfied that the importation into the insular

possession or the United States results from the original commercial

transaction between the importer and the producer or the latter's sales

agent; and

(C) Were not subjected to operations in the foreign territory or

country other than loading and unloading and other activities necessary

to preserve the goods in good condition.

(2) Evidence of direct shipment. The port director may require that

appropriate shipping papers, invoices, or other documents be submitted

within 60 days of the date of entry as evidence that the goods were

shipped to the United States directly from an insular possession or

shipped from the United States directly to an insular possession and

returned from the insular possession to the United States by direct

shipment within the meaning of paragraph (e)(1) of this section, and

such evidence of direct shipment shall be subject to such verification

as deemed necessary by the port director. Evidence of direct shipment

shall not be required when the port director is otherwise satisfied,

taking into consideration the kind and value of the merchandise, that

the goods qualify for duty-free treatment under General Note 3(a)(iv),

HTSUS, and paragraph (a) of this section.

(f) Documentation. (1) When goods are sought to be admitted free of

duty as provided in paragraph (a)(1) of this section, there shall be

filed with the entry/entry summary a properly completed certificate of

origin on Customs Form 3229, signed by the chief or assistant chief

customs officer or other official responsible for customs

administration at the port of shipment, showing that the goods comply

with the requirements for duty-free entry set forth in paragraph (a)(1)

of this section. Except in the case of goods which incorporate a

material described in paragraph (c)(3)(ii) of this section, a

certificate of origin shall not be required for any shipment eligible

for informal entry under Sec. 143.21 of this chapter or in any case

where the port director is otherwise satisfied that the goods qualify

for duty-free treatment under paragraph (a)(1) of this section.

(2) When goods in a shipment not eligible for informal entry under

Sec. 143.21 of this chapter are sought to be admitted free of duty as

provided in paragraph (a)(2) of this section, the following

declarations shall be filed with the entry/entry summary unless the

port director is satisfied by reason of the nature of the goods or

otherwise that the goods qualify for such duty-free entry:

(i) A declaration by the shipper in the insular possession in

substantially the following form:

I, ____________________ (name) of ____________________

(organization) do hereby declare that to the best of my knowledge

and belief the goods identified below were sent directly from the

United States on ____________, 19____, to ____________________

(name) of ____________________ (organization) on

____________________ (insular possession) via the

____________________ (name of carrier) and that the goods remained

in said insular possession until shipped by me directly to the

United States via the ____________________ (name of carrier) on

____________, 19____.

[[Page 46441]]

----------------------------------------------------------------------------------------------------------------

Marks Numbers Quantity Description Value

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

Dated at ________________, this ________ day of ____________,

19____.

Signature:-----------------------------------------------------------

(ii) A declaration by the importer in the United States in

substantially the following form:

I, ____________________ (name), of ____________________

(organization) declare that the (above) (attached) declaration by

the shipper in the insular possession is true and correct to the

best of my knowledge and belief, that the goods in question were

previously imported into the customs territory of the United States

and were shipped to the insular possession from the United States

without remission, refund or drawback of any duties or taxes paid in

connection with that prior importation, and that the goods arrived

in the United States directly from the insular possession via the

____________________ (name of carrier) on ____________, 19____.

----------------------------------------------------------------------

(Date)

----------------------------------------------------------------------

(Signature)

(g) Warehouse withdrawals; drawback. Merchandise may be withdrawn

from a bonded warehouse under section 557 of the Tariff Act of 1930, as

amended (19 U.S.C. 1557), for shipment to any insular possession of the

United States other than Puerto Rico without payment of duty, or with a

refund of duty if the duties have been paid, in like manner as for

exportation to foreign countries. No drawback may be allowed under

section 313 of the Tariff Act of 1930, as amended (19 U.S.C. 1313), on

goods manufactured or produced in the United States and shipped to any

insular possession. No drawback of internal-revenue tax is allowable

under 19 U.S.C. 1313 on goods manufactured or produced in the United

States with the use of domestic tax-paid alcohol and shipped to Wake

Island, Midway Islands or Johnston Atoll.

3. Section 7.8 and footnote 5 thereto are removed.

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

ETC.

1. The general authority citation for part 10 is revised to read as

follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States (HTSUS)), 1321, 1481, 1484,

1498, 1508, 1623, 1624, 3314.

* * * * *

2. Section 10.181 is redesignated as Sec. 7.4, and newly

redesignated Sec. 7.4 is amended as follows:

a. Paragraph (b) is amended by adding the word ``the'' before the

words ``Department of Commerce''.

b. Paragraph (g), second sentence, is amended by removing the words

``Form ITA-360'' and adding, in their place, the words ``Form ITA-

361''.

c. Paragraph (h) is amended by removing the word ``Department'' and

adding, in its place, the word ``Departments''.

PART 148--PERSONAL DECLARATIONS AND EXEMPTIONS

1. The authority citation for part 148 continues to read in part as

follows:

Authority: 19 U.S.C. 66, 1496, 1498, 1624. The provisions of

this part, except for subpart C, are also issued under 19 U.S.C.

1202 (General Note 20, Harmonized Tariff Schedule of the United

States);

* * * * *

Sections 148.43, 148.51, 148.63, 148.64, 148.74 also issued

under 19 U.S.C. 1321;

* * * * *

Sec. 148.2 [Amended]

2. Section 148.2(b), first sentence, is amended by adding after

``Guam,'' the words ``the Commonwealth of the Northern Mariana

Islands,''.

3. Section 148.12(b)(1)(i) is revised to read as follows:

Sec. 148.12 Oral declarations.

* * * * *

(b) * * *

(1) * * *

(i) The aggregate fair retail value in the country of acquisition

of all accompanying articles acquired abroad by him and of alterations

and dutiable repairs made abroad to personal and household effects

taken out and brought back by him does not exceed:

(A) $400; or

(B) $600 in the case of a direct arrival from a beneficiary country

as defined in Sec. 10.191(b)(1) of this chapter, not more than $400 of

which shall have been acquired elsewhere than in beneficiary countries;

or

(C) $1,200 in the case of a direct or indirect arrival from

American Samoa, Guam, the Commonwealth of the Northern Mariana Islands,

or the Virgin Islands of the United States, not more than $400 of which

shall have been acquired elsewhere than in such locations except that

up to $600 of which may have been acquired in one or more beneficiary

countries as defined in Sec. 10.191(b)(1) of this chapter;

* * * * *

Sec. 148.17 [Amended]

4. Sections 148.17(b) and (c) are amended by removing the words

``$400 or $800'' and adding, in their place, the words ``$400, $600 or

$1,200''.

Sec. 148.31 [Amended]

5. Section 148.31(a), first sentence, is amended by adding after

``Guam,'' the words ``the Commonwealth of the Northern Mariana

Islands,''.

6. Section 148.31(b) is amended by removing the words ``$400 or

$800'' and adding, in their place, the words ``$400, $600 or $1,200''.

Sec. 148.32 [Amended]

7. Section 148.32(d)(2) is amended by removing the words ``$400 or

$800'' and adding, in their place, the words ``$400, $600 or $1,200''.

8. Section 148.33 is amended by revising paragraphs (a), (b), (d)

and (f) to read as follows:

Sec. 148.33 Articles acquired abroad.

(a) Exemption. Each returning resident is entitled to bring in free

of duty and internal revenue tax under subheadings 9804.00.65,

9804.00.70 and 9804.00.72, and Chapter 98, U.S. Note 3, Harmonized

Tariff Schedule of the United States (19 U.S.C. 1202), articles for his

personal or household use which were purchased or otherwise acquired

abroad merely as an incident of the foreign journey from which he is

returning, subject to the limitations and conditions set forth in this

section and Secs. 148.34-148.38. The aggregate fair retail value in the

country of acquisition of such articles for personal and household use

shall not exceed:

(1) $400, and provided that the articles accompany the returning

resident;

(2) Whether or not the articles accompany the returning resident,

$600 in the case of a direct arrival from a

[[Page 46442]]

beneficiary country as defined in Sec. 10.191(b)(1) of this chapter,

not more than $400 of which shall have been acquired elsewhere than in

beneficiary countries; or

(3) Whether or not the articles accompany the returning resident,

$1,200 in the case of a direct or indirect arrival from American Samoa,

Guam, the Commonwealth of the Northern Mariana Islands, or the Virgin

Islands of the United States, not more than $400 of which shall have

been acquired elsewhere than in such locations except that up to $600

of which may have been acquired in one or more beneficiary countries as

defined in Sec. 10.191(b)(1) of this chapter.

(b) Application to articles of highest rate of duty. The $400, $600

or $1,200 exemption shall be applied to the aggregate fair retail value

in the country of acquisition of the articles acquired abroad which are

subject to the highest rates of duty. If an internal revenue tax is

applicable, it shall be combined with the duty in determining which

rates are highest.

* * * * *

(d) Tobacco products and alcoholic beverages. Cigars, cigarettes,

manufactured tobacco, and alcoholic beverages may be included in the

exemption to which a returning resident is entitled, with the following

limits:

(1) No more than 200 cigarettes and 100 cigars may be included,

except that in the case of American Samoa, Guam, the Commonwealth of

the Northern Mariana Islands and the Virgin Islands of the United

States the cigarette limit is 1,000, not more than 200 of which shall

have been acquired elsewhere than in such locations;

(2) No alcoholic beverages shall be included in the case of an

individual who has not attained the age of 21; and

(3) No more than 1 liter of alcoholic beverages may be included,

except that:

(i) An individual returning directly or indirectly from American

Samoa, Guam, the Commonwealth of the Northern Mariana Islands or the

Virgin Islands of the United States may include in the exemption not

more than 5 liters of alcoholic beverages, not more than 1 liter of

which shall have been acquired elsewhere than in such locations and not

more than 4 liters of which shall have been produced elsewhere than in

such locations; and

(ii) An individual returning directly from a beneficiary country as

defined in Sec. 10.191(b)(1) of this chapter may include in the

exemption not more than 2 liters of alcoholic beverages if at least 1

liter is the product of one or more beneficiary countries.

* * * * *

(f) Remainder not applicable to subsequent journey. A returning

resident who has received a total exemption of less than the $400, $600

or $1,200 maximum in connection with his return from one journey is not

entitled to apply the unused portion of that maximum amount to articles

acquired abroad on a subsequent journey.

Sec. 148.34 [Amended]

9. Section 148.34(a) is amended by removing the words ``$400 or

$800'' wherever they appear and adding, in their place, the words

``$400, $600 or $1,200''.

10. Section 148.35 is amended by revising paragraphs (a) and (b) to

read as follows:

Sec. 148.35 Length of stay for exemption of articles acquired abroad.

(a) Required for allowance of $400, $600 or $1,200 exemption.

Except as otherwise provided in this paragraph or in paragraph (b) of

this section, the $400, $600 or $1,200 exemption for articles acquired

abroad shall not be allowed unless the returning resident has remained

beyond the territorial limits of the United States for a period of not

less than 48 hours. The $400 exemption may be allowed on articles

acquired abroad by a returning resident arriving directly from Mexico

without regard to the length of time the person has remained outside

the territorial limits of the United States.

(b) Not required for allowance of $1,200 exemption on return from

Virgin Islands. The $1,200 exemption applicable in the case of the

arrival of a returning resident directly or indirectly from the Virgin

Islands of the United States may be allowed without regard to the

length of time such person has remained outside the territorial limits

of the United States.

* * * * *

Sec. 148.36 [Amended]

11. Section 148.36 is amended by removing the words ``$400 or

$800'' wherever they appear and adding, in their place, the words

``$400, $600 or $1,200''.

Sec. 148.37 [Amended]

12. Section 148.37 is amended by removing the words ``$400 or

$800'' wherever they appear and adding, in their place, the words

``$400, $600 or $1,200''.

Sec. 148.38 [Amended]

13. Section 148.38 is amended by removing the words ``$400 or

$800'' and adding, in their place, the words ``$400, $600 or $1,200''.

14. Section 148.51 is amended by revising paragraph (a)(2) to read

as follows:

Sec. 148.51 Special exemption for personal or household articles.

(a) * * *

(2) A returning resident who is not entitled to the $400, $600 or

$1,200 exemption for articles acquired abroad under subheading

9804.00.65, 9804.00.70 or 9804.00.72, HTSUS (see Subpart D of this

part).

* * * * *

Sec. 148.64 [Amended]

15. Section 148.64(a), first sentence, is amended by removing the

words ``subheadings 9804.00.30 or 9804.00.70,'' and adding, in their

place, the words ``subheading 9804.00.30, 9804.00.65, 9804.00.70 or

9804.00.72,''.

Sec. 148.74 [Amended]

16. Section 148.74(c)(3) is amended by removing the words

``subheading 9804.00.65 and 9804.00.70,'' and adding, in their place,

the words ``subheading 9804.00.65, 9804.00.70 or 9804.00.72,''.

Sec. 148.101 [Amended]

17. In Sec. 148.101, the sixth sentence is amended by adding after

``Guam,'' the words ``the Commonwealth of the Northern Mariana

Islands,''; and example 2 is amended by removing the figure ``$2,900''

in the example text and adding, in its place, the figure ``$4,900'', by

removing the figure ``$800'' wherever it appears in the example text

and table and adding, in its place, the figure ``$1,200'', by removing

the figure ``$1,600'' in the table column headed ``Fair retail value''

and adding, in its place, the figure ``$2,400'', by removing the figure

``$4,100'' in the table column headed ``Fair retail value'' and adding,

in its place, the figure ``$4,900'', and by removing the figure

``$1,00'' in the table column headed ``Duty'' and adding, in its place,

the figure ``$100''.

18. Section 148.102 is amended by revising paragraphs (a) and (b)

to read as follows:

Sec. 148.102 Flat rate of duty.

(a) Generally. The rate of duty on articles accompanying any

person, including a crewmember, arriving in the United States

(exclusive of duty-free articles and articles acquired in Canada,

American Samoa, Guam, the Commonwealth of the Northern Mariana Islands,

or the Virgin Islands of the United States) shall be 10 percent of the

fair retail value in the country of acquisition.

(b) American Samoa, Guam, the Northern Mariana Islands, and the

[[Page 46443]]

Virgin Islands. The rate of duty on articles accompanying any person,

including a crewmember, arriving in the United States directly or

indirectly from American Samoa, Guam, the Commonwealth of the Northern

Mariana Islands or the Virgin Islands of the United States (exclusive

of duty-free articles), acquired in these locations as an incident of

the person's physical presence there, shall be 5 percent of the fair

retail value in the location in which acquired.

* * * * *

Sec. 148.104 [Amended]

19. Section 148.104(c) is amended by removing the figure ``$800''

and adding, in its place, the figure ``$1,000''.

Subpart K [Amended]

20. The heading to Subpart K is amended by adding after ``Guam,''

the words ``the Commonwealth of the Northern Mariana Islands,''.

Sec. 148.110 [Amended]

21. In Sec. 148.110, the first paragraph is amended by adding after

``Guam,'' the words ``the Commonwealth of the Northern Mariana

Islands,''; and the second paragraph is amended by adding after

``Guam'' the words ``, the Commonwealth of the Northern Mariana

Islands,''.

Sec. 148.111 [Amended]

22. In Sec. 148.111, the introductory text is amended by adding

after ``Guam,'' the words ``the Commonwealth of the Northern Mariana

Islands,''; and paragraph (a) is amended by removing the figure

``$800'' and adding, in its place, the figure ``$1,200''.

Sec. 148.113 [Amended]

23. Section 148.113(a), first sentence, is amended by removing the

figure ``$800'' and adding, in its place, the figure ``$1,200''.

PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS

1. The authority citation for part 178 continues to read as

follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.

2. Section 178.2 is amended by adding a new listing to the table in

numerical order to read as follows:

Sec. 178.2 Listing of OMB control numbers.

------------------------------------------------------------------------

OMB control

19 CFR section Description No.

------------------------------------------------------------------------

* * * * * * *

Sec. 7.3........................ Claim for duty-free 1515-0055

entry of goods imported

from U.S. insular

possessions.

* * * * * * *

------------------------------------------------------------------------

Approved: May 27, 1997.

George J. Weise,

Commissioner of Customs.

[FR Doc. 97-23308 Filed 9-2-97; 8:45 am]

BILLING CODE 4820-02-P