Foreign-Trade Zones in the United States, 12112-12155 [2012-4249]

Agencies

• DEPARTMENT OF COMMERCE
• Foreign-Trade Zones Board

[Federal Register Volume 77, Number 39 (Tuesday, February 28, 2012)]
[Rules and Regulations]
[Pages 12112-12155]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-4249]



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Vol. 77

Tuesday,

No. 39

February 28, 2012

Part II





Department of Commerce





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Foreign-Trade Zones Board





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15 CFR Part 400





Foreign-Trade Zones in the United States; Final Rule

Federal Register / Vol. 77 , No. 39 / Tuesday, February 28, 2012 / 
Rules and Regulations

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DEPARTMENT OF COMMERCE

Foreign-Trade Zones Board

15 CFR Part 400

[Docket No. 090210156-1664-02; Order No. 1815]
RIN 0625-AA81


Foreign-Trade Zones in the United States

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

ACTION: Final rule.

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SUMMARY: The Foreign-Trade Zones Board (the Board) hereby revises its 
regulations issued pursuant to the Foreign-Trade Zones (FTZ) Act of 
1934, as amended (the Act), concerning the authorization and regulation 
of foreign-trade zones and zone activity in the United States. The rule 
is comprehensive and constitutes a complete revision, replacing the 
present version of 15 CFR part 400. The changes simplify many of the 
Board's procedures, including those for users to obtain authority 
related to manufacturing and value-added activity, and include new 
rules designed to address compliance with the Act's requirement for a 
grantee to provide uniform treatment for the users of a zone. The new 
rules improve flexibility for U.S.-based operations, including export-
oriented activity; enhance clarity; and strengthen compliance and 
enforcement. The revisions also reorganize the regulations in the 
interest of ease-of-use and transparency.

DATES: Effective Date: April 30, 2012, except for Sec. Sec.  400.21-
400.23, 400.25 and 400.43(f) which contain information collection 
requirements that have not yet been submitted for OMB review. The Board 
will publish a document in the Federal Register announcing the 
effective date.

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,'' sites established for specific uses, are 
authorized by the Board through grantees of general-purpose zones, 
including where certain requirements, such as ``adjacency'' (distance/
driving time), for general-purpose zone sites 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 the Board's 
regulations. The Board can limit or deny zone use on a case-by-case 
basis on public interest grounds. In response to applications and 
notifications, 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 action, the Board is updating and modifying 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. These regulations generally 
simplify and clarify requirements pertaining to FTZ use, while also 
helping to ensure compliance with specific statutory and regulatory 
requirements. The regulations are also intended to improve access and 
flexibility for U.S. manufacturing and value-added operations, and to 
enhance safeguards in order to avoid potential negative economic 
consequences from certain zone activity.
    In developing the final rule, the Board considered all of the 
comments received in response to its Federal Register notice of 
December 30, 2010 (75 FR 82340) proposing revisions to 15 CFR part 400. 
The comments received in response to the notice and the Board's 
positions on the points raised in the comments are summarized below. 
The sections listed in the headings are those of the final rule, and 
references are made to the previous Federal Register notice when 
appropriate.

Discussion of Comments Received

    Based on substantive changes made in response to comments submitted 
(as described below), a number of sections of the proposed regulations 
have been renumbered and certain section titles have been modified. Key 
changes to section numbers include: Adopted Sec. Sec.  400.14(b), (d) 
and (e) parallel proposed Sec. Sec.  400.14(c), (f) and (g), 
respectively; adopted Sec. Sec.  400.22 and 400.23 replace proposed 
Sec.  400.22(a); adopted Sec.  400.24 was renumbered from

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proposed Sec.  400.23; adopted Sec.  400.25 replaces proposed Sec.  
400.22(b); adopted Sec.  400.26 replaces proposed Sec. Sec.  400.24 and 
400.25(b); adopted Sec.  400.27 replaces proposed Sec.  400.25(a); 
adopted Sec.  400.41(b) replaces proposed Sec.  400.44; adopted 
Sec. Sec.  400.28, 400.29. 400.36, and 400.38 were renumbered from 
Sec. Sec.  400.26, 400.27, 400.35 and 400.36, respectively; adopted 
Sec. Sec.  400.44, 400.45, 400.46, 400.47, 400.48 and 400.49 were 
renumbered from proposed Sec. Sec.  400.45, 400.46, 400.47, 400.48, 
400.49 and 400.38, respectively; and adopted Sec.  400.63 was 
renumbered from proposed Sec.  400.64.

Section 400.1--Scope

Section 400.1(a)
    Comment: One commenter proposed adding a sentence regarding the 
Board's policy objective of encouraging activity in the United States 
that might otherwise be conducted abroad.
    Board position: The policy objective in question is addressed in 
the Preamble. Duplication in this section is not warranted.
Section 400.1(c)
    Comment: Numerous commenters proposed inserting language regarding 
the status of FTZs and zone merchandise relative to certain trade 
agreements and program(s), and deleting a phrase regarding production 
activity.
    Board position: It is not necessary to address or describe in the 
Board's regulations trade agreements and trade programs, which may 
change during the effective period of the regulations. The phrase 
regarding production activity has been retained because it clarifies 
that production activity is the mechanism through which a product 
emerging from a zone could differ from the material admitted to the 
zone. Retaining the phrase helps reinforce that production activity is 
subject to specific requirements in these regulations.

Section 400.2--Definitions

    Comments: Numerous commenters proposed adding definitions for the 
following terms: Activation; administrator (to replace the term 
``agent''); alternative site framework (ASF); Board Order; domestic 
status; free trade agreement; general-purpose zone; inverted tariff; 
modification; NAFTA; non-privileged foreign status; privileged foreign 
status; service area; Special Tariff Treatment Program; traditional 
site framework; grantee; and zone restricted status. One or more 
commenters stated that the proposed definition of agent is or may be 
too broad, may potentially extend beyond the statutory reach of the 
Board, and appears to be focused on an agent of the grantee although 
there are other agency relationships in the FTZ program.
    Board position: We have added definitions for the terms alternative 
site framework, Board Order, inverted tariff, modification, and service 
area in response to comments submitted. We have not defined either 
``agent'' or ``administrator.'' We have not adopted the term 
``administrator'' as a substitute for the proposed term ``agent'' 
because the final provisions of section 400.43 instead simply refer to 
a party that undertakes a function ``on behalf of a grantee'' (thereby 
eliminating the need to use or define any more specific term(s) such as 
agent or administrator). Regarding addition of a definition for 
``grantee,'' the proposed regulations already contained a definition of 
``zone grantee.'' We have retained that term and definition to help 
clarify that the zone grantee is the overall sponsor of the zone and 
recipient of the authority from the FTZ Board, and that zone 
participants are not also ``grantees'' of some sort.
    The terms, activation, domestic status, non-privileged foreign 
status, privileged foreign status, and zone restricted status are 
defined in CBP's FTZ regulations (19 CFR part 146), and CBP is the 
primary agency using these terms. Defining these terms in two agencies' 
separate regulations would significantly complicate any potential 
refinement or redefinition of them that might prove necessary in the 
future. In addition, the commenters' proposed definition of activation 
differs from the definition of that term in the FTZ regulations of CBP, 
the agency responsible for activation. For these reasons, we have not 
added definitions of the terms in question.
    It is not clear we need to add definitions for the terms free trade 
agreement, NAFTA, and Special Tariff Treatment Program. These terms are 
not used elsewhere in the Board's regulations. Further, these terms may 
be defined by other agencies that make use of the terms, so that any 
definition adopted by the Board could create a risk of inconsistency 
with the other agencies' definitions. Therefore, we have not added 
definitions for these terms.
    We have not added a definition for general-purpose zone because the 
specific use of this term is tied to comments submitted regarding the 
need to simplify the Board's structure and processes for designating 
zone sites. In a subsequent rule, we intend to evaluate adding a 
definition of this term in concert with simplifying the parallel site-
designation frameworks that currently exist, as noted in response to 
comments on Sec.  400.11. As a result of our intent to simplify the 
site-designation frameworks, the specific implications of a definition 
of traditional site framework might evolve. Therefore, at this point we 
have not added a definition of traditional site framework for this 
final rule.
    Comments: Numerous commenters proposed revising the definitions for 
the following terms: Foreign-trade zone; grant of authority; person; 
port of entry; site; subzone; zone; zone operator; zone participant; 
zone project; zone site; and zone user. One commenter stated that the 
definition of zone operator should not be limited to an entity 
physically on-site at the zone or subzone.
    Board position: We have modified the definitions of foreign-trade 
zone, grant of authority, and person in response to comments submitted. 
For the term ``port of entry,'' commenters proposed adding ``customs 
station'' to the definition, but did not explain the implications or 
impact of their proposed change. The term ``port of entry'' has long 
had a specific meaning, but the meaning of the proposed additional 
phrase is unclear and not explained by the commenters. In that context, 
we have left the definition of port of entry unchanged.
    In response to comments submitted and taking into account changes 
adopted elsewhere in these regulations in response to comments (e.g., 
Sec.  400.24(c) allowing designation of general-purpose zone space as a 
subzone, where warranted), we have revised the definition of subzone. 
Our tying subzone designation to a specific use should provide some 
additional flexibility relative to commenters' suggested language tying 
a subzone to a specific company. Our definition also reflects our 
agreement with commenters that a subzone can have multiple sites. The 
definition of a subzone may also be addressed in a subsequent rule 
simplifying the parallel site-designation frameworks that currently 
exist, as noted in response to comments on Sec.  400.11. In harmony 
with changes adopted elsewhere in these regulations (e.g., Sec.  
400.36(f)), we have also adopted a definition of ``activation limit.'' 
Key implications of that term are examined in response to comments on 
Sec.  400.36.
    For the terms ``zone'' and ``zone user,'' we have retained the 
definitions we proposed because changes suggested in comments did not, 
in our view, improve clarity or usability. For the term, ``zone 
participant,'' we have simplified the definition to improve clarity, in 
response to comments submitted. However, we have retained ``property 
owners'' within the definition

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because the provisions of these regulations in which the term ``zone 
participant'' is used have relevance to property owners as well as to 
operators and users. We have also replaced the definition of ``zone 
project'' with a definition of ``zone plan'' (a term previously 
referenced within the definition of zone project) based on the zone 
plan's function as the benchmark that the Executive Secretary must use 
in gauging whether a modification is major or minor under Sec.  
400.24(a)(2). Based on the comments received, we have combined the 
definitions of zone site and site under the former term, so that the 
two terms will be interchangeable. We have also adopted a suggested 
change to replace the phrase, ``organized as an entity,'' with the 
phrase, ``organized and functioning as an integrated unit.'' Based on 
comments submitted, we have also added ``contiguous'' to the definition 
but have modified it with ``generally'' to allow for unusual 
circumstances in which parcels are in close proximity to each other and 
appropriately constitute a single site, although they are not actually 
contiguous.
    We have not added suggested language to the definition of zone 
operator because the language could have the unintended effect of 
reducing flexibility in local zone oversight and related arrangements 
at individual zones. However, given the elimination of proposed Sec.  
400.43(b)'s requirement for agreements to be made directly with a 
zone's grantee, we have modified the definition of zone operator to 
reflect that an operator's activity could be under the terms of an 
agreement with a third party that acts on behalf of a grantee. With 
regard to the comment that a zone operator should not be limited to an 
entity physically on-site at the zone or subzone, the comment 
accurately characterizes the intent of the definition of zone operator 
for purposes of the Board's regulations. Nothing in that definition 
should be construed as requiring a zone operator to be an entity 
physically on-site at the zone or subzone site being operated. Finally, 
we have modified the definition of private corporation (adding the 
words ``operating and maintaining'') to parallel the statutory 
definition of that term.
    Comments: Two commenters supported the proposed definition of 
production, while numerous commenters suggested various revisions to 
the proposed definition.
    Board position: We have revised the definition of production based 
on comments submitted, including those expressing concerns about 
defining companies' authorized production entirely on the basis of 
customs classifications. Our revised definition of production therefore 
incorporates language from the definition of manufacturing in the FTZ 
Board's prior regulations but also includes language from our proposed 
definition of production and from comments submitted. This revised 
definition is intended to reinforce the fact that any operation engaged 
in manufacturing activity authorized under prior FTZ Board regulations 
would not need to request new authority based solely on this revised 
definition. Further, the requirements in other sections of these 
regulations pertaining to application and notification documents (e.g., 
Sec. Sec.  400.23 and 400.24) maintain the Board's existing practice of 
requiring a description of materials, components, and finished products 
(accompanied by the 6-digit HTSUS category that constitutes the best 
match for the material, component, or finished product). Therefore, the 
changes reflected in this and other production-related provisions have 
no effect on a zone operation's existing scope of authority in terms of 
materials, components, and their associated finished products described 
in a notification or application authorized by the Board. The Board may 
address through a subsequent notice-and-comment rulemaking process a 
further simplified definition of production.
    Comment: One commenter requested clear definitions of capacity and 
fraudulent intent, and also asked whether convenience of commerce and 
public interest are interchangeable and whether it is possible to 
define one of those terms and apply it uniformly.
    Board position: We have not added definitions of ``capacity'' and 
``fraudulent intent.'' Capacity has a commonly understood meaning, and 
only one commenter requested addition of a specific definition to this 
section of the regulations. Further, our revised approach to production 
authority no longer incorporates capacity as an ordinary element of a 
production operation's scope of authority. In this context, there is no 
need to include a definition of capacity. The sole use in the proposed 
regulations of the phrase ``fraudulent intent'' was in the section 
allowing for prior disclosure of violations. That section has been 
eliminated from these regulations for the reasons delineated in 
response to comments on Sec.  400.62, thereby eliminating any need to 
define fraudulent intent. The terms ``convenience of commerce'' and 
``public interest'' appear in distinct contexts in the FTZ Act, and are 
by no means interchangeable. Public interest is a commonly used concept 
(i.e., it exists in many contexts outside the FTZ Act) that is 
associated with the well-being of the general public. Convenience of 
commerce is a distinct phrase in the FTZ Act that pertains to whether 
the needs of businesses engaged in international trade are adequately 
served by zones.

Section 400.3--Authority of the Board

    Comment: Numerous commenters proposed adding a section stating that 
the Board has the authority to award the lowest available duty rate 
including trade agreement preferences and deleting language stating 
that Board decisions must be by unanimous vote and be recorded.
    Board position: We have not made the proposed change pertaining to 
trade agreement preferences. The Board does not have the authority to 
``award'' a duty rate. The Board may allow activity to occur in a zone 
that results in the entry of a finished product with a customs 
classification that is different than the customs classification of a 
component admitted to the zone. The applicability of duty rates 
specific to one or more particular trade agreements to entries from a 
zone is statutorily determined rather than a matter for decision by the 
Board. Finally, we have retained language stating that Board decisions 
must be by unanimous vote and be recorded. Recording Board votes is 
essential to proper record-keeping for the program. However, based on 
the comments submitted and in light of changes to other sections (such 
as the adoption of the process for notifications under Sec.  400.37), 
we have deleted the provision stating that Board decisions in 
proceedings will take the form of Board Orders.
    Comment: One commenter stated that the authority to fulfill the 
Assistant Secretary for Import Administration's responsibilities when 
that position is vacant should be clarified.
    Board position: The authority to carry out actions for the 
Assistant Secretary for Import Administration is not a matter of Board 
policy, but rather of delegation carried out within the Department of 
Commerce. That delegation could be subject to change over time, and is 
not an appropriate matter for delineation within the FTZ Board's 
regulations.

Section 400.4--Authority and Responsibilities of the Executive 
Secretary

    Comment: Numerous commenters suggested adding a neutrality 
requirement and general authority to

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give temporary approvals pending Board action.
    Board position: We have not adopted the specific suggested 
revisions which, in our view, would not improve the clarity or 
effectiveness of the regulations. However, the Board has given a 
relatively narrow authority to the Executive Secretary to allow 
production activity to occur on an interim basis in certain 
circumstances (see Sec.  400.37(d)).
    Comment: One commenter proposed defining a process and timeline for 
issuance of forms and other documents pertaining to the submission of 
applications.
    Board position: As noted in response to a comment on Sec.  400.21, 
in these regulations, the Board has allowed an application format to 
remain in use for a period of one year after it has been superseded by 
a revised format. That period provides zone users with significantly 
more time to adapt than the 30-day period proposed by the commenter. 
Further, as originally proposed, any revised application format would 
be published in the Federal Register. That requirement should provide 
the written notice sought by the commenter.

Section 400.5--Authority To Restrict or Prohibit Certain Zone 
Operations

    Comments: Numerous commenters proposed changing the order of this 
section's two subsections, as well as changing one word within one 
subsection. One commenter suggested adding a word to clarify that the 
section would only apply to ``zone'' operations in a zone.
    Board position: We have reordered the content of the subsections, 
added the word ``zone'' as proposed, and combined the subsections.

Section 400.7--CBP Officials as Board Representatives

    Comment: Numerous commenters proposed adding a section explaining 
the CBP port director's role as the Board's representative, including 
timeframes for the port director's response to a request from the Board 
and for activation of a zone operation that the Board has expedited for 
public policy reasons. Those commenters also proposed revising the 
definition in these regulations of the term ``port director.''
    Board position: We have adopted the commenters' proposal for a 
separate section specifically concerning CBP's role as the Board's 
representative. This section substantively parallels and replaces the 
content of the sentence in Sec.  400.41 of the proposed regulations 
pertaining to the role of the CBP port director. We have revised the 
language proposed by the commenters for this section (and made 
adjustments to other sections which had references to the port 
director) to reflect the fact that the specific official within CBP 
with responsibility for a particular matter may vary over time for CBP 
operational reasons. Therefore, we have adopted language making a 
general reference to CBP, and we have eliminated from these regulations 
a definition of port director. We have not incorporated into the 
section commenters' proposed timeframes. Timeframes for responses to 
requests for FTZ authority are already addressed in the application-
specific sections of the regulations. Details of the activation process 
are addressed by the customs regulations, and therefore are not 
appropriate for inclusion in the FTZ Board's regulations.

Subpart B

    Comment: Numerous commenters proposed changing the word ``ability'' 
to ``authority'' in the title of Subpart B. nn
    Board position: We have not adopted the proposed change. Subpart B 
addresses matters pertaining to whether parties are able to apply to 
establish a zone or subzone. Therefore, the word ``ability'' is 
appropriate for the title.

Section 400.11--Number and Location of Zones and Subzones

    Comment: Numerous commenters proposed that adjacency-related 
measurements be conducted by the grantee or zone participant with the 
concurrence of the CBP port director.
    Board position: Based on the comments received, we have modified 
the language of this section to allow the CBP official with oversight 
authority to concur on a measurement of adjacency.
    Comments: One commenter suggested eliminating the distinct concept 
of subzone and allowing the adjacency standard specifically proposed 
for subzones to be applied to any zone site. Another commenter proposed 
eliminating the term ``subzone,'' and treating authority for production 
activity as a distinct matter from designation of a site. In response 
to a comment submitted, one commenter objected to the idea of 
eliminating the subzone concept, because of potential CBP operational 
advantages for subzones and the dependence of a number of grantees on 
the subzone mechanism so long as those grantees remain under the 
traditional site framework. One commenter stated that both subzones and 
ASF usage-driven sites should be treated equally in a manner that 
minimizes burden and facilitates administration of the facilities in 
question.
    Board position: The Board received several comments pertaining to 
various sections of the regulations indicating that current 
distinctions between types of zone sites may not constitute the most 
efficient and effective mechanism for facilitating zone use. Given 
those considerations and the importance of adopting the least 
burdensome mechanism to accomplish the Board's regulatory objectives, 
the Board plans to simplify the parallel site-designation frameworks in 
a subsequent rule. Further, recognizing the overall functional 
equivalence between subzones and ASF usage-driven sites, and the 
importance of enabling zone users to maximize operational efficiencies, 
we have changed the minor modification provision (Sec.  400.24(c)) so 
that an existing or potential usage-driven site could be designated as 
a subzone if such designation would better meet the needs of the zone 
grantee and zone participant(s).

Section 400.12--Eligible Applicants

    Comment: Numerous commenters proposed modifying the standard for 
applications to be ``not inconsistent'' with the applicant's charter or 
organizational papers rather than ``consistent.''
    Board position: We have made the proposed change to state that 
applications must be ``not inconsistent'' with the charter or 
organizational papers. This language reflects the reality that many 
grantees' charters or organizational papers provide for broad powers; a 
requirement to demonstrate consistency would be excessively burdensome 
in that context.

Section 400.13--General Conditions, Prohibitions and Restrictions 
Applicable to Authorized Zones

    Comments: Numerous commenters proposed the following revisions to 
this section: changing the order of certain subsections; removing the 
concurrence of the CBP port director from the subsection pertaining to 
erection of buildings; applying the five-year lapse provision on a 
site-specific basis; requiring expedited review of any application to 
reestablish designation at a lapsed zone; stating that private 
ownership is allowed of a zone ``site'' rather than zone ``land;'' 
adding evidentiary standards for Board actions to prohibit or restrict 
activity; and adding a paragraph allowing certain activities to take 
place at an operator's site under the operator's responsibility. One 
commenter stated that the five-year lapse provision does not take into

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account the three-year ``sunset lapse'' for usage-driven sites 
designated under the ASF.
    Board position: Based on comments received, we have reordered 
certain of the subsections and modified the reference to the CBP port 
director to clarify that concurrence only applies to activated zone 
space. We have not adopted the proposal to expedite reviews of 
applications to reestablish FTZ designation at lapsed zones because it 
is appropriate for the Board to evaluate the individual circumstances 
prior to determining whether to give priority to a particular 
application to reestablish a zone that has lapsed. However, we have 
added a specific reference to Board Order 849, which addresses 
conditions for ``reinstatement'' of FTZ authority. We have made minor 
language changes pertaining to the procedures and the standards for 
Board actions to prohibit or restrict activity, including to reflect 
the revised approach to production authority adopted in Sec.  
400.14(a). However, we have not accepted most of the proposed changes 
because the statutory authority is broad and the proposed language 
could inappropriately preclude the Board from addressing future 
situations in circumstances that no one can currently foresee.
    We have not accepted the proposed substitution of the word ``site'' 
for the word ``land,'' because we want to emphasize that no one may own 
the FTZ designation associated with a particular parcel of land. The 
FTZ Act states that zone designation is a privilege that the Board 
authorizes. The Board's authorization of designation for a piece of 
land, therefore, belongs to no one. The regulatory provision at issue 
simply clarifies that FTZ designation may be authorized for privately 
owned land under certain conditions.
    The Board plans in a subsequent rule to simplify the lapse 
provision, which commenters proposed be applied on a site-specific 
basis, and that one commenter claims fails to take into account the 
three-year ``sunset lapse'' for usage-driven sites under the ASF. This 
simplification is expected to encompass questions of lapse and sunset 
provisions. Until we issue a final rule on that issue, the lapse 
provision will continue to apply as it has since its institution in 
1991 to a zone (or individual subzone) based on activation. The lapse 
provision that applies to an overall zone (or individual subzone) on a 
one-time basis is distinct from the ``sunset'' time limits that the 
Board has commonly imposed via Board Order as a site-specific condition 
on approval of new sites of a zone. A sunset limit automatically 
removes zone designation from a site at the end of the sunset period if 
the site has not been used for zone activity during the period.
    Finally, for activity that does not require specific Board 
authorization, questions of whether the activity may be conducted at an 
operator's site under the operator's responsibility fall within the 
jurisdiction of CBP. Therefore, a provision pertaining to such activity 
would not be relevant for inclusion in the Board's regulations.
    Comment: One commenter stated that under the Board's authority to 
review zone activity and prohibit or restrict activity found not to be 
in the public interest, an existing zone operation previously approved 
by the Board would be at risk of losing its authority.
    Board position: Inherent in the Board's ability to review and 
restrict or prohibit ongoing FTZ activity is the possibility that an 
existing zone operation approved by the Board could lose its authority. 
Given that it is impossible to foresee every type of circumstance at 
the time that the Board evaluates an application, it could be necessary 
at some later point in time for the Board to restrict or prohibit the 
activity in question. However, such circumstances have been extremely 
rare in the history of the FTZ program. Further, based on comments 
received on other sections of the proposed regulations, we have 
incorporated in certain sections of the regulations additional language 
designed to appropriately balance the interests of zone users and of 
parties that might be concerned about negative impacts from certain 
zone uses.

Section 400.14--Production--Requirement for Prior Authorization; 
Restrictions

    Comments: We received a broader range of comments on this section 
than on any other. Commenters were concerned with numerous aspects of 
the production-related provisions and, as discussed below, we have 
significantly modified this section based on their comments. Although 
the comments are numerous and diverse, we summarize them all here 
because they are all related to Sec.  400.14.
    Numerous commenters proposed a major overhaul of this section to 
require FTZ users apply for and the Board issue on an expedited basis 
approvals for production activity. Those commenters stated that 
applicants' and FTZ users' uncertainties should be minimized, and that 
advance approvals are necessary in most cases because use of zone 
procedures requires significant upfront investment. They proposed 
requiring that a Board Order approving production activity for export 
be issued within 30 days of the submission of an application, and that 
the Board Order be published within 15 days after issuance. Those 
commenters also proposed the following changes: authorizing the 
Executive Secretary to approve certain other production-related 
benefits on an interim basis pending Board action; eliminating the 
Board's proposed provision for production changes; and delegating 
authority to the Executive Secretary to approve production activity 
when (1) the applicant demonstrates the activity could be conducted 
under CBP bonded procedures, (2) the sole benefit is for scrap/waste, 
or (3) the activity is the same in terms of intermediate/finished 
products as activity recently approved by the Board and similar in 
circumstances. One commenter supported authorizing the use of any 
components needed to make the intermediate or finished products 
approved by the Board unless certain categories of components are 
excluded by the Board, with the Board listing excluded components on 
its Web site for compliance by all operators/users. One commenter 
supported the proposed regulations' approaches to advance approval 
requirements and authority to review and restrict activity.
    Numerous commenters suggested shifting the proposed delegation of 
authority for certain approvals from the Assistant Secretary for Import 
Administration to the Executive Secretary, as well as adding a 
provision largely paralleling prior Sec.  400.32(b)(1)(i), which 
pertained to activity that is the same as activity recently approved by 
the Board. Three commenters indicated that, for interim approval of 
production authority, it is not necessary to have the CBP port director 
concur since the port director's approval would be required for 
activation of the operation in question. One commenter specifically 
supported the interim authority provision as proposed. One commenter 
stated that companies will not make decisions to invest in production 
activity based on temporary or interim approvals from the Board, so the 
Board should shorten its docketing and review times for applications.
    One commenter stated that the production-change provisions in 
proposed Sec. Sec.  400.14 and 400.37 seem unnecessarily complicated 
and difficult to administer. That commenter proposed simply allowing 
FTZ users to notify the Board of any component not subject to an AD/CVD 
or Section 337 order, and that deadlines should be the same for 
notifications of production

[[Page 12117]]

changes and capacity increases. Numerous commenters proposed 
eliminating the proposed procedures for notifications and adopting a 
different approach to authority for production activity focused on 
intermediate and finished products (rather than specifying inputs to be 
used in production activity). Those commenters state that Sec.  400.37 
as proposed would create a significant new burden both initially and 
quarterly. One commenter indicated that the proposed notification 
provision would be unmanageable and proposed that the Board focus 
production authority on end products. For any required notifications of 
a new input, the commenter proposed a de minimis standard tied to FTZ 
savings associated with the new input, with changes below the de 
minimis threshold reported to the Board in the zone's annual report. 
One commenter stated that the requirement for prior approval of a 4-
digit HTSUS list for use of the notification provision is not 
practical, and that the public comment period following any 
notifications would allow for adequate oversight. The commenter also 
expressed concern that the retrospective nature of the notifications 
would create uncertainty for FTZ manufacturers, given that there would 
be a real potential for denial of the FTZ benefits, and a possibility 
that duties would be applied retroactively. One commenter requested 
clarification of the meaning of ``production change,'' and proposed 
shifting reporting from a quarterly basis to an annual basis. Several 
commenters stated that the requirements for the proposed annual 
reporting of production activity should be clarified and take into 
account that companies do not necessarily track foreign-sourced 
components that are in domestic (duty-paid) status.
    Three commenters stated that requiring what they characterized as a 
one-time re-filing of a manufacturer's scope of authority, and then 
quarterly reports thereafter, is excessively burdensome for users, 
especially because failing to re-file the scope would potentially 
subject users to fines. One commenter claimed that the proposed 
notification procedure for production changes would result in 
temporary/interim authorization, and that the procedure could only be 
used after the completion of a process that would subject all of the 
operation's current activity to new public review and comment. One 
commenter stated that quarterly filings would add to workload and the 
retrospective nature of notifications would create uncertainty for 
users. The same commenter stated that, in the context of quarterly 
retrospective filings, the Board should only deny FTZ benefits 
prospectively. Another commenter stated that what it characterized as 
quarterly reports should not be required. As an alternative to 
quarterly retrospective reporting, one commenter proposed a provision 
similar to the prospective notification provision in the original Sec.  
400.28(a)(3), but expanded to allow for new finished products. One 
commenter also proposed a notification procedure for all activity not 
requiring advance approval, with the Board issuing written confirmation 
of each notification. Another commenter stated that if a Board Order is 
not possible for export authority, the Board should increase certainty 
for users and for CBP by allowing a standardized submission from the 
company to the Board, and for a standard response from the Executive 
Secretary. One commenter stated that companies must be able to obtain 
written confirmation of authority from the Board for CBP and other 
purposes.
    One commenter requested clarification whether advance approval is 
required for all production activity and, in the context of production 
activity already authorized by the Board, for new inputs used to 
produce an approved product, for new part numbers associated with a 
component under an approved HTSUS category, and for new inputs under 
HTSUS categories not already approved but used to produce an approved 
product. Several commenters stated that reliance on HTSUS numbers to 
track which components are authorized for a production operation is too 
burdensome or impractical. One commenter stated that even the use of 6-
digit HTSUS categories is impractical. Another commenter proposed that 
the Board provide public access to a database of components and 
finished products for approved production operations.
    Numerous commenters proposed eliminating the Board's proposed 
provision concerning capacity increases and eliminating capacity as an 
element of production authority. One commenter proposed that, if 
capacity cannot be eliminated as a constraint on ongoing production 
activity, the Board should adopt an annual reporting requirement for 
capacity increased beyond a specific threshold. Another commenter 
proposed that capacity be reported to the Board annually. One commenter 
proposed including a clear statement that production only for export 
would generally not require application to and authorization by the 
Board. One commenter proposed including a provision concerning the 
Board's temporary/interim manufacturing (T/IM) procedure.
    One commenter proposed that foreign components subject to AD/CVD 
orders be exempt from the requirement for advance approval when they 
are used in production for export, maintaining that to do otherwise 
would run contrary to what the commenter claimed is longstanding Board 
policy that admission to zones of merchandise subject to AD/CVD orders 
is non-controversial. The commenter further stated that the Board's 
proposed approach for production activity involving a component subject 
to an AD/CVD order will significantly complicate the Board's 
proceedings, requiring more extensive factual records and decision 
documents, create additional burden for the Board, and substantially 
increase complexity and costs for zone users. One commenter stated that 
the Board should not require new approval due to changes in the HTSUS 
or due to imposition of an AD/CVD order on a component already approved 
by the Board. One commenter also questioned the practicality of 
requiring further Board approval when an AD/CVD order is imposed on a 
component already approved by the Board, and suggested that quarterly 
retrospective notifications may be adequate in such circumstances.
    One commenter stated that because merchandise subject to an AD/CVD 
order must be admitted to a zone in privileged-foreign status, 
requiring an approval process for ongoing production involving such 
merchandise adds no benefit and is excessively burdensome. Another 
commenter stated that the Board's prior regulations adequately provided 
for approval and ongoing oversight of changes in AD/CVD status of 
components already authorized or changes in duty rates and capacity, 
and that the proposed regulations could result in duplicative public 
comment processes and evaluating activity already approved by the 
Board. One commenter stated that the prior regulations' requirement for 
election of privileged-foreign status on admission of merchandise 
subject to AD/CVD orders reflected an appropriate balance of avoiding 
circumvention of AD/CVD orders while enabling export-oriented activity 
to take place in FTZs. Another commenter stated that the privileged 
foreign-status requirement for merchandise subject to AD/CVD orders 
should be adequate to address potential concerns pertaining to ongoing 
activity, and proposed a blanket Board Order authorizing any production 
for export provided the components are placed in

[[Page 12118]]

privileged-foreign status prior to the production activity.
    Several commenters supported the proposed requirement for advance 
approval from the Board for any new production activity involving a 
component subject to an AD/CVD order. Those commenters also supported 
the proposed requirement that a production operation with existing 
authority obtain additional approval from the Board to use any 
component subject to an AD/CVD order that was not in effect at the time 
of the Board's prior authorization action. One commenter proposed that 
the requirement for additional approval from the Board be extended to a 
component (1) not identified at all--or not identified as being subject 
to an AD/CVD order--in the production operation's original application; 
or (2) identified but not sourced from a country subject to an AD/CVD 
order at the time of the application, and that will now be sourced from 
a country subject to an AD/CVD order. Several commenters also proposed 
requiring reporting and related procedures to ensure notice to affected 
parties. Certain commenters further proposed modifying practices to 
ensure compliance with authority approved by the Board. One commenter 
proposed requiring applicants for production authority involving a 
component subject to an AD/CVD order to demonstrate that the authority 
would not adversely affect the AD/CVD relief in place.
    One commenter stated that provisions requiring further approval 
from the Board if a component already used by a zone manufacturing 
operation becomes subject to a new or increased rate of duty, a new AD/
CVD order, or a new order of the International Trade Commission 
pursuant to 19 U.S.C. 1337 (section 337), would be disruptive to 
current zone operations, and that there should be a transition rule. 
Another commenter indicated that notification should not be required as 
envisioned in Sec.  400.14(a)(4) for new AD/CVD or Section 337 orders 
and that, if necessary, zones' annual reports could be used to report 
the information in question. One commenter stated that the absence of 
an advance approval process for production activity would mean the 
Board might be unaware of merchandise subject to certain Department of 
Agriculture requirements and be unable to alert the grantee or operator 
to those requirements.
    In response to other comments submitted, one commenter supported 
only requiring advance approval for production activity involving 
inverted tariffs. That commenter also supported the provision for 
advance approval of a broad list of categories to enable future 
notifications, but opposed other commenters' proposals to modify the 
application process to focus purely on intermediate and finished 
products. One commenter stated that a proposal from other commenters 
requiring the Board to issue an Order approving export activity within 
30 days of receiving an application should not apply to activity 
involving a component subject to an AD/CVD order. That commenter stated 
that the Board has recognized that such activity may raise public-
interest concerns and that the proposed 30-day process would eliminate 
all of the procedural safeguards in the proposed regulations. The 
commenter opposed another commenter's proposal that no advance approval 
be required for production for export involving a component subject to 
an AD/CVD order, stating that the change would negate the Board's 
ability to evaluate whether such activity would undermine trade relief 
measures in effect. That commenter also disagreed with another 
commenter's claim that the Board's proposed approach for production 
activity involving a component subject to AD/CVD order will 
significantly complicate proceedings, create additional burden for the 
Board and increase complexity and costs for zone users.
    In response to other comments submitted, multiple commenters 
supported the requirement for advance approval for any production 
activity involving a component subject to an AD/CVD order, with one of 
those commenters supporting such a requirement when a component 
previously authorized for a zone production operation becomes newly 
subject to an AD/CVD order. One commenter stated that concerns 
expressed by only a few commenters should not lead the Board to adopt 
unduly burdensome processes for applications and management of ongoing 
operations. The commenter stated that the proposed processes would be 
detrimental to many program users, discourage overall FTZ use, 
discourage domestic manufacturing for both the U.S. and export markets, 
and also create significant burden for the Board's staff. One commenter 
stated that there is no reason to impose additional conditions or 
restrictions on the use in production of material subject to AD/CVD 
orders beyond those already proposed by the Board. That commenter cited 
Executive Order 13563 as instructing agencies to achieve policy goals 
through the least burdensome means.
    One commenter opposed the proposal from other commenters requiring 
advance approval for production involving a component subject to an AD/
CVD order, and stated that the requirement for the election of 
privileged-foreign status at the time merchandise is admitted to a zone 
is adequate to ensure that AD/CVD duties are not circumvented. One 
commenter opposed any requirement for company-specific advance approval 
of production for export. That commenter also recommended the Board 
retain what the commenter claimed was the prior regulations' 
presumption that production for export is in the public interest.
    Board position: After considering all comments submitted and the 
importance of adopting the least burdensome mechanisms to accomplish 
the Board's policy objectives, we have modified this section (with 
related changes in other sections, including Sec. Sec.  400.22 and 
400.37) to implement a revised approach to authorizing production 
activity. The foundation for the revised approach is a simple 
notification process in advance of any new production activity 
(including use of new materials/components at a previously approved 
production operation). This approach also incorporates a more extensive 
application process for circumstances where the Board reviews a 
notification and determines that further review is warranted.
    Among other considerations, the revised procedures balance the need 
expressed by many commenters for generally shorter timeframes for 
action on requests for production authority and the perspective 
emphasized by other commenters that potentially affected parties must 
be able to provide comments to the Board regarding the impact of 
proposed production activity. Although the FTZ Act does not require 
companies to obtain approval prior to conducting production 
(manufacturing) activity in zones, the Act authorizes the Board to 
prohibit activity that ``in its judgment is detrimental to the public 
interest, health, or safety'' (19 U.S.C. 81o(c)). Since 1972, the Board 
has required either notification or application in advance of the 
conduct of manufacturing activity (this type of requirement was first 
implemented through conditions of individual Board Orders and then 
adopted in the Board's 1991 regulations). The revised approach 
continues to require zone users to obtain approval in advance from the 
Board before conducting manufacturing activity. Consistent with the 
many comments submitted regarding the need for simplified, expedited 
processes, our revised approach generally reduces both

[[Page 12119]]

the burden associated with a company's standard submission to the Board 
requesting authorization to conduct production activity and the 
standard timeframe for processing that request. This rule's simple 
notification process is akin to that suggested in certain comments, and 
incorporates a standard 120-day timeframe for the Board to process 
notifications received. That timeframe cuts by two-thirds the one-year 
standard timeframe in both the prior regulations and the proposed 
regulations to process applications for manufacturing (production) 
authority. This revision also significantly reduces the information 
burden associated with authorizing production activity. As noted above, 
these regulations also include a detailed application process for cases 
that are determined to warrant further review as a result of the 
initial notification. Further, unlike the application process suggested 
by many commenters for certain categories of production activity, all 
notifications for production authority would be subject to a public 
comment period before any potential Board action to authorize the 
activity. Allowing public comments on all proposed production activity 
is the cornerstone of procedures designed to ensure that production 
activity conducted in FTZs is in the public interest. Recognizing the 
time-sensitive nature of some requests for authority to conduct 
production activity, we have also adopted a provision enabling 
authorization on an interim basis until the Board is able to complete 
its processing of a notification. Unlike the Board's prior process for 
giving temporary/interim manufacturing (T/IM) authority, the new 
provision is not constrained by a requirement that activity meet a 
specific standard for similarity to previous applications; the adopted 
provision therefore should be more flexible and more useful than the T/
IM procedure.
    The procedures adopted in this section are designed to simplify and 
increase certainty of the procedures for approving production 
authority. The prospective nature of the notification process--in 
contrast to the retrospective process delineated in the proposed 
regulations--enables the Board to eliminate the proposed requirement 
for advance approval of a list of 4-digit HTSUS headings within which 
future notifications would be made. In addition, the basic notification 
process for all production activity should generally enable zone users 
to obtain a formal decision on authorization of the activity within 120 
days of requesting it, thereby accelerating certainty in order to 
better meet the needs of zone users. We have not made provision for 
extensions of comment periods on notifications because the review 
procedures are designed to allow the Board to determine within the 120-
day timeframe which notifications warrant further review. (Further 
review requires submission of a detailed application and then a period 
for public comment on the application, which is subject to requests for 
extensions.) Therefore, if concerns about notifications arise--
including as a result of comment submissions explaining why additional 
time is needed for public comment or for affected parties to assess the 
impact of proposed activity--the Board would be able to conduct further 
review and trigger the more extensive requirements for such a review.
    By requiring FTZ users to provide us with information through the 
notification process, we can eliminate the reporting requirement we 
proposed in this section (although production activity will remain 
subject to the general requirements of Sec.  400.51). The requirement 
for prospective notifications and the associated publication of a 
Federal Register notice for each notification also effectively 
addresses the concern raised by one commenter that eliminating public 
notice could lead to compliance problems pertaining to certain 
Department of Agriculture requirements. Finally, it should be noted 
that the adopted procedures create no new requirements for activity 
approved under the prior regulations (i.e., approved activity that was 
the subject of prior applications and notifications remains authorized, 
as limited by any restrictions associated with the specific proceedings 
in question).
    We have also added a subsection (Sec.  400.14(c)) mandating that 
information regarding authorized production operations be made 
available on the Board's Web site. This provision will enhance the 
transparency of the FTZ program and enable parties to assess whether 
changed circumstances exist that would warrant review by the FTZ Board 
under Sec.  400.49(a). Requiring advance approval from the FTZ Board 
for authority to continue activity whenever certain circumstances have 
changed (such as proposed Sec. Sec.  400.14(a)(4)(i)-(iii)) is not the 
least burdensome means for the Board to accomplish its policy 
objectives of enhancing U.S. competitiveness through the availability 
of zone procedures, while ensuring that zone activity remains in the 
public interest. With regard to materials or components subject to AD/
CVD orders or proceedings, these regulations provide no special 
application-related procedures. We have determined that the standard 
procedures applicable to any material/component for which authorization 
is requested will allow the Board to address concerns about negative 
impacts from the proposed activity. Therefore, we have adopted neither 
(1) the approaches proposed by certain commenters to eliminate any 
advance approval process for export-oriented activity involving 
materials/components subject to AD/CVD orders/proceedings, or to make a 
presumption in favor of authorizing such activity, nor (2) provisions 
proposed by certain commenters to create new carve-outs from the 
general framework for production authority, with additional procedural 
burdens imposed with respect to those carve-outs. Under the new rule, 
materials/components cannot be used in a zone production operation 
without specific prior authorization through the notification process 
(and subsequent application process, where warranted), including 
publication of a notice in the Federal Register and invitation for 
public comment. The adopted procedure substantively parallels the 
requirements of the Board's prior regulations, which did not permit any 
manufacturing activity without Board approval. The Board's prior 
regulations also contained a standard provision for a public comment 
period on applications requesting manufacturing authority, so that the 
Board could evaluate the comments of potentially affected parties in 
determining whether to approve a given application. Practice has shown 
those types of requirements to be adequate to enable the Board to 
determine whether negative impacts would result from proposed zone 
activity.
Section 400.14(b)--Scope of Authority
    Comments: Numerous commenters proposed focusing the scope of 
authority for a production operation on intermediate and finished 
products rather than the components used in the operation, with any 
component used to make an authorized intermediate or finished product 
considered within the scope of approved authority. One commenter 
proposed clarifying that this provision's reference to inputs is 
limited to imported inputs. One commenter stated that the Board should 
not use HTSUS numbers to define a production operation's scope of 
authority because HTSUS numbers are subject to change beyond the 
company's control, with such changes potentially leading to non-
compliance with approved scope and

[[Page 12120]]

requiring further FTZ Board processes to rectify. Two commenters 
expressed concerns about other commenters' proposals to focus 
applications for production authority on intermediate and finished 
products without specifying the components to be used in such 
production, stating that the change would defeat the purpose and 
undermine the effectiveness of the advance approval requirement.
    Board position: We have not adopted commenters' proposal to define 
a zone user's authorized scope for production activity based on 
intermediate and finished products, with no delineation of the 
materials or components to be used in producing the intermediate or 
finished products. We agree with the commenters that stated that this 
change would defeat the purpose and undermine the effectiveness of the 
advance approval requirement. As a general matter, the potential impact 
of proposed production activity on U.S. producers of materials or 
components is tied to the identities of the specific foreign-status 
materials/components that would receive the benefits of zone use. 
Identifying only the intermediate or finished products would not allow 
affected parties or the Board to assess the impact of the proposed zone 
activity, because the component or input materials would be unknown.
    Based on comments received, we have clarified that this section 
only applies to imported materials or components admitted in foreign 
status for a production operation in a zone. With regard to the use of 
HTSUS numbers to define scope of authority, these regulations focus 
scope of authority first on the written descriptions of the materials, 
components and finished products, with HTSUS numbers primarily serving 
to supplement the written descriptions. This approach continues the 
Board's existing practice and reflects our recognition of the practical 
difficulties that shifting to an HTSUS-driven approach would create for 
zone users.
    Based on the comments submitted, we have eliminated the provision 
on notification of increases in production capacity (as well as 
inclusion of production capacity as a standard element of scope of 
authority). Since 1991, FTZ users have had to obtain the Board's prior 
authorization to manufacture beyond the level of capacity already 
approved by the Board for the operation in question. However, in the 
twenty years that the requirement has been in effect, actual increases 
in capacity have not proven to be controversial or to result in 
negative impacts. Consequently, there is no justification for requiring 
companies ordinarily to provide a capacity level to the Board for 
authorization, and then requiring additional authorization for 
subsequent activity at higher capacity levels. If zone activity 
ultimately raises public interest concerns, the Board retains the 
ability to conduct reviews pursuant to Sec.  400.49.
Section 400.14(e)--Restrictions on Items Subject to Antidumping and 
Countervailing Duty Actions
    Comments: Numerous commenters proposed adding a requirement that 
the Board approve production activity for exports of products 
incorporating components subject to antidumping duty or countervailing 
duty (AD/CVD) orders whenever it finds that there would be a positive 
impact on U.S. competitiveness, and that similar activities are 
authorized in other countries. Two commenters stated that the 
additional language proposed for this section by certain commenters 
would undercut the Board's policy of preventing the use of zones to 
circumvent AD/CVD orders and negate the standards the Board applies in 
determining whether proposed zone activity is in the public interest.
    Board position: We have not adopted the suggested additional 
language for this section, which could result in applications involving 
components that are subject to AD/CVD orders benefiting from an 
evaluative standard more favorable than the standards applied to all 
other types of cases involving production activity. The proponents of 
that approach have not presented a substantive justification for giving 
preferential treatment to activity involving components subject to AD/
CVD duties.

Section 400.15--Production Equipment

    Comments: Numerous commenters proposed modifying this section to 
apply to all zone activity (rather than only production activity) for 
reasons of the Congressional intent claimed by the commenters. One 
commenter stated that such a modification would result in all zone 
operators being treated uniformly. Numerous commenters proposed adding 
a subsection providing for expedited temporary approvals of zone 
designation to enable use of the production equipment benefit (with 
zone designation to be terminated once entry is made on the production 
equipment). One commenter supported the proposed provision as 
published.
    Board position: We have not adopted the changes proposed in these 
comments. In September 2010, the Executive Secretary examined the 
applicability of the production equipment provision in depth, and 
issued a memorandum to FTZ grantees detailing the analysis and 
findings. The memo has been available on the Board's Web site since its 
issuance. No arguments have been presented to alter the memorandum's 
fundamental findings that the clearest indications based on the record 
associated with the passage of the statutory provision are that 
Congress intended the provision to apply to equipment used in 
production (as the term is commonly understood) in zones. Further, the 
proposed provision to allow expedited temporary zone designations to 
enable use of the production equipment provision appears to envision 
obtaining FTZ benefits on the assembly of equipment that will then be 
used for non-zone activity. Our position is that the statutory 
provision is intended to provide benefits solely on equipment that will 
be used in zone activity.

Section 400.16--Exemption From State and Local Ad Valorem Taxation of 
Tangible Personal Property

    Comments: Numerous commenters proposed revising this provision to 
simply repeat the statutory provision. Two commenters suggested 
reviewing this provision based on a concern that the meaning could be 
more restrictive than the statutory provision, and potentially confuse 
affected parties. Two commenters proposed specific revised language for 
this section to clearly harmonize its meaning with Sec.  400.1(c) of 
the prior regulations and eliminate any confusion.
    Board position: Given the concerns raised in comments, we have 
modified this section to use the statutory language verbatim.

Section 400.21--Application to Establish a Zone

    Comments: Numerous commenters proposed changes that: characterize 
the section as applying only to the establishment of new general-
purpose zones; indicate that applications will conform to instructions 
and guidelines set out in the regulations; require application letters 
and resolutions to be dated no more than six months prior to submission 
of the application; remove language specific to explanation of the 
degree to which a proposed site duplicates types of facilities at other 
sites, to environmentally sensitive areas, and to encouraging 
submission of draft applications; and add certain language pertaining 
to the ASF. Several commenters stated that the ASF should be detailed 
in the regulations. One commenter stated that the requirements

[[Page 12121]]

and distinctions of the ASF relative to the traditional site framework 
should be delineated in the regulations and that both frameworks should 
be maintained. One commenter agreed that applications should comply 
with instructions and related documents published in the Federal 
Register and made available on the Board's Web site, but suggested 
requiring a 30-day minimum written notice before implementing such 
changes in cases where notice in the Federal Register is not warranted. 
One commenter stated that full information about the ASF should be 
included in the regulations, that application processes should be 
defined, and that there should be some control on the web-based 
application guidelines developed by the Board.
    Board position: This section establishes general requirements for 
applications to the Board, with variations specific to certain types of 
authority described in subsequent sections. Based on the comments 
received, we have made several changes to this section. In reference to 
the dating of the application letter and the resolution, we replaced 
the words ``currently'' or ``current'' with language allowing for the 
documents to be dated up to six months prior to submission of the 
application.
    We have also added basic references to key concepts under the ASF 
in recognition of the certainty that grantees and program users seek as 
they consider or use the ASF. However, given that the ASF had only 
recently become part of the Board's practice at the time that the 
proposed regulations were drafted, no attempt was made to incorporate 
the details of the ASF in the proposal. Comments have not only proposed 
that the regulations include details of the ASF and contrast the ASF 
with the traditional site framework (TSF), but have also proposed 
simplifying the parallel ASF and TSF approaches within the Board's 
practice. As noted in response to comments on Sec.  400.11, recognizing 
that codifying the intricacies of current practice in regulations may 
not be the least burdensome means to accomplish the Board's policy 
goals, the Board plans to propose simplifying the site-designation 
frameworks in a subsequent rule. We have retained the proposed approach 
of having the Executive Secretary develop formats for individual types 
of applications based on the regulations' requirements. This provision 
is specifically designed to enable us to adopt user-friendly question-
and-answer formats while also allowing occasional adjustments to those 
formats if certain questions prove unsuccessful in eliciting the needed 
information from applicants. Recognizing potential concerns about 
transparency and parties' need to ensure that a particular application 
format will be accepted by the Board, the provision also stated that 
application formats will be published both in the Federal Register and 
on the Board's Web site. The provision for publication in the Federal 
Register was specifically designed to maximize transparency. However, 
based on one comment noted above, and to ensure that changes in formats 
do not impose undue burdens on applicants, we have specifically stated 
that the Board will continue to accept applications for a period of one 
year after a given format has been superseded; this is a significantly 
longer period than the 30 days suggested by a commenter, and should 
provide zone users with ample time to adapt to any format revision. We 
also have not made suggested changes that would have further burdened 
applicants by adding elements to the requirements for application 
letters or application contents. Finally, we have not followed 
suggestions that we remove language specific to explanations of the 
extent to which facilities at a proposed site duplicate the types of 
facilities at other sites, to environmentally sensitive areas, and to 
encouraging submission of draft applications. Except for sites designed 
to serve specific, existing tenants, any proposal to add a new site to 
a zone should include a justification of the need for the site when 
there are already sites authorized for the zone. There are a 
significant number of entirely unused FTZ sites nationwide. Such sites 
appear to constitute a large majority of all FTZ sites. Given that each 
such site was approved by the FTZ Board based on information from the 
grantee that the site was needed to serve trade-related needs, it is 
entirely appropriate for the FTZ Board to require that a proposal for a 
new site explain the services or amenities to be provided by the new 
site that are not provided by the grantee's existing sites. Separately, 
given the commercial and industrial uses that FTZs serve, there appears 
to be no need to make allowance for the inclusion of environmentally 
sensitive areas within designated FTZs. Finally, submitting a draft 
application can be a useful tool for any organization that is preparing 
an application, and it is appropriate for the regulations to provide 
for that tool.

Section 400.23--Application for Production Authority

    Comments: Numerous commenters proposed establishing a stand-alone 
section concerning applications for production authority. Those 
commenters proposed replacing most of the proposed Sec.  400.22 with 
the Board's current application format for establishing manufacturing 
subzones and for obtaining manufacturing authority for existing zone 
space. Addressing the requirement in proposed Sec.  400.22 for certain 
information regarding products or materials/components, one commenter 
proposed that zone users be allowed to notify the Board of the HTSUS 
chapters within which new products or components fall. For any 
application for production authority involving a component subject to 
an AD/CVD order, one commenter supported requiring that the application 
state that the proposed authority involves a component subject to an 
AD/CVD order. That commenter also proposed requiring that the applicant 
demonstrate that its requested authority would not reduce the 
effectiveness of the AD/CVD remedy.
    Board position: In response to comments received, we have created 
new Sec. Sec.  400.22 and 400.23 specifically setting forth 
requirements for notifications and applications for production 
authority (distinct from requirements for subzone applications in Sec.  
400.25, which only pertain to approving FTZ designation for a specific 
location without addressing the separate matter of production 
authority). As with Sec.  400.25, we have not incorporated in this 
section questions from the current application format for manufacturing 
subzones, in part for the reasons noted in our response to comments on 
Sec. Sec.  400.21 and 400.25. We have not adopted the proposed change 
to notifications of new products or components because comments 
submitted have led us to adopt a revised approach to the application 
process for production authority. Finally, for both notifications and 
applications for production authority under revised Sec.  400.14, we 
have maintained the requirement that the applicant state whether any 
component is subject to an AD/CVD order. We have not adopted the 
proposed requirement that the applicant address whether its proposed 
activity under FTZ procedures would reduce the effectiveness of the AD/
CVD remedy because that requirement would increase the burden on 
applicants even in situations where the activity may not be of concern 
to an AD/CVD petitioner. The Board would be able to assess the 
potential impact on AD/CVD remedies if public comments in response to a 
notification or application for production authority raise concerns

[[Page 12122]]

about proposed FTZ production activity.

Section 400.24--Application for Expansion or Other Modification to Zone

    Comment: Numerous commenters indicated that they proposed 
significant changes to this section (which those commenters also 
proposed renumbering to become Sec.  400.25); however, the proposed 
text provided by those commenters was in fact identical to the text 
proposed by the Board, with the sole exception of the deletion of the 
original Federal Register citations for the Board's adoption of the 
ASF. As noted above regarding Sec.  400.11, one commenter indicated 
that there are potential CBP operational advantages for subzones 
relative to usage-driven sites (which are most commonly designated 
through a minor-modification process). One commenter stated that the 
Board should clarify that there is no functional distinction between 
subzones and usage-driven sites under the ASF. Another commenter stated 
that both subzones and ASF usage-driven sites should be treated in an 
equal manner that minimizes burden and facilitates administration of 
the facilities in question.
    Board position: We have retained the ASF-related Federal Register 
citations because, as detailed in response to comments on Sec.  400.21, 
we have not attempted to incorporate details of the ASF in these 
regulations given the need that has emerged for the Board to simplify 
the site-designation frameworks in a subsequent rule. However, as noted 
in response to comments on Sec.  400.11, we have modified Sec.  
400.24(c) to allow an actual or potential usage-driven site to be 
designated as a subzone if such designation would better meet the needs 
of the zone grantee and zone participants. The modification recognizes 
the overall functional equivalence between subzones and ASF usage-
driven sites and the importance of enabling zone users to maximize 
operational efficiencies. However, for the reasons described in 
response to comments on Sec.  400.36, allowance for designation of a 
usage-driven site as a subzone is contingent on the subzone's remaining 
subject to the Board-established, zone-wide activation limit that 
applied to the usage-driven site.

Section 400.25--Application for Subzone Designation

    Comments: Numerous commenters suggested limiting proposed Sec.  
400.22 to applications for subzones and establishing a separate section 
for applications for production authority. Those commenters suggested 
removing most of the language proposed by the Board and instead 
incorporating language from the Board's current application format for 
establishing manufacturing subzones and for obtaining manufacturing 
authority for existing zone space. One commenter proposed simplifying 
application requirements for subzones that would not be used for 
production activity based on what that commenter characterized as a 
dissimilar treatment under the proposed regulations for similar types 
of operations in subzones versus general-purpose zone sites.
    Board position: In response to comments submitted and in 
recognition of the complete separation of production authority from 
subzone designation under these regulations, we have limited this 
section to subzone applications and have further simplified the 
application requirements. We have also made minor changes in other 
sections in order to implement this section properly. New Sec. Sec.  
400.22 and 400.23 are specific to the separate requirements for 
notifications and applications for production authority, as described 
in our response to comments on Sec.  400.14. We have not incorporated 
into this section questions from the current application format for 
manufacturing subzones for the reasons noted in our response to 
comments on Sec.  400.21, in part. A number of those questions pertain 
only to applications involving manufacturing (production) activity and 
therefore would be irrelevant to the many subzones that are used solely 
for distribution-related activities. Finally, several of those 
questions duplicate the requirements set forth in Sec.  400.21. We have 
opted to include such requirements by reference rather than repeat the 
language in full.

Section 400.26--Criteria for Evaluation of Proposals, Including 
Expansions, Subzones or Other Modifications of Zones

    Comments: Numerous commenters proposed the following changes: 
Eliminating reference to the port of entry area in proposed Sec.  
400.24(a); eliminating reference to compatibility with a master plan or 
economic development goals in proposed Sec.  400.24(d); modifying 
proposed Sec.  400.24(e) to consider views of those materially affected 
by FTZ benefits; and renumbering the section to become Sec.  400.26. 
Those commenters also proposed replacing the separate criteria for 
subzone proposals in proposed Sec.  400.25(b) with the criteria in 
proposed Sec.  400.24, which would apply to both zone and subzone 
proposals that do not involve production activity. One commenter 
proposed modifying the criteria applicable to subzones (other than 
proposals involving production) to focus on disapproval if the proposed 
activity were not permissible under the FTZ Act, U.S. law, or a 
specific Board Order. Two commenters recommended that the Board no 
longer consider in evaluating subzone proposals whether the activity 
could be accommodated in multi-purpose FTZ facilities serving the area.
    Board position: Based on the comments received, we have eliminated 
the separate criteria for evaluating subzone proposals (including 
whether activity could be accommodated in multi-purpose FTZ facilities 
serving the area). This change reflects a recognition that the types of 
distribution activities conducted in non-production subzones are 
indistinguishable from the types of activities that can be conducted in 
general-purpose sites (separate criteria will apply to applications for 
authority involving production activity). The separate criteria 
proposed for evaluation of subzone proposals did not represent the 
least burdensome means to accomplish the Board's policy objective of 
facilitating FTZ use in order to maximize the creation and retention of 
domestic economic activity and employment.
    With regard to the specific text of proposed Sec.  400.24, we have 
retained the reference to the port of entry area because the 
establishment of a zone under the FTZ Act is tied to the proposed 
zone's adjacency to a port of entry. We have also retained the 
reference to compatibility with master plans or economic development 
goals because it is relevant for the Board to consider the degree to 
which a zone proposal is linked to, and consistent with, official 
documents pertaining to a community's economic development planning. We 
have adopted the substance of the proposed change to consider the views 
of those ``materially affected'' rather than those merely ``affected'' 
by a proposal because the original, lower standard would potentially 
impose a burden on applicants to respond to comments from any person 
claiming to be affected by an application regardless of whether there 
would be a material impact on that person. We have also made a minor 
modification to the section's title to improve clarity.

[[Page 12123]]

Section 400.27--Criteria Applicable to Evaluation of Applications for 
Production Authority

    Comments: Numerous commenters stated that proposed Sec.  400.25 
(which they would renumber to become Sec.  400.24) should apply only to 
production activity. Those commenters proposed requiring the Board to 
consider companies' ability to conduct the same activity offshore, the 
precedential effect of prior Board decisions, and the effect on the 
U.S. economy, as well as revising the statement of Board policy to 
include reference to promoting U.S. competitiveness. Those commenters 
also proposed deleting a reference to ongoing activity in Sec.  
400.25(a)(1) and deleting the word ``significant'' from Sec.  
400.25(a)(3). One commenter stated that the Board should equalize 
tariff treatment for U.S. manufacturing operations relative to offshore 
alternatives, and should not give differential treatment to competitors 
within an industry or else potential users may no longer view the FTZ 
program as a viable option. That commenter also stated that U.S.-based 
manufacturing and exports are inherently in the public interest and 
should be treated as such, absent direct evidence of a net negative 
economic effect.
    Board position: In response to comments received, we have limited 
this section to criteria for evaluating applications involving 
production activity and have required the Board to take into account 
companies' ability to conduct the same activity offshore and the effect 
on the U.S. economy. We have also added references to analyses carried 
out in connection with prior Board actions. We have not referred to the 
precedential effect of prior Board actions because such language could, 
inter alia, create a mistaken impression that the situation within a 
given industry inherently remains static over time. We have not 
modified the statement of Board policy to include a reference to 
promoting U.S. competitiveness, because the focus of the section is 
emphasizing that the Board's actions are consistent with broader trade-
related public policy. For similar reasons, we have retained the 
statement that Board policy applies to ``ongoing'' activity in addition 
to proposed activity. We also have not modified the requirement that an 
application for production authority demonstrate a ``significant public 
benefit.'' However, the significance of the public benefit may be 
relative, depending on the size and employment level of the facility 
involved, so this standard is not inherently discriminatory against 
smaller facilities.
    With regard to other comments received, the FTZ program can be used 
to equalize tariff treatment relative to offshore alternatives. 
However, obtaining authority for a given FTZ production use cannot be 
guaranteed. Rather, the Board's function continues to be ensuring that 
zone activity is in the public interest; assessing a range of factors 
is appropriate in making that determination. As for differential 
treatment for competitors in a given industry, the Board naturally 
seeks to avoid such differential treatment. However, one factor that 
some observers may fail to take into appropriate account is the 
cumulative effect of FTZ applications from multiple participants in a 
given industry, which could differ from the effect of an application 
from a single participant. The Board must continue to base its 
decisions on the facts and circumstances present at the time that a 
given decision is made.
    Finally, while the changes to the production-related sections of 
these regulations should dramatically simplify and expedite the process 
of obtaining Board authorization for production authority in most 
cases, the regulations maintain appropriate procedures to ensure that 
the activity conducted is in the public interest. The Board does not 
need to shift presumptions about production activity for there to be an 
appropriately simplified and expedited process, as noted above.

Section 400.28--Burden of Proof

    Comments: Numerous commenters proposed dividing this section into 
three subsections (general, comments, and rebuttal), requiring 
opponents of FTZ activity to demonstrate standing and submit evidence 
that would meet a specific standard that closely resembles the standard 
for applicants' responses to opponents' submissions, and eliminating 
the word ``significant'' preceding ``public benefit.'' One commenter 
stated that, for applications involving manufacturing or exports, the 
burden of proof should be shifted to any opponents.
    Board position: As a result of the comments received, we have 
divided this section into four subsections: in general; comments on 
applications; requests for extensions of comment periods; and, 
responses to comments on applications. We have stated that parties 
submitting comments on FTZ applications should submit evidence that 
meets a standard closely resembling the standard for applicants' 
responses to such submissions. However, we have not adopted the 
suggested requirement that parties opposing FTZ applications 
demonstrate standing. Although the suggested standing requirement 
involved the addition of only a few words, the requirement could 
significantly complicate the processing of FTZ applications, and would 
appear to add more complexity and burden than can be justified based on 
the procedural benefits it might bring. We also have retained the full 
phrase ``significant public benefit'' to mirror the standard retained 
in Sec.  400.27; that standard was addressed in response to comments on 
that section. Finally, the definitive wording of this section reflects 
a balancing of the standards applicable to both applicants and parties 
submitting comments on applications. It would not be appropriate to 
abandon that evenhanded approach for certain types of applications.

Section 400.31--General Application Provisions and Pre-Docketing Review

    Comments: Numerous commenters proposed reducing standard timeframes 
to require the Board ordinarily complete its action on applications 
involving production authority within six months, and that Board action 
on other applications ordinarily be completed within five months. Those 
commenters also proposed the following changes: 30-day periods for 
responses from zone participants contacted by the Executive Secretary, 
and for the Executive Secretary to complete pre-docketing review after 
receiving additional information from an applicant; and returning pre-
docketing applications to the applicant rather than discarding the 
application if noted deficiencies have not been corrected within 30 
days. In response to other comments, two commenters stated that the 
suggestion to reduce timeframes for Board action was unreasonable. 
Those commenters stated that the reduced timeframes would impede 
potentially affected parties from receiving proper notice or having an 
adequate opportunity to comment, and would also prevent the Board from 
adequately developing a factual record, analyzing comments, and 
performing a thorough analysis of the application in question.
    Board position: Based on the comments received and recognizing the 
need to provide expedited processing of requests, we have made a number 
of changes to procedures and timeframes. As noted in comments on Sec.  
400.14, we have adopted a revised approach to requests for authority to 
conduct production activity that incorporates a

[[Page 12124]]

standard notification process designed to take no more than 120 days 
(including a 40-day comment period). However, the revised approach also 
retains the full application process delineated in the proposed 
regulations, which would apply to any notification that is determined 
to require further review, as set forth in Sec.  400.37. Given that 
such applications will tend to involve complex or controversial 
circumstances, we have retained in this section an ordinary 12-month 
timeframe to process such applications.
    Based on changes to the subzone application requirements in 
response to comments received, we have also significantly modified the 
procedures for processing subzone applications. Those modified 
procedures are delineated in Sec.  400.35. Based on the inherently less 
complex analysis associated with a single-user subzone proposal as 
compared with proposals to establish or expand general-purpose zones, 
Sec.  400.35 sets forth simplified procedures designed to facilitate 
expedited processing of subzone applications. Expedited processing for 
subzone applications, like notifications for production authority, 
focuses on operations in existence or under construction that are or 
will be engaged in international trade-related activities. Establishing 
and reorganizing zones under the ASF similarly enables grantees to gain 
quick, simple access to FTZ procedures for operations actually engaged 
in such activities. In contrast, evidence indicates that other types of 
applications tend to be more speculative with regard to actual zone 
use. The procedures and timeframes contained in these regulations 
prioritize resources toward actual trade-related operations in order to 
maximize their positive competitiveness and employment impacts.
    We have not made other changes to this section to reflect comments 
received because the changes proposed would not improve the efficiency 
of the overall application process. In particular, we have retained the 
provision for discarding an application if corrections are not made 
within the allotted timeframe, because it is appropriate to eliminate 
the burden associated with returning applications as one element of 
optimizing resource use towards rapid processing of docketed 
applications.

Section 400.32--Procedures for Docketing Applications and Commencement 
of Case Review

    Comments: Numerous commenters proposed changes which would: Provide 
that untimely comments would not be considered; limit the number of 
parties that may submit rebuttals; broaden references to the applicant 
to include zone participants; limit the timeframe within which hearings 
could be arranged to 60 days after the end of the initial comment 
period on an application; and modify the timeframe for CBP's input on a 
pending application. One commenter proposed a reduction in the standard 
comment period for applications to either 15 days or 30 days, while 
another commenter proposed eliminating the public comment period for 
subzone applications. For any application for production authority 
involving a component subject to an AD/CVD order, one commenter 
proposed requiring the component be identified in the notice announcing 
review of the application, and that the applicant provide the names and 
addresses of each known U.S. producer of the component and send notice 
of the application to each such U.S. producer. Another commenter 
proposed that Federal Register notices announcing applications for 
production authority indicate the grantee of the zone and the nature of 
the activity but omit the identity of the zone user.
    Board position: As a result of the comments received, we have added 
a requirement that a Federal Register notice announcing an application 
for production authority include information regarding any component 
subject to a trade-related measure or proceeding (such as an AD/CVD 
order). However, we have not adopted the proposed requirement that 
applicants provide the names and addresses of each known U.S. producer 
of the component in question and to send notice of the application to 
each such U.S. producer. This approach creates transparency through the 
enhanced requirement for information in Federal Register notices 
without imposing the potentially significant new burdens associated 
with the other proposed requirements. We also have not adopted the 
proposal that Federal Register notices of proposed production authority 
omit the identity of the zone user because such identifying information 
can be useful to other parties that wish to gauge the potential 
competitive impacts of the proposed authority.
    We have not eliminated the public comment period on subzone 
applications, as proposed by one commenter. The ordinary procedure to 
designate a subzone, therefore, will differ in this regard from the 
procedure to designate usage-driven sites under the ASF (with the 
exception of situations under Sec.  400.24(c) in which a site clearly 
eligible for usage-driven designation is instead being designated as a 
subzone based on the circumstances presented). Usage-driven sites can 
only be designated within a specific service area already authorized 
for the zone grantee through a Board process that includes a public 
comment period. However, in response to another comment, we have 
reduced the standard length of the comment period for subzone 
applications from 60 days to 40 days (the same duration as comment 
periods on notifications for production authority pursuant to Sec.  
400.37). The standard length of comment periods on other types of 
applications remains 60 days. The shorter comment period for subzone 
applications reflects the fact that these applications focus solely on 
designating the zone space needed for a single operation. Other types 
of applications inherently are broader in focus and, therefore, it is 
appropriate to allow additional time for the public to develop comments 
on such applications. In response to comments submitted, we have set 
the standard deadline for CBP comments on an application to match the 
end of the period for public comment; however, the wording of this 
provision reflects a recognition that additional time may be needed in 
exceptional circumstances.
    To help ensure the proper balance between the interests of 
applicants and the interests of parties potentially opposed to 
applications, we have not adopted the proposed limit on the types of 
parties that may submit rebuttal comments. For the same reason, we have 
revised this section to refer to the standard that applies to submitted 
comments under Sec.  400.27(b), and to further clarify that new 
evidence, new factual information, and written arguments submitted by 
parties, other than the applicant, after the comment period will not be 
considered. As noted in this section, new evidence or information 
submitted by the applicant could trigger the (re)opening of a comment 
period. We also have not imposed a limit on the period of time during 
which a hearing may be arranged. Although the need for such a hearing 
is generally rare, it is appropriate for the Board to clearly retain 
the flexibility to arrange a hearing at any point in time regarding any 
matter pending before the Board.
    We have not adopted the proposed changes that would broaden 
references to the applicant to include zone participants. Such changes 
would inappropriately shift the emphasis away from the applicant. 
Further, for a given application, the number of zone participants could 
be significant (for

[[Page 12125]]

example, if the zone operator that is the subject of the application 
has a significant number of users). Therefore, the number of parties 
that would be involved in the process as a result of the proposed 
changes could represent an exponential increase in burden on the Board 
staff without necessarily leading to an improved outcome. Any applicant 
remains free to coordinate with zone participants on the matters 
addressed in this section.

Section 400.33--Examiner's Review--Application To Establish or Modify a 
Zone

    Comments: Numerous commenters proposed reducing the timeframe for 
an examiner's development of a report and recommendations from 120 days 
to 60 days after the close of the comment period and removing explicit 
allowance for further comments from the CBP port director, when 
necessary.
    Board position: In general, we have not adopted the proposed 
reduction in the timeframe for an examiner to develop a report and 
recommendations. Rather, in concert with changes to the timeframes for 
action on applications involving production authority, we have set the 
timeframe for development of the examiner's report/recommendations at 
150 days (with the exception of reorganizations of zones under the ASF, 
for which we are setting the timeframe at 75 days in recognition of the 
generally simpler analysis involved and the greater potential for 
direct positive effects resulting from approval). The overall impact of 
adjustments to this section is to generally maintain the prior overall 
10-month standard timeframe to process the cases subject to this 
section (with a general 75-day reduction in that timeframe for ASF 
reorganizations). As noted above in response to comments on Sec.  
400.31, this approach reflects a necessary prioritization of overall 
resources towards cases involving production authority and subzone 
designation, or which would facilitate future usage-driven 
designations, all of which tend to involve more significant direct 
positive competitiveness and employment effects.
    We have retained explicit allowance for further comments from CBP 
because such a step may be warranted in certain cases. In that context, 
we believe that it is important to include a specific provision 
addressing that procedure (although the Board's broad, general 
authority would allow for such a step to be taken, when necessary, even 
in the absence of a specific regulatory provision).

Section 400.34--Examiner's Review--Application for Production Authority

    Comments: Numerous commenters proposed the following changes to 
Sec.  400.34(a): Reducing the general timeframe for an examiner's 
development of a report and recommendations from 150 days to 75 days 
after the close of the comment period; adding language regarding taking 
into account consistency with prior decisions; and replacing provision 
for industry surveys with language regarding conduct of independent and 
objective research. For Sec.  400.34(b), those commenters proposed the 
following changes: Deleting the reference to ongoing activity in Sec.  
400.34(b)(1); adding a sentence from prior regulations regarding the 
process by which the net economic effect is determined; and adding 
language stating the objective of preventing competitive disadvantages 
between companies in the same industry as a result of Board actions. 
One commenter stated that the Board should reject changes proposed by 
other commenters that would skew the application process in favor of 
applicants for production authority.
    Board position: We have not reduced the general timeframe for 
development of an examiner's report and recommendations consistent with 
the revised approach to proposed production authority established in 
Sec.  400.14(a). Under that approach, applications subject to this 
section will involve circumstances that have been determined to warrant 
further review. Such applications will tend to be complex or 
controversial in nature. In that context, reducing our proposed 
standard timeframes would be inappropriate. Further, we have explicitly 
noted that certain circumstances (such as when the applicant or another 
party has obtained a time extension for a particular procedural step) 
may result in the processing of the application extending beyond the 
ordinary timeframe.
    We have revised the provision on requests to parties for additional 
information to emphasize its broad potential reach, depending on the 
circumstances of an individual case. We have also broadened the 
provision to allow both industry surveys and industry research to be 
used as tools in evaluating potential impacts of proposed production 
activity. We have not stated that research or surveys would be 
independent and objective, because those qualities inherently are 
objectives for all of the work carried out by the Board and its staff. 
Nor have we referenced consistency with prior Board decisions, because 
such language could create a mistaken impression that the situation 
within a given industry inherently remains static over time. For 
similar reasons, we have not referred to potential competitive 
disadvantages as a result of Board actions, because the language of the 
proposed rule already contains an adequate provision establishing that 
prior decisions would be considered. We have retained the reference to 
``ongoing activity'' because the provisions of this section may at 
times be used for reviews of ongoing activity. Finally, we have not 
adopted the suggested reinsertion of a sentence from the prior 
regulations regarding the process of determining the net economic 
effect. That sentence was intentionally removed in the proposed rule 
because we believe that weighing positive and negative effects is 
inherent in the definition of a ``net'' economic effect, thereby 
rendering the suggested sentence superfluous.

Sections 400.33 and 400.34--Examiner's Reviews of Applications

    Comments: For both Sec. Sec.  400.33 and 400.34, numerous 
commenters proposed the following changes: Broadening references to the 
applicant to include zone participants; allowing requests to extend the 
period for response to a preliminary negative recommendation, with such 
an extension not unreasonably withheld; and removing explicit allowance 
for notice and public comment on preliminary recommendations.
    Board position: We have modified Sec. Sec.  400.33 and 400.34 to 
allow an applicant to request extensions of the period of time to 
respond to a preliminary negative recommendation, with such extensions 
not unreasonably withheld. We have continued to allow notice and public 
comment on preliminary recommendations because such a step may be 
warranted in certain cases. In that context, we believe that it is 
important to include specific provisions addressing such allowance 
(although the Board's broad, general authority would allow for such a 
step to be taken, when necessary, even in the absence of specific 
regulatory provisions).
    We have not adopted the proposed changes that would broaden 
references to the applicant to include zone participants. Such changes 
would inappropriately shift the emphasis away from the applicant. 
Further, for a given application, the number of zone participants could 
be significant (for example, if an affected zone operator has a 
significant number of users). Therefore, the number of parties that

[[Page 12126]]

would be involved in the process as a result of the proposed changes 
could represent an exponential increase that would create new burden 
without necessarily providing for an improved outcome. Any applicant 
remains free to coordinate with zone participants on the matters 
addressed in this section.

Section 400.36--Completion of Case Review

    Comments: Numerous commenters proposed the following changes: 
Adding a deadline for CBP headquarters to concur with proposed Board 
actions, and to assume concurrence if it is not received by the 
deadline; notifying the grantee and directly affected zone participants 
and allowing for a meeting request if a Board decision is not 
favorable, or if the Board is not able to reach a unanimous decision; 
adding a reference to affected zone participant for failure to timely 
provide necessary information; allowing an extension of the period to 
provide necessary information when requested by the applicant or an 
affected zone participant, with such an extension not unreasonably 
withheld; deleting the provision allowing for termination of review if 
the Board is unable to reach a unanimous decision; when circumstances 
presented in an application are no longer applicable, limiting 
termination to situations where the applicant or an affected zone 
participant has notified the Board; and confirming termination of 
review in writing to the applicant and affected zone participant. 
Several commenters indicated that the applicant should always be 
notified (in writing) of the intent to terminate a review, with 30 days 
allowed for a response from the applicant. One commenter also stated 
that the term ``material change'' should either be defined or deleted. 
One commenter indicated that it did not understand the reason for 
allowing the review of an application to be terminated and, in 
particular, where the Board is unable to reach a unanimous decision.
    Board position: In response to these comments, we have added a 
specific timeframe for CBP headquarters to provide its comments on 
applications to the Board. We have not adopted the proposal for CBP 
headquarters' concurrence to be assumed after 30 days have elapsed. 
There is no evidence of any actual need for that suggested provision.
    The Board may only approve an application for Board action on a 
unanimous decision of the Board's members. If the Board is unable to 
reach a unanimous decision, approval is not possible. In those 
circumstances, it is more appropriate to terminate the review of the 
application than to maintain the application as technically pending 
before the Board. Similarly, if the overall circumstances presented in 
an application no longer exist as a result of a material change (e.g., 
when the zone participant on whose behalf the application was submitted 
has subsequently vacated the facility), it would not be appropriate for 
the Board to consider approving the application. Therefore, if the 
applicant does not opt to withdraw the application, it would be 
appropriate to terminate the review of the application. For these 
reasons we have maintained the proposed provisions pertaining to such 
termination actions, but we have adopted certain changes to the 
language of this section in response to comments submitted.
    Based on comments submitted, we have included a provision requiring 
notification to the applicant and allowing for a meeting at the request 
of the applicant if the Board is not able to reach a unanimous 
decision. That provision accords basic procedural rights in such a 
circumstance. However, we have not extended that provision to cover 
unfavorable decisions by the Board because Sec. Sec.  400.33-400.35 
already include procedural rights for the applicant in that 
circumstance (i.e., when a case examiner has made an unfavorable 
recommendation on which the Board will be basing a decision). We have 
also retained the requirement that an applicant be notified of the 
Board's intent to terminate a review, clarified that such notification 
would be in writing, and continued to allow a 30-day period for a 
response. We also have adopted the substance of suggested changes 
pertaining to allowances for extending the period to provide necessary 
information and for confirming termination of a review in writing to 
the applicant.
    We have not extended the provisions of this section to apply to 
zone participants because, as noted in response to comments on Sec.  
400.33, such changes would inappropriately shift the emphasis of the 
Board's procedures away from the applicant. Further, for a given 
application, the number of zone participants could be significant. 
Therefore, the number of parties that would be involved in the process 
as a result of the proposed changes could increase exponentially and 
create substantial new burden without necessarily providing for an 
improved outcome. Any applicant remains free to coordinate with zone 
participants on the matters addressed in this section.
    Based on a public comment, we have also delegated authority to the 
Executive Secretary to approve applications for subzone designation. 
However, we have limited that delegation to the circumstance where an 
approved subzone will be subject to the overall activation limit for 
the sponsoring zone as established by prior Board action (with certain 
language also added to Sec.  400.24(d) specific to the establishment or 
modification of such activation limits). That limitation reflects the 
FTZ Act's requirement that ``[a]ny expansion of the area of an 
established zone shall be made and approved in the same manner as an 
original application.'' The meaning of the term ``zone'' in the FTZ Act 
is the physical space in which zone procedures are in use. For example, 
``[f]oreign and domestic merchandise * * * may, without being subject 
to the customs laws of the United States * * * be brought into a zone 
and may be stored * * * and be exported, destroyed, or sent into 
customs territory of the United States therefrom * * * but when foreign 
merchandise is so sent from a zone into customs territory of the United 
States it shall be subject to the laws and regulations of the United 
States affecting imported merchandise'' (section 3 of the Act, 19 
U.S.C. 81c). Given the separation in the 1970s of the FTZ Board zone-
site designation process from the U.S. Customs Service (now CBP) 
process of activating portions of designated zone sites, the term 
``zone'' as used in the FTZ Act now only applies to physical space that 
has been both designated and activated. In that context, designating a 
subzone would only require action by the Board if the subzone were not 
subject to an existing Board limit on the amount of space that could be 
activated (i.e., used as a ``zone'' under the FTZ Act) within the zone 
in question. It should be noted that a similar analysis of the 
significance of the term ``zone'' in the FTZ Act was a basis for the 
FTZ Board's adoption of the ASF in 2008. The ASF allows designation of 
additional sites for specific operators/users without Board action 
provided that the additional sites will remain subject to a specific 
limit set by the Board on the overall amount of space that can be 
activated (thereby preserving the Board-approved ``area'' that 
functions as a ``zone'').
    Finally, the Board received a number of comments pertaining to 
various sections of the regulations indicating that existing processes 
and distinctions between types of zone sites may not constitute the 
most efficient and effective mechanism for facilitating zone use. As 
noted in our response to

[[Page 12127]]

comments on Sec.  400.11, a streamlining of the existing site-
designation frameworks is a matter that the Board plans to address in a 
subsequent proposed rule.

Section 400.38--Procedure for Application for Minor Modification of 
Zone

    Comments: Numerous commenters proposed that, when the CBP port 
director's concurrence does not accompany a request for a minor 
modification, the Executive Secretary should notify the port director 
of the request, and 15 days should be allowed for the port director's 
concurrence. One commenter stated that the 20-day timeframe for CBP 
port directors' reports provided in the prior regulations (15 CFR 
400.27(f)(2)) should be maintained.
    Board position: In response to these comments, we have incorporated 
a specific timeframe for CBP input on requests (i.e., the 20-day period 
provided in the prior regulations). In addition, in this section and 
similar sections, we have used the general term ``comments'' in place 
of the more specific terms ``concurrence'' or ``report'' to reflect 
that any CBP input pertaining to a request may vary in nature and scope 
depending on the type of request and the specific circumstances 
involved.

Section 400.41--General Operation of Zones; Requirements for 
Commencement of Operations

    Comments: Numerous commenters proposed the following revisions to 
this section: Changing the requirement for a grantee's approval for 
activation to a requirement for the grantee's concurrence; removing the 
reference to the grantee from the requirement that permits be obtained 
from governmental authorities; adding a reference to administrators; 
and removing the reference to CBP port directors due to those 
commenters' proposed creation of a separate section specific to the 
port director's role as a representative of the Board.
    Board position: This section now combines proposed Sec.  400.41 
(``Operation of zones; general'') and proposed Sec.  400.44 
(``Requirements for commencement of operations in a zone''). Combining 
the two sections does not affect the substance of the provisions 
contained therein. Regarding changes proposed by commenters, we have 
not added a reference to administrators in this section. Although a 
grantee may engage a third party to conduct certain functions on its 
behalf, it remains the grantee's responsibility to ensure that the 
reasonable zone needs of the business community are served by the 
grantee's zone. We have modified this section to indicate that a 
grantee may either approve or concur on activation. That change is 
consistent with other regulations pertaining to the activation process. 
We have eliminated the reference to the grantee's obtaining permits 
because meeting any requirements concerning activity in a given zone 
operation should be the direct responsibility of the operator. We have 
retained the reference to the role of CBP because it usefully 
reinforces the language of new Sec.  400.7.

Section 400.42--Operation as Public Utility

    Comments: Numerous commenters expressed concerns about what they 
characterize as significant new requirements in proposed Sec.  400.42, 
indicating that the requirements would demand additional staffing and 
funding at grantee organizations at a time when such resources are 
scarce, and that the requirements could lead to grantees' relinquishing 
their roles due to the added burden. Those commenters proposed the 
following specific changes: using the phrase ``public utility 
principles'' to clarify that zones are not public utilities; deleting 
the word ``agent'' in general; adding the word ``administrator'' in 
several contexts; removing language indicating that grantees' fees 
recover costs incurred by those grantees; removing a requirement that 
any cost passed on to a zone participant based on a function that a 
grantee contracts to a third party must be based on going rates for 
such a function; and removing a requirement for fees to be paid 
directly to grantees (or public entities).
    One commenter indicated that greater specificity on the public 
utility requirement was overdue and essential. One commenter agreed 
that rates and charges should be fair and reasonable and based on costs 
incurred by the grantee in the administration of the zone. One 
commenter stated that return on investment should be able to take into 
account past subsidies that an economic development organization 
provided to keep a zone active and viable.
    One commenter stated that proposed Sec.  400.42 appears to impose 
excessive burden and give rise to an inordinate amount of scrutiny over 
the internal management of a zone, and that each grantee should be 
allowed to operate in a way that best suits its zone. Another commenter 
stated that the regulations cite public utility as the basis for 
proposed changes, but that the FTZ program today is very different from 
the time when Congress originally envisioned the program (when the 
public utility concept made sense). The commenter stated that the 
proposed section takes away from grantees the authority to develop zone 
financing plans, that the Board should not try to take such authority 
away from grantees, and that a zone should be paid for by its users. 
That commenter also stated that the proposed regulations assume that 
zone users themselves must be allowed to act as operators, but that the 
assumption is not balanced against the interests of the grantee.
    Addressing the proposed requirement that fees and penalties related 
to grantee functions be payable only to a zone's grantee (or a public 
agency under contractual arrangement), certain commenters stated that 
the provision should allow payment to private non-profit organizations 
under contractual arrangement, or to an ``administrator'' engaged by a 
grantee. Addressing the payment of fees and penalties to a zone's 
administrator, certain commenters stated that such an arrangement 
reduces a grantee's burden, provides incentive to the zone's 
administrator, and allows for provision of technical help to users. 
Those commenters concluded that precluding the payment of fees and 
penalties to an administrator needlessly intrudes on a grantee's 
management of its zone. One commenter stated that the changes proposed 
in Sec.  400.42 would do more harm than good.
    Additionally, one commenter proposed stating that each zone be 
operated as a public utility, and that the referenced rates and charges 
are specific to zone use and must be uniform. The same commenter 
indicated that there are many formulas that a grantee should be able to 
use to develop its fees, that basing fees on the benefits derived by a 
user should be an acceptable formula, and that there is no basis for 
authorizing the Board to decide which formula(s) are correct.
    One commenter disagreed with the proposed approach in Sec.  400.42, 
stating that it is contrary to Executive Order 12866, which requires 
agencies to assess available alternatives to regulations, and that the 
proposal would require grantees to establish rates based only on costs 
without taking into account funding sources available. The commenter 
stated that the provision would reduce a grantee's flexibility to set 
up an independent rate structure based on the area's economic 
development strategy. That commenter recommended giving grantees the 
flexibility to establish rate structures allowing distinct rates for

[[Page 12128]]

pilot projects, target industries, or differing types of zone 
operations.
    Regarding a grantee's development of its fees, one commenter 
suggested that the Board provide clearer guidance on the time period 
over which costs could be recovered and how often the grantee would 
need to recalculate its fees. It specifically suggested allowing the 
grantee to recalculate fees at five-year intervals. The commenter 
proposed applying the ``going rate'' standard only to administrative 
service contracts due to difficulties in determining going rates for 
occasional, more specialized activities or functions. That commenter 
also sought Board guidance on acceptable methods for apportioning costs 
across users, noting that various grantees currently appear to use 
differing methods. The same commenter proposed that a grantee be 
allowed to discount its fees based on a range of circumstances, as long 
as the criteria for such discounts were published in the grantee's zone 
schedule and applied uniformly.
    In response to other comments, one commenter stated that technical 
or other services are sometimes included or bundled into the fees paid 
by a zone user, that such services carry a real cost and that zone 
users should not, in effect, be required to contract with a particular 
technical expert in order to be able to operate within a zone.
    Board position: We have made a number of revisions to this section 
based on public comments. We have retained the language stating that 
``each zone shall be operated as a public utility'' because that 
language was drawn verbatim from the FTZ Act. We have also slightly 
modified the remainder of the sentence following the reference to the 
public utility requirement, so it now is also drawn verbatim from the 
FTZ Act.
    In addition, in response to comments on uniform treatment and 
related issues, and the comment that zone users should not effectively 
be required to contract with a particular technical expert, we have 
stated that users may not be required to use or pay for a particular 
provider's zone-related products or services. Any effective requirement 
for a user to pay for additional products or services in order to be 
permitted to use the zone would be inconsistent with the principles 
associated with the Act's public utility requirement. This bar extends 
both to a direct requirement to procure a product or service and to an 
indirect requirement for such procurement (e.g., through including 
costs associated with the availability of technical expertise as part 
of the zone's mandatory fees, or through favorable treatment given by, 
or on behalf of, the grantee to purchasers of a product/service from a 
particular vendor).
    In response to the comment claiming that the evolution of the FTZ 
program has made the public utility concept less relevant, it is 
important to emphasize that the law continues to require that ``[e]ach 
zone shall be operated as a public utility'' (section 14 of the Act, 19 
U.S.C. 81n); the Board has no discretion to authorize the operation of 
the program in a manner inconsistent with that requirement. The Board 
has never been a ``rate making'' agency (i.e., it does not try to set 
specific fees of individual grantees). However, given the public 
utility requirement of the Act and grantees' specific requests for 
guidance on the implications of that requirement, it is appropriate to 
delineate in the regulations the general principles embodied in the 
requirement. We have modified the provision on recovery of costs 
through fees to clarify that fees may be imposed to recover costs, but 
that a grantee is not obligated to impose fees to recover its costs. 
The public utility requirement has the effect of setting a ceiling on 
grantees' fees at a general level that allows for recovery of costs 
associated with the grantee function plus a reasonable return on 
investment but not monopoly profit-taking (by the grantee or by a party 
contracted by the grantee for a zone-related function). The public 
utility requirement in no way mandates that a grantee collect fees for 
all or part of the costs associated with the grantee function if the 
grantee would prefer to subsidize that function or has alternate 
funding sources available to defray those costs.
    Because cost recovery is at the heart of the public utility 
concept, we have retained the prohibition on a grantee's basing its 
fees on the benefits derived by those who make use of the zone. The 
public utility concept is inherently driven by the sponsoring 
organization's being able to recover the costs it incurs in making the 
zone available to users through fees paid by those users. Basing users 
fees on the level of benefit those users derive from the program is an 
entirely different model that is not inherently cost-based, and that is 
inconsistent with the Act's public utility requirement.
    Certain commenters raised the issue of acceptable methods for a 
grantee to apportion costs to different categories of users. The Act's 
requirement that a grantee afford users uniform treatment under like 
conditions can also have implications for the apportionment of costs. 
Based on the public utility and uniform treatment requirements, a 
grantee may legitimately establish different levels of fees for (i.e., 
apportion costs differently to) different categories of zone 
participants based on certain criteria (e.g., an operator's square 
footage of activated FTZ space, the value of the operator's merchandise 
admitted to the zone in a given year, whether the operator qualifies as 
a small business under Small Business Administration (SBA) criteria, or 
whether the operator is in an industry sector targeted for attraction 
based on community economic development plans) so long as the criteria 
are applied uniformly to each zone participant, and the resulting fee 
structure is published in the grantee's zone schedule (see Sec.  
400.44). However, consistent with the provision that ``zone 
participants shall not be required (either directly or indirectly) to 
utilize or pay for a particular provider's zone-related products or 
services,'' different fees may not be applied to zone participants by 
(or on behalf of) a grantee based on whether a given zone participant 
has engaged a particular third party to provide FTZ-related services. 
Applying different fees on that basis would effectively require zone 
participants to procure products or services from a particular third 
party in order to qualify for a lower fee imposed by (or on behalf of) 
the grantee, which would be inconsistent with the principles 
established in section 3 of the Act (19 U.S.C. 81n). Within a 
legitimately differentiated category of zone participants (e.g., those 
that qualify as small businesses under SBA criteria), a single level of 
fee(s) must be applied.
    In response to comments, we have removed references to ``agent'' in 
this section but have not incorporated certain commenters' proposed 
references to ``administrator.'' Instead, where appropriate, we have 
simply mentioned that certain actions can be performed ``on behalf of'' 
a grantee. We also have removed both the requirement that third party 
costs passed on to zone participants be based on going rates, and the 
requirement for fees to be paid directly to grantees (or public 
entities). Both of those requirements were intended to bolster 
enforcement of the public utility requirement, but they do not 
represent the least burdensome means to accomplish the Board's policy 
goals. Combined with provisions such as Sec.  400.45, which allows 
complaints pertaining to public utility, this section should be 
sufficient to ensure compliance with that the Act's public utility 
requirement.
    We agree with commenters that return on investment may take into 
account past subsidies that a grantee provided to

[[Page 12129]]

sustain its zone. It does not seem appropriate to delineate a specific 
maximum period of time for cost recovery. Only one comment suggested a 
specific time period, and specifying a period in a regulation could 
affect a large number of grantees (the vast majority of which have not 
addressed this point). However, the five-year interval proposed by one 
grantee for recalculating its fees (which could include recapturing 
prior subsidies by the grantee to sustain the zone over that five-year 
period) is one reasonable approach. The fees in the resulting zone 
schedule could incorporate the recovery of costs incurred over the 
five-year period in question.
    Finally, contrary to one commenter's assertion, the proposed 
regulations were not based on an assumption that zone users must be 
allowed to operate for themselves (rather than leaving the possibility 
open for the grantee to serve as operator). However, multiple comments 
on Sec.  400.43 proposed providing potential and existing users the 
right to operate their own zone sites directly or through one or more 
contractors. We believe that this issue is properly within the realm of 
the Act's public utility requirement but, because it was not directly 
addressed in the proposed rule and is of potential interest to numerous 
parties, the Board intends to address it through a subsequent rule.

Section 400.43--Uniform Treatment

    Comments: Numerous commenters supported the general concept of 
uniform treatment delineated in Sec.  400.43, but expressed concerns 
about negative impacts that would result from specific provisions 
(especially the preclusion of conflicts of interest in Sec.  
400.43(e)). They perceived, inter alia, that grantees' ability to 
obtain needed zone-related advice and services would be adversely 
affected. Those commenters proposed an alternative approach that would 
require conflicted parties to disclose the conflict of interest and 
recuse themselves from decisions. The same commenters also proposed the 
following range of changes: adding the term ``administrator'' 
accompanying ``grantee;'' stating that zone participants include only 
operators and users, with property owners treated as a distinct 
category; including the right to modify standard contractual terms and 
stating that those terms should be specific to zone participation; 
replacing the requirement for standard contractual provisions to be 
included in a grantee's zone schedule with a requirement that standard 
provisions be provided to the public and the Board on request; 
modifying the provision on neutral criteria to be applied by grantees 
in evaluating proposals for FTZ sponsorship; adding that users may not 
be required to use or pay for zone-related products or services that 
they do not elect to procure; and allowing potential and existing users 
the right to operate their own zone sites directly or through one or 
more contractors. Two commenters stated that a grantee should not be 
forced to sponsor any project proposed for its zone. One commenter 
indicated a need for authority or a directive to require modification 
of operators' agreements that would be non-compliant under proposed 
Sec.  400.43.
    One commenter stated that regulations directing how a grantee 
manages services associated with its zone are likely to be 
counterproductive at both the local and national level. That commenter 
proposed revisions including that, in a given zone, there could not be 
a requirement that zone participants purchase zone-related services 
(such as inventory control systems, application preparation, or 
customs-related brokerage or consulting) from the zone's administrator 
or any other specific party. Another commenter stated that proposed 
Sec.  400.43 appears to impose excessive burden and create inordinate 
scrutiny of the internal management of a zone, and that each grantee 
should be allowed to operate in a way that best suits its zone.
    Two commenters stated that the regulations should continue to allow 
operator's agreements between the operator and the zone's 
administrator, with one commenter indicating that this existing type of 
arrangement can be more responsive to operators' needs when the grantee 
is a public agency with inherently time-consuming internal processes. 
One commenter indicated that the regulations should not preclude 
payment of fees to the zone's administrator rather than the grantee, 
stating that a public agency may prefer not to mingle zone-related fees 
with broader public finances.
    One commenter stated that the Board's approach in Sec.  400.43 
reflects a failure to enforce existing law and punish wrongdoers, with 
the Board instead proposing to deny numerous rights and protections 
embodied in law and equity through an approach that is discriminatory, 
arbitrary and capricious. The commenter further states that Sec.  
400.43 contravenes the FTZ Act, claiming that the FTZ Act requires the 
Board to provide ``uniform treatment'' to those who ``participate in'' 
a zone. The commenter also states that the proposed provision would 
have a negative impact on the entire FTZ program.
    One commenter stated that the proposed approach to uniform 
treatment ignores the positive role that third-party expertise has 
played in the success of various zones, and instead proposes all-
encompassing mandates that would cripple grantees' abilities to adjust 
to local circumstances. Another commenter proposed to address uniform 
treatment by simply requiring contracts include a stipulation that all 
participants will be treated fairly and equally under the uniform 
treatment and public utility requirements of the FTZ Act.
    One commenter stated that many grantees may not currently have 
evaluation criteria for reviewing FTZ proposals, and that the 
subsection on neutral criteria for evaluating proposals would seem to 
require grantees to develop such criteria, creating a burden that is 
unnecessary given other protections proposed in Sec.  400.43, and also 
creating potential additional risks or liability for grantees.
    One commenter supported the enhanced enforcement provisions 
proposed in this section but stated that the Board should not limit the 
conflict-of-interest preclusion to the proposed list of grantee 
functions.
    Board position: The FTZ Act establishes a core requirement that a 
zone grantee afford ``uniform treatment under like conditions'' to zone 
participants. Therefore, a grantee may not manage its zone in any 
manner that it chooses. Management of a zone is constrained by the 
uniform treatment requirement (as well as other requirements of the 
Act, such as to operate the zone as a public utility). Given that 
grantees must comply with the law, it is beneficial to grantees for the 
Board's regulations to provide detail regarding the operational 
implications of the FTZ Act's requirements. Nevertheless, in response 
to comments submitted, we have simplified this section and removed 
several provisions. This section establishes requirements for (1) the 
application of uniform treatment in the evaluation of proposals from 
zone participants by grantees (and other parties acting on behalf of 
grantees, where applicable), in Sec.  400.43(b), and (2) justification 
for any differing treatment afforded, in Sec.  400.43(c). The range of 
functions targeted in proposed Sec.  400.43(e) has been narrowed, and 
the provision has also been supplemented by allowing the Board to 
authorize waivers (see discussion below specific to adopted Sec.  
400.43(d) and in response to several additional comments). Therefore, 
as adopted, this section substantively addresses the concerns expressed 
about

[[Page 12130]]

potential impacts on the ability of grantees or zone participants to 
procure zone-related services while maintaining safeguards to ensure 
the integrity of the FTZ program.
    In response to multiple commenters' proposals that the regulations 
state that users may not be required to use or pay for zone-related 
products or services that they do not elect to procure, we have 
inserted a new final sentence in Sec.  400.42(a). We have also 
reinforced that principle by stating that treatment of a zone 
participant may not vary depending on whether the zone participant has 
procured any particular product or service, including from a particular 
supplier. In response to a comment, we have eliminated the requirement 
that a grantee apply neutral criteria in evaluating proposals from zone 
participants. The requirement seemed to imply that each grantee must 
establish such criteria, but many grantees in fact may not currently 
have specific criteria they apply. Developing those criteria would 
create a significant burden for grantees. Rather than impose such a new 
requirement on grantees, our revised approach focuses on gauging 
performance rather than dictating behavior.
    We also have eliminated the requirement that agreements be made 
solely with the zone's grantee. That proposed provision would have 
affected a number of existing contractual arrangements and increased 
burden on a number of zone grantees. The provision did not represent 
the least burdensome means to accomplishing the Board's policy 
objectives. In concert with changes made elsewhere in these 
regulations, we also have substituted a reference to ``any person 
undertaking a zone-related function(s) on behalf of the grantee'' for 
the term ``agent'' in Sec.  400.43(h).
    We have retained the requirements for agreements to be made in 
writing. Evidence indicates that the vast majority of agreements 
between zone grantees and zone participants are already in writing, but 
a limited number of examples of purely oral agreements exist. The 
Board's ability to gauge the uniformity of treatment afforded by a 
grantee depends on agreements being in writing. This provision as 
adopted will also establish a foundation for enabling the Board to 
consider proposing in a subsequent rule a requirement that a grantee 
disclose to a zone participant contractual provisions concluded with 
other zone participants that differ from the provisions in effect or 
being offered to the zone participant in question.
    As requested, we have retained the statement in Sec.  400.43(b) 
that uniform treatment does not require acceptance of all proposals by 
zone participants. That subsection also requires that the bases for a 
grantee's decision on a proposal must be consistent with the uniform 
treatment requirement. However, we have not adopted in this section and 
in the definition section (at Sec.  400.2(x)) commenters' proposed 
limitation of the term zone participant to exclude property owners. 
Given the role of the grantee (and other party acting on behalf of the 
grantee, where applicable) in evaluating proposals from property owners 
for participation in a zone, uniformity of treatment under like 
conditions should not be limited to zone operators and zone users.
    Comment: Regarding the proposed requirement for a grantee to have 
standard contractual provisions that if offers to zone participants, 
one commenter stated that a grantee should have some limited latitude 
to change standard contract provisions through negotiation with 
individual zone participants and should make all participants aware of 
the provisions for which the grantee is willing to make changes. The 
commenter also stated that Board guidance would be helpful regarding 
which types of provisions should not be subject to negotiation.
    Board position: We have eliminated the requirement for a grantee to 
have standard contractual provisions because of the new burden that it 
could create for a number of grantees. Further, grantee negotiations 
with zone participants regarding contractual provisions are 
commonplace, with the provisions of actual contracts often diverging in 
some manner from the standard provisions offered to zone participants. 
That divergence reflects the reality of the business environment, but 
also renders pointless a requirement for grantees to offer standard 
contractual provisions. As noted above, the Board will instead consider 
proposing in a subsequent rule a requirement that grantees disclose to 
zone participants contractual provisions concluded with other zone 
participants that differ from the provisions in effect or being offered 
to the zone participant in question. That requirement would be targeted 
directly to the disclosure of actual differences in treatment afforded 
to zone participants, thereby enabling them to evaluate whether a 
grantee's contracting practices violate the uniform treatment 
requirements of the FTZ Act and of these regulations.
400.43(d)--Avoidance of Non-Uniform Treatment
    Comments: Numerous commenters opposed the proposed provisions in 
Sec.  400.43(e) (``preclusion of conflicts of interest'') for reasons 
including: Likely reduction or elimination of grantees' ability to 
obtain needed professional advice and assistance; causing more harm 
than good; the Board should establish principles rather than attempt 
``one-size-fits-all'' solutions; zone users are capable of defending 
their own interests without government interference in the guise of 
protection that is not actually needed; the provisions would limit 
freedom of choice for users and have a negative impact on grantees' 
operational costs and efficiencies; and the most talented and 
experienced experts would find representing users more lucrative than 
representing grantees, leaving grantees with either lower quality 
representation or higher costs to obtain quality representation. 
Certain commenters recommended that the Board find an alternative 
approach to ensuring uniform treatment. One of these commenters stated 
that legitimate concerns about uniform treatment should be addressed by 
stating clear performance objectives, with grantees and contractors 
given discretion as to how they meet those objectives. One commenter 
stated that this provision is not consistent with the basic regulatory 
philosophy and principles expressed in Executive Order 12866, which 
requires consideration of the costs to grantees and users, a focus on 
performance objectives rather than specific behavior, and narrow 
tailoring to impose the least burden.
    One commenter indicated that Sec.  400.43(e) was drafted too 
broadly and proposed an alternative approach in which the Board could 
review situations believed to be problematic and, after notice and 
appropriate due process, potentially restrict identified activities on 
a case-by-case basis. The commenter provided specific language that 
could be used to implement its approach. Another commenter stated that 
it generally supports the concept of preventing conflicts of interest, 
but expressed concern about the proposed provision's putting grantees 
at a competitive disadvantage in obtaining needed professional 
services. The commenter recommended modifying this provision either to 
define the targeted conflicts of interest more precisely or to limit 
the provision's effect to zones that have demonstrated actual uniform 
treatment problems (with the Board potentially reviewing zones' 
performance of key functions to determine whether non-uniform treatment 
exists). Another commenter stated that the proposed preclusion of

[[Page 12131]]

conflicts of interest would unintentionally restrict business 
relationships that are not actually of concern to the Board. This 
commenter proposed a revised provision that would allow the Board to 
review situations that may be problematic, gather relevant facts after 
notice and appropriate due process, and then restrict particular 
activities on a case-by-case basis as warranted.
    One commenter stated that this provision appears to be overreaching 
and inconsistent with rules pertaining to conflicts of interest that 
already apply to attorneys, and could interfere with a party's right to 
select counsel of its choice. The commenter proposed a replacement 
provision based on the principle of informed consent by both parties. 
Another commenter stated that this provision as written, in combination 
with the proposed definition of agent in Sec.  400.2(b), could 
unintentionally preclude zone operators from providing zone-related 
services (such as handling of merchandise or inventory management) to 
zone participants. Another commenter stated that the proposed provision 
precluding conflicts of interest is excessive and would deny operators 
freedom of choice in contracting for outside services.
    In response to comments submitted, one commenter stated that zone 
users should not be forced, or feel implied pressure, to pay for 
consulting or expert services as a condition of participating in the 
federal FTZ program.
    Board position: In response to comments, we have removed from this 
subsection one of the originally targeted functions (``collecting/
evaluating annual report data from zone participants'') and narrowed 
the focus of another of the targeted functions (now limited to ``taking 
action on behalf of a grantee, or making recommendations to a grantee, 
regarding the disposition of proposals or requests by zone participants 
pertaining to FTZ authority or activity (including activation by 
CBP)''). To counterbalance the elimination of proposed Sec.  
400.43(b)'s requirement for agreements to be made directly with 
grantees, we have added to this subsection the additional key function 
of ``approving, or being a party to, a zone participant's agreement 
with the grantee (or person acting on behalf of the grantee) pertaining 
to FTZ authority or activity (including activation by CBP).''
    Finally, in response to comments received, we have added new Sec.  
400.43(f) that will allow the Board to issue case-by-case waivers of 
the provision in Sec.  400.43(d) that bars certain categories of 
persons from performing certain key functions. This approach strikes an 
appropriate balance in order to avoid the types of broad, negative 
impacts projected by commenters while continuing to reflect the fact 
that a zone grantee often has a monopoly in its region for valuable 
access to the federal privilege of FTZ use (with zone participants 
reluctant to make uniform treatment-related complaints to the FTZ Board 
because of a perceived risk of jeopardizing key relationships with 
grantees or with third parties undertaking key functions on behalf of 
grantees). The adopted provision reflects the Board's intended use of a 
standard format for applications for waivers, but also recognizes that 
the Board may need to ask follow-up questions before deciding on a 
given application (depending on the circumstances presented in the 
application). In considering whether to approve an individual 
application for a waiver, the Board will take into account the specific 
circumstances presented, and the Board will also impose conditions on 
individual waivers, as warranted. As raised by one commenter, a key 
factor the Board will consider is whether a grantee's specific 
arrangement presents a significant risk that zone users will experience 
implied pressure to procure a particular private party's services as a 
condition of obtaining access to the federal FTZ program. In total, the 
adopted provisions will allow the Board to respond to individual 
circumstances, and should avoid the ``one-size-fits-all'' impact about 
which some commenters expressed concern.

Section 400.44--Zone Schedule

    Comments: Numerous commenters proposed the following revisions to 
this section: Eliminating the requirement for the zone schedule to be 
submitted to the CBP port director; including references to a zone's 
administrator (where applicable); removing the name of the preparer 
from the zone schedule; eliminating the requirement for a grantee to 
make its zone schedule available on its Web site; and not allowing the 
Board to amend the requirements of this section by Board Order, if 
warranted.
    One commenter stated that the zone schedule should be required to 
include a summary of the grantee's standard contractual provisions, but 
not to contain the grantee's contract document(s). A number of 
commenters proposed eliminating the requirement for zone operators' 
fees to be included in the zone schedule. One commenter recommended 
that grantees instead retain copies of their operators' rates, charges 
and procedures and make them available to users on request. One 
commenter stated that a grantee's fees for zone operations should be 
included in the zone schedule if the grantee is the operator of the 
zone.
    Another commenter expressed a concern about the potential impacts 
of requiring publication of zone schedules on the Internet. One 
commenter stated that it would be fair and reasonable for the Board to 
post all zone schedules on the Board's Web site. One commenter 
supported both the requirement for a grantee to post its zone schedule 
on the grantee's Web site and the provision for the Board to make zone 
schedules available on the Board's Web site.
    Board position: We have eliminated the proposed requirement for a 
zone schedule to include a grantee's standard contractual provisions, 
which was intended to help ensure that zone participants receive 
uniform treatment. These regulations adopt other measures designed to 
ensure uniform treatment that will not increase burden for all grantees 
(see, e.g., Sec.  400.43), unlike the proposed requirement. We also 
have eliminated the requirement that a grantee make its zone schedule 
available on its Web site. The Board will instead make zone schedules 
available on its Web site, which should create transparency without 
placing a burden on each grantee to place its zone schedule on its own 
Web site.
    In response to the comments, we have eliminated the requirement for 
the zone schedule to be submitted to CBP. Any CBP official will be able 
to request a copy of a grantee's zone schedule or access that zone 
schedule via the Internet, as needed. We have also eliminated the 
requirement to include the name of the preparer and have modified this 
section to allow for a zone schedule to contain information about any 
party that acts on behalf of the zone's grantee. We have not included 
the proposed requirement that a zone schedule's title page name a 
zone's administrator. The list of required elements for the title page 
in no way prevents a grantee from including other information on the 
title page. The decision regarding whether additional information is 
appropriate for inclusion on the title page is left to the grantee's 
judgment.
    We have retained the provision allowing the Board to amend the 
requirements of this section via Board Order, if warranted. Although it 
currently appears unlikely that the Board would need to amend the 
requirements, it is important for the Board to have the ability to do 
so more quickly than the rulemaking processes would allow, should the 
need arise. At

[[Page 12132]]

the same time, the Board intends that any such amendment would only be 
made after an appropriate opportunity for the public to comment. 
Separately, we have added a phrase to Sec.  400.44(a) further 
clarifying that amendments to zone schedules will not be effective 
until submitted to the Executive Secretary.
    Finally, in response to a comment pertaining to the requirement for 
standard contractual provisions in proposed Sec.  400.43, the Board 
intends to address through a subsequent rule potential mechanisms for a 
grantee to disclose to a zone participant substantive variations in 
contracted provisions. Such a provision would provide transparency in 
order to enable zone participants to assess whether uniform treatment 
had been afforded by the grantee, and should do so in manner that is 
less potentially problematic and burdensome than the proposed 
requirement that standard contractual provisions be published in zone 
schedules.

Section 400.45--Complaints Related to Public Utility and Uniform 
Treatment

    Comments: Numerous commenters proposed requiring that affected 
grantees (and the grantee's administrator, as applicable) receive 
information in a complaint and have an opportunity to respond. Those 
commenters also proposed adding a provision for the Board or the 
Executive Secretary to initiate a review for cause based on a claim 
that no such provision existed in the proposed regulations. The same 
commenters also proposed revising the first factor for reviews of 
fairness and reasonableness by replacing the reference to actual costs 
incurred with a reference to the methodology supporting the rates and 
charges. One commenter recommended that the Board not apply the second 
factor for reviews of fairness and reasonableness, which cites the 
rates at like zone operations at similarly situated zones, until (1) 
the Board has classified zones into categories that enable grantees to 
determine which other zones are similarly situated, and (2) grantees 
are able to review other grantees' zone schedules once those schedules 
are made available on the Board's Web site.
    One commenter stated that the right to due process requires that a 
complaint be disclosed to a party before any fine or ``other 
consequence'' could be imposed on that party as a result of the 
complaint. One commenter stated that allowing confidential complaints 
could lead to incorrect or misleading information being submitted to 
the Board without the affected grantee being able to counterbalance it 
or to prevent prejudicial conclusions from being reached. That 
commenter stated that the provision could lead to lawsuits or undermine 
transparency that the Board might be seeking to create. In response to 
other comments, one commenter expressed concern about allowing 
submission of confidential complaints and stated that due process 
should require that the target of a complaint be able to address the 
complaint before being subject to an unfavorable action.
    Board position: We have retained the proposed provision allowing 
for confidential complaints and have not added any requirement for the 
disclosure of such complaints. Given the monopoly that a zone grantee 
generally has on access to FTZ benefits in the region served by the 
grantee, zone participants may fear direct repercussions from 
submitting a complaint to the FTZ Board pertaining to a grantee's 
compliance with law and regulations. To help ensure the integrity of 
the operation of the FTZ program, it is important for zone participants 
to have the ability to submit such complaints without fear of less 
favorable treatment or even retribution. However, commenters also have 
raised valid concerns about due process if a grantee or other party 
were to be subject to penalties based on complaints that remained 
confidential (i.e., unavailable for review and response). Recognizing 
those concerns, the Board simply intends to use confidential complaints 
as a basis for determining whether the actions of a particular grantee 
or other party should be examined in more detail. Such an examination 
would enable the Board to gather information in a process transparent 
to the grantee (or other affected party) and then use the information 
gathered through that process to evaluate what further action(s) by the 
Board might be warranted. The Board would only use information gathered 
through the transparent investigation process as a basis for further 
Board action or restriction; information that is unknown to the 
affected party would not be used.
    Regarding reviews of fairness and reasonableness, we have not 
replaced the reference to actual costs incurred. Numerous commenters 
proposed we reference the methodology supporting the rates and charges. 
The Board would indeed examine the methodology a grantee used to 
develop its rates and charges as part of any examination that might 
occur. However, the fairness and reasonableness of a rate or charge are 
questions that must be addressed under the public utility requirement 
of the FTZ Act. As described in response to comments on Sec.  400.42, 
the public utility concept is fundamentally based on cost recovery. As 
such, the actual costs incurred are appropriate for the Board to 
consider in evaluating whether a rate or charge is fair and reasonable. 
In response to comments, we have eliminated the proposed second factor 
for reviews of fairness and reasonableness. We have instead 
incorporated language enabling the Board, where applicable, to examine 
if a fee a party charges to a grantee for undertaking a function on the 
grantee's behalf (passed on by the grantee to zone participants through 
the grantee's fees) represents a form of monopoly rent-seeking that 
would be inconsistent with the statutory public utility requirement.

Section 400.46--Grantee Liability

    Comments: Numerous commenters proposed eliminating the word 
``ordinarily'' and separately adding the term ``administrator'' to this 
section. One commenter supported this section as providing welcome 
clarification for public sector grantees. One commenter stated that the 
limitations on grantee liability in this section are obscured by 
penalty provisions in Sec.  400.62, with the addition of penalties and 
the lack of clarity regarding grantee obligations leading to concern 
among grantees. One commenter stated that some degree of liability in 
specific situations is an appropriate tool to promote compliance, but 
did not elaborate on what those specific situations would be. One 
commenter stated that a grantee must be afforded the opportunity to 
oversee a zone user in order to protect the grantee and other zone 
users. One commenter stated that the regulations need to define more 
clearly which oversight activities are ``detailed'' and which are not.
    One commenter stated that the proposed provision would do more harm 
to grantees than to operators or users that commit violations. The 
commenter recommended revising this section to state that a grantee 
should only be liable as an operator if the grantee acts as operator 
under its own CBP bond and under a user agreement with the grantee's 
customer. The commenter distinguished that situation from one where a 
grantee has signed an operator's agreement with a company that acts as 
its own operator and operates under its own CBP bond, in which case the 
company should be held liable for any violations attributed to the 
company's actions.
    Board position: We have modified this section based on these 
comments. Specifically, we have eliminated the word ``ordinarily'' and 
added language

[[Page 12133]]

to clarify the circumstances in which the actions of a grantee (or a 
grantee's administrator, where applicable) could create liability that 
would not otherwise exist. Specifically, a grantee could create 
liability where it does not otherwise exist if it undertakes detailed 
operational oversight of or direction to zone participants. Detailed 
operational oversight of zone participants would place the grantee in a 
position to be aware of specific violations (with an obligation to 
ensure the violations are corrected, and liability if the violations 
are not), while detailed operational direction to zone participants 
(e.g., dictating specific operational procedures) would make the 
grantee responsible for ensuring that the direction did not result in 
violations. We have included in this rule key examples of detailed 
operational oversight or direction, such as review of an operator's 
inventory-control or record-keeping systems and specifying requirements 
for such a system to be used by an operator.

Section 400.47--Retail Trade

    Comments: Numerous commenters proposed replacing the concurrence of 
the CBP port director with notification to the port director, and 
adding statements that the retail trade provision only applies to 
activated zone space and does not apply to order fulfillment. One 
commenter proposed that the regulations define ``retail trade'' based 
on the activity covered by the North American Industry Classification 
System subsections pertaining to ``store based retail trade.'' One 
commenter stated that if CBP will no longer issue binding rulings 
pertaining to retail trade, the Executive Secretary should follow 
precedent established by existing CBP decisions, with the principles 
contained in binding rulings remaining authoritative unless modified or 
revoked pursuant to 19 CFR 177.12 (e.g., subject to notice 
requirements). The commenter also recommended that the Executive 
Secretary's decisions on retail trade be made available to the public. 
That commenter also stated that order fulfillment should not be 
considered retail trade.
    Board position: The specific concerns raised by commenters about 
order fulfillment are significant. Therefore, the Board intends to 
propose a revised section specifically addressing order fulfillment in 
a subsequent rule. In the interim, we have adopted this section with 
changes and additions to language based on public comments. In 
particular, we have included language regarding the ongoing effect of 
decisions made by CBP and the type of procedures to be followed for any 
determination that might affect the impact of prior decisions. We have 
also provided that determinations made pursuant to this section will be 
available on the Board's Web site.

Section 400.49--Monitoring and Reviews of Zone Operations and Activity

    Comments: Numerous commenters proposed moving this section to 
subpart E of the regulations, which pertains to zone operations. Those 
commenters proposed the following additional changes: Adding a 
significant public detriment standard for reviews; notifying the 
grantee and affected zone participants and allowing them to submit 
evidence in response when threshold factors result in a negative 
recommendation; requiring parties requesting reviews to provide 
evidence that is probative and substantial; requiring decisions be 
based on evidence on the record if the decision would be inconsistent 
with the original examiner's report for the operation in question; 
requiring negative determinations be supported by evidence on the 
record of direct negative impact on a U.S. manufacturer; allowing an 
affected zone participant to meet with the Board upon request prior to 
issuance of a negative Board decision; removing the ability to impose a 
restriction after a preliminary review; and removing the Assistant 
Secretary for Import Administration's authority to impose restrictions.
    One commenter stated that a party's request for a review should be 
disclosed to the affected zone participant prior to initiation of the 
review. The commenter also stated that reviews should be subject to the 
notice and hearing requirements of Sec.  400.52. That commenter further 
proposed eliminating allowing restrictions to be imposed after a 
preliminary review or, in the alternative, making restrictions 
contingent on a showing that: (1) the requesting party had a 
substantial likelihood of obtaining a restriction following full 
review; (2) the requesting party would suffer irreparable injury 
without the preliminary restriction; (3) the preliminary restriction 
would not substantially harm the zone participant or other parties, and 
(4) the preliminary restriction would further the public interest, with 
the burden of proof on the party requesting the review. Finally, that 
commenter stated that a zone participant should be entitled to a refund 
of duties or fees paid as a result of the restriction imposed based on 
a preliminary review if the restriction is not maintained after full 
review by the Board.
    Board position: In response to these comments, we have moved this 
section to Subpart E, as Sec.  400.49. In addition, we have modified 
subsection (b) to indicate that a party requesting a review should 
provide information that is ``probative and substantial in addressing 
the matter in issue.'' This standard mirrors the standard applied both 
to comments submitted on applications and to responses to those 
comments. We also have added a sentence to subsection (c) indicating 
specific procedures to be followed (i.e., notification to the zone 
grantee and a time period for response) prior to any final action to 
impose a prohibition or restriction under this section. These changes 
are responsive to specific comments submitted, although the actual 
approach or language adopted may differ from those proposed by 
commenters.
    We have not adopted other changes proposed by commenters. The added 
provision described above provides a basic procedural right to the 
grantee of an affected zone to provide a response to the Board 
regarding proposed final action to impose a prohibition or restriction. 
The additional changes proposed by commenters would either dilute the 
effectiveness and utility of the provision or add significant 
complexity. Additional complexity is contrary to the Board's and 
multiple commenters' desire to simplify these regulations. Further, 
reviews under the corresponding provision in the prior regulations 
(Sec.  400.31(d)) have been very rare, and there is no evidence 
indicating that such reviews are likely to become more common in the 
future. Therefore, there does not appear to be a need to include 
significant additional procedural requirements.

Section 400.51--Accounts, Records and Reports

    Comments: Numerous commenters proposed deleting the reference to 
generally accepted accounting principles for zone accounts. For the 
annual report provision, those commenters proposed the following 
revisions: Changing the proposed 90-day filing period to the 120-day 
period that has been the Board's recent practice; allowing the 
Executive Secretary to extend the filing period; directing grantees to 
submit timely reports (with such reports noting whether any zone 
participants have not timely provided their data for inclusion in the 
reports); and stating that data submitted by zone participants will be 
treated as ``business proprietary.'' Those

[[Page 12134]]

commenters stated that the Board's annual report to Congress should not 
provide company-specific data. One commenter proposed a 90-day 
timeframe for a zone user to submit its data to the zone grantee, with 
the grantee allowed an additional 30 days for submission of its report 
to the Board. Alternatively, the commenter proposed allowing a user or 
a grantee to obtain a 30-day extension.
    One commenter stated that the format for zones' annual reports 
should be revised to take domestic material, labor, overhead and profit 
into account for export figures. One commenter stated that the Board 
should require annual reports to include information about admission of 
merchandise subject to AD/CVD orders for production activity, any 
production activity involving a foreign article subject to an AD/CVD 
order and approval of such activity by the Board, or a certification 
that no production activity occurred involving a foreign article 
subject to an AD/CVD order. The commenter stated that the Board should 
obtain data from CBP annually on admission of merchandise subject to 
AD/CVD orders into zones or subzones with production authority. That 
commenter also stated that the Board should publish a report each year 
summarizing data obtained from grantees and from CBP to enable parties 
to identify discrepancies that should be examined by the Board.
    Board position: In response to these comments, we have made a 
number of revisions to this section. We have deleted the reference to 
generally accepted accounting principles in favor of simply stating 
that zone records must comply with the requirements of governmental 
agencies with appropriate jurisdiction. Regarding the annual report 
provisions, we have retained our proposed 90-day timeframe for 
grantees' reports to the Board, but have specifically allowed requests 
for time extensions, indicating factors for the Executive Secretary to 
consider in evaluating such requests. In addition, we have allowed a 
grantee to submit a timely report to the Board without information from 
an operator that has failed to timely provide information to the 
grantee. With regard to the specific format and contents of reports to 
the Board or of reports produced by the Board, as well as the treatment 
of specific information provided in reports to the Board, these are 
administrative matters that appropriately should continue to be handled 
as part of the ordinary functioning of the Board and its staff.

Section 400.52--Notices and Hearings

    Comments: Numerous commenters proposed the following revisions to 
this section: Limiting invitation for public comment to specific 
identified situations; eliminating the requirement for local public 
notice to be published in a manner that allows at least 30 days for 
submission of public comments; limiting a determination on the need for 
a hearing initiated by the Board to a period ending 60 days after the 
end of the initial public comment period in a proceeding; establishing 
a ``materially impacted'' standard for any party requesting a hearing; 
requiring the Board to allow any party to present at a hearing, 
provided the party has given seven days advance notice; requiring the 
Executive Secretary to notify the grantee and affected zone 
participants of all parties that will be presenting at a hearing; and 
requiring that the applicant and its witnesses be allowed to present 
first and rebut last at any hearing.
    Board position: Based on public comments, we are requiring that 
local public notice allow at least 15 days for public comment on an 
application submitted to the Board (rather than the 30 days in the 
proposed rule). We also have narrowed the standard for parties that may 
request public hearings by stating that only parties that may be 
materially affected may make such a request. We have not adopted other 
suggested revisions to this section. It is not appropriate to limit the 
types of situations in which the Board may invite public comment or the 
timeframe during which a determination may be made to hold a hearing. 
Given that certain Board proceedings may result in the development of 
an extensive record over a significant period of time, the Board must 
maintain the ability to invite comment or hold a hearing whenever the 
need to do so presents itself. The remaining changes suggested for this 
section have not been adopted because they would not improve the 
effectiveness of processes in question and, in the case of the order of 
presentations at a hearing, would create the appearance of an 
unbalanced process.

Section 400.53--Official Records; Public Access

    Comments: Numerous commenters proposed adding the word 
``confidential'' immediately before the word ``proprietary'' in the 
final sentence of this section.
    Board position: We have not made the change proposed by commenters 
because the term ``confidential'' has a specific significance as an 
official classification action by government agencies. The information 
subject to this provision would not have been classified by a 
government agency, but rather would be considered by an outside entity 
to be ``business proprietary'' in nature. Therefore, the continued 
application of the terminology from the proposed regulations, which has 
been in use in the prior regulations since 1991, is appropriate.

Section 400.54--Information

    Comments: Numerous commenters proposed allowing submission of 
business proprietary information in applications and stated that data 
submitted in annual reports shall generally be considered ``business 
proprietary.''
    Board position: We have not made these changes. The FTZ Board's 
application process is inherently a public process, and includes 
publishing notices of applications in the Federal Register and inviting 
comments. Therefore, it is appropriate for the FTZ Board to focus the 
application process on submission of information that will be available 
for public review. With regard to data submitted in annual reports, 
some of those data may well be considered ``business proprietary'' by 
the zone operators/users that submit the data through their zones' 
grantees. However, the FTZ Board cannot assume that all data submitted 
are indeed business proprietary. Rather, the Board has been 
implementing a new system for submission of annual report data that 
specifically allows an individual operator/user to indicate whether it 
considers its data business proprietary, in which case only a ranged 
version of the data would be reported publicly.

Section 400.61--Revocation of Authority

    Comments: Numerous commenters proposed adding the phrase ``in whole 
or in part'' to Sec.  400.61(b)(4) and requiring notice to zone or 
subzone operators. One commenter stated that Sec.  400.61(b)(3) should 
specify the adjudicative standard that will govern the hearing and that 
the grantee or operator will be able to call and cross examine 
witnesses.
    Board position: We have added language pertaining to notification 
of any known operators to Sec.  400.61(b)(1), and added the phrase ``in 
whole or in part'' to Sec.  400.61(b)(4) to enhance clarity. We have 
not included additional procedural provisions or details (such as the 
adjudicative standard that would apply to hearings) because the need 
for such additional details--with their

[[Page 12135]]

attendant increase in complexity--is unclear given that actual use of 
the revocation provision has been very rare. If additional procedural 
details become necessary, they could be implemented through a future 
rulemaking action.

Section 400.62--Fines, Penalties and Instructions To Suspend Activated 
Status

    Comments: Numerous commenters stated that this section would likely 
have a chilling effect on the FTZ program, particularly at a time of 
dwindling resources of both grantees and operators. Those commenters 
proposed the following specific revisions: deleting the inflation-
adjustment provision and related references because it is not provided 
for in the FTZ Act and does not act as a deterrent to violations; 
adding references to ``administrators'' and changing references of 
``operators'' to ``zone participants;'' stating that the $1,000 per day 
maximum for fines would include any CBP fines, penalties or liquidated 
damages for the same violations; stating that filing and obtaining 
approval of a ``voluntary disclosure'' would eliminate or reduce any 
penalty; modifying the production-related language to bring it in line 
with changes proposed by those commenters for other sections of the 
regulations; stating that a grantee would not be subject to a fine 
under the annual report-related provision so long as the grantee had 
filed a timely report identifying any operators that have not submitted 
complete or timely information to the grantee; stating that requests 
for extensions of the periods to provide responses or mitigating 
evidence will not be unreasonably withheld; changing the delegation of 
certain fine-imposition authority to the Assistant Secretary for Import 
Administration (from the Executive Secretary); inserting references to 
affected parties for actions pertaining to suspension of activated 
status; and stating that the Board will give due consideration for 
allowing transfers of affected merchandise from a site for which a 
determination has been made to suspend activated status.
    Two commenters proposed that the Board clarify that operational 
activities within zones are within the sole purview of CBP, limit 
penalties under this section to specifically defined violations, and 
state normal ranges for penalties for each type of defined violation. 
Two commenters requested that the regulations explicitly preclude both 
the Board and the CBP from imposing fines on the same party resulting 
from the same offense. One commenter proposed that the Board: confine 
suspensions of activated status and processing of requests solely to 
the specific non-compliant operations; clarify who the responsible 
parties are for certain violations, to eliminate the potential for 
double fines for a single violation; eliminate ambiguity regarding the 
timeframe for operators to submit their annual reports to grantees; 
clarify the meaning of ``conflict of interest;'' for responses to 
notifications of violations, allow parties 30 days and two extensions 
of 30 days each if requested in writing; and treat ``inaccurate written 
advice provided by a Board staff member'' as binding on the government 
rather than as a mitigating factor.
    One commenter opposed adopting the proposed section, proposing 
instead that the Board retain the existing penalties provision and 
insert a brief provision addressing fine amounts for violations 
involving production, annual reports and conflicts of interest. The 
commenter also stated that penalties should only be assessed pursuant 
to a transparent process. Two commenters stated that the Board should 
notify a zone's grantee of any penalty action initiated against an 
operator within the zone. One commenter stated that the regulations 
should clearly define circumstances that could lead to penalties. 
Another commenter supported this proposed section as rectifying an 
omission in the Board's oversight and monitoring of zone activity. That 
commenter proposed that the Board expand this section to include 
details of the judicial review process, provide more comprehensive 
explanation of decisions, and consider a formal, adjudicative process 
for dispute resolution.
    One commenter expressed concern that the detailed section 
pertaining to fines changes the Board's focus from gatekeeper of zone 
access to policing agent over day-to-day zone management. Another 
commenter stated that this section as proposed obscures the limitations 
on liability expressed in Sec.  400.46. One commenter asked that the 
Board clarify whether a confidentiality clause in a grantee's contract 
with a zone participant can be relied on by that participant to prevent 
a grantee from disclosing to the Board a potential violation pertaining 
to that participant, such as the untimeliness of an operator's annual 
report to the grantee. One commenter stated that the Board should not 
accept other commenters' proposed changes that would reduce the impact 
of the penalty provisions.
    One commenter stated that this section should be reviewed carefully 
to ensure conformity with 19 U.S.C. 81s. That commenter also stated 
that the regulations should clarify the approach to be taken when 
multiple parties may be subject to penalty for the same violation; 
specify the adjudicative standard that will govern any hearing and that 
the grantee or operator will be able to call and cross examine 
witnesses; and state a clear limitations period on enforcement of any 
fine, penalty or sanction.
    One commenter stated that fines should not be imposed on any party 
for an offense that is not the result of the party's negligence (for 
example, clerical error or a grantee's inability to collect information 
from an operator for the grantee's annual report).
    Board position: It is appropriate for these regulations to contain 
detailed procedures for imposing penalties authorized by the FTZ Act. 
Delineating such procedures provides important clarity and 
predictability for all potentially affected parties. The provisions of 
this section target key areas for which the potential imposition of 
penalties is an important compliance tool.
    In response to the public's comments, we have narrowed the focus of 
fining actions pursuant to this section to two specific types of 
violations: untimely submissions of annual reports and failure to 
afford uniform treatment under like conditions to parties using (or 
seeking to use) a zone. We have specifically excluded violations for 
production activity because such violations are already subject to 
fines by CBP and we want to avoid subjecting a zone participant to 
fines from two different agencies for a single action.
    Further, the proposal to include fines pertaining to production 
activity created a need for the proposed separate section allowing 
``prior disclosure'' of violations in order to encourage disclosure and 
rectification of any non-compliant activity. However, the effect of 
implementing the proposed sections would have been to require zone 
operators to disclose violations to two separate agencies under two 
distinct sets of procedures. Doubling the disclosure burden on zone 
operators would have tended to discourage zone use (with resulting 
negative impacts on U.S. competitiveness) without contributing to 
improved compliance.
    Based on the narrowed focus on Sec.  400.62, we have eliminated the 
proposed prior disclosure provision from the regulations. As a 
consequence, we have not addressed detailed comments pertaining to the 
proposed section allowing for prior disclosure (Sec.  400.63). Although 
a number of commenters supported the inclusion of this type of 
provision, the provision was

[[Page 12136]]

relevant to violations involving production activity, which are no 
longer targeted in Sec.  400.62. The remaining types of violations 
targeted in Sec.  400.62 are not of a nature for which prior disclosure 
would be relevant or appropriate.
    Because the Board is not adopting the prior disclosure provision, 
we do not need to address comments pertaining to the interaction of the 
provisions of Sec.  400.62 with the prior disclosure provision. 
Similarly, given that production activity is no longer targeted by 
Sec.  400.62, we do not need to consider changes to the language of 
this section that would flow from changes related to production in 
other sections of the regulations. Based on the narrower focus of this 
revised section, we have also eliminated ``inaccurate written advice 
provided by a Board staff member'' as a mitigating factor, because it 
is irrelevant to the types of violations that are now targeted by this 
section.
    The revisions to this section should help to ensure that a fine is 
only imposed on the party(ies) with direct responsibility for the 
violation that results in the fine. Based on the comments, we have 
added language to this section indicating that a grantee will not be 
subject to a fine for an untimely annual report if the grantee has 
filed a timely report identifying any operator that has not submitted 
complete or timely information to the grantee. The range of changes we 
have made to this section should also provide clarity and be in harmony 
with the limitations on grantee liability explained in Sec.  400.46.
    We have not deleted the inflation-adjustment provision and related 
references because Congress mandated the adjustment of these types of 
penalties in the Federal Civil Penalties Inflation Adjustment Act of 
1990 (Pub. L. 101-410), as amended by the Debt Collection Improvement 
Act of 1996 (Pub. L. 104-134). Based on public comments, we have added 
language to notify the zone's grantee, in addition to the parties 
responsible for a violation.
    We have added certain references to an ``administrator'' as an 
example of a ``person undertaking one or more functions on behalf of 
the grantee'' in concert with changes made to Sec.  400.43. We have 
also indicated that parties at a hearing may call and cross examine 
witnesses, and that requests for extensions of the periods to provide 
responses or mitigating evidence will not be unreasonably withheld. We 
have not changed certain references from ``zone operators'' to ``zone 
participants'' because, apart from grantees and persons undertaking 
functions on behalf of grantees (such as administrators), zone 
operators are the only other category of party relevant to the specific 
types of violations now targeted by this section. We also have not 
changed the delegation of certain fine-imposition authority from the 
Executive Secretary to the Assistant Secretary for Import 
Administration because the authority in question is for relatively 
minor offenses.
    In light of the narrowed focus of the fining provision, we have 
broadened the potential reach of suspension of activated status to 
encompass any ``repeated and willful failure to comply with a 
requirement of the FTZ Act or the Board's regulations.'' Given the 
``repeated and willful'' standard, we do not anticipate frequent use of 
this provision, but it will be available as an enforcement mechanism, 
if needed. We have not added the proposed additional references to 
``affected parties'' for actions pertaining to suspension of activated 
status. We have instead added references to the grantee of a zone. A 
zone's grantee would be in a position to notify affected parties. The 
FTZ Board would not necessarily have information regarding the range of 
parties that might be affected by suspension of activated status.
    We have added that the Board will give due consideration to and 
make allowance for the transfer of merchandise prior to the suspension 
of activated status, because such consideration is appropriate. We have 
not included additional procedural provisions or details (such as the 
adjudicative standard that would apply to hearings) because the 
proposed provisions already provide a significant increase in the level 
of procedural detail pertaining to penalty actions. The Board should 
develop a practice under the procedural details provided in these 
regulations before deciding whether to adopt additional provisions or 
details.
    We have added language clarifying that suspensions of activated 
status and processing of requests will be targeted to the specific non-
compliant operations. We have also clarified who will be the 
responsible parties for specific violations, so that there should be no 
potential for a violator's being subject to double fines for a single 
violation.
    In response to comments, we have modified Sec.  400.51 to specify a 
timeframe for operators' submission of annual reports to grantees. That 
change should clarify various parties' potential liabilities for 
untimely reports. We have also modified this section and Sec.  400.51 
in response to comments to require that grantees disclose to the FTZ 
Board whether each of the grantee's operators has submitted the 
information required for the Board's report to Congress. Such required 
disclosure could not be avoided by an agreement between an operator and 
a grantee.
    In light of modifications made to Sec.  400.43, we have made 
harmonizing changes to Sec.  400.62(c). Those changes, in combination 
with elimination of use of the term ``agent,'' should help to clarify 
the specific types of parties that would be subject to Sec.  400.62(c).
    The provisions of this section would apply equally to any party 
with responsibility for a violation. Therefore, it is possible that 
multiple parties could be penalized for the same violation. However, 
given that the provisions of this section are now focused narrowly on 
failures to submit annual reports on time and on violations of the 
uniform treatment requirements, the number of parties potentially 
affected by this section is dramatically reduced relative to the 
proposed rule. Further, an untimely annual report is likely to be the 
fault of a single party. Therefore, the sole category of violation for 
which multiple parties are potentially likely to share responsibility 
is the uniform treatment requirements. Given the importance of 
enforcing compliance with the statutory uniform treatment requirement, 
it would be appropriate to fine any parties that share responsibility 
for such a violation. Finally, we have not adopted a limitations period 
for fines or penalties. Given that this section is new, and the 
potential variation in circumstances for which fines or penalties prove 
to be appropriate, it is not feasible at this time to provide a single 
limitations period for enforcement. However, the Board's focus in 
applying this section will be to encourage compliance rather than to 
penalize past actions for which corrective action has already been 
taken.

Section 400.63--Appeals to the Board of Decisions of the Assistant 
Secretary for Import Administration and the Executive Secretary

    Comments: Numerous commenters proposed providing an opportunity for 
input by the affected grantee and zone participant, issuing a report 
regarding the Board's decision, and identifying the court to which 
judicial appeal could be made.
    Board position: The suggested procedural changes in this section 
fail to take into account the nature of the section. Additional 
opportunity for input by an affected grantee or zone participant is 
unnecessary because this provision is limited to appeals to the Board 
by such parties, who will be able to include all desired input in the 
appeal documents they present for the

[[Page 12137]]

Board's consideration. For similar reasons, no additional procedures 
are needed stemming from the Board's decision regarding the appeal. The 
regulations already contain substantial procedural requirements 
pertaining to potential actions by, or on behalf of, the Board. 
Finally, we have not included language identifying the court to which 
judicial appeal could be made because the Board does not have the 
authority to confer, limit, or otherwise delineate the jurisdiction of 
Federal courts.

Other Comments

    Comments: Numerous commenters suggested edits to individual 
sections that were minor or essentially non-substantive.
    Board position: We have adopted suggested edits where they would 
improve the clarity or effectiveness of the provisions in question. 
Given their minor or essentially non-substantive nature, we have not 
addressed such edits individually in this summary.
    Comments: Multiple commenters expressed concern about complexity or 
additional burden that they perceived the proposed regulations would 
create.
    Board position: Concerns about complexity and additional burden 
have been considered in the development of these regulations and have 
resulted in our making changes, including significantly simplifying the 
process and requirements for notifications to request production 
authority. Other changes that reduce complexity or burden include 
eliminating potential FTZ Board penalties pertaining to production 
activity, and eliminating certain provisions and substantially 
modifying others pertaining to uniform treatment (Sec.  400.43). 
Although these regulations contain additional detail on certain topics, 
that detail provides guidance and clarity for grantees and zone 
participants in a manner that should ultimately facilitate those 
parties' participation in the FTZ program.
    Comments: Numerous commenters stated that the two sentences from 
the Preamble to the prior regulations regarding the public policy 
objective of the FTZ program should be included in the Preamble of any 
future Board regulations. One commenter proposed that one of those 
sentences be included within Sec.  400.1 of the regulations.
    Board position: The Preamble of the proposed regulations already 
contained the primary sentence that is the focus of the comments in 
question. We have retained that sentence in the Preamble for these 
regulations. We have not included in the Preamble the second sentence 
that certain commenters proposed because it could be misread as 
implying we would apply different evaluative or procedural standards 
than the ones contained in these regulations.
    Comment: Numerous commenters proposed adding a new section with 
language designating certain offices of the U.S. Commercial Service as 
representatives of the Board for export promotion activities and 
stating that the Board and its representatives will act in a manner 
that prioritizes government export promotion objectives.
    Board position: We have not adopted this proposal. The proposed 
section deals with matters beyond the statutory authority of the Board.
    Comment: Numerous commenters proposed adding a new section stating 
that the Board will mandate the development of updated, written 
procedures by agencies that require reporting pertaining to zone 
activity.
    Board position: We have not added the proposed new section. The 
proposed section could affect the policies and procedures of a range of 
government agencies that fall outside the scope of the FTZ Act, and the 
Board cannot require other agencies or bureaus to act.
    Comment: One commenter proposed redefining what constitutes a 
foreign-trade zone, as well as zone, general-purpose zone and subzone, 
to focus on conferring a status rather than designating a geographic 
location.
    Board position: We have not adopted the type of revisions proposed 
by this commenter because the FTZ Act is focused on the designation of 
geographic locations as foreign-trade zone sites, and because the 
commenter's submission does not indicate a clear advantage to an 
approach based on status. However, as noted in our response to comments 
on Sec.  400.11, we intend to address through a subsequent rule 
simplifying the parallel site-designation frameworks that currently 
exist. The intended effect of this change is to enhance the ability of 
the FTZ program to improve the competitiveness of U.S. facilities.
    Comments: One commenter stated that grantees may be unwilling to 
jeopardize the ``permanent'' status of current sites through a 
transition to the ASF, which has standard ``sunset'' periods that can 
be too short. The commenter proposed grandfathering existing permanent 
sites into the ASF. That commenter also proposed changing the process 
for designating usage-driven sites to an automatic designation once CBP 
had approved activation for a location, with the Board simply notified 
of that designation.
    Board position: As noted in responses to certain other comments, 
the Board intends to address through a subsequent rule simplifying the 
parallel site-designation frameworks that currently exist. In that 
process, the Board will be able to evaluate provisions affecting 
existing zone sites. We have not established an automatic mechanism for 
designating usage-driven sites based on CBP approval for activation. 
That change would effectively shift authority to designate sites from 
the Board and its staff to CBP officials at various ports nationwide, 
with a range of potential policy implications for both the Board and 
CBP. Given the quick, simple process already available for designating 
usage-driven sites, it is not clear that a need exists for the shift in 
authority proposed by the commenter.
    Comment: One commenter expressed concern that the proposed 
regulations concentrate more power in the hands of the Executive 
Secretary and Board staff to intrude on zone operations and policy 
decisions made by grantees and users.
    Board position: These regulations reflect the same fundamental 
assignment of responsibilities as the prior regulations. They include 
sections providing new specificity regarding compliance with the FTZ 
Act's requirements that a zone operate as a public utility and afford 
uniform treatment to zone participants. Inherent in the functioning of 
some of the specific provisions is a greater role for the Board's 
Executive Secretary and the Board's staff. In practice, the adopted 
provisions do not constitute ``intrusion'' on grantees or users but, 
rather, reflect balanced measures designed to ensure that zones comply 
with the requirements established by Congress through the FTZ Act.
    Comment: One commenter requested a process by which the Board would 
obtain feedback before publication of further notice pertaining to this 
rulemaking.
    Board position: The Administrative Procedure Act (APA), 5 U.S.C. 
553, provides the procedural basis for this action. Accordingly, we 
provided interested persons with notice of the proposed rule and almost 
150 days to participate in the rulemaking by commenting on it during 
the comment period. Further, the public comment period exceeded the 
requirements of the APA. In addition, during the public comment period, 
the Board staff held detailed public seminars at eight regional hubs 
across the United States, as well as in Washington, DC, at which 
numerous parties received extensive explanations of the intent of 
proposed provisions and answers to their questions. The Board staff 
also made

[[Page 12138]]

such information available interactively via the Internet. In addition 
to the lengthy comment period on the proposed regulations, the Board 
allowed parties a subsequent 32-day period to submit comments 
responding to other parties' comments that had been submitted during 
the initial comment period. More than 100 parties submitted comments on 
the proposed regulations.
    These regulations include key changes that provide dramatically 
simplified and expedited procedures designed to boost the competiveness 
of U.S. manufacturers and exporters. It is important for those changes 
to be implemented as soon as possible. Given the extensive comment 
process to date, it is unclear that an additional notice and comment/
consultative process would yield benefits that would offset losses due 
to delayed implementation of the key changes made through these 
regulations. Therefore, we are not seeking additional comment/
consultation prior to publishing these regulations.
    Comment: One commenter stated that the application and approval 
process is susceptible to undue influence that can result in unfair 
advantages to certain parties, and that the Board must limit the 
influence of certain parties to ensure that zone status results in 
positive economic effects.
    Board position: These regulations contain extensive provisions 
aimed at establishing neutral, balanced procedures for evaluating 
applications received by the FTZ Board. The commenter presented no 
evidence of unfair advantages for any parties resulting from the 
Board's processes. In the absence of such evidence, we have found that 
the provisions of these regulations are sufficient to ensure that the 
Board's processes are fair and equitable.
    Comments: One commenter stated that Board decisions should be fair 
and reasonable, that a need exists for uniform treatment from the FTZ 
Board given what the commenter characterized as frequent changes in the 
ASF structure and different application of territorial standards in 
different regions, and that the primary intended constituency of the 
proposed regulations appears to be grantees rather than the companies 
that use the FTZ program.
    Board position: Decisions of the Board and its staff consistently 
reflect high standards of fairness and reasonableness. The commenter 
has provided no examples to support its claims but, as a general 
matter, a party's disagreement with a Board decision does not imply 
that the decision was unfair or unreasonable. Similarly, a party may 
perceive a Board decision on an ASF-related matter--such as pertaining 
to the service area for a zone--as inconsistent with other Board 
decisions. However, a party to a particular Board case generally is 
unfamiliar with the details of other cases decided by the Board. In 
that context, what may appear to one party as inconsistent or non-
uniform treatment is more likely to be consistent application of policy 
to circumstances that are superficially similar but that actually 
differ substantively. Given that the Board has only adopted a single 
set of modifications (November 2010) since its adoption of the ASF in 
2008, a claim of frequent changes in the ASF structure would also 
appear to reflect a lack of adequate familiarity with the Board's ASF 
practice. Finally, the statement that the primary intended constituency 
of the proposed regulations seems to be grantees would appear not to 
reflect a substantive assessment. The proposed regulations contain 
certain provisions that focus on grantees and on enhancing their 
abilities to perform their functions because 1) the FTZ Act provides 
for the Board to grant authority to zone grantees, not to other zone 
participants, and 2) the grantee, as a local agency or organization 
engaged in promoting trade and economic development, is in the best 
position to enable firms in the region it serves to reap the 
competitiveness benefits available through the FTZ program.
    Comment: One commenter proposed allowing companies engaged in FTZ 
production to temporarily remove merchandise under the FTZ operator's 
bond for special processing in the United States that cannot be 
accommodated in the FTZ.
    Board position: The type of procedure proposed by the commenter is 
properly in the realm of CBP. CBP's regulations govern FTZ operations 
and contain detailed provisions concerning the movement of merchandise 
into and out of FTZs.

Changes From Proposed Rule

    In addition to the substantive changes mentioned above that we have 
made in response to comments, we have made various grammatical and 
similar changes to the rule from its proposed form, to increase clarity 
and accuracy and reduce potential public confusion.

Executive Orders 12866 and 13563

    This rule has been determined to be significant for purposes of 
Executive Order 12866. Consistent with Executive Order 13563, we held 
public seminars across the country to help maximize public 
participation in the rulemaking process (as cited above in response to 
a comment), and we adopted approaches designed to impose the least 
burden on society while attaining the regulatory objectives (see e.g., 
the responses to comments on Sec. Sec.  400.14, 400.26, 400.42, 400.43 
and 400.62).
    This rule is also consistent with section 5 of EO 12866, which 
instructs agencies to ``periodically review their significant 
regulations to determine whether any such regulations should be 
modified or eliminated * * * to make the agency's regulatory program 
more effective,'' and section 6 of EO 13563, which instructs agencies 
to ``consider how best to promote retrospective analysis of rules that 
may be outmoded, ineffective, insufficient, or excessively burdensome, 
and to modify, streamline, expand, or repeal them in accordance with 
what has been learned.'' This final rule replaces FTZ regulations that 
have not changed since 1991, and reflects the FTZ Board's view, 
following a review of those regulations, that modifying the 1991 rules 
will help to ensure that FTZs remain competitive, efficient, and 
flexible in the modern, 21st Century global economy.

Regulatory Flexibility Act

    At the proposed rule stage of this rulemaking, 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 rule will not have a significant economic impact on a substantial 
number of small entities. (5 U.S.C. 605(b)). The factual basis for the 
certification was published in the proposed regulations and is not 
repeated here. We did not receive any public comments on the 
certification. As a result, a regulatory flexibility analysis was not 
required, and none was prepared.

Executive Order 13132

    This final 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. The overall burden on the public is reduced 
significantly as a result of the provisions adopted in this rule.
    There is 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 rule amends the collection under OMB

[[Page 12139]]

Control No. 0625-0139 (Application to Foreign-Trade Zones Board). Under 
this rule, the application requirements associated with the latter 
collection for zone applicants, grantees, operators, and users are 
significantly simplified, and there is a large overall reduction of the 
burden on those parties. The Board will be seeking OMB approval of 
these changes, and will notify the public when these amendments have 
been approved. After publication of the proposed rule, the FTZ Board 
renewed its OMB information-collection authority and reduced the 
overall burden estimate for applications from 6,651 to 4,969 hours 
based on recent simplifications to the Board's practice. The changes in 
this rule will further reduce burden by shifting future production 
(manufacturing) applications to a simple notification as an initial 
stage. A more detailed application will only need to be submitted if 
review of the notification results in a determination that the 
additional application step is necessary. We estimate that the average 
annual number of notifications will be 33 (an increase from 25 
manufacturing applications under the prior regulations), with 5 of 
those notifications requiring the additional application stage. 
Shifting applications for production authority to the notification 
process (with few applications needed as a subsequent step) is expected 
to reduce the total annual burden associated with requesting production 
authority from 850 to 351.5 hours (a reduction of 498.5 hours). As a 
result of this significantly reduced burden, 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. With increased use of the ASF by zones, there is expected to 
be a decline in the number of expansion applications in favor of a 
significant number of much simpler minor boundary modifications. The 
annual number of expansion applications over time should decline by 
half (from 20 to 10) which, combined with some simplified requirements 
in this rule, will reduce the burden from 1,980 to 990 hours. We 
project an annual average of 120 minor boundary modifications (simple 
``administrative'' cases that can be approved by the Board's staff), 
with an annual burden of 420 hours.
    This rule includes also radically simplifies application 
requirements for subzone designation so that the average annual burden 
for the estimated 15 subzone applications should fall from 1,695 to 
67.5 hours. We note that, unlike the prior rule, this rule entirely 
separates the procedures for production authority and subzone 
designation. As a result, some applicants which only needed to meet the 
subzone application requirements under the prior rule will need to meet 
both the subzone and production application requirements under this 
rule. Nonetheless, the combined application burden for subzone and 
production (manufacturing) notifications/applications should fall from 
2,545 hours under the prior rule to 419 hours.
    This rule also allows parties to apply pursuant to Sec.  400.43(f) 
for a waiver from the effect of Sec.  400.43(d)), which bars parties 
that provide products/services to zone users from performing key 
functions associated with the zone-grantee role. We estimate that the 
average annual number of applications for waivers will be 25, with an 
average burden of one hour per application, for a total of 25 burden 
hours annually associated with the waiver provision.
    Finally, the burden-hours estimate for applications for new zones 
is unaffected by this rule, with three applications projected to result 
in 444 burden hours annually. The total burden of the various 
applications subject to this rule is 2,298 hours (the sum of 444 for 
new zones, 990 for expansions, 67.5 for subzones, 351.5 for production 
notifications and applications, 420 for minor boundary modifications, 
and 25 for waivers pursuant to Sec.  400.43(f)). In sum, there is a net 
reduction of 2,671 application-related burden hours annually (from 
4,969 to 2,298 hours) through the provisions adopted in this rule.

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.

    By order of the Board, Washington, DC, this 16th day of February 
2012.
Paul Piquado,
Assistant Secretary of Commerce for Import Administration, Alternate 
Chairman, Foreign-Trade Zones Board.

    For the reasons set forth in the preamble, 15 CFR part 400 is 
revised to read 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.
400.7 CBP officials as Board representatives.
 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 authorized zones.
400.14 Production--requirement for prior authorization; 
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 to establish a zone.
400.22 Notification for production authority.
400.23 Application for production authority.
400.24 Application for expansion or other modification to zone.
400.25 Application for subzone designation.
400.26 Criteria for evaluation of proposals, including expansions, 
subzones or other modifications of zones.
400.27 Criteria applicable to evaluation of applications for 
production authority.
400.28 Burden of proof.
400.29 Application fees.
 Subpart D--Procedures for Application Evaluation and Reviews
400.31 General application provisions and pre-docketing review.
400.32 Procedures for docketing applications and commencement of 
case review.
400.33 Examiner's review--application to establish or modify a zone.
400.34 Examiner's review--application for production authority.
400.35 Examiner's review--application for subzone designation.
400.36 Completion of case review.
400.37 Procedure for notification of proposed production activity.
400.38 Procedure for application for minor modification of zone.
 Subpart E--Operation of Zones and Administrative Requirements
400.41 General operation of zones; requirements for commencement of 
operations.
400.42 Operation as public utility.

[[Page 12140]]

400.43 Uniform treatment.
400.44 Zone schedule.
400.45 Complaints related to public utility and uniform treatment.
400.46 Grantee liability.
400.47 Retail trade.
400.48 Zone-restricted merchandise.
400.49 Monitoring and reviews of zone operations and activity.
Subpart F--Records, Reports, Notice, Hearings and Information
400.51 Accounts, records and reports.
400.52 Notices and hearings.
400.53 Official records; public access.
400.54 Information.
Subpart G--Penalties and Appeals to the Board
400.61 Revocation of authority.
400.62 Fines, penalties and instructions to suspend activated 
status.
400.63 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. 73-397, 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 for the Board's 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 zones are ``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) Activation limit is the size of the physical area of a 
particular zone or subzone authorized by the Board to be simultaneously 
in activated status with CBP pursuant to 19 CFR 146.6. The activation 
limit for a particular zone/subzone is a figure explicitly specified by 
the Board in authorizing the zone (commonly 2,000 acres) or subzone or, 
in the absence of a specified figure, the total of the sizes of the 
approved sites of the zone/subzone.
    (c) Alternative site framework (ASF) is an optional approach to 
designation and management of zone sites allowing greater flexibility 
and responsiveness to serve single-operator/user locations. The ASF was 
adopted by the Board as a matter of practice in December 2008 (74 FR 
1170, January 12, 2009; correction 74 FR 3987, January 22, 2009) and 
modified by the Board in November 2010 (75 FR 71069, November 22, 
2010).
    (d) 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.
    (e) Board Order is a type of document that indicates a final 
decision of the Board. Board Orders are generally published in the 
Federal Register after issuance.
    (f) CBP means U.S. Customs and Border Protection.
    (g) Executive Secretary is the Executive Secretary of the Foreign-
Trade Zones Board.
    (h) Foreign-trade zone (FTZ or zone) includes one or more 
restricted-access sites, including subzones, in or adjacent (as defined 
by Sec.  400.11(b)(2)) to a CBP port of entry, operated as a public 
utility (within the meaning of Sec.  400.42) under the sponsorship of a 
zone grantee authorized by the Board, with zone operations under the 
supervision of CBP.
    (i) Grant of authority is a document issued by the Board that 
authorizes a zone grantee to establish, operate and maintain a zone, 
subject to limitations and conditions specified in this part and in 19 
CFR part 146. The authority to establish a zone includes the 
responsibility to manage it.
    (j) Magnet site means a site intended to serve or attract multiple 
operators or users under the ASF.
    (k) Modification: A major modification is a proposed change to a 
zone that requires action by the FTZ Board; a minor modification is a 
proposed change to a zone that may be authorized by the Executive 
Secretary.
    (l) Person includes any individual, corporation, or entity.
    (m) 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).
    (n) Private corporation means any corporation, other than a public 
corporation, which is organized for the purpose of establishing, 
operating and maintaining a zone and which is chartered for this 
purpose under a law of the state in which the zone is located.
    (o) Production, as used in this part, means activity involving the 
substantial transformation of a foreign article resulting in a new and 
different article having a different name, character, and use, or 
activity involving a change in the condition of the article which 
results in a change in the customs classification of the article or in 
its eligibility for entry for consumption.
    (p) 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.
    (q) Service area means the jurisdiction(s) within which a grantee 
proposes to be able to designate sites via

[[Page 12141]]

minor boundary modifications under the ASF.
    (r) State includes any state of the United States, the District of 
Columbia, and Puerto Rico.
    (s) Subzone means a site (or group of sites) established for a 
specific use.
    (t) Usage-driven site means a site tied to a single operator or 
user under the ASF.
    (u) 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.
    (v) Zone grantee is the corporate recipient of a grant of authority 
for a zone. Where used in this part, the term ``grantee'' means ``zone 
grantee'' unless otherwise indicated.
    (w) Zone operator is a person that operates within a zone or 
subzone under the terms of an agreement with the zone grantee (or third 
party on behalf of the grantee), with the concurrence of CBP.
    (x) Zone participant is a current or prospective zone operator, 
zone user, or property owner.
    (y) Zone plan includes all the zone sites that a single grantee is 
authorized to establish.
    (z) Zone site (site) means a physical location of a zone or 
subzone. A site is composed of one or more generally contiguous parcels 
of land organized and functioning as an integrated unit, such as all or 
part of an industrial park or airport facility.
    (aa) Zone user is a party using a zone under agreement with 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 approve subzones and 
modifications to the original zone;
    (3) Authorize 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;
    (6) Inspect the premises, operations and accounts of zone grantees, 
operators and users (and persons undertaking zone-related functions on 
behalf of grantees, where applicable);
    (7) Require zone grantees and operators 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.  400.36(g);
    (11) Authorize under certain circumstances the entry of ``zone-
restricted merchandise'' (19 CFR 146.44) into the customs territory 
pursuant to Sec.  400.48;
    (12) Impose fines for violations of the Act and this part;
    (13) Instruct CBP to suspend activated status pursuant to Sec.  
400.62(h);
    (14) Revoke grants of authority for cause;
    (15) Determine, as appropriate, whether zone activity is or would 
be in the public interest or detrimental to the public interest, health 
or safety; and
    (16) Issue and discontinue waivers pursuant to Sec.  400.43(f).
    (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 shall 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) Terminate reviews of applications under certain circumstances 
pursuant to Sec.  400.36(g);
    (2) Mitigate and assess fines pursuant to Sec. Sec.  400.62(e) and 
(f) and instruct CBP to suspend activated status pursuant to Sec.  
400.62(h); and
    (3) Restrict the use of zone procedures under certain circumstances 
pursuant to Sec.  400.49(c).
    (e) Determinations of the Board. Determinations of the Board shall 
be by the unanimous vote of the members (or alternate members) of the 
Board, which shall be recorded.


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) Make determinations on questions pertaining to grantees' 
applications for subzones 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 proceedings and reviews under Sec.  400.5;
    (k) Determine questions of scope under Sec.  400.14(d);
    (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.  400.21-400.25;
    (m) Issue instructions, guidelines, forms and related documents 
specifying time, place, manner and formats for applications and 
notifications in various sections of this part, including Sec. Sec.  
400.21(b) and 400.43(f);
    (n) Determine whether proposed modifications are major 
modifications or minor modifications under Sec.  400.24(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.  400.36(g);
    (q) Authorize minor modifications to zones under Sec.  400.38, 
commencement of production activity under Sec.  400.37(d) and subzone 
designation under Sec.  400.36(f);
    (r) Review notifications for production authority under Sec.  
400.37;
    (s) Direct monitoring and reviews of zone operations and activity 
under Sec.  400.49;
    (t) Review rate schedules and determine their sufficiency under 
Sec.  400.44(c);
    (u) Assess potential issues and make recommendations pertaining to 
uniform

[[Page 12142]]

treatment under Sec.  400.43 and review and decide complaint cases 
under Sec.  400.45;
    (v) Make certain determinations and authorizations pertaining to 
retail trade under Sec.  400.47;
    (w) Authorize under certain circumstances the entry of ``zone-
restricted merchandise'' into the customs territory under Sec.  400.48;
    (x) Determine the format and deadlines for the annual reports of 
zone grantees to the Board and direct preparation of an annual report 
from the Board to Congress under Sec.  400.51(c);
    (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.

    The Board may conduct a proceeding, or the Executive Secretary a 
review, to consider a restriction or prohibition on zone activity. Such 
proceeding or review may be either self-initiated or in response to a 
complaint made to the Board by a person directly affected by the 
activity in question and showing good cause. After a proceeding or 
review, the Board may restrict or prohibit any admission of merchandise 
or process of treatment in an activated FTZ site when it determines 
that such activity is detrimental to the public interest, health or 
safety.


Sec.  400.6  Board headquarters.

    The headquarters of the Board are 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.


Sec.  400.7  CBP officials as Board representatives.

    CBP officials with oversight responsibilities for a port of entry 
represent the Board with regard to the zones adjacent to the port of 
entry in question and are responsible for enforcement, including 
physical security and access requirements, as provided in 19 CFR part 
146.

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 zones--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;
    (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; 
and
    (iii) If a port of entry is defined to include more than one city 
separated by a navigable waterway, each of the cities is entitled to a 
zone.
    (2) Applications pertaining to zones 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 zone(s) 
will not adequately serve the convenience of commerce.
    (b) Location of zones and subzones--port of entry adjacency 
requirements.
    (1) 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 determined or concurred upon by CBP) 
from the outer limits of a port of entry boundary as defined in 19 CFR 
101.3.
    (ii) A subzone meets the following requirements relating to CBP 
supervision:
    (A) Proper CBP oversight can be accomplished with physical and 
electronic means;
    (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 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 relevant 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 grants of authority to 
establish zones. The Board shall 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 not be 
inconsistent 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 (except pursuant to Sec.  400.24(c))--
(1) Eligibility. The following entities are eligible to apply to 
establish a subzone:
    (i) The grantee of the closest zone in the same state;
    (ii) The 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 shall:
    (i) Notify, in writing, the grantee specified in paragraph 
(d)(1)(i) of this section, which 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 objecting 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 objecting zone 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.  400.63 regarding appeals of decisions of the Executive 
Secretary).


Sec.  400.13  General conditions, prohibitions and restrictions 
applicable to authorized zones.

    (a) In general. Grants of authority issued by the Board for the 
establishment of zones and any authority subsequently approved for such 
zones, including those already issued, are subject to the Act and this 
part and the following general conditions or limitations:
    (1) Prior to activation of a zone, the zone grantee or operator 
shall obtain all

[[Page 12143]]

necessary permits from federal, state and local authorities, and except 
as otherwise specified in the Act or this part, shall comply with the 
requirements of those authorities.
    (2) A grant of authority approved under this part includes 
authority for the grantee to permit the erection of buildings necessary 
to carry out the approved zone (subject to concurrence of CBP for an 
activated area of a zone).
    (3) Approvals from the grantee (or other party acting on behalf of 
the grantee, where applicable) and CBP, pursuant to 19 CFR part 146, 
are required prior to the activation of any portion of an approved 
zone.
    (4) Authority for a zone or a subzone shall lapse unless the zone 
(in case of subzones, the subzone facility) is activated, pursuant to 
19 CFR part 146, and in operation not later than five years from the 
authorization of the zone or subzone, subject to the provisions of 
Board Order 849 (61 FR 53305, October 11, 1996).
    (5) Zone grantees, operators, and users (and persons undertaking 
zone-related functions on behalf of grantees, where applicable) shall 
permit federal government officials acting in an official capacity to 
have access to the zone and records during normal business hours and 
under other reasonable circumstances.
    (6) Activity involving production is subject to the specific 
provisions in Sec.  400.14.
    (7) A grant of authority may not be sold, conveyed, transferred, 
set over, or assigned (FTZ Act, section 17; 19 U.S.C. 81q).
    (8) Private ownership of zone land and facilities is permitted, 
provided the zone grantee retains the control necessary to implement 
the approved zone. Such permission shall not constitute a vested right 
to zone designation, nor interfere with the Board's regulation of the 
grantee or the permittee, nor interfere with or complicate the 
revocation of the grant by the Board. Should title to land or 
facilities be transferred after a grant of authority is issued, the 
zone grantee must retain, by agreement with the new owner, a level of 
control which allows the grantee to carry out its responsibilities as 
grantee. The sale of zone-designated land/facility for more than its 
fair market value without zone designation could, depending on the 
circumstances, be subject to the prohibitions set forth in section 17 
of the Act (19 U.S.C. 81q).
    (b) Board authority to restrict or prohibit activity. Pursuant to 
section 15(c) of the Act (19 U.S.C. 81o(c)), the Board has authority to 
``order the exclusion from [a] zone of any goods or process of 
treatment that in its judgment is detrimental to the public interest, 
health, or safety.'' In approvals of proposed production authority 
pursuant to Sec.  400.14(a), the Board may adopt restrictions to 
protect the public interest, health, or safety. When evaluating 
production activity, either as proposed in an application or as part of 
a review of an operation, the Board shall determine whether the 
activity is in the public interest by reviewing it in relation to the 
evaluation criteria contained in Sec.  400.27.
    (c) Additional conditions, prohibitions and restrictions. Other 
conditions/requirements, prohibitions and restrictions under Federal, 
State or local law may apply to authorized zones and subzones.


Sec.  400.14  Production--requirement for prior authorization; 
restrictions.

    (a) In general. Production activity in zones shall not be conducted 
without prior authorization from the Board. To obtain authorization, 
the notification process provided for in Sec. Sec.  400.22 and 400.37 
shall be used. If Board review of a notification under Sec.  400.37 
results in a determination that further review is warranted for all or 
part of the notified activity, the application process pursuant to 
Sec. Sec.  400.23, 400.31-400.32, 400.34 and 400.36 shall apply to the 
activity.
    (b) Scope of authority. Production activity that may be conducted 
in a particular zone operation is limited to the specific foreign-
status materials and components and specific finished products 
described in notifications and applications that have been authorized 
pursuant to paragraph (a) of this section, including any applicable 
prohibitions or restrictions. A determination may be requested pursuant 
to paragraph (d) of this section as to whether particular activity 
falls within the scope of authorized activity. Unauthorized activity 
could be subject to penalties pursuant to the customs regulations on 
foreign-trade zones (19 CFR part 146).
    (c) Information about authorized production activity. The Board 
shall make available via its Web site information regarding the 
materials, components, and finished products associated with individual 
production operations authorized under these and previous regulations, 
as derived from applications and notifications submitted to the Board.
    (d) Scope determinations. Determinations may be made by the 
Executive Secretary as to whether changes in activity are within the 
scope of the production activity already authorized under this part. 
When warranted, the procedures of Sec. Sec.  400.32 and 400.34 shall be 
followed.
    (e) Restrictions on items subject to antidumping and countervailing 
duty actions.
    (1) Board policy. Zone procedures shall not be used to circumvent 
antidumping duty (AD) and countervailing duty (CVD) actions under 19 
CFR part 351.
    (2) Admission of items subject to AD/CVD actions. Items subject to 
AD/CVD orders, or items which would be otherwise subject to suspension 
of liquidation under AD/CVD procedures if they entered U.S. customs 
territory, shall be placed in privileged foreign status (19 CFR 146.41) 
upon admission to a zone or subzone. Upon entry for consumption, such 
items shall be subject to duties under AD/CVD orders or to suspension 
of liquidation, as appropriate, under 19 CFR part 351.


Sec.  400.15  Production equipment.

    (a) In general. Pursuant to section 81c(e) of the FTZ Act, 
merchandise that is admitted into a foreign-trade zone for use within 
such zone as production equipment or as parts for such equipment, shall 
not be subject to duty until such merchandise is completely assembled, 
installed, tested, and used in the production for which it was 
admitted. Payment of duty may be deferred until such equipment goes 
into use as production equipment as part of zone production activity, 
at which time the equipment shall be entered for consumption as 
completed equipment.
    (b) Definition of production equipment. Eligibility for this 
section is limited to equipment and parts of equipment destined for use 
in zone production activity as defined in Sec.  400.2(o) of this part. 
Ineligible for treatment as production equipment under this section are 
general materials (that are used in the installation of production 
equipment or in the assembly of equipment) and materials used in the 
construction or modification of the plant that houses the production 
equipment.
    (c) Equipment not destined for zone activity. Production equipment 
or parts that are not destined for use in zone production activity 
shall be treated as normal merchandise eligible for standard zone-
related benefits (i.e., benefits not subject to the requirements of 
Sec.  400.14(a)), provided the equipment is entered for consumption or 
exported prior to its use.

[[Page 12144]]

Sec.  400.16  Exemption from state and local ad valorem taxation of 
tangible personal property.

    Tangible personal property imported from outside the United States 
and held in a zone for the purpose of storage, sale, exhibition, 
repackaging, assembly, distribution, sorting, grading, cleaning, 
mixing, display, manufacturing, or processing, and tangible personal 
property produced in the United States and held in a zone for 
exportation, either in its original form or as altered by any of the 
above processes, shall be exempt from state and local ad valorem 
taxation.

Subpart C--Applications To Establish and Modify Authority


Sec.  400.21  Application to establish a zone.

    (a) In general. An application for a grant of authority to 
establish a zone (including pursuant to the ASF procedures adopted by 
the Board; see 74 FR 1170, Jan. 12, 2009, 74 FR 3987, Jan. 22, 2009, 
and 75 FR 71069, Nov. 22, 2010) shall consist of an application letter 
and detailed contents to meet the requirements of this part.
    (b) Application format. Applications pursuant to this part shall 
comply with any instructions, guidelines, and forms or related 
documents, published in the Federal Register and made available on the 
Board's Web site, as established by the Executive Secretary specific to 
the type of application in question. An application submitted that uses 
a superseded format shall be processed unless the format has not been 
current for a period in excess of one year.
    (c) Application letter. The application letter shall be dated 
within six months prior to the submission of the application and signed 
by an officer of the corporation authorized in the resolution for the 
application (see Sec.  400.21(d)(1)(iii)). The application letter shall 
also describe:
    (1) The relationship of the proposal to the state enabling 
legislation and the grantee's charter;
    (2) The specific authority requested from the Board;
    (3) The proposed zone site(s) and facility(ies) and any larger 
project of which the zone is a part;
    (4) The project background;
    (5) The relationship of the project to the community's and state's 
international trade-related goals and objectives;
    (6) Any production authority requested; and
    (7) Any additional pertinent information needed for a complete 
summary description of the proposal.
    (d) Detailed contents.
    (1) Legal authority for the application shall be documented with:
    (i) A current copy of the state enabling legislation described in 
Sec. Sec.  400.12(b) and (c);
    (ii) A copy of the relevant sections of the applicant's charter or 
organization papers; and
    (iii) A certified copy of a resolution of the applicant's governing 
body specific to the application authorizing the official signing the 
application letter. The resolution must be dated no more than six 
months prior to the submission of the application.
    (2) Site descriptions (including a table with site designations 
when more than one site is involved) shall be documented with:
    (i) A detailed description of the zone site, including size, 
location, and address (and legal description or its equivalent in 
instances where the Executive Secretary determines it is needed to 
supplement the maps in the application), as well as dimensions and 
types of existing and proposed structures, master planning, and 
timelines for construction of roads, utilities and planned buildings;
    (ii) Where applicable, a summary description of the larger project 
of which the site is a part, including type, size, location and 
address;
    (iii) A statement as to whether the site is within or adjacent to a 
CBP port of entry (including distance from the limits of the port of 
entry and, if the distance exceeds 60 miles, driving time from the 
limits of the port of entry);
    (iv) A description of existing or proposed site qualifications, 
including appropriate land-use zoning (with environmentally sensitive 
areas avoided) and physical security;
    (v) A description of current and planned activities associated with 
the site;
    (vi) A summary description of transportation systems, facilities, 
and services, including connections from local and regional 
transportation hubs to the zone;
    (vii) A statement regarding the environmental aspects of the 
proposal;
    (viii) The estimated time schedules for construction and 
activation; and
    (ix) A statement as to the possibilities and plans for future 
expansion of the site.
    (3) Operation and financing shall be documented with:
    (i) A statement as to site ownership (if not owned by the applicant 
or proposed operator, evidence as to their legal right to use the 
site);
    (ii) A discussion of plans for operations at the site;
    (iii) A commitment to satisfy the requirements for CBP automated 
systems; and
    (iv) A summary of the plans for financing the project.
    (4) Economic justification shall be documented with:
    (i) A statement of the community's overall economic and trade-
related goals and strategies in relation to those of the region and 
state, including a reference to the plan or plans on which the goals 
are based and how they relate to the zone project;
    (ii) An economic profile of the community including discussion of:
    (A) Dominant sectors in terms of employment or income;
    (B) Area strengths and weaknesses;
    (C) Unemployment rates; and
    (D) Area foreign trade statistics;
    (iii) A statement as to the role and objective of the zone project 
and a discussion of the anticipated economic impact, direct and 
indirect, of the zone project, including references to public costs and 
benefits, employment, and U.S. international trade;
    (iv) A separate justification for each proposed site, including a 
specific explanation addressing the degree to which the site may 
duplicate types of facilities at other proposed or existing sites in 
the zone;
    (v) A statement as to the need for zone services in the community, 
with specific expressions of interest from proposed zone users and 
letters of intent from those firms that are considered prime prospects 
for each specific proposed site; and
    (vi) For any production activity to be conducted at a proposed 
site, the separate requirements of Sec.  400.14(a) must also be met.
    (5) Maps and site plans shall include the following documents:
    (i) State and county maps showing the general location of the 
proposed site(s) in terms of the area's transportation network;
    (ii) For any proposed site, a legible, detailed site plan of the 
zone area showing zone boundaries in red, with street name(s), and 
showing existing and proposed structures; and
    (iii) For proposals involving a change in existing zones, one or 
more maps showing the relationship between existing zone sites and the 
proposed changes.
    (e) ASF applications. In addition to the general application 
requirements of this section, applications under the ASF shall include 
the following, where applicable:
    (1) Service area.
    (2) Appropriate information regarding magnet sites.

[[Page 12145]]

    (3) Appropriate information regarding usage-driven sites.
    (f) Additional information. The Board or the Executive Secretary 
may require additional information needed to evaluate proposals 
adequately.
    (g) Amendment of application. The Board or the Executive Secretary 
may allow amendment of an application. Amendments which substantively 
expand the scope of an application shall be subject to comment period 
requirements such as those of Sec.  400.32(c)(2) with a minimum comment 
period of 30 days.
    (h) Drafts. Applicants are encouraged to submit a draft application 
to the Executive Secretary for review. A draft application must be 
complete with the possible exception of the application letter and/or 
resolution from the grantee.
    (i) Format and number of copies. Unless the Executive Secretary 
alters the requirements of this paragraph, the applicant shall submit 
an original (including original documents to meet the requirements of 
paragraphs (c) and (d)(1)(iii) of this section) and one copy of the 
application, both on 8\1/2\ x 11 (216 x 279 mm) 
paper, and an electronic copy.
    (j) Where to submit an application: Executive Secretary, Foreign-
Trade Zones Board, U.S. Department of Commerce, 1401 Constitution 
Avenue NW., Washington, DC 20230. Options for submission of electronic 
copies are described on the FTZ Board's Web site.


Sec.  400.22  Notification for production authority.

    Notifications requesting production authority pursuant to Sec.  
400.14(a) shall comply with any instructions, guidelines, and forms or 
related documents, published in the Federal Register and made available 
on the Board's Web site, as established by the Executive Secretary. 
Notifications shall contain the following information:
    (a) Identity of the user and its location;
    (b) Materials, components and finished products associated with the 
proposed activity, including the tariff schedule categories (6-digit 
HTSUS) and tariff rates; and
    (c) Information as to whether any material or component is subject 
to a trade-related measure or proceeding (e.g., AD/CVD order or 
proceeding, suspension of liquidation under AD/CVD procedures).


Sec.  400.23  Application for production authority.

    In addition to any applicable requirements set forth in Sec.  
400.21, an application requesting production authority pursuant to 
Sec.  400.37(c) shall include:
    (a) A summary as to the reasons for the application and an 
explanation of its anticipated economic effects;
    (b) Identity of the user and its corporate affiliation;
    (c) A description of the proposed activity, including:
    (1) Finished products;
    (2) Imported (foreign-status) materials and components;
    (3) For each finished product and imported material or component, 
the tariff schedule category (6-digit HTSUS), tariff rate, and whether 
the material or component is subject to a trade-related measure or 
proceeding (e.g., AD/CVD order or proceeding, suspension of liquidation 
under AD/CVD procedures);
    (4) Domestic inputs, foreign inputs, and plant value added as 
percentages of finished product value;
    (5) Projected shipments to domestic market and export market 
(percentages);
    (6) Estimated total or range of annual value of benefits to 
proposed user (broken down by category), including as a percent of 
finished product value;
    (7) Annual production capacity (current and planned) for the 
proposed FTZ activity, in units;
    (8) Information to assist the Board in making a determination under 
Sec. Sec.  400.27(a)(3) and 400.27(b);
    (9) Information as to whether alternative procedures have been 
considered as a means of obtaining the benefits sought;
    (10) Information on the industry involved and extent of 
international competition; and
    (11) Economic impact of the operation on the area; and
    (d) Any additional information requested by the Board or the 
Executive Secretary in order to conduct the review.


Sec.  400.24  Application for expansion or other modification to zone.

    (a) In general. (1) A grantee may apply to the Board for authority 
to expand or otherwise modify its zone (including pursuant to the ASF 
procedures adopted by the Board; see 74 FR 1170, Jan. 12, 2009, 74 FR 
3987, Jan. 22, 2009, and 75 FR 71069, Nov. 22, 2010).
    (2) The Executive Secretary, in consultation with CBP as 
appropriate, shall determine whether the proposed modification involves 
a major change in the zone plan and is thus subject to paragraph (b) of 
this section, or is minor and subject to paragraph (c) of this section. 
In making this determination the Executive Secretary shall consider the 
extent to which the proposed modification would:
    (i) Substantially modify the plan originally approved by the Board; 
or
    (ii) Expand the physical dimensions of the approved zone area as 
they relate to the scope of operations envisioned in the original plan.
    (b) Major modification to zone. An application for a major 
modification of an approved zone shall be submitted in accordance with 
the requirements of Sec.  400.21, except that the content submitted 
pursuant to Sec.  400.21(d)(4) (economic justification) shall relate 
specifically to the proposed change.
    (c) Minor modification to zone. Other applications or requests 
under this subpart shall be submitted in letter form with information 
and documentation necessary for analysis, as determined by the 
Executive Secretary, who shall determine whether the proposed change is 
a minor one subject to this paragraph (c) instead of paragraph (b) of 
this section (see Sec.  400.38). Such applications or requests include 
those for minor revisions of general-purpose zone or subzone boundaries 
based on immediate need, as well as for designation as a subzone of all 
or part of an existing zone site(s) (or site(s) that qualifies for 
usage-driven status), where warranted by the circumstances and so long 
as the subzone activity remains subject to the activation limit (see 
Sec.  400.2(b)) for the zone in question.
    (d) Applications for other revisions to authority. Applications or 
requests for other revisions to authority, such as for Board action to 
establish or modify an activation limit for a zone, modification of a 
restriction or reissuance of a grant of authority, shall be submitted 
in letter form with information and documentation necessary for 
analysis, as determined by the Executive Secretary. If the change 
involves the removal or significant modification of a restriction 
included by the Board in its approval of authority or the reissuance of 
a grant of authority, the review procedures of Sec. Sec.  400.31-400.34 
and 400.36 shall be followed, where relevant. If not, the procedure set 
forth in Sec.  400.38 shall generally apply (although the Executive 
Secretary may elect to follow the procedures of Sec. Sec.  400.31-
400.34 and 400.36 when warranted).


Sec.  400.25  Application for subzone designation.

    In addition to the requirements of Sec. Sec.  400.21(d)(1)(i) and 
(ii) pertaining to legal authority, Sec.  400.21(d)(2)(vii) pertaining 
to environmental aspects of the proposal, and Sec. Sec.  
400.21(d)(3)(i) and (iii) pertaining to operation, a grantee's 
application for subzone designation shall contain the following 
information:

[[Page 12146]]

    (a) The name of the operator/user for which subzone designation is 
sought;
    (b) The nature of the activity at the proposed subzone;
    (c) The address(es) and physical size (acreage or square feet) of 
the proposed subzone location(s); and
    (d) One or more maps conforming to the requirements of section 
Sec.  400.21(d)(5)(ii). For any production activity to be conducted at 
a proposed subzone, the separate requirements of Sec.  400.14(a) must 
be met.


Sec.  400.26  Criteria for evaluation of applications for expansions, 
subzones or other modifications of zones.

    The Board shall consider the following factors in determining 
whether to approve an application pertaining to a zone:
    (a) The need for zone services in the port of entry area, taking 
into account existing as well as projected international trade-related 
activities and employment impact;
    (b) The suitability of each proposed site and its facilities based 
on the plans presented for the site, including existing and planned 
buildings, zone-related activities, and the timeframe for development 
of the site;
    (c) The specific need and justification for each proposed site, 
taking into account existing sites and/or other proposed sites;
    (d) The extent of state and local government support, as indicated 
by the compatibility of the zone project with the community's master 
plan or stated goals for economic development and the views of state 
and local public officials involved in economic development. Such 
officials shall avoid commitments that anticipate the outcome of Board 
decisions;
    (e) The views of persons likely to be materially affected by 
proposed zone activity; and
    (f) If the application involves production activity, the criteria 
in Sec.  400.27.


Sec.  400.27  Criteria applicable to evaluation of applications for 
production authority.

    The Board shall apply the criteria set forth in this section in 
determining whether to approve an application for authority to conduct 
production activity pursuant to Sec.  400.23. The Board's evaluation 
shall take into account such factors as market conditions, price 
sensitivity, degree and nature of foreign competition, intra-industry 
and intra-firm trade, effect on exports and imports, ability to conduct 
the proposed activity outside the United States with the same U.S. 
tariff impact, analyses conducted in connection with prior Board 
actions, and net effect on U.S. employment and the U.S. economy:
    (a) Threshold factors. It is the policy of the Board to authorize 
zone activity only when it is consistent with public policy and, in 
regard to activity involving foreign merchandise subject to quotas or 
inverted tariffs, when zone procedures are not the sole determining 
cause of imports. Thus, without undertaking a review of the economic 
factors enumerated in Sec.  400.27(b), the Board shall deny or restrict 
authority for proposed or ongoing activity if it determines that:
    (1) The activity is inconsistent with U.S. trade and tariff law, or 
policy which has been formally adopted by the Executive branch;
    (2) Board approval of the activity under review would seriously 
prejudice U.S. tariff and trade negotiations or other initiatives; or
    (3) The activity involves items subject to quantitative import 
controls or inverted tariffs, and the use of zone procedures would be 
the direct and sole cause of imports that, but for such procedures, 
would not likely otherwise have occurred, taking into account imports 
both as individual items and as components of imported products.
    (b) Economic factors. After its review of threshold factors, if 
there is a basis for further consideration of the application, the 
Board shall consider the following factors in determining the net 
economic effect of the proposed activity:
    (1) Overall employment impact;
    (2) Exports and re-exports;
    (3) Retention or creation of value-added activity;
    (4) Extent of value-added activity;
    (5) Overall effect on import levels of relevant products;
    (6) Extent and nature of foreign competition in relevant products;
    (7) Impact on related domestic industry, taking into account market 
conditions; and
    (8) Other relevant information relating to the public interest and 
net economic impact considerations, including technology transfers and 
investment effects.
    (c) The significant public benefit(s) that would result from the 
production activity, taking into account the factors in paragraphs (a) 
and (b) of this section.
    (d) Contributory effect. In assessing the significance of the 
economic effect of the proposed zone activity as part of the 
consideration of economic factors, and considering whether it would 
result in a significant public benefit(s), the Board may consider the 
contributory effect zone savings have as an incremental part of cost-
effectiveness programs adopted by companies to improve their 
international competitiveness.


Sec.  400.28  Burden of proof.

    (a) In general. An applicant must demonstrate to the Board that its 
application meets the criteria set forth in these regulations. 
Applications for production-related authority shall contain evidence 
regarding the positive economic effect(s) and significant public 
benefit(s) that would result from the proposed activity and may submit 
evidence and comments concerning policy considerations.
    (b) Comments on applications. Comments submitted regarding 
applications should provide information that is probative and 
substantial in addressing the matter at issue relative to the nature of 
the proceeding, including any evidence of the projected direct impact 
of the proposed authority.
    (c) Requests for extensions of comment periods. Requests for 
extensions of comment periods shall include a description of the 
potential impact of the proposed authority and the specific actions or 
steps for which additional time is necessary.
    (d) Responses to comments on applications. Submissions in response 
to comments received during the public comment period or pursuant to 
Sec.  400.33(e)(1) or Sec.  400.34(a)(5)(iv)(A) should contain evidence 
that is probative and substantial in addressing the matter at issue.


Sec.  400.29  Application fees.

    (a) In general. This section sets forth a uniform system of charges 
in the form of fees to recover some costs incurred by the Foreign-Trade 
Zones staff of the Department of Commerce in processing the 
applications listed in paragraph (b) of this section. The legal 
authority for the fees is 31 U.S.C. 9701, which provides for the 
collection of user fees by agencies of the Federal Government.
    (b) Uniform system of user fee charges. The following fee schedule 
establishes fees for certain types of applications and requests for 
authority on the basis of their estimated average processing time. 
Applications combining requests for more than one type of approval are 
subject to the fee for each category.
    (1) Additional general-purpose zones (Sec.  400.21; Sec.  
400.11(a)(2))--$3,200
    (2) Special-purpose subzones (Sec.  400.25):
    (i) Not involving production activity or involving production 
activity with fewer than three products--$4,000
    (ii) Production activity with three or more products--$6,500
    (3) Expansions (Sec.  400.24(b))--$1,600

[[Page 12147]]

    (c) Applications submitted to the Board shall include a currently 
dated check drawn on a national or state bank or trust company of the 
United States or Puerto Rico in the amount called for in paragraph (b) 
of this section. Uncertified checks must be acceptable for deposit by 
the Board in a Federal Reserve bank or branch.
    (d) Applicants shall make their checks payable to the U.S. 
Department of Commerce ITA. The checks will be deposited by ITA into 
the Treasury receipts account. If applications are found deficient 
under Sec.  400.31(b), or are withdrawn by applicants prior to formal 
docketing, refunds will be made.

Subpart D--Procedures for Application Evaluation and Reviews


Sec.  400.31  General application provisions and pre-docketing review.

    (a) In general. Sections 400.31-400.36 and 400.38 outline the 
procedures to be followed in docketing and processing applications 
submitted under Sec. Sec.  400.21, 400.23, 400.24(b), and 400.25. In 
addition, these sections set forth the time schedules which will 
ordinarily apply in processing applications. The schedules will guide 
applicants with respect to the time frames for each of the procedural 
steps involved in the Board's review. Under these schedules, 
applications for subzone designation will generally be processed within 
5 months (3 months for applications subject to Sec.  400.36(f)) and 
applications to establish or expand zones will generally be processed 
within 10 months. The general timeframe to process applications for 
production authority is 12 months, but additional time is most likely 
to be required for applications requesting production authority when a 
complex or controversial issue is involved or when the applicant or 
other party has obtained a time extension for a particular procedural 
step. The timeframes specified apply from the time of docketing. Each 
applicant is responsible for submitting an application that meets the 
docketing requirements in a timeframe consistent with the applicant's 
need for action on its request.
    (b) Pre-docketing review. The grantee shall submit a single 
complete copy of an application for pre-docketing review. (For requests 
relating to production in already approved zone or subzone space, the 
request may be submitted by the operator, provided the operator at the 
same time furnishes a copy of the request to the grantee.) The 
Executive Secretary shall determine whether the application satisfies 
the requirements of Sec. Sec.  400.12, 400.21, 400.23-400.25, and other 
applicable provisions of this part such that the application is 
sufficient for docketing. If the pre-docketing copy of the application 
is deficient, the Executive Secretary shall notify the applicant within 
30 days of receipt of the pre-docketing copy, specifying the 
deficiencies. An affected zone participant may also be contacted 
regarding relevant application elements requiring additional 
information or clarification. If the applicant does not correct the 
deficiencies and submit a corrected pre-docketing application copy 
within 30 days of notification, the pre-docketing application (single 
copy) shall be discarded.


Sec.  400.32  Procedures for docketing applications and commencement of 
case review.

    (a) Once the pre-docketing copy of the application is determined to 
be sufficient, the Executive Secretary shall notify the applicant 
within 15 days so that the applicant may then submit the original and 
requisite number of copies (which shall be dated upon receipt at the 
headquarters of the Board) for docketing by the Board. For applications 
subject to Sec.  400.29, the original shall be accompanied with a check 
in accordance with that section.
    (b) After the procedures described in paragraph (a) of this section 
are completed, the Executive Secretary shall within 15 days of receipt 
of the original and required number of copies of the application:
    (1) Formally docket the application, thereby initiating the 
proceeding or review;
    (2) Assign a case-docket number; and
    (3) Notify the applicant of the formal docketing action.
    (c) After initiating a proceeding based on an application under 
Sec. Sec.  400.21 and 400.23-400.25, the Executive Secretary shall:
    (1) Designate an examiner to conduct a review and prepare a report 
or memorandum with recommendations for the Board;
    (2) Publish in the Federal Register a notice of the formal 
docketing of the application and initiation of the review. The notice 
shall include the name of the applicant, a description of the proposal, 
and an invitation for public comment. If the application requests 
authority for production activity and indicates that a component to be 
used in the activity is subject to a trade-related measure or 
proceeding (e.g., AD/CVD order or proceeding, suspension of liquidation 
under AD/CVD procedures), the notice shall include that information. 
For applications to establish or expand a zone or for production 
authority, the comment period shall normally close 60 days after the 
date the notice appears. For applications for subzone designation, the 
comment period shall normally close 40 days after the date the notice 
appears. However, if a hearing is held (see Sec.  400.52), the comment 
period shall not close prior to 15 days after the date of the hearing. 
The closing date for general comments shall ordinarily be followed by 
an additional 15-day period for rebuttal comments. Requests for 
extensions of a comment period will be considered, subject to the 
standards of Sec.  400.28(c). Submissions must meet the requirements of 
Sec.  400.28(b). With the exception of submissions by the applicant, 
any new evidence or new factual information and any written arguments 
submitted after the deadlines for comments shall not be considered by 
the examiner or the Board. Submission by the applicant of new evidence 
or new factual information may result in the (re)opening of a comment 
period. A comment period may otherwise be opened or reopened for cause;
    (3) Transmit or otherwise make available copies of the docketing 
notice and the application to CBP;
    (4) Arrange for hearings, as appropriate;
    (5) Transmit the report and recommendations of the examiner and any 
comments by CBP to the Board for appropriate action; and
    (6) Notify the applicant in writing (via electronic means, where 
appropriate) and publish notice in the Federal Register of the Board's 
determination.
    (d) CBP review. Any comments by CBP pertaining to the application 
shall be submitted to the Executive Secretary by the conclusion of the 
public comment period described in paragraph (c)(2) of this section.


Sec.  400.33  Examiner's review--application to establish or modify a 
zone.

    An examiner assigned to review an application to establish, 
reorganize or expand a zone shall conduct a review taking into account 
the factors enumerated in Sec.  400.26 and other appropriate sections 
of this part, which shall include:
    (a) Conducting or participating in hearings scheduled by the 
Executive Secretary;
    (b) Reviewing case records, including public comments;
    (c) Requesting information and evidence from parties of record;
    (d) Developing information and evidence necessary for evaluation 
and analysis of the application in accordance with the criteria of the 
Act and this part; and

[[Page 12148]]

    (e) Developing recommendations to the Board and submitting a report 
to the Executive Secretary, generally within 150 days of the close of 
the period for public comment (75 days for reorganizations under the 
ASF) (see Sec.  400.32):
    (1) If the recommendations are unfavorable to the applicant, they 
shall be considered preliminary and the applicant shall be notified in 
writing (via electronic means, where appropriate) of the preliminary 
recommendations and the factors considered in their development. The 
applicant shall be given 30 days from the date of notification, subject 
to extensions upon request by the applicant, which shall not be 
unreasonably withheld, in which to respond to the recommendations and 
submit additional evidence pertinent to the factors considered in the 
development of the preliminary recommendations. Public comment may be 
invited on preliminary recommendations when warranted.
    (2) If the response contains new evidence on which there has been 
no opportunity for public comment, the Executive Secretary shall 
publish a notice in the Federal Register after completion of the review 
of the response. The new material shall be made available for public 
inspection and the Federal Register notice shall invite further public 
comment for a period of not less than 30 days, with an additional 15-
day period for rebuttal comments.
    (3) If the bases for an examiner's recommendation(s) change as a 
result of new evidence, the applicable procedures of Sec. Sec.  
400.33(e)(1) and (2) shall be followed.
    (4) When necessary, a request may be made to CBP to provide further 
comments, which shall be submitted within 45 days after the request.


Sec.  400.34  Examiner's review--application for production authority.

    (a) The examiner shall conduct a review taking into account the 
factors enumerated in this section, Sec.  400.27, and other appropriate 
sections of this part, which shall include:
    (1) Conducting or participating in hearings scheduled by the 
Executive Secretary;
    (2) Reviewing case records, including public comments;
    (3) Requesting information and evidence from parties of record and 
others, as warranted;
    (4) Developing information and evidence necessary for analysis of 
the threshold factors and the economic factors enumerated in Sec.  
400.27; and
    (5) Conducting an analysis to include:
    (i) An evaluation of policy considerations pursuant to Sec. Sec.  
400.27(a)(1) and (2);
    (ii) An evaluation of the economic factors enumerated in Sec. Sec.  
400.27(a)(3) and 400.27(b), which shall include an evaluation of the 
economic impact on domestic industry, considering both producers of 
like products and producers of components/materials used in the 
production activity;
    (iii) Conducting appropriate industry research and surveys, as 
necessary; and
    (iv) Developing recommendations to the Board and submitting a 
report to the Executive Secretary, generally within 150 days of the 
close of the period for public comment (although additional time may be 
required in circumstances such as when the applicant or other party has 
obtained a time extension for a particular procedural step):
    (A) If the recommendations are unfavorable to the applicant, they 
shall be considered preliminary and the applicant shall be notified in 
writing (via electronic transmission where appropriate) of the 
preliminary recommendations and the factors considered in their 
development. The applicant shall be given 45 days from the date of 
notification in which to respond to the recommendations and submit 
additional evidence pertinent to the factors considered in the 
development of the preliminary recommendations. Public comment may be 
invited on preliminary recommendations when warranted.
    (B) If the response contains new evidence on which there has not 
been an opportunity for public comment, the Executive Secretary shall 
publish notice in the Federal Register after completion of the review 
of the response. The new material shall be made available for public 
inspection and the Federal Register notice shall invite further public 
comment for a period of not less than 30 days, with an additional 15-
day period for rebuttal comments.
    (C) If the bases for an examiner's recommendation(s) change as a 
result of new evidence, the applicable procedures of Sec. Sec.  
400.34(a)(5)(iv)(A) and (B) shall be followed.
    (b) Methodology and evidence. The evaluation of an application for 
production authority shall include the following steps:
    (1) The first phase (Sec.  400.27(a)) involves consideration of 
threshold factors. If an examiner or reviewer makes a negative finding 
on any of the factors in Sec.  400.27(a) in the course of a review, the 
applicant shall be informed pursuant to Sec.  400.34(a)(5)(iv)(A). When 
threshold factors are the basis for a negative recommendation in a 
review of ongoing activity, the zone grantee and directly affected 
party shall be notified and given an opportunity to submit evidence 
pursuant to Sec.  400.34(a)(5)(iv)(A). If the Board determines in the 
negative regarding any of the factors in Sec.  400.27(a), it shall deny 
or restrict authority for the proposed or ongoing activity.
    (2) The second phase (Sec.  400.27(b)) involves consideration of 
the enumerated economic factors, taking into account their relative 
weight and significance under the circumstances. Previous evaluations 
in similar cases shall be considered.


Sec.  400.35  Examiner's review--application for subzone designation.

    The examiner shall develop a memorandum with a recommendation on 
whether to approve the application, taking into account the criteria 
enumerated in Sec.  400.26. To develop that memorandum, the examiner 
shall review the case records including public comments, and may 
request information and evidence from parties of record, as necessary. 
The examiner's memorandum shall generally be submitted to the Board 
within 30 days of the close of the period for public comment. However, 
additional time may be taken as necessary for analysis of any public 
comment in opposition to the application or if other complicating 
factors arise.
    (a) If the examiner's recommendation is unfavorable to the 
applicant, it shall be considered preliminary and the applicant shall 
be notified in writing (via electronic means, where appropriate) of the 
preliminary recommendation and the factors considered in its 
development. The applicant shall be given 30 days from the date of 
notification, subject to extensions upon request by the applicant, 
which shall not be unreasonably withheld, in which to respond to the 
recommendation and submit additional evidence pertinent to the factors 
considered in the development of the preliminary recommendations. 
Public comment may be invited on preliminary recommendations when 
warranted.
    (b) If the response contains new evidence on which there has not 
been an opportunity for public comment, the Executive Secretary shall 
publish notice in the Federal Register after completion of the review 
of the response. The new material shall be made available for public 
inspection and the Federal Register notice shall invite further public 
comment for a period of not less

[[Page 12149]]

than 30 days, with an additional 15-day period for rebuttal comments.
    (c) If the bases for an examiner's recommendation(s) change as a 
result of new evidence, the applicable procedures of Sec. Sec.  
400.35(a) and (b) shall be followed.
    (d) The CBP adviser shall be requested, when necessary, to provide 
further comments, which shall be submitted within 45 days after the 
request.


Sec.  400.36  Completion of case review.

    (a) The Executive Secretary shall circulate the examiner's report 
(memorandum in the case of subzone applications) with recommendations 
to CBP headquarters staff and to the Treasury Board member for review 
and action.
    (b) In its advisory role to the Board, CBP headquarters staff shall 
provide any comments within 15 days.
    (c) The vote of the Treasury Board member shall be returned to the 
Executive Secretary within 30 days, unless a formal meeting is 
requested (see, Sec.  400.3(b)).
    (d) The Commerce Department shall complete the decision process 
within 15 days of receiving the vote of the Treasury Board member, and 
the Executive Secretary shall publish the Board decision.
    (e) If the Board is unable to reach a unanimous decision, the 
grantee shall be notified and provided an opportunity to meet with the 
Board members or their delegates.
    (f) Delegation of authority to approve subzone designation. The 
Board delegates to the Executive Secretary authority to approve 
applications requesting subzone designation, on the condition that such 
approved subzones will be subject to the activation limit for the zone 
in question.
    (g) The Board or the Commerce Department's Assistant Secretary for 
Import Administration may opt to terminate review of an application 
with no further action if the applicant has failed to provide in a 
timely manner information needed for evaluation of the application. A 
request from an applicant for an extension of time to provide 
information needed for evaluation of an application shall not be 
unreasonably withheld. The Executive Secretary may terminate review of 
an application where the overall circumstances presented in the 
application no longer exist as a result of a material change, and shall 
notify the applicant in writing of the intent to terminate review and 
allow 30 days for a response prior to completion of any termination 
action. The Executive Secretary shall confirm the termination in 
writing (by electronic means, where appropriate) to the applicant.


Sec.  400.37  Procedure for notification of proposed production 
activity.

    (a) Submission of notification. A notification for production 
authority pursuant to Sec. Sec.  400.14(a) and 400.22 shall be 
submitted simultaneously to the Board's Executive Secretary and to CBP 
(as well as to the grantee of the zone, if the grantee is not the party 
making the submission).
    (b) Initial processing of notification. Upon receipt of a complete 
notification conforming to the requirements of the notification format 
established by the Executive Secretary pursuant to Sec.  400.22, the 
Executive Secretary shall commence processing the notification. Unless 
the Executive Secretary determines, based on the content of the 
notification, to recommend further review to the Board without inviting 
public comment on the notification, the Executive Secretary shall 
transmit to the Federal Register a notice inviting public comment on 
the notification (with such comment subject to the standards of Sec.  
400.28(b)). The notice shall be transmitted to the Federal Register 
within 15 days of the commencement of the processing of the 
notification, and the comment period shall normally close 40 days after 
the date the notice appears. If the notification indicates that a 
material or component to be used in the activity is subject to an AD/
CVD order or proceeding, or suspension of liquidation under AD/CVD 
procedures, the notice shall include that information. Evidence, 
factual information and written arguments submitted in response to the 
notice must be submitted by the deadline for comments. Any comments by 
CBP pertaining to the notification shall be submitted to the Executive 
Secretary by the end of the comment period. Within 80 days of receipt 
of the notification, the Executive Secretary shall submit to the Board 
a recommendation on whether further review of all or part of the 
activity subject to the notification is warranted. The Executive 
Secretary's recommendation shall consider comments submitted during the 
comment period, any guidance from specialists within government, and 
other relevant factors based on the Board staff's assessment of the 
notification, in the context of the factors set forth in Sec.  400.27.
    (c) Determinations regarding further review. Within 30 days of 
receipt of the Executive Secretary's recommendation, the Board members 
shall provide to the Executive Secretary their determinations on 
whether further review is warranted concerning all or part of the 
activity that is the subject of the notification. If either Board 
member makes a determination that further review is warranted, the 
activity that is subject to further review (which may constitute all or 
part of the notified activity) shall not be conducted without 
authorization pursuant to the application requirements of Sec.  400.23 
and the procedural requirements of Sec. Sec.  400.31-400.34 and 400.36 
(or the provisions of paragraph (d) of this section, where applicable). 
Within 120 days of receipt of the notification, the Executive Secretary 
shall notify the party that submitted the notification (and the zone 
grantee, if it did not submit the notification) that:
    (1) Further review is not needed for all or part of the activity 
that is the subject of the notification, and that the activity in 
question may be conducted; or
    (2) Further review is needed for all or part of the activity that 
is the subject of the notification, with such activity precluded absent 
specific authorization.
    (d) Authorization for commencement of an activity on an interim 
basis. For an activity notified pursuant to Sec.  400.14(a), the 
Executive Secretary may authorize the commencement of some or all of 
the activity on an interim basis. Such authorization shall only be made 
based on a showing that commencement of the activity is time-sensitive, 
with such showing to include comments from CBP that specifically 
address the projected timeframe for commencement of the activity. 
Interim authorization shall not apply to materials or components 
subject to an AD/CVD order or proceeding or suspension of liquidation 
under AD/CVD procedures. As warranted, a determination that further 
review is needed for all or some of the notified activity pursuant to 
Sec.  400.37(c) may also revoke the interim authorization until the 
Board makes a determination after conduct of that further review.


Sec.  400.38  Procedure for application for minor modification of zone.

    (a) The Executive Secretary shall make a determination in cases 
under Sec.  400.24(c) involving minor modifications of zones that do 
not require Board action, such as boundary modifications, including 
certain relocations, and shall notify the applicant in writing of the 
decision within 30 days of the determination that the application or 
request can be processed under Sec.  400.24(c). The applicant shall 
submit a copy of its application/request to CBP no later than

[[Page 12150]]

the time of the applicant's submission of the application/request to 
the Executive Secretary.
    (b) If not previously provided to the applicant for inclusion with 
the applicant's submission of the application/request to the Executive 
Secretary, any CBP comments on the application/request shall be 
provided to the Executive Secretary within 20 days of the applicant's 
submission of the application/request to the Executive Secretary.

Subpart E--Operation of Zones and Administrative Requirements


Sec.  400.41  General operation of zones; requirements for commencement 
of operations.

    (a) In general. Zones shall be operated by or under the general 
management of zone grantees, subject to the requirements of the FTZ Act 
and this part, as well as those of other federal, state and local 
agencies having jurisdiction over the site(s) and operation(s). Zone 
grantees shall ensure that the reasonable zone needs of the business 
community are served by their zones. CBP officials with oversight 
responsibilities for a port of entry represent the Board with regard to 
the zones adjacent to the port of entry in question and are responsible 
for enforcement, including physical security and access requirements, 
as provided in 19 CFR part 146.
    (b) Requirements for commencement of operations in a zone. The 
following actions are required before operations in a zone may 
commence:
    (1) The grantee shall submit the zone schedule to the Executive 
Secretary, as provided in Sec.  400.44.
    (2) Approval or concurrence from the grantee and approval from CBP, 
pursuant to 19 CFR part 146, are required prior to the activation of 
any portion of an approved zone; and
    (3) Prior to activation of a zone, the operator shall obtain all 
necessary permits from federal, state and local authorities, and except 
as otherwise specified in the Act or this part, shall comply with the 
requirements of those authorities.


Sec.  400.42  Operation as public utility.

    (a) In general. Pursuant to Section 14 of the FTZ Act (19 U.S.C. 
81n), each zone shall be operated as a public utility, and all rates 
and charges for all services or privileges within the zone shall be 
fair and reasonable. A rate or charge (fee) may be imposed on zone 
participants to recover costs incurred by or on behalf of the grantee 
for the performance of the grantee function. Such a rate or charge must 
be directly related to the service provided by the grantee (for which 
the fee recovers some or all costs incurred) to the zone participants. 
Rates or charges may incorporate a reasonable return on investment. 
Rates or charges may not be tied to the level of benefits derived by 
zone participants. Other than the uniform rates and charges assessed 
by, or on behalf of, the grantee, zone participants shall not be 
required (either directly or indirectly) to utilize or pay for a 
particular provider's zone-related products or services.
    (b) Delayed compliance date. The compliance date for the 
requirements of paragraph (a) of this section shall be February 28, 
2014.


Sec.  400.43  Uniform treatment.

    Pursuant to Section 14 of the FTZ Act (19 U.S.C. 81n), a grantee 
shall afford to all who may apply to make use of or participate in the 
zone uniform treatment under like conditions. Treatment of zone 
participants within a zone (including application of rates and charges) 
shall not vary depending on whether a zone participant has procured any 
zone-related product or service or engaged a particular supplier to 
provide any such product or service.
    (a) Agreements to be made in writing. Any agreement or contract 
related to one or more grantee function(s) and involving a zone 
participant (e.g., agreements with property owners and agreements with 
zone operators) must be in writing.
    (b) Evaluation of proposals. A grantee (or person undertaking a 
zone-related function(s) on behalf of a grantee, where applicable) 
shall apply uniform treatment in the evaluation of proposals from zone 
participants. Uniform treatment does not require acceptance of all 
proposals by zone participants, but the bases for a grantee's decision 
on a particular proposal must be consistent with the uniform treatment 
requirement.
    (c) Justification for differing treatment. Given the requirement 
for uniform treatment under like conditions, for any instance of 
different treatment of different zone participants, a grantee (or 
person undertaking a zone-related function(s) on behalf of a grantee, 
where applicable) must be able to provide upon request by the Executive 
Secretary a documented justification for any difference in treatment.
    (d) Avoidance of non-uniform treatment. To avoid non-uniform 
treatment of zone participants, persons (as defined in Sec.  400.2(l)) 
within key categories set out in paragraph (d)(2) of this section shall 
not undertake any of the key functions set out in paragraph (d)(1) of 
this section (except in specific circumstances where the Board has 
authorized a waiver pursuant to paragraph (f) of this section).
    (1) Key functions are:
    (i) Taking action on behalf of a grantee, or making recommendations 
to a grantee, regarding the disposition of proposals or requests by 
zone participants pertaining to FTZ authority or activity (including 
activation by CBP);
    (ii) Approving, or being a party to, a zone participant's agreement 
with the grantee (or person acting on behalf of the grantee) pertaining 
to FTZ authority or activity (including activation by CBP); or
    (iii) Overseeing zone participants' operations on behalf of a 
grantee.
    (2) Key categories of persons are:
    (i) A person that currently engages in, or which has during the 
preceding twelve months engaged in, offering/providing a zone-related 
product/service to or representing a zone participant in the grantee's 
zone;
    (ii) Any person that stands to gain from a person's offer/provision 
of a zone-related product/service to or representation of a zone 
participant in the zone; or
    (iii) Any person related, as defined in paragraph (e) of this 
section, to the person identified in paragraphs (d)(2)(i) and (ii) of 
this section.
    (e) Definition of related persons. For purposes of this section, 
persons that are related include:
    (1) Members of a family or members of a household. The term members 
of a family means spouses, parents, grandparents, children, 
grandchildren, siblings (including half-siblings and step-siblings), 
aunts, uncles, nieces, nephews, and first cousins, as well as the 
parents, children, and siblings of a spouse, and the spouse of a 
sibling, child or parent;
    (2) Organizations that are wholly or majority-owned by members of 
the same family or members of the same household;
    (3) An officer or director of an organization and that 
organization;
    (4) Partners;
    (5) Employers and their employees;
    (6) An organization and any person directly or indirectly owning, 
controlling, or holding with power to vote, 20 percent or more of the 
outstanding voting stock or shares of that organization;
    (7) Any person that controls any other person and that other person 
(the term control means the power, direct or indirect, whether or not 
exercised, through any means, to determine, direct,

[[Page 12151]]

or decide important matters affecting an entity); or
    (8) Any two or more persons who directly control, are controlled 
by, or are under common control with, any person (see definition of 
control in paragraph (e)(7) of this section).
    (f) Waivers. The grantee or other person subject to paragraph (d) 
of this section may submit an application requesting that the Board 
issue a waiver exempting from the prohibition of that paragraph a 
person's undertaking a specific key function(s) listed in paragraph 
(d)(1) of this section. Using the format developed by the Executive 
Secretary, an application for a waiver shall explain in detail how the 
person falls within a key category(ies) set out in paragraph (d)(2) of 
this section, and the specific key function(s) listed in paragraph 
(d)(1) of this section that would be undertaken by the person. After 
receipt of an application requesting a waiver, the Executive Secretary 
may solicit additional information or clarification, as necessary, 
including from the person submitting the application and from the 
grantee. Based on the information presented in the application, the 
Executive Secretary shall make a recommendation to the Board. A waiver 
shall be authorized only by an affirmative vote by the Board. If the 
Board votes not to authorize a waiver or to discontinue a waiver, the 
applicant shall be notified in writing and allowed 30 days to present 
evidence in response. In deciding whether to grant a waiver, the Board 
shall determine whether there is an unacceptable risk that the waiver 
would result in non-uniform treatment being afforded by the person 
undertaking a key function(s) listed in paragraph (d)(1) of this 
section. In its assessment, the Board shall consider the specific 
circumstances presented, including the nature and extent of the 
person's involvement in undertaking a key function(s) listed in 
paragraph (d)(1) of this section. In general, the more significant the 
requester's involvement or interest in the undertaking of a key 
function(s) listed in paragraph (d)(1) of this section or activity(ies) 
identified in paragraph (d)(2)(i) of this section, the greater the risk 
will be that non-uniform treatment will be afforded and, thus, the less 
likely it will be that a waiver will be granted. The Board may attach 
to individual waivers such conditions or limitations (including, for 
example, the length of time a waiver is to be effective) as it deems 
necessary.
    (g) Requests for determinations. A grantee or other party may 
request a determination by the Executive Secretary regarding the 
consistency of an actual or potential arrangement with the requirements 
of this section.
    (h) Identification of person undertaking function(s) on behalf of 
grantee. The Board, the Commerce Department's Assistant Secretary for 
Import Administration, or the Executive Secretary, may require a zone 
grantee to identify any person undertaking a zone-related function(s) 
on behalf of the grantee.
    (i) Delayed compliance date. If, as of April 30, 2012, existing 
business arrangements do not comply with the requirements of paragraphs 
(a) and (d) of this section, such existing arrangements shall be 
terminated or brought into compliance no later than February 28, 2014.


Sec.  400.44  Zone schedule.

    (a) In general. The zone grantee shall submit to the Executive 
Secretary (in both paper and electronic copies) a zone schedule which 
sets forth the elements required in this section. No element of a zone 
schedule (including any amendment to the zone schedule) may be 
considered to be in effect until such submission has occurred. If 
warranted, the Board may subsequently amend the requirements of this 
section by Board Order.
    (b) Each zone schedule shall include:
    (1) A title page, which shall include the name of the zone grantee 
and the date of the current schedule;
    (2) A table of contents;
    (3) Internal rules/regulations and policies for the zone;
    (4) All rates or charges assessed by or on behalf of the grantee;
    (5) Information regarding any operator which has an agreement with 
the grantee to offer services to the public, including the operator's 
rates or charges for all zone-specific services offered; and
    (6) An appendix with definitions of any FTZ-related terms used in 
the zone schedule (as needed).
    (c) The Executive Secretary may review the zone schedule (or any 
amendment to the zone schedule) to determine whether it contains 
sufficient information for zone participants concerning the operation 
of the zone and the grantee's rates and charges as provided in 
paragraphs (b)(3) and (b)(4) of this section. If the Executive 
Secretary determines that the zone schedule (or amendment) does not 
satisfy these requirements, the Executive Secretary shall notify the 
zone grantee. The Executive Secretary may also conduct a review under 
400.45(b).
    (d) Amendments to the zone schedule shall be prepared and submitted 
in the manner described in paragraph (a) of this section, and listed in 
the concluding section of the zone schedule, with dates. No rates/
charges or other provisions required for the zone schedule may be 
applied by, or on behalf of, the grantee unless those specific rates/
charges or provisions are included in the most recent zone schedule 
submitted to the Board and made available to the public in compliance 
with paragraph (e) of this section.
    (e) Availability of zone schedule. A complete copy of the zone 
schedule shall be freely available for public inspection at the offices 
of the zone grantee and any operator offering FTZ services to the user 
community. The Board shall make copies of zone schedules available on 
its Web site.
    (f) Delayed compliance date. The compliance date for the 
requirements of this section shall be February 28, 2014.


Sec.  400.45  Complaints related to public utility and uniform 
treatment.

    (a) In general. A zone participant may submit to the Executive 
Secretary a complaint regarding conditions or treatment that the 
complaining party believes are inconsistent with the public utility and 
uniform treatment requirements of the FTZ Act and these regulations. 
Complaints may be made on a confidential basis, if necessary. Grantees 
(and persons undertaking zone-related functions on behalf of grantees, 
where applicable) shall not enter into or enforce provisions of 
agreements or contracts with zone participants that would require zone 
participants to disclose to other parties, including the grantee (or 
person undertaking a zone-related function(s) on behalf of a grantee, 
where applicable), any confidential communication with the Board under 
this section.
    (b) Objections to rates and charges. A zone participant showing 
good cause may object to any rate or charge related to the zone on the 
basis that it is not fair and reasonable by submitting to the Executive 
Secretary a complaint in writing with supporting information. If 
necessary, such a complaint may be made on a confidential basis 
pursuant to Sec.  400.45(a). The Executive Secretary shall review the 
complaint and issue a report and decision, which shall be final unless 
appealed to the Board within 30 days. The Board or the Executive 
Secretary may otherwise initiate a review for cause. The primary factor 
considered in reviewing fairness and reasonableness is the cost of the 
specific services rendered. Where those costs incorporate charges to 
the grantee by

[[Page 12152]]

one or more parties undertaking functions on behalf of the grantee, the 
Board may consider the costs incurred by those parties (using best 
estimates, as necessary). The Board will also give consideration to any 
extra costs incurred relative to non-zone operations, including return 
on investment and reasonable out-of-pocket expenses.


Sec.  400.46  Grantee liability.

    (a) Exemption from liability. A grant of authority, per se, shall 
not be construed to make the zone grantee liable for violations by zone 
participants. The role of the zone grantee under the FTZ Act and the 
Board's regulations is to provide general management of the zone to 
ensure that the reasonable needs of the business community are served. 
It would not be in the public interest to discourage public entities 
from zone sponsorship because of concern about liability without fault.
    (b) Exception to exemption from liability. A grantee could create 
liability for itself that otherwise would not exist if the grantee 
undertakes detailed operational oversight of or direction to zone 
participants. Examples of detailed operational oversight or direction 
include review of an operator's inventory-control or record-keeping 
systems, specifying requirements for such a system to be used by an 
operator, and review of CBP documentation related to an operator's zone 
receipts and shipments.


Sec.  400.47  Retail trade.

    (a) In general. Retail trade is prohibited in activated areas of 
zones, except that 1) sales or other commercial activity involving 
domestic, duty-paid, and duty-free goods may be conducted within an 
activated area of a zone under a permit issued by the zone grantee and 
approved by the Board, and 2) no permits shall be necessary for sales 
involving domestic, duty-paid or duty-free food and non-alcoholic 
beverage products sold within the zone or subzone for consumption on 
premises by individuals working therein. The Executive Secretary shall 
determine whether an activity is retail trade, subject to review by the 
Board when the zone grantee requests such a review with a good cause. 
Determinations on whether an activity constitutes retail trade shall be 
based on precedent established through prior rulings by CBP, as 
appropriate. Such prior rulings shall remain effective unless a 
determination is issued to modify their effect (after a notice-and-
comment process, as appropriate). Determinations made by the Executive 
Secretary pursuant to this section shall be made available to the 
public via the Board's Web site.
    (b) Procedure. Requests for Board approval under this section shall 
be submitted in letter form, with supporting documentation, to the 
Executive Secretary, who is authorized to act for the Board in these 
cases, after consultation with CBP as necessary.
    (c) Criteria. In evaluating requests under this section, the 
Executive Secretary and CBP shall consider factors that may include:
    (1) Whether any public benefits would result from approval; and
    (2) The economic effect such activity would have on the retail 
trade outside the zone in the port of entry area.


Sec.  400.48  Zone-restricted merchandise.

    (a) In general. Merchandise in zone-restricted status (19 CFR 
146.44) may be entered into the customs territory of the United States 
only when the Board determines that the entry would be in the public 
interest. Such entries are subject to the customs laws and the payment 
of applicable duties and excise taxes (19 U.S.C. 81c(a), 4th proviso).
    (b) Criteria. In making the determination described in paragraph 
(a) of this section, the Board shall consider:
    (1) The intent of the parties;
    (2) Why the merchandise cannot be exported;
    (3) The public benefit involved in allowing entry of the 
merchandise; and
    (4) The recommendation of CBP.
    (c) Procedure. (1) A request for authority to enter ``zone-
restricted'' merchandise into U.S. customs territory shall be made to 
the Executive Secretary in letter form by the zone grantee or by the 
operator responsible for the merchandise (with copy to the grantee), 
with supporting information and documentation.
    (2) The Executive Secretary shall investigate the request and 
prepare a report for the Board.
    (3) The Executive Secretary may act for the Board under this 
section with respect to requests that involve merchandise valued at 
500,000 dollars or less and that are accompanied by a letter of 
concurrence from CBP.


Sec.  400.49  Monitoring and reviews of zone operations and activity.

    (a) In general. Ongoing zone operation(s) and activity may be 
reviewed by the Board or the Executive Secretary at any time to 
determine whether they are in the public interest and in compliance and 
conformity with the Act and regulations, as well as authority approved 
by the Board. Reviews involving production activity may also be 
conducted to determine whether there are changed circumstances that 
raise questions as to whether the activity is detrimental to the public 
interest, taking into account the factors enumerated in Sec.  400.27. 
The Board may prescribe special monitoring requirements in its 
decisions when appropriate.
    (b) Conduct of reviews. Reviews may be initiated by the Board, the 
Commerce Department's Assistant Secretary for Import Administration, or 
the Executive Secretary; or, they may be undertaken in response to 
requests from parties directly affected by the activity in question 
showing good cause based on the provision of information that is 
probative and substantial in addressing the matter in issue. After 
initiation of a review, any affected party shall provide in a timely 
manner any information requested as part of the conduct of the review. 
If a party fails to timely provide information requested as part of 
such a review, a presumption unfavorable to that party may be made.
    (c) Prohibition or restriction. Upon review, if a finding is made 
that zone activity is no longer in the public interest (taking into 
account the factors enumerated in Sec.  400.27 where production 
activity is involved), the Board or the Commerce Department's Assistant 
Secretary for Import Administration may prohibit or restrict the 
activity in question. Such prohibitions or restrictions may be put in 
place after a preliminary review (e.g., prior to potential steps such 
as a public comment period) if circumstances warrant such action until 
further review can be completed. The procedures of Sec.  
400.34(a)(5)(iv)(A) shall be followed to notify the grantee of the 
affected zone and allow for a response prior to the final imposition of 
a prohibition or restriction. The appropriateness of a delayed 
effective date shall be considered.

Subpart F--Records, Reports, Notice, Hearings and Information


Sec.  400.51   Records and reports.

    (a) Records and forms. Zone records and forms shall be prepared and 
maintained in accordance with the requirements of CBP and the Board, 
consistent with documents issued by the Board specific to the zone in 
question, and the zone grantee shall retain copies of applications/
requests it submits to the Board in electronic or paper format.
    (b) Maps and drawings. Zone grantees or operators, and CBP, shall 
keep

[[Page 12153]]

current layout drawings of approved sites as described in Sec.  
400.21(d)(5), showing activated portions, and a file showing required 
activation approvals. The zone grantee shall furnish necessary maps to 
CBP.
    (c) Annual reports. (1) Each zone grantee shall submit a complete 
and accurate annual report to the Board within 90 days after the end of 
the reporting period. Each zone operator shall submit a complete and 
accurate annual report to the zone grantee in a timeframe that will 
enable the grantee's timely submission of a complete and accurate 
annual report to the Board. A zone grantee may request an extension of 
the deadline for its report, as warranted. The Executive Secretary may 
authorize such extensions, with decisions on such authorizations taking 
into account both the circumstances presented and the importance of the 
Board submitting its annual report to Congress in a timely manner. 
Annual reports must be submitted in accordance with any instructions, 
guidelines, forms and related documents specifying place, manner and 
format(s) prescribed by the Executive Secretary. In the event that a 
grantee has not received all necessary annual report information from 
an operator in a timely manner, the grantee may submit its annual 
report on time and note the absence of the missing information.
    (2) The Board shall submit an annual report to Congress.


Sec.  400.52  Notices and hearings.

    (a) In general. The Executive Secretary shall publish notice in the 
Federal Register inviting public comment on applications and 
notifications for Board action (see, Sec. Sec.  400.32 and 400.37(b)), 
and with regard to other reviews or matters considered under this part 
when public comment is necessary. An applicant under Sec. Sec.  400.21, 
400.24(b) and 400.25 shall give appropriate notice of its proposal in a 
local, general-circulation newspaper at least 15 days prior to the 
close of the public comment period for the proposal in question. The 
Board, the Secretary of Commerce, the Commerce Department's Assistant 
Secretary for Import Administration, or the Executive Secretary, as 
appropriate, may schedule and/or hold hearings during any proceedings 
or reviews conducted under this part whenever necessary or appropriate.
    (b) Requests for hearings. (1) A party who may be materially 
affected by the zone activity in question and who shows good cause may 
request a hearing during a proceeding or review.
    (2) The request must be made within 30 days of the beginning of the 
period for public comment (see Sec.  400.32) and must be accompanied by 
information establishing the need for the hearing and the basis for the 
requesting party's interest in the matter.
    (3) A determination as to the need for the hearing shall be made by 
the Commerce Department's Assistant Secretary for Import Administration 
within 15 days after the receipt of such a request.
    (c) Procedure for public hearings. The Board shall publish notice 
in the Federal Register of the date, time and location of a public 
hearing. All participants shall have the opportunity to make a 
presentation. Applicants and their witnesses shall ordinarily appear 
first. The presiding officer may adopt time limits for individual 
presentations.


Sec.  400.53  Official records; public access.

    (a) Content. The Executive Secretary shall maintain at the location 
stated in Sec.  400.54(e) an official record of each proceeding within 
the Board's jurisdiction. The Executive Secretary shall include in the 
official record all timely evidence, factual information, and written 
argument, and other material developed by, presented to, or obtained by 
the Board in connection with the proceeding. While there is no 
requirement that a verbatim record shall be kept of public hearings, 
the proceedings of such hearings shall ordinarily be recorded and 
transcribed when significant opposition to a proposal is involved.
    (b) Opening and closing of official record. The official record 
opens on the date the Executive Secretary dockets an application or 
receives a request or notification that satisfies the applicable 
requirements of this part and closes on the date of the final 
determination in the proceeding or review, as applicable.
    (c) Protection of the official record. Unless otherwise ordered in 
a particular case by the Executive Secretary, the official record shall 
not be removed from the Department of Commerce. A certified copy of the 
record shall be made available to any court before which any aspect of 
a proceeding is under review, with appropriate safeguards to prevent 
disclosure of business proprietary or privileged information.


Sec.  400.54  Information.

    (a) Request for information. The Executive Secretary, on behalf of 
the Board, may request submission of any information, including 
business proprietary information, and written argument necessary or 
appropriate to the proceeding.
    (b) Public information. Except as provided in paragraph (c) of this 
section, the Board shall consider all information submitted in a 
proceeding to be public information, and if the person submitting the 
information does not agree to its public disclosure, the Board shall 
return the information and not consider it in the proceeding. 
Information to meet the basic requirements of Sec. Sec.  400.21-400.25 
is inherently public information to allow meaningful public evaluation 
pursuant to those sections and Sec.  400.32.
    (c) Business proprietary information. Persons submitting business 
proprietary information and requesting that it be protected from public 
disclosure shall mark the cover page, as well as the top of each page 
on which such information appears, ``business proprietary.'' Any 
business proprietary document submitted for a proceeding other than 
pursuant to Sec.  400.45 shall contain brackets at the beginning and 
end of each specific piece of business proprietary information 
contained in the submission. Any such business proprietary submission 
shall also be accompanied by a public version that contains all of the 
document's contents except the information bracketed in the business 
proprietary version, with the cover page and the top of each additional 
page marked ``public version.'' Any information for which business 
proprietary treatment is claimed must be ranged (i.e., presented as a 
number or upper and lower limits that approximate the specific business 
proprietary figure) or summarized in the public version. If a 
submitting party maintains that certain information is not susceptible 
to summarization or ranging, the public version must provide a full 
explanation specific to each such piece of information regarding why 
summarization or ranging is not feasible.
    (d) Disclosure of information. Disclosure of public information 
shall be governed by 15 CFR part 4.
    (e) Availability of information. Public information in the official 
record shall be available at the Office of the Executive Secretary, 
Foreign-Trade Zones Board, U.S. Department of Commerce Building, 1401 
Constitution Avenue NW., Washington, DC 20230 and may also be available 
electronically over the Internet via https://www.trade.gov/ftz (or a 
successor Internet address).

[[Page 12154]]

Subpart G--Penalties and Appeals to the Board


Sec.  400.61  Revocation of authority.

    (a) In general. As provided in this section, the Board can revoke 
in whole or in part authority for a zone or subzone whenever it 
determines that the zone grantee has violated, repeatedly and 
willfully, the provisions of the Act.
    (b) Procedure. When the Board has reason to believe that the 
conditions for revocation, as described in paragraph (a) of this 
section, are met, the Board shall:
    (1) Notify the grantee of the zone in question in writing stating 
the nature of the alleged violations, provide the grantee an 
opportunity to request a hearing on the proposed revocation, and notify 
any known operators in the zone;
    (2) Conduct a hearing, if requested or otherwise if appropriate;
    (3) Make a determination on the record of the proceeding not 
earlier than four months after providing notice to the zone grantee 
under paragraph (b)(1) of this section; and
    (4) If the Board's determination is affirmative, publish a notice 
of revocation of authority, in whole or in part, in the Federal 
Register.
    (c) As provided in section 18 of the Act (19 U.S.C. 81r(c)), the 
grantee of the zone or subzone in question may appeal an order of the 
Board revoking authority.


Sec.  400.62  Fines, penalties and instructions to suspend activated 
status.

    (a) In general. Fines are authorized solely for specific violations 
of the FTZ Act or the Board's regulations as detailed in Sec. Sec.  
400.62(b) and (c). Each specific violation is subject to a fine of not 
more than 1,000 dollars (as adjusted for inflation pursuant to Sec.  
400.62(j)), with each day during which a violation continues 
constituting a separate offense subject to imposition of such a fine 
(FTZ Act, section 19; 19 U.S.C. 81s). This section also establishes the 
party subject to the fine which, depending on the type of violation, 
would be the zone operator, grantee, or a person undertaking one or 
more zone-related functions on behalf of the grantee, where applicable. 
In certain circumstances, the Board or the Assistant Secretary for 
Import Administration could instruct CBP to suspend the activated 
status of all or part of a zone or subzone. Violations of the FTZ Act 
or the Board's regulations (including the sections pertaining to 
uniform treatment and submission of annual reports), failure to pay 
fines, or failure to comply with an order prohibiting or restricting 
activity may also result in the Executive Secretary's suspending the 
processing of any requests to the Board and staff relating to the zone 
or subzone in question. In circumstances where non-compliance pertains 
to only a subset of the operations in a zone, suspensions of activated 
status and suspensions of the processing of requests shall be targeted 
to the specific non-compliant operation(s).
    (b) Violations involving requirement to submit annual report. A 
grantee's failure to submit a complete and accurate annual report 
pursuant to section 16 of the FTZ Act (19 U.S.C. 81p(b)) and Sec.  
400.51(c)(1) of these regulations constitutes a violation subject to a 
fine, with each day of continued failure to submit the report 
constituting a separate offense subject to a fine of not more than 
1,000 dollars (as adjusted for inflation pursuant to Sec.  400.62(j)). 
Further, each day during which a zone operator fails to submit to the 
zone's grantee the information required for the grantee's timely 
submission of a complete and accurate annual report to the Board shall 
constitute a separate offense subject to a fine of not more than 1,000 
dollars (as adjusted for inflation pursuant to Sec.  400.62(j)). 
Consistent with Sec.  400.46, if the grantee submits a timely report to 
the Board identifying any operator that has not provided complete and 
timely information in response to a timely request(s) by the grantee, 
the grantee shall not be subject to a fine-assessment action stemming 
from the operator's failure to timely provide its report.
    (c) Violations involving uniform treatment. Failure by a grantee or 
a person undertaking one or more zone-related functions on behalf of 
the grantee to comply with the uniform treatment requirement of section 
14 of the FTZ Act (19 U.S.C. 81n) or the provisions of Sec.  400.43 of 
these regulations constitutes a violation, with each day of continued 
violation constituting a separate offense subject to a fine of not more 
than 1,000 dollars (as adjusted for inflation pursuant to Sec.  
400.62(j)).
    (d) Procedures for determination of violations and imposition of 
fines. When the Board or the Executive Secretary has reason to believe 
that a violation pursuant to Sec. Sec.  400.62(b) and (c) has occurred 
and that the violation warrants the imposition of a fine (such as a 
situation where a party has previously been notified of action required 
for compliance and has failed to take such action within a reasonable 
period of time), the following steps shall be taken:
    (1) The Executive Secretary shall notify the party or parties 
responsible for the violation and the zone grantee in writing stating 
the nature of the alleged violation, and provide the party(ies) a 
specified period (no less than 30 days, with consideration given to any 
requests for an extension, which shall not be unreasonably withheld) to 
respond in writing;
    (2) The Executive Secretary shall conduct a hearing, if requested 
or otherwise if appropriate. Parties may be represented by counsel at 
the hearing, and any evidence and testimony of witnesses in the 
proceeding shall be presented. A transcript of the hearing shall be 
produced and a copy shall be made available to the parties;
    (3) The Executive Secretary shall make a recommendation on the 
record of the proceeding not earlier than the later of 15 days after 
the deadline for the party(ies)'s response under paragraph (d)(1) of 
this section or 15 days after the date of a hearing held under 
paragraph (d)(2) of this section. If the recommendation is for an 
affirmative determination of a violation, the Executive Secretary shall 
also recommend the amount of the fine to be imposed; and
    (4) The Board shall make a determination regarding the finding of a 
violation and imposition of a fine based on the Executive Secretary's 
recommendation under paragraph (d)(3) of this section. For related 
actions where the total sum of recommended fines is no more than 10,000 
dollars (50,000 dollars in the case of violations pursuant to paragraph 
(b) of this section), the Board delegates to the Executive Secretary 
the authority to make a determination.
    (e) Mitigation--(1) In general. The Commerce Department's Assistant 
Secretary for Import Administration may approve the mitigation 
(reduction or elimination) of an imposed fine based on specific 
evidence presented by the affected party. Authority is delegated to the 
Executive Secretary to mitigate a fine where the total sum of fines 
imposed on a party for related actions does not exceed 10,000 dollars 
(50,000 dollars in the case of violations pursuant to paragraph (b) of 
this section). Mitigating evidence and argument pertaining to 
mitigating factors must be submitted within 30 days of the 
determination described in paragraph (d)(4) of this section, subject to 
requests for extension for cause, the granting of which shall not be 
unreasonably withheld.
    (2) Mitigating factors. Factors to be taken into account in 
evaluating potential mitigation include:

[[Page 12155]]

    (i) A good record of a violator over the preceding five years with 
regard to the type of violation(s) at issue;
    (ii) The violation was due to the action of another party despite 
violator's adherence to the requirements of the FTZ Act and the Board's 
regulations;
    (iii) Immediate remedial action by the violator to avoid future 
violations;
    (iv) A violator's cooperation with the Board (beyond the degree of 
cooperation expected from a person under investigation for a violation) 
in ascertaining the facts establishing the violation;
    (v) A violation's resulting from a clerical error or similar 
unintentional negligence; and
    (vi) Such other factors as the Board, or the Executive Secretary, 
deems appropriate to consider in the specific circumstances presented.
    (f) Assessment of fines. After evaluating submitted mitigating 
evidence and argument, where applicable, the Commerce Department's 
Assistant Secretary for Import Administration may assess an imposed 
fine (in whole or in part). Authority is delegated to the Executive 
Secretary to assess a fine where the total sum of the imposed fines for 
related actions does not exceed 10,000 dollars (50,000 dollars in the 
case of violations pursuant to paragraph (b) of this section).
    (g) Time for payment. Full payment of an assessed fine must be made 
within 30 days of the date of the assessment or within such longer 
period of time as may be specified. Payment shall be made in the manner 
specified by the Commerce Department's Assistant Secretary for Import 
Administration or the Executive Secretary.
    (h) Procedures for instruction to suspend activated status. If a 
fine assessed pursuant to Sec. Sec.  400.62(d) through (g) has not been 
paid within 90 days of the specified deadline for payment, if there is 
a repeated and willful failure to comply with a requirement of the FTZ 
Act or the Board's regulations, or if there is a repeated and willful 
failure to comply with a prohibition or restriction on activity imposed 
by an order of the Board or an order of the Commerce Department's 
Assistant Secretary for Import Administration pursuant to Sec.  
400.49(c), the Board or the Commerce Department's Assistant Secretary 
for Import Administration may instruct CBP to suspend the activated 
status of the zone operation(s) in question (or, if appropriate, the 
suspension may be limited to a particular activity of a zone operator, 
such as suspension of the privilege to admit merchandise), and the 
suspension shall remain in place until the failure to pay a fine, 
failure to comply with a requirement of the FTZ Act or the Board's 
regulations, or failure to comply with an order's prohibition or 
restriction on activity has been remedied. In determining whether to 
instruct CBP to suspend the activated status of a zone operation in the 
circumstances noted, the following steps shall be taken:
    (1) Notification of party(ies). The Executive Secretary shall 
notify the responsible party(ies) in writing stating the nature of the 
failure to timely pay a fine, to comply with a requirement of the FTZ 
Act or the Board's regulations or to comply with a prohibition or 
restriction on activity imposed by an order of the Board or an order of 
the Commerce Department's Assistant Secretary for Import 
Administration. If the grantee is not one of the responsible parties 
notified, the Executive Secretary shall also provide a copy of the 
notification to the grantee. The responsible party(ies) shall be 
provided a specified period (of not less than 15 days) to respond in 
writing to the notification;
    (2) Hearing. If the notified responsible party(ies) or the zone's 
grantee requests a hearing (or if a hearing is determined to be 
warranted by the Board, the Commerce Department's Assistant Secretary 
for Import Administration or the Executive Secretary), it shall be held 
before the Executive Secretary (or a member of the Board staff 
designated by the Executive Secretary) within 30 days following the 
request for a hearing (or the determination by the Board, the Commerce 
Department's Assistant Secretary for Import Administration or the 
Executive Secretary). Parties may be represented by counsel at the 
hearing, and any evidence and testimony of witnesses in the proceeding 
shall be presented. A transcript of the hearing shall be produced and a 
copy shall be made available to the parties;
    (3) The Executive Secretary shall make a recommendation on the 
record of the proceeding not earlier than 15 days after the later of:
    (i) The deadline for the party(ies)'s response under paragraph 
(h)(1) of this section; or
    (ii) The date of a hearing held under paragraph (h)(2) of this 
section; and
    (4) The Board or the Commerce Department's Assistant Secretary for 
Import Administration shall determine whether to instruct CBP to 
suspend the activated status of the zone operation(s) in question. If 
the determination is affirmative, the Executive Secretary shall convey 
the instruction to CBP, with due consideration to allow for the 
transfer of any affected merchandise from the applicable zone site(s).
    (i) Enforcement of assessment. Upon any failure to pay an assessed 
fine, the Board may request the U.S. Department of Justice to recover 
the amount assessed in any appropriate district court of the United 
States or may commence any other lawful action.
    (j) Adjustment for inflation. The maximum dollar value of a fine 
for a violation of the FTZ Act or the Board's regulations is subject to 
adjustment for inflation pursuant to the Federal Civil Penalties 
Inflation Adjustment Act of 1990 (Pub. L. 101-410), as amended by the 
Debt Collection Improvement Act of 1996 (Pub. L. 104-134).


Sec.  400.63  Appeals to the Board of decisions of the Assistant 
Secretary for Import Administration and the Executive Secretary.

    (a) In general. Decisions of the Commerce Department's Assistant 
Secretary for Import Administration and the Executive Secretary made 
pursuant to this part may be appealed to the Board by adversely 
affected parties showing good cause.
    (b) Procedures. Parties appealing a decision under paragraph (a) of 
this section shall submit a request for review to the Board in writing, 
stating the basis for the request, and attaching a copy of the decision 
in question, as well as supporting information and documentation. After 
a review, the Board shall notify the appealing party of its decision in 
writing.

[FR Doc. 2012-4249 Filed 2-27-12; 8:45 am]
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