Class 9 Bonded Warehouse Procedures, 68681-68686 [E9-30735]

Agencies

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

[Federal Register Volume 74, Number 248 (Tuesday, December 29, 2009)]
[Rules and Regulations]
[Pages 68681-68686]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30735]


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DEPARTMENT OF HOMELAND SECURITY

Bureau of Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR Parts 19 and 144

[Docket No. USCBP-2007-0080; CBP Dec. 09-48]
RIN 1505-AB85


Class 9 Bonded Warehouse Procedures

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

ACTION: Final rule.

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

SUMMARY: This document adopts as a final rule, with modifications set 
forth in this document, amendments proposed 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 amendments in 
this document will extend the blanket withdrawal procedure for duty-
free merchandise 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. The 
amendments in this document will also permit Class 9 warehouses to 
utilize existing technological systems more effectively. In addition, 
this document sets forth technical amendments to the applicable 
regulations to extend the time period for which merchandise may remain 
in a bonded warehouse under certain circumstances. The amendments will 
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: Effective Date: The final rule is effective on January 28, 2010.

FOR FURTHER INFORMATION CONTACT: Gary Rosenthal, Office of Field 
Operations, (202) 344-2673, or Gary Schreffler, Office of Field 
Operations, (202) 344-1535.

SUPPLEMENTARY INFORMATION: 

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).

Notice of Proposed Rulemaking

    On January 16, 2008, a notice of proposed rulemaking was published 
in the Federal Register (73 FR 2843; the ``NPRM'') by U.S. Customs and 
Border Protection (``CBP'') that proposed 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 were proposed in order 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 the NPRM, CBP specifically proposed amendments to Sec. Sec.  
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). Section 19.6 describes the requirements for 
depositing merchandise into or withdrawing merchandise from a 
warehouse, including the requirements pertaining to blanket permits to 
withdraw. The proposed amendments to Sec.  19.6(d)(1)(ii) would allow 
the appropriate Director, Field Operations, to extend the blanket 
withdrawal procedure in situations where the Class 9 warehouse and 
destination port are located within that Director's authority.
    Section 19.12 provides for inventory control and recordkeeping 
systems. The NPRM proposed to modify 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. In order to provide adequate time to comply with 
reporting and filing requirements, the NPRM proposed to modify Sec.  
19.12(d)(3) in order to afford Class 9 proprietors with 20 calendar 
days to provide written confirmation of any reported shortages, 
overages, or damages, 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.
    In addition, the NPRM proposed to modify Sec.  19.12(h)(2), which 
lists the information required for the annual reconciliation report, in 
order to set forth special reporting rules for Class 9 warehouses. In 
this regard, under the proposal, Sec.  19.12(h)(2)(ii) would allow for 
a reduced reporting requirement for Class 9 warehouse proprietors in 
cases where the proprietor successfully demonstrates, by application to 
the appropriate CBP port director, that shortages would be reported 
within 20 days of discovery. If the application were approved by the 
port director, the Class 9 warehouse proprietor would be permitted to 
submit a report that 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.
    Section 19.36 sets forth the requirements for duty-free store 
operations, including guidance on the type of merchandise permitted in 
the sales or crib area of a Class 9 warehouse. The NPRM proposed to 
amend Sec.  19.36(e) in order to provide an alternative to marking 
merchandise for Class 9 warehouse proprietors who maintain an 
electronic system capable of immediately identifying ``DUTY-PAID'' or 
``U.S.-ORIGIN'' merchandise. In addition, the NPRM proposed changes 
that would ease the current requirement that conditionally duty-free 
merchandise either be physically separated from other merchandise, or 
that the other merchandise be identified or marked as ``DUTY-PAID'' or 
``U.S. ORIGIN,'' for those Class 9 warehouse proprietors who can 
immediately identify the duty status of goods through the use of an 
electronic system.
    Section 144.37 sets forth the procedures for withdrawing

[[Page 68682]]

merchandise from a warehouse for exportation. 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 Class 9 
warehouse proprietor. The NPRM proposed to amend Sec.  144.37(h)(2) in 
order to remove the ``in triplicate'' requirement and to allow the 
Class 9 warehouse 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.
    Comments were solicited in the NPRM of January 16, 2008. The 
comment period closed on March 17, 2008.

Discussion of Comments

    One commenter, a trade association representing airport duty-free 
stores, responded to the solicitation of comments in the NPRM. A 
description of the comments contained in the submission and CBP's 
analysis is set forth below.
    Comment: The commenter generally supports the streamlined reporting 
requirements for the annual reconciliation report for Class 9 warehouse 
proprietors set forth in proposed Sec.  19.12(h)(2)(ii). However, the 
commenter notes that proposed Sec.  19.12(h)(2)(ii) would still require 
the report to include a description of merchandise for each entry or 
unique identifier. The commenter states that this creates a great 
burden for Class 9 warehouse proprietors and requires a voluminous 
compilation of data. For example, the commenter states that there are 
literally hundreds or thousands of unique items in an entry, making it 
impossible to include them all in the annual reconciliation report in 
an automated way. In consideration of these concerns, the commenter 
requests that CBP delete the requirement in Sec.  19.12(h)(2)(ii) that 
the annual reconciliation report include a description of merchandise 
for each entry or unique identifier.
    CBP's Response: In order to facilitate trade and eliminate outdated 
or unnecessary requirements in the regulations, CBP continually 
monitors its requirements and thoroughly considers suggestions such as 
that set forth by the commenter. In analyzing the commenter's 
recommendation, CBP field personnel have been consulted and it has been 
determined that the requirement that the annual reconciliation report 
include a description of merchandise for each entry or unique 
identifier remains essential for CBP audit purposes. In this regard, 
the information aids CBP auditors in the targeting and sample selection 
process undertaken during a warehouse review and specifically enhances 
CBP's efforts in ensuring duty-free merchandise is accounted for and 
exported in accordance with law. With respect to the commenter's 
statement that there may be hundreds or thousands of unique items in an 
entry making it a burden to compile the annual reconciliation report, 
CBP notes that there are instances where certain types of merchandise 
may be described in a general manner that is not overly burdensome, 
although this may not be acceptable for all situations. CBP recommends 
that duty-free store operators consult with the port director where the 
duty-free store is located as to whether certain merchandise can be 
described in a general manner. Accordingly, the requirement in Sec.  
19.12(h)(2)(ii) that the annual reconciliation report include a 
description of merchandise for each entry or unique identifier will not 
be eliminated in this final rule.
    Comment: The commenter generally supports the proposal to amend 
Sec.  144.37(h)(2)(vi) in order to remove the sales ticket ``in 
triplicate'' requirement and to allow the proprietor's copy to be 
maintained electronically. However, the commenter does not believe that 
Class 9 warehouse proprietors should only be able to maintain the 
proprietor's copy electronically if 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. The commenter 
states that requiring Class 9 proprietors to first obtain the 
permission of the port director is not necessary because most, if not 
all, Class 9 warehouse proprietors maintain an electronic sales ticket 
register capable of printing out any number of sales tickets. In 
addition, it is stated that this requirement is a burden because Class 
9 warehouse proprietors often operate in multiple ports and would have 
to obtain the permission of multiple port directors under the proposal.
    CBP's Response: CBP agrees with the commenter and Sec.  
144.37(h)(2)(vi), as set forth in the proposed rule, is amended in this 
final rule by eliminating the requirement that the Class 9 proprietor 
must first obtain the permission of the port director in order to 
maintain the proprietor's copy of the sales ticket electronically.
    Comment: The commenter suggests that CBP extend the period of 
warehousing set forth in the regulations so that merchandise can remain 
in a Class 9 warehouse for more than five years and not be destroyed. 
The commenter notes that there are situations when a Class 9 warehouse 
proprietor purchases an inventory of products that have a long shelf 
life, such as liquor, and that after the current five-year period ends 
these products have to be destroyed which is both expensive and 
wasteful. In order to remedy this issue, the commenter encourages CBP 
to update its regulations pursuant to the technical amendment of 19 
U.S.C. 1557(a)(1) in Sec.  1635 of the Pension Protection Act of 2006, 
Public Law 109-280, 120 Stat. 780, which provided CBP with the 
authority to permit products to remain in a bonded warehouse if a 
proper request is filed with the port director and good cause shown.
    CBP Response: CBP agrees with the proposal to permit products to 
remain in a bonded warehouse if certain conditions are met, but notes 
that the current regulations (Sec.  144.5) do not necessarily require 
destruction, but only removal after 5 years. Accordingly, pursuant to 
the authority granted by the technical amendment of 19 U.S.C. 
1557(a)(1) in Sec.  1635 of the Pension Protection Act of 2006, Public 
Law 109-280, CBP is making a conforming amendment in this final rule to 
Sec.  19.6(b)(2), pertaining to the retention of merchandise (other 
than perishable articles and explosive substances other than 
firecrackers) in warehouse after withdrawal. In this regard, the last 
sentence of Sec.  19.6(b)(2) will be amended by removing the reference 
to the 5-year warehouse entry bond period. In addition, a conforming 
amendment will be made in this final rule to Sec.  144.5, pertaining to 
the period of warehousing. In this respect, amended Sec.  144.5 will 
clarify that the total period of time for which merchandise may remain 
in a bonded warehouse must not exceed five years from the date of 
importation or such longer period of time as the port director may at 
his discretion permit upon proper request being filed and good cause 
shown.
    Comment: The commenter notes that Sec.  144.32 currently requires 
that each withdrawal from a warehouse must include a detailed summary 
statement indicating the quantity of merchandise in the warehouse 
before withdrawal, the quantity being withdrawn, and the quantity 
remaining in the warehouse after withdrawal. The commenter suggests 
that CBP craft an exception to this requirement in the applicable 
regulation for Class 9 warehouses.
    CBP Response: Section 144.32 was not addressed in the NPRM set 
forth in 73 FR 2843 and CBP is not inclined to accept the commenter's 
suggestion

[[Page 68683]]

because the requirement is essential for CBP post-audit purposes.
    Comment: The commenter suggests that CBP make changes in its 
Automated Commercial System (ACS) to facilitate the paperless release 
of ``Type 21'' (Warehouse) and ``Type 22'' (Re-Warehouse) entries.
    CBP Response: This issue is also outside the scope of this 
rulemaking. However, as CBP is continually exploring options to 
facilitate the entry process, the commenter's suggestion is 
appreciated.

Conclusion

    After analysis of the comments and further review of the matter, 
CBP has decided to adopt as final, with the changes discussed above in 
the comment discussion as well as below, the NPRM published in the 
Federal Register (73 FR 2843) on January 16, 2008.
    In addition to the changes discussed above, this document also 
amends Sec.  19.6(d)(1)(ii), which describes the requirements for 
depositing merchandise into or withdrawing merchandise from a 
warehouse, including the requirements pertaining to blanket permits to 
withdraw. In the NPRM, CBP proposed to amend Sec.  19.6(d)(1)(ii) in 
order to permit the appropriate Director, Field Operations, to extend 
the blanket withdrawal procedure to cover a withdrawal from a Class 9 
warehouse for transportation in bond to another port for ``vessel 
supplies'' in situations where a Class 9 warehouse and destination port 
are within that Director's authority. The language in Sec.  19.12 has 
also been modified to clarify the reference to the annual 
reconciliation reports.
    It is noted that the term ``vessel supplies'' is a term of art and 
refers to merchandise that is used as supplies (including equipment) 
upon, or in the maintenance or repair of, certain vessels (see 19 
U.S.C. 1309 and 1317). Upon further consideration of the language 
employed, CBP believes that the use of the term ``vessel supplies'' in 
Sec.  19.6(d)(1)(ii) causes confusion and does not accurately describe 
the duty-free merchandise that is withdrawn from a Class 9 warehouse 
for transportation in bond to another port for sale to passengers 
departing the United States on a cruise ship. Since vessel supplies are 
not duty-free merchandise, this document removes the reference to 
``vessel supplies'' in proposed Sec.  19.6(d)(1)(ii) and clarifies that 
in new Sec.  19.6(d)(1)(iii) the blanket withdrawal procedure may be 
used for a withdrawal from a Class 9 warehouse, for transportation in 
bond to another port, of duty-free merchandise intended for 
``passengers' on-board purchases'' on board the vessel.
    In addition, it is noted that duty-free merchandise withdrawn from 
a Class 9 warehouse must be sold to individuals for exportation from 
the United States. Accordingly, this final rule further amends Sec.  
19.6(d)(1)(ii) in order to clarify that a blanket permit for withdrawal 
may be used for a withdrawal from a Class 9 warehouse for the passenger 
vessel purchases referenced above only if the vessel to which the 
merchandise is transferred is destined for a foreign destination. 
Finally, other editorial changes have been made to Sec.  19.6(d)(1).

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 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 International Association of Airport Duty Free 
Stores (``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 above, this final 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 this final rule will not have a 
significant economic impact on a substantial number of small entities.

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 final rule 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 warehouse proprietors.
    This final rule is intended to facilitate the efficient operation 
of Class 9 warehouses and the resulting paperwork implications are 
expected to be minor. As the burden hours associated with the 
collections of information contained in this final rule are not 
substantively changed, the Office of Management and Budget (OMB) 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. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by OMB.

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.

Amendments to the CBP Regulations

0
For the reasons set forth in the preamble, parts 19 and 144 of the CBP 
regulations (19 CFR parts 19 and 144) are amended as follows:

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

0
1. The general authority citation for part 19 and specific authority 
citation

[[Page 68684]]

for Sec. Sec.  19.35-19.39 continue to read, and a new specific 
authority citation for Sec.  19.6 is added 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, 1557;
* * * * *
    Sections 19.35-19.39 also issued under 19 U.S.C. 1555;
* * * * *

0
2. In Sec.  19.6:
0
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''.
0
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''.
0
c. Paragraph (b)(2) is amended by removing the word ``Customs'' each 
place it appears and, in its place, adding the term ``CBP''.
0
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 word ``shall'' and, in its place, adding the word ``will''.
0
e. Paragraph (d)(1)(i)(A) is amended by removing the term ``Customs 
territory'' and, in its place, adding the term ``customs territory''.
0
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''.
0
g. Paragraph (d)(3) is amended by removing the word ``shall'' each 
place it appears and, in its place, adding the word ``must''.
0
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''.
0
i. The last sentence of paragraph (b)(2) and paragraph (d)(1)(ii) are 
revised and a new paragraph (d)(1)(iii) is added, to read as follows:


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

* * * * *
    (b) * * *
    (2) * * * All other goods which have been withdrawn, but not 
removed, remain in CBP custody until the end of the warehouse entry 
bond period (see Sec.  144.5 of this chapter).
* * * * *
    (d) * * *
    (1) * * *
    (ii) Except as provided in paragraph (d)(1)(iii) of this section, 
blanket permits to withdraw may be used only for delivery at the port 
where withdrawn and not for transportation in bond to another port. 
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.
    (iii) 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. In addition, blanket permits to withdraw may be used for 
a withdrawal from a Class 9 warehouse for transportation in bond to 
another port of duty-free merchandise intended for passengers' on-board 
purchases 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 and the 
vessel is destined for a foreign destination.
* * * * *

0
3. In Sec.  19.12:
0
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.
0
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''.
0
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''.
0
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''.
0
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''.
0
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''.
0
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.
0
h. In paragraph (j), the term ``(CF 300)'' is removed and, in its 
place, the term ``(CBP Form 300)'' is added.
0
i. Paragraphs (d)(3) and (h)(2) are revised to read as follows:


Sec.  19.12  Inventory control and recordkeeping system.

* * * * *

[[Page 68685]]

    (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 
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 annual reconciliation report must cover all locations 
and warehouses of the proprietor at the same port. If the annual 
reconciliation report includes entries for which merchandise was 
transferred to a warehouse without filing a rewarehouse entry, as 
allowed under Sec.  144.34, the annual reconciliation report 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 report should specify individually the 
beginning and ending inventory balances, cumulative receipts, 
transfers, and positive and negative adjustments for each location.
* * * * *

0
4. In Sec.  19.36:
0
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''.

[[Page 68686]]

0
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''.
0
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''.
0
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''.
0
e. Paragraph (e) is revised to read as follows:


Sec.  19.36  Requirements for duty-free store operations.

* * * * *
    (e) Merchandise eligible for warehousing in duty-free stores (Class 
9 Warehouses)--(1) In General. Conditionally duty-free merchandise and 
other merchandise (domestic merchandise and merchandise which was 
previously entered or withdrawn for consumption and brought into a 
duty-free store (Class 9 warehouse) for display and sale or for 
delivery to purchasers can be warehoused in a duty-free store (Class 9 
warehouse), but the conditionally duty-free merchandise and other 
merchandise must be physically segregated from one another, unless one 
of the following exceptions apply.
    (2) Marking exception to physical segregation. Merchandise may be 
identified or marked ``DUTY-PAID'' or ``U.S.-ORIGIN'', or similar 
markings, as applicable, to enable CBP officers to easily distinguish 
conditionally duty-free merchandise from other merchandise in the sales 
or crib area.
    (3) Electronic inventory exception to physical segregation. If the 
proprietor has an electronic inventory system capable of immediately 
identifying conditionally duty-free merchandise from other merchandise, 
the proprietor need not physically separate conditionally duty-free 
merchandise from other merchandise or mark the merchandise.
* * * * *

PART 144--WAREHOUSE AND REWAREHOUSE ENTRIES AND WITHDRAWALS

0
5. The general authority citation for part 144 and specific authority 
citation for Sec.  144.37 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.

0
6. Section 144.5 is revised to read as follows:


Sec.  144.5  Period of warehousing.

    Merchandise must not remain in a bonded warehouse beyond 5 years 
from the date of importation or such longer period of time as the port 
director may at his discretion permit upon proper request being filed 
and good cause shown.

0
7. In Sec.  144.37:
0
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''.
0
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''.
0
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''.
0
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''.
0
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. 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.
* * * * *

    Approved: December 22, 2009.
Jayson P. Ahern,
Acting Commissioner, U.S. Customs and Border Protection.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. E9-30735 Filed 12-28-09; 8:45 am]
BILLING CODE 9111-14-P