Class 9 Bonded Warehouse Procedures, 2843-2848 [E8-522]

Agencies

• DEPARTMENT OF HOMELAND SECURITY
• DEPARTMENT OF THE TREASURY
• Bureau of Customs and Border Protection

[Federal Register Volume 73, Number 11 (Wednesday, January 16, 2008)]
[Proposed Rules]
[Pages 2843-2848]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-522]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 73, No. 11 / Wednesday, January 16, 2008 / 
Proposed Rules

[[Page 2843]]



DEPARTMENT OF HOMELAND SECURITY

Bureau of Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR Parts 19 and 144

[USCBP-2007-0080]
RIN 1505-AB85


Class 9 Bonded Warehouse Procedures

AGENCIES: Customs and Border Protection, Department of Homeland 
Security; Department of the Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document proposes amendments to title 19 of the Code of 
Federal Regulations, with respect to the requirements applicable to the 
operation of Class 9 bonded warehouses, which are also known as ``duty-
free sales enterprises'' or ``duty-free stores.'' The proposed 
amendments would extend the blanket withdrawal procedure for Class 9 
bonded warehouses to cover vessel supplies under certain circumstances 
and expand and create a uniform time period for Class 9 proprietors to 
file an entry, provide written confirmation of certain shortages, 
overages, and damages, and to pay duties, taxes, and interest on 
overages and shortages. In addition, the proposed amendments would 
permit Class 9 warehouses to utilize technological systems more 
effectively. The proposed changes would facilitate the efficient 
operation of Class 9 warehouses and also ensure adequate records are 
maintained for U.S. Customs and Border Protection (``CBP'') trade 
enforcement purposes.

DATES: Comments must be received on or before March 17, 2008.

ADDRESSES: You may submit comments, identified by docket number, by one 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments via docket number 
USCBP-2007-0080.
     Mail: Trade and Commercial Regulations Branch, Regulations 
and Rulings, U.S. Customs and Border Protection, 1300 Pennsylvania 
Avenue, NW. (Mint Annex), Washington, DC 20229.
    Instructions: All submissions received must include the agency name 
and docket number for this rulemaking. All comments received will be 
posted without change to https://www.regulations.gov, including any 
personal information provided. For detailed instructions on submitting 
comments and additional information on the rulemaking process, see the 
``Public Participation'' heading of the SUPPLEMENTARY INFORMATION 
section of this document.
    Docket: For access to the docket to read background documents or 
comments received, go to https://www.regulations.gov. Submitted comments 
may also be inspected during regular business days between the hours of 
9 a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch, 
Regulations and Rulings, U.S. Customs and Border Protection, 799 9th 
Street, NW. (5th Floor), Washington, DC. Arrangements to inspect 
submitted comments should be made in advance by calling Joseph Clark at 
(202) 572-8768.

FOR FURTHER INFORMATION CONTACT: Gary Rosenthal, Cargo Control Branch, 
Office of Field Operations, (202) 344-2673.

SUPPLEMENTARY INFORMATION:

Public Participation

    Interested persons are invited to participate in this rulemaking by 
submitting written data, views, or arguments on all aspects of the 
proposed rule. CBP also invites comments that relate to the economic, 
environmental, or federalism effects that might result from this 
proposed rule. Comments that will provide the most assistance to CBP 
will reference a specific portion of the proposed rule, explain the 
reason for any recommended change, and include data, information, or 
authority that support such recommended change. See ADDRESSES above for 
information on how to submit comments.

Background

    Section 1555 of title 19 of the United States Code (19 U.S.C. 1555) 
sets forth provisions governing the establishment and operation of 
customs bonded warehouses. Section 1555(b) provides for a type of 
bonded warehouse, Class 9, also called a ``duty-free sales enterprise'' 
or ``duty-free store.'' As defined in Sec.  1555(b)(8)(D), duty-free 
sales enterprise means a person that sells, for use outside the customs 
territory, duty-free merchandise that is delivered from a bonded 
warehouse to an airport or other exit point for exportation by, or on 
behalf of, individuals departing from the customs territory of the 
United States. The regulations implementing Sec.  1555(b), and which 
govern the operation of duty-free stores, are found within parts 19 and 
144 of title 19 of the Code of Federal Regulations (19 CFR parts 19 and 
144).
    U.S. Customs and Border Protection (``CBP'') proposes to amend 
certain regulations governing the operation of duty-free stores in 
order to align the regulations with actual business practices and the 
use of modern technologies. The amendments proposed in this document 
are intended to facilitate the operation of duty-free stores in a 
technological environment by streamlining outdated processes and 
requirements while ensuring adequate records are maintained for audit 
purposes. In addition, this document proposes non-substantive 
amendments to Sec. Sec.  19.6, 19.12, 19.36, and 144.37 of the CFR to 
reflect the nomenclature changes effected by the transfer of CBP to the 
Department of Homeland Security.

Explanation of Amendments

    Sections 19.6, 19.12, 19.36, and 144.37 of title 19 of the CFR (19 
CFR 19.6, 19.12, 19.36, and 144.37) are proposed to be amended as 
described below. Some of these provisions involve general rules for all 
bonded warehouses, but CBP is proposing exceptions to these general 
procedures for duty-free stores or Class 9 warehouses. Class 9 
warehouses are more akin to retail establishments since they cater to 
the traveling public and undertake many sales transactions in a given 
day. Therefore, the exceptions to the general procedures proposed in 
this document are intended to eliminate unnecessary requirements for 
duty-free stores

[[Page 2844]]

without changing the requirements applicable to the other classes of 
bonded warehouses.

I. Section 19.6 Deposits, Withdrawals, Blanket Permits To Withdraw and 
Sealing Requirements

    Section 19.6 of title 19 of the CFR (19 CFR 19.6) describes the 
requirements for depositing merchandise into or withdrawing merchandise 
from a warehouse, including the requirements pertaining to blanket 
permits to withdraw. Under Sec.  19.6(d), such blanket permits to 
withdraw are currently permitted only when goods are delivered within 
the same port from which the goods are withdrawn. Therefore, the 
regulation does not currently permit blanket permits for withdrawal to 
be used in situations where vessel supplies are delivered from a 
warehouse to a cruise ship at a nearby port if that port is different 
from the warehouse port. Rather, in such cases, approval from both 
ports is required for withdrawal.
    This notice proposes to amend Sec.  19.6(d) in order to allow the 
appropriate Director, Field Operations, to extend the blanket 
withdrawal procedure for vessel supplies in situations where the Class 
9 warehouse and destination port are within that Director's authority. 
To this end, the new blanket withdrawal procedure for a withdrawal of 
vessel supplies from a Class 9 warehouse would allow, upon a showing of 
good cause and with the written approval of the appropriate Director, 
Field Operations, the transportation in bond of the vessel supplies 
from the port where the warehouse is located to the port where the 
vessel is located. This new procedure would permit subject merchandise 
to be transported in a more timely and efficient manner.

II. Section 19.12 Inventory Control and Recordkeeping System

    Section 19.12 of title 19 of the CFR (19 CFR 19.12) provides for 
inventory control and recordkeeping systems. This notice proposes to 
amend Sec.  19.12(d)(3), which sets forth the requirements for the 
accounting of merchandise in bonded warehouses and for the reporting of 
inventory theft, shortages, overages, and damages to set forth specific 
rules for Class 9 warehouses. The regulation currently requires the 
proprietor to immediately bring to the attention of the port director 
any theft or suspected theft or overage or any extraordinary shortages 
or damage, and to provide confirmation in writing within five business 
days after the shortage, overage, or damage has been so reported. The 
regulation additionally provides that entries for warehouse must be 
filed for all overages within five business days of the date of 
discovery. The applicable duties, taxes, and interest on thefts and 
shortages so reported must be paid within 20 calendar days following 
the end of the calendar month in which the shortage was discovered.
    According to the International Association of Airport Duty Free 
Stores (``IAADFS''), five business days provides insufficient time for 
Class 9 proprietors to provide the required written confirmation or to 
file the appropriate entries for routine overages. Accordingly, in 
order to provide adequate time to comply with the reporting and filing 
requirements, this document proposes to modify Sec.  19.12(d)(3) so as 
to afford the Class 9 proprietor with 20 calendar days to provide the 
required written confirmation and to require that an entry for 
warehouse be filed for all overages by the person with the right to 
make entry within 20 calendar days of the date of discovery. As with 
the current regulation, applicable duties, taxes, and interest on 
thefts and shortages so reported will be required to be paid by the 
Class 9 proprietor within 20 calendar days following the end of the 
calendar month in which the shortage was discovered.
    This notice also proposes to amend Sec.  19.12(h)(2), which sets 
forth the information required for the annual reconciliation report, to 
set forth special rules for Class 9 warehouses. The regulation 
currently provides that the report must contain the company name, 
address of the warehouse, class of warehouse, date of inventory or 
information on cycle counts, a description of merchandise for each 
entry or unique identifier, quantity on hand at the beginning of the 
year, cumulative receipts and transfers (by unit), quantity on hand at 
the end of the year, and cumulative positive and negative adjustments 
(by unit) made during the year.
    Requiring this level of detail on the annual reconciliation report 
for Class 9 proprietors creates a large volume of paperwork for the 
operators who are responsible for thousands of open warehouse entries 
each year. In addition, the current regulation requires that operators 
approved as integrated locations provide the details of all 
transactions by location, in effect requiring a separate annual report 
for each integrated location. Class 9 proprietors are having difficulty 
complying with the current system because summarizing every transaction 
for each unit in every entry is burdensome given the volume of 
transactions and because units transferred under the FIFO (first in, 
first out) accounting system are not assigned an entry number until 
they are sold or are otherwise disposed of. Therefore, the information 
required for the annual reconciliation report for transferred units may 
not even be available.
    Accordingly, this notice proposes to amend Sec.  19.12(h)(2) to 
provide for a reduced reporting requirement for Class 9 proprietors in 
cases where the proprietor successfully demonstrates, by application to 
the appropriate CBP port director, that shortages will be reported 
within 20 calendar days of discovery. If such application is approved 
by the port director, the Class 9 proprietor would be permitted to 
submit a report that sets forth the company name; address of the 
warehouse; class of warehouse; dates when physical inventories and 
cycle counts occur; dates when resulting shortages and overages are 
reported to CBP; and a listing of all entries open at the beginning of 
the year, added during the year, and closed during the year. In such 
cases, it is believed that this level of information would both address 
the above-referenced reporting concerns and ensure that CBP is provided 
with the information required for enforcement purposes.

III. Section 19.36 Requirements for Duty-Free Store Operations

    Section 19.36 of title 19 of the CFR (19 CFR 19.36) sets forth the 
requirements for duty-free store operations, including guidance on the 
type of merchandise permitted in the bonded sales or crib area of a 
Class 9 warehouse. Under Sec.  19.36(e), domestic merchandise and 
merchandise previously entered or withdrawn for consumption may be 
brought into the bonded sales or crib area of a Class 9 warehouse for 
display or sale, and in the case of a crib, for delivery to purchasers 
only if the merchandise is identified or marked ``DUTY-PAID'' or 
``U.S.-ORIGIN'', or similar markings, such that CBP officers can easily 
distinguish conditionally duty-free merchandise from other merchandise 
in the sales or crib area.
    CBP notes, however, that modern technology permits duty-free store 
proprietors to electronically scan and read merchandise bar codes that 
contain detailed product information. Therefore, this notice proposes 
to amend Sec.  19.36(e) so as to provide an alternative to marking 
merchandise for those proprietors of Class 9 warehouses who maintain an 
electronic system capable of immediately identifying ``DUTY-

[[Page 2845]]

PAID'' or ``U.S.-ORIGIN'' merchandise. In addition, it is proposed to 
eliminate the requirement that conditionally duty-free merchandise be 
physically separated from other merchandise in the sales or crib area 
for those Class 9 warehouse proprietors who can immediately identify 
the duty status of goods through an electronic system.

IV. Section 144.37 Withdrawal for Exportation

    Section 144.37of title 19 of the CFR (19 CFR 144.37) sets forth the 
procedures for withdrawing merchandise from a warehouse for 
exportation. Paragraph (h) of this section pertains to Class 9 
warehouses. Under Sec.  144.37(h)(2), a sales ticket, in triplicate, 
must be made out in the name of the purchaser with at least one copy to 
be retained by the proprietor. However, current technology permits a 
sales ticket to be reprinted as often as needed and enables duty-free 
store proprietors to match bags of purchased merchandise with departing 
customers. In addition, it is noted that the requirement that sales 
tickets be produced in triplicate is no longer necessary for 
verification or audit purposes if the proprietor utilizes current 
technology. Thus, the triplicate paper procedure has been rendered 
costly, wasteful, and inefficient. Therefore, this notice proposes to 
amend Sec.  144.37(h)(2) in order to remove the ``in triplicate'' 
requirement and to allow the proprietor's copy to be maintained 
electronically, provided the port director is satisfied that the 
proprietor has the technological capability to immediately print the 
sales ticket upon the request of a CBP officer.

Executive Order 12866

    This rule is not considered to be a ``significant regulatory 
action'' under Executive Order 12866 of September 30, 1993 (58 FR 
51735, October 1993). Accordingly, a regulatory assessment is not 
required.

Regulatory Flexibility Act

    CBP has prepared this section to examine the impacts of the 
proposed rule on small entities as required by the Regulatory 
Flexibility Act (``RFA'', See 5 U.S.C. 601-612). A small entity may be 
a small business (defined as any independently owned and operated 
business not dominant in its field that qualifies as a small business 
per the Small Business Act); a small not-for-profit organization; or a 
small governmental jurisdiction (locality with fewer than 50,000 
people).
    According to the IAADFS, there are approximately 25 companies with 
duty-free operations in the United States and approximately 15 of them 
would be considered small businesses. As described elsewhere in this 
preamble, this rule is expected to result in enhanced efficiency and 
should lead to uniform operations at customs bonded warehouses.
    Thus, while the number of small entities affected would be 
considered substantial, the economic impacts, while important and 
beneficial, would not rise to the level of a ``significant economic 
impact.'' CBP thus certifies that the proposed amendments will not have 
a significant economic impact on a substantial number of small 
entities. CBP welcomes comments on this certification. Comments 
regarding impacts to small entities may be submitted by any of the 
methods described under the ADDRESSES section of this document.

Paperwork Reduction Act

    The collections of information in this document are contained in 
Sec. Sec.  19.6, 19.12, 19.36, and 144.37. This information is required 
and will be used by CBP to ensure that merchandise that was intended 
for exportation from duty-free stores was accounted for and was 
exported in accordance with law. This notice of proposed rulemaking is 
intended to facilitate the operation of duty-free stores in a 
technological environment by streamlining outdated paper accounting 
processes and requirements with electronic equivalents while ensuring 
that adequate records are maintained for audit purposes. The likely 
respondents are Class 9 proprietors.
    Although this notice of proposed rulemaking is intended to 
facilitate the efficient operation of Class 9 warehouses, the resulting 
paperwork implications are expected to be minor. As the burden hours 
associated with the collections of information contained in this notice 
of proposed rulemaking are not substantively changed, the Office of 
Management and Budget has already approved the collections of 
information in accordance with the requirements of the Paperwork 
Reduction Act (44 U.S.C. 3507) under control numbers 1651-0003 for 
bonded warehouse proprietor's submissions and 1651-0041 concerning the 
establishment of bonded warehouses and other bonded warehouse 
regulations.

Signing Authority

    This document is being issued in accordance with Sec.  0.1(a)(1) of 
the CBP regulations (19 CFR 0.1(a)(1)) pertaining to the authority of 
the Secretary of the Treasury (or his/her delegate) to approve 
regulations related to certain customs revenue functions.

List of Subjects

19 CFR Part 19

    Bonds, Customs duties and inspection, Exports, Freight, Imports, 
Reporting and recordkeeping requirements, Surety bonds, Warehouses.

19 CFR Part 144

    Bonds, Customs duties and inspection, Reporting and recordkeeping 
requirements, Surety bonds, Warehouses.

Proposed Amendments to the CBP Regulations

    It is proposed to amend parts 19 and 144 of title 19 of the Code of 
Federal Regulations (19 CFR parts 19 and 144) as set forth below.

PART 19--CUSTOMS WAREHOUSES, CONTAINER STATIONS, AND CONTROL OF 
MERCHANDISE THEREIN

    1. The general authority citation and specific authority citations 
for part 19 continue to read as follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 3(i), 
Harmonized Tariff Schedule of the United States), 1624;

* * * * *
    Section 19.6 also issued under 19 U.S.C. 1555;
* * * * *
    Sections 19.35-19.39 also issued under 19 U.S.C. 1555;
* * * * *

    2. In Sec.  19.6:
    a. In paragraph (a)(1), the first sentence is amended by removing 
the word ``Customs'' and, in its place, adding the term ``CBP''; the 
second and last sentences are amended by removing the word ``shall'' 
each place it appears and adding the word ``will'' in its place; and 
the fourth sentence is amended by removing the word ``shall'' and, in 
its place, adding the word ``must''.
    b. Paragraphs (b)(1), (d)(4), and (d)(5) are amended by removing 
the word ``Customs'' each place it appears and, in its place, adding 
the term ``CBP''; and by removing the word ``shall'' each place it 
appears and, in its place, adding the word ``must''.
    c. Paragraph (b)(2) is amended by removing the word ``Customs'' 
each place it appears and, in its place, adding the term ``CBP''.
    d. Paragraph (c) is amended by removing the word ``Customs'' each 
place it appears and, in its place, adding the term ``CBP''; and by 
removing the

[[Page 2846]]

word ``shall'' and, in its place, adding the word ``will''.
    e. Paragraph (d)(1)(i)(A) is amended by removing the term ``Customs 
territory'' and, in its place, adding the term ``customs territory''.
    f. In paragraph (d)(2), the first and second sentences are amended 
by removing the word ``Customs'' each place it appears and, in its 
place, adding the term ``CBP'' and by removing the word ``shall'' each 
place it appears and, in its place, adding the term ``must''; the 
third, fourth, fifth, sixth, and seventh sentences are amended by 
removing the word ``shall'' each place it appears and, in its place, 
adding the term ``must''; and the last sentence of the paragraph is 
amended by removing the word ``shall'' and, in its place, adding the 
word ``will'' and by removing the phrase ``without Customs permit'' 
and, in its place, adding the phrase ``without a CBP permit''.
    g. Paragraph (d)(3) is amended by removing the word ``shall'' each 
place it appears and, in its place, adding the word ``must''.
    h. In paragraph (e), the first sentence is amended by removing the 
word ``Customs'' each place it appears and, in its place, adding the 
term ``CBP''; the second sentence is amended by removing the word 
``shall'' and, in its place, adding the term ``will'' and by removing 
the word ``Customs'' and, in its place, adding the term ``CBP''; and 
the last sentence of the paragraph is amended by removing the word 
``shall'' and, in its place, adding the word ``must''.
    i. Paragraph (d)(1)(ii) is revised to read as follows:


Sec.  19.6  Deposits, withdrawals, blanket permits to withdraw and 
sealing requirements.

* * * * *
    (d) * * *
    (1) * * *
    (ii) Blanket permits to withdraw may be used only for delivery at 
the port where withdrawn and not for transportation in bond to another 
port, except blanket permits to withdraw may be used for a withdrawal 
for transportation to another port by a duty-free sales enterprise 
which meets the requirements for exemption as stated in Sec.  144.34(c) 
of this chapter or for a withdrawal from a Class 9 warehouse for 
transportation in bond to another port for vessel supplies when 
expressly authorized in writing by the appropriate Director, Field 
Operations, provided that both the Class 9 warehouse and port of 
destination are under that Director's authority. Blanket permits to 
withdraw may not be used for delivery to a location for retention or 
splitting of shipments under the provisions of Sec.  18.24 of this 
chapter. A withdrawer who desires a blanket permit must state on the 
warehouse entry, or on the warehouse entry/entry summary when used as 
an entry, that ``Some or all of the merchandise will be withdrawn under 
blanket permit per Sec.  19.6(d), CBP Regulations.'' CBP's acceptance 
of the entry will constitute approval of the blanket permit. A copy of 
the entry will be delivered to the proprietor, whereupon merchandise 
may be withdrawn under the terms of the blanket permit. The permit may 
be revoked by the port director in favor of individual applications and 
permits if the permit is found to be used for other purposes, or if 
necessary to protect the revenue or properly enforce any law or 
regulation CBP is charged with administering. Merchandise covered by an 
entry for which a blanket permit was issued may be withdrawn for 
purposes other than those specified in this paragraph if a withdrawal 
is properly filed as required in subpart D, part 144, of this chapter.
* * * * *
    3. In Sec.  19.12:
    a. Paragraph (a)(1) is amended by removing the word ``Customs'' 
each place it appears and, in its place, adding the term ``CBP''; and 
the word ``shall'' is removed and the word ``must'' is added in its 
place.
    b. Paragraphs (a)(3), (d)(2)(ii), (d)(4)(iii), (f)(2), (h)(1), and 
(h)(3) are amended by removing the word ``Customs'' each place it 
appears and, in its place, adding the term ``CBP''.
    c. Paragraphs (b)(1) and (b)(2) are amended by removing the word 
``shall'' each place it appears and, in its place, adding the word 
``must''.
    d. Paragraphs (c)(1), (c)(3), (d)(1), (d)(2), and (e) are amended 
by removing the term ``Customs entry'' each place it appears and, in 
its place, adding the term ``customs entry''.
    e. Paragraphs (f)(5), (f)(6), (f)(7), (f)(8), (f)(9), and (i) are 
amended by removing the word ``shall'' each place it appears and, in 
its place, adding the word ``must''.
    f. Paragraphs (d)(4)(i), (d)(4)(ii), (d)(5), and (f)(1) are amended 
by removing the word ``shall'' each place it appears and, in its place, 
adding the word ``must''; and by removing the word ``Customs'' each 
place it appears and, in its place, adding the term ``CBP''.
    g. In paragraph (g), the word ``Customs'' is removed each place it 
appears and, in its place, the term ``CBP'' is added; in the first 
sentence, ``(CF)'' is removed; the term ``CF 300'' is removed each 
place it appears and, in its place, the term ``CBP Form 300'' is added; 
and the word ``shall'' is removed and, in its place, the word ``must'' 
is added.
    h. In paragraph (j), the term ``(CF 300)'' is removed and, in its 
place, the term ``(CBP Form 300)'' is added.
    i. Paragraphs (d)(3) and (h)(2) are revised to read as follows:


Sec.  19.12  Inventory control and recordkeeping system.

* * * * *
    (d) * * *
    (3) Theft, shortage, overage or damage--(i) General. Except as 
otherwise provided in paragraph (d)(3)(ii) of this section, any theft 
or suspected theft or overage or any extraordinary shortage or damage 
(equal to one percent or more of the value of the merchandise in an 
entry or covered by a unique identifier; or if the missing merchandise 
is subject to duties and taxes in excess of $100) must be immediately 
brought to the attention of the port director, and confirmed in writing 
within five business days after the shortage, overage, or damage has 
been brought to the attention of the port director. An entry for 
warehouse must be filed for all overages by the person with the right 
to make entry within five business days of the date of discovery. The 
responsible party must pay the applicable duties, taxes and interest on 
thefts and shortages reported to CBP within 20 calendar days following 
the end of the calendar month in which the shortage is discovered. The 
port director may allow the consolidation of duties and taxes 
applicable to multiple shortages into one payment; however, the amount 
applicable to each warehouse entry is to be listed on the submission 
and must specify the applicable duty, tax and interest. These same 
requirements apply when cumulative thefts, shortages or overages under 
a specific entry or unique identifier total one percent or more of the 
value of the merchandise or if the duties and taxes owed exceed $100. 
Upon identification, the proprietor must record all shortages and 
overages in its inventory control and recordkeeping system, whether or 
not they are required to be reported to the port director at the time. 
The proprietor must also record all shortages and overages as required 
in the CBP Form 300 or annual reconciliation report under paragraphs 
(g) or (h) of this section, as appropriate. Duties and taxes applicable 
to any non-extraordinary shortage or damage and not required to be paid 
earlier must be reported and submitted to the port director no later 
than the date the

[[Page 2847]]

certification of preparation of CBP Form 300 is due or at the time the 
certification of preparation of the annual reconciliation report is 
due, as prescribed in paragraphs (g) or (h) of this section.
    (ii) Class 9 warehouses. With respect to Class 9 warehouses, any 
theft or suspected theft or overage or any extraordinary shortage or 
damage (equal to one percent or more of the merchandise in an entry or 
covered by a unique identifier; or if the missing merchandise is 
subject to duties and taxes in excess of $100) must be immediately 
brought to the attention of the port director, and confirmed in writing 
within 20 calendar days after the shortage, overage, or damage has been 
brought to the attention of the port director. An entry for warehouse 
must be filed for all overages by the person with the right to make 
entry within 20 calendar days of the date of discovery. The responsible 
party must pay the applicable duties, taxes and interest on thefts and 
shortages reported to CBP within 20 calendar days following the end of 
the calendar month in which the shortage is discovered. The port 
director may allow the consolidation of duties and taxes applicable to 
multiple shortages into one payment; however, the amount applicable to 
each warehouse entry is to be listed on the submission and must specify 
the applicable duty, tax and interest. These same requirements apply 
when cumulative thefts, shortages or overages under a specific entry or 
unique identifier total one percent or more of the value of the 
merchandise or if the duties and taxes owed exceed $100. Upon 
identification, the proprietor must record all shortages and overages 
in its inventory control and recordkeeping system, whether or not they 
are required to be reported to the port director at the time. The 
proprietor must also record all shortages and overages as required in 
the CBP Form 300 or annual reconciliation report under paragraphs (g) 
or (h) of this section, as appropriate. Duties and taxes applicable to 
any non-extraordinary shortage or damage and not required to be paid 
earlier must be reported and submitted to the port director no later 
than the date the certification of preparation of CBP Form 300 is due 
or at the time the certification of preparation of the annual 
reconciliation report is due, as prescribed in paragraphs (g) or (h) of 
this section. Discrepancies found in a Class 9 warehouse with 
integrated locations as set forth in Sec.  19.35(c) will be the net 
discrepancies for a unique identifier (see Sec.  19.4(b)(8)(ii) of this 
part) such that overages within one sales location will be offset 
against shortages in another location that is within the integrated 
location. A Class 9 proprietor who transfers merchandise between 
facilities in different ports without being required to file a 
rewarehouse entry in accordance with Sec.  144.34 of this chapter may 
offset overages and shortages within the same unique identifier for 
merchandise located in stores in different ports (see Sec.  
19.4(b)(8)(ii) of this part).
* * * * *
    (h) * * *
* * * * *
    (2) Information required--(i) General. Except as otherwise provided 
in paragraph (h)(2)(ii) of this section, the report must contain the 
company name; address of the warehouse; class of warehouse; date of 
inventory or information on cycle counts; a description of merchandise 
for each entry or unique identifier, quantity on hand at the beginning 
of the year, cumulative receipts and transfers (by unit), quantity on 
hand at the end of the year, and cumulative positive and negative 
adjustments (by unit) made during the year.
    (ii) Class 9 warehouses. If the proprietor of a Class 9 warehouse 
successfully demonstrates, by application to the appropriate port 
director, that shortages will be reported within 20 calendar days of 
discovery, the port director may approve the submission of a report 
that contains the company name; address of the warehouse; class of 
warehouse; date of inventory or information on cycle counts; date when 
resulting shortages and overages are reported to CBP; a description of 
merchandise for each entry or unique identifier; and a listing of all 
entries open at the beginning of the year, added during the year, and 
closed during the year.
    (iii) Multiple facilities. If the proprietor of a Class 2 or Class 
9 warehouse has merchandise covered by one warehouse entry, but stored 
in multiple warehouse facilities as provided for under Sec.  144.34 of 
this chapter, the reconciliation report must cover all locations and 
warehouses of the proprietor at the same port. If the annual 
reconciliation includes entries for which merchandise was transferred 
to a warehouse without filing a rewarehouse entry, as allowed under 
Sec.  144.34, the annual reconciliation must contain sufficient detail 
to show all required information by location where the merchandise is 
stored. For example, if merchandise covered by a single entry is stored 
in warehouses located in 3 different ports, the annual reconciliation 
should specify individually the beginning and ending inventory 
balances, cumulative receipts, transfers, and positive and negative 
adjustments for each location.
* * * * *
    4. In Sec.  19.36:
    a. Paragraphs (a) and (f) are amended by removing the term 
``Customs territory'' each place it appears and, in its place, adding 
the term ``customs territory''.
    b. In paragraph (b), the first sentence is amended by removing the 
word ``shall'' and, in its place, adding the word ``must'' and by 
removing the term ``Customs territory'' and, in its place, adding the 
term ``customs territory''; the third sentence is amended by removing 
the term ``shall'' and, in its place, adding the term ``will'' and by 
removing the two references to ``Customs'' and, in its place, adding 
the term ``CBP''; and the fourth sentence is amended by removing the 
reference to ``Customs'' and, in its place, adding the term ``CBP''.
    c. In paragraph (c), the first and fourth sentences are amended by 
removing the term ``shall'' each place it appears and adding the term 
``must'' in its place; and the fifth sentence is amended by removing 
the term ``shall'' and, in its place, adding the term ``will'' and by 
removing the two references to ``Customs'' and, in its place, adding 
the term ``CBP''.
    d. Paragraph (g) is amended by removing the term ``shall'' each 
place it appears and, in its place, adding the term ``must''; and by 
removing the term ``Customs'' and, in its place, adding the term 
``CBP''.
    e. Paragraph (e) is revised to read as follows:


Sec.  19.36  Requirements for duty-free store operations.

* * * * *
    (e) Merchandise eligible for warehousing--(1) General. Only 
conditionally duty-free merchandise may be placed in a bonded storage 
area of a Class 9 warehouse. However, domestic merchandise and 
merchandise which was previously entered or withdrawn for consumption, 
may be brought into the bonded sales or crib area of a Class 9 
warehouse for display and sale, and in the case of a crib, for delivery 
to purchasers.
    (2) Marking requirement. Except as provided in paragraph (e)(3) of 
this section, merchandise must either be identified or marked ``DUTY-
PAID'' or ``U.S.-ORIGIN'', or similar markings, as applicable, to 
enable CBP officers to easily distinguish conditionally duty-

[[Page 2848]]

free merchandise from other merchandise in the sales or crib area.
    (3) Exception to marking requirement. If the proprietor has an 
electronic inventory system capable of immediately identifying other 
merchandise from conditionally duty-free merchandise, the proprietor 
need not separate domestic merchandise and merchandise which was 
previously entered or withdrawn for consumption from conditionally 
duty-free merchandise or mark the merchandise.
* * * * *

PART 144--WAREHOUSE AND REWAREHOUSE ENTRIES AND WITHDRAWALS

    5. The general authority citation and specific authority citation 
for part 144 continue to read as follows:

    Authority: 19 U.S.C. 66, 1484, 1557, 1559, 1624.
* * * * *
    Section 144.37 also issued under 19 U.S.C. 1555, 1562.

    6. In Sec.  144.37:
    a. Paragraph (a) is amended by removing the word ``shall'' each 
place it appears and, in its place, adding the word ``must''; and by 
removing the word ``Customs'' each place it appears and, in its place, 
adding the term ``CBP''.
    b. Paragraphs (b)(1), (f), and (h)(3) are amended by removing the 
word ``shall'' each place it appears and, in its place, adding the word 
``must''.
    c. In paragraph (b)(2), the first sentence is amended by removing 
the word ``shall'' and, in its place, adding the word ``must'' and by 
removing the reference to ``Customs'' and, in its place, adding the 
term ``CBP''; the second and third sentences are amended by removing 
the word ``shall'' each place it appears and, in its place, adding the 
word ``will''; and the last sentence is amended by removing the word 
``shall'' and, in its place, adding the word ``must''.
    d. Paragraph (d) is amended by removing the word ``Customs'' each 
place it appears and, in its place, adding the term ``CBP''; and by 
removing the word ``shall'' each place it appears and, in its place, 
adding the word ``must''.
    e. Paragraphs (h)(2) introductory text and (h)(2)(vi) are revised 
to read as follows:


Sec.  144.37  Withdrawal for exportation.

* * * * *
    (h) * * *
    (2) Sales ticket content and handling. Sales ticket withdrawals 
must be made only under a blanket permit to withdrawal (see Sec.  
19.6(d) of this chapter) and the sales ticket will serve as the 
equivalent of the supplementary withdrawal. A sales ticket is an 
invoice of the proprietor's design which will include:
* * * * *
    (vi) A statement on the original copy (purchaser's copy) to the 
effect that goods purchased in a duty-free store will be subject to 
duty and/or tax with personal exemption if returned to the United 
States. At the time of purchase, the original sales ticket must be made 
out in the name of the purchaser and given to the purchaser. One copy 
of the sales ticket must be retained by the proprietor. This copy may 
be maintained electronically provided the port director is satisfied 
that the proprietor has the ability to print the sales ticket upon the 
request of a CBP officer. A permit file copy will be attached to the 
parcel containing the purchased articles unless the proprietor has 
established and maintained an effective method to match the parcel 
containing the purchased articles with the purchaser. Additional copies 
may be retained by the proprietor.
* * * * *

W. Ralph Basham,
Commissioner, U.S. Customs and Border Protection.
    Approved: January 10, 2008.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
 [FR Doc. E8-522 Filed 1-15-08; 8:45 am]
BILLING CODE 9111-14-P