CERTIFIED EXPORT SPECIALIST (CES) · 2015-07-06 · CES Case Study #002 NCBFAA Educational...

CERTIFIED EXPORT SPECIALIST (CES)

Case Study #002

CES Case Study #002 NCBFAA Educational Institute of 12

Bonded Warehouses and Foreign Trade Zones Study Material

A CBP-bonded warehouse is a building, or other secured area, where dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. Authority for establishing bonded storage warehouses is set forth in Title 19, United States Code (USC), Section 1555. Bonded manufacturing, smelting and refining warehouses are established under Title 19, USC, section 1311 and 1312. Eleven different types or classes of CBP-bonded warehouses are authorized under 19 CFR 19.1. Information is also available in the Customs Bonded Warehouse Manual for CBP officers and Bonded Warehouse Proprietors HB 3500-11. Foreign Trade Zones (FTZ) offer users significant advantages, including the ability to store, with CBP approval, certain goods subject to quota or other restrictions, and to defer payment of duties and some taxes until merchandise is withdrawn and entered into the commerce of the United States. One primary advantage for an importer to operate within a Foreign Trade Zone is the choice of paying duties at the rate applicable to the foreign material in its condition as admitted into a zone, or, if used in manufacturing or processing, at the rate applicable to the finished product. Regulations for Foreign Trade Zones is authorized under 19 CFR 146 and in the Foreign-Trade Zones Manual Publication #: 0000-0559A 2011. Lesson 1: Bonded Warehouses Bonded warehouses are government-approved warehouses or other secured areas where goods can be stored prior to entry or export for a maximum period of five (5) years from date of importation. Goods admitted to a bonded warehouse have not been released from Customs custody. Goods may be stored, manipulated, or undergo manufacturing operations without payment of duty while in the bonded warehouse, subject to certain provisions. Goods may be warehoused or re-warehoused (at a different port or the same port under certain conditions). There is no limit to the number of times the same merchandise may be entered or re-warehoused so long as the re-warehouse entry is made within five years from the date of importation of the merchandise. After the five year date the merchandise is regarded as abandoned and sold by the government. The 11 types, or classes, of bonded warehouses are: Class 1: Premises that may be owned or leased by the Government, and used for the storage of merchandise undergoing examination by CBP, under seizure, or pending final release from Customs custody. Now mostly used for seized merchandise pending final disposition according to law. These bonded warehouses may not be used for the storage of bonded merchandise


except at ports where there is no Class 3 bonded warehouse in operation. Merchandise will be stored in such premises only at CBP’s direction and will be held under “general order”. (See Class 11.) Class 2: Importers' private bonded warehouses used exclusively for storage of merchandise belonging or consigned to the proprietor. A warehouse of class 4 or 5 may be bonded exclusively for the storage of goods imported by the proprietor thereof, in which case it shall be known as a private bonded warehouse. Class 3: Public bonded warehouses used exclusively for the storage of imported merchandise subject to IRS tax. Class 4: Bonded yards or sheds for storage of heavy and bulky imported merchandise; stables, feeding pens, corrals, or other similar buildings or limited enclosures for storage of imported animals; and tanks for storage of imported liquid merchandise in bulk. If the port director deems necessary, the yards shall be enclosed by substantial fences with entrances and exit gates capable of being secured by the proprietor's locks. Inlets and outlets to tanks shall be secured by means of seals or locks. Class 5: Bonded bins or parts of buildings or of elevators used for grain storage. The bonded portions shall be effectively separated from the rest of the building. Currently there are no Class 5 bonded warehouses in the United States. Class 6: Warehouses for the manufacture in bond, solely for exportation, of articles made in whole or in part of imported materials or of materials subject to internal-revenue tax; and for the manufacture for U.S. consumption or exportation of cigars in whole of tobacco imported from one country. Currently there are no Class 6 warehouses for the manufacture of cigars in the United States. Class 7: Warehouses bonded for smelting and refining imported metal-bearing materials for exportation or domestic consumption. Class 8: Bonded warehouses established for the purpose of cleaning, sorting, repacking, or otherwise changing in condition, but not manufacturing, imported merchandise, under Customs supervision and at the expense of the proprietor. Class 9: “Duty-free stores”, used for selling, for use outside the Customs territory, conditionally duty-free merchandise owned or sold by the proprietor and delivered from the Class 9 warehouse to an airport or other exit point for exportation by, or on behalf of, individuals departing from the Customs territory for destinations other than foreign trade zones.


Distribution warehouses used exclusively to provide individual duty-free sales locations and storage cribs with conditionally duty-free merchandise are also Class 9 warehouses. Class 10: Bonded warehouses for international travel merchandise, goods sold conditionally duty-free aboard aircraft and not at a duty-free store. Class 11: Bonded warehouse known as “General Order warehouse”. An entry of some type must be filed for all imported merchandise within fifteen (15) calendar days. After that, goods must be moved to a General Order (G.O.) warehouse. Goods may remain in General Order for six months from the date of import. If, after six months, the goods have not been documented and duties/fees paid, they will be sold at auction, donated to charity, or retained by the Government. Class 11 warehouses are for the storage and disposition exclusively of general order merchandise as described in 19 CFR 127.1. Most goods sold at auction must be exported. A bonded warehouse may be designated as more than one class, e.g. Class 1, 2, 3, 4, 5, 6, or 7 bonded warehouses may be designated as a Class 8 bonded warehouse, at the discretion of the port director, whenever exigencies of CBP so require. A CF 3499, Application to Manipulate, Examine, Sample or Transfer Goods, must be filed with the port director before cargo can be manipulated while in Customs custody in a bonded warehouse. If the port director is satisfied that the merchandise is to be so manipulated as per the application, he/she will authorize the manipulation by signing the CF 3499, making any necessary modification in such form. The port director may approve a blanket application to manipulate on CF 3499, for a period of up to one year, for a continuous or a repetitive manipulation. The warehouse proprietor must maintain a running record of manipulations performed under a blanket application, indicating the quantities before and after each manipulation. The record must show what took place at each manipulation describing marks and numbers of packages, location within the facility, quantities, and description of goods before and after manipulation. The port director may revoke blanket approval to manipulate and require the proprietor to file individual applications, if necessary, to protect the revenue, administer any law or regulation, or both. An owner or lessee wanting to establish a bonded warehouse facility must submit a letter to the director of the CBP port nearest to the warehouse location. The applicant must describe the premises, giving its location, and stating the class of warehouse desired. If the application is approved, bonds for each class of warehouse will be executed on CBP Form 301. Liability incurred by this bond remains active unless the goods entered into a bonded warehouse have been:

• Exported or deemed exported;


• Withdrawn for supplies to a vessel or aircraft international traffic; • Destroyed under Customs supervision; or • Withdrawn for consumption within the U.S. after payment of duty.

If CBP determines the bonded warehouse is substantially altered or rebuilt, the port director may request the proprietor to furnish a new bond. Failure to do so within 10 days will disqualify the warehouse from receiving additional goods, and cause the proprietor of the warehouse to have to remove the existing goods at their own expense. Lesson 2: Container Freight Stations (CFS) A container station may be established at any port or portion of a port, or any other area under the jurisdiction of a CBP port director upon the filing of an application and approval of the port director and the posting of a bond on Customs form 301. Alterations to or relocation of a container station may be made with the permission of the port director with a fee paid. Containerized cargo may be moved from the place of unlading to a designated container station, or may be received directly at the container station from a bonded carrier after transportation in-bond, before the filing of an entry of merchandise therefor or the permitting thereof for the purposes of breaking bulk and redelivery of the cargo. In either circumstance, excess loose cargo, as part of the containerized cargo may accompany the container to the container station. Except when the container station operator is moving the merchandise to his own station by his own vehicle, the merchandise may only be transferred to a container station by a bonded cartman or bonded carrier. Merchandise not entered within the lay order period shall be placed in general order. The importing carrier shall issue carrier’s certifications for individual shipments in a container. Entries covering merchandise transferred to a container station shall clearly show that the merchandise is at the container station. Lesson 3: Centralized Examination Stations (CES) A centralized examination station (CES) is a privately operated facility, at which merchandise is made available to Customs officers for physical examination. A CES may be established in any port or any portion of a port, or any other area under the jurisdiction of a port director. To present outbound cargo for inspection at a CES at a port other than the shipment’s designated port of exit, either proof of the shipper’s consent to the inspection must be furnished or a


complete set of transportation documents must accompany the shipment to evidence that exportation of the goods is imminent and that the goods are committed to export, thereby, making them subject to Customs Examination.

When a port director makes a preliminary determination that a new CES should be established, or when the term of an existing CES is about to expire and the port director believes that the need for a CES still exists, he will announce, that applications to operate a CES are being accepted. This notice will include the general criteria together with any local criteria that applicants must meet and will invite the public to submit any relevant written comments on whether a new CES should be established or on whether there is still a need for a CES. Applications must be received within 60 calendar days from the date of the notice. Public comments must be received within 30 calendar days from the date of the notice.

Responsibilities of a CES operator: To maintain the facility and assess fees as outlined in approved application, provide adequate personnel and equipment for the opening, presentation for inspection and closing of all types of cargo designated for examination by CBP on a “first come, first serviced” basis. Operator is to assume responsibilities for any charges or expenses incurred in connection with operation of the CES including adequate liability insurance and to maintain a CBP custodial bond in an amount set by the port director. Have all records available for CBP examination for a period of not less than five years from the date of the transaction or examination conducted. Keep current a listing of all employees and submit their fingerprints if requested by CBP. The operator must provide office space, parking spaces, sanitary facilities, and potable water for CBP personnel. Transportation of the merchandise to the CES is optional. Lesson 4: Foreign Trade Zone Management and Features The U.S. Foreign-Trade Zones (FTZ) program was created by the Foreign-Trade Zones Act of 1934. The Foreign-Trade Zones Act was created to "expedite and encourage foreign commerce" in the United States and did so by designating geographical areas, called Foreign Trade Zones, in or adjacent to CBP Ports of Entry. In a zone, commercial merchandise receives the same CBP treatment it would if it were outside the commerce of the United States. However, merchandise of every description may be held in a Zone without being subject to duties and other ad valorem taxes. This tariff and tax relief is designed to lower the costs of U.S.-based operations engaged in international trade, and thereby create and retain employment and capital investment opportunities resulting from those operations. A foreign trade zone is considered outside the customs territory of the United States for purposes of payment of duty. However, almost all other federal laws (public health, immigration, labor, welfare, and income tax) apply within an FTZ. State laws apply within an FTZ unless specifically preempted by the Constitution or by Federal legislation.


Goods are admitted into a zone after application has been made to CBP on CF 214. Either a bonded carrier must be used or the Operator may move the goods under their own bond. http://www.cbp.gov/sites/default/files/documents/CBP%20Form%20214.pdf Application for admission may only be made by the person with “right to make entry” (See 19 CFR 141.11 and 141.12), generally the owner of the merchandise. However, a customs broker or FTZ operator may prepare and file application on behalf of the person with right to make entry if the customs broker or FTZ operator has on file a proper power of attorney.

CBP may examine merchandise to be admitted to the FTZ to:

• Determine if the goods are admissible to the zone. • Determine the true liability of the zone operator for merchandise received in a zone

under the operator’s bond. • Reduce the need for further examination of the merchandise if it is later transferred to

Customs territory in the same condition for consumption into a warehouse. • Ensure full compliance with all applicable laws and regulations.

Goods also may be admitted to an FTZ under direct delivery procedures, or electronic E214. Direct delivery is a privilege that allows delivery of goods into a zone without prior CBP application and approval. The operator, after having met certain requirements, shall file a written application for direct delivery privilege with the port director. The application must describe the types of goods to be stored and processed and the kinds of operations goods may undergo in the FTZ. This authority is found in 19 CFR 146.39.

Criteria for direct delivery approval is:

• Goods are not restricted to a type which requires CBP examination or documentation review before or upon arrival at the FTZ, quota/visa goods for example;

• Goods to be admitted to the FTZ, and the operations to be conducted in the FTZ, are known well in advance, are predictable and stable over the long term, and are relatively fixed in variety by the nature of the business conducted at the site; and

• The operator is the owner or purchaser of the goods. Imported and domestic goods may be admitted into FTZs for operations such as storage, exhibition, manipulation, destruction, assembly, distribution, manufacture and processing, without being subject to formal CBP entry procedures and payment of duties until the imported merchandise is entered (using normal CBP entry procedures) into the customs territory of the U.S. for consumption. When merchandise from an FTZ is entered into the commerce of the

http://www.cbp.gov/sites/default/files/documents/CBP%20Form%20214.pdf


United States, entry must be made by the person with the right to make entry, their customs broker, or the FTZ operator if a proper power of attorney is on file. A subzone is a special purpose FTZ established for a limited purpose that cannot be accommodated within an existing FTZ, usually due to geographic restrictions. Subzones are normally located in the zone users’ private facility (e.g., oil refineries, automobile manufacturers). Subzones, first introduced in 1952, are created when the Foreign Trade Zones Board determines that the required operations in an FTZ cannot be served within the existing FTZ and that the creation of a Subzone is in the public interest. The Foreign-Trade Zones Board (FTZB) is comprised of the Secretary of Commerce, who is chairman and executive officer and the Secretary of the Treasury, or their designated alternates. The Port Director is the local representative of the FTZ Board. The Board is responsible for the establishment, maintenance, and administration of foreign trade zones under the FTZ Act including:

1) Prescribing rules and regulations concerning zones; 2) Issuing grants of authority for zones and subzones, and approving modifications to the

original zone project; 3) Approving manufacturing and processing activity in zones and subzones as described in

subpart D of 15 CFR 400; 4) Making determinations on matters requiring Board decisions under 15 CFR 400; 5) Deciding appeals in regard to certain decisions of the Commerce Department's Assistant

Secretary for Import Administration or the Executive Secretary; 6) Inspecting the premises, operations and accounts of zone grantees and zone operators; 7) Requiring zone grantees to report on zone operations; 8) Reporting annually to the Congress on zone operations; 9) Restricting or prohibiting zone operations; 10) Imposing fines for violations of the Foreign Trade Zones Act; 11) Revoking grants of authority for cause; and 12) Determining, as appropriate, whether zone activity is or would be in the public interest

or detrimental to the public interest. A “grantee” is a public or private corporation to which consent has been given to establish, operate, or maintain an FTZ project. “The principal responsibilities of the grantee are to:

1) Provide and maintain facilities in connection with a zone according to the provisions of 19 USC 81l;

2) Operate each zone as a public utility, with fair and reasonable rates for all services or privileges within the zone;


3) Make annual reports to the Board containing such information as the Board may; require as well as at such other times as it may prescribe (19 USC 81p (b) and 15 CFR 400.46(d));

4) Maintain books, records, and accounts in accordance with the provisions of 15 CFR 400.46(a) & (b);

5) Apply to the Board for a grant of authority to establish a sub-zone or to expand or otherwise modify its zone project (15 CFR 400.22(d), 400.26(a)(1));

6) Permit the erection of buildings necessary to carry out the approved zone project in accordance with 19 USC 81m and 15 CFR 400.28(a)(6);

7) Operate, maintain, and administer the zone project under the Foreign Trade Zones Act (FTZA);

8) Make written application to the port director for approval of a new zone operator, pursuant to 19 CFR 146.7(e), & (f);

9) Make application if acting as the operator or provide concurrence to requests for activation, de-activation or reactivation.

An operator is a corporation, partnership, or person that operates a zone or subzone under the terms of an agreement with the zone grantee, with the concurrence of the port director. According to 19 CFR 146.4, a zone operator also may be a grantee that operates his own zone. The FTZ operator is responsible to: (a) Supervise all admissions, transfers, removals, recordkeeping, manipulations, manufacturing, destruction, exhibition, physical and procedural security, and conditions of storage in the zone as required by law and regulations; (b) Allow CBP access to the zone; (c) Safekeeping of merchandise and records concerning merchandise in the zone; (d) Maintain records and protect proprietary information for goods in the zone. Records pertaining to zone merchandise must be retained for 5 years after the merchandise is removed from the zone; (e) Establish procedures to ensure the security of merchandise located in the zone in accordance with applicable Customs security standards and specifications; (f) Store and handle merchandise in a safe and sanitary manner meeting all local, state and Federal requirements applicable to the specific type of good; (g) Provide guards to safeguard the merchandise and the security of the zone. This authorization does not limit the authority of the port director to assign CBP guards to protect the revenue; and (h) Comply with requirements for admission, manipulation, manufacture, exhibition or destruction, shortage or overage, inventory control and recordkeeping systems, transfer to customs territory and other requirements.


Zone status determines how goods can be manipulated, manufactured, or otherwise handled in an FTZ. The four types of zone status are: Privileged Foreign Status (PF): Prior to any manipulation or manufacturing in the FTZ that would change the tariff classification of a good, the port director will, if requested by the importer, give imported goods privileged foreign status. The goods are classified and appraised and duties and taxes are determined, but not collected, as of the date the application to enter the FTZ is filed. Under this provision, the importer chooses to have the goods classified for tariff purposes as what it is at the time, rather than what it becomes at a later date. Zone-Restricted Status is given to goods brought into an FTZ for the purpose of exportation, destruction or storage. The goods are considered exported and cannot be returned to the customs territory for consumption unless the FTZ Board rules specifically that the goods return is in the public interest. Zone-restricted status goods may not be manipulated, manufactured, processed or assembled in an FTZ. Non-privileged Foreign Status (NPF): a residual category for foreign goods which does not have the status of privileged or zone-restricted status. Goods in NPF status are classified and appraised in their condition at the time of transfer to the customs territory and entered for consumption. Domestic Status: Merchandise that is...

• Wholly grown, produced or manufactured in the United States on which all revenue taxes, if applicable have been paid.

• Previously imported goods on which all duties and internal revenue taxes have been paid.

• Goods that were previously admitted into the United States free of duty.

Not all merchandise in a zone has zone status. For example, imported goods used as supplies to operate an FTZ, such as office furniture, office supplies and other equipment, or goods used to build a storage facility within an FTZ, or for other construction purposes, must be entered for consumption and applicable duties and taxes must be paid upon being placed in the zone. Lesson 5: Foreign Trade Zone Advantages As mentioned above, one of the primary advantages for an importer to operate within an FTZ is that he has a choice of paying duties at the rate applicable to the foreign material in its condition as admitted into a zone, or, if used in manufacturing or processing, at the rate applicable to the finished product. This helps FTZ users avoid the situation known as “inverted tariff” wherein the tariffs on inputs to make products are higher than the tariffs on the finished


products themselves. “Inverted tariffs” are not an incentive to domestic production but the FTZ encourages value-adding activities by effectively overcoming this issue. The following is a list of FTZ advantages: Duty Deferral - Customs duties are paid only when and if merchandise is entered into U.S. commerce. This benefit equates to a cash flow savings that allows companies to keep critical funds accessible for their operating needs while the merchandise remains in the zone. There is no time limit on the length of time that merchandise can remain in a zone. Reduction of Duties from Inverted Tariffs - In an FTZ, with the permission of the Foreign Trade Zones Board, users are allowed to elect a zone status on merchandise admitted to the zone. This zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered into U.S. commerce from the FTZ. This process allows users to elect the lower duty rate of that applicable to either the foreign inputs or the finished product manufactured in the zone. If the rate on the foreign inputs admitted to the zone is higher than the rate applied to the finished product, the FTZ user may choose the finished product rate, thereby reducing the amount of duty owed. Elimination of Duties - Duty is eliminated on foreign merchandise admitted to the zone but eventually exported from the FTZ. Duties are also eliminated for merchandise that is scrapped, wasted, destroyed or consumed in a zone. Weekly Entry – Importers may choose to file one weekly entry for all cargo exiting the zone within a given week in lieu of filing one entry per shipment. The zone user pays only one entry fee and also has ability to maximize savings of Merchandise Processing Fee (MPF) paid to CBP. The maximum MPF per entry is $485.00. Weekly entries facilitate rapid removal of merchandise from a zone. Without weekly entry, it would take an importer more time to make multiple entries for zone merchandise, and it would be difficult for CBP to review and release the merchandise to leave the zone. This privilege is the result of the intense recordkeeping procedures required of Zone Operators in order to verify that inventory counts are continuously accurate. Damaged or Nonconforming Items - If merchandise is defective or damaged, no duty payment is owed while it is being tested, repaired, or stored in the FTZ. The actual importation does not occur until the merchandise leaves the Zone and enters the commerce of the United States. Merchandise may be altered, repackaged, and/or relabeled to meet various requirements. Zones are often used for the purpose of properly labelling goods with country of origin markings.


Elimination of Drawback - In some instances, duties previously paid on exported merchandise may be refunded through a process called drawback. The drawback law has become increasingly complex and expensive to administer. Through the use of an FTZ, the need for drawback may be eliminated allowing these funds to remain in the operating capital of the company. Labor, Overhead, and Profit - In calculating the dutiable value on foreign merchandise removed from a zone, zone users are authorized to exclude zone costs of processing or fabrication, general expenses and profit. Therefore, duties are not owed on labor, overhead and profit attributed to production in an FTZ. Elimination of certain taxes - By federal statute, tangible personal property imported from outside the United States and held in a zone, as well as that produced in the United States and held in a zone for exportation, are not subject to state and local ad valorem taxes. Quotas - U.S. quota restrictions do not apply to merchandise admitted to zones, although quotas will apply if and when the merchandise is subsequently entered into U.S. commerce. Merchandise subject to quota, with the permission of the Foreign Trade Zones Board, may be substantially transformed in an FTZ to a non-quota article that may then be entered into the U.S., free of quota restrictions. Quota merchandise may be stored in an FTZ so that when the quota opens, the merchandise may be immediately entered into the U.S. Zone-to-Zone Transfer - An increasing number of firms are making use of the ability to transfer merchandise from one zone to another. Because the merchandise is transported in-bond, duty may be deferred until the product is removed from the final zone for entry into Customs territory. Companies have realized other intangible benefits by participating in an FTZ program. Many companies in FTZs find that their inventory control systems run more efficiently, thereby increasing their competitiveness. FTZ users also find that in meeting their FTZ reporting responsibilities to CBP, they are eligible to take advantage of special Customs procedures such as direct delivery and weekly entry. These procedures expedite the movement of cargo and support just-in-time inventory methodologies.

CERTIFIED EXPORT SPECIALIST (CES) · 2015-07-06 · CES Case Study #002 NCBFAA Educational...

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Transcript of CERTIFIED EXPORT SPECIALIST (CES) · 2015-07-06 · CES Case Study #002 NCBFAA Educational...