Duty-Free Stores

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 19, 113 and 144

[T.D. 97-19]

RIN 1515-AB86

Duty-Free Stores

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations principally with

respect to duty-free stores in order to reduce the overall paperwork

burden for proprietors thereof as well as for Customs. In particular,

for purposes of Customs audit of, and control over, such facilities,

greater reliance is placed on the use of records generated and

maintained by proprietors and importers in the ordinary course of

business, instead of on the use of specially prepared Customs forms.

The amendments provide benefits in this regard to other classes of

Customs bonded warehouses as well.

EFFECTIVE DATE: May 5, 1997.

FOR FURTHER INFORMATION CONTACT: Steven T. Soggin, Program Officer,

Office of Field Operations, (202-927-0765).

SUPPLEMENTARY INFORMATION:

Background

By a final rule document published in the Federal Register as T.D.

92-81 on August 20, 1992 (57 FR 37692), the Customs Regulations were

amended to designate duty-free stores as a new class of Customs bonded

warehouse, and to incorporate operating procedures for the

administration of these facilities.

However, in letters dated October 6 and 13, 1992, a major trade

association voiced a number of concerns with respect to the final rule.

Prompted by this correspondence, and following lengthy study, Customs

published a notice of proposed rulemaking in the Federal Register on

June 6, 1996, 61 FR 28808, setting forth specific revisions to the

duty-free store regulations. The proposed changes also provided some

benefits to other classes of bonded warehouses, and were intended to

reduce the overall paperwork burden both for warehouse proprietors and

for Customs.

In brief, under the proposed rule, the following sections of the

Customs Regulations were to be affected: Secs. 19.1, 19.2, 19.4, 19.6,

19.11, 19.12, 19.35, 19.36, 19.37, 19.39, 113.63, 144.34, 144.36,

144.37, 144.39 and 144.41.

Seven commenters responded to the notice of proposed rulemaking. A

description, together with Customs analysis, of the comments they made

is set forth below.

Discussion of Comments (Part 19)

Comment: Two commenters stated that the term ``exclusively'' in

proposed Sec. 19.1(a)(9) limits the operation of a warehouse to that of

a duty-free store providing only conditionally duty-free merchandise to

another duty-free store. It was requested that proposed Sec. 19.1(a)(9)

be amended by deleting ``exclusively'' to allow continued operations of

multi-class warehouses.

Customs Response: The wording of Sec. 19.1(a)(9) is correct.

Section 19.1(a)(9) states: ``All distribution warehouses used

exclusively to provide individual duty-free sales locations and storage

cribs with conditionally duty-free merchandise are also Class 9

warehouses.'' While the term ``exclusively'' in this context defines a

warehouse solely distributing merchandise to a duty-free store as a

Class 9 warehouse, this does not preclude a multi-class warehouse which

distributes merchandise to duty-free stores from also conducting other

functions of a different class for which it is approved.

Comment: One commenter suggested amending proposed Sec. 19.2(a) to

make specific provision for facilitating the approval of a common

inventory and recordkeeping system in use at multiple storage

locations. The commenter stated in this regard that Customs was

required to approve a proprietor's inventory and recordkeeping system

in every location, even though it might be the same system, which was

redundant.

Customs Response: Customs believes that the commenter's concern is

already addressed in Sec. 144.34(c)(2), and that this matter need not

specifically be addressed as well in Sec. 19.2(a). Section 144.34(c)(2)

allows a proprietor to file a single application with the director of

the port in which the applicant's centralized inventory control system

is located, with copies to all affected port directors. This procedure

eliminates duplicative work for both Customs and the trade by

initiating the Customs approval process solely at the port where the

applicant's centralized inventory control system exists.

Comment: One commenter objected to the proposed elimination from

Sec. 19.2(g) of the cross-reference therein to Sec. 19.3(f), which, as

such, provided for an administrative hearing in the case of a decision

by a port director to deny an initial application for a bonded

warehouse. This commenter stated that eliminating a hearing, though

rarely needed, would increase the chance of costly and time-consuming

litigation.

Customs Response: Customs disagrees, to the extent that the

citation in Sec. 19.2(g) to Sec. 19.3(f) does arguably accord the right

to an administrative hearing as well in the case of the denial of an

application to bond a warehouse. Formal administrative hearings are

themselves costly to the Government, often requiring the services of an

administrative law judge. Customs believes that administrative

resources for such a hearing are best limited to those instances

involving the revocation or suspension of bonded warehouse status, as

expressly provided for under Sec. 19.3(f).

Comment: One commenter recommended that proposed Sec. 19.4(b)(5)

reducing the storage time from 5 years to 6 months for original duty-

free sales tickets be amended to eliminate all time requirements for

retention of original duty-free sales tickets.

Customs Response: Customs disagrees. The record retention period of

6 months is already a marked time reduction from the current sales

ticket storage requirement of 5 years. Customs believes a 6-month time

period for storage of original duty-free sales tickets is the minimum

time necessary for both the trade and Customs to verify the accuracy of

original sales ticket information with sales information generated by

electronic or other approved alternative means.

Comment: One commenter suggested that proposed Sec. 19.4(b)(7)

delete the requirement to establish and maintain aisles in bonded

warehouses. The commenter stated that space was a precious commodity,

and proposed an alternative, whereby Customs would give a proprietor a

reasonable time to produce merchandise subject to a spot check or

audit.

Customs Response: Customs agrees. The second sentence of

Sec. 19.4(b)(7) is changed to read as follows: ``Doors and entrances

shall be left unblocked for access by Customs officers and warehouse

proprietor personnel.'' Also, to this end, Sec. 19.4(b)(2) is changed

to read as follows: ``The warehouse proprietor shall permit access to

the warehouse and present merchandise within a reasonable time after

request by any Customs officer.''

Comment: One commenter asked that the last sentence of

Sec. 19.4(b)(8)(ii) be amended to include the term ``unique

identifier'', so that it would read as follows: ``The proprietor must

provide, upon request by a Customs officer, a record balance of goods,

specifying the quantity in each storage location,

[[Page 15832]]

covered by any warehouse entry, general order, seizure, or unique

identifier so a physical count can be made to verify the accuracy of

the record balance.''

Customs Response: Customs agrees, and the section is so changed.

Comment: One commenter stated that proposed Sec. 19.4(b)(9) should

be amended to delete the word ``destruction'', because miscellaneous

requirements for destruction pertain only to a few classes of

warehouses. The commenter further observed that, should general order

merchandise remain in a warehouse beyond 6 months, responsibility

should not rest with the warehouse to maintain destruction records.

Customs Response: Customs disagrees. The term ``destruction'' needs

to remain in this section. An owner of merchandise in any warehouse

may, at any time, lawfully request that merchandise be destroyed under

Customs supervision. Requests for the destruction of merchandise in a

warehouse must be accounted for by the warehouse proprietor.

Comment: Two commenters requested that proposed Sec. 19.6(a)(1)

granting a 5-day time limit within which to file a copy of any joint

discrepancy report with the port director, be amended so as to allow

warehouse proprietors a 30-day limit in which to do so. The commenters

thought that this increased time extension would ease a restrictive

time burden by allowing a month to prepare a discrepancy report for

Customs.

Customs Response: Customs believes that the 5-day time requirement

for filing a joint discrepancy report is not unduly burdensome. Indeed,

this 5-day time limit itself represents a reasonable extension from the

previous requirement in the Customs Regulations that such discrepancy

reports be filed within 2 days. However, a 30-day time limit within

which to submit these reports is too long. A joint discrepancy report

involves sensitive custody transfers, and Customs believes the

reasonably prompt reporting of discrepancies in this regard is

essential.

Comment: One commenter called for the deletion of the requirement

for a procedures manual in proposed Sec. 19.12(b), on the basis that

the preparation and maintenance of such a manual constituted an

unjustified paperwork burden.

Customs Response: Customs disagrees. The proprietor's certification

at the time of application to bond that a procedures manual describing

the warehouse's inventory and recordkeeping system meets the

requirements of 19 CFR 19.12 plays a significant role in the license

approval process. The importance of this requirement extends into the

areas of compliance and audit activities. The manual serves as a

critical tool to Customs by demonstrating the proprietor has

established a methodology for inventory control and recordkeeping.

Comment: One commenter observed that proposed Sec. 19.12(d)(2)(ii)

would in effect require a warehouse proprietor to maintain as part of

an inventory recordkeeping system the cost or value of general order

merchandise, and that a proprietor would often have no idea as to the

cost or value of such merchandise.

Customs Response: Customs agrees. Section 19.12(d)(2)(ii) is

changed by adding at the beginning thereof the phrase, ``Except for

merchandise in general order,''.

Comment: Two commenters recommended that Customs amend proposed

Sec. 19.12(d)(3) to allow the option of accelerated payment of revenue

for non-extraordinary shortages prior to the filing of the annual CF

300 or certification of annual reconciliation.

Customs Response: Customs agrees. The last sentence of

Sec. 19.12(d)(3) is changed to allow a proprietor the option of

submitting payment of duties and fees for non-extraordinary shortages

any time prior to the annual filing of the CF 300 or certified annual

reconciliation.

Comment: One commenter advocated, with respect to proposed

Sec. 19.12(d)(5), that there be no physical inventory requirement to

account for merchandise, because non-government bonded warehouses did

not have such a requirement. One commenter asserted that an annual

reconciliation required in proposed Sec. 19.12(h) need not be

undertaken at the same time as the physical inventory.

Customs Response: The physical inventory requirement in

Sec. 19.12(d)(5) requires that a proprietor conduct at least one

physical inventory during the year. This need not necessarily take

place at the time of the annual reconciliation. Customs believes that

an annual physical inventory is necessary to gauge the accuracy of the

proprietor's inventory control system. Section 19.12(h) does not itself

deal with the requirement for a physical inventory.

Comment: One commenter stated that proposed Sec. 19.12(f)(3)

prohibited the application of First-In-First-Out (FIFO) procedures to

various types of merchandise, including quota and restricted

merchandise. Specifically, the commenter declared that Headquarters

Ruling 225837 exempted textile quota requirements on merchandise for

export; therefore, no basis existed to prohibit use of FIFO procedures

to such merchandise subject to textile quotas.

Customs Response: Customs agrees, to the extent that such

merchandise is for export only. To this end, accordingly, the following

sentence is added to Sec. 19.12(f)(2): ``Fungible textile and textile

products which are withdrawn from a Class 9 warehouse may be accounted

for using FIFO inventory procedures, inasmuch as such articles would be

exempt from textile quotas.'' In this regard, a Class 9 warehouse

(duty-free store) may only sell and deliver merchandise for export to

individuals departing the Customs territory.

The Committee for the Implementation of Textile Agreements (CITA),

U.S. Department of Commerce, has been consulted and agrees with Customs

treatment of textiles in Class 9 bonded warehouses or duty-free stores

as not being subject to quota and visa requirements.

However, it is understood that any textile articles exported from a

Class 9 warehouse and thereafter reimported into the U.S. would be

subject to the laws and regulations of the U.S. affecting imported

merchandise, including any applicable quotas.

Comment: One commenter suggested that Customs amend proposed

Sec. 19.12(h)(2) to allow a proprietor to reconcile merchandise under

an item's unique identifier number for annual reconciliation, instead

of tracking by entry number. The commenter explained that it was not

possible to comply with the proposed section under the FIFO inventory

because units transferred to warehouses in other ports could not be

posted or identified to an entry until disposed of.

Customs Response: All merchandise accounted for as sold, damaged,

short, or otherwise disposed of, receive a designated entry number. For

annual reconciliation of FIFO eligible merchandise not disposed of, a

list of all open and closed warehouse entries shall be presented to

Customs to account for merchandise.

Comment: One commenter requested that the address requirement be

eliminated from proposed Secs. 19.39(c)(5)(i) and 144.37(h)(2)(v) for

Class 9 warehouses at airports. The commenter noted in this connection

that few duty-free stores routinely obtained the address of a purchaser

and that the address requirement had little utility in the context of

airport duty-free store operations.

Customs Response: Customs agrees with this request. The risk of

diversion

[[Page 15833]]

of goods purchased at an airport duty-free store is minimal. Hence,

Secs. 19.39(c)(5)(i) and 144.37(h)(2)(v) are changed to eliminate any

requirement that an airport duty-free store submit to Customs upon

request the address of a purchaser.

Warehouse Withdrawals And Rewarehouse Entries

Comment: One commenter asked that proposed Sec. 144.34(c) be

amended to permit all classes of warehouses to participate in

alternative transfer procedures as opposed to only Class 2 and Class 9

warehouses. The commenter stated that as long as the warehouse is owned

by the same legal entity maintaining a centralized inventory control

system, and has the consent of the surety, such transfer operations

could easily be controlled in the same manner as those for Class 2 and

Class 9 warehouses.

Customs Response: Various custody transfer and liability issues are

primary concerns preventing the extension of transfer procedures under

Sec. 144.34(c) to other classes of Customs bonded warehouses.

Comment: One commenter suggested that Customs delete the

requirements in paragraphs (c)(4)(iv) and (c)(4)(vi) of proposed

Sec. 144.34, respectively, that a warehouse proprietor operating

multiple storage locations under a centralized inventory system

document all intracompany transfers of merchandise by means of the

appropriate warehouse entry number, as well as maintain a subordinate

permit file folder at all intracompany locations where merchandise is

transferred. The commenter stated that under FIFO inventory procedures,

units cannot be assigned an entry number, there being no withdrawal or

rewarehouse entry made at the time of transfer to place in the

subordinate permit file.

Customs Response: Customs disagrees. Customs does not require an

assigned entry number at the time of transfer. Section 144.34(c)(4)(vi)

allows up to 7 days to provide required warehouse entry documentation

after transfer. Maintaining records in a subordinate permit file allows

a proprietor to account for transactions such as shortages, overages,

damages, and the like, resulting from intracompany movements. The

documents required are set forth in Sec. 19.12(d)(4).

Comment: Two commenters observed that proposed

Secs. 144.34(c)(6)(ii), 144.36(c)(2), and 144.41(c)(2) appeared to

suggest that ``restricted'' merchandise could not be included in the

alternative inventory control system. The commenters believed that it

was not intended to exclude alcoholic products from this privilege.

Customs Response: The commenters are correct that alcohol and

tobacco products may be included as part of an approved alternative

inventory control and transfer system. To make this clear,

Secs. 144.34(c)(6)(ii), 144.36(c)(2) and 144.41(c)(2) are revised to

state: ``With the exception of alcohol and tobacco products* * *''.

Comment: One commenter recommended that proposed Sec. 144.34(c)

include transfers of merchandise from a foreign trade zone to a Class 9

warehouse.

Customs Response: Customs has such a proposal under active

consideration. Such proposal will be a subject of a separate

publication, if Customs decides to proceed therewith.

Conclusion

In view of the foregoing, and following careful consideration of

the comments received and further review of the matter, Customs has

concluded that the proposed amendments with the modifications discussed

above should be adopted.

In addition, Sec. 19.35(e)(2) is changed to reflect current

statutory law (19 U.S.C. 1555(b), as amended by sections 3(a)(8) and

29, Pub. L. 104-295), which permits merchandise purchased in a duty-

free store, if thereafter returned to the United States, to be subject

to the personal exemption of the arriving party under either item

9804.00.65, 9804.00.70 or 9804.00.72, Harmonized Tariff Schedule of the

United States.

Also, Sec. 19.12(d)(3) is changed to provide that the amount of

duty, taxes, and any interest applicable to each warehouse entry

involved in multiple shortages detected in a warehouse must be

separately specified, even though such duty and taxes may have been

tendered in one consolidated payment. This provision is needed because

such duty may be claimed for drawback, and Customs must have this

information in order to process the claim.

Furthermore, for the sake of editorial clarity, the last two

sentences of Sec. 19.12(d)(5) are moved to Sec. 19.12(d)(3), and a

cross reference to Sec. 19.4(b)(8)(ii) is added thereto, in order to

properly reflect the fact that the terms ``unique identifier'' and

``inventory category'' are interrelated. Also, for editorial clarity

and consistency, the term ``specific identifier, wherever it appeared

in the document, is changed to ``unique identifier''.

Regulatory Flexibility Act and Executive Order 12866

This final rule document is intended to simplify recordkeeping

requirements for duty-free stores and other Customs bonded warehouses.

To this end, greater reliance is placed on the use of records generated

and maintained by proprietors and importers in the ordinary course of

business, instead of on the use of specially prepared Customs forms. As

such, pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that this rule does not have a

significant economic impact on a substantial number of small entities.

Accordingly, it is not subject to the regulatory analysis or other

requirements of 5 U.S.C. 603 or 604. Nor does the rule result in a

``significant regulatory action'' under E.O. 12866.

Paperwork Reduction Act

The collection of information in this final rule document is

contained in Secs. 19.2, 19.4, 19.6, 19.11, 19.12, 19.36, 19.37, 19.39,

144.36, 144.37 and 144.41. This information is required and will be

used to ensure the exportation of merchandise from duty-free stores and

other Customs bonded warehouses, and to otherwise satisfy the

requirements of law and the protection of the revenue. The rule is

intended to simplify recordkeeping requirements for duty-free stores

and other Customs bonded warehouses. The likely respondents and/or

recordkeepers are business or other for-profit institutions.

The collection of information contained in this final rule document

has already been approved by the Office of Management and Budget (OMB)

under 1515-0005. The estimated average annual burden associated with

this collection is 10 hours per respondent or recordkeeper. Comments

concerning the accuracy of this burden estimate and suggestions for

reducing this burden should be directed to the Office of Management and

Budget, Attention: Desk Officer of the Department of the Treasury,

Office of Information and Regulatory Affairs, Washington, DC 20503.

Drafting Information

The principal author of this document was Russell Berger,

Regulations Branch, U.S. Customs Service. However, personnel from other

offices participated in its development.

List of Subjects

19 CFR Part 19

Customs duties and inspection, Imports, Exports, Warehouses.

[[Page 15834]]

19 CFR Part 113

Customs bonds.

19 CFR Part 144

Customs duties and inspection, Imports, Warehouses.

Amendments to the Regulations

Parts 19, 113 and 144, Customs Regulations (19 CFR parts 19, 113

and 144) are amended as set forth below.

PART 19--CUSTOMS WAREHOUSES, CONTAINER STATIONS AND CONTROL OF

MERCHANDISE THEREIN

1. The general authority citation for part 19 and the specific

authority for Secs. 19.1, 19.6, 19.11, and 19.35--19.39 continue to

read as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,

Harmonized Tariff Schedule of the United States), 1624;

Section 19.1 also issued under 19 U.S.C. 1311, 1312, 1555, 1556,

1557, 1560, 1561, 1562;

Section 19.6 also issued under 19 U.S.C. 1555;

* * * * *

Section 19.11 also issued under 19 U.S.C. 1556, 1562;

* * * * *

Sections 19.35-19.39 also issued under 19 U.S.C. 1555;

* * * * *

2. Section 19.1 is amended by adding a sentence at the end of

paragraph (a)(9) to read as set forth below, and by removing paragraph

(c).

Sec. 19.1 Classes of customs warehouses.

(a) * * *

(9) * * * All distribution warehouses used exclusively to provide

individual duty-free sales locations and storage cribs with

conditionally duty-free merchandise are also Class 9 warehouses.

* * * * *

3. Section 19.2 is amended by revising its heading, by adding three

sentences at the end of paragraph (a), and by revising paragraphs

(b)(2) and (g), to read as follows:

Sec. 19.2 Applications to bond.

(a) * * * The applicant must prepare and have available at the

warehouse a procedures manual describing the inventory control and

recordkeeping system that will be used in the warehouse. A

certification by the proprietor that the inventory control and

recordkeeping system meets the requirements of Sec. 19.12 will be

submitted with the application. The physical security of the facility

must meet the approval of the port director.

(b) * * *

(2) A description of the store's procedures, which includes

inventory control, recordkeeping, and delivery methods. These

procedures must be set forth in the proprietor's procedures manual.

Such manual and subsequent changes therein must be furnished to the

port director upon request. The procedures in the manual shall provide

reasonable assurance that conditionally duty-free merchandise sold

therein will be exported;

* * * * *

(g) The port director shall promptly notify the applicant in

writing of his decision to approve or deny the application to bond the

warehouse. If the application is denied the notification shall state

the grounds for denial. The decision of the port director will be the

final Customs administrative determination in the matter.

4. Section 19.4 is revised to read as follows:

Sec. 19.4 Customs and proprietor responsibility and supervision over

warehouses.

(a) Customs supervision. The character and extent of Customs

supervision to be exercised in connection with any warehouse facility

or transaction provided for in this part shall be in accordance with

Sec. 161.1 of this chapter. Independent of any need to appraise or

classify merchandise, the port director may authorize a Customs officer

to supervise any transaction or procedure at the bonded warehouse

facility. Such supervision may be performed through periodic audits of

the warehouse proprietor's records, quantity counts of goods in

warehouse inventories, spot checks of selected warehouse transactions

or procedures or reviews of conditions of recordkeeping, storage,

security, or safety in a warehouse facility.

(b) Proprietor responsibility and supervision--(1) Supervision. The

proprietor shall supervise all transportation, receipts, deliveries,

sampling, recordkeeping, repacking, manipulation, destruction, physical

and procedural security, conditions of storage, and safety in the

warehouse as required by law and regulations. Supervision by the

proprietor shall be that which a prudent manager of a storage and

manipulation facility would be expected to exercise.

(2) Customs access. The warehouse proprietor shall permit access to

the warehouse and present merchandise within a reasonable time after

request by any Customs officer.

(3) Safekeeping of merchandise and records. The proprietor is

responsible for safekeeping of merchandise and records concerning

merchandise entered in Customs bonded warehouses. The proprietor or his

employees shall safeguard and shall not disclose proprietary

information contained in or on related documents to anyone other than

the importer, importer's transferee, or owner of the merchandise to

whom the document relates or their authorized agent.

(4) Records maintenance.--(i) Maintenance. The proprietor shall:

(A) Maintain the inventory control and recordkeeping system in

accordance with the provisions of Sec. 19.12 of this part;

(B) Retain all records required in this part and defined in

Sec. 162.1(a) of this chapter, pertaining to bonded merchandise for 5

years after the date of the final withdrawal under the entry; and

(C) Protect proprietary information in its custody from

unauthorized disclosure.

(ii) Availability. Records shall be readily available for Customs

review at the warehouse. In addition, a proprietor may keep records at

another location for Customs review, but only if the proprietor first

receives written approval for such storage from the port director.

(5) Record retention in lieu of originals. A warehouse proprietor

may utilize alternative storage methods in lieu of maintaining records

in their original formats, if such storage is approved by Customs under

paragraph (b)(5)(i) of this section. For Customs purposes, original

records may be stored in alternate form at any time after the final

withdrawal under the entry number to which these records pertain,

except that duty-free store operators may store original sales tickets

in alternate form at any time beginning six months after date of sale.

If the proprietor chooses to use alternative storage methods, the

following conditions must be met:

(i) Approval. The proprietor may request approval to maintain

records in an alternative format by writing and describing the system

of storage, the conversion techniques used and the security safeguards

to be employed to prevent alteration, to the director of the regulatory

audit field office closest to the party's headquarters operation. If

satisfied that the alternative storage proposed will ensure the

accuracy and availability of the records when required, the director

will grant written approval.

(ii) Retention of reproductions. The proprietor shall retain and

keep available an original and one duplicate

[[Page 15835]]

of each microfilm, microfiche, cd ROM (compact disk, Read-Only Memory),

or other storage medium used, for five years from the date of the final

withdrawal under the entry number to which these records pertain. Duty-

free store operators must keep alternate storage media containing sales

tickets for five years from the date of the final withdrawal or five

years from the date of the sale, whichever is shorter.

(iii) Hard-copy reproductions. The proprietor must have the

capability of making direct hard-copy reproductions of the data stored

on the microfilm, microfiche, cd ROM, or other storage medium. The

proprietor shall bear the expense of making hard-copy reproductions of

any or all records required by any proper official of the U.S. Customs

Service for the audit or inspection of books and records.

(iv) Standards required for reproducing records. Proprietors shall

maintain the integrity of the original records by insuring that copies

are true reproductions of the original records and serve the purpose

for which such records were created. The following shall be observed:

Copies shall contain all significant record detail shown on the

original; copies of the record shall be so arranged, identified, and

indexed that any individual document or component of the records can be

located with reasonable facility; any indexes, registers, or other

finding aids shall be contained on the storage medium at the beginning

of the records to which they relate; each time reproductions are made,

a written certification will be executed by a responsible company

official (see Sec. 191.6(a) of this chapter; the same parties who have

authority to sign drawback documents are ``responsible company

officials'' for purposes of this section), stating that the

reproductions stored on the microfilm, microfiche, cd ROM, or other

storage medium constitute a true, complete and accurate reproduction of

the original documents; and the proprietor shall maintain and make

available a manual describing procedures for reproducing original

records on alternative storage media and controls in effect for

assuring completeness and accuracy of the reproductions. The procedures

shall incorporate reasonable controls for assuring accuracy and

completeness of alternative records. The proprietor is responsible for

assuring that these controls are executed each time original records

are reproduced.

(v) Revocation of alternative record storage method. Failure to

maintain the records in accordance with these conditions and

requirements will constitute a breach of the proprietor's bond and may

result in the revocation by Customs of the privilege of maintaining

records in a form other than the original format.

(6) Warehouse and merchandise security. The warehouse proprietor

shall maintain the warehouse facility in a safe and sanitary condition

and establish procedures adequate to ensure the security of all

merchandise under Customs custody stored in the facility. The warehouse

construction will be a factor that will be considered by the port

director in deciding whether to approve the application. The facility

shall be built in such a manner as to render it impossible for

unauthorized personnel to enter the premises without such violence as

to make the entry easy to detect. If a portion of the facility is to be

used for the storage of non-bonded merchandise, the port director shall

designate the means for effective separation of the bonded and non-

bonded merchandise, such as a wall, fence, or painted line. All inlets

and outlets to bonded tanks shall be secured with locks and/or in-bond

seals.

(7) Storage conditions. Merchandise in the bonded area shall be

stored in a safe and sanitary manner to minimize damage to the

merchandise, avoid hazards to persons, and meet local, state, and

Federal requirements applicable to specific kinds of goods. Doors and

entrances shall be left unblocked for access by Customs officers and

warehouse proprietor personnel.

(8) Manner of storage. Packages shall be received in the warehouse

and recorded in the proprietor's inventory and accounting records

according to their marks and numbers. Packages containing weighable or

gaugeable merchandise not bearing shipping marks and numbers shall be

received under the weigher's or gauger's numbers. Packages with

exceptions due to damage or loss of contents, or not identical as to

quantity or quality of contents shall be stored separately until the

discrepancy is resolved with Customs. Merchandise received in the

warehouse shall be stored in a manner directly identifying the

merchandise with the entry, general order, or seizure number; using a

unique identifier for inventory categories composed of fungible

merchandise accounted for on a First-In-First-Out (FIFO) basis; or

using a unique identifier for inventory categories composed of fungible

merchandise accounted for using another approved alternative inventory

method.

(i) Direct identification. The warehouse proprietor shall mark all

shipments for identification, showing the general order or warehouse

entry number or seizure number and the date of the general order,

entry, or delivery ticket in the case of seizures. Containers covered

by a given warehouse entry, general order or seizure shall not be mixed

with goods covered by any other entry, general order or seizure.

Merchandise covered by a given warehouse entry, general order or

seizure may be stored in multiple locations within the warehouse if the

proprietor's inventory control system specifically identifies all

locations where merchandise for each entry, general order or seizure is

stored and the quantity in each location. The proprietor must provide,

upon request by a Customs officer, a record balance of goods,

specifying the quantity in each storage location, covered by any

warehouse entry, general order, or seizure so a physical count can be

made to verify the accuracy of the record balance.

(ii) FIFO. A proprietor may account for fungible merchandise on a

First-In-First-Out (FIFO) basis instead of specific identification by

warehouse entry number, provided the merchandise meets the criteria for

fungibility and the recordkeeping requirements contained in Sec. 19.12

of this part are met. As of the beginning date of FIFO procedures, each

kind of fungible merchandise in the warehouse under FIFO shall

constitute a separate inventory category. Each inventory category shall

be assigned a unique number or other identifier by the proprietor to

distinguish it from all other inventory categories under FIFO. All of

the merchandise in a given inventory category shall be physically

placed so as to be segregated from merchandise under other inventory

categories or merchandise accounted for under other inventory methods.

The unique identifier shall be marked on the merchandise, its

container, or the location where it is stored so as to clearly show the

inventory category of each article under FIFO procedures. Merchandise

covered by a given unique identifier may be stored in multiple

locations within the warehouse if the proprietor's inventory control

system specifically identifies all locations where merchandise for a

specific unique identifier is stored and the quantity in each location.

The proprietor must provide, upon request by a Customs officer, a

record balance of goods, specifying the quantity in each storage

location, covered by any warehouse entry, general order, seizure, or

unique identifier so a physical count can be made to verify the

accuracy of the record balance.

[[Page 15836]]

(iii) Other alternative inventory methods. Other alternative

inventory systems may be used, if Customs approval is obtained.

Importers or proprietors who wish to use an alternative inventory

method other than FIFO must apply to Customs Headquarters, Office of

Regulations and Rulings, for approval.

(9) Miscellaneous responsibilities. The proprietor is responsible

for complying with requirements for transport to his warehouse,

deposit, manipulation, manufacture, destruction, shortage or overage,

inventory control and recordkeeping systems, and other requirements as

specified in this part.

5. Section 19.6 is amended by revising the fourth sentence of

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

(d)(2), by redesignating paragraph (d)(4) as (d)(5) and by adding a new

paragraph (d)(4), to read as follows:

Sec. 19.6 Deposits, withdrawals, blanket permits to withdraw and

sealing requirements.

(a)(1) Deposit in warehouse. * * * A copy of any joint report of

discrepancy shall be made within five business days of agreement and

provided to the port director on the appropriate cartage documents as

set forth in Sec. 125.31 of this chapter. * * *

* * * * *

(d) Blanket permits to withdraw--(1) General. (i) Blanket permits

may be used to withdraw merchandise from bonded warehouses for:

(A) Delivery to individuals departing directly from the Customs

territory for exportation under the sales ticket procedure of

Sec. 144.37(h) of this chapter (Class 9 warehouses only);

(B) Aircraft or vessel supplies under Sec. 309 or 317, Tariff Act

of 1930, as amended (19 U.S.C. 1309, 1317); or

(C) The personal or official use of personnel of foreign

governments and international organizations set forth in subpart I,

part 148 of this chapter; or

(D) A combination of the foregoing.

(ii) Blanket permits to withdraw may be used only for delivery at

the port where withdrawn and not for transportation in bond to another

port, except for a withdrawal for transportation to another port by a

duty-free sales enterprise which meets the requirements for exemption

as stated in Sec. 144.34(c) of this chapter. Blanket permits to

withdraw may not be used for delivery to a location for retention or

splitting of shipments under the provisions of Sec. 18.24 of this

chapter. A withdrawer who desires a blanket permit shall state in

capital letters on the warehouse entry, or on the warehouse entry/entry

summary when used as an entry, that ``Some or all of the merchandise

will be withdrawn under blanket permit per section 19.6(d), C.R.''

Customs acceptance of the entry will constitute approval of the blanket

permit. A copy of the entry will be delivered to the proprietor,

whereupon merchandise may be withdrawn under the terms of the blanket

permit. The permit may be revoked by the port director in favor of

individual applications and permits if the permit is found to be used

for other purposes, or if necessary to protect the revenue or properly

enforce any law or regulation Customs is charged with administering.

Merchandise covered by an entry for which a blanket permit was issued

may be withdrawn for purposes other than those specified in this

paragraph if a withdrawal is properly filed as required in subpart D,

part 144, of this chapter.

(2) Withdrawals under blanket permit. * * * A copy of the

withdrawal shall be retained in the records of the proprietor as

provided in Sec. 19.12(d)(4) of this part. * * *

* * * * *

(4) Withdrawals under blanket permit for aircraft or vessel

supplies. Multiple withdrawals under a blanket permit for aircraft or

vessel supplies, if consigned to the same daily aircraft flight number

or vessel sailing, may be filed on one Customs Form 7512; however, an

attachment form, developed by the warehouse proprietor and approved by

the port director may be used for all withdrawals. This attachment form

shall provide a sufficient summary of the goods being withdrawn, and

shall include the warehouse entry number, the quantity and weight being

withdrawn, the Harmonized Tariff Schedule of the United States

number(s), the value of the goods, import and export lading

information, the duty rate and amount, and any applicable Internal

Revenue tax calculation, for each warehouse entry being withdrawn. A

copy of Customs Form 7512 and the summary attachment must be attached

to each permit file folder unless the warehouse proprietor qualifies

for the permit file folder exemption under Sec. 19.12(d)(4)(iii) of

this part.

* * * * *

6. Section 19.11 is amended by revising paragraph (h) to read as

follows:

Sec. 19.11 Manipulation in bonded warehouses and elsewhere.

* * * * *

(h) Merchandise which has been entered for warehouse and placed in

a Class 9 warehouse (duty-free store) may be unpacked into its smallest

irreducible unit for sale without a prior permit issued by the port

director. The port director may issue a blanket permit to a duty-free

store for up to one year permitting the destruction of merchandise

covered by any entry and found to be nonsaleable, if the merchandise to

be destroyed is valued at less than 5 percent of the value of the

merchandise at time of entry or $1,250, whichever is less, in its

undamaged condition. Such permit may be revoked in favor of a permit

for each entry and/or destruction whenever necessary to assure proper

destruction and protection of the revenue. The proprietor shall

maintain a record of unpacking merchandise into saleable units and

destruction of nonsaleable merchandise in its inventory and accounting

records.

7. Section 19.12 is revised to read as follows:

Sec. 19.12 Inventory control and recordkeeping system.

(a) Systems capability. The proprietor shall maintain either manual

or automated inventory control and recordkeeping systems or combination

manual and automated systems capable of:

(1) Accounting for all merchandise transported, deposited, stored,

manipulated, manufactured, smelted, refined, destroyed in or removed

from the bonded warehouse and all merchandise collected by a proprietor

or his agent for transport to his warehouse. The records shall provide

an audit trail from deposit through manipulation, manufacture,

destruction, and withdrawal from the bonded warehouse either by

specific identification or other Customs authorized inventory method.

The records to be maintained are those which a prudent businessman in

the same type of business can be expected to maintain. The records are

to be kept in sufficient detail to permit effective and efficient

determination by Customs of the proprietor's compliance with these

regulations and correctness of his annual submission or reconciliation;

(2) Producing accurate and timely reports and documents as required

by this part; and

(3) Identifying shortages and overages of merchandise in sufficient

detail to determine the quantity, description, tariff classification

and value of the missing or excess merchandise so that appropriate

reports can be filed with Customs on a timely basis.

(b) Procedures manual. (1) The proprietor shall have available at

the warehouse an English language copy of

[[Page 15837]]

its written inventory control and recordkeeping systems procedures

manual in accordance with the requirements of this part.

(2) The proprietor shall keep current its procedures manual and

shall submit to the port director a new certification at the time any

change in the system is implemented.

(c) Entry of merchandise into a warehouse.--(1) Identification. All

merchandise collected by a proprietor or his agent for transport to his

warehouse shall be receipted. In addition, all merchandise entered in a

warehouse will be recorded in a receiving report or document using a

Customs entry number or unique identifier if an alternate inventory

control method has been approved. All merchandise will be traceable to

a Customs entry and supporting documentation.

(2) Quantity verification. Quantities received will be reconciled

to a receiving report or document such as an invoice with any

discrepancy reported to the port director as provided in Sec. 19.6(a).

(3) Recordation. Merchandise received will be accurately recorded

in the accounting and inventory system records from the receiving

report or document using the Customs entry number or unique identifier

if an alternative inventory control method has been approved.

(d) Accountability for merchandise in a warehouse.--(1)

Identification of merchandise. The Customs entry number or unique

identifier, as applicable under Sec. 19.4(b)(8), will be used to

identify and trace merchandise.

(2) Inventory records. The inventory records will specify by

Customs entry number or unique identifier if an alternative inventory

control method is approved:

(i) The location of the merchandise within the warehouse;

(ii) Except for merchandise in general order, the cost or value of

the merchandise, unless the proprietor's financial records maintain

cost or value and the records are made available for Customs review;

and

(iii) The beginning balance, cumulative receipts and withdrawals,

adjustments, destructions, and current balance on hand by date and

quantity.

(3) Theft, shortage, overage or damage. Any theft or suspected

theft or overage or any extraordinary shortage or damage (equal to one

percent or more of the value of the merchandise in an entry or covered

by a unique identifier; or if the missing merchandise is subject to

duties and taxes in excess of $100) shall be immediately brought to the

attention of the port director, and confirmed in writing within five

business days after the shortage, overage, or damage has been brought

to the attention of the port director. An entry for warehouse must be

filed for all overages by the person with the right to make entry

within five business days of the date of discovery. The applicable

duties, taxes and interest on thefts and shortages so reported shall be

paid by the responsible party to Customs within 20 calendar days

following the end of the calendar month in which the shortage is

discovered. The port director may allow the consolidation of duties and

taxes applicable to multiple shortages into one payment; however, the

amount applicable to each warehouse entry is to be listed on the

submission and shall specify the applicable duty, tax and interest.

These same requirements shall apply when cumulative thefts, shortages

or overages under a specific entry or unique identifier total one

percent or more of the value of the merchandise or if the duties and

taxes owed exceed $100. Upon identification, the proprietor shall

record all shortages and overages in its inventory control and

recordkeeping system, whether or not they are required to be reported

to the port director at the time. The proprietor shall also record all

shortages and overages as required in the Customs Form 300 or annual

reconciliation report under paragraphs (f) or (g) of this section, as

appropriate. Duties and taxes applicable to any non-extraordinary

shortage or damage and not required to be paid earlier shall be

submitted to the port director at the time the Warehouse Proprietor's

Submission, Customs Form 300 is due or at the time the certification of

preparation of the annual reconciliation report is due, as prescribed

in paragraphs (g) and (h) of this section, or at any time prior to the

annual filing of the CF 300 or certified annual reconciliation.

Discrepancies found in a Class 9 warehouse with integrated locations as

set forth in Sec. 19.35(c) will be the net discrepancies for a unique

identifier (see Sec. 19.4(b)(8)(ii) of this part) such that overages

within one sales location will be offset against shortages in another

location that is within the integrated location. A Class 9 proprietor

who transfers merchandise between facilities in different ports without

being required to file a rewarehouse entry in accordance with

Sec. 144.34 of this chapter may offset overages and shortages within

the same unique identifier for merchandise located in stores in

different ports (see Sec. 19.4(b)(8)(ii) of this part).

(4) Permit file folders.--(i) Maintenance. Permit file folders

shall be maintained and kept up to date by filing all receipts, damage

or shortage reports, manipulation requests, withdrawals, removals and

blanket permit summaries within five business days after the event

occurs. The permit file folders shall be kept in a secure area and

shall be made available for inspection by Customs at all reasonable

hours.

(ii) Review. When the final withdrawal of merchandise relating to a

specific warehouse entry, general order or seizure occurs, the

warehouse proprietor shall: review the permit file folder to ensure

that all necessary documentation is in the file folder accounting for

the merchandise covered by the entry; notify Customs of any merchandise

covered by the warehouse entry, general order or seizure which has not

been withdrawn or removed; and file the permit file folder with Customs

within 30 calendar days after final withdrawal, except as allowed by

paragraph (b)(4)(iv) of this section. The permit file folder for

merchandise not withdrawn during the general order period shall be

submitted to the port director upon receipt from Customs of the Customs

Form 6043.

(iii) Exemption to maintenance requirement. Maintenance of permit

file folders will not be required, if the proprietor has an automated

system capable of: satisfactorily summarizing all actions by Customs

warehouse entry; providing upon demand by Customs an entry activity

summary report which lists all individual receipts, withdrawals,

destructions, manipulations and adjustments by warehouse entry and is

cross-referenced to the source documents for each transaction; and

maintaining source documents so that the documents can be readily

retrieved upon request. Failure to provide the entry activity summary

report or documentation supporting the entry activity summary report

upon demand by the port director or the field director of regulatory

audit could result in reinstatement by the port director of the

requirement to maintain the permit file folder for all warehouse

entries. When final withdrawal is made, the proprietor must submit the

entry activity summary report to Customs. Prior to submission, the

proprietor must ensure the accuracy of the summary report and assure

that all supporting documentation is on file and available for review

if requested by Customs.

(iv) Exemption to submission requirement. At the discretion of the

port director, a proprietor may be allowed to furnish formal

notification of final withdrawal in lieu of the

[[Page 15838]]

requirement to submit the permit file folder or entry activity summary

within 30 calendar days of each final withdrawal. If approved to use

this procedure the proprietor could be required by the port director to

submit permit file folders or entry activity summaries on a selective

basis. Failure to promptly provide the permit file folder or entry

activity summary upon request by the port director or the field

director of regulatory audit could result in withdrawal of this

privilege.

(5) Physical inventory. The proprietor shall take at least an

annual physical inventory of all merchandise in the warehouse, or

periodic cycle counts of selected categories of merchandise such that

each category is counted at least once during the year, with prior

notification of the date(s) given to Customs so that Customs personnel

may observe or participate in the inventory if deemed necessary. If the

proprietor of a Class 2 or Class 9 warehouse has merchandise covered by

one warehouse entry, but stored in multiple warehouse facilities as

provided for under Sec. 144.34 of this chapter, the facility where the

original entry was filed must reconcile the on-hand balances at all

locations with the record balance for those entries with merchandise in

multiple locations. The proprietor shall notify the port director of

any discrepancies, record appropriate adjustments in the inventory

control and recordkeeping system, and make required payments and

entries to Customs, in accordance with paragraph (d)(3) of this

section.

(e) Withdrawal of merchandise from a warehouse. All bonded

merchandise withdrawn from a warehouse will be accurately recorded

within the inventory control and recordkeeping system. The inventory

control and recordkeeping system must have the capability to trace all

withdrawals back to a Customs entry and to ultimate disposition of the

merchandise by the proprietor.

(f) Special provisions for use of FIFO inventory procedures.--(1)

Notification. A proprietor who wishes to use FIFO procedures for all or

part of the merchandise in a bonded warehouse shall provide the port

director a written certification that: The proprietor has read and

understands Customs FIFO procedures set forth in this section; the

proprietor's procedures are in accordance with Customs FIFO procedures,

and the proprietor agrees to abide by those procedures; and the

proprietor of a public warehouse will obtain the written consent of any

importer using the warehouse before applying FIFO procedures to their

merchandise.

(2) Qualifying merchandise. FIFO inventory procedures may be used

only for fungible merchandise. For purposes of this section, ``fungible

merchandise'' means merchandise which is identical and interchangeable

for all commercial purposes. While commercial interchangeability is

usually decided between buyer and seller or between proprietor and

importer, Customs is the final arbiter of fungibility in bonded

warehouses. The criteria for determining whether merchandise is

fungible include, but are not limited to, Governmental and recognized

industrial standards, part numbers, tariff classification, value, brand

name, unit of quantity (such as barrels, gallons, pounds, pieces),

model number, style and same kind and quality. Fungible textile and

textile products which are withdrawn from a Class 9 warehouse may be

accounted for using FIFO inventory procedures, inasmuch as such

articles would be exempt from textile quotas.

(3) Merchandise specifically excluded. FIFO procedures cannot be

applied to the following merchandise, as well as any other merchandise

which does not comply with the requirements of paragraph (f)(2) of this

section:

(i) Merchandise subject to quota, visa or export restrictions

chargeable to different countries of origin;

(ii) Textile and textile products of different quota categories;

(iii) Merchandise with different tariff classifications or rates of

duty, except where the difference is within the merchandise itself

(such as kits, merchandise in unusual containers) or where the tariff

classification or dutiability is determined only by conditions upon

withdrawal (for example, withdrawal for vessel supplies, bonded wool

transactions);

(iv) Merchandise with different legal requirements for marking,

labeling or stamping;

(v) Merchandise with different trademarks;

(vi) Merchandise of different grades or qualities;

(vii) Merchandise with different importers of record;

(viii) Damaged or deteriorated merchandise;

(ix) Restricted merchandise; or

(x) General order, abandoned or seized merchandise.

(4) Maintenance of FIFO. FIFO procedures used for merchandise in

any inventory category, must be used consistently throughout the

warehouse storage and recordkeeping practices and procedures for the

merchandise. For example, merchandise may not be added to inventory by

FIFO but withdrawn by bypassing certain inventory layers to reach a

specific warehouse entry other than the oldest one. However, this does

not preclude the use of specific identification for some merchandise in

a warehouse entry and FIFO for other merchandise, so long as they are

segregated in physical storage and clearly distinguished in the

inventory and accounting records.

(5) FIFO recordkeeping. In the inventory and accounting records,

the proprietor shall establish an inventory layer for each warehouse

entry represented in each inventory category. The layers shall be

established in the order of time of acceptance of the entry or by the

date of importation of merchandise covered by each applicable warehouse

entry. There shall be no mixing of layering both by time of acceptance

and date of importation in the same warehouse. Records for each layer

shall, as a minimum, show the warehouse entry number, date of

acceptance, date of importation, quantity and unit of quantity. They

shall also show for each entry the type of warehouse withdrawal number

or other specific removal event charged against the entry, by date and

quantity. Each addition to or deduction from the inventory category

shall be posted in the appropriate inventory category within 2 business

days after the event occurs. All FIFO records and documentation shall

consistently use the same unit of quantity within each inventory

category.

(6) Entry requirements. Warehouse entries covering any merchandise

to be accounted for under FIFO must be prominently marked ``FIFO'' on

the face of the entry document. The entry document or an attachment

thereto shall show the unique identifier of each inventory category to

be accounted for under FIFO, the quantity in each inventory category

and the unit of quantity.

(7) Receipts. Any shortages, overages, or damage found upon receipt

shall be attributed to the entry under which the merchandise was

received. FIFO procedures will not take effect until the merchandise is

physically placed in the storage location for the inventory category

represented in the entry.

(8) Manipulation. When manipulation results in a product with a

different unique identifier, the inventory and accounting records shall

show the quantities of merchandise in each inventory category appearing

in the product covered by the new unique identifier. The withdrawal

shall show the unique identifiers of both the materials used in the

manipulation and the product as manipulated. The quantities of the

original unique

[[Page 15839]]

identifiers will be deducted from their respective warehouse entries on

a FIFO basis when the resultant product is withdrawn.

(9) Discontinuance of FIFO. A proprietor may voluntarily

discontinue the use of FIFO procedures for all or part of the

merchandise currently under FIFO by providing written notification to

the port director. The notification shall clearly describe the

merchandise, by commercial names and unique identifiers, to be removed

from FIFO. Following notification, the merchandise shall be segregated

in both the recordkeeping system and the physical location by warehouse

entry number and the quantities so removed shall be deducted from the

appropriate FIFO inventory category balances. Merchandise so removed

shall be maintained under the specific identification inventory method.

FIFO procedures which were voluntarily discontinued may be reinstated,

but not for merchandise covered by any warehouse entry for which FIFO

was discontinued.

(g) Warehouse proprietor submission. Except as otherwise provided

in paragraph (h) of this section or Sec. 19.19(b) of this part, the

warehouse proprietor shall file with the field director of regulatory

audit within 45 calendar days from the end of his business year a

Warehouse Proprietor's Submission on Customs Form 300. If the

proprietor of a Class 2 or Class 9 warehouse has merchandise covered by

one warehouse entry, but stored in multiple warehouse facilities as

provided for under Sec. 144.34 of this chapter, the CF 300 shall cover

all locations and warehouses of the proprietor. An alternative format

may be used for providing the information required on the CF 300, if

prior written approval is obtained from the field director of

regulatory audit.

(h) Annual reconciliation.--(1) Report. Instead of filing Customs

Form 300 as required under paragraph (g) of this section, the

proprietor of a class 2, importers' private bonded warehouse, and

proprietors of classes 4, 5, 6, 7, 8, and 9 warehouses if the warehouse

proprietor and the importer are the same party, shall prepare a

reconciliation report within 90 days after the end of the fiscal year

unless the field director authorizes an extension for reasonable cause.

The proprietor shall retain the annual reconciliation report for 5

years from the end of the fiscal year covered by the report. The report

must be available for a spot check or audit by Customs, but need not be

furnished to Customs unless requested. There is no form specified for

the preparation of the report.

(2) Information required. The report must contain the company name;

address of the warehouse; class of warehouse; date of inventory or

information on cycle counts; a description of merchandise for each

entry or unique identifier, quantity on hand at the beginning of the

year, cumulative receipts and transfers (by unit), quantity on hand at

the end of the year, and cumulative positive and negative adjustments

(by unit) made during the year. If the proprietor of a Class 2 or Class

9 warehouse has merchandise covered by one warehouse entry, but stored

in multiple warehouse facilities as provided for under Sec. 144.34 of

this chapter, the reconciliation shall cover all locations and

warehouses of the proprietor at the same port. If the annual

reconciliation includes entries for which merchandise was transferred

to a warehouse without filing a rewarehouse entry, as allowed under

Sec. 144.34, the annual reconciliation must contain sufficient detail

to show all required information by location where the merchandise is

stored. For example, if merchandise covered by a single entry is stored

in warehouses located in 3 different ports, the annual reconciliation

should specify individually the beginning and ending inventory

balances, cumulative receipts, transfers, and positive and negative

adjustments for each location.

(3) Certification. The proprietor shall submit to the field

director of regulatory audit within 10 business days after preparation

of the annual reconciliation report, a letter signed by the proprietor

certifying that the annual reconciliation has been prepared, is

available for Customs review, and is accurate. The certification letter

must contain the proprietor's IRS number; date of fiscal year end; the

name and street address of the warehouse; the name, title, and

telephone number of the person having custody of the records; and the

address where the records are stored. Reporting of shortages and

overages based on the annual reconciliation will be made in accordance

with paragraph (d)(3) of this section. Any previously unreported

shortages and overages should be reported to the port director and any

unpaid duties, taxes and fees should be paid at this time.

(i) System review. The proprietor shall perform an annual internal

review of the inventory control and recordkeeping system and shall

prepare and maintain on file a report identifying any deficiency

discovered and corrective action taken, to ensure that the system meets

the requirements of this part.

(j) Special requirements. A warehouse proprietor submission (CF

300) or annual reconciliation must be prepared for each facility or

location as defined in Secs. 19.2(a) and 19.35(c) of this part. When

merchandise is transferred from one facility or location to another

without filing a rewarehouse entry, as provided for in Sec. 144.34(c)

of this chapter, the submission/reconciliation for the warehouse where

the entry was originally filed should account for all merchandise under

the warehouse entry, indicating the quantity in each location.

8. Section 19.13 is amended by revising the fourth sentence of

paragraph (g) to read as follows:

Sec. 19.13 Requirements for establishment of warehouses.

* * * * *

(g) Secure storage. * * * The areas for storage of bonded material

and manufactured products shall be secured in accordance with the

standards prescribed in Sec. 19.4(b)(6) of this part. * * *

* * * * *

9. Section 19.13a is amended by revising the first sentence of its

introductory text and by revising paragraph (b) to read as follows:

Sec. 19.13a Recordkeeping requirements.

The proprietor of a manufacturing warehouse shall comply with the

recordkeeping requirements of Secs. 19.4(b) and 19.12. * * *

* * * * *

(b) Take an annual physical inventory of the merchandise as

provided in Sec. 19.12(d)(5) in conjunction with the annual submission

required by Sec. 19.12(g); and

* * * * *

10. Section 19.35 is amended by revising the introductory text of

paragraph (c) and by revising paragraphs (c)(2), (e)(2) and (f) to read

as follows:

Sec. 19.35 Establishment of duty-free stores (Class 9 warehouses).

* * * * *

(c) Integrated locations. A Class 9 warehouse with multiple

noncontiguous sales and crib locations (see Sec. 19.37(a) of this part)

containing conditionally duty-free merchandise and requested by the

proprietor may be treated by Customs as one location if:

* * * * *

(2) The recordkeeping system is centralized up to the point where a

sale is made so as to automatically reduce the sale quantity by

location from centralized inventory or inventory records must be

updated no less

[[Page 15840]]

frequently than at the end of each business day to reflect that day's

activity.

* * * * *

(e) * * *

(2) If brought back to the United States must be declared and is

subject to U.S. Federal duty and tax with personal exemption; and,

* * * * *

(f) Security of sales rooms and cribs. The physical and procedural

security requirements of Sec. 19.4(b)(6) of this part shall be applied

to the security of the sales rooms and cribs by the port director. The

proprietor shall establish procedures to safeguard the merchandise so

as to accommodate the movement of purchasers and prospective purchasers

of conditionally duty-free merchandise contained in duty-free sales

rooms and cribs.

* * * * *

11. Section 19.36 is amended by revising the last sentence of

paragraph (e) and the third sentence of paragraph (g) to read as

follows:

Sec. 19.36 Requirements for duty-free store operations.

* * * * *

(e) Merchandise eligible for warehousing. * * * However, such

merchandise must be either identified or marked ``DUTY-PAID'' or

``U.S.-ORIGIN'', or similar markings, as applicable, so that Customs

officers can easily distinguish conditionally duty-free merchandise

from other merchandise in the sales or crib area.

* * * * *

(g) Inventory procedure. * * * The inventory shall be reconcilable

with the accounting and inventory records and the permit file folder

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

12. Section 19.37 is amended by revising the first and fourth

sentences, and the fifth (and last) sentence of paragraph (a) to read

as follows:

Sec. 19.37 Crib operations.

(a) Crib. A crib means a bonded area, separate from the storage

area of a Class 9 warehouse, for the retention of a supply of articles

for delivery to persons departing from the United States. * * * The

quantity of goods in the crib may be an amount requested by the

proprietor which is commercially necessary for the delivery operations

for a period, if approved by the port director. The port director may

increase or decrease the quantity as deemed necessary for the

protection of the revenue and proper administration of U.S. laws and

regulations, or may order the return to the storage area of goods

remaining unsold.

* * * * *

13. Section 19.39 is amended by removing the last three sentences

of paragraph (c)(2); Sec. 19.39 is further amended by revising the

first sentence of paragraph (c)(3), by redesignating paragraphs

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

(c)(4)(v), respectively, and adding a new paragraph (c)(4)(ii), and by

revising paragraphs (c)(5) and (e), to read as set forth below:

Sec. 19.39 Delivery for exportation.

* * * * *

(c) * * *

(3) Aircraft delivery. The merchandise will be delivered by a

licensed cartman for lading as baggage directly on the aircraft on

which the passenger will depart. * * *;

(4) Unit-load delivery. * * *

(ii) Merchandise shall be placed on the aircraft on which the

passenger departs the United States for carriage as passenger baggage;

* * * * *

(5) Cancelled or aborted flights or no-show passengers--(i)

Cancelled or aborted flights. The proprietor shall, upon request, make

available to Customs the purchaser's name, the purchaser's airline

ticket number and the identity and quantity of the merchandise

delivered by the proprietor to the purchaser (if the merchandise was

delivered to the airline rather than the passenger, the name of the

airline employee to whom the merchandise was delivered), and the date

and time of that delivery in lieu of retrieving the merchandise for

safekeeping until the purchaser actually departs.

(ii) No-show passengers. A proprietor who delivers merchandise

directly to an airline for delivery to a passenger who does not board

the flight shall establish a procedure to obtain redelivery of that

merchandise from the airline.

* * * * *

(e) Delivery method. Delivery of conditionally duty-free

merchandise to persons for exportation will be made by licensed cartmen

or bonded carriers under the procedures in subpart D, part 125, and

Sec. 144.34(a), of this chapter, or under a local control system

approved by the port director wherein any discrepancy found in the

merchandise will be treated as if it occurred in the bonded warehouse.

* * * * *

PART 113--CUSTOMS BONDS

1. The general authority citation for part 113 continues to read as

follows:

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

* * * * *

2. Section 113.63 is amended by redesignating paragraph (a)(4) as

(a)(5) and adding a new paragraph (a)(4), by removing the word ``and''

from the end of paragraph (b)(2), and by adding the word ``and'' at the

end of paragraph (b)(3), by adding a new paragraph (b)(4), and by

revising the first sentence of paragraph (d), to read as follows:

Sec. 113.63 Basic custodial bond conditions.

(a) * * *

(4) If authorized to use the alternative transfer procedure set

forth in Sec. 144.34(c) of this chapter, to operate as constructive

custodian for all merchandise transferred under those procedures,

thereby assuming primary responsibility for the continued proper

custody of the merchandise notwithstanding its geographical location;

* * * * *

(b) * * *

(4) If authorized to use the alternative transfer procedure set

forth in Sec. 144.34(c) of this chapter, to keep safe any merchandise

so transferred.

* * * * *

(d) Agreement to Redeliver Merchandise to Customs. If the principal

is designated a bonded carrier, or licensed to operate a cartage or

lighterage business, or authorized to use the alternative transfer

procedure set forth in Sec. 144.34(c) of this chapter, the principal

agrees to redeliver timely, on demand by Customs, any merchandise

delivered to unauthorized locations or to the consignee without the

permission of Customs. * * *

* * * * *

PART 144--WAREHOUSE AND REWAREHOUSE ENTRIES AND WITHDRAWALS

1. The general authority citation for part 144 and the specific

authority for Sec. 144.37 continue to read as follows:

Authority: 19 U.S.C. 66, 1484, 1557, 1559, 1624;

* * * * *

Section 144.37 also issued under 19 U.S.C. 1555, 1562.

2. Section 144.34 is amended by adding a new paragraph (c) to read

as follows:

Sec. 144.34 Transfer to another warehouse.

* * * * *

(c) Transfers between integrated bonded warehouses--(1)

Eligibility. (i) Only an importer who will transfer warehoused

merchandise among Class 2 and 9 warehouses listed on the

[[Page 15841]]

application in paragraph (c)(2) of this section is eligible to

participate.

(ii) The importer must have a centralized inventory control system

that shows the location of all of the warehoused merchandise at all

times, including merchandise in transit.

(iii) The importer and its surety must sign the application. If the

application to use this alternative procedure is approved by the

appropriate port director, the importer's entry bond containing the

conditions provided under Sec. 113.62 of this chapter will continue to

attach to any merchandise transferred under these alternative

procedures.

(iv) Each proprietor of a warehouse listed on the application and

each surety who underwrites that proprietor's custodial bond coverage

under Sec. 113.63 of this chapter shall sign the application.

(2) Application. Application must be made in writing to the port

director of the port in which the applicant's centralized inventory

control system exists, with copies to all affected port directors, for

exemptions from the requirements for transfer of merchandise from one

bonded warehouse to another set forth in paragraphs (a) and (b) of this

section. The application must list all bonded warehouses to and from

which the merchandise may be transferred; all such warehouses must be

covered by the same centralized inventory control system. Only blanket

exemption requests will be considered; exemptions will not be

considered for individual transfers. The application may be in letter

form, signed by all participants, and contain a certification to the

port director by the applicant that he maintains accounting records,

documents and financial statements and reports that adequately support

Customs activities.

(3) Operation. An importer who receives approval to transfer

merchandise between bonded warehouses in accordance with the provisions

of this section may, after entry into the first warehouse, transfer

that merchandise to any other warehouse without filing a withdrawal

from warehouse or a rewarehouse entry. The warehoused merchandise will

be treated as though it remains in the first warehouse so long as the

actual location of the merchandise at all times is recorded as provided

under the provisions of this section.

(4) Inventory control requirements. The records required to be

maintained must include a centralized inventory control system and

supporting documentation which meets the following requirements:

(i) Provide Customs upon demand with the proper on-hand balance of

each inventory item in each warehouse facility and each storage

location within each warehouse;

(ii) Provide Customs upon demand with the proper on-hand balance

for each open warehouse entry and the actual quantity in each warehouse

facility;

(iii) If an alternative inventory system has been approved, provide

Customs upon demand with the proper on-hand balance for each unique

identifier and the quantity related to each open warehouse entry and

the quantity in each warehouse facility;

(iv) Maintain documentation for all intracompany movements,

including authorizations for the movement, shipping documents and

receiving reports. These documents must show the appropriate warehouse

entry number or unique identifier, the description and quantity of the

merchandise transferred, and must be properly authorized and signed

evidencing shipment from and delivery to each location;

(v) Maintain a consolidated permit file folder at the location

where the merchandise was originally warehoused. The consolidated

permit file folder must meet the requirements of Sec. 19.12(d)(4) of

this chapter regardless of the warehouse facility in which the action

occurred. Documentation for all intracompany movements, including

authorizations for movement, shipping documents, receiving reports, as

well as documentation showing ultimate disposition of the merchandise

must be filed in the consolidated permit file folder within seven

business days;

(vi) Maintain a subordinate permit file at all intracompany

locations where merchandise is transferred containing copies of

documentation required by Sec. 19.12(d)(4) of this chapter and by

paragraph (c)(3)(v) of this section relating to merchandise quantities

transferred to the location. A copy of all documents in the subordinate

permit file folder must be filed in the consolidated permit file folder

within seven business days; no exceptions will be granted to this

requirement. When the final withdrawal is made on the respective entry,

the subordinate permit file shall be considered closed and filed at the

intracompany location to which the merchandise was transferred; and

(vii) File the withdrawal from Customs custody at the original

warehouse location at which the merchandise was entered.

(5) Waiver of permit file folder requirements. The permit file

folder requirements of paragraphs (c)(3)(v) and (c)(3)(vi) of this

section may be waived if the proprietor's recordkeeping and inventory

control system qualifies under the requirements of

Sec. 19.12(d)(4)(iii) of this chapter at all locations where bonded

merchandise is stored.

(6) Procedure not available--(i) Liens. The transfer procedures

permitted under paragraph (c) of this section shall not be available

for merchandise with respect to which Customs is notified of the

existence of a lien, as prescribed in Sec. 141.112 of this chapter (see

19 U.S.C. 1564), until proof shall be produced at the original

warehouse location that the lien has been satisfied or discharged.

(ii) Restricted merchandise. With the exception of alcohol and

tobacco products, merchandise subject to a restriction on release such

as covered by a licensing, quota or visa requirement, is not eligible.

3. Section 144.36 is amended by revising paragraphs (c) and (f), by

removing the word ``or'' from the end of paragraph (g)(4), and by

adding the word ``or'' at the end of paragraph (g)(5) and adding a new

paragraph (g)(6) thereafter, to read as follows:

Sec. 144.36 Withdrawal for transportation.

* * * * *

(c) Form. (1) A withdrawal for transportation shall be filed on

Customs Form 7512 in five copies. An extra copy or copies of the

Customs Form 7512 may be required for use in connection with the

delivery of the merchandise to the bonded carrier and, in the case of

alcoholic beverages, two extra copies shall be required for use in

furnishing the duty statement to the port director at destination.

(2) Separate withdrawals for transportation from a single

warehouse, via a single conveyance, consigned to the same consignee,

and deposited into a single warehouse, can be filed on one Customs Form

7512, under one control number, provided that there is an attachment,

to be certified by a Customs officer, providing the information for

each withdrawal, as required in paragraph (d) of this section. With the

exception of alcohol and tobacco products, this procedure shall not be

allowed for merchandise which is in any way restricted (for example,

quota/visa).

(3) The requirement that a Customs Form 7512 be filed and the

information required in paragraph (d) of this section be shown shall

not be required if the merchandise qualifies under the exemption in

Sec. 144.34(c).

* * * * *

[[Page 15842]]

(f) Forwarding procedure. The merchandise shall be forwarded in

accordance with the general provisions for transportation in bond

(Secs. 18.1 through 18.8 of this chapter). However, when the alternate

procedures under Sec. 144.34(c) are employed, the merchandise need not

be delivered to a bonded carrier for transportation, and an entry for

transportation (Customs Form 7512) and a rewarehouse entry will not be

required.

(g) Procedure at destination. * * *

(5) * * *; or

(6) Deposited into the proprietor's bonded warehouse or duty free

store warehouse without rewarehouse entry as required in Sec. 144.41,

if the merchandise qualifies for the exemption specified in

Sec. 144.34(c).

* * * * *

4. Section 144.37 is amended by revising paragraph (h)(2)(v), and

by revising the fourth sentence and the last sentence in the concluding

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

Sec. 144.37 Withdrawal for exportation.

* * * * *

(h) * * *

(2) * * *

(v) The full name and address of the purchaser. However, the port

director may waive the address requirement for all merchandise except

for alcoholic beverages in quantities in excess of 4 liters and

cigarettes in quantities in excess of 3 cartons. Also, the address

requirement is not applicable with respect to purchasers at airport

duty-free enterprises; and

* * * * *

(3) Sales ticket register. * * *

* * * The sales ticket register shall be included in the permit file

folder with or in lieu of the blanket permit summary, as provided in

Sec. 19.6(d)(5) of this chapter. * * * In lieu of placing a copy of

sales tickets in each permit file folder, the warehouse proprietor may

keep all sales tickets in a readily retrievable manner in a separate

file.

5. Section 144.39 is amended by revising its first sentence to read

as follows:

Sec. 144.39 Permit to transfer and withdraw merchandise.

With the exception of merchandise transferred under the procedures

of Sec. 144.34(c), if all legal and regulatory requirements are met,

the appropriate Customs officer shall approve the application to

transfer or withdraw merchandise from a bonded warehouse by endorsing

the permit copy and returning it to the applicant. * * *

6. Section 144.41 is amended by revising paragraph (c) to read as

follows:

Sec. 144.41 Entry for rewarehouse.

* * * * *

(c) Combining separate shipments. (1) Separate shipments consigned

to the same consignee and received under separate withdrawals for

transportation may be combined into one rewarehouse entry if the

warehouse withdrawals are from the same original warehouse entry.

(2) Shipments covered by multiple warehouse entries, and shipped

from a single warehouse under separate withdrawals for transportation,

via a single conveyance, may be combined into one rewarehouse entry if

consigned to the same consignee and deposited into a single warehouse.

With the exception of alcohol and tobacco products, this procedure

shall not be allowed for merchandise which is in any way restricted

(for example, quota/visa). The combined rewarehouse entry shall have

attached either copies of each warehouse entry package which is being

combined into the single rewarehouse entry or a summary with pertinent

information, that is, the date of importation, commodity description,

size, HTSUS and entry numbers, for all entries withdrawn for

consolidation as one rewarehouse entry. Any combining of separate

withdrawals into one rewarehouse entry shall result in the rewarehouse

entry being assigned the import date of the oldest entry being combined

into the rewarehouse entry.

(3) Combining of separate shipments shall be prohibited in all

other circumstances.

* * * * *

Approved: March 5, 1997.

George J. Weise,

Commissioner of Customs.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

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

BILLING CODE 4820-02-P