[Federal Register Volume 62, Number 47 (Tuesday, March 11, 1997)]
[Proposed Rules]
[Pages 11142-11147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5992]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

48 CFR Parts 225, 242, and 252

[DFARS Case 96-D020]


Defense Federal Acquisition Regulation Supplement; Duty-Free 
Entry

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comment.

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

SUMMARY: The Director of Defense Procurement is proposing to amend the 
Defense Federal Acquisition Regulation Supplement (DFARS) to clarify 
guidance regarding duty-free entry of supplies and implementation of 
the North American Free Trade Agreement (NAFTA).

DATES: Comment date: Comments on the proposed rule should be submitted 
in writing to the address shown below on or before May 12, 1997, to be 
considered in the formulation of the final rule.

ADDRESSES: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, Attn: Ms. Amy Williams, PDUSD 
(A&T)DP(DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-
3062. Telefax number (703) 602-0350. Please cite DFARS Case 96-D020 in 
all correspondence related to this issue.

FOR FURTHER INFORMATION CONTACT:
Ms. Amy Williams (703) 602-0131.

SUPPLEMENTARY INFORMATION:

A. Background

    This proposed rule does not constitute a change in policy. It is 
intended to clarify and consistently apply the existing policy 
regarding duty-free entry of supplies under DoD contracts. DoD 
generally waives duty on defense supplies (end products or components) 
from qualifying countries; on eligible products subject to the Trade 
Agreements Act or the North American Free Trade Agreement; and on other 
foreign supplies if the cost of processing the duty-free entry 
certificates will not exceed the amount of duty that would be paid. 
This proposed rule more accurately focuses the prescriptions for use of 
duty-free entry clauses; limits the required listing of supplies under 
the clause at 252.225-7008, Supplies to be Accorded Duty-Free Entry, to 
foreign end products that are neither qualifying country supplies nor 
eligible end products; adds an Alternate I to the clause at 252.225-
7035, Buy American Act-North American Free Trade Agreement 
Implementation Act-Balance of Payments Program Certificate, for 
contracts under $50,000, and expands Alternate I of the clause at 
252.225-7036, North American Free Trade Agreement Implementation Act, 
to clarify that, when under $50,000, the offered price of Mexican end 
products must include any applicable duty; expands the clause at 
252.225-7037, Duty-Free Entry-Eligible End Products, to cover all 
eligible end products, not only NAFTA country supplies; and clarifies 
that notification to the Commander, Defense Contract Management 
Command, is not required in those instances where shipments are 
consigned to a contractor's plant and no duty-free entry certificate is 
required.

B. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because it does 
not constitute a change in policy but is a clarification of 
implementing procedures pertaining to duty-free entry of supplies and 
the North American Free Trade Agreement. Comments are invited from 
small businesses and other interested parties. Comments from small 
entities concerning the affected DFARS subparts also will be considered 
in accordance with 5 U.S.C. 610. Such comments should be submitted 
separately and should cite DFARS Case 96-D020 in correspondence.

[[Page 11143]]

C. Paperwork Reduction Act

    This proposed rule does not impose any new information collection 
requirements that require the approval of the Office of Management and 
Budget (OMB) under 44 U.S.C. 3501, et seq. The information collection 
requirements contained in the clause at DFARS 252.225-7003 are approved 
under OMB Clearance Number 0704-0187; the other information collection 
requirements contained in DFARS Part 225 and the associated clauses in 
Part 252 are approved under OMB Clearance Number 0704-0229. It is 
estimated that the clarifying amendments proposed in this rule will 
result in a reduction of 486,000 hours in the paperwork burden approved 
under OMB Clearance Number 0704-0187, and a reduction of 8,200 hours in 
the paperwork burden approved under OMB Clearance Number 0704-0229.

List of Subjects in 48 CFR Parts 225, 242, and 252

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.
    Therefore, 48 CFR Parts 225, 242, and 252 are proposed to be 
amended as follows:
    1. The authority citation for 48 CFR Parts 225, 242, and 252 
continues to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 225--FOREIGN ACQUISITION

    2. Section 225.105 is amended by revising the introductory text; by 
removing paragraph (3); by redesignating paragraphs (1) AND (2) as 
paragraphs (2) and (3), respectively; by adding a new paragraph (1); by 
revising newly designated paragraphs (2) and (3) in the introductory 
text; by revising newly designated paragraph (3) (ii); and by revising 
Examples 2 and 3 of Table 25-1 to read as follows:


225.105  Evaluating offers.

    Use the following procedures instead of those in FAR 25.105. For 
additional procedures relating to evaluation of offers, see 225.303(b) 
Balance of Payments Program), 225.603 (customs and duties), and 
225.872-4 (qualifying country sources).
    (1) Treat offers of eligible end products under acquisitions 
subject to the Trade Agreements Act or NAFTA as if they were qualifying 
country offers. As used in this section, the term ``nonqualifying 
country offer'' also may apply to an offer that is not an eligible 
offer under a trade agreement (see Example 4 of Table 25-1, 
Evaluation).
    (2) Except as provided in paragraph (3) of this section, evaluate 
offers by adding a 50 percent factor to the price (including duty) of 
each nonqualifying country offer (see Example 1 of Table 25-1, 
Evaluation).
* * * * *
    (3) When application of the factor would not result in the award of 
a domestic end product, i.e., when no domestic offers are received (see 
Example 3 of Table 25-1, Evaluation) or when a qualifying country offer 
is lower than the domestic offer (see Example 2 of Table 25-1, 
Evaluation), evaluate nonqualifying country offers without the 50 
percent factor.
* * * * *
    (ii) If duty is not to be exempted, evaluate the nonqualifying 
country offer inclusive of duty. (See Examples 2 and 3, Alternate I, of 
Table 25-1, Evaluation.)
* * * * *

                         Table 25-1.--Evaluation                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                EXAMPLE 2                               
------------------------------------------------------------------------
Alternate I: Duty Not Exempted for Nonqualifying Country                
 Offers:                                                                
    Nonqualifying Country Offer (including $100 duty)......       $6,000
    Domestic Offer.........................................        8,500
    Qualifying Country Offer...............................       7,800 
  Award on Nonqualifying Country Offer. Since the qualifying country    
offer is lower than the domestic offer, the nonqualifying country offer 
is evaluated without the factor. Since duty is not being exempted for   
nonqualifying country offers, the offer is evaluated and award is made  
at the price inclusive of duty ($6,000).                                
Alternate II: Duty Exempted:                                            
    Nonqualifying Country Offer............................     $880,500
    Domestic Offer.........................................      950,000
    Qualifying Country Offer...............................      880,000
  Award on Nonqualifying Country Offer. Again, the qualifying country   
offer is lower than the domestic offer. The nonqualifying country offer 
is, therefore, evaluated without the factor. Since duty is being        
exempted for nonqualifying country offers, the duty identified by the   
offeror is subtracted from the offered price, which is evaluated and    
awarded at $879,500.                                                    
                                                                        
------------------------------------------------------------------------
                                EXAMPLE 3                               
------------------------------------------------------------------------
Alternate I: Duty Not Exempted for Nonqualifying Country                
 Offers:                                                                
    Nonqualifying Country Offer (including $150 duty)......       $9,600
    Qualifying Country Offer...............................        9,500
  Award on Qualifying Country Offer. Since no domestic offers are       
received, the nonqualifying country offer is evaluated without the      
evaluation factor. Since duty is not being exempted and would be paid by
the Government, the nonqualifying country offer is evaluated inclusive  
of duty.                                                                
Alternate II: Duty Exempted:                                            
    Nonqualifying Country Offer (including $1,000 duty)....     $880,500
    Qualifying Country Offer...............................      880,000
  Award on Nonqualifying Country Offer. Since no domestic offers are    
received, the nonqualifying country offer is evaluated without the      
evaluation factor. Since duty is being exempted, duty is subtracted from
the nonqualifying country offer, which is evaluated and awarded at      
$879,500.                                                               
------------------------------------------------------------------------

225.109-70  [Amended]

    3. Section 225.109-70 is amended by removing paragraph (b) and by 
redesignating paragraph (c) as paragraph (b).
    4. Section 225.408 is amended by redesignating paragraph (a)(3) as

[[Page 11144]]

paragraph (a)(3)(A), and by adding paragraph (a)(3)(B) to read as 
follows:


225.408  Solicitation provisions and contract clauses.

    (a) * * *
    (3) * * *
    (B)(i) Use the basic provision when the basic clause at 252.225-
7036 is used.
    (ii) Use the provision with its Alternate I when the clause at 
252.225-7036 is used with its Alternate I.
* * * * *
    5. Section 225.602 is amended by revising the introductory text of 
paragraph (3) to read as follows:


225.602  [Amended]

* * * * *
    (3) Unless the supplies are entitled to duty-free treatment under a 
special category in the Harmonized Tariff Schedule of the United States 
(e.g., the Caribbean Basin Economic Recovery Act or NAFTA), or unless 
the supplies already have entered into the customs territory of the 
United States and duty already has been paid, DOD will issue duty-free 
entry certificates for--
* * * * *
    6. Section 225.603 is amended by redesignating the text preceding 
paragraph (b) as paragraph (a), and by revising it to read as follows:


225.603  Procedures.

    (a) General.
    (i) Preaward.
    (A) Unless duty was paid prior to submission of the offer, an offer 
of domestic end products with no nonqualifying country components, an 
offer of qualifying country end products, or an offer of eligible 
products under the Trade Agreements Act or NAFTA, should not include 
duty.
    (B) Offers of U.S. made end products with nonqualifying country 
components, and offers that are neither qualifying country offers not 
offers of eligible products under a trade agreement, should contain 
applicable duty.
    (C) Apply the evaluation procedures for the Buy American Act in 
accordance with 225.105.
    (ii) Award. Exclude duty from the contract price for supplies (end 
products or components) that are to be accorded duty-free entry. If 
duty-free entry is granted to the successful offeror in accordance with 
the clause at FAR 52.225-10, Duty-free Entry, and the clause at 
252.225-7003, Information for Duty-Free Entry Evaluation, request that 
the offeror provide the list of foreign supplies that are subject to 
such duty-free entry, and list such supplies in the contract clause at 
252.225-7008, Supplies to be Accorded Duty Free-Entry.
    (iii) Postward.
    (A) Issue duty-free entry certificates for all qualifying country 
supplies in accordance with the policy at 225.602(3)(i) and the clause 
at 252.225-7009, Duty-Free Entry-Qualifying Country Supplies (End 
Products and Components); for all eligible products subject to trade 
agreements in accordance with the policy at 225.602(3)(ii) and the 
clause at 252.225-7037, Duty-Free Entry-Eligible End Products; and for 
other foreign supplies in accordance with the policy at 225.602(3)(iii) 
on contracts containing the clause at FAR 52.225-10, Duty-Free Entry, 
or (following to the extent practicable the procedures required by the 
clause at FAR 52.225-10, Duty-Free Entry, and the clause 252.225-7010, 
Duty-Free Entry-Additional Provisions) on other contracts--
    (1) That fall within one of the following categories:
    (i) Direct purchases of foreign supplies under a DOD prime 
contract, whether title passes at point of origin or at destination in 
the United States; provided the contract states that the final price is 
exclusive of duty.
    (ii) Purchases of foreign supplies by a domestic prime contractor 
under a cost-reimbursement type contract or by a cost-reimbursement 
type subcontractor (where no fixed-price prime or fixed-price 
subcontract intervenue between the purchaser and the Government), 
whether title passes at point of origin or at destination in the United 
States. If a fixed-price prime or fixed-price subcontract intervenes, 
follow the criteria stated in paragraph (a)(iii)(A)(1) (iii) of this 
section.
    (iii) Purchases of foreign supplies by a fixed-price domestic prime 
contractor, a fixed-price subcontractor, or a cost-type subcontractor 
where a fixed-price prime contract or fixed-price subcontract 
interevenes; provided the fixed-price prime contract and, where 
applicable, fixed-price subcontract prices are, or are amended to be, 
exclusive of duty;
    (2) For which the supplies so purchased will be delivered to the 
Government or incorporated in Government-owned property or in an end 
product to be furnished to the Government; and duty will be paid if 
such supplies or any portion thereof are used for other than the 
performance of the Government contract or disposed of other than for 
the benefit of the Government in accordance with the contract terms; 
and
    (3) For which such acquisition abroad is authorized by the terms of 
the contract, the subcontract, or by the contracting officer.
    (B) Under a fixed-price contract, negotiate an equitable reduction 
in the contract price if duty-free entry is granted for any 
nonqualifying country component not listed in the Schedule as duty-
free, even if contract award was based on furnishing a domestic 
component or a qualifying country component.
* * * * *
    7. Section 225.605-70 is revised to read as follows:


225.605-70  Additional solicitation provisions and contract clauses.

    (a) Use the clause at 252.225-7009, Duty-Free Entry-Qualifying 
Country Supplies (End Products and Components), in solicitations and 
contracts for supplies and in solicitations and contracts for services 
involving the furnishing of supplies, except for solicitations and 
contracts for supplies for exclusive use outside the United States.
    (b) Use the clause at 252.225-7037, Duty-Free-Entry Eligible End 
Products, in solicitations and contracts for supplies and services when 
the clause at 252.225-7007, Trade Agreements, or the clause at 252.225-
7036, North American Free Trade Agreement Implementation Act, is used.
    (c) Use the clause at 252.225-7010, Duty-Free Entry-Additional 
Provisions, in solicitations and contracts that include the clause at 
FAR 52.225-10, Duty-Free Entry.
    (d) Use the provision at 252.225-7003, Information for Duty-Free 
Entry Evaluation, in solicitations that include the clause at FAR 
52.225-10, Duty-Free Entry.
    (e) Use the clause at 252.225-7008, Supplies to be Accorded Duty-
Free Entry, in solicitations and contracts that provide for duty-free 
entry and that include the clause at FAR 52.225-10, Duty-Free Entry.

PART 242--CONTRACT ADMINISTRATION

    8. Section 242.302 is amended by revising paragraph (a)(19) to read 
as follows:


242.302  Contract administration functions.

    (a)  * * *
    (19) Also negotiate and issue contract modifications reducing 
contract prices in connection with the provisions of paragraph (b) of 
the clause at FAR 52.225-10, Duty-Free Entry.
* * * * *

[[Page 11145]]

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    9. Section 252.212-7001 is amended in paragraph (b) of the clause 
by revising the entries ``252.225-7001'' and ``252.225-7036'' to read 
as follows:


252.212-7001  Contract terms and conditions required to implement 
statutes or Executive Orders applicable to Defense acquisitions of 
commercial items.

* * * * *
    (b) * * * 
________252.225-7001  Buy American Act and Balance of Payments 
Program (41 U.S.C. 10a-10d, E.O. 10582).
* * * * *
________252.225-7036 North American Free Trade Agreement 
Implementation Act (19 U.S.C. 3301 note). (____ Alternate I)
* * * * *
    10. Section 252.225-7001 is amended by revising in the clause the 
first sentence of paragraph (c), and by revising paragraph (d) to read 
as follows:


252.225-7001  Buy American Act and Balance of Payments Program.

* * * * *
    (c) The Contractor agrees that it will deliver only domestic end 
products unless, in its offer, it specified delivery of other end 
products in the Buy American Act--Balance of Payments Program 
Certificate, the Buy American Act--Trade Agreements--Balance of 
Payments Program Certificate, or the Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of 
Payments Program Certificate. * * *
    (d) The offered price of qualifying country end products should 
not include custom fees or duty. The offered price of nonqualifying 
country end products, and products manufactured in the United States 
that contain nonqualifying country components, must include all 
applicable duty. The award price will not include duty for end 
products or components that are to be accorded duty-free entry. 
Generally, when the Buy American Act is applicable, each 
nonqualifying country offer is adjusted for its purpose of 
evaluation by adding 50 percent of the offer, inclusive of duty.

(End of clause)

    11. Section 252.225-7003 is amended by revising the introductory 
text; by revising the clause in paragraph (a) and by removing paragraph 
(d). The revised text reads as follows:


252.225-7003  Information for duty-free entry evaluation.

    As prescribed in 252.605-70(d), use the following provision:
* * * * *
    (a) Is the offer based on furnishing any supplies (i.e., end 
items, components, or material) of foreign origin other than those 
for which duty-free entry is to be accorded pursuant to the Duty-
Free Entry-Qualifying Country Supplies (End Products and Components) 
clause or, if applicable, the Duty-Free Entry-Eligible End Products 
clause of this solicitation?

    Yes (      )      No (      )
* * * * *
    12. Section 252.225-7007 is amended by revising paragraph (d) of 
the clause to read as follows:


252.225-7007  Trade Agreements.

* * * * *
    (d) the offered price of qualifying country end products and the 
offered price of designated country end products, NAFTA country end 
products, and Caribbean Basin country end products for line items 
subject to the Trade Agreements Act, or the North American Free 
Trade Agreement Implementation Act, should not include custom fees 
or duty. The offered price of end products listed under paragraph 
(c)(2)(vi) of the Buy American Act-Trade Agreements-Balanced of 
Payments Program Certificate provision of the solicitation, or the 
offered price of U.S. made end products that contain nonqualifying 
country components, must include all applicable duty. The award 
price will not include duty for end products or components that are 
to be accorded duty-free entry. Generally, each offer of a U.S. made 
end product that does not meet the definition of ``domestic end 
product'' is adjusted for the purpose of evaluation by adding 50 
percent of the offered price, inclusive of duty.

(End of clause)

    13. Section 252.225-7008 is revised to read as follows:


252.225-7008  Supplies to be accorded duty-free entry.

    As prescribed in 225.605-70(e), use the following clause:

Supplies To Be Accorded Duty-Free Entry

    In accordance with paragraph (b) of the Duty-Free Entry clause 
of this contract, in addition to duty-free entry for all qualifying 
country supplies (end products and components) and all eligible end 
products subject to applicable trade agreements (if this contract 
contains the Trade Agreements clause or the North American Free 
Trade Agreement Implementation Act clause), the following foreign 
end products that are neither qualifying country end products nor 
eligible end products under a trade agreement, and the following 
nonqualifying country components, are accorded duty-free entry:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(End of clause)

    14. Section 252.225-7009 is amended by revising the section title, 
introductory text, clause title, and paragraphs (b), (c)(f)(2)(iv), 
(f)(2)(vii), and (g)(1) to read as follows:


252.225-7009  Duty-free entry-qualifying country supplies (end products 
and components).

    As prescribed in 225.605-70(a), use the following clause:

Duty-Free Entry--Qualifying Country Supplies (End Products and 
Components)

    (a) * * *
    (b) The requirements of this clause apply to this contract and 
subcontracts, including purchase orders, that involve supplies to be 
accorded duty-free entry whether placed--
    (1) Directly with a foreign concern as a prime contract; or
    (2) As a subcontract or purchase order under a contract placed 
with a domestic concern.
    (c) Except as otherwise approved by the Contracting Officer, or 
unless supplies were imported into the United States before the date 
of this contract or, in the case of supplies imported by a first or 
lower tier subcontractor, before the date of the subcontract, no 
amount is or will be included in the contract price for duty for--
    (1) End items that are qualifying country end products; or
    (2) Components (including, without limitation, raw materials and 
intermediate assemblies) produced or made in qualifying countries, 
that are to be incorporated in the end item to be delivered under 
this contract, provided that the end items are manufactured in the 
United States or in a qualifying country.
* * * * *
    (f) * * *
    (2) * * *
    (iv)(A) For direct shipments to a U.S. military installation, 
the notation: ``UNITED STATES GOVERNMENT, DEPARTMENT OF DEFENSE 
Duty-Free Entry to be claimed pursuant to Section XXII, Chapter 98, 
Subchapter VIII, Item 9808.00.30 of the Harmonized Tariff Schedule 
of the United States. Upon arrival of shipment at the appropriate 
port of entry, District Director of Customs, please release shipment 
under 19 CFR part 142, and notify Commander, Defense Contract 
Management Command (DCMC) New York, ATTN: Customs Team, DCMDN-GNIC, 
207 New York Avenue, Staten Island, New York 10305-5013, for 
execution of Customs Forms 7501, 7501A, or 7506 and any required 
duty-free entry certificates.''
    (B) in cases where the shipment will be consigned to other than 
a military installation, e.g., a domestic contractor's plant, the 
shipping document notation shall be altered to insert the name and 
address of the contractor, agent, or broker who will notify 
Commander, Defense Contract Management Command (DCMC), New York, for 
execution of the duty-free certificate.
* * * * *
    (vii) Activity address number of the contract administration 
office actually administering the prime contract, e.g., for DCMC 
Dayton, S3605A.
    (g) * * *
    (1) Except for shipments consigned to a military installation, 
the Contractor shall prepare, or authorize an agent to prepare, any

[[Page 11146]]

customs forms required for the entry of foreign supplies in 
connection with DOD contacts into the United States, its 
possessions, or Puerto Rico. Submit the completed customs forms to 
the District Director of Customs with a copy to DCMC NY for 
execution of any required duty-free entry certificates. Shipments 
consigned directly to a military installation will be released in 
accordance with 10.101 and 10.102 of the U.S. Custom regulations.
* * * * *


252.225-7010  [Amended]

    15. Section 252.225-7010 is amended in the introductory text by 
revising ``225.605-70(d)'' to read ``225.605-70(c)''; in the first 
sentence of paragraph (e) introductory text of the clause by revising 
``Defense Contract Management Area Operations (DCMAO)'' to read 
``Defense Contract Management Command (DCMC)''; in paragraph (e)(3) by 
revising ``DCMAO'' to read ``DCMC'' and by revising ``DLA8DP'' to read 
``S3605A''; and in the second sentence of paragraph (f) by revising 
``DCMAO'' to read ``DCMC''.
    16. Section 252.225-7035 is amended by revising in the clause 
paragraphs (a), (b), and (c)(2); and by adding Alternate I to read as 
follows:


252.225-7035  Buy American Act--North American Free Trade Agreement 
Implementation Act--Balance of Payments Program Certificate.

* * * * *
    (a) Definitions. ``Domestic end product,'' ``foreign end 
product,'' ``NAFTA country end product,'' and ``qualifying country 
end product'' have the meanings given in the North American Free 
Trade Agreement Implementation Act or Buy American Act and Balance 
of Payments Program clauses of this solicitation.
    (b) Evaluation. Offers will be evaluated in accordance with the 
policies and procedures of Part 225 of the Defense Federal 
Acquisition Regulation Supplement. For line items subject to NAFTA, 
offers of qualifying country end products or NAFTA country end 
products will be evaluated without regard to the restrictions of the 
Buy American Act or the Balance of Payments Program.
    (c) * * *
    (2) The offeror must identify all end products that are not 
domestic end products.
    (i) The offeror certifies that the following supplies are 
qualifying country (except Canada) end products:

(insert line item number)
(insert country of origin)

    (ii) The offeror certifies that the following supplies qualify 
as NAFTA country end products:

(insert line item number)
(insert country of origin)

    (iii) The following supplies are other foreign end products:
(insert line item number)
(insert country of origin)

(End of provision)

Alternate I

    As prescribed in 225.408(a)(3)(B)(ii), substitute the phrase 
``Canadian end product'' for the phrase ``NAFTA country end 
product'' in paragraph (a); and substitute the phrase ``Canadian end 
products'' for the phrase ``NAFTA country end products'' in 
paragraphs (b) and (c)(2)(ii) of the basic clause.

    17. Section 252.225-7036 is revised to read as follows:


252.225-7036  North American Free Trade Agreement Implementation Act.

North American Free Trade Agreement Implementation Act

    (a) Definitions. 
    (1) ``Components,'' ``domestic end product,'' ``end product,'' 
``nonqualifying country,'' ``qualifying country,'' and ``qualifying 
country end product'' have the meanings given in the Buy American 
Act and Balance of Payments Program clause of this contract.
    (2) ``Foreign end product'' means an end product other than a 
domestic end product.
    (3) ``North American Free Trade Agreement (NAFTA) country'' 
means Canada or Mexico.
    (4) ``NAFTA country end product'' means an article that--
    (i) Is wholly the growth, product, or manufacture of a NAFTA 
country; or
    (ii) Has, in the case of an article which consists in whole or 
in part of materials from another country or instrumentality, been 
substantially transformed in a NAFTA country into a new and 
different article of commerce with a name, character, or use 
distinct from that of the article or articles from which it was 
transformed. The term refers to a product offered for purchase under 
a supply contract, but for purposes of calculating the value of the 
end product includes services (except transportation services) 
incidental to its supply, provided that the value of those 
incidental services does not exceed the value of the product itself.
    (b) The Contracting Officer has determined that the North 
American Free Trade Agreement Implementation Act of 1993 applies to 
this acquisition. Unless otherwise specified, NAFTA applies to all 
items in the Schedule.
    (c) The Contractor agrees to deliver under this contract only 
domestic end products unless, in its offer, it specified delivery of 
qualifying country, NAFTA country, or other foreign end products in 
the Buy American Act--North American Free Trade Agreement 
Implementation Act--Balance of Payments Program Certificate 
provision. An offer certifying that a qualifying country end product 
or a NAFTA country end product will be supplied requires the 
Contractor to supply a qualifying country end product or a NAFTA 
country end product, whichever is certified, or, at the Contractor's 
option, a domestic end product.
    (d) The offered price of qualifying country end products, or 
NAFTA country end products for line items subject to the North 
American Free Trade Agreement Implementation Act, should not include 
custom fees on duty. The offered price of foreign end products 
listed under paragraph (c)(2)(iii) of the Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of 
Payments Program Certificate provision of the solicitation, or the 
offered price of domestic end products that contain nonqualifying 
country components, must include all applicable duty. The award 
price will not include duty for end products or components that are 
to be accorded duty-free entry. Generally, each foreign end product 
listed under paragraph (c)(2)(iii) of the Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of 
Payments Program Certificate provision of the solicitation is 
adjusted for the purpose of evaluation by adding 50 percent of the 
offered price, inclusive of duty.

(End of clause)

Alternate I

    As prescribed in 225.408(a)(4)(B)(ii), substitute the following 
paragraphs (a)(4), (c), and (d) for paragraphs (a)(4), (c), and (d) 
of the basic clause:
    (a)(4) ``Canadian end product'' means an article that--
    (i) Is wholly the growth, product, or manufacture of Canada; or
    (ii) Has, in the case of an article which consists in whole or 
in part of materials from another country or instrumentality, been 
substantially transformed in Canada into a new and different article 
of commerce with a name, character, or use distinct from that of the 
article or articles from which it was transformed. The term refers 
to a product offered for purchase under a supply contract, but for 
purposes of calculating the value of the end product includes 
services (except transportation services) incidental to its supply, 
provided that the value of those incidental services does not exceed 
that of the product itself.
    (b) The Contractor agrees to deliver under this contract only 
domestic end products unless, in its offer, it specified delivery of 
qualifying country, Canadian, or other foreign end products in the 
Buy American Act--North American Free Trade Agreement Implementation 
Act--Balance of Payments Program Certificate provision. An offer 
certifying that a qualifying country end product or a Canadian end 
product will be supplied requires the Contractor to supply a 
qualifying country end product or a Canadian end product, whichever 
is certified, or, at the Contractor's option, a domestic end 
product.
    (c) The offered price of qualifying country end products, or 
Canadian end products for line items subject to the North American 
Free Trade Agreement Implementation Act, should not include custom 
fees or duty. The offered price of foreign end products listed under 
paragraph (c)(2)(iii) of the Buy American Act--North American Free 
Trade Agreement Implementation Act--Balance of Payments Program 
Certificate provision of the solicitation, or the offered price of 
domestic end products that contain nonqualifying country components, 
must include all applicable duty. The award price will not include 
duty for end products or components that are to be accorded duty-
free entry. Generally, each foreign end product

[[Page 11147]]

listed under paragraph (c)(2)(iii) of the Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of 
Payments Program Certificate provision of the solicitation is 
adjusted for the purpose of evaluation by adding 50 percent of the 
offered price, inclusive of duty.
    18. Section 252.225-7037 is revised as follows:


252.225-7037  Duty-free entry-eligible end products.

    As prescribed in 225.605-70(b), use the following clause:

Duty-Free Entry-Eligible End Products

    (a) Definitions.
    ``Eligible end product,'' as used in this clause, means--
    (1) ``Designated country end products,'' ``Caribbean Basin 
country end product,'' or ``NAFTA country end product,'' as defined 
in the Trade Agreements clause of this contract;
    (2) ``NAFTA country end product,'' as defined in the North 
American Free Trade Agreement Implementation Act clause of this 
contract; or
    (3) ``Canadian end product,'' as defined in the North American 
Free Trade Agreement Implementation Act, Alternate I, clause of this 
contract.
    (b) The requirements of this clause apply to this contract and 
subcontracts, including purchase orders, that involve delivery of 
eligible end products to be accorded duty-free entry whether 
placed--
    (1) Directly with a foreign concern as a prime contract; or
    (2) As a subcontract or purchase order under a contract placed 
with a domestic concern.
    (c) Except as otherwise approved by the Contracting Officer, no 
amount is or will be included in the contract price for duty for 
eligible end products.
    (d) The Contractor warrants that--
    (1) All eligible end products, for which duty-free entry is to 
be claimed under this clause, are intended to be delivered to the 
Government; and
    (2) The Contractor will pay any applicable duty to the extent 
that such eligible end products, or any portion thereof (if not 
scrap or salvage) are diverted to nongovernmental use, other than as 
a result of a competitive sale made, directed, or authorized by the 
Contracting Officer.
    (e) The Government agrees to execute duty-free entry 
certificates and to afford such assistance as appropriate to obtain 
the duty-free entry of eligible end products for which the shipping 
documents bear the notation specified in paragraph (f) of this 
clause, except as the Contractor may otherwise agree.
    (f) All shipping documents submitted to Customs, covering 
eligible end products for which duty-free entry certificates are to 
be issued under this clause, shall--
    (1) Consign the shipments to the appropriate--
    (i) Military department in care of the Contractor, including the 
Contractor's delivery address; or
    (ii) Military installation; and
    (2) Include the following information:
    (i) Prime contract number, and delivery order if applicable.
    (ii) Number of the subcontract/purchase order for foreign 
supplies if applicable.
    (iii) Identification of carrier.
    (iv) (A) For direct shipments to a U.S. military installation, 
the notation: ``UNITED STATES GOVERNMENT, DEPARTMENT OF DEFENSE 
Duty-Free Entry to be claimed pursuant to Section XXII, Chapter 98, 
Subchapter VIII, Item 9808.00.30 of the Harmonized Tariff Schedule 
of the United States. Upon arrival of shipment at the appropriate 
port of entry, District Director of Customs, please release shipment 
under 19 CFR part 142, and notify Commander, Defense Contract 
Management Command (DCMC) New York, ATTN: Customs Team, DCMDN-GNIC, 
207 New York Avenue, Staten Island, New York 10305-5013, for 
execution of Customs Forms 7501, 7501A, or 7506 and any required 
duty-free entry certificates.''
    (B) In cases where the shipment will be consigned to other than 
a military installation, e.g., a domestic contractor's plant, the 
shipping document notation shall be altered to insert the name and 
address of the contractor, agent, or broker who will notify 
Commander, DCMC, NY, for execution of the duty-free certificate. 
(Note: In those instances where the shipment will be consigned to a 
contractor's plant and no duty-free entry certificate is required, 
the contractor or its agent shall claim duty-free entry under NAFTA 
or other trade agreement and shall comply with the U.S. Customs 
Service requirements. No notification to Commander, DCMC, NY, is 
required).
    (v) Gross weight in pounds (if freight is based on space 
tonnage, state cubic feet in addition to gross shipping weight).
    (vi) Estimated value in U.S. dollars.
    (vii) Activity address number of the contract administration 
office actually administering the prime contract, e.g., for DCMC 
Dayton, S3605A.
    (g) Preparation of customs forms.
    (1) Except for shipments consigned to a military installation, 
the Contractor shall prepare, or authorize an agent to prepare, any 
customs forms required for the entry of eligible end products in 
connection with DOD contracts into the United States, its 
possessions, or Puerto Rico. Submit the completed customs forms to 
the District Director of Customs with a copy to DCMC NY for 
execution of any required duty-free entry certificates. Shipments 
consigned directly to a military installation will be released in 
accordance with 10.101 and 10.102 of the U.S. Customs regulations.
    (2) For shipments containing both supplies which are to be 
accorded duty-free entry and supplies which are not, the Contractor 
shall identify on the customs forms those items that are eligible 
for duty-free entry.
    (h) The Contractor agrees--
    (1) To prepare (if this contract is placed directly with a 
foreign supplier), or to instruct the foreign supplier to prepare, a 
sufficient number of copies of the bill of lading (or other shipping 
document) so that at least two of the copies accompanying the 
shipment will be available for use by the District Director of 
Customs at the port of entry;
    (2) To consign the shipment as specified in paragraph (f) of 
this clause; and
    (3) To mark on the exterior of all packages--
    (i) ``UNITED STATES GOVERNMENT, DEPARTMENT OF DEFENSE;'' and
    (ii) The activity address number of the contract administration 
office actually administering the prime contract.
    (i) The Contractor agrees to notify the Contracting Officer 
administering the prime contract in writing of any purchase under 
the contract of eligible end products to be accorded duty-free entry 
that are to be imported into the United States for delivery to the 
Government or for incorporation in end items to be delivered to the 
Government. The notice shall be furnished to the contract 
administration office immediately upon award to the eligible country 
supplier. The notice shall contain--
    (1) Prime contractor's name, address, and CAGE code;
    (2) Prime contract number, and delivery order number if 
applicable;
    (3) Total dollar value of the prime contract or delivery order;
    (4) Expiration date of the prime contract or delivery order;
    (5) Foreign supplier's name and address;
    (6) Number of the subcontract/purchase order for eligible and 
products;
    (7) Total dollar value of the subcontract for eligible end 
products;
    (8) Expiration date of the subcontract for eligible and 
products;
    (9) List of the items purchased;
    (10) An agreement by the Contractor that any applicable duty 
shall be paid by the Contractor to the extent that such eligible end 
products are diverted to nongovernmental use other than as a result 
of a competitive sale made, directed, or authorized by the 
Contracting Officer; and
    (11) The scheduled delivery date(s).

(End of clause)

[FR Doc. 97-5992 Filed 3-10-97; 8:45 am]
BILLING CODE 5000-04-M