Andean Trade Preference

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 10

RIN 1515-AB59

Andean Trade Preference

AGENCY: Customs Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend the Customs Regulations to

implement the duty preference provisions of the Andean Trade Preference

Act (the Act). The document sets forth the country of origin and

related rules which apply for purposes of duty-free or reduced-duty

treatment on imported goods under the Act and specifies the documentary

and other procedural requirements which apply to any claim for such

preferential tariff treatment under the Act.

DATES: Comments must be received on or before March 31, 1998.

ADDRESSES: Written comments (preferably in triplicate) may be addressed

to the Regulations Branch, Office of Regulations and Rulings, U.S.

Customs Service, 1300 Pennsylvania Avenue, NW., Washington, DC 20229.

Comments submitted may be inspected at the Regulations Branch, Office

of Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania

Avenue, NW., 3rd Floor, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Operational Aspects: Tony Mazzoccoli, Office of Field Operations (202-

927-0564).

Legal Aspects: Craig Walker, Office of Regulations and Rulings (202-

927-1116).

SUPPLEMENTARY INFORMATION:

Background

On December 4, 1991, President Bush signed into law the Andean

Trade Preference Act (Public Law 102-182, Title II, Secs. 201-206, 105

Stat. 1236-1244) (``the Act'', commonly referred to as the ATPA), the

provisions of which are codified at 19 U.S.C. 3201 through 3206.

Sections 202 and 204(c) of the Act (19 U.S.C. 3201 and 3203(c))

authorize the President to proclaim duty-free treatment for all

eligible articles, and duty reductions for certain other goods, from

any country designated by the President as a beneficiary country

pursuant to section 203 of the Act (19 U.S.C. 3202). On July 2, 1992,

President Bush signed Proclamation 6455 (57 FR 30069) which (1)

Proclaimed the duty treatment authorized by the Act, (2) designated

Colombia as a beneficiary country for purposes of the Act, and (3)

modified the Harmonized Tariff Schedule of the United States (HTSUS) to

incorporate the substance of the relevant provisions of the Act; under

the terms of the proclamation, the proclaimed duty treatment was

effective with respect to articles entered, or withdrawn from warehouse

for consumption, on or after July 22, 1992. On the same date President

Bush signed Proclamation 6456 (57 FR 30097) designating Bolivia as a

beneficiary country for purposes of the Act, similarly effective July

22, 1992. On April 13, 1993, President Clinton signed Proclamation 6544

(58 FR 19547) which, among other things, designated Ecuador as a

beneficiary country for purposes of the Act, effective April 30, 1993.

On August 11, 1993, President Clinton signed Proclamation 6585 (58 FR

43239) designating Peru as a beneficiary country for purposes of the

Act, effective August 26, 1993. The modifications to the HTSUS

contained in Proclamation 6455 setting forth the substance of the

relevant provisions of the Act are now contained in General Note 11,

HTSUS, and eligible articles and other goods to which preferential duty

treatment under the Act applies are identified within the HTSUS by the

designation ``J'' appearing with or without an asterisk in the

``Special'' rate of duty subcolumn.

Sections 204(a)-(c) of the Act (19 U.S.C. 3203(a)-(c)) set forth

the standards which govern the eligibility of articles for duty-free or

reduced-duty treatment under the Act. Section 204(a), which contains

the basic origin and related rules for purposes of duty-free treatment,

was based on section 213(a) of the Caribbean Basin Economic Recovery

Act, as amended (19 U.S.C. 2703(a)), which sets forth the origin and

related rules governing duty-free treatment under the Caribbean Basin

Initiative (CBI). Thus, in order to be eligible for duty-free treatment

under the Act, an article imported from a designated beneficiary

country must meet three basic requirements: (1) It must be imported

directly from a beneficiary country into the customs territory of the

United States; (2) it must have its origin in a beneficiary country,

that is, it either must be wholly the growth, product, or manufacture

of a beneficiary country or must be a new or different article of

commerce that has been grown, produced, or manufactured in a

beneficiary country; and (3) it must have a minimum domestic value

content, that is, at least 35 percent of its appraised value must be

attributed to the sum of the cost or value of materials produced in one

or more beneficiary countries plus the direct costs of processing

operations performed in one or more beneficiary countries. The

provisions of section 204(a) of the Act further parallel the provisions

of section 213(a) of the CBI statute in the following regards: (1)

Simple combining or packaging operations or mere dilution with water or

another substance does not confer beneficiary country origin on an

imported article or on a constituent material of an imported article;

(2) the term ``beneficiary country'' is defined as including the

Commonwealth of Puerto Rico and the U.S. Virgin Islands for purposes of

determining compliance with the 35 percent value content requirement;

(3) the cost or value of materials produced in the customs territory of

the United States (other than in Puerto Rico) may be counted toward the

35 percent value content requirement to a maximum of 15 percent of the

appraised value of the imported article; and (4) the expression

``direct costs of processing operations'' is defined in the same

manner. However, the origin and related rules of section 204(a) of the

Act differ from the corresponding provisions in section 213(a) of the

CBI statute in two principal respects: (1) Section 204(a) of the Act

specifically allows input attributable to one or more CBI beneficiary

countries for purposes of the 35 percent value content requirement (the

corresponding CBI statutory provision makes no mention of input

attributable to beneficiary countries under the Act); and (2) section

204(a) of the Act has no provision corresponding

[[Page 4602]]

to section 213(a)(4) of the CBI statute which was added to facilitate

the addition of value to an article in Puerto Rico and the granting of

duty-free treatment after final exportation of an article from a CBI

beneficiary country. Section 204(b) of the Act lists eight categories

of goods excluded from the duty-free treatment provided for in section

204(a), one of which refers to articles to which reduced rates of duty

apply under section 204(c) of the Act. Section 204(c) directs the

President to proclaim reductions in the rates of duty on handbags,

luggage, flat goods, work gloves and leather wearing apparel that: (1)

Are the product of any beneficiary country; and (2) were not designated

on August 5, 1983, as eligible articles for purposes of the Generalized

System of Preferences (GSP) under Title V of the Trade Act of 1974 (19

U.S.C. 2461-2466). These reduced duty rates, which were generally

implemented in equal annual stages over a 5-year period (commencing in

1992 and ending in 1996), appear in the HTSUS in the ``Special'' rate

of duty subcolumn followed by the symbol ``J'' within parentheses.

The U.S. Customs Service is responsible for the administration of

laws and regulations regarding the entry of merchandise into the United

States. Moreover, section 204(a)(2) of the Act specifically directs the

Secretary of the Treasury to promulgate such regulations as may be

necessary to carry out the duty-free treatment provisions of the Act.

Accordingly, this document proposes to amend the Customs Regulations to

implement the duty preference provisions of the Act.

In view of the similarity between the origin and related rules

under the Act and those under the CBI, the proposed regulations set

forth in this document are based in significant part on the CBI

regulations contained in Secs. 10.191-10.198 of the Customs Regulations

(19 CFR 10.191-10.198). However, some variations have been made from

the CBI approach, in some cases to reflect differences between the Act

and the CBI statute and in other cases to simplify or otherwise improve

on the layout of the CBI regulations. The proposed regulations are

discussed in detail below.

Discussion of Proposed Amendments

Section 10.201

This section sets forth a general statement regarding the purpose

of the regulations with reference to the Act and its implementation by

the President.

Section 10.202

This section sets forth definitions of terms or expressions of

general use throughout the regulatory texts.

Paragraph (a), which defines ``beneficiary country'', reflects both

the definition in section 203(a)(1) of the Act and the approach taken

in Sec. 10.191(b)(1) of the CBI regulations. The exception language in

the definition is directed to those entities that are treated as

beneficiary countries only for the limited purpose of the 35 percent

value content requirement (see the discussion of Sec. 10.206(b) below).

Thus, where the term ``beneficiary country'' appears in a regulatory

text without any modifier or qualification and the context does not

involve the 35 percent value content requirement, such term has

reference only to an ATPA beneficiary country as so designated by the

President.

The definition of ``eligible articles'' in paragraph (b) is similar

to the approach taken in Sec. 10.191(b)(2) of the CBI regulations. The

definition refers specifically to duty-free treatment, which is

authorized under section 204(a) of the Act, and thus does not apply to

reduced-duty treatment under section 204(c) of the Act (see Sec. 10.208

below). The list of articles excluded from the definition reflect the

terms of section 204(b) of the Act.

The definition of ``entered'' in paragraph (c) is taken from

section 203(a)(2) of the Act.

The definition of ``wholly the growth, product, or manufacture of a

beneficiary country'' in paragraph (d) simply refers to the definition

of the same expression set forth in Sec. 10.191(b)(3) of the CBI

regulations.

Section 10.203

This section makes a general reference to the requirements for

preferential duty treatment and with cross-references to the specific

sections which set forth those requirements in detail. Although

somewhat different from the approach taken in the CBI regulations,

Customs believes that this general statement/cross-reference approach

will facilitate the reader's overall understanding of the duty-free

aspects of the Act and the requirements thereunder.

This section refers only to duty-free treatment (which is provided

for under section 204(a) of the Act) and to those sections of the

regulations that deal with the requirements for such treatment. Thus,

this section and the other sections cited therein have no application

in the case of reduced-duty treatment which is provided for separately

under section 204(c) of the Act (see the discussion of Sec. 10.208

below).

Section 10.204

This section implements the ``imported directly'' requirement of

section 204(a)(1)(A) of the Act and is based on Sec. 10.193 of the CBI

regulations. As in the case of the CBI, reference is made to shipment

from ``any'' beneficiary country because, under the wording of the

statute (and as a means to facilitate cumulation of value among

multiple beneficiary countries--see Sec. 10.206 below), the article

merely must be imported directly from ``a'' beneficiary country and

thus does not have to be shipped from the beneficiary country where it

was produced.

Section 10.205

This section sets forth the basic country of origin rules which

apply to articles for purposes of duty-free treatment under section 204

of the Act.

The ``wholly the growth, product, or manufacture'' language in

paragraph (a)(1) and the ``new or different article of commerce which

has been grown, produced, or manufactured'' language in paragraph

(a)(2) reflect standards required by section 204(a)(2) of the Act to be

included in the implementing regulations.

Paragraph (b) implements the simple combining or packaging or mere

dilution exceptions to duty-free eligibility required to be in the

regulations by section 204(a)(2) of the Act. Since the language of the

Act in this regard is identical to language used in the CBI statute,

this paragraph follows Sec. 10.195(a)(1) of the CBI regulations by

including the words ``(as opposed to complex or meaningful)'' after the

word ``simple'', and the last sentence is intended to shorten the

regulatory text by incorporating by reference the provisions of the CBI

regulations which clarify the meaning and application of identical

statutory language. It should be noted that, as in the case of the CBI,

the simple combining or packaging or mere dilution language operates

only in the limited context of eligibility for duty-free treatment;

that language does not limit or otherwise affect a determination as to

whether a new or different article of commerce has been created in a

beneficiary country within the meaning of paragraph (a)(2) of this

section.

Section 10.206

This section implements the 35 percent value content requirement

contained in section 204(a)(1)(B) of the Act.

Paragraph (a) sets forth the basic requirement but refers simply to

``a beneficiary country or countries''

[[Page 4603]]

without specifically mentioning CBI beneficiary countries even though

such countries are specified in the statutory text with regard to both

the cost or value of materials and the direct costs of processing

operations (see the discussion of paragraph (b) below). As in the case

of the CBI, the statutory and regulatory texts permit unlimited

cumulation of value among ``beneficiary countries'' for purposes of

meeting the 35 percent value content requirement.

In paragraph (b), the first sentence defines ``beneficiary

country'' as including, for purposes of the 35 percent value content

requirement, (1) the Commonwealth of Puerto Rico and the U.S. Virgin

Islands and (2) any CBI beneficiary country. The reference to CBI

beneficiary countries in this regulatory context (rather than in

paragraph (a) of this section) is intended to simplify the regulatory

texts here and elsewhere and will have no substantive effect on the

proper interpretation and application of the statutory provisions. The

second sentence of this paragraph is based on the second sentence of

Sec. 10.195(b) of the CBI regulations and is intended to clarify a

basic legal limitation on the statutorially-permitted cumulation of

value attributable to entities that are not ``beneficiary countries''

as defined in section 203(a)(1) of the Act: except in the case of

Puerto Rico which is part of the customs territory of the United

States, if value is added to an article in any such entity (that is, in

the U.S. Virgin Islands or in a CBI beneficiary country) after final

exportation of the article from a beneficiary country designated as

such by the President under the Act and prior to importation into the

United States, such addition of value would disqualify the article from

duty-free treatment because the article would have entered the commerce

of the intermediate entity and thus could not be considered to be

``imported directly'' upon arrival in the customs territory of United

States within the meaning of section 204(a)(1)(A) of the Act and

Sec. 10.204 of the implementing regulations. While the same legal

limitation would not apply per se in the case of value added in Puerto

Rico or in the case of U.S.-produced materials added in the United

States (see paragraph (c) of this section), as a practical matter the

opportunities for such additions in a post-final-exportation context

and prior to entry for consumption are limited by the following

factors: (1) Bonded manufacturing warehouses cannot be used because

under 19 U.S.C. 1311 and Sec. 19.15 of the Customs Regulations (19 CFR

19.15) the article subjected to a manufacturing process in such a

warehouse may not be withdrawn for consumption but rather must be

exported; (2) while a storage and manipulation warehouse under 19

U.S.C. 1557 and 1562 and Part 144 of the Customs Regulations (19 CFR

Part 144) could be used, the benefit as regards added value would not

be significant in most cases because manufacturing processes are

precluded in such warehouses; (3) while foreign-trade zones established

and operated under 19 U.S.C. 81a-81u and Part 146 of the Customs

Regulations (19 CFR Part 146) could be used, such facilities involve

special procedures and limitations; and (4) while an article could be

imported under a temporary importation bond for processing (including

manufacture) under subheading 9813.00.05, HTSUS, and Sec. 10.31 of the

Customs Regulations (19 CFR 10.31), such an article ultimately would

have to be exported in accordance with the terms of the bond. It is

also noted in this regard that the Act contains no provision similar to

section 213(a)(4) of the CBI statute (19 U.S.C. 2703(a)(4)) which was

added in 1984 specifically for the purpose of facilitating the addition

of value through tail-end processing performed in bonded manufacturing

warehouses located in Puerto Rico.

Paragraph (c) reflects section 204(a)(1) as regards the inclusion

of U.S.-produced materials and is based on Sec. 10.195(c) of the CBI

regulations.

Paragraph (d) is based on Sec. 10.196 of the CBI regulations. The

following points are noted as regards this paragraph:

1. Subparagraph (1) corresponds to paragraph (a) of the CBI

regulation but with the following principal differences: (1) the simple

combining or packaging or mere dilution limitation (also applicable to

materials under section 204(a)(2) of the Act) has been included

directly, rather than as a cross-reference to the rule set forth in the

regulatory provision covering articles (Sec. 10.205(b)), for purposes

of clarity and in order to ensure that a clear distinction is made

between application of the rule for purposes of eligibility of an

article for duty-free treatment and application of the rule for

purposes of determining the origin of a material for purposes of the 35

percent value content requirement; and (2) to avoid unnecessary

repetition of regulatory text, the examples of Sec. 10.196(a), and the

principles and examples of Sec. 10.195(a)(2), of the CBI regulations

have been incorporated by reference since those CBI provisions are

equally applicable in the present context.

2. Subparagraph (2) is taken from Sec. 10.196(b) of the CBI

regulations.

3. Subparagraph (3) follows Sec. 10.196(c) of the CBI regulations

but also refers specifically to materials produced in the customs

territory of the United States.

Paragraph (e) implements section 204(a)(3) of the Act (which is

identical to section 213(a)(3) of the CBI statute (19 U.S.C.

2703(a)(3)) and follows the terms of Sec. 10.197 of the CBI

regulations.

Paragraph (f) is based on, and is used in the same context as,

Sec. 10.195(e) of the CBI regulations. Wherever origin terminology and

the term ``beneficiary country'' are used together with reference to an

article, the latter term is restricted so as to cover only a

beneficiary country designated under the Act by the President, in order

to reflect the fact that an article (as opposed to materials

incorporated in an article) must be a product of such a beneficiary

country and cannot be a product of a CBI beneficiary country.

Section 207

This section is intended to cover all procedural requirements,

including the submission of documentation required to support a claim

for duty-free treatment. The provisions of this section are based on

CBI regulatory provisions.

Paragraph (a), which concerns the procedure for filing a claim for

duty-free treatment, is based on Sec. 10.192 of the CBI regulations but

does not include the first sentence of the CBI provision which Customs

believes is redundant and thus unnecessary. The exception language at

the beginning of the paragraph is intended to reflect the fact that

this procedure does not apply in the case of an informal entry.

Paragraph (b) concerns the documentary evidence of country of

origin and of compliance with the 35 percent value content requirement

and, subject to changes to reflect the context of the Act, follows the

terms of Sec. 10.198(a) of the CBI regulations.

Paragraph (c) sets forth the procedures which apply in the case of

informal entries and is based on Sec. 10.198(b) of the CBI regulations.

Paragraph (d), which concerns evidence of direct importation, is

based on Sec. 10.194 of the CBI regulations. However, the last sentence

of paragraph (a) of the CBI provision has not been included because it

is covered by paragraph (e) of this section.

Paragraph (e), which concerns verification of submitted

documentation, is based on Sec. 10.198(c) of the CBI regulations but

refers to all documentation submitted under Sec. 10.207, that is,

evidence of country of

[[Page 4604]]

origin and of compliance with the 35 percent value content requirement

submitted under paragraph (b) and evidence of direct importation

submitted under paragraph (d).

Section 10.208

This section implements the duty-reduction provisions of section

204(c) of the Act. This section is set forth separately to reflect the

fact that the Act treats the duty-reduction provisions separately from

the duty-free provisions of section 204(a) and without any repetition

of, or cross-reference to, the legal requirements that apply for

purposes of duty-free treatment. Thus, paragraph (a) of this section

does not refer to direct importation, the 35 percent value content

requirement, or the simple combining or packaging or mere dilution

limitation because, under the terms of the Act, those legal standards

apply only for purposes of duty-free treatment under section 204(a),

and no ATPA Declaration is required under this section because the ATPA

Declaration is directed primarily to compliance with the 35 percent

value content requirement. However, because Customs believes that the

words ``product of'' as used in section 204(c)(1)(A) of the Act should

be interpreted as synonymous with the basic origin rule used for

Customs purposes, paragraph (a) of this section repeats the rule set

forth in Sec. 10.205(a) as discussed above. Paragraph (b), which sets

forth the normal procedure for filing a reduced-duty claim, and

paragraph (c), which covers verification of a reduced-duty claim, are

variations of Secs. 10.207(a) and (e) and are otherwise self-

explanatory.

Comments

Before adopting the proposed amendments as a final rule,

consideration will be given to any written comments (preferably in

triplicate) timely submitted to Customs. Comments submitted will be

available for public inspection in accordance with the Freedom of

Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Department

Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs Regulations (19

CFR 103.11(b)), on regular business days between the hours of 9 a.m.

and 4:30 p.m. at the Regulations Branch, Office of Regulations and

Rulings, U.S. Customs Service, 1300 Pennsylvania Anenue, N.W., 3rd

Floor, Washington, D.C.

Executive Order 12866

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

regulatory action'' as specified in Executive Order 12866.

Regulatory Flexibility Act

Pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that, if adopted, the proposed

amendments will not have a significant economic impact on a substantial

number of small entities. The amendments reflect statutory requirements

that are already in effect and follow existing regulatory provisions

that implement similar statutory programs. Accordingly, the proposed

amendments 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 notice of proposed

rulemaking has been submitted to the Office of Management and Budget

for review in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3507).

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless the collection of

information displays a valid control number.

The collection of information in these proposed regulations is in

Sec. 10.207. This information conforms to requirements in 19 U.S.C.

3203(a) and is used by Customs to determine whether goods imported from

designated beneficiary countries are entitled to duty-free entry under

that statutory provision. The likely respondents are business

organizations including importers, exporters, and manufacturers.

Estimated total annual reporting and/or recordkeeping burden: 5,000

hours.

Estimated average annual burden per respondent/recordkeeper: 2

minutes.

Estimated number of respondents and/or recordkeepers: 150,000.

Estimated annual number of responses: 150,000.

Comments on the collection of information should be sent to the

Office of Management and Budget, Attention: Desk Officer for the

Department of the Treasury, Office of Information and Regulatory

Affairs, Washington, D.C. 20503. A copy should also be sent to the

Regulations Branch, Office of Regulations and Rulings, U.S. Customs

Service, 1300 Pennsylvania Avenue, N.W., Washington, D.C. 20229.

Comments should be submitted within the time frame that comments are

due regarding the substance of the proposal.

Comments are invited on: (a) Whether the collection of information

is necessary for the proper performance of the functions of the agency,

including whether the information shall have practical utility; (b) the

accuracy of the agency's estimate of the burden of the collection of

information; (c) ways to enhance the quality, utility, and clarity of

the information to be collected; (d) ways to minimize the burden of the

collection of information on respondents, including through the use of

automated collection techniques or other forms of information

technology; and (e) estimates of capital or startup costs and costs of

operations, maintenance, and purchase of services to provide

information.

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 in 19 CFR Part 10

Andean trade preference, Customs duties and inspection, Entry

procedures, Exports, Imports, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

For the reasons set forth above, it is proposed to amend Part 10,

Customs Regulations (19 CFR Part 10), as set forth below.

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

ETC.

1. The general authority citation for Part 10 continues to read,

and a specific authority citation for Secs. 10.201 through 10.207 is

added to read, as follows:

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

Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508,

1623, 1624, 3314;

* * * * *

Sec. 10.201 through 10.207 also issued under 19 U.S.C. 3203.

2. Part 10 is amended by adding a new center heading followed by

new sections 10.201 through 10.208 to read as follows:

Andean Trade Preference

10.201 Applicability.

10.202 Definitions.

10.203 Eligibility criteria in general.

10.204 Imported directly.

10.205 Country of origin criteria.

10.206 Value content requirement.

10.207 Procedures for filing duty-free treatment claim and

submitting supporting documentation.

10.208 Duty reductions for certain products.

Andean Trade Preference

Sec. 10.201 Applicability.

Title II of Public Law 102-182 (105 Stat. 1233), entitled the

Andean Trade

[[Page 4605]]

Preference Act (ATPA) and codified at 19 U.S.C. 3201-3206, authorizes

the President to proclaim duty-free treatment for all eligible articles

from any beneficiary country, to designate countries as beneficiary

countries, and to proclaim duty reductions for certain goods not

eligible for duty-free treatment. The provisions of Secs. 10.202

through 10.208 of this part set forth the legal requirements and

procedures that apply for purposes of obtaining such duty-free or

reduced-duty treatment for articles from a beneficiary country which

are identified for purposes of such treatment in General Note 11,

Harmonized Tariff Schedule of the United States (HTSUS), and in the

``Special'' rate of duty column of the HTSUS.

Sec. 10.202 Definitions.

The following definitions apply for purposes of Secs. 10.201

through 10.208:

(a) Beneficiary country. Except as otherwise provided in

Sec. 10.206(b), the term ``beneficiary country'' refers to any country

or successor political entity with respect to which there is in effect

a proclamation by the President designating such country or successor

political entity as a beneficiary country in accordance with section

203 of the ATPA (19 U.S.C. 3202).

(b) Eligible articles. The term ``eligible'' when used with

reference to an article means any merchandise which is imported

directly from a beneficiary country as provided in Sec. 10.204, which

meets the country of origin criteria set forth in Sec. 10.205 and the

value-content requirement set forth in Sec. 10.206, and which, if the

requirements of Sec. 10.207 are met, is therefore entitled to duty-free

treatment under the ATPA. The following merchandise shall not be

considered eligible articles entitled to duty-free treatment under the

ATPA:

(1) Textile and apparel articles which are subject to textile

agreements;

(2) Footwear not designated on December 4, 1991, as eligible for

the purpose of the Generalized System of Preferences under Title V,

Trade Act of 1974, as amended (19 U.S.C. 2461-2466);

(3) Tuna, prepared or preserved in any manner, in airtight

containers;

(4) Petroleum, or any product derived from petroleum, provided for

in headings 2709 and 2710, Harmonized Tariff Schedule of the United

States (HTSUS);

(5) Watches and watch parts (including cases, bracelets, and

straps), of whatever type including, but not limited to, mechanical,

quartz digital or quartz analog, if such watches or watch parts contain

any material which is the product of any country with respect to which

HTSUS column 2 rates of duty apply;

(6) Sugars, syrups, and molasses classified in subheadings

1701.11.03, 1701.12.02, 1701.99.02, 1702.90.32, 1806.10.42, and

2106.90.12, HTSUS;

(7) Rum and tafia classified in subheading 2208.40.00, HTSUS; or

(8) Articles to which reduced rates of duty apply under section

204(c) of the ATPA (19 U.S.C. 3203(c)) (see Sec. 10.208).

(c) Entered. The term ``entered'' means entered, or withdrawn from

warehouse for consumption, in the customs territory of the United

States.

(d) Wholly the growth, product, or manufacture of a beneficiary

country. The expression ``wholly the growth, product, or manufacture of

a beneficiary country'' has the same meaning as that set forth in

Sec. 10.191(b)(3) of this part.

Sec. 10.203 Eligibility criteria in general.

An article classifiable under a subheading of the Harmonized Tariff

Schedule of the United States for which a rate of duty of ``Free''

appears in the ``Special'' subcolumn followed by the symbol ``J'' or

``J*'' in parentheses is eligible for duty-free treatment, and will be

accorded such treatment, if each of the following requirements is met:

(a) Imported directly. The article is imported directly from a

beneficiary country as provided in Sec. 10.204.

(b) Country of origin criteria. The article complies with the

country of origin criteria set forth in Sec. 10.205.

(c) Value content requirement. The article complies with the value

content requirement set forth in Sec. 10.206.

(d) Filing of claim and submission of supporting documentation. The

claim for duty-free treatment is filed, and any required documentation

in support of the claim is submitted, in accordance with the procedures

set forth in Sec. 10.207.

Sec. 10.204 Imported directly.

In order to be eligible for duty-free treatment under the ATPA, an

article shall be imported directly from a beneficiary country into the

customs territory of the United States. For purposes of this

requirement, the words ``imported directly'' mean:

(a) Direct shipment from any beneficiary country to the United

States without passing through the territory of any non-beneficiary

country; or

(b) If shipment from any beneficiary country to the United States

was through the territory of a non-beneficiary country, the articles in

the shipment did not enter into the commerce of the non-beneficiary

country while en route to the United States, and the invoices, bills of

lading, and other shipping documents show the United States as the

final destination; or

(c) If shipment from any beneficiary country to the United States

was through the territory of a non-beneficiary country and the invoices

and other documents do not show the United States as the final

destination, then the articles in the shipment, upon arrival in the

United States, are imported directly only if they:

(1) Remained under the control of the customs authority in the

intermediate country;

(2) Did not enter into the commerce of the intermediate country

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

are imported into the United States as a result of the original

commercial transaction between the importer and the producer or the

latter's sales agent; and

(3) Were not subjected to operations in the intermediate country

other than loading and unloading, and other activities necessary to

preserve the articles in good condition.

Sec. 10.205 Country of origin criteria.

(a) General. Except as otherwise provided in paragraph (b) of this

section, an article may be eligible for duty-free treatment under the

ATPA if the article is either:

(1) Wholly the growth, product, or manufacture of a beneficiary

country; or

(2) A new or different article of commerce which has been grown,

produced, or manufactured in a beneficiary country.

(b) Exceptions. No article shall be eligible for duty-free

treatment under the ATPA by virtue of having merely undergone simple

(as opposed to complex or meaningful) combining or packaging

operations, or mere dilution with water or mere dilution with another

substance that does not materially alter the characteristics of the

article. The principles and examples set forth in Sec. 10.195(a)(2) of

this part shall apply equally for purposes of this paragraph.

Sec. 10.206 Value content requirement.

(a) General. An article may be eligible for duty-free treatment

under the ATPA only if the sum of the cost or value of the materials

produced in a beneficiary country or countries, plus the direct costs

of processing operations performed in a beneficiary country or

countries, is not less than 35 percent of the appraised value of the

article at the time it is entered.

(b) Commonwealth of Puerto Rico, U.S. Virgin Islands and CBI

beneficiary

[[Page 4606]]

countries. For purposes of determining the percentage referred to in

paragraph (a) of this section, the term ``beneficiary country''

includes the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and

any CBI beneficiary country as defined in Sec. 10.191(b)(1) of this

part. Any cost or value of materials or direct costs of processing

operations attributable to the Virgin Islands or any CBI beneficiary

country must be included in the article prior to its final exportation

to the United States from a beneficiary country as defined in

Sec. 10.202(a).

(c) Materials produced in the United States. For purposes of

determining the percentage referred to in paragraph (a) of this

section, an amount not to exceed 15 percent of the appraised value of

the article at the time it is entered may be attributed to the cost or

value of materials produced in the customs territory of the United

States (other than the Commonwealth of Puerto Rico). The principles set

forth in paragraph (d)(1) of this section shall apply in determining

whether a material is ``produced in the customs territory of the United

States'' for purposes of this paragraph.

(d) Cost or value of materials. (1) ``Materials produced in a

beneficiary country or countries'' defined. For purposes of paragraph

(a) of this section, the words ``materials produced in a beneficiary

country or countries'' refer to those materials incorporated in an

article which are either:

(i) Wholly the growth, product, or manufacture of a beneficiary

country or two or more beneficiary countries; or

(ii) Substantially transformed in any beneficiary country or two or

more beneficiary countries into a new or different article of commerce

which is then used in any beneficiary country as defined in

Sec. 10.202(a) in the production or manufacture of a new or different

article which is imported directly into the United States. For purposes

of this paragraph (d)(1)(ii), no material shall be considered to be

substantially transformed into a new or different article of commerce

by virtue of having merely undergone simple (as opposed to complex or

meaningful) combining or packaging operations, or mere dilution with

water or mere dilution with another substance that does not materially

alter the characteristics of the article. The examples set forth in

Sec. 10.196(a) of this part, and the principles and examples set forth

in Sec. 10.195(a)(2) of this part, shall apply for purposes of the

corresponding context under paragraph (d)(1) of this section.

(2) Questionable origin. When the origin of a material either is

not ascertainable or is not satisfactorily demonstrated to the

appropriate port director, the material shall not be considered to have

been grown, produced, or manufactured in a beneficiary country or in

the customs territory of the United States.

(3) Determination of cost or value of materials. (i) The cost or

value of materials produced in a beneficiary country or countries or in

the customs territory of the United States includes:

(A) The manufacturer's actual cost for the materials;

(B) When not included in the manufacturer's actual cost for the

materials, the freight, insurance, packing, and all other costs

incurred in transporting the materials to the manufacturer's plant;

(C) The actual cost of waste or spoilage, less the value of

recoverable scrap; and

(D) Taxes and/or duties imposed on the materials by any beneficiary

country or by the United States, provided they are not remitted upon

exportation.

(ii) Where a material is provided to the manufacturer without

charge, or at less than fair market value, its cost or value shall be

determined by computing the sum of:

(A) All expenses incurred in the growth, production, or manufacture

of the material, including general expenses;

(B) An amount for profit; and

(C) Freight, insurance, packing, and all other costs incurred in

transporting the material to the manufacturer's plant.

(iii) If the pertinent information needed to compute the cost or

value of a material is not available, the appraising officer may

ascertain or estimate the value thereof using all reasonable ways and

means at his disposal.

(e) Direct costs of processing operations. (1) Items included. For

purposes of paragraph (a) of this section, the words ``direct costs of

processing operations'' mean those costs either directly incurred in,

or which can be reasonably allocated to, the growth, production,

manufacture, or assembly of the specific merchandise under

consideration. Such costs include, but are not limited to the

following, to the extent that they are includable in the appraised

value of the imported merchandise:

(i) All actual labor costs involved in the growth, production,

manufacture, or assembly of the specific merchandise, including fringe

benefits, on-the-job training, and the cost of engineering,

supervisory, quality control, and similar personnel;

(ii) Dies, molds, tooling, and depreciation on machinery and

equipment which are allocable to the specific merchandise;

(iii) Research, development, design, engineering, and blueprint

costs insofar as they are allocable to the specific merchandise; and

(iv) Costs of inspecting and testing the specific merchandise.

(2) Items not included. For purposes of paragraph (a) of this

section, the words ``direct costs of processing operations'' do not

include items which are not directly attributable to the merchandise

under consideration or are not costs of manufacturing the product.

These include, but are not limited to:

(i) Profit; and

(ii) General expenses of doing business which either are not

allocable to the specific merchandise or are not related to the growth,

production, manufacture, or assembly of the merchandise, such as

administrative salaries, casualty and liability insurance, advertising,

and salesmen's salaries, commissions, or expenses.

(f) Articles wholly the growth, product, or manufacture of a

beneficiary country. Any article which is wholly the growth, product,

or manufacture of a beneficiary country as defined in Sec. 10.202(a),

and any article produced or manufactured in a beneficiary country as

defined in Sec. 10.202(a) exclusively from materials which are wholly

the growth, product, or manufacture of a beneficiary country or

countries, shall normally be presumed to meet the requirement set forth

in paragraph (a) of this section.

Sec. 10.207 Procedures for filing duty-free treatment claim and

submitting supporting documentation.

(a) Filing claim for duty-free treatment. Except as provided in

paragraph (c) of this section, a claim for duty-free treatment under

the ATPA may be made at the time of filing the entry summary by placing

the symbol ``J'' as a prefix to the Harmonized Tariff Schedule of the

United States subheading number applicable to each article for which

duty-free treatment is claimed on that document.

(b) Shipments covered by a formal entry. (1) Articles not wholly

the growth, product, or manufacture of a beneficiary country. (i)

Declaration. In a case involving an article covered by a formal entry

for which duty-free treatment is claimed under the ATPA and which is

not wholly the growth, product, or manufacture of a single beneficiary

country as defined in Sec. 10.202(a), the exporter or other appropriate

party having knowledge of the relevant facts

[[Page 4607]]

in the beneficiary country as defined in Sec. 10.202(a) where the

article was produced or last processed shall be prepared to submit

directly to the port director, upon request, a declaration setting

forth all pertinent detailed information concerning the production or

manufacture of the article. When requested by the port director, the

declaration shall be prepared in substantially the following form:

ATPA DECLARATION

I, __________________ (name), hereby declare that the articles

described below (a) were produced or manufactured in ______________

(country) by means of processing operations performed in that

country as set forth below and were also subjected to processing

operations in the other beneficiary country or countries (including

the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and any

CBI beneficiary country) as set forth below and (b) incorporate

materials produced in the country named above or in any other

beneficiary country or countries (including the Commonwealth of

Puerto Rico, the U.S. Virgin Islands, and any CBI beneficiary

country) or in the customs territory of the United States (other

than the Commonwealth of Puerto Rico) as set forth below:

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

Processing operations performed on Material produced in a beneficiary

articles country or in the U.S.

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

Description of Description of

Number and date articles and Description of material,

of invoices quantity processing Direct costs of production Cost or value of

operations and processing process, and material

country of operations country of

processing production

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

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

Date-------------------------------------------------------------------

Address----------------------------------------------------------------

Signature--------------------------------------------------------------

Title------------------------------------------------------------------

(ii) Retention of records and submission of declaration. The

information necessary for the preparation of the declaration shall be

retained in the files of the party responsible for its preparation and

submission for a period of 5 years. In the event that the port director

requests submission of the declaration during the 5-year period, it

shall be submitted by the appropriate party directly to the port

director within 60 days of the date of the request or such additional

period as the port director may allow for good cause shown. Failure to

submit the declaration in a timely fashion will result in a denial of

duty-free treatment.

(iii) Value added after final exportation. In a case in which value

is added to an article in the Commonwealth of Puerto Rico or in the

United States after final exportation of the article from a beneficiary

country as defined in Sec. 10.202(a), in order to ensure compliance

with the value requirement under Sec. 10.206(a), the declaration

provided for in paragraph (b)(1)(i) of this section shall be filed by

the importer or consignee with the entry summary. The declaration shall

be completed by the party responsible for the addition of such value.

(2) Articles wholly the growth, product, or manufacture of a

beneficiary country. In a case involving an article covered by a formal

entry for which duty-free treatment is claimed under the ATPA and which

is wholly the growth, product, or manufacture of a single beneficiary

country as defined in Sec. 10.202(a), a statement to that effect shall

be included on the commercial invoice provided to Customs.

(c) Shipments covered by an informal entry. The normal procedure

for filing a claim for duty-free treatment as set forth in paragraph

(a) of this section need not be followed, and the filing of the

declaration provided for in paragraph (b)(1)(i) of this section will

not be required, in a case involving a shipment covered by an informal

entry. However, the port director may require submission of such other

evidence of entitlement to duty-free treatment as deemed necessary.

(d) Evidence of direct importation. (1) Submission. 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 articles were ``imported directly'', as that term is

defined in Sec. 10.204.

(2) Waiver. The port director may waive the submission of evidence

of direct importation when otherwise satisfied, taking into

consideration the kind and value of the merchandise, that the

merchandise was, in fact, imported directly and that it otherwise

clearly qualifies for duty-free treatment under the ATPA.

(e) Verification of documentation. The documentation submitted

under this section to demonstrate compliance with the requirements for

duty-free treatment under the ATPA shall be subject to such

verification as the port director deems necessary. In the event that

the port director is prevented from obtaining the necessary

verification, the port director may treat the entry as fully dutiable.

Sec. 10.208 Duty reductions for certain products.

(a) General. Handbags, luggage, flat goods, work gloves, and

leather wearing apparel that were not designated on August 5, 1983, as

eligible articles for purposes of the Generalized System of Preferences

under Title V, Trade Act of 1974, as amended (19 U.S.C. 2461-2466), are

not eligible for duty-free treatment under the ATPA. However, any such

article from a beneficiary country may be subject to a reduced rate of

duty set forth in the Harmonized Tariff Schedule of the United States

in the applicable ``Special'' subcolumn followed by the symbol ``J'' in

parenthesis, provided the article is a product of any beneficiary

country. For purposes of this section, an article is a ``product of'' a

beneficiary country if the article is either:

(1) Wholly the growth, product, or manufacture of a beneficiary

country; or

(2) A new or different article of commerce which has been grown,

produced, or manufactured in a beneficiary country.

(b) Filing reduced-duty claim. A claim for reduced-duty treatment

under the ATPA may be made at the time of filing the entry summary or

other entry document by placing thereon the symbol ``J'' as a prefix to

the Harmonized Tariff Schedule of the United States subheading number

applicable to each article for which reduced-duty treatment is claimed

and

[[Page 4608]]

by placing thereon the reduced duty rate applicable to each such

article.

(c) Verification of reduced-duty claim. Any claim for reduced-duty

treatment under this section shall be subject to such verification as

the port director deems necessary. In the event that the port director

is prevented from obtaining the necessary verification, the port

director may treat the entry as dutiable at the applicable non-ATPA

rate.

Samuel H. Banks,

Acting Commissioner of Customs.

Approved: December 24, 1997.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 98-2249 Filed 1-29-98; 8:45 am]

BILLING CODE 4820-02-P