DEPARTMENT OF THE TREASURY
AGENCY: United States Customs Service, Department of the
19 CFR Parts 10 and 147
Drawback of Internal Revenue Tax and Transfer of Merchandise
Entered for a Trade Fair From a Foreign-Trade Zone
48 FR 27776
June 17, 1983
ACTION: Proposed rule.
SUMMARY: This document proposes amendments to the Customs Regulations
relating to drawback of internal revenue tax and transfer of merchandise
entered for a trade fair from a foreign-trade zone, to substitute current
references to Tariff Schedules of the United States item numbers. The
foregoing changes are necessary to conform the regulations to statutory
provisions. The document also proposes a regulation amendment to clarify
that the transfer of articles entered for a trade fair from a foreign-trade
zone status of "zone restricted", and afterwards entered for consumption
from a trade fair, can only be accomplished after the Foreign-Trade Zones
Board has approved such a transfer as being in the public interest. This
nonsubstantive change is necessary to avoid possible misinterpretation of
the regulations and clearly state statutory requirements.
DATES: Comments must be received on or before August 16, 1983.
ADDRESS: Written comments (preferably in triplicate) should be addressed
to the Commissioner of Customs, Attention: Regulations Control Branch,
U.S. Customs Service, 1301 Constitution Avenue NW., Room 2426, Washington,
D.C. 20229. FOR FURTHER INFORMATION CONTACT:
Legal aspects of Part 147, Customs Regulations: Donald Beach, Carriers,
Drawback and Bonds Division (202-566-5865)
Legal aspects of Part 10, Customs Regulations:
Russell X. Arnold, Classification and Value Division (202-566-5727)
Herbert Geller, Duty Assessment Division (202-566-5307)
U.S. Customs Service, 1301 Constitution Avenue NW., Washington, D.C. 20229.
TEXT: SUPPLEMENTARY INFORMATION:
This document proposes to implement Pub. L. 91-692 by amending the
following two sections of the Customs Regulations: Section 10.3, Customs
Regulations (19 CFR 10.3), and footnote 2 to that section relating to
drawback of internal revenue taxes; and @ 147.45, Customs Regulations
(19 CFR 147.45), relating to the transfer of merchandise entered for a
trade fair from a foreign-trade zone, to delete the reference to item
804.00, Tariff Schedules of the United States, (TSUS) (19 U.S.C. 1202)
and substitute TSUS items 804.10 and/or 804.20, as appropriate.
Prior to Pub. L. 91-692, articles produced in the United States with
the use of foreign articles imported under bond were excluded from entry
under the provisions of TSUS item 804.00 as "American goods returned."
Such articles would have to be entered and duty paid under another
applicable provision of the TSUS. However, articles produced in the United
States with the use of foreign articles and exported with the benefit of
drawback (the refund of a duty or tax lawfully collected because of a
particular use of the merchandise on which the duty or tax was collected
(section 313(a) Tariff Act of 1930, as amended (19 U.S.C. 1313(a)) could
be imported under TSUS item 804.00 as "American goods returned" upon
repayment of the drawback.
In the manufacture of aircraft in the United States, it is fairly
common practice to use some foreign articles or materials. Export sales
of aircraft produced in the United States are significant, and normally,
the duty paid on the foreign articles used in the manufacture of such
aircraft is subject to the drawback procedure set forth in Part 22, Customs
Regulations (19 CFR Part 22), under which 99 percent of the duty paid on
the foreign articles or materials is refunded upon exportation of the
completed aircraft. In some instances, foreign articles for use in
aircraft are temporarily entered to be repaired or altered under TSUS
item 864.05, free of duty under bond (see @@ 10.38 and 10.39, Customs
Regulations (19 CFR 10.38, 10.39)). Such temporary duty-free entry
arrangement is preferred by some manufacturers since no large amount of
capital is committed to duty payment for the period between the original
entry of the foreign component and the drawback of the duty upon
exportation of the aircraft.
Over the years both provisions, i.e., drawback and temporary
importation under bond, have been used with respect to eliminating the
cost of U.S. duty on foreign articles used in the domestic manufacture of
aircraft which are subsequently sold abroad. Competition in the sales of
new aircraft in world markets is rising. Very often the "trade in"
allowance for old aircraft is an important factor in obtaining contracts
for sales of new aircraft abroad. Under these circumstances, the dutiable
status of the old aircraft being "traded in" and returned to the United
States becomes important.
In view of the importance of the "trade in" of old aircraft to sales
of new aircraft abroad, Congress believed it important to provide similar
Customs treatment to aircraft produced in the United States which are sold
abroad and returned, whether the drawback or temporary importation bond
procedure was used with respect to foreign components. Pub. L. 91-692
provided such Customs treatment for aircraft by amending the TSUS to
delete item 804.00, which provided for articles previously exported from
the United States which are excepted from free entry under any of several
other provisions of Schedule 8, Part 1, TSUS, and are not otherwise free of
duty, and inserting in its place (a) TSUS item 804.10, relating to aircraft
exported from the United States with benefit of drawback or TSUS item
864.05, and (b) TSUS item 804.20, relating to other articles. In light of
the foregoing, it is necessary to amend section 10.3 and footnote 2 to
that section and @ 147.45 to delete the reference to TSUS item 804.00 and
substitute a reference to TSUS items 804.10 and/or 804.20, as appropriate.
In addition to the above proposed amendment, Customs proposes to amend
@ 147.45 to clarify that the transfer of articles entered for a trade fair
from a foreign-trade zone status of "zone restricted" and afterwards
entered for consumption from a trade fair can only be accomplished after
the Foreign-Trade Zones Board ("Board") has approved such a transfer as
being in the public interest.
Customs has determined that @ 147.45 does not, in its present form, make
it clear that the transfer of articles entered for a trade fair from a
foreign-trade zone status of "zone restricted" and afterwards entered for
consumption from a trade fair can only be accomplished after the Board has
approved such a transfer as being in the public interest.
Foreign or "free" trade zones are secured areas legally outside a
nation's customs territory. Their purpose is to attract and promote
Foreign or "free" trade zones are secured areas legally outside a
nation's customs territory. Their purpose is to attract and promote
international trade. Zones are operated as public utilities by states,
their political subdivisions, or corporations chartered for that purpose.
Foreign-trade zones usually are located in or near customs ports of entry
at industrial parks or terminal warehouse facilities.
The Foreign Trade Zones Act of 1934 (19 U.S.C. 81a et seq. ) created the
Board to review and approve applications to establish, operate, and
maintain foreign-trade zones (see 15 CFR Part 400). The Board may approve
any zone or subzone which it deems necessary to serve adequately "the
convenience of commerce." The Board also regulates the administration of
foreign-trade zones and the rates charged by zone operators, known as
As provided in Part 146, Customs Regulations (19 CFR Part 146), Customs
is responsible for the transfer of merchandise into and out of a zone and
for matters involving the collection of revenue. The Customs Office of
Regulations and Rulings, at Customs Headquarters, provides legal
interpretations of the applicable statute, Customs Regulations, or
The district director of Customs in whose district a zone is located is
in charge of the zone as the local representative of the Board. He
controls the admission of merchandise into the zone, the handling and
disposition of merchandise in the zone, and the removal of merchandise
from the zone.
The exportation, entry, classification, and appraisement of merchandise
tranferred from a foreign-trade zone is affected by the "status" of the
merchandise in the zone. Merchandise may have a (1) privileged foreign
status, (2) privileged domestic status, (3) zone restricted status, (4)
nonprivileged status, foreign and domestic, or (5) mixed status. Each
status, which is provided for in @@ 146.21 through 146.25, Customs
Regulations (19 CFR 146.21-146.25), is discussed below.
Privileged foreign status. Prior to any manipulation or manufacture
which would change its tariff classification, an importer may apply to the
district director to have imported merchnandise in the zone given
privileged foreign status. The merchandise is classified and appraised and
duties and taxes are determined as of the date the application is filed.
Taxes and duties are payable, however, only when such merchandise or
articles manipulated, manufactured, or produced from such merchandise, are
transferred from the zone to the customs territory of the United States.
Privileged domestic status. Privileged domestic status, which may be
approved upon application to the district director, is available for
merchandise which is (a) the growth, product, or manufacture of the United
States on which all internal revenue taxes, if applicable, have been paid;
(b) previously imported merchandise on which duty and/or tax have been
paid; or (c) merchandise previously admitted free of duty and tax.
Privileged domestic merchandise may be returned to the customs territory
free of duty and tax.
Zone restricted status. Merchandise tranferred to a zone from the
customs territory for storage or for the purpose of satisfying a legal
requirement for exportation or destruction is considered exported and
cannot be returned to the customs territory for consumption unless the
Board rules specifically that its return is in the public interest. The
status of merchandise tranferred to a zone under these circumstances is
"zone restricted." Zone restricted merchandise may not be manipulated,
except to destroy, it, or manufactured in a zone. As in the case of
privileged status, the zone user must apply for zone restricted status on
the appropriate foreign-trade zones form.
Nonprivileged status. Nonprivileged status is a residual category for
merchandise which does not have privileged or zone restricted status.
Articles composed entirely of or derived entirely from nonprivileged
merchandise are classified and appraised in their condition at the time of
legal transfer to the customs territory for consumption or for customs
Mixed status. Since manipulation and manufacture are permitted in a
zone, articles transferred to the customs territory may be composed in part
of, or derived in part from, merchandiste that is privileged and
nonprivileged, whether foreing and/or domestic. the articles are appraised
according to the status of the merchandise of which they are composed or
from which derived, as explained above.
Section 146.25, Customs Regulations, states that zone restricted
merchandise, other than as set forth in @ 146.47, Customs Regulations, may
not be returned to the customs territory for domestic consumption except
where the Board deems such returns to be in the public interes.
Section 146.47 states that zone restricted merchandise may be returned
to the customs territory only for entry for exportation, for entry for
transportation and exportation, for destruction (except destruction of
distilled spirits, wines, and fermented malt liquors), for transfer from
one zone to another, or for delivery to a qualified vessel or aircraft or
as ground equipment of a qualified aircraft under section 309 or 317,
Tariff Act of 1930, as amended (19 U.S.C. 1309, 1317). Any other transfer
requires the Board to rule that the return of the merchandise to the
customs territory for domestic consumption is in the public interest.
Accordingly, to avoid any misunderstanding, Customs is of the opinion
that @ 147.45 should be amended to clarify that the transfer of articles
entered for a trade fair from a foreign trade zone status of "zone
restricted" and afterwards entered for consumption, can only be
accomplished after the Board has approved such a transfer as being in the
Executive Order 12291
This document will not result in a regulation which is a "major rule" as
defined by section 1(b) of Executive Order 12291.
Regulatory Flexibility Act
The provisions of the Regulatory Flexibility Act relating to an initial
and final regulatory flexibility analysis (5 U.S.C. 603, 604) are not
applicable to these amendments because the rule will not have a significant
economic impact on a substantial number of small entities. The proposed
amendments are technical conforming amendments which clarify existing
regulatory requirements without making any substantive change.
Accordingly, it is certified under the provisions of section 3,
Regulatory Flexibility Act (5 U.S.C. 605(b)) that the rule, if promulgated,
will not have a significant economic impact on a substantial number of
Before adopting this proposal, consideration will be given to any written
comments (preferably in triplicate) that are submitted timely to the
Commissioner of Customs. Comments submitted will be available for public
inspection in accordance with @ 103.11(b), Customs Regulations (19 CFR
103.11(b)), on regular business days between 9:00 a.m. and 4:30 p.m. at the
Regulations Control Branch, Room 2426, Headquarters, U.S. Customs Service,
1301 Constitution Avenue, NW., Washington, D.C. 20229.
This document is issued under the authority of R.S. 251, as amended,
sections 1-21, 48 Stat. 998, 999, as amended, 1000, 1002, as amended 1003,
77A Stat. 14, section 624, 46 Stat. 759 (19 U.S.C. 66 81a-81u, 1202
(General Headnote 11), 1624).
The principal author of this document was John E. Elkins, Regulations
Control Branch, U.S. Customs Service. however, personnel from other
Customs offices participated in its development.
List of Subjects
19 CFR Part 10
Customs duties and inspection, Imports.
19 CFR Part 147
Customs duties and inspection, Fairs and expositions, Imports.
Proposed Amendments to the Regulations
It is proposed to amend Parts 10, and 147, Customs Regulations (19 CFR
Parts 10, 147), as set forth below.
PART 10 -- ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE, ETC.
@ 10.3 [Amended]
It is proposed to amend @ 10.3(a) by removing (a) the reference to
footnote 2 and footnote 2, (b) the words "item 804.00" wherever they appear
in paragraph (c)(3) and inserting in their place the words "items 804.10 or
804.20" and (c) the words "item 804.00" in paragraph (f) and inserting in
their place the words "item 804.20."
PART 147 -- TRADE FAIRS
It is proposed to amend @ 147.45 by revising it to read as follows:
@ 147.45 Merchandise from a foreign-trade zone.
Articles entered for a trade fair from a foreign-trade zone in the status
of "zone-restricted merchandise" can afterwards be entered for consumption
from a fair if the Foreign-Trade Zones Board has approved the entry for
consumption as being in the public interest. Articles entered in the above
manner are subject to the provisions of item 804.10, if aircraft, or item
804.20, if not aircraft, unless excluded by headnote 1(c), Subpart A, Part
1, Schedule 8, Tariff Schedules of the United States.
Alfred R. DeAngelus,
Acting Commissioner of Customs.
Approved: May 26, 1983.
John M. Walker, Jr.,
Assistant Secretary of the Treasury.
[FR Doc. 83-16305 Filed 6-16-83; 8:45 am]