Modernizing and streamlining U.S. Customs and Border Protection’s regulations on foreign-trade zones are the objectives of recommendations submitted to CBP Oct. 3 by its Commercial Customs Operations Advisory Committee. COAC said the goal of these recommendations is to provide for full automation, more efficient processes, and reduced transactional oversight based on risk.

FTZs are secure areas under CBP supervision that are generally considered outside U.S. customs territory upon activation. Foreign and domestic goods may be moved into FTZs for operations such as storage, exhibition, assembly, manufacturing, and processing. Under zone procedures, the usual formal CBP entry procedures and payments of duties are not required on foreign goods unless and until they enter the U.S. customs territory for domestic consumption, at which point the importer generally has the choice of paying duties at the rate of either the original foreign materials or the finished product. Domestic goods moved into the zone for export may be considered exported upon admission to the zone for purposes of excise tax rebates and drawback.

The director of the CBP port in which an FTZ is located controls the admission of goods into the zone, the handling and disposition of goods in the zone, and the removal of goods from the zone. Zones are supervised by FTZ coordinators (i.e., CBP officers, import specialists, entry specialists or agricultural specialists, etc.) through compliance reviews and visits and the security of the zone must meet certain requirements.

According to a CBP press release, Timothy Skud, deputy assistant secretary of tax, trade, and tariff policy for the Treasury Department, said an update of the FTZ regulations is overdue. “In addition to finding ways to simplify the process, there are a lot of things that have changed in the foreign-trade zone world that I think are important to grapple with,” he said. COAC Co-Chair Lisa Gelsomino agreed, adding that “we want to be very transparent so the trade community knows how they can use foreign-trade zones in the correct way.”

To that end, COAC recommended that CBP take the following actions.

Modernized Language

– revise the regulations to (a) conform with the FTZ Board regulations modified in 2012 and reference FTZ Board production authority scope of approval and restrictions, (b) reflect a paperless environment in the Automated Commercial Environment, (c) eliminate and/or automate certain forms, seals, and processes that are antiquated, (d) distinguish the authority of CBP’s Centers of Excellence and Expertise for post-entry work, (e) meet the new in-bond regulations implemented in 2018, (f) clarify language concerning valuation and quantity reporting, and (g) modify the five day removal rule

– draft language for (a) zone status changes, (b) voluntary cessation of zone activities, (c) free trade agreements with duty deferral restrictions, (d) dutiable status of goods, (e) title transfer in FTZs, and (f) temporary removal provisions

– specify that (a) goods subject to antidumping or countervailing duties and trade remedies such as Section 201, 232, and 301 must be admitted in privileged foreign status, (b) any applicable AD/CV duties would apply regardless of the processing conducted in an FTZ but trade remedy duties may not apply based on FTZ processing, and (c) in all cases the rate of duty in force on the date of removal from the FTZ would apply

– provide clarification regarding the appropriate country of origin for duty purposes due to the Census Bureau requirement, inconsistent with CBP origin determinations, to report the country of origin based on the foreign status goods and, in cases of components from more than one country, the country with the greatest aggregate value

– provide a more formal and streamlined process for the FTZ application, denial, and appeal process so activations are handled in a timely and uniform manner

– as FTZ admissions fully migrate to ACE, clarify the different admission types, the timing associated with each, and the specific data elements required in ACE, including for regular and weekly entries

Policy Changes

– develop and publicly disseminate a risk assessment methodology that is both company-based and product-based to allow CBP to establish known parameters for approvals and also allow parties related to FTZ operator firms to qualify for direct delivery

– require the ACE data elements for CBP Form 214

– create a new admission type or flag in ACE for production equipment

– review how the FTZ bond amount is determined to ensure it contemplates the custodial obligation of an FTZ based on duty of average inventory rather than value within the FTZ

– align with the eBond environment implemented in January 2015

– modernize and streamline the FTZ manual to ensure it aligns with all regulatory reforms, policy changes, and automation capabilities

– in light of recent CBP rulings restricting section 321 de minimis shipments through FTZs and the increasing flow of such shipments from warehouses in Mexico and Canada, consult with COAC to examine the economic impact such restrictions are having on the domestic FTZ industry and the efficacy of a regulatory or statutory change to enable such operations to occur in the U.S.


– incorporate any reference to partner government agency jurisdiction where CBP has enforcement authority to hold or detain goods

– create functionality in ACE that provides a mechanism to electronically report CBP Form 216 and all exceptions for overages, shortages, destructions, etc.

– clarify and reference the potential for liquidated damages under 19 CFR 113.73 and penalties under 19 USC 1592

– provide an opportunity to appeal to CBP’s Office of Field Operations to be consistent with OFO’s review of any cause for suspension

© [2018], Sandler, Travis & Rosenberg, P.A. Originally published in the [10/12/2018] issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.