|U.S. Foreign-Trade Zones Board|
February 14, 2000
Memo For: Foreign-Trade Zone Grantees U.S. Customs Service Port DirectorsRe: Clarification of Production Equipment Provision
Section 81c(e) of the FTZ Act allows zone users to admit production equipment that is intended for use in Board authorized FTZ activity. Payment of duty would be deferred until such equipment goes into use as production equipment as part of FTZ activity, at which time the equipment is entered for consumption as completed equipment. Alternatively, production equipment that is not for use within a zone may continue to be treated as normal merchandise. Section 81c(e) is interpreted as follows:
1. The provision applies only to production equipment and equipment components that are for use in conducting FTZ Board authorized activity. For example, a subzone that is authorized by the FTZ Board to produce automobiles would be able to admit to the subzone equipment related to the production and distribution of automobiles at that facility.
2. The provision applies only to merchandise that can be specifically identified as production equipment or equipment components. It does not apply to general materials (such as steel mill products) that are used in the installation of production equipment or in the assembly of equipment. It also does not apply to materials used in the construction or modification of the plant that houses the equipment. (A good test would be to ask whether the article would otherwise be classified as an equipment component if it were immediately entered for consumption.)
3. The equipment should be evaluated for Customs duty purposes in its condition when it goes into production (i.e., as complete production equipment), keeping in mind the requirements for evaluating incoming articles subject to antidumping/countervailing (AD/CVD) orders. The FTZ regulations require the election of privileged foreign status, upon admission to the zone, on any incoming merchandise that is subject to AD/CVD orders (15 CFR Sec. 400.33). When such merchandise leaves the zone for U.S. commerce, it will be subject to AD/CVD procedures based on its condition when it arrived at the zone.
4. Production equipment that is not intended for use within a zone for FTZ Board authorized activity may be admitted to a zone as normal merchandise, provided the equipment is entered for consumption or exported prior to its use. Such equipment may be treated as any other type of merchandise. For example, it may admitted to a zone as merchandise for storage and minor manipulation under a zone's general scope of authority. It may also be assembled, processed or manufactured provided there is specific authority from the FTZ Board (as is the case with any merchandise).
Grantees making applications to the FTZ Board that involve activity that is likely to involve production equipment that may be admitted under the provision (usually subzones) should ensure that the application discusses the potential for use of the provision and include a range of potential savings in the discussion of the overall FTZ saving estimate.
If you have any further questions, you may call me at (202) 482-2862.