Foreign-Trade Zones in the United States, 82340-82362 [2010-32940]

Agencies

• DEPARTMENT OF COMMERCE
• Foreign-Trade Zones Board

[Federal Register Volume 75, Number 250 (Thursday, December 30, 2010)]
[Proposed Rules]
[Pages 82340-82362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32940]


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DEPARTMENT OF COMMERCE

Foreign-Trade Zones Board

15 CFR Part 400

[Docket No. 090210156-0416-01]
RIN 0625-AA81


Foreign-Trade Zones in the United States

AGENCY: Foreign-Trade Zones Board, International Trade Administration, 
Commerce.

ACTION: Proposed rule; request for comments.

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SUMMARY: The Foreign-Trade Zones Board (the Board) proposes to amend 
its regulations, and invites public comment on these proposed 
amendments. Through this action, the Board proposes to amend the 
substantive and procedural rules for the authorization of Foreign-Trade 
Zones (FTZs or zones) and the regulation of zone activity. The purpose 
of zones as stated in the Foreign-Trade Zones Act (FTZ Act or the Act) 
is to ``expedite and encourage foreign commerce, and other purposes.'' 
The regulations proposed here provide the legal framework for 
accomplishing this purpose in the context of evolving U.S. economic and 
trade policy, and economic factors relating to international 
competition. The changes are comprehensive and the proposed action 
constitutes a major revision. These revisions encompass changes related 
to manufacturing and value-added activity, as well as new rules 
designed to address compliance with the Act's requirement for a grantee 
to

[[Page 82341]]

provide uniform treatment for the users of a zone. The new rules should 
improve flexibility for U.S.-based operations, particularly for most 
circumstances involving exports; enhance clarity; and strengthen 
compliance and enforcement. The revisions would also reorganize the 
regulations in the interest of ease-of-use and transparency.

DATES: Comments on the proposed rule must be received on or before 
April 8, 2011.

ADDRESSES: All comments must be submitted through the Federal 
eRulemaking Portal at https://www.Regulations.gov, Docket No. ITA-2010-
0012, unless the commenter does not have access to the internet. 
Commenters that do not have access to the internet may submit their 
comments by mail or hand delivery/courier. All comments should be 
addressed to Andrew McGilvray, Executive Secretary, Foreign-Trade Zones 
Board, International Trade Administration, U.S. Department of Commerce, 
1401 Constitution Avenue, NW., Room 2111, Washington, DC 20230.
    All comments received are a part of the public record and will 
generally be posted to https://www.Regulations.gov without change. All 
Personal Identifying Information (e.g., name, address) voluntarily 
submitted by the commenter may be publicly accessible. Do not submit 
Confidential Business Information or otherwise sensitive or protected 
information, as such information may become part of the public record.
    The FTZ Board will accept anonymous comments (enter N/A in required 
fields if you wish to remain anonymous). Attachments to electronic 
comments will be accepted in Microsoft Word, Excel, WordPerfect, or 
Adobe portable document file (pdf) formats only. All comments to 
Regulations.gov must be submitted into Docket Number ITA-2010-0012, and 
comments should refer to RIN 0625-AA81. The public record concerning 
these regulations will be maintained in the Office of the Executive 
Secretary, Foreign-Trade Zones Board, International Trade 
Administration, U.S. Department of Commerce, 1401 Constitution Avenue, 
NW., Room 2111, Washington, DC 20230. Written public comments will be 
available at the facility in accordance with 15 CFR part 4 and may also 
be available electronically over the internet via https://www.trade.gov/ftz or https://www.Regulations.gov. Questions may be directed to the 
Foreign-Trade Zones Board staff by calling (202) 482-2862 or via e-mail 
to ftz@trade.gov.

FOR FURTHER INFORMATION CONTACT: Andrew McGilvray, Executive Secretary, 
Foreign Trade Zones Board, International Trade Administration, U.S. 
Department of Commerce, 1401 Constitution Avenue, NW., Room 2111, 
Washington, DC 20230, (202) 482-2862 or Matthew Walden, Senior 
Attorney, Office of Chief Counsel for Import Administration, U.S. 
Department of Commerce, 1401 Constitution Avenue, NW., Room 4610, 
Washington, DC 20230, (202) 482-2963.

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. The 
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 a 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.
    Domestic goods moved into a zone for export may be considered 
exported upon entering the zone for purposes of excise tax rebates and 
drawback. ``Subzones,'' a special-purpose type of ancillary zone, are 
authorized by the Board, through grantees of general-purpose zones, in 
situations such as when the ``adjacency'' requirement (distance/driving 
time) for general-purpose zones cannot be met. Goods that are in a zone 
for a bona fide customs reason are exempt from State and local ad 
valorem taxes. Zones and subzones are operated by corporations that 
have met certain regulatory criteria for submitting applications to the 
Board to operate zones. Under the FTZ Act, zones must be operated under 
public utility principles, and provide uniform treatment to all that 
apply to use the zone. The Board reviews and approves applications for 
authority to establish zone locations and to conduct certain activity 
within zones, and oversees zone grantees' compliance with zone 
regulations. The Board can limit or deny zone use on a case-by-case 
basis on public interest grounds. In response to applications, the 
Board can also provide the applicant with specific authority to choose 
whether to pay duties either on the original foreign material or on a 
downstream product incorporating the foreign material.
    To receive approval to operate a zone, an applicant must 
demonstrate the need for zone services, a workable plan that includes 
suitable physical facilities for zone operations, and financing for the 
operation. Successful applicants are granted licenses to operate zones. 
License grantees' sponsorship of specific sites for proposed FTZ 
designation is based on the grantees' determinations regarding the 
sites' appropriateness and potential for FTZ use, and a grantee may 
subsequently request removal of FTZ designation from a site based on 
factors such as the grantee's determination that projected FTZ use has 
not occurred.
    Through this proposed action, the Board intends to update and 
modify the rules for FTZs. Continued interest in zones, on the part of 
both communities providing zone access as part of their economic 
development efforts and firms using zone procedures to help improve 
their international competitiveness, demonstrates zones' importance to 
international trade and to investment in the domestic economy. Since 
the issuance of the Board's current regulations (last revised 
substantively in 1991), several issues or trends have emerged which 
necessitate fresh approaches in the regulations, as detailed below. Key 
revisions in the proposed regulations pertain to activity in zones in 
which an imported component is combined with one or more other 
components to create a different finished product. The current 
regulations divide such activity into two categories--``manufacturing'' 
or ``processing,'' depending on whether the activity involves 
``substantial transformation'' of the component--and apply procedures 
that can differ between the two categories. The proposed regulations 
would simplify use of the FTZ program through application of a unified 
concept--``production'' as defined in Sec.  400.2(l)--and provide a 
single set of procedures pertaining to that type of activity. All 
changes to rules pertaining to production activity have been carefully

[[Page 82342]]

balanced, including through adoption of certain additional constraints 
and safeguards such as enhanced authority to conduct reviews and 
restrict activity that is determined not to be in the public interest.
    The proposed regulations would eliminate the general requirement 
for advance approval from the FTZ Board for all manufacturing (i.e., 
substantial transformation) activity. The proposed regulations would 
only require advance approval for production activity under specific 
circumstances (e.g., if a lower U.S. duty rate will be applied to the 
component through its incorporation into a downstream product in the 
FTZ) (see Sec.  400.14(a)). This and other changes related to 
production activity respond to trends such as dramatically shorter 
timeframes for companies' decision-making on production locations (U.S. 
versus offshore), and the growth in contract manufacturing in which 
U.S. manufacturers compete with foreign-based alternatives for 
contracts under deadlines that are often incompatible with existing 
regulatory timeframes for obtaining authority from the FTZ Board.
    In circumstances where advance approval is required for specific 
production activity, the proposed rule would delegate authority to the 
Commerce Department's Assistant Secretary for Import Administration to 
approve the activity on an interim basis pending completion of the full 
FTZ Board's review of the request, which would significantly decrease 
the time a company must wait for approval (see Sec.  400.14(d)(3)). 
This new provision would replace and is significantly more flexible 
than the temporary/interim manufacturing (T/IM) procedure adopted by 
the FTZ Board in 2004 (and modified in 2006), and which had not yet 
been the subject of specific regulations. The T/IM procedure was 
limited to activity similar to that approved by the FTZ Board in the 
preceding five years. The new provision for interim approvals contains 
no requirement for similarity to recently approved activity.
    The proposed regulations also provide improved flexibility to 
accommodate changes in production at previously approved FTZ operations 
through retrospective notifications to the FTZ Board (see Sec. Sec.  
400.14(e)(1) and 400.37). The current regulations allow grantees or 
zone operators to notify the FTZ Board of new components but require 
advance approval for any new finished products. The proposed 
regulations would allow grantees or zone operators to notify the Board 
of new finished products as well as new components. However, in order 
to preserve the public process long associated with FTZ Board 
evaluation of new ``manufacturing'' activity, the proposed regulations 
would also require that a production operation obtain advance FTZ Board 
approval--after a public comment period on the proposal--for the list 
of broad categories of components or finished products within which 
specific new components or finished products would be notified. In 
addition, the proposed regulations would provide for a public comment 
period on all notifications submitted to the FTZ Board, as well as 
procedures to review any such notifications and to impose restrictions 
on notified changes when warranted.
    Two other significant areas of change in the proposed regulations 
pertain to the statutory requirements that each zone be operated as a 
public utility and provide uniform treatment to all that apply to use 
the zone. The current regulations do not provide grantees guidance on 
the practical implementation of these requirements. The proposed 
regulations would provide such guidance and would establish specific 
standards for compliance with those requirements (see Sec. Sec.  400.42 
and 400.43). For example, regarding the public utility requirement, 
they would tie the fees that a grantee charges zone users to the costs 
that the grantee incurs. With respect to the uniform treatment 
requirement, they would preclude certain conflicts of interest that 
could otherwise lead to non-uniform treatment of actual or potential 
zone users by private firms that assist zone grantees in zone 
management. Explicit standards regarding uniform treatment would help 
to ensure that the broadest range of U.S.-based operations can use 
zones to maximize their global competitiveness.
    Additionally, the proposed regulations would implement the 
statutory authority to issue fines for violations of the FTZ Act or the 
Board's regulations through specific provisions targeting certain types 
of violations (see Sec.  400.62). The current regulations contain no 
provisions pertaining to the statutory fining authority. The fining 
provisions are supplemented by provisions through which the Board or 
the Commerce Department's Assistant Secretary for Import Administration 
may order the suspension of the activated status of a zone operation in 
response to a violation. The proposed regulations' fining and 
suspension-of-activation provisions would help to ensure compliance 
with the statutory or regulatory requirements that zones submit annual 
reports to the FTZ Board, obtain advance approval (or submit 
notification) for certain production activity, and avoid certain 
conflicts of interest inconsistent with the statutory uniform treatment 
requirement.
    Finally, the proposed regulations contain a new provision allowing 
for the ``prior disclosure'' of violations of the FTZ Act or the 
Board's regulations (see Sec.  400.63). Disclosure of a violation to 
the FTZ Board prior to its discovery by the Board would generally 
result in the potential total fine for the violation (or series of 
offenses stemming from a continuing violation) being reduced to 1,000 
dollars.
    Thus, the proposed regulations would generally simplify and clarify 
requirements pertaining to FTZ use, while also helping to ensure 
compliance with specific statutory and regulatory requirements. The 
proposed regulations are intended to improve access and flexibility for 
U.S. manufacturing and value-added operations--particularly in most 
circumstances related to exports--and to enhance safeguards in order to 
avoid negative economic consequences from certain zone activity.
    Proposed changes are described in the following summary:
    1. Section 400.1. This section on the ``scope'' of the regulations 
contains a summary statement of zone benefits to users and is 
essentially unaltered.
    2. Section 400.2. A small number of new terms or refinements to 
existing terms have been added to this definitions section. The 
definitions of ``manufacturing'' and ``processing'' have been 
eliminated in favor of a new definition of ``production'' activity, for 
which advance approval (or notification) under specific circumstances 
and reporting to the Board would be required.
    3. Section 400.3. This section adopts with minimal alterations the 
contents of current Sec.  400.11. The section contains a statement of 
the Board's authority, the roles of the Chairman and Alternates, and 
the procedure for decision making (determinations).
    4. Section 400.4. This section on the Executive Secretary's role is 
modified from current Sec.  400.12 to reflect responsibilities 
involving application formats, termination of reviews under certain 
circumstances, production changes, fining, suspension of activated 
status, and retail trade.
    5. Section 400.5. This section is unchanged in substance from 
current Sec.  400.43.
    6. Section 400.6. This section is unchanged in substance from 
current Sec.  400.13.
    7. Section 400.11. This section closely parallels current Sec.  
400.21.
    8. Section 400.12. This section closely parallels current Sec.  
400.22.

[[Page 82343]]

    9. Section 400.13. This section primarily incorporates existing 
restrictions and conditions from Sec.  400.28. Specifically, Sec. Sec.  
400.13(a)(1) through (a)(5) plus (a)(7) mirror current Sec. Sec.  
400.28(a)(1) and 400.28(a)(4)-(a)(7) and the first sentence of current 
Sec.  400.28(a)(8) regarding preconditions for actual use of FTZ 
designated sites, the lapse of authority for unused zones, authority to 
construct buildings in the zone, allowing federal and local officials 
to have access to the zone, and the sale or transfer of a grant of 
authority. In combination with Sec.  400.14(a), Sec.  400.13(a)(6) 
parallels the general effect of current Sec.  400.28(a)(2) regarding 
requirements specific to manufacturing. Section 400.13(a)(8) 
incorporates the language of all but the first sentence of current 
Sec.  400.28(a)(8), and also adds a statutorily-derived sentence 
regarding no vested right to zone designation approved for privately 
owned land or facilities. Section 400.13(b) parallels existing 
Sec. Sec.  400.31(a) and 400.33(a) regarding the authority to prohibit 
or restrict zone activity. Section 400.13(c) is unchanged from current 
Sec.  400.28(b) regarding authority to impose additional conditions or 
restrictions on grants of authority.
    10. Section 400.14. This section addresses a series of general 
provisions and restrictions that relate to production activity in FTZs. 
Section 400.14(a) parallels the general effect of current Sec.  
400.28(a)(2), but focuses on the types of production activity that have 
raised public interest concerns in certain circumstances in the past, 
or that appear to have significant potential to raise such concerns in 
the future (e.g., duty reduction on foreign components, avoidance of 
antidumping or countervailing duties, avoidance of orders of the 
International Trade Commission under 19 U.S.C. 1337). Section 400.14(b) 
is new and makes explicit in regulation an existing practice of 
requiring all activity involving production in zones to be reported 
annually to the Board. Section 400.14(c) addresses the limits 
associated with the scope of approved production authority, and 
parallels to some degree a portion of current Sec.  400.28(a)(2). 
Section 400.14(d)(1) is the same in substance as current Sec.  
400.32(b)(1)(iv), while Sec. Sec.  400.14(d)(2) and (d)(3) are new. 
Section 400.14(d)(2) delegates authority to the Commerce Department's 
Assistant Secretary for Import Administration to approve production 
authority where the sole zone benefit requiring advance approval from 
the Board is for scrap or waste resulting from the production activity. 
The new interim authority in Sec.  400.14(d)(3) replaces the temporary/
interim manufacturing (T/IM) authority adopted by the Board in 2004, 
but is potentially applicable to many applications involving production 
authority, while eliminating the complex comparison(s) to previously 
approved authority that had been required to establish eligibility for 
T/IM. Section 400.14(e)(1) parallels to some degree current Sec. Sec.  
400.28(a)(3)(ii) and (iii), but broadens the current notification 
provision for changes in ``sourcing'' to encompass ``production'' 
changes (now defined as new finished products or new foreign 
components/inputs), and it also imposes certain key limitations on the 
production change procedure. Section 400.14(e)(2) is new and defines a 
procedure for notification of increases in production capacity. Section 
400.14(e)(3) to some degree parallels current Sec.  
400.28(a)(3)(iii)(B), and delineates authority to impose prohibitions 
or restrictions in response to production-change and capacity-increase 
notifications. Section 400.14(f) on ``scope determinations'' largely 
mirrors the content of current Sec.  400.32(c). Section 400.14(g) 
mirrors current Sec.  400.33(b).
    11. Section 400.15 is new, and reflects a statutory change (Pub. L. 
104-295, Sec. 31(a), 110 Stat. 3536 (1996), codified at 19 U.S.C. 
81c(e)) regarding ``production equipment.'' Specifically, this 
statutory change allows the reduction and deferral of duty payment on 
equipment assembled in a zone for use in production activity. The 
language of this section reflects the statute, the legislative history 
and Board practice.
    12. Section 400.16 relates to state and local ad valorem taxes and 
expands upon existing Sec.  400.1(c) by adopting language regarding 
this topic from the conference report on the 1984 legislation (Pub. L. 
98-573, title II, Sec. 231(a)(2), 98 Stat. 2990 (1984), codified at 19 
U.S.C. 81o(e)).
    13. Section 400.21 is very similar in substance to current Sec.  
400.24, but eliminates the current format of five ``exhibits,'' and 
instead provides for the requirements of the section to be addressed in 
guidelines/formats or related documents established by the Executive 
Secretary and published in the Federal Register.
    14. Section 400.22 indicates the requirements for production and 
subzone applications. The section is similar in many ways to current 
Sec.  400.25, but makes a clearer distinction between production 
requirements and subzone requirements to reflect the increasing 
prevalence of production activity in non-subzone environments and the 
increasing number of subzone applications involving only distribution-
related activity.
    15. Section 400.23 is very similar in substance to current Sec.  
400.26, with the exception of the elimination of Sec.  400.26(b)(1), 
which allowed reference to information in applications already on file 
with the Board, and which has proven problematic in practice.
    16. Section 400.24 is generally similar to current Sec.  400.23, 
but replaces one existing criterion encompassing the adequacy of 
operational and financial plans and the suitability and justification 
for a new zone site with a new criterion specific to the suitability of 
a new zone site and a new criterion specific to the justification for a 
new zone site.
    17. Section 400.25 sets forth criteria for evaluating production 
and subzone applications. The first paragraph of the section parallels 
current Sec.  400.27(d)(3)(v))(B). Sections 400.25(a)(1) and (2) are 
substantively unaltered from current Sec. Sec.  400.31(b)(1) and (2). 
Sections 400.25(b) and (c) essentially parallel current Sec.  
400.23(b), but distinguish more clearly between production authority 
and subzone designation, and require all applications for production 
authority to meet the significant public benefit standard because of 
the increasing incidence of production activity in general-purpose zone 
environments rather than in subzones.
    18. Section 400.26 parallels current Sec.  400.31(c)(3), but 
includes standards for all applications.
    19. Section 400.27 is substantively identical to current Sec.  
400.29.
    20. Sections 400.31 through 400.36 delineate the procedural steps 
for processing applications, and are generally the same in content as 
current Sec.  400.27, but also incorporate the content of current Sec.  
400.31(c). However, the new sections provide greater ease-of-use for 
the applicants by limiting each section to a particular case-processing 
stage. Section 400.31 parallels current Sec. Sec.  400.27(a) and 
400.27(b)(1). Section 400.32 parallels current Sec. Sec.  400.27(b)(2), 
400.27(c), and 400.27(d)(1). Section 400.33 parallels current Sec.  
400.27(d)(2). Section 400.34(a) parallels current Sec.  400.27(d)(3) 
while Sec.  400.34(b) parallels current Sec.  400.31(c). Section 400.35 
parallels current Sec.  400.27(e). Section 400.36 parallels current 
Sec.  400.27(f).
    21. Section 400.37, which establishes procedures for authority and 
notification related to production changes, parallels to some degree 
current Sec. Sec.  400.28(a)(3)(ii) and (iii). However, the section is 
significantly expanded, with additional elements intended to make the 
procedure more

[[Page 82344]]

useful and also ensure the proper balance between flexibility and 
program oversight.
    22. Section 400.38 generally parallels current Sec.  400.31(d) in 
both substance and structure.
    23. Section 400.41 is substantively unchanged from the current 
section of the same number.
    24. Section 400.42 provides new guidance and requirements related 
to the statutory mandate for operation of a zone as a public utility 
(referred to in current Sec.  400.2(e)). This section also contains a 
provision allowing a delayed compliance date.
    25. Section 400.43 provides new guidance and requirements to 
implement the statutory mandate for a grantee's uniform treatment of 
zone users (referred to in current Sec.  400.42(b)(2)(v)). This section 
also contains a provision allowing a delayed compliance date.
    26. Section 400.44 groups together requirements from current 
Sec. Sec.  400.42(a)(1), 400.28(a)(4) and 400.42(b)(1).
    27. Section 400.45 generally parallels current Sec.  400.42 
regarding requirements for a grantee's zone schedule, but adds 
specificity to the documentation requirements for a zone's policies and 
the standard contractual provisions the zone offers. This section also 
contains a provision allowing a delayed compliance date.
    28. Section 400.46 substantially modifies current Sec.  
400.42(b)(5), which dealt with complaints about fees, by adding in 
Sec.  400.46(a) general procedures for complaints by zone participants 
regarding compliance with the uniform treatment requirement of the FTZ 
Act. Section 400.46(b), which addresses complaints about fees, adds new 
specificity.
    29. Section 400.47 is based on current Sec.  400.28(a)(9) regarding 
ordinary limitations on grantee liability, and provides further 
explanation concerning the bases for those limitations by adding 
language largely derived from the Board position in response to 
comments on Sec.  400.41 in the October 1991 final rule document for 
the current regulations. This section also adds a final sentence 
stating specific circumstances in which a grantee's actions could 
undermine the limitations on its liability.
    30. Section 400.48 parallels current Sec.  400.45, but shifts 
responsibility for determinations from the Port Director (with the 
Executive Secretary's concurrence) to the Executive Secretary (with the 
Port Director's concurrence).
    31. Section 400.49 is substantively unchanged from current Sec.  
400.44.
    32. Section 400.51 is largely unchanged from current Sec.  400.46, 
with minimal non-substantive additional language.
    33. Section 400.52 parallels current Sec.  400.51.
    34. Section 400.53 is unchanged in substance from current Sec.  
400.52.
    35. Section 400.54 is largely unchanged from current Sec.  400.53, 
with the exception of an added sentence on the public nature of 
information submitted pursuant to certain regulatory sections.
    36. Section 400.61 closely parallels current Sec.  400.28(c), with 
language added regarding the subzone operator.
    37. Section 400.62 is new and establishes procedures related to the 
imposition, mitigation, and assessment of fines as authorized by the 
FTZ Act (this authority is reflected in current Sec.  400.11(a)(10)), 
as well as for instructing CBP to suspend activated status in certain 
circumstances.
    38. Section 400.63 is new and establishes procedures for ``prior 
disclosure'' of information to the Board regarding violations of the 
FTZ Act or the Board's regulations.
    39. Section 400.64 is unchanged in substance from current Sec.  
400.47.

Classification

    This revision is proposed under the authority of section 8 of the 
Foreign-Trade Zones Act of June 18, 1934, as amended (19 U.S.C. 81h).

Executive Order 12866

    This proposed rule has been determined to be significant for 
purposes of Executive Order 12866.

Regulatory Flexibility Act

    The Acting Chief Counsel for Regulation of the Department of 
Commerce certified to the Chief Counsel for Advocacy of the Small 
Business Administration that this proposed rule, if adopted, would not 
have a significant economic impact on a substantial number of small 
entities. (5 U.S.C. 605(b)). In this rule, which is consistent with 19 
USC 81a-1u, the Foreign Trade Zones Board proposes to simplify and 
expedite access to FTZ benefits for U.S. manufacturers, particularly 
for export-oriented activity. In addition, the revised regulations 
would provide increased transparency, guidance and enforcement of the 
public utility and uniform treatment aspects of the program.
    The FTZ Board's current regulations date to 1991. The proposed rule 
would eliminate the general advance approval requirement for most 
export manufacturing. This approval process generally took between 6 
and 12 months. Instead, the proposed rule would require advance 
approval for export manufacturing only in certain relatively rare 
circumstances (such as when an imported component used in the 
manufacturing process is subject to an antidumping or countervailing 
duty). For manufacturing in FTZs for goods that are destined for the 
U.S. market, which generally is conducted in competition with factories 
overseas, the proposed rule would eliminate the FTZ Board's general 
advance approval requirement and instead limit the advance approval 
process to the specific types of FTZ benefits that could potentially 
impact other domestic manufacturers. These amendments should 
dramatically reduce the economic burden on large and small businesses 
involved in FTZ export manufacturing by reducing and streamlining the 
regulatory process for such manufacturing.
    The second area of focus for the proposed rule involves 
circumstances in which the organization licensed by the FTZ Board to 
serve a particular region is not complying with the FTZ Act's 
requirements to operate the zone as a public utility and provide 
uniform treatment to all users. Use of the FTZ program provides certain 
cost savings that are designed to enhance the competitiveness of U.S. 
facilities in competition with sites abroad. Improved access to FTZs 
and simplification of the rules and procedures regarding FTZ activity 
should therefore generally have a net positive effect for all potential 
users of the program regardless of size.
    To determine which entities using the FTZ program qualify as 
``small'' entities, pursuant to 13 CFR 121.201, the FTZ staff used the 
Small Business Administration (SBA) size standards identified by North 
American Industry Classification System (NAICS) codes. Major users of 
the FTZ program include ocean freight companies and manufacturers of 
various products. Under the SBA size standards, ocean freight companies 
are considered small entities if they have fewer than 500 employees. 
The size standards for manufacturing operations vary by the NAICS code 
of the product manufactured. Manufacturing in FTZs involves a wide 
variety of industries and products, and the NAICS codes for all zone 
users are not always known by the FTZ staff. Therefore, to assess the 
potential impact from this rule, FTZ manufacturing operations were 
categorized as ``miscellaneous manufacturing'' which, under the SBA 
size standards, are considered small entities if they have fewer than 
500

[[Page 82345]]

employees. With these size standards, potentially impacted companies 
operating in FTZs were considered small entities if they had fewer than 
500 employees. Use of the 500 employee standard also appears consistent 
with what has been done in other circumstances that involve a large 
variety of industries. For example, under the Small Business Size 
Regulations, entities are considered small for the purpose of reduced 
patent fees if the number of employees does not exceed 500 (13 CFR 
121.802), and a similar standard applies for entities to qualify for 
small business set-asides or 8(a) contracts under 13 CFR 121.406.
    To determine the number of small entities involved, the FTZ Board 
staff analyzed data on activity within the zones in 2009 from annual 
reports submitted by each FTZ. The information submitted included the 
number and types of companies using each FTZ. Research was then 
conducted to determine whether each company would be considered a small 
entity. Based on the research and analysis conducted, it is anticipated 
that the rule would impact approximately 200 business entities that 
have fewer than 500 employees, i.e., small entities under 13 CFR 
121.201. The proposed revisions would apply equally to all companies 
and organizations involved in the FTZ program. However, simplified 
procedures for zone applicants and for access to zone use are expected 
to provide the greatest benefit to small entities, particularly those 
with more limited resources, because they would reduce administrative 
and application costs for these companies. These changes would allow 
program use by more small entities that are currently underserved in 
the program. The changes proposed in this rule also could increase the 
number of small entities using the program. Such an increase would 
result from the simplified procedures proposed and would extend the 
cost savings achieved through the program to additional small entities 
that had been unable to access those benefits in the past.
    The proposed rule would also reduce the number of applications for 
FTZ authority that need to be submitted for export manufacturing, 
thereby reducing the submission and recordkeeping burden on companies 
using the program for such activity. The reduction in burden is 
expected to increase the use of the program for this activity. In the 
past, the FTZ staff has received informal comments from companies that 
the application required was difficult to prepare, and that the process 
itself was burdensome and time consuming. The proposed rule is intended 
to address those concerns to the extent possible. Moreover, many 
changes in non-export related FTZ activity that currently require 
advance approval (through a 6 to 12 month application process) would be 
eligible under the proposed rule for a dramatically simpler process 
that allows a company to notify the FTZ Board that a change has 
occurred in activity. This proposed change is in addition to the 
general elimination of advance approval for export manufacturing. As a 
result of this significantly reduced burden, use of the FTZ program 
should be much more accessible to all companies and, in particular, to 
small entities.
    The proposal to simplify procedures and reduce the number of 
applications submitted was the result of analysis and extensive 
discussion concerning the most effective means of improving the program 
while maintaining the appropriate balance and safeguards. The 
application structure for manufacturing in the current regulations is 
intended to ensure that other domestic companies are not negatively 
impacted if a company benefits from the savings available in the FTZ 
program. As a result, certain information and procedures are necessary 
in the review process, and the application process cannot be completely 
eliminated. At the same time, the FTZ Board recognizes that certain 
activity, such as manufacturing for export markets, generally does not 
have such an impact on other domestic companies.
    The preparation of the proposed rule involved an assessment of the 
areas where procedures could be simplified or reduced to decrease the 
burden on companies while maintaining those procedures that are 
necessary to ensure that the program is not misused. One alternative 
analyzed was to simplify the procedures pertaining to FTZ 
manufacturing, without eliminating the requirement for the submission 
of applications for certain manufacturing (particularly for most export 
activity). While this option would reduce the burden on all companies 
using the program, the net positive impact would be less than what is 
being proposed. In addition, the elimination of advance approval for 
most export manufacturing is expected to provide the greatest benefit 
to small entities using or seeking to use the program. The second 
alternative was to maintain the current application procedures. Under 
this alternative, there would be no impact on small entities using the 
program, but it would continue to discourage certain export activity as 
well as new companies, particularly small entities, from entering the 
program. This proposed rule would both eliminate the need for certain 
applications and simplify manufacturing-related procedures as a whole, 
resulting in the largest possible reduction in burden of the options 
considered.
    The FTZ Act and current regulations require the submission of an 
annual report from each zone to the FTZ Board. This reporting would not 
be impacted by the revised rule, and no increased burden would result.
    Most fundamentally, all businesses and organizations, whether small 
or not, have access to the use of FTZs. The proposed rule simply lays 
out the procedures that the FTZ Board would follow when businesses or 
organizations apply to establish FTZs or engage in certain activities 
in FTZs, and they delineate certain rights and responsibilities of zone 
grantees, operators and users that have decided to make use of the FTZ 
program. The procedures, rights and responsibilities apply equally, 
whether the affected party is a small or large entity. The FTZ Act of 
1934 and the FTZ program are tools of economic development, and when 
entities use the FTZ program, it can be assumed they do so because it 
is in their economic interest. Accordingly, this proposed rule, which 
is designed to improve access to the FTZ program, should only further 
the economic interests of current and future zone users, including 
small entities.
    Because this rule results in reduced burden for many types of FTZ 
activity, with a net positive impact to entities involved in the FTZ 
program, this rule will not have a significant economic impact on a 
substantial number of small entities. Accordingly, an IRFA is not 
required, and none has been prepared.

Executive Order 13132

    This proposed rule does not contain policies with Federalism 
implications sufficient to warrant preparation of a Federalism 
assessment under Executive Order 13132.

Paperwork Reduction Act

    This rule contains information collection activities subject to the 
Paperwork Reduction Act. It would impose no additional reporting or 
record keeping burden on the public and there would be no impact on the 
collection that falls under the Office of Management and Budget (OMB) 
Control No. 0625-0109 (Annual Report to Foreign-Trade Zones Board). 
This proposed rule would amend the collection under OMB Control No. 
0625-0139 (Application to Foreign-Trade Zones Board). Under this 
proposed rule, the application

[[Page 82346]]

requirements associated with the latter collection for zone applicants, 
grantees, operators, and users would be simplified, and there is an 
overall reduction of the burden on those parties. The amended 
requirement would be submitted to OMB for approval.
    The changes proposed in this rule are expected to decrease the 
annual number of future production (manufacturing) applications 
submitted to the FTZ Board from 27 to 20. The reduction in the total 
number of applications would result, in part, from the elimination of 
the requirement for advance approval for certain export production 
activity. Moreover, many changes in non-export related FTZ activity 
that currently require advance approval (through a 6 to 12 month 
application process) would be eligible under the proposed rule for a 
dramatically simpler process that allows a company to notify the FTZ 
Board that a change has occurred in activity. These changes are 
expected to reduce the total annual burden associated with applications 
for production authority from 1,026 to 680 hours. As a result of this 
significantly reduced burden, use of the FTZ program should be much 
more accessible to all companies involved in production activity.
    In addition to changes pertaining directly to production activity, 
the rule also specifically adopts the alternative site framework (ASF) 
authorized by the FTZ Board in December 2008. The ASF procedures reduce 
the time and complexity involved in designating FTZ sites for many 
companies. As use of the ASF becomes more widespread, the need for 
expansion and subzone applications will be reduced. As a result, with 
increased use of the ASF by zones, there is expected to be a decline in 
the number of expansion applications as well as a shift from the 
submission of more complex subzone applications to applications for 
production authority. The combined effect of the changes pertaining to 
production activity and to the ASF is expected to result in an even 
more significant reduction in application burden. The annual number of 
expansion applications should decline by half, from 20 to 10, reducing 
the annual burden from 2,100 to 1,050 hours. While the overall number 
of production applications is anticipated to increase (from 27 to 29 
per year) despite the elimination of the need for advance approval in 
certain circumstances, this largely reflects the shift from subzone to 
production applications, and the number of complex subzone applications 
is expected to decline. The application for production authority is a 
simpler process and involves notably fewer burden hours than a subzone 
application. As a result, the combined annual burden for subzone and 
production requests is expected to decline from 4,098 to 2,681 hours. 
In total, the annual FTZ application burden through the provisions 
proposed in this rule would be reduced from 6,651 to 4,184 hours.
    Public comment is sought regarding: Whether this proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information shall 
have practical utility; the accuracy of the burden estimate; ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and ways to minimize the burden of the collection of 
information, including through the use of automated collection 
techniques or other forms of information technology. Send comments on 
these or any other aspects of the collection of information to the 
contact listed in ADDRESSES above, and e-mail to Wendy Liberante 
(Wendy_L._Liberante@omb.eop.gov).
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB Control Number.

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.

    For the reasons set out in the preamble, it is proposed to revise 
15 CFR part 400 as follows:

PART 400--REGULATIONS OF THE FOREIGN-TRADE ZONES BOARD

Subpart A--Scope, Definitions and Authority
400.1 Scope.
400.2 Definitions.
400.3 Authority of the Board.
400.4 Authority and responsibilities of the Executive Secretary.
400.5 Authority to restrict or prohibit certain zone operations.
400.6 Board headquarters.
Subpart B--Ability To Establish Zone; Limitations and Restrictions on 
Authority Granted
400.11 Number and location of zones and subzones.
400.12 Eligible applicants.
400.13 General conditions, prohibitions and restrictions applicable 
to grants of authority.
400.14 Production--activity requiring approval or reporting; 
restrictions.
400.15 Production equipment.
400.16 Exemption from state and local ad valorem taxation of 
tangible personal property.
Subpart C--Applications To Establish and Modify Authority
400.21 Application for zone.
400.22 Application for production or subzone authority.
400.23 Application for expansion or other modification to zone 
project.
400.24 Criteria for evaluation of zone proposals or expansion or 
other modifications to zone projects.
400.25 Criteria for evaluation of production and subzone proposals.
400.26 Burden of proof.
400.27 Application fees.
Subpart D--Procedures for Application Evaluation and Reviews
400.31 General application provisions and pre-docketing review.
400.32 Procedure for docketing application and commencement of case 
review.
400.33 Examiner's review--case not involving production activity.
400.34 Examiner's review--case involving production activity.
400.35 Completion of case review.
400.36 Procedure for application for minor modification of zone 
project.
400.37 Procedure for notification and review of production changes.
400.38 Monitoring and reviews of zone operations and activity.
Subpart E--Operation of Zones and Administrative Requirements
400.41 Operation of zones; general.
400.42 Operation as public utility.
400.43 Uniform treatment.
400.44 Requirements for commencement of operations in a zone 
project.
400.45 Zone schedule.
400.46 Complaints related to public utility and uniform treatment.
400.47 Grantee liability.
400.48 Retail trade.
400.49 Zone-restricted merchandise.
Subpart F--Records, Reports, Notice, Hearings and Information
400.51 Accounts, records and reports.
400.52 Notice and hearings.
400.53 Official record; public access.
400.54 Information.
Subpart G--Penalties, Prior Disclosure and Appeals to the Board
400.61 Revocation of grants of authority.
400.62 Fines, penalties and instructions to suspend activated 
status.
400.63 Prior disclosure.
400.64 Appeals to the Board of decisions of the Assistant Secretary 
for Import Administration and the Executive Secretary.

    Authority:  Foreign-Trade Zones Act of June 18, 1934, as amended 
(Pub. L. 397, 73rd

[[Page 82347]]

Congress, 48 Stat. 998-1003 (19 U.S.C. 81a-81u)).

Subpart A--Scope, Definitions and Authority


Sec.  400.1  Scope.

    (a) This part sets forth the regulations, including the rules of 
practice and procedure, of the Foreign-Trade Zones Board with regard to 
foreign-trade zones (FTZs or zones) in the United States pursuant to 
the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u). It 
includes the substantive and procedural rules for the authorization of 
zones and the regulation of zone activity. The purpose of zones as 
stated in the Act is to ``expedite and encourage foreign commerce, and 
other purposes.'' The regulations provide the legal framework for 
accomplishing this purpose in the context of evolving U.S. economic and 
trade policy, and economic factors relating to international 
competition.
    (b) Part 146 of the customs regulations (19 CFR part 146) governs 
zone operations, including the admission of merchandise into zones, 
zone activity involving such merchandise, and the transfer of 
merchandise from zones.
    (c) To the extent ``activated'' under U.S. Customs and Border 
Protection (CBP) procedures in 19 CFR part 146, and only for the 
purposes specified in the Act (19 U.S.C. 81c), zones are treated for 
purposes of the tariff laws and customs entry procedures as being 
outside the customs territory of the United States. Under zone 
procedures, foreign and domestic merchandise may be admitted into zones 
for operations such as storage, exhibition, assembly, manufacture and 
processing, without being subject to formal customs entry procedures 
and payment of duties, unless and until the foreign merchandise enters 
customs territory for domestic consumption. At that time, the importer 
ordinarily has a choice of paying duties either at the rate applicable 
to the foreign material in its condition as admitted into a zone, or if 
used in production activity, to the emerging product. Quota 
restrictions do not normally apply to foreign goods in zones. The Board 
can deny or limit the use of zone procedures in specific cases on 
public interest grounds. Merchandise moved into zones for export (zone-
restricted status) may be considered exported for purposes such as 
federal excise tax rebates and customs drawback. Foreign merchandise 
(tangible personal property) admitted to a zone and domestic 
merchandise held in a zone for exportation are exempt from certain 
state and local ad valorem taxes (19 U.S.C. 81o(e)). Articles admitted 
into zones for purposes not specified in the Act shall be subject to 
the tariff laws and regular entry procedures, including the payment of 
applicable duties, taxes, and fees.


Sec.  400.2  Definitions.

    (a) Act means the Foreign-Trade Zones Act of 1934, as amended (19 
U.S.C. 81a-81u).
    (b) Agent means a person (as defined in Sec.  400.2(h)) acting on 
behalf of or under agreement with the zone grantee in zone-related 
matters.
    (c) Board means the Foreign-Trade Zones Board, which consists of 
the Secretary of the Department of Commerce (chairman) and the 
Secretary of the Treasury, or their designated alternates.
    (d) CBP means U.S. Customs and Border Protection.
    (e) Executive Secretary is the Executive Secretary of the Foreign-
Trade Zones Board.
    (f) Foreign-trade zone (FTZ or zone) is a restricted-access site, 
in or adjacent (as defined by Sec.  400.11(b)(2)) to a CBP port of 
entry, operated pursuant to public utility principles under the 
sponsorship of a corporation granted authority by the Board and under 
the supervision of CBP.
    (g) Grant of authority is a document issued by the Board that 
authorizes a zone grantee to establish, operate and maintain a zone 
project or a subzone, subject to limitations and conditions specified 
in this part and in 19 CFR part 146. The authority to establish a zone 
includes the authority to operate and the responsibility to maintain 
it.
    (h) Person includes any individual, enterprise, or entity.
    (i) Port Director is normally the director of CBP for the CBP 
jurisdictional area in which the zone is located.
    (j) Port of entry means a port of entry in the United States, as 
defined by part 101 of the customs regulations (19 CFR part 101), or a 
user fee airport authorized under 19 U.S.C. 58b and listed in part 122 
of the customs regulations (19 CFR part 122).
    (k) Private corporation means any corporation, other than a public 
corporation, which is organized for the purpose of establishing a zone 
project and which is chartered for this purpose under a law of the 
state in which the zone is located.
    (l) Production, as used in this part, means any activity which 
results in a change in the customs classification of an article or in 
its eligibility for entry for consumption, regardless of whether U.S. 
customs entry actually is ultimately made on the article resulting from 
the production activity.
    (m) Public corporation means a state, a political subdivision 
(including a municipality) or public agency thereof, or a corporate 
municipal instrumentality of one or more states.
    (n) Site is one or more parcels of land organized as an entity, 
such as all or part of an industrial park or airport facility.
    (o) State includes any state of the United States, the District of 
Columbia, and Puerto Rico.
    (p) Subzone means a special-purpose zone established as an adjunct 
to a zone project for a limited purpose.
    (q) Zone means a foreign-trade zone established under the 
provisions of the Act and these regulations. Where used in this part, 
the term also includes subzones, unless the context indicates 
otherwise.
    (r) Zone grantee is the corporate recipient of a grant of authority 
for a zone project. Where used in this part, the term ``grantee'' means 
``zone grantee'' unless otherwise indicated.
    (s) Zone operator is a person that operates within a zone or 
subzone under the terms of an agreement with the zone grantee, with the 
concurrence of the Port Director.
    (t) Zone participant is a zone operator, zone user, property owner, 
or other person participating or seeking to participate in some manner 
in, or to make use of, the zone project.
    (u) Zone project means the zone plan, including all of the zone and 
subzone sites that the Board authorizes a single grantee to establish.
    (v) Zone site means a physical location of a zone or subzone.
    (w) Zone user is a party using a zone under agreement with the zone 
grantee or a zone operator.


Sec.  400.3  Authority of the Board.

    (a) In general. In accordance with the Act and procedures of this 
part, the Board has authority to:
    (1) Prescribe rules and regulations concerning zones;
    (2) Issue grants of authority for zones and subzones, and approve 
modifications to the original zone project;
    (3) Approve production activity in zones and subzones as described 
in this part;
    (4) Make determinations on matters requiring Board decisions under 
this part;
    (5) Decide appeals in regard to certain decisions of the Commerce 
Department's Assistant Secretary for Import Administration or the 
Executive Secretary;

[[Page 82348]]

    (6) Inspect the premises, operations and accounts of zone grantees 
and operators;
    (7) Require zone grantees to report on zone operations;
    (8) Report annually to the Congress on zone operations;
    (9) Restrict or prohibit zone operations;
    (10) Terminate reviews of applications under certain circumstances 
pursuant to Sec.  400.35(d);
    (11) Authorize under certain circumstances the return of ``zone-
restricted merchandise'' for entry into customs territory under Sec.  
400.49;
    (12) Impose fines for violations of the Act and this part;
    (13) Instruct CBP to suspend activated status pursuant to Sec.  
400.62(i);
    (14) Revoke grants of authority for cause; and,
    (15) Determine, as appropriate, whether zone activity is or would 
be in the public interest or detrimental to the public interest.
    (b) Authority of the Chairman of the Board. The Chairman of the 
Board (Secretary of the Department of Commerce) has the authority to:
    (1) Appoint the Executive Secretary of the Board;
    (2) Call meetings of the Board, with reasonable notice given to 
each member; and,
    (3) Submit to the Congress the Board's annual report as prepared by 
the Executive Secretary.
    (c) Alternates. Each member of the Board will designate an 
alternate with authority to act in an official capacity for that 
member.
    (d) Authority of the Assistant Secretary for Import Administration 
(Alternate Chairman). The Commerce Department's Assistant Secretary for 
Import Administration has the authority to:
    (1) Make determinations pursuant to Sec.  400.14(d);
    (2) Terminate reviews of applications under certain circumstances 
pursuant to Sec.  400.35(d);
    (3) Mitigate and assess fines pursuant to Sec. Sec.  400.62(f) and 
(g) and instruct CBP to suspend activated status pursuant to Sec.  
400.62(i); and,
    (4) Restrict the use of zone procedures under certain circumstances 
pursuant to Sec. Sec.  400.14(e) and 400.38(c).
    (e) Determinations of the Board. (1) The determination of the Board 
will be based on the unanimous vote of the members (or alternate 
members) of the Board.
    (2) All votes will be recorded.
    (3) The Board will issue its determination in proceedings under the 
regulations in the form of a Board order.


Sec.  400.4  Authority and responsibilities of the Executive Secretary.

    The Executive Secretary has the following responsibilities and 
authority:
    (a) Represent the Board in administrative, regulatory, operational, 
and public affairs matters;
    (b) Serve as director of the Commerce Department's Foreign-Trade 
Zones staff;
    (c) Execute and implement orders of the Board;
    (d) Arrange meetings and direct circulation of action documents for 
the Board;
    (e) Arrange with other sections of the Department of Commerce and 
other governmental agencies for studies and comments on zone issues and 
proposals;
    (f) Maintain custody of the seal, records, files and correspondence 
of the Board, with disposition subject to the regulations of the 
Department of Commerce;
    (g) Issue notices on zone matters for publication in the Federal 
Register;
    (h) Direct processing of applications and reviews, including 
designation of examiners and scheduling of hearings, under various 
sections of this part;
    (i) Determine subzone sponsorship questions as provided in Sec.  
400.12(d);
    (j) Make recommendations in cases involving questions as to whether 
zone activity should be prohibited or restricted for public interest 
reasons, including reviews under Sec.  400.5;
    (k) Determine questions of scope under Sec.  400.14(f);
    (l) Determine whether additional information is needed for 
evaluation of applications and other requests for decisions under this 
part, as provided for in various sections of this part, including 
Sec. Sec.  400.21, 400.22, and 400.23;
    (m) Issue instructions, guidelines, forms and related documents 
specifying time, place, manner and formats for applications as provided 
in Sec.  400.21(b);
    (n) Determine whether proposed modifications involve major changes 
under Sec.  400.23(a)(2);
    (o) Determine whether applications meet pre-docketing requirements 
under Sec.  400.31(b);
    (p) Terminate reviews of applications under certain circumstances 
pursuant to Sec.  400.35(d);
    (q) Authorize minor modifications to zone projects under Sec.  
400.36;
    (r) Review production changes under Sec.  400.37;
    (s) Direct monitoring and reviews of zone operations and activity 
under Sec.  400.38;
    (t) Accept rate schedules and determine their sufficiency under 
Sec.  400.45(e);
    (u) Assess potential issues and make determinations pertaining to 
uniform treatment under Sec.  400.43 and review and decide complaint 
cases under Sec.  400.46;
    (v) Make certain determinations and authorizations pertaining to 
retail trade under Sec.  400.48;
    (w) Authorize under certain circumstances the return of ``zone-
restricted merchandise'' for entry into customs territory under Sec.  
400.49;
    (x) Determine the format and deadlines for the annual reports of 
zone grantees to the Board and direct preparation of an annual report 
to Congress from the Board under Sec.  400.51(d);
    (y) Make recommendations and certain determinations regarding 
violations and fines, and undertake certain procedures related to the 
suspension of activated status, as provided in Sec.  400.62; and,
    (z) Designate an acting Executive Secretary.


Sec.  400.5  Authority to restrict or prohibit certain zone operations.

    (a) In general. After review, the Board may restrict or prohibit 
any admission of merchandise into a zone project or any operation in a 
zone project when it determines that such activity is detrimental to 
the public interest, health or safety.
    (b) Initiation of review. The Board may conduct a proceeding, or 
the Executive Secretary a review, to consider a restriction or 
prohibition under paragraph (a) of this section either self-initiated, 
or in response to a complaint made to the Board by a party directly 
affected by the activity in question and showing good cause.


Sec.  400.6  Board headquarters.

    The headquarters of the Board is located within the U.S. Department 
of Commerce (Herbert C. Hoover Building), 1401 Constitution Avenue, 
NW., Washington, DC 20230, within the office of the Foreign-Trade Zones 
staff.

Subpart B--Ability To Establish Zone; Limitations and Restrictions 
on Authority Granted


Sec.  400.11  Number and location of zones and subzones.

    (a) Number of zone projects-port of entry entitlement.
    (1) Provided that the other requirements of this part are met:
    (i) Each port of entry is entitled to at least one zone project;
    (ii) If a port of entry is located in more than one state, each of 
the states in which the port of entry is located is entitled to a zone 
project; and,
    (iii) If a port of entry is defined to include more than one city 
separated by

[[Page 82349]]

a navigable waterway, each of the cities is entitled to a zone project.
    (2) Applications pertaining to zone projects in addition to those 
approved under the entitlement provision of paragraph (a)(1) of this 
section may be approved by the Board if it determines that the existing 
project(s) will not adequately serve the convenience of commerce.
    (b) Location of zones and subzones-port of entry adjacency 
requirements.
    (1) The Act provides that the Board may approve ``zones in or 
adjacent to ports of entry'' (19 U.S.C. 81b).
    (2) The ``adjacency'' requirement is satisfied if:
    (i) A general-purpose zone site is located within 60 statute miles 
or 90 minutes' driving time (as measured by the Port Director) from the 
outer limits of a port of entry.
    (ii) A subzone meets the following requirements relating to CBP 
supervision:
    (A) Proper CBP oversight can be accomplished with physical and 
electronic means; and,
    (B) All electronically produced records are maintained in a format 
compatible with the requirements of CBP for the duration of the record 
period; and,
    (C) The grantee/operator agrees to present merchandise for 
examination at a CBP site selected by CBP when requested, and further 
agrees to present all necessary documents directly to the CBP oversight 
office.


Sec.  400.12  Eligible applicants.

    (a) In general. Subject to the other provisions of this section, 
public or private corporations may apply for a grant of authority to 
establish a zone project. The Board will give preference to public 
corporations.
    (b) Public corporations and private non-profit corporations. The 
eligibility of public corporations and private non-profit corporations 
to apply for a grant of authority shall be supported by enabling 
legislation of the legislature of the state in which the zone is to be 
located, indicating that the corporation, individually or as part of a 
class, is authorized to so apply. Any application must also be 
consistent with the charter or organizational papers of the applying 
entity.
    (c) Private for-profit corporations. The eligibility of private 
for-profit corporations to apply for a grant of authority shall be 
supported by a special act of the state legislature naming the 
applicant corporation and by evidence indicating that the corporation 
is chartered for the purpose of establishing a zone.
    (d) Applicants for subzones-
    (1) Eligibility. The following entities are eligible to apply for a 
grant of authority to establish a subzone:
    (i) The zone grantee of the closest zone project in the same state;
    (ii) The zone grantee of another zone in the same state, which is a 
public corporation (or a non-public corporation if no such other public 
corporation exists), if the Board, or the Executive Secretary, finds 
that such sponsorship better serves the public interest; or,
    (iii) A state agency specifically authorized to submit such an 
application by an act of the state legislature.
    (2) Notification of closest grantee. If an application is submitted 
under paragraph (d)(1)(ii) or (iii) of this section, the Executive 
Secretary will:
    (i) Notify, in writing, the grantee specified in paragraph 
(d)(1)(i) of this section, who may, within 30 days, object to such 
sponsorship, in writing, with supporting information as to why the 
public interest would be better served by its acting as sponsor;
    (ii) Review such objections prior to docketing the application to 
determine whether the proposed sponsorship is in the public interest, 
taking into account:
    (A) The complaining zone's structure and operation;
    (B) The views of State and local public agencies; and,
    (C) The views of the proposed subzone operator;
    (iii) Notify the applicant and complainants in writing of the 
Executive Secretary's determination;
    (iv) If the Executive Secretary determines that the proposed 
sponsorship is in the public interest, docket the application (see 
Sec.  400.64 regarding appeals of decisions of the Executive 
Secretary).


Sec.  400.13  Gen