2024 Preamble

Preamble to the 2024 Revisions to the FTZ Board’s Regulations

SUMMARY: This action adopts minor modifications to the regulations of the Foreign-Trade Zones Board (the Board). The primary purpose for these modifications is to provide flexibility on the method to submit application fees. The prior regulations required submitting application fees by check. The changes allow for the submission of multiple forms of electronic payments in addition to paper checks. Other revisions in this rulemaking update the regulatory language to provide clarification and to reflect current practices. The Board is also confirming it has met the information collection requirements from a 2012 final rule.

DATES: 
   Effective dates: This final rule is effective March 11, 2024.
   The amendments to 15 CFR 400.21 through 400.23, 400.25, and 400.43(f), published at 77 FR 12139 (Feb. 28, 2012), are effective February 8, 2024.
   Applicability date: The amendments to 15 CFR 400.21 through 400.23, 400.25, and 400.43(f), published at 77 FR 12139 (Feb. 28, 2012), were applicable beginning March 25, 2013.

FOR FURTHER INFORMATION CONTACT: Elizabeth Whiteman at Elizabeth.Whiteman@trade.gov, (202) 482-0473, or Ashlande Gelin at Ashlande.Gelin@trade.gov, (240) 449-5911.

SUPPLEMENTARY INFORMATION:

Background

   Foreign-Trade Zones (FTZs or zones) are restricted-access sites in or near U.S. Customs and Border Protection (CBP) ports of entry. Zones are licensed by the Board and operated under the supervision of CBP (see 19 CFR part 146). Specifically, zones are physical areas into which foreign and domestic merchandise may be moved for operations involving storage, exhibition, assembly, manufacture or other processing not otherwise prohibited by law. Zone areas “activated” by CBP are considered outside of U.S. customs territory for purposes of CBP entry procedures. Therefore, the usual formal CBP entry procedure and payment of duties is not required on the foreign merchandise in FTZs unless and until it enters U.S. customs territory for U.S. domestic consumption. In fact, U.S. duties can be avoided on foreign merchandise re-exported from an FTZ, including after incorporation into a downstream product through activity in the FTZ. Zones have as their public policy objective the creation and maintenance of employment through the encouragement of operations in the United States which, for customs reasons, might otherwise have been carried on abroad.
   On June 9, 2023, the Board published proposed updates to the rules for FTZs and requested public comment (88 FR 37815). This final rule adopts edits to the regulations as described further below. The key revision in the regulations pertains to providing flexibility on the method to submit application fees. The prior regulations required that application fees be submitted by check. While the Board has begun accepting “eChecks”, the revisions here will allow for the submission of additional forms of electronic payment.
   This action will move the existing requirement to admit merchandise subject to antidumping duty and countervailing duty (AD/CVD) actions in “privileged foreign” (PF) status to the “General conditions, prohibitions and restrictions applicable to authorized zones” section. This move of the existing language is intended to clarify that the provision applies to all merchandise that is admitted to FTZs.
   Other revisions in this rulemaking update the language used to provide clarification and to reflect current practices.
   On February 28, 2012, a final rule was published revising the regulations of the Foreign-Trade Zones Board (77 FR 12112). That rule was published with an effective date of April 30, 2012, except for sections 400.21-400.23, 400.25 and 400.43(f). These sections contained information collection requirements and could not become effective until the Office of Management and Budget (OMB) approved these information collection requests pursuant to the Paperwork Reduction Act (44 U.S.C. Chapter 35). On March 25, 2013, OMB approved the information collections under control number 0625-0139, and the FTZ Board then began to use the new applications under sections 400.21-400.23, 400.25 and 400.43(f). This rulemaking also confirms the information collection requirements from the 2012 final rule were met.

Comments and Responses

   We received nine comments on the proposed rule from five companies operating FTZs, two zone grantees, a law firm and a trade association. The comments involved several of the edits described in the proposed rulemaking and also suggested additional edits to the regulations. The comments received in response to the notice and the Board’s responses on the points raised in the comments are summarized below.

  Comment 1: Sec. Sec.  400.1(c) and 400.16. One comment stated that the word “production” should be added to the list of activities in Sec. Sec.  400.1(c) and 400.16.
   Response: The Board adopted the word “production” in its 2012 regulations to encompass various activities that require prior authorization from the Board. By using the word production, the Board was not creating a new type of activity that could occur within FTZs. The summary lists in both Sec. Sec.  400.1(c) and 400.16 use common terminology to describe the types of activity that can occur within FTZs. Instead of creating a new type of activity to be added to these lists, “production” as defined in the regulations (Sec.  400.2(o)) could include any of the listed activities if they meet the criteria included in the definition. Inclusion of the word production in the lists in these sections could provide the mistaken impression that “production” is a separate activity from the other items listed. As a result, this change has not been adopted.
   Comment 2: Sec.  400.2. One comment suggested that a definition be included for “Traditional Site Framework”.
   Response: While we agree that a definition for the Traditional Site Framework should be included in the regulations in the future, any definition should provide substance. Creating a definition that is both meaningful and substantive will require additional time and is best suited for another rulemaking.
   Comment 3: Sec.  400.11(b)(2)(i). One comment requested confirmation that removing the phrase “general purpose” from the description of zone sites in Sec.  400.11(b)(2)(i) would not impact the adjacency requirement for subzones in Sec.  400.11(b)(2)(ii).
   Response: We can confirm that removal of the phrase “general purpose” from Sec.  400.11(b)(2)(i) will not impact Sec.  400.11(b)(2)(ii).
   Comment 4: Sec.  400.13(a)(8). One comment requested confirmation that the proposed edits to Sec. 400.13(a)(8) would continue to require that grantees maintain a level of control while providing discretion to the grantee on how to maintain that control over FTZ designated locations.
   Response: We can confirm that the edit proposed here would continue to require that the grantee maintain control over FTZ designated sites and subzones but that a grantee will have flexibility and discretion as to how control is maintained. The regulations will no longer require that a grantee maintain an agreement with a property owner.
   Comment 5: Sec.  400.13(c). One comment stated that moving prior Sec.  400.14(e) to Sec.  400.13(c) could have an adverse effect on warehouse operations, not be consistent with 19 U.S.C. 81(c)(e) and should only be considered through a more involved process.
   Response: This comment did not supply any evidence in support of the statements made. The language to be moved from Sec.  400.14(e) to Sec.  400.13(c) has been included as part of the FTZ Board’s regulations since 1991. Since 1991, merchandise admitted to FTZs that is subject to AD/CVD orders or suspension of liquidation under AD/CVD procedures has been required to be placed in PF status (19 CFR 146.41) regardless of the ultimate use of the merchandise in production or warehousing operations. As a result, moving the language from Sec. 400.14(e) to Sec.  400.13(c) will have no impact on warehouse operators or any existing zone operations. While the production equipment provision of the FTZ Act (19 U.S.C. 81(c)(e)) generally allows for duties on eligible merchandise to be paid in its condition upon entry, the Act first requires that all other applicable customs and other laws be applied. The Act does not provide for unconditional use of the production equipment provision in 19 U.S.C. 81(c)(e).
   The change proposed here simply moves the existing language from one section of the regulations to the prior section. The change is being made since including the language in Sec.  400.13(c) better reflects the existing interpretation of the requirement. The PF status requirement for merchandise that is subject to AD/CVD orders or suspension of liquidation under AD/CVD procedures when admitted to a zone for warehousing or for use under the production equipment provision has been consistently maintained. As an example, a memo from the Acting Executive Secretary to FTZ grantees on February 14, 2000 
(https://www.trade.gov/policy-guidance?anchor=content-node-t14-field-lp-region-1-3) regarding the treatment of production equipment includes the following: “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 … 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.”
   Since this proposed edit does not change the enforcement or meaning of the language; this action merely moves the existing language from Sec.  400.14(e) to Sec.  400.13(c).
   Comment 6: Sec.  400.13(c) and Sec.  400.32(c)(2). One comment suggested including reference to Chapter 99 (trade remedy) duty rates in Sec.  400.13(c) and Sec.  400.32(c)(2) and specifying the duty rate that would be applicable for such merchandise at the time of entry from  a zone. This comment also suggested including a new section of the regulations regarding merchandise processed in a zone and subject to Chapter 99 duties.
   Response: Although it is understood that the intention of this comment is to provide predictability to companies operating and using FTZs, this proposed edit could impact multiple laws involving trade remedies. Inclusion of this language would remove the relevant authorities regarding trade remedies from decisions on the applicability of duties as merchandise leaves FTZs, potentially having policy implications and impacting various trade remedy actions. While the comment noted that inclusion of the proposed language would be consistent with certain presidential proclamations regarding trade remedies, the proposed language would not be consistent with all proclamations regarding current trade remedies. As a result, the proposed edits related to Chapter 99 duties would require further review and discussion and therefore are not appropriate for this process.
   Comment 7: Sec.  400.16. Several comments argued that the proposed addition of the phrase “in foreign status” to Sec.  400.16 would be inconsistent with the statutory language of 19 U.S.C. 81(o)(e) and that a similar proposed regulatory change in 1990 resulted in the FTZ Board revising its final regulations. One comment also requested clarification on the practical implications of including the phrase “in the activated area” in this section. Other comments supported inclusion of the phrase “in the activated area” in this section.
   Response: In response to the comments received, this action replaces the proposed phrase “in foreign status” with a reference to “foreign merchandise”. Use of the modifier “foreign” to describe merchandise in this section is consistent with the language adopted by the Board in 1991 and currently used in Sec.  400.1(c) as well.
   While the substance of the comments is not being analyzed through this process, the discussion and outcome of the regulatory edits in 1991 does not appear to be as settled as implied in the comments. In 1990, the Board proposed including language to Sec.  400.1(c) stating that merchandise should be in the zone for a bona fide customs reason to be eligible for the exemption on state and local ad valorem taxes. 
While the language was ultimately removed from the final rule in 1991, the preamble to the 1991 regulations included the following reference to language in the House report accompanying Public Law 98-873: “… this exemption should apply only to goods in zones for bona fide Customs reasons.” This action continues use of the reference to merchandise eligible for the exemption on state and local ad valorem taxes as “foreign”. Further edits or changes to this language would only be considered as part of more comprehensive regulatory revisions that would provide for further comment and analysis.

   In terms of the reference to “in the activated area” in this section, we can confirm that this would clarify that FTZ designated space would need to be in operation and activated under CBP procedures for the merchandise to be exempt from state and local ad valorem taxes. Inclusion of this language provides clarification on the long-standing Board interpretation and is not a new requirement or limitation on this section. Apart from one comment requesting clarification, all other comments supported inclusion of this phrase.
 

Changes From the Proposed Rule

   The sole change to the regulatory text from the proposed rule is replacing the proposed phrase “foreign status” with “foreign” in Sec.  400.16. The change to this text is consistent with the language adopted by the Board in 1991 and currently used in Sec.  400.1(c). As a result, this change does not require additional public comment.

Classification

   This final rule has been determined to be not significant for purposes of Executive Order 12866.
   The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for the certification was published in the proposed rule and is not repeated here. No comments were received regarding this certification. As a result, a regulatory flexibility analysis was not required and none was prepared.
   This final rule contains no new information collection requirements under the Paperwork Reduction Act of 1995.

List of Subjects in 15 CFR Part 400

   Administrative practice and procedure, Confidential business information, Customs duties and inspection, Foreign-trade zones, Harbors, Imports, Reporting and recordkeeping requirements.

   Dated: January 26, 2024.
Dawn Shackleford,
Executive Director of Trade Agreements Policy & Negotiations, Alternate 
Chairman, Foreign-Trade Zones Board.