Lewis Leibowitz, NAFTZ Chairman Scott Wienke, NAFTZ Vice ...

Lewis Leibowitz, NAFTZ Chairman

Scott Wienke, NAFTZ Vice Chairman

Trey Boring, NAFTZ Board of Directors

January 2012

Orlando, Florida

©National Association of Foreign Trade Zones All Rights Reserved

FOREIGN TRADE ZONES—

DEFINITIONS, PURPOSES, LEGAL

STATUS


3

Foreign Trade Zones (FTZs)

Secure areas located in or ―adjacent to‖ a

Customs Port of Entry

Legally outside the US Customs territory

Any merchandise not prohibited by law may be

admitted to an FTZ

Merchandise in an FTZ may be

Assembled, exhibited, cleaned, manipulated,

manufactured, mixed, processed, relabeled,

repackaged, repaired, salvaged, sampled, stored,

tested, displayed, & destroyed

Retail trade is not allowed


4

Purposes of the FTZ Program

Many countries have free zones to expedite and encourage foreign commerce Entrêpots

Special Economic Zones

Export Processing Zones

Free Zones

Maquiladoras

Purpose of the U.S. FTZ Act of 1934 was to ―expedite and encourage foreign commerce‖ Part of effort to revitalize trade after Smoot Hawley Act of 1930

and the Great Depression

Create Jobs and Investment in the US that could otherwise take place overseas


5

Key Developments

Milestones of FTZ Program 1934—signed into law 1950—manufacturing, exhibition, zone restricted status

permitted in FTZs, subject to FTZ Board approval

1977—first auto assembly plant with FTZ status

1980—domestic value added and materials ruled NOT part of dutiable value

1986—introduction of audit-inspection system for FTZs

1987—exemption from annual and activation fees for FTZs

1996—production equipment admitted to zones without payment of duty

2000—weekly entry for all zones


6

National Benefits of FTZ Program

US operations become more globally competitive More jobs in the US

More exports to global markets

National Export Initiative Only __ percent of US manufacturers export

National goal to double exports from 2009 to 2014


7

What Does This Mean to Business?

‗Outside the Customs Territory‘ is the legal position that provides the benefits of the FTZ program

Goods in zones are considered to be part of international commerce, not domestic

It is only once goods leave the zone to enter the commerce of the US, that normal tariff and Customs regulations apply to those goods


8

General-Purpose Zone

A site or facility that provides multiple users

with varying types of merchandise access to

the benefits of the FTZ Program

Original concept was a public warehouse

Evolved to include industrial parks or port

complex where sites/facilities are available

for use by multiple users

Serves as the sponsoring zone for any

subzone


9

Subzone

Normally single-purpose, single user sites when the operations cannot feasibly be moved to, or accommodated in a general purpose zone

Frequently, an established manufacturing or large distribution operation


THE NAFTZ


11

Meet the NAFTZ

The ―voice of the foreign trade zones program‖

Trade association of state and local government entities, public development organizations, private corporations, consultants and lawyers involved in the US FTZ program

Advocate for economic benefits to the economy from FTZs

Educate participants, regulators and opinion leaders about the FTZ program


FEDERAL GOVERNMENT IN THE FTZ

PROGRAM


13

FTZs and Customs

FTZs are one of many Customs procedures to

import and export merchandise

Federal regulation is a feature of all these

processes


14

FTZ Board

The FTZ Board is composed of the Secretary of

Commerce and Secretary of Treasury

Alternates of each Secretary are empowered to perform

many functions of the FTZ Board

FTZ Board is authorized to consider making grants to

establish, expand, operate, and maintain FTZs in all

forms

Prescribes rules and regulations to establish and operate

zones

Requires submission of reports regarding information

related to zone operations

Prepares annual report of FTZ activity to Congress


15

FTZ Board Alternates

Alternates may perform duties of the members of the

Board

Assistant Secretary of Commerce for Import Administration

Deputy Assistant Secretary of Treasury for Tax, Trade and Tariff

Policy


16

FTZ Board Executive Secretary

Director of Foreign Trade Zones Staff

Represents Board in administrative, regulatory,

and operational matters

Initiates recommendations to the Board for

overall administration of the FTZA

Approves boundary modifications with

concurrence of appropriate Port Director

Accepts rate schedules and determines their

sufficiency under the regulations


17

U.S. Customs and Border Protection

(CBP)

Regulation of imports into U.S.

Regulates merchandise moving into and out of

FTZs

Collects Customs duties and fees

Ensures adherence to laws and regulations

governing imported and exported merchandise


18

CBP Port Director

Oversees zone as local FTZ Board representative

Reviews port policy and comments on applications and activations of zones

Advises Zone Operator on questions presented

Determines amount and conditions of FTZ Operator‘s Bond


19

Grantee

A public or private ―corporation‖ (frequently

port authorities, state/local economic

development agency)

Applies for grants of authority

May operate zone sites or delegate

responsibility by contract to another party


20

Operator

The entity that deals directly with CBP on day

to day matters

Operator is responsible for CBP Compliance

within the zone

May be grantee or another corporation

A zone project may have more than one

operator


21

User

Persons or firms using a zone or subzone for

storage, handling, or manufacturing

Users receive benefits of participation in the

FTZ Program

Users may also be operators


22

Customs Broker

May be used to transact Customs business

on behalf of an operator or user

Importer always retains right to transact

business on its own behalf


23

FTZ Administrator

Grantee may contract with another company

responsibilities for a zone project to another

company (e.g., oversight of users and operators,

marketing of zone)

May be a source of technical expertise on CBP

and FTZ Board issues

FTZ Administrator not recognized in FTZ Board

regulations

Zone Administrator does not relieve Grantee of

responsibilities to FTZ Board


ZONE STATUS


25

Purpose

A zone status is selected for merchandise at time of admission by the user

Indicated on admission (CBPF214 or e214)

Determines HTS classification and duty rate to be applied when merchandise is removed from the zone HTS classification of the merchandise as admitted to

the zone

HTS classification of the merchandise that is being removed from the zone


26

Types of Zone Status

Privileged Foreign (PF) (19 CFR 146.41)

Non-Privileged Foreign (NPF) (19 CFR 146.42)

Domestic (D) (19 CFR 146.43)

Zone Restricted (ZR) (19 CFR 146.44)


27

Privileged Foreign (PF)

Will be appraised and classified in condition of

merchandise at the time PF status is elected

PF status is binding no matter what occurs

within zone

Merchandise subject to antidumping or

countervailing duties must be admitted in PF

status


28

Non-privileged Foreign

(NPF)

Will be appraised and classified based on the

condition of the merchandise at the time of entry

into the US commerce (removal from the zone)

Activity within zone can change HTS classification

prior to entry for consumption

FTZ Board may restrict ability of zone user to elect

non-privileged foreign status on ―public interest‖

grounds


29

Non-privileged Foreign

(NPF)

Waste recovered from PF status merchandise is

assigned NPF status

Domestic merchandise which has lost its identity

will be assigned NPF status

NPF status may be changed to PF prior to any

manipulation or manufacture


30

Domestic (D)

Growth, product, or manufacture of the US on

which all federal excise tax has been paid

Previously imported and entered into Customs

territory

All duty and tax paid

All fees paid

Domesticated


31

Zone-Restricted (ZR)

Merchandise brought into a zone for the

purpose of exportation, destruction, or storage

May be brought into the zone from outside the US

May be brought into the zone from US Customs

territory

ZR status may be elected at any time


32

Zone-Restricted (ZR)

May not be sent into Customs territory for

consumption unless the FTZ Board finds return

in the ―public interest‖

May not be manufactured in a zone

May be considered exported for purposes of

satisfying Customs or other Federal agency

laws (e.g., drawback)


ZONE BENEFITS


34

Basic Financial Benefits

Duty deferral

Duty elimination on exports

Duty reduction (inverted tariff relief)

Duty Reduction on Scrap/Waste

Weekly entry

Local ad valorem tax exemption

Basic Premise - Import duties are not paid

until, and unless, the goods enter the

commerce of the United States


35

Duty Deferral

Cash flow benefit Duty not paid until goods leave zone

Merchandise Processing Fee deferred until goods leave zone

Harbor Maintenance Fee is paid quarterly

Use of funds is retained by the importer as long as goods remain in the zone

Not a permanent source of savings


36

Duty Deferral

May delay payment until closer to generation of

sales revenue

Example: Seasonal goods

May delay payment until a reduction or

elimination opportunity arises further down in the

supply chain

Example: Zone-to-zone transfers


37

Calculating Deferral

Savings

• $ volume of imports ÷

• Inventory turns per year X

• Duty rate of product X

• Reduction of Borrowings

• Opportunity cost of capital =

• Example: [($50,000,000 ÷ 2) X 5%] x 6% = $75,000

• $50,000,000 ÷ 2 = $25,000,000

• $25,000,000 x 5% = $ 1,250,000

or

• $ 1,250,000 x 6% = $ 75,000


38

Duty Elimination

US. Duty not paid on merchandise EXPORTED from the zone Merchandise never enters commerce of US, so no

duty is owed to the US Exception: Manufactured products exported to Canada or

Mexico under NAFTA (more on this later)

No merchandise processing fee liability on exported merchandise Exception: Manufactured products exported to Canada or

Mexico under NAFTA (more on this later)

More cost effective and flexible than other Customs procedures (e.g., drawback, bonded warehouse, TIB


39

Duty Elimination/Reduction

U.S. Duty not paid or reduced on merchandise DESTROYED in the zone CBPF 216 or Customs Entry option

Merchandise destroyed and sent to landfill, incinerator, etc., has $0 value but $1 must be used for entries

Destruction must be complete with no residual value

Merchandise sold as scrap/recycled is classified under original, other, or scrap provision with original, reduced, or FREE duty rate Value is price received for scrap


40

Duty Reduction

Duty paid may be based on:

Classification of merchandise as admitted

Classification of finished product removed from the

zone (can be duty rate of zero)

User determines based upon which is lower

Determined by status selected at admission

PF: Duty rate of the merchandise as admitted

NPF: Duty rate of finished product as entered

Also known as an ―irrational‖ or inverted tariff


41

Calculating Duty-

Reduction Savings

• Duty rate of merchandise admitted to zone

(components, raw materials) 5%

• Duty rate of merchandise removed from zone

(manufactured product) 2%

• Example:

• $50,000,000 x 5% = $2,500,000

• $50,000,000 x 2% = $1,000,000

• Savings = $1,500,000


42

WEEKLY ENTRY

Reduction of MPF and Brokerage

Merchandise Processing Fee: Calculated for each entry 0.3464% of entered value

(maximum $485 per entry)

Entries are not filed until merchandise leaves the FTZ for US Customs territory

A single entry can be filed for up to one week‘s shipments from a zone Estimated weekly entry (CF 3461)

Fewer entries save MPF, brokerage fees


43

Ad Valorem Tax Exemption

FTZ Act Provision 19 U.S.C. §81o(e) –

merchandise in foreign status is exempt from

state and local personal property taxes

Some states expand on this exemption

Check applicable law in your state


44

Other Benefits

Improved CBP compliance

Lower security and insurance costs

Shorter transit time using direct delivery

No time constraints on storage

Improved inventory control

Informed CBP officer


REGULATORY & STATUTORY

REQUIREMENTS


46

FTZ Act (FTZA)

19 USC 81a - 81u

FTZ Act of 1934, as amended, established

application procedures

Section 81f requires description of the proposed

location, qualifications, financing, and operating

details

Section 81a(a)(5) authorizes the FTZ Board to

require other information


47

FTZ Board Regulations

15 CFR Part 400

Revised FTZ Board regulations in effect 11/7/91

Adopted criteria for reviewing zone activity resulting in tariff

classification changes of imported merchandise

Proposed Regulations published on December 30, 2010

First major revision since 1991

Comment period expired in late June 2011

Awaiting issuance of final regulations in 2012

Some issues may have another round of comments on revised

proposals

NAFTZ provided comments in May and June 2011


48

GP Zone Adjacency Requirement

15 CFR §400.21(b)(2) states that the adjacency

requirement will be satisfied if a general purpose

zone is located:

within 60 statute miles or

90 minutes driving time from the limits of a Port of Entry

CBP Port Director determines adjacency


49

Subzone Adjacency Requirement

Subzones almost anywhere can satisfy

adjacency requirements

Proper CBP oversight can be accomplished with

physical and electronic means

Electronic records are maintained in a format

compatible with CBP requirements

Operator agrees to present merchandise for exam

upon request at a site selected by CBP and present

documents directly to CBP


50

CBP Regulations

19 CFR Part 146 has CBP regulations specific to

FTZ operations

Other sections of CBP Regulations will also apply:

Entry requirements

Bond requirements

Valuation

Country of origin marking

Fines, Penalties, Forfeitures, Liquidated Damages


FTZ APPLICATION PROCESS


52

Getting Started

Grantee Sponsorship

Zones are public utilities

FTZ Board only accepts applications from Grantees

Grantees may have overlapping service areas

Preferred Grantee is closest zone within the same

State as a proposed subzone

Alternative Site Framework may alter which Grantee is

appropriate


53

Preparing the Application

Preliminary discussions with FTZ Board and

Customs

FTZ Board and Customs should be notified of

application prior to submission

Should minimize delays, complications, or conflicts

that could occur during the application process

Allows for a good head start into the activation

process


54

Application Contents

FTZ Board has issued Application Guidelines

The Exhibits in the regulations are no longer followed

FTZ Board web site has specific questions and

formatting preferred for applications

Visit http://ia.ita.doc.gov/ftzpage/applications.html

for questions to be answered


http://ia.ita.doc.gov/ftzpage/applications.html

55

Transmittal Letter

Dated and signed by officer of grantee

Bear grantee organization seal

Contain grantee‘s FTZ number

Identify proposed user company

Brief summary of request

Explain economic and zone benefits for company

and local community

Request approval of application


56

New GP or Expansion of

FTZ Project

Each Customs Port of Entry is entitled to at least one zone

Most Ports have a zone authorized

The application must come from a proposed Grantee, not individual companies

The zone project must be part of an overall economic plan for the region to attract and retain business

Local community support is essential


57

GPZ Approval Process

Once the application is filed, the FTZ Board

evaluates the application considering the

following factors:

Does the port of entry area need additional general

purpose zone sites

Are proposed sites and facilities suitable

Is there local support in the community for the

proposed project

Is the proposed project in the public interest


58

Subzone Application

A stand alone, single use site

The application must come from a public entity

(the grantee), not the individual companies

desiring zone benefits.

Provide significant public benefit in terms of

employment, exports, retention of manufacturing

jobs, US value added, foreign competition


59

Manufacturing or

Processing

Manufacturing - substantial transformation of one item to another

Processing - change in tariff number within the zone

FTZ Board must approve request for manufacturing or processing under zone procedures in order to realize the zone benefits

Before initiating activity beyond authorized scope, written request must be made to Executive Secretary and approval received


60

Subzone Application / Manufacturing

Authority

Effect on investment, employment

International competition

Trade policy impacts from zone status (threshold

criteria) Trade restrictions (quotas, high tariffs that could be reduced by

zone status)

AD/CVD issues

Potential opposition Domestic suppliers

Domestic competitors not benefiting from FTZ status


61

Acceptance of Application

Executive Secretary will:

Formally docket the application, thereby initiating

proceeding or review

Assign a case docket number in cases requiring a

Board Order

Notify applicant of acceptance of application

Publish Federal Register notice requesting public

comment


62

Hearings (15 CFR 400.51)

Hearings may be announced by the FTZ Board,

Alternates or Exec. Secretary Hearings may be requested by a private party

FTZ Board will publish notice in the Federal

Register of the date, time and location of any

hearing


63

Examiner’s Report

Evaluation done by FTZ Board analysts

Report will evaluate economic factors

addressed in Exhibit 4

Comments (both pro and con) are requested

and must be responded to

Industry experts in government are consulted

Consideration of Customs comments


64

Grant of Authority

Processing time 6 - 12 months

Opposition

Industry Issues

Previous application precedents

FTZ Board either issues or denies grant of

authority through a formal order of FTZ Board

FTZ Board Order specifies type of grant and any

grant restrictions

Reported in Federal Register


65

Lapse of FTZ Authority

Grant of authority shall lapse within five years

from a Board order if a zone or subzone is not

activated within that time


66

Minor Boundary

Modification

Designated acreage in approved zone site relinquishes status so equal acreage can receive it Acreage must be similar in usage

Request must be submitted by Grantee

Must be consistent with the zone plan approved by the FTS Board

Limited in size

Request is submitted to FTZ Board for approval by Executive Secretary

CBP concurrence letter submitted with request

Requires 30 day review process


67

T/IM Applications

Temporary/Interim Manufacturing initiated in October 2004

Provides expedited and lower cost access to zone benefits for manufacturers located in existing FTZ sites

Companies can obtain temporary approval for inverted tariff relief (up to 2 years) within 75 days versus the standard 1 year


68

T/IM Applications

Finished products/components must be similar to prior approvals

Temporary approval for up to two years, pending full manufacturing approval

Can apply for permanent manufacturing concurrently (even on same form)


ASF a ―framework‖ available to Grantees to

manage FTZ sites

Greater flexibility in FTZ site designation

A Grantee can apply to the FTZ Board to

―reorganize‖ under the ASF

Alternative Site Framework (ASF)


Many unused FTZ sites under traditional

framework

Too much potential responsibility for CBP locally

Too much responsibility for Grantee without actual

use

New sites may require significant waiting for new

users

Why ASF?


―Service Area‖ is the geographic area where grantee

intends to propose general-purpose FTZ sites

A ―Magnet‖ site is one selected by grantee based on

ability to attract multiple potential FTZ operators/users

A ―Usage-Driven‖ site is designated for a company

ready to pursue conducting FTZ activity

―Activation Limit‖ is cap on amount of space that can

simultaneously be in CBP ―activated‖ status (generally

2000 acres—no zone has ever hit the limit)

Terms and Concepts


Ongoing ―Sunset‖ tests remove unused sites.

Standard five-year sunset period for Magnet sites

Three-year sunset period for all Usage-Driven sites

Sunset deadline for each Magnet site extended for

additional five years based on the site‘s activation at any

time during the sunset period

ASF: Examples


73

Applying for a Usage-Driven Site

Submitted by the grantee on behalf of a company

Information needed:

Site address/acreage

Company/activity

Right to use site

Map

Legal description

Concurrence from CBP

Timeline: within 30 days


The ASF can speed up companies access to the

competitive benefits of FTZs.

ASF dramatically reduces burden and increases flexibility

and predictability on designation of FTZ sites to meet

companies‘ needs in the region.

The Bottom Line:


FTZ ACTIVATION PROCESS


76

Activation Process

Activation is the approval by the Port Director

and the grantee for the zone to begin operations

Activation request letter sent to Customs

includes

Blueprint of the approved areas showing the area to

be activated including all buildings, openings, inlets,

outlets, pipelines to tanks or storage of liquid

products


77

Activation Requirements

Activation requirements and procedures

Written application

Blueprint of area to be activated

Gauge table (if appropriate)

Zone procedures manual

Background investigation of key employees

Approved security

FTZ Operator‘s Bond

Written concurrence from the grantee


78

Initial Meeting with CBP

Gain an understanding of the zone project

Meet the people involved with the zone

Explain the Customs role, policies, and

procedures


79

Initial Meeting With Customs

Conduct preliminary security check

Begin background checks

Begin procedures for establishing amount of

Operator‘s Bond


80

Blueprint - Defining

Physical Area

Entire physical area approved in the grant can be activated

Portion of the area approved in the grant can be activated based on FTZ benefits sought

Production count point

Consideration of 5 day removal requirement

Any area where foreign goods admitted to the zone can be stored, processed, manufactured or shipped must be in the activated area


81

Blueprint - Defining

Physical Area

The following is provided to CBP:

Map of entire area approved by FTZ Board may be

provided with ‗activated‘ area indicated

Generally, a blueprint of actual facilities is included with

the ‗activated‘ area indicated

Activated area can be altered as needed through

subsequent application to CBP

Operator must retain copy of most current

maps/blueprints showing activated area


82

Gauge Table

Required in bulk processing zones including oil

refineries

Gauge tables showing the capacity in the

appropriate unit of any tank, as applicable


83

Procedures Manual

Purpose

Describes methodology of all zone transactions

Must provide sufficient detail of zone operations for

Customs‘ understanding

Not so detailed that it can‘t be kept up to date, current

copy reflecting current operations must be on file with

Customs

Used as training document for employees

Must be submitted as part of activation request


84

Procedures Manual

Identifies location of and activities conducted in

zone

Includes transportation and admission to zone,

activity in zone, transfer of merchandise from

zone

Describes process for preparing required periodic

reports


85

Background Investigations

Who Managers of zone operations, key operational areas

Supervisors with access to zone records

Required Information (Requirements Vary by CPB Port) Name

Title

Current Address

SSN

Birth date

Place of birth

May require fingerprints

Background investigations should be started during application process due to time required


86

Security

Port Director may conduct a security check

Guidelines for security are found in:

FTZ Manual, Chapters 4 and 8

Treasury Decision 72-56 ―Standards for Cargo

Security‖ booklet (Current electronic security

generally recognized as sufficient)

More stringent with focus on physical security of

imported goods rather than revenue protection


87

FTZ Operator’s Bond

Port Director sets bond amount

Sufficient to cover potential duty on type of

merchandise admitted

Influenced by nature of merchandise

Risk incurred by CBP in processes authorized by

FTZ Board

Submitted to CBP on CBP301 by Operator

Bond requirements and amounts currently under

review by CBP Headquarters


88

FTZ Operator’s Bond (con’t.)

Amount

Regulatory minimum - $50,000

Current minimum in practice $100,000

Bond Amount - Generally Customs duties owed on

average value of foreign non-duty paid inventory

Customs generally reviewing and increasing bond

amounts


89

Grantee-Operator Agreement

Between grantee, operator, and/or user

Does not involve Customs

Terms and conditions for operating the zone

Responsibilities

Fees

Grantee typically provides grantee letter of

concurrence which must be provided to Customs as

part of activation request


90

Census Bureau Reporting

Statement must be included in activation request

describing methodology of how Census Bureau

reporting requirements will be met

e214 filing

Required for cumulative daily reporting

Pink Statistical Copy of CBPF214

Single 214 per Bill of Lading


91

Special Considerations

Requests for activation often contain requests for

procedures such as:

Direct delivery (of in-bond merchandise)

Authorization to break and affix Customs seals

Weekly estimated entry and export

CBPF 216 for manufacturing or manipulation

operations must be approved prior to

commencement of such activities

CBPF 216 issues under review for repetitive

manufacturing


92

Approval

Application for activation may be reviewed/issued by

Service Port Director

Issued in writing specifying approval of:

Activation

Special Procedures requested

Approval typically requires 30 days

Can be reduced through prior communications with

CBP


INVENTORY CONTROL &

RECORDKEEPING SYSTEMS


94

Regulatory Overview

Part 146, Subpart B, of CBP Regulations requires

each operator to have an inventory control and

record-keeping system (ICRS)

CBP reviews, but does not approve ICRS

FTZ operator responsible for inventory control

System must be documented in procedures manual

May be manual, automated or combination


95

Regulatory Requirements

Account for all merchandise

Foreign status (NPF, PF, ZR)

Domestic status

Temporarily deposited

Temporarily removed

Produce accurate and timely reports

Identify shortages and overages

Record quantity, description, HTS number, zone

status, value


96

Provide Audit Trail

Document merchandise transferred into and out of

zone

Provide audit trail from admittance to transfer

Ability to relate documents used for zone

removal to documents used for zone admission

A real plus would be the ability to audit from time

of order placement to time of payment

Must be readily available for CBP inspection and/or

audit


FTZ LOT SYSTEM


98

Specific Identification

Physical merchandise within zone is traceable to

the specific CBPF214 that recorded admission

Physical merchandise reconciled within lot

When removing merchandise must specify the

exact lot from which the merchandise is physically

removed


Lot System Example

Shipment 1

50 radios – Japan

Shipment 2

50 radios – Canada


Lot System Example

Lot 1

50 radios – Japan

Lot 2



Lot System Example

Lot 1

50 radios – Japan

Lot 2 50 radios – Canada

Meanwhile, back in the

office . . .

The sales manager receives

an order for 50 radios. He

passes the order on to the

shipping department, telling

them to take the shipment

out of Lot 1.


Lot System Example

Lot 1

50 radios – Japan


Out in the warehouse . . .

The warehouse worker is ready

for his morning coffee break and

wants to get this one last order

completed before he goes.

Maybe he doesn’t realize the

difference between Lot 1 and

Lot 2 . . .

Or maybe Lot 2 was simply

closer.


Lot System – Do we have a problem?

Lot 1

50 radios – Japan


Lot 1

0 radios – Japan

Lot 2


Warehouse Location FTZ ICRS


104

Lot System Example

Our records show that we have no radios in Lot 1

and 50 radios in Lot 2. That is what Customs

expects to see in the warehouse.

But in the warehouse, there are 50 radios in Lot 1

and no radios in Lot 2.

Result – TWO merchandise errors (where penalties

can be equal to the value of the merchandise)


UNIQUE IDENTIFIER NUMBER (UIN)


106

Recordkeeping Identification

Relies on recordkeeping rather than physical control

Inventory tracking by a unique identification number

(UIN) assigned to specific item

Part Number, Stock number

Style Number, Raw material code

All receipts of that product must be fungible

(commercially interchangeable)

May have varying zone statuses within a single UIN

May have varying values, countries of origin


107

Record-keeping Identification

Information maintained upon receipt of UIN

UIN, Description, Date admitted, Quantity

Country of origin, Zone status, Value

CBPF214 Number, HTSUS Number

Each receipt becomes a ―layer‖ of inventory on

paper

Inventory totals reconciled within UIN rather than

within a lot indicated on CBPF214 that admitted

merchandise

Check book inventory system


108

Inventory Relief Methodology

Used to identify which admission records will be used to

determine information required on the entry filed when

goods removed from the zone

First In, First Out (FIFO) most common

Foreign First (FOFI) export oriented zone. Very rarely

used. Usually where same material is both domestic

and foreign sourced. May work in dual source

Other methodologies must be approved by Customs

Headquarters ruling on a case by case basis


109

UIN Rationale

If all merchandise admitted to zone were to be

transferred from zone, CBP would receive all duty

owed based on admission and shipment

information

Physical control over gross quantities rather than

individual receipt quantities


UIN System Example

Shipment 1

50 radios – Japan

100 batteries – Japan

100 CD players – Germany

500 DVD players -- Canada

Shipment 2


100 batteries – Germany

100 CD players – Japan

500 DVD players -- Japan


UIN System Example – Into warehouse

Location 1

50 radios – Japan

50 radios -- Canada

Location 2

100 batteries – Japan

100 batteries – Germany


UIN System Example – Into ICRS

Same two shipments received, plus additional shipment

of radios from the US

UIN Date Qty e214 CoO Value USD Status Date Qty 3461/7501 CoO Value Status Balance

Radio 1/2/2009 50 1 JP $115 N 50

Radio 1/2/2009 50 1 CA $110 N 100

Radio 1/5/2009 50 2 US $100 D 150

RECEIPT SHIPMENT


UIN System Example – Into ICRS

113

Meanwhile, back in the

office . . .

The sales manager receives

an order for 25 radios. He

passes the order on to the

shipping department, telling

them to ship the order today.

Location 1

50 radios – Japan


50 radios - US


UIN System Example – ICRS

25 radios shipped under FIFO method

UIN Date Qty e214 CoO Value USD Status Date Qty 3461/7501 CoO Value Status Balance

Radio 1/2/2009 50 1 JP $115 N 50

Radio 1/2/2009 50 1 CA $110 N 100

Radio 1/5/2009 50 2 US $100 D 150

Radio 1/6/2009 25 AAA-1234567-8 JP $115 N 125

RECEIPT SHIPMENT


UIN System Example:

Warehouse

Location 1

25 radios – US


50 radios – Japan

Out in the warehouse,

the radios had been

stacked in the order

received. The ones

from the US are on top

– and the warehouse

person pulls 25 US

radios. Do we have a

problem?


UIN System Example - ICRS

No problem

CBP just cares that there are 125 out on the shelf

Does it matter than they came from the US instead

of JP?

No problem

Customs looks only at records – not the parts

Except to count them, of course!


117

Inventory Control in Petroleum

Refineries

Totally different inventory that is neither specific identity (lots) or UIN FIFO or FOFI

See 19 CFR §146 Subpart H

Attribution method is used in which all final products are associated to a feedstock admitted

Most but not all FTZ refineries use ―producibility‖ (see T.D. 66-16) in which assignment is based on industry acceptable yields of production or the quantity of finished goods that could have been produced not necessarily what was produced

Originally adopted in the 1960s for drawback and authorized by FTZ law change for FTZs


Lot vs. UIN

Which is best for your company?

The one that most closely reflects the way

your company manages its inventory and

distribution/manufacturing systems

General Purpose Zones

Lot System

Limited number of receipts with unique merchandise in

each receipt

Space allocation sufficient so lot can remain together

rather than be put away by type of merchandise

UIN System

Small or large scale distribution with repetitive receipts of

SKU numbers©National Association of Foreign Trade Zones All Rights Reserved

119

UIN in Manufacturing

FTZ (purchased) components are admitted to the

zone in layers

FTZ components are released into the manufacturing

process

Use of existing inventory system

Material requirement planning (MRP) system

Issues to production work orders

Intermediate products

Identify the component parts consumed in the

finished good or sub assembly for FTZ quantity

reconciliation


120

UIN in Manufacturing (con’t.)

Finished production

Report quantity of actual product removed

Determine FTZ components contained in products

removed

Bill of Material/Work Order

Backflush/Charged to Production

FTZ inventory depleted and valued based on the

layering of the quantity of components in the finished

products removed from zone


121

ICRS Specific Information

Admissions

CBPF214 number (indicated on CBPF214 or in e214 record)

Date admitted

UIN (part number, stock number)/Lot number

Description

HTS Quantity (actual quantity)

Value (price paid or payable)

Country of origin (country of manufacture)

Zone status (may vary admission to admission)

HTS Number (for goods as admitted)

Charges


122


Zone Removals

Item actually shipped

UIN of FTZ components within item shipped

(may be the same as item shipped)

HTS of item shipped, FTZ components

Quantity of item shipped, FTZ components

Where shipped (import, export)


123


Adjustments:

May be based on:

Annual physical inventory with Customs notification OR

Cycle counts

Discrepancies must be recorded in inventory and

recordkeeping systems

Discrepancies reported to Customs upon

identification over 1% of the quantity and $100 in duty

owed (19 CFR §146.53(a)(3))


124

ICRS Annual Information Required

Summarized information

YTD Beginning Balance

Cumulative Receipts

Cumulative Withdrawals

Adjustments

Current Balance

Records reconciled to physical balances

Annual Reconciliation

Cycle Counts


125

Audit Trail:

Admission to Removal

Track CBPF214 Number to Entry Number(s)

System must demonstrate what should still be within zone

UIN System: Total quantity remaining on admissions

for UIN

Lot System: Lot Balances

System must demonstrate how and when ―removed‖

inventory was reported to Customs

Consumption Entry (CBPF 7501)

In Bond Entry (CBPF 7512)

Scrap (CBPF 216)


126

Audit Trail:

Removals Back to Admissions

Trace entry number to CBPF214 number(s)

System must be able to demonstrate that inventory

methodology preserved (FIFO)

System must be able to demonstrate that

information reported on removal from the zone can

be directly related to information reported upon

admission

Does the information on the entry match the

information reported on the admission?

Value, Country of Origin, Zone Status Impact


127

Company System as FTZ System

Audit trail is where most company systems

inadequate

Direct link (whether physical or systemic) between

individual receiving records and individual shipping

records is not crucial to most company operations

General attitude: ―If we have some, ship it!‖


128

Relationship to Existing Systems

Data available within company systems

Quantity

Date Admitted

Value

Supplier

Company data maintained differently

Usually in summary form

Receipt by receipt visibility lost once enters process

Company system has greater tolerance for

discrepancies


129


FTZ system should parallel company system

Must reflect how company operates

Artificially imposed systems generally do not

succeed

Use company information where it is most accurate

Receiving

Shipping


130


FTZ system should use information from the

company system

Tracks CBP compliance information

Must have ability to adjust for:

Reality vs. planned inventory actions

Human errors


131


Company records used to support FTZ records

Receiving records, quality inspections, purchase

orders, customer returns

Storeroom receipts, issues, WIP tracking,

production reporting

Customer orders, customer shipments, work

orders, inventory write offs, scrap write off

Adjustment processing


132

FTZ Inventory Planning

Groups to involve

Accounting personnel (money)

Material planning (merchandise)

Procurement

Sales

Transportation (logistics)

Manufacturing (consumption)

Warehouse (release)

Quality Assurance (approval)

Information technology (data)


133

FTZ Inventory Planning

Document flow of material from arrival to transfer

out of zone

Listen carefully for exceptions to normal flow of

material - no matter how small or infrequent

Rejected materials, misshipments, testing, off-

site activity, customization, returns

Identify action currently taken


134

Key Questions to Ask

How are material shortages handled? in production?

in shipping?

How is material, production quality ensured?

What is done when material is rejected?

How are product changes implemented?

What is done with scrap or waste material?

Is sampling done?

How are customer returns handled?


135

Exceptions = Rule

Recognize that exceptions are the norm

Identify ways to get exception reports

Understand impact of exceptions on FTZ inventory

Does it cause removal (shipment) from zone?

Does it change identity of material?

Does it have no impact on total inventory?


136

FTZ Inventory Reality

FTZ system must be flexible to allow for corrections

for exceptions, human errors

FTZ requires accurate receipts, bills of material/

work orders, and shipments


137

FTZ Inventory Success

Know and involve key individuals directly responsible

for material accountability

Establish communication lines

Ask questions, know what is happening in the

company

Don‘t just sit in an office surrounded by paper and

numbers


138

FTZ Inventory Success

Keep systems as simple as possible

Know CBP requirements

Be able to explain system to CBP

Be able to explain CBP to the company

COMMUNICATE!


FTZ PROCESSING


140

General Information

Merchandise may be admitted into FTZ unless it is

prohibited by law

Restricted merchandise may be placed in FTZ

Subject to FTZ regulation based on public interest

Bonded Warehouse merchandise may be admitted in ZR

status

Check on your particular situation


FTZ Merchandise May Be

stored

exhibited

broken up

repacked

assembled

distributed

sorted

graded

cleaned

mixed with foreign and

domestic merchandise

destroyed

title transferred

otherwise manufactured

or manipulated without

being subject to U.S.

Customs laws


142

FTZ Limitations

FTZ Board may deny permission to manipulate,

manufacture, or exhibit merchandise in order to

protect public interest, health or safety

Certain products subject to an internal revenue tax

(i.e., alcoholic beverages) may not be

manufactured in a zone

Limitations exist for retail trade in FTZ


AUDIT-INSPECTION

REGULATION OF FTZS


144

Access to Zones –

Audit Inspection

Customs officers permitted access to zone to conduct

audits, spot checks, or other lawful purposes

Operator should cooperate in spot checks, audits, or

other lawful actions

Audit inspection, began in 1986, based on six

principles which follow


145

Six Principles of Audit-Inspection

1. Determination of identity and nature of merchandise

before or upon deposit in zone

2. Issuance of a prior permit by CBP for receipt,

delivery from zone, and processing in zone

3. Assumption of responsibility by operator for

merchandise in zone


146

Six Principles of Audit-Inspection

4. Performance by CBP of audits and compliance

reviews to verify operator compliance

5. Adequate bonding of operator and assessment of

liquidated damages by CBP to assure compliance

6. Authority for CBP to suspend activation or

recommend revocation to FTZ Board of any zone

grant not complying with laws and regulations


147

Spot Check

(Compliance Review)

Frequency based on a port‘s risk assessment of

an individual zone, usually at least annually

CBP physically observes or examines records,

transactions, procedures, or conditions Determines operators and users are in compliance with

applicable laws, regulations and procedures

Provides CBP auditors with information in planning and

conducting audits of zone records


148

Spot Check

(Compliance Review)

Usually made without advance notification

Company representative invited but not required to

be present (company should require CBP be

escorted at all times!)

Usually limited in time to one or two days

Frequency depends on CBP assessment of risk

May involve quantity count of selected UINs and

reconciliation to admission file / inventory records

In manufacturing operation, emphasis placed on

receipt and shipment into operator‘s records


149

Compliance Assessment

Begun October 1, 1995, Renamed ―Focused

Assessments in 2002/2003

Employs statistical sampling techniques

Uses audit procedures with emphasis on importer‘s

internal controls

Highlights principles contained in Mod Act

Customs strives for importer compliance rather that

revenue collection


ENFORCEMENT


151

FTZ Enforcement Actions

Range from warning notices to criminal sanctions and

jail sentences

Sanctions should be fair, not unduly burdensome as

FTZs provide an important service to importing

community

Sanctions should be commensurate with seriousness

of violation

Warning notices

Liquidated damages

Fines / Penalties

Incarceration


152

Fines, Penalties, Forfeitures,

Liquidated Damages

Criminal Sanctions for Willful Violations

Civil Sanctions 19 U.S.C. §1592, FTZ Regulations

Failure to keep adequate records

Failure to account for merchandise entering, leaving or

remaining in zone

Shortages, overages


153

Fines, Penalties, Forfeitures, Liquidated

Damages

Section 592 Penalties –

Negligence

Gross Negligence

Fraud

Prior Disclosures

Liquidated Damages – FTZ Operator‘s Bond

Violations of FTZA subject to max. fine of $1000 per

day

Further action could be suspension of activation

and/or recommendation of revocation to FTZ Board


154

W A R N I N G

YOU ARE ENTERING A US FOREIGN-TRADE ZONE

Whoever maliciously enters with intent to remove any

merchandise, or unlawfully removes merchandise from US

Customs and Border Protection custody or control shall be

guilty of a federal crime and fined not more than $250,000 or

imprisoned not more than ten years or both. Persons and

conveyances entering and leaving this zone are subject to

examination. 18 USC 549, 3571


FTZ ADMISSIONS


156

Admission

Admit means to bring into zone with zone status

Admission vs. entry

Conditionally admissible -- Grant Restriction


157

First Inventory

Where does it come from?

What is its status?


158

Admissions Documentation

CBPF214

Required for all foreign-status (NPF, PF)

Required for zone-restricted merchandise

Could be required for domestic merchandise

Admissions information may be filed electronically

using e214 process

Available through ABI system


159

Admissions Documentation

Supporting Documentation

Two copies of commercial invoice

Bill of Lading

In-bond documentation for movement from port of arrival if different from zone port

Evidence of right to make entry

Carrier release order

And any other information required by Customs

CBPF 214A required for transmission by Customs to the Census Bureau if e214 not used (pink copy)


160

Purpose of Admission Documentation

Establish identity of merchandise admitted

Type of merchandise

Quantity

Value

Establish zone status for treatment of merchandise

Establish CBP liability of operator

Submit information about import to Census


161

Types of CBPF214

Standard 214

Based on BOL

Customs‘ release required prior to delivery to zone

Blanket 214

Shipments arrive under multiple CBP in bond

transportation documents

Shipments which are destined to same zone

applicant on single business day

Must use e-214

Customs authorization is required


162

Types of CBPF 214

Cumulative

Reports all admissions for single day

Available only in direct delivery operations (19 CFR

146.39)

File written application with Port Director at least 30 days to

approve procedure.

Port Director shall approve if:

Goods are not restricted, and

Merchandise and subsequent operations known, predictable,

fixed by business conducted at site, and

The operator is the owner of goods

Requires use of e214


163

Zone-to-Zone Transfers

Special attention paid to zone status of goods

received from another zone

Certain restrictions may apply based on zone

status election at first zone

Forwarding documentation history closely

monitored to ensure compliance

No Census reporting required


164

CBPF 214 Attachments

Documents required to prepare CBPF 214

Bill of lading

In-bond document

Commercial or proforma invoice

Packing List or Receiving Report


165

Merchandise Examination

Port Director may cause merchandise to be

examined or authorize delivery to zone without

examination under a Standard Admission

Direct delivery procedures allow cargo to move to

zone without examination


166

Merchandise Examination

Objectives of examination

Are the goods admissible?

Determine liability of zone operator

Reduce the need for exam

Future admissions

Upon removal

Ensure compliance with all applicable laws and

regulations

At CES/CFS, Zone or elsewhere


167

Document Review

Customs may waive requirement for presentation of

supporting documents

Documents must be retained at zone

Customs reviews documents and supporting

documentation for completeness and accuracy


168

Permit to Transfer/Admit

Permit to transfer allows in bond movement to zone

within port boundaries once authorized by CBP

Officer

CBP approval for admission occurs when:

Admission application properly executed with all

data completed accurately

Operator has approved admission application

Any required examination completed

All requirements fulfilled


169

Arrival at the Zone

Operator checks

CBPF214 for required signatures

Seals on conveyances

Description, quantities against packing list

Operator unloads into activated area


170

Admission Process

Paper Standard Admission

CBPF214 completed and

authorized by:

Operator – Agrees to

accepting goods at FTZ

In-Bond carrier - Accepts

liability during transit

CBP - Authorizes

designation of zone status

and admission to FTZ

Goods transferred to FTZ

Operator - Concurs delivery

of all goods and returns

CBPF214 to CBP

Electronic Standard Admission

Operator - Transmits CBPF214

data

CBP accepts CBPF214 data

Operator - Transmits Accepted

Quantity Not Verified

Operator - Transmits ePTT


Operator - Transmits Arrival

Operator - Transmits Final

Concurrence


171

Admission Process

Electronic Direct Delivery

Admission

Operator – Transmits ePTT


Operator - Transmits Arrival

Operator - Transmits CBPF214

data

Operator - Transmits Final

Concurrence

Paper Direct Delivery

Admission

Operator/Freight Forwarder –

Completes PTT


Operator verifies goods,

completes CBPF214 and

sends to CBP

CBP - Authorizes designation

of zone status and admission

to FTZ


172

Discrepancies

Operator reports to the Port Director any discrepancies

If paper CBPF214 filed On the CBPF214 in block 46 if discovered immediately

On a copy of the CBPF214 if within 15 days after admission

On a Manifest Discrepancy Report (MDR) within 20 days after admission

If e214 and direct delivery, identify discrepancy on e214 for overage

If e214 and direct delivery, identify shortage by MDR to carrier and correct quantity received on e214

If e214 and standard admission, through filing of replacement e214


173

Admission (at Last)

Inventory Identification Requirements

Under LOT SYSTEM, Operator marks packages

with the zone lot number

Under UIN SYSTEM, no special marking is

required

Operator signs the CBPF214 and accepts zone

liability for the merchandise


174

Time of Admission

Merchandise is admitted only when

Customs has properly approved the

CBPF214, establishing the zone status

Operator has signed for receipt into the

activated area of the zone, accepting

liability under its FTZ Operator‘s Bond


175

Domestic Merchandise

No CBPF214 required unless requested by the

Commissioner of Customs

Recorded in receiving report or system

May physically be brought into the activated area of

a zone


176

Production Equipment

Production equipment is in general machinery used

for manufacturing operations

Check on status before admission

May be admitted without payment of duties until

completely assembled, installed, tested and used in

full scale production

Importer must furnish certification that duties will be

paid when production commences (on CBP 214)

Merchandise shall be subject to classification

according to its character, condition, and quantity

and the rate of duty applicable at the time the

equipment is used in production – PF/NPF status


177

Other Admission Issues

Temporary Importation Under Bond

Transfer from a Bonded Warehouse

Temporary Deposit


178

Harbor Maintenance Fee (HMF)

Applied at a rate of 0.125% of entered value for

imported cargo unloaded from a commercial vessel

at a U.S. port subject to the fee (19 CFR §24.24)

Paid quarterly instead of at admission

Exports are not subject to HMF

CBP focusing on payments being made within 31

days of end of quarter


HANDLING GOODS IN FTZ


180

Storage Conditions

Zone will be safe for personnel

Merchandise will be protected from theft, loss,

damage, and deterioration

Compliance Reviews, inventories, and audits can

be performed efficiently by Customs and zone

personnel

Zone will not endanger the public health or safety


181

Manner of Storage

Aisles will be established and maintained, and

doors and entrances left unblocked, for entrance by

Customs officers and other persons in performance

of their official duties

Port Director may require segregation of any zone

status merchandise when necessary to protect the

revenue or properly administer U.S. laws


182

Activated Area

No zone status merchandise shall be stored,

even temporarily, outside the activated area

except:

Merchandise covered by a temporary

removal permit, or

Domestic merchandise for which no permit is

required


183

Application to Manufacture, Manipulate

or Destroy

Application Process (19 CFR §146.9)

Operator must file CBPF216 prior to

manufacture, manipulation or destruction of

merchandise admitted to zone

May be blanket (annual) or single transaction


184

Activities Authorized

Manufacturing - A process resulting in a tariff

classification change or creation of new article of

commerce

Exhibition - Display of merchandise

Destruction - Complete destruction resulting in no

recoverable residue of any commercial value

Manipulation – Repacking, sorting of merchandise

that does not change merchandise


185

Submission of CBPF 216

Must be filed by the operator

Description of activity must be detailed so Port Director

can determine whether permit should be approved

Individual 216 must be detailed

Blanket 216 should describe merchandise in detail but

not required to provide yearly quantity, value, etc.

For continuous or repetitive operation

May include destruction with Port Director approval

Port Director may return the application for correction

Change in operation not described in original 216

requires a re-filing of application


186

CBPF 216 Recordkeeping

Upon approval, Port Director should return a copy

of the CBPF216 to the operator

The operator retains the approved application with

its zone records.

Port Director may revoke any blanket permit and

require the filing of individual CBPF216s

Decision may be appealed


187

Approval of CBPF 216

The Port Director will approve the application unless:

The proposed operation would be in violation of

law or regulation

Place designated for operation is not suitable

The Executive Secretary of the FTZ Board has not

granted approval of the manufacturing operation


188

Destruction

Method of destruction shall be stated in the

application

Method must be sufficient to assure merchandise is

completely destroyed

Note: Sale of scrap to recycler does not constitute

destruction since there is residual value but must

be covered by the 216.


189

Approval of Destruction

Application shall be approved unless:

Proposed destruction would be in violation of law

or regulation

Place designated for performance is not suitable

Port Director not satisfied destruction will be

effective, complete, and carried out in safe manner

Destruction permitted outside the zone

Conditions exist to protect the revenue

Cannot be accomplished in zone

Hazardous materials


190

Supervision of Destruction

At discretion of Port Director

Particularly important for restricted merchandise

Residue of destruction with no commercial value may

be transferred to Customs territory

If Port Director does not supervise, operator

completes bottom portion of CBPF216


191

Destruction of Alcohol

Distilled spirits, wines, and fermented malt liquors

may not be admitted in ZR status for the purpose of

destruction

Destroyed only with permission from ATF (Section

146.44(c))

Destruction may be physically supervised at

discretion of Port Director


192

Country of Origin Marking

Distribution – No origin change from FTZ receipt

Manufacturing in a zone – may cause substantial

transformation

New FTZ manufactured product

May no longer be considered an article of foreign origin

United States becomes country of origin

Not necessary to be marked Country of Origin: USA

Do not use ―Made in USA‖ or similar language

―Assembled in the U.S. with foreign and domestic

components‖ may be permitted


193

Country of Origin Marking

Goods may be admitted to zone without or with

improper country of origin marking

Permission to mark country of origin requested on

CBPF216 (manipulation) – Individual 216


REMOVAL OF MERCHANDISE FROM

FTZ


195

Temporary Removal

Upon permit, zone status merchandise may be

removed up to 120 days for repair, restoration, or

incidental operations such as testing, photography,

examination, etc.

Application shall be made on individual CBPF216

No extensions granted beyond the 120 days

All merchandise removed from the zone must be

returned to the same FTZ


196

Conditions for Temporary Removal

Merchandise may not be removed before

application is approved

Except for repairs, no other merchandise may be

added to, combined with, or incorporated in

removed merchandise, and no value may be added

Quantities removed and returned must be balanced


197

Return of Temporary Removals

Operator shall certify the return of merchandise on a

CBP216 and forward to Port Director

Merchandise shall be returned in same zone status it

had upon removal

If merchandise is not timely returned to the zone, it

shall be considered to have been transferred from the

zone without a permit

Violation considered a merchandise default


198

Transfer of Merchandise

Entry into U.S. commerce

Normal entry procedures made on a Type

―06‖ CBPF 7501

Zone-to-zone transfers

Merchandise may be transferred between

zones in-bond without entry


199

Transfer of Merchandise from FTZ

Duty deferral entry/claim (NAFTA) made on a

CBPF 7501

In bond export from zone made on a CBPF 7512

Only for manufactured goods exported to Canada and

Mexico

Requires U.S. entry and duty payment on non-NAFTA

material

Type 08 or 06 entry


200

Release and Transfer

Removal of domestic merchandise does not require

Customs permit

Removal of foreign merchandise requires Customs

permit

Consumption Entry

In-bond Removal

In-transit (IT - 61)

Transportation and Export (T&E - 62)

Immediate Export (IE - 63)

Applied for by importer of record


201

Release and Transfer

Merchandise for which a permit has been issued must

be physically removed within five working days

Unless included on estimated weekly entry for

consumption or in-bond movement

Unless extended time has been approved by Port

Director


202

Administrative Exceptions

Port Director may allow constructively transferred

merchandise to remain in the zone for extended

period if the importer provides in writing:

Merchandise will not be further manufactured so

as to effect a change in tariff classification

Operator will provide a proper audit trail to verify

merchandise was not changed after entry


203

Time of Transfer

A proper permit to transfer must be issued by Customs to Importer of Record (not operator)

Merchandise is then ‗released‘ to operator

Operator releases merchandise to carrier, importer who has signed to physically remove the merchandise from the activated area of the zone


204

Entry for Consumption

Operator establishes point where goods enter commerce

of the US

Movement past that point out of the zone constitutes an

‗entry‘

At that point, goods become subject to all Customs and

other agency regulations pertaining to imported goods


205


Permission to ―enter‖ goods into US Commerce filed by

Importer of Record

CBPF 3461 - Immediate Delivery/Entry used (type

06)

Request by Harmonized Tariff Number


206


In a manufacturing zone

Majority of goods entered as finished product

Merchandise may also be entered as

Parts in PF status

Repair Parts

Adjustments

In a general purpose zone/distribution zone merchandise entered is almost always in the same condition as admitted

Entry subject to selectivity just like any other entry

Once ―released‖ by Customs, goods can physically leave zone


207


Importer of Record has 10 working days to file Entry

Summary (CF7501)

Classifies, values, quantifies goods entered

Accompanied by payment of duty

On Importer‘s Bond, not Operator‘s Bond

Subject to review by Import Specialists

Must satisfy all entry regulations as if entered directly

from foreign country

Including requirements of other U.S. government

agencies


208

HTS Classification

Along with any FTA or other preference program, will determine duty rate paid on goods removed from the zone

Determined by status selected at time of admission for merchandise removed

NPF will result in the use of the HTS of the product removed from the zone Manufacturing zones need to classify manufactured

products (subassemblies)

PF will result in the use of the HTS of the product as admitted to the zone – regardless of what it is when it is removed from the zone


209

Valuation

Dutiable value

Price actually paid/payable for merchandise in

transaction that caused the merchandise to be

admitted into zone, plus statutory additions

What the zone user paid for the merchandise

Total zone value

Price actually paid/payable to the zone seller in

transaction that caused merchandise to be

transferred from zone

Price for which the zone user sold the

merchandise


210

Valuation

Value recorded at time of admission used to determine

value of entered merchandise

Manufactured Items

Dutiable value

Sum of value of all UINs with foreign status included in the

manufactured item

Not included:

Value of domestic material added

Value of US labor, overhead

Non-manufactured items

Value = admitted value


211

Country of Origin

Goods manufactured in FTZ

Foreign country with highest total value becomes

country of origin for Census reporting purposes

Any foreign status merchandise requires foreign

country of origin

Non-manufactured goods – no change in country of

origin


212

Weekly Estimated Entries

Purpose of weekly entries

Provides for continuing rapid removal of goods from the zone

Permission for release from Customs custody based on

estimates of shipments

Weekly entry on CF 7501 after the week is over

Weekly entry allowed for manufacturing, storage, etc. (all

types of zones)

Weekly entry not permitted

Quota merchandise

Merchandise subject to FTZ Board restrictions on use (e.g.,

sugar)


213

Weekly Estimated Entries

Estimate submitted to Customs on CBP3461

Estimate at HTS level, not UIN level

Establishes maximum quantity that can be removed

Can be a template used each week

Must be accepted and APPROVED by Port Director

before shipments begin for the week

Supplemental estimates can be filed if necessary

Do not exceed estimated quantity for the week


214


In order to avoid payment of duty when shipping goods to another zone:

Goods transferred in-bond by a bonded carrier Licensed cartman (within port)

FTZ Operator of destination zone

Bonded carrier (between ports)

Customs form CBPF 7512 is required for in bond movement

Must be approved by Customs prior to removal of merchandise from the zone

Individual CBPF 7512 for each shipment or

Weekly zone-to-zone procedure for approval is available


215


(from one port to another port)

Can prepare and submit an individual CBP7512 for each unique shipment

Statements on CBPF 7512

Must state goods are FTZ goods

Indicate originating zone

Indicate zone status of goods

Requires CBP signature for each shipment

Liability is transferred to carrier‘s bond

Paper used when zone-to-zone moves are infrequent

Consider QP/WP option


216


(from one port to another port)

Weekly Zone-to-Zone Process

Estimated CBPF 7512 submitted and approved by

Customs beginning of week granting permission for

week‘s shipments

An individual CBPF 7512 still prepared for each

unique shipment leaving zone

Operator signs on behalf of Customs

Copy submitted to Customs after shipment for entry

into CBP in bond system

Consider QP/WP option


217


(within the same port)

Using electronic CBP permit to transfer system (ePTT)

or other approved locally approved process, mirror the

process used for transfers from port-to-port

CBPF 7512 not required for within port transfers


218


Upon arrival at receiving zone, a CBPF214 is filed to

accept liability for merchandise

Must be able to cross reference admission to second

zone with shipment from first zone which must tie back

to original admission

Care must be taken to ensure that zone status from

originating zone is retained on admission in receiving

zone


219

Exportation from Zone

Process is the same as for zone-to-zone transfers except:

Entry type on the CBPF7512 will be: Transportation and Export (T&E)

Immediate Export (IE)

Final destination will be foreign country

Weekly process is available (QP/WP)

Exporter must file Electronic Export Information (EEI)


220

Removal of ZR Merchandise

ZR status merchandise may be transferred to the

Customs territory:

For exportation (via T&E or IE)

For warehousing pending exportation

For destruction

For transfer to another zone (IT)

For delivery to a qualified aircraft (IT)

ZR status merchandise may be entered for

consumption only if approved by the FTZ Board as

being in the public interest


221

NAFTA

Purpose is to provide preferential duty treatment for

goods of parties to agreement

Special ‗safeguards‘ to prevent extending preferential

duty to goods imported from other countries used in

manufacturing/processing in special ‗zones‘ –

―platforming‖

Maquiladoras in Mexico

Inward processing zones in Canada

FTZs in the US


222

NAFTA Example 1

US duty rate = 2.5%; 2.5% of $5,000 (foreign

content) = $125 that would be paid to U.S.

Customs is declared

Canadian duty rate = 1.8%; 1.8% of $10,000

(total value) = $180 is paid to Canada Border

Security Agency (CBSA)

Duty Payment: $180 paid upon entry into

Canada documented to CBP, so US exporter

pays $0 (except MPF and any applicable

ADD/CVD)


223

NAFTA Example 2

US duty rate - 2.5%; 2.5% of $5,000 (foreign

content) = $125

Canadian duty rate - 0.9%; 0.9% of $10,000

(total value) = $90

Duty Payment: $90 paid upon entry into

Canada documented to CBP, so US

exporter pays $35 (plus MPF and any

applicable ADD/CVD)


224

NAFTA Example 3

US duty rate - 2.5%; 2.5% of $5,000

(foreign content) = $125

Canadian duty rate - 0%; 0% of $10,000

(total value) = $0

Duty Payment: so $0 paid upon entry into

Canada documented to CBP, and $125 (plus

MPF and any applicable ADD/CVD) paid to US


PERIODIC REPORTING


226

Periodic Reporting

Discrepancy reporting and recording

Census Reporting – only paper 214

Harbor Maintenance Fees – CBP 349

Annual Report to the FTZ Board

Annual Reconciliation – CBP letter

Systems review – CBP letter

FTZ Board Annual Report to Congress

Blanket CBPF 216


227

Discrepancy Reporting

Shortages, in writing and upon identification

Theft or suspected theft

Merchandise not properly admitted into zone (overages)

Shortages of 1% of the quantity in a lot or unique identifier

and subject to duties and taxes of $100

Overages of foreign status merchandise

File either

CBPF214

Customs Entry

Within 5 days after identification

Extension may be granted by Port Director


228

US Bureau of the Census

Statistical data on all admissions to zone must be

reported

Via e214 - Census extracts electronically, or

If paper CBPF214, pink copy of CBPF214 filed

with CBP for forwarding to Census Bureau

Electronic Export Information (EEI) through

AESDirect (SED became EEI in Summer of 2008

when mandatory AESDirect filing became

mandatory)


229

Annual Report to FTZ Board

Information required for FTZ Board Annual Report

Beginning and ending value of inventory

Value of merchandise admitted

Value of merchandise removed

Narrative describing zone activities, benefits

Value added

Recently revised based on calendar year (January 1 through December 31)

Submitted electronically by Operator to Grantee

Forwarded to the Foreign-Trade Zones Board by the Grantee


230

Annual Reconciliation

Prepared by 90 days after end of zone year

Contains a description of merchandise showing zone

status, quantity on hand at beginning and end of

year, cumulative receipts and transfers (by unit), and

cumulative positive and negative adjustments (by

unit) made during the year

Operator shall submit certification letter within 10

working days after the report has been prepared


231

Annual Systems Review

Operator shall perform an annual internal review and

report any deficiencies to the Port Director


232

Reporting Responsibilities

Upon request, the operator shall report to the Port

Director

A list of officers or key employees within 30 days

after written demand

Any vehicle arriving with broken, missing, or

improperly affixed seals


233

CBP Reporting

In bond document for each FTZ admission

Daily admissions into zone

Weekly estimate for imports

Weekly entry with duty-payment

06/08 NAFTA entries for removals from the zone

Weekly estimate for exports – contra QP/WP

In-bond document for each export shipment

Weekly reconciliation of exports – contra QP/WP

More . . .


234

CBP Reporting

Quarterly HMF report and payment

Annual blanket CBPF216

Customs bonds (importer‘s, zone operator, and

custodial)


FTZ RECORD KEEPING


236

Record-Keeper

Owner, importer, consignee, importer of record, entry filer, or other person who:

Imports merchandise into US Customs territory, files a drawback claim, or transports or stores merchandise carried or held under bond

Knowingly causes importation or transportation or storage of merchandise carried or held under bond into or from US Customs territory

An agent of any person described above

A person whose activities require the filing of a declaration or entry, or both


237

Records to Customs

Be prepared to produce or transmit to CBP any

records CBP may demand

Records that are submitted to CBP and

subsequently returned, or

Records that were not reviewed by CBP at the time

of entry (paperless entries)


238

How Long? Record

Retention Requirements

5 years from date of entry

5 years from date of activity that created record

60 days after release/conditional period for packing lists

2 years from the date of the informal entry

2 years from the date of entry of duty-free merchandise

5 years after removal of merchandise from an FTZ

Other specific retention periods mentioned in § 163


239

Resources

Laws, Regulations, Rulings

FTZ Board

www.trade.gov/ftz

Customs resources

Statutes, regulations, rulings, cases

CBP FTZ Manual

www.cbp.gov

Zone grantee/operator

NAFTZ

www.naftz.org

Accredited Zone Specialists (AZS)


http://www.trade.gov/ftz

http://www.cbp.gov/

http://www.naftz.org/

240

Questions?

For more information, please contact the NAFTZ Office:

1001 Connecticut Avenue, N.W.

Suite 350

Washington, D.C. 20036

(202) 331-1950

www.naftz.org

THANK YOU


http://www.naftz.org/

Lewis Leibowitz, NAFTZ Chairman Scott Wienke, NAFTZ Vice ...

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