[Federal Register Volume 63, Number 20 (Friday, January 30, 1998)]
[Proposed Rules]
[Pages 4601-4608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2249]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 63, No. 20 / Friday, January 30, 1998 / 
Proposed Rules  

[[Page 4601]]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 10

RIN 1515-AB59


Andean Trade Preference

AGENCY: Customs Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend the Customs Regulations to 
implement the duty preference provisions of the Andean Trade Preference 
Act (the Act). The document sets forth the country of origin and 
related rules which apply for purposes of duty-free or reduced-duty 
treatment on imported goods under the Act and specifies the documentary 
and other procedural requirements which apply to any claim for such 
preferential tariff treatment under the Act.

DATES: Comments must be received on or before March 31, 1998.

ADDRESSES: Written comments (preferably in triplicate) may be addressed 
to the Regulations Branch, Office of Regulations and Rulings, U.S. 
Customs Service, 1300 Pennsylvania Avenue, NW., Washington, DC 20229. 
Comments submitted may be inspected at the Regulations Branch, Office 
of Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania 
Avenue, NW., 3rd Floor, Washington, DC.

FOR FURTHER INFORMATION CONTACT:
Operational Aspects: Tony Mazzoccoli, Office of Field Operations (202-
927-0564).
Legal Aspects: Craig Walker, Office of Regulations and Rulings (202-
927-1116).

SUPPLEMENTARY INFORMATION:

Background

    On December 4, 1991, President Bush signed into law the Andean 
Trade Preference Act (Public Law 102-182, Title II, Secs. 201-206, 105 
Stat. 1236-1244) (``the Act'', commonly referred to as the ATPA), the 
provisions of which are codified at 19 U.S.C. 3201 through 3206. 
Sections 202 and 204(c) of the Act (19 U.S.C. 3201 and 3203(c)) 
authorize the President to proclaim duty-free treatment for all 
eligible articles, and duty reductions for certain other goods, from 
any country designated by the President as a beneficiary country 
pursuant to section 203 of the Act (19 U.S.C. 3202). On July 2, 1992, 
President Bush signed Proclamation 6455 (57 FR 30069) which (1) 
Proclaimed the duty treatment authorized by the Act, (2) designated 
Colombia as a beneficiary country for purposes of the Act, and (3) 
modified the Harmonized Tariff Schedule of the United States (HTSUS) to 
incorporate the substance of the relevant provisions of the Act; under 
the terms of the proclamation, the proclaimed duty treatment was 
effective with respect to articles entered, or withdrawn from warehouse 
for consumption, on or after July 22, 1992. On the same date President 
Bush signed Proclamation 6456 (57 FR 30097) designating Bolivia as a 
beneficiary country for purposes of the Act, similarly effective July 
22, 1992. On April 13, 1993, President Clinton signed Proclamation 6544 
(58 FR 19547) which, among other things, designated Ecuador as a 
beneficiary country for purposes of the Act, effective April 30, 1993. 
On August 11, 1993, President Clinton signed Proclamation 6585 (58 FR 
43239) designating Peru as a beneficiary country for purposes of the 
Act, effective August 26, 1993. The modifications to the HTSUS 
contained in Proclamation 6455 setting forth the substance of the 
relevant provisions of the Act are now contained in General Note 11, 
HTSUS, and eligible articles and other goods to which preferential duty 
treatment under the Act applies are identified within the HTSUS by the 
designation ``J'' appearing with or without an asterisk in the 
``Special'' rate of duty subcolumn.
    Sections 204(a)-(c) of the Act (19 U.S.C. 3203(a)-(c)) set forth 
the standards which govern the eligibility of articles for duty-free or 
reduced-duty treatment under the Act. Section 204(a), which contains 
the basic origin and related rules for purposes of duty-free treatment, 
was based on section 213(a) of the Caribbean Basin Economic Recovery 
Act, as amended (19 U.S.C. 2703(a)), which sets forth the origin and 
related rules governing duty-free treatment under the Caribbean Basin 
Initiative (CBI). Thus, in order to be eligible for duty-free treatment 
under the Act, an article imported from a designated beneficiary 
country must meet three basic requirements: (1) It must be imported 
directly from a beneficiary country into the customs territory of the 
United States; (2) it must have its origin in a beneficiary country, 
that is, it either must be wholly the growth, product, or manufacture 
of a beneficiary country or must be a new or different article of 
commerce that has been grown, produced, or manufactured in a 
beneficiary country; and (3) it must have a minimum domestic value 
content, that is, at least 35 percent of its appraised value must be 
attributed to the sum of the cost or value of materials produced in one 
or more beneficiary countries plus the direct costs of processing 
operations performed in one or more beneficiary countries. The 
provisions of section 204(a) of the Act further parallel the provisions 
of section 213(a) of the CBI statute in the following regards: (1) 
Simple combining or packaging operations or mere dilution with water or 
another substance does not confer beneficiary country origin on an 
imported article or on a constituent material of an imported article; 
(2) the term ``beneficiary country'' is defined as including the 
Commonwealth of Puerto Rico and the U.S. Virgin Islands for purposes of 
determining compliance with the 35 percent value content requirement; 
(3) the cost or value of materials produced in the customs territory of 
the United States (other than in Puerto Rico) may be counted toward the 
35 percent value content requirement to a maximum of 15 percent of the 
appraised value of the imported article; and (4) the expression 
``direct costs of processing operations'' is defined in the same 
manner. However, the origin and related rules of section 204(a) of the 
Act differ from the corresponding provisions in section 213(a) of the 
CBI statute in two principal respects: (1) Section 204(a) of the Act 
specifically allows input attributable to one or more CBI beneficiary 
countries for purposes of the 35 percent value content requirement (the 
corresponding CBI statutory provision makes no mention of input 
attributable to beneficiary countries under the Act); and (2) section 
204(a) of the Act has no provision corresponding

[[Page 4602]]

to section 213(a)(4) of the CBI statute which was added to facilitate 
the addition of value to an article in Puerto Rico and the granting of 
duty-free treatment after final exportation of an article from a CBI 
beneficiary country. Section 204(b) of the Act lists eight categories 
of goods excluded from the duty-free treatment provided for in section 
204(a), one of which refers to articles to which reduced rates of duty 
apply under section 204(c) of the Act. Section 204(c) directs the 
President to proclaim reductions in the rates of duty on handbags, 
luggage, flat goods, work gloves and leather wearing apparel that: (1) 
Are the product of any beneficiary country; and (2) were not designated 
on August 5, 1983, as eligible articles for purposes of the Generalized 
System of Preferences (GSP) under Title V of the Trade Act of 1974 (19 
U.S.C. 2461-2466). These reduced duty rates, which were generally 
implemented in equal annual stages over a 5-year period (commencing in 
1992 and ending in 1996), appear in the HTSUS in the ``Special'' rate 
of duty subcolumn followed by the symbol ``J'' within parentheses.
    The U.S. Customs Service is responsible for the administration of 
laws and regulations regarding the entry of merchandise into the United 
States. Moreover, section 204(a)(2) of the Act specifically directs the 
Secretary of the Treasury to promulgate such regulations as may be 
necessary to carry out the duty-free treatment provisions of the Act. 
Accordingly, this document proposes to amend the Customs Regulations to 
implement the duty preference provisions of the Act.
    In view of the similarity between the origin and related rules 
under the Act and those under the CBI, the proposed regulations set 
forth in this document are based in significant part on the CBI 
regulations contained in Secs. 10.191-10.198 of the Customs Regulations 
(19 CFR 10.191-10.198). However, some variations have been made from 
the CBI approach, in some cases to reflect differences between the Act 
and the CBI statute and in other cases to simplify or otherwise improve 
on the layout of the CBI regulations. The proposed regulations are 
discussed in detail below.

Discussion of Proposed Amendments

Section 10.201

    This section sets forth a general statement regarding the purpose 
of the regulations with reference to the Act and its implementation by 
the President.

Section 10.202

    This section sets forth definitions of terms or expressions of 
general use throughout the regulatory texts.
    Paragraph (a), which defines ``beneficiary country'', reflects both 
the definition in section 203(a)(1) of the Act and the approach taken 
in Sec. 10.191(b)(1) of the CBI regulations. The exception language in 
the definition is directed to those entities that are treated as 
beneficiary countries only for the limited purpose of the 35 percent 
value content requirement (see the discussion of Sec. 10.206(b) below). 
Thus, where the term ``beneficiary country'' appears in a regulatory 
text without any modifier or qualification and the context does not 
involve the 35 percent value content requirement, such term has 
reference only to an ATPA beneficiary country as so designated by the 
President.
    The definition of ``eligible articles'' in paragraph (b) is similar 
to the approach taken in Sec. 10.191(b)(2) of the CBI regulations. The 
definition refers specifically to duty-free treatment, which is 
authorized under section 204(a) of the Act, and thus does not apply to 
reduced-duty treatment under section 204(c) of the Act (see Sec. 10.208 
below). The list of articles excluded from the definition reflect the 
terms of section 204(b) of the Act.
    The definition of ``entered'' in paragraph (c) is taken from 
section 203(a)(2) of the Act.
    The definition of ``wholly the growth, product, or manufacture of a 
beneficiary country'' in paragraph (d) simply refers to the definition 
of the same expression set forth in Sec. 10.191(b)(3) of the CBI 
regulations.

Section 10.203

    This section makes a general reference to the requirements for 
preferential duty treatment and with cross-references to the specific 
sections which set forth those requirements in detail. Although 
somewhat different from the approach taken in the CBI regulations, 
Customs believes that this general statement/cross-reference approach 
will facilitate the reader's overall understanding of the duty-free 
aspects of the Act and the requirements thereunder.
    This section refers only to duty-free treatment (which is provided 
for under section 204(a) of the Act) and to those sections of the 
regulations that deal with the requirements for such treatment. Thus, 
this section and the other sections cited therein have no application 
in the case of reduced-duty treatment which is provided for separately 
under section 204(c) of the Act (see the discussion of Sec. 10.208 
below).

Section 10.204

    This section implements the ``imported directly'' requirement of 
section 204(a)(1)(A) of the Act and is based on Sec. 10.193 of the CBI 
regulations. As in the case of the CBI, reference is made to shipment 
from ``any'' beneficiary country because, under the wording of the 
statute (and as a means to facilitate cumulation of value among 
multiple beneficiary countries--see Sec. 10.206 below), the article 
merely must be imported directly from ``a'' beneficiary country and 
thus does not have to be shipped from the beneficiary country where it 
was produced.

Section 10.205

    This section sets forth the basic country of origin rules which 
apply to articles for purposes of duty-free treatment under section 204 
of the Act.
    The ``wholly the growth, product, or manufacture'' language in 
paragraph (a)(1) and the ``new or different article of commerce which 
has been grown, produced, or manufactured'' language in paragraph 
(a)(2) reflect standards required by section 204(a)(2) of the Act to be 
included in the implementing regulations.
    Paragraph (b) implements the simple combining or packaging or mere 
dilution exceptions to duty-free eligibility required to be in the 
regulations by section 204(a)(2) of the Act. Since the language of the 
Act in this regard is identical to language used in the CBI statute, 
this paragraph follows Sec. 10.195(a)(1) of the CBI regulations by 
including the words ``(as opposed to complex or meaningful)'' after the 
word ``simple'', and the last sentence is intended to shorten the 
regulatory text by incorporating by reference the provisions of the CBI 
regulations which clarify the meaning and application of identical 
statutory language. It should be noted that, as in the case of the CBI, 
the simple combining or packaging or mere dilution language operates 
only in the limited context of eligibility for duty-free treatment; 
that language does not limit or otherwise affect a determination as to 
whether a new or different article of commerce has been created in a 
beneficiary country within the meaning of paragraph (a)(2) of this 
section.

Section 10.206

    This section implements the 35 percent value content requirement 
contained in section 204(a)(1)(B) of the Act.
    Paragraph (a) sets forth the basic requirement but refers simply to 
``a beneficiary country or countries''

[[Page 4603]]

without specifically mentioning CBI beneficiary countries even though 
such countries are specified in the statutory text with regard to both 
the cost or value of materials and the direct costs of processing 
operations (see the discussion of paragraph (b) below). As in the case 
of the CBI, the statutory and regulatory texts permit unlimited 
cumulation of value among ``beneficiary countries'' for purposes of 
meeting the 35 percent value content requirement.
    In paragraph (b), the first sentence defines ``beneficiary 
country'' as including, for purposes of the 35 percent value content 
requirement, (1) the Commonwealth of Puerto Rico and the U.S. Virgin 
Islands and (2) any CBI beneficiary country. The reference to CBI 
beneficiary countries in this regulatory context (rather than in 
paragraph (a) of this section) is intended to simplify the regulatory 
texts here and elsewhere and will have no substantive effect on the 
proper interpretation and application of the statutory provisions. The 
second sentence of this paragraph is based on the second sentence of 
Sec. 10.195(b) of the CBI regulations and is intended to clarify a 
basic legal limitation on the statutorially-permitted cumulation of 
value attributable to entities that are not ``beneficiary countries'' 
as defined in section 203(a)(1) of the Act: except in the case of 
Puerto Rico which is part of the customs territory of the United 
States, if value is added to an article in any such entity (that is, in 
the U.S. Virgin Islands or in a CBI beneficiary country) after final 
exportation of the article from a beneficiary country designated as 
such by the President under the Act and prior to importation into the 
United States, such addition of value would disqualify the article from 
duty-free treatment because the article would have entered the commerce 
of the intermediate entity and thus could not be considered to be 
``imported directly'' upon arrival in the customs territory of United 
States within the meaning of section 204(a)(1)(A) of the Act and 
Sec. 10.204 of the implementing regulations. While the same legal 
limitation would not apply per se in the case of value added in Puerto 
Rico or in the case of U.S.-produced materials added in the United 
States (see paragraph (c) of this section), as a practical matter the 
opportunities for such additions in a post-final-exportation context 
and prior to entry for consumption are limited by the following 
factors: (1) Bonded manufacturing warehouses cannot be used because 
under 19 U.S.C. 1311 and Sec. 19.15 of the Customs Regulations (19 CFR 
19.15) the article subjected to a manufacturing process in such a 
warehouse may not be withdrawn for consumption but rather must be 
exported; (2) while a storage and manipulation warehouse under 19 
U.S.C. 1557 and 1562 and Part 144 of the Customs Regulations (19 CFR 
Part 144) could be used, the benefit as regards added value would not 
be significant in most cases because manufacturing processes are 
precluded in such warehouses; (3) while foreign-trade zones established 
and operated under 19 U.S.C. 81a-81u and Part 146 of the Customs 
Regulations (19 CFR Part 146) could be used, such facilities involve 
special procedures and limitations; and (4) while an article could be 
imported under a temporary importation bond for processing (including 
manufacture) under subheading 9813.00.05, HTSUS, and Sec. 10.31 of the 
Customs Regulations (19 CFR 10.31), such an article ultimately would 
have to be exported in accordance with the terms of the bond. It is 
also noted in this regard that the Act contains no provision similar to 
section 213(a)(4) of the CBI statute (19 U.S.C. 2703(a)(4)) which was 
added in 1984 specifically for the purpose of facilitating the addition 
of value through tail-end processing performed in bonded manufacturing 
warehouses located in Puerto Rico.
    Paragraph (c) reflects section 204(a)(1) as regards the inclusion 
of U.S.-produced materials and is based on Sec. 10.195(c) of the CBI 
regulations.
    Paragraph (d) is based on Sec. 10.196 of the CBI regulations. The 
following points are noted as regards this paragraph:
    1. Subparagraph (1) corresponds to paragraph (a) of the CBI 
regulation but with the following principal differences: (1) the simple 
combining or packaging or mere dilution limitation (also applicable to 
materials under section 204(a)(2) of the Act) has been included 
directly, rather than as a cross-reference to the rule set forth in the 
regulatory provision covering articles (Sec. 10.205(b)), for purposes 
of clarity and in order to ensure that a clear distinction is made 
between application of the rule for purposes of eligibility of an 
article for duty-free treatment and application of the rule for 
purposes of determining the origin of a material for purposes of the 35 
percent value content requirement; and (2) to avoid unnecessary 
repetition of regulatory text, the examples of Sec. 10.196(a), and the 
principles and examples of Sec. 10.195(a)(2), of the CBI regulations 
have been incorporated by reference since those CBI provisions are 
equally applicable in the present context.
    2. Subparagraph (2) is taken from Sec. 10.196(b) of the CBI 
regulations.
    3. Subparagraph (3) follows Sec. 10.196(c) of the CBI regulations 
but also refers specifically to materials produced in the customs 
territory of the United States.
    Paragraph (e) implements section 204(a)(3) of the Act (which is 
identical to section 213(a)(3) of the CBI statute (19 U.S.C. 
2703(a)(3)) and follows the terms of Sec. 10.197 of the CBI 
regulations.
    Paragraph (f) is based on, and is used in the same context as, 
Sec. 10.195(e) of the CBI regulations. Wherever origin terminology and 
the term ``beneficiary country'' are used together with reference to an 
article, the latter term is restricted so as to cover only a 
beneficiary country designated under the Act by the President, in order 
to reflect the fact that an article (as opposed to materials 
incorporated in an article) must be a product of such a beneficiary 
country and cannot be a product of a CBI beneficiary country.

Section 207

    This section is intended to cover all procedural requirements, 
including the submission of documentation required to support a claim 
for duty-free treatment. The provisions of this section are based on 
CBI regulatory provisions.
    Paragraph (a), which concerns the procedure for filing a claim for 
duty-free treatment, is based on Sec. 10.192 of the CBI regulations but 
does not include the first sentence of the CBI provision which Customs 
believes is redundant and thus unnecessary. The exception language at 
the beginning of the paragraph is intended to reflect the fact that 
this procedure does not apply in the case of an informal entry.
    Paragraph (b) concerns the documentary evidence of country of 
origin and of compliance with the 35 percent value content requirement 
and, subject to changes to reflect the context of the Act, follows the 
terms of Sec. 10.198(a) of the CBI regulations.
    Paragraph (c) sets forth the procedures which apply in the case of 
informal entries and is based on Sec. 10.198(b) of the CBI regulations.
    Paragraph (d), which concerns evidence of direct importation, is 
based on Sec. 10.194 of the CBI regulations. However, the last sentence 
of paragraph (a) of the CBI provision has not been included because it 
is covered by paragraph (e) of this section.
    Paragraph (e), which concerns verification of submitted 
documentation, is based on Sec. 10.198(c) of the CBI regulations but 
refers to all documentation submitted under Sec. 10.207, that is, 
evidence of country of

[[Page 4604]]

origin and of compliance with the 35 percent value content requirement 
submitted under paragraph (b) and evidence of direct importation 
submitted under paragraph (d).

Section 10.208

    This section implements the duty-reduction provisions of section 
204(c) of the Act. This section is set forth separately to reflect the 
fact that the Act treats the duty-reduction provisions separately from 
the duty-free provisions of section 204(a) and without any repetition 
of, or cross-reference to, the legal requirements that apply for 
purposes of duty-free treatment. Thus, paragraph (a) of this section 
does not refer to direct importation, the 35 percent value content 
requirement, or the simple combining or packaging or mere dilution 
limitation because, under the terms of the Act, those legal standards 
apply only for purposes of duty-free treatment under section 204(a), 
and no ATPA Declaration is required under this section because the ATPA 
Declaration is directed primarily to compliance with the 35 percent 
value content requirement. However, because Customs believes that the 
words ``product of'' as used in section 204(c)(1)(A) of the Act should 
be interpreted as synonymous with the basic origin rule used for 
Customs purposes, paragraph (a) of this section repeats the rule set 
forth in Sec. 10.205(a) as discussed above. Paragraph (b), which sets 
forth the normal procedure for filing a reduced-duty claim, and 
paragraph (c), which covers verification of a reduced-duty claim, are 
variations of Secs. 10.207(a) and (e) and are otherwise self-
explanatory.

Comments

    Before adopting the proposed amendments as a final rule, 
consideration will be given to any written comments (preferably in 
triplicate) timely submitted to Customs. Comments submitted will be 
available for public inspection in accordance with the Freedom of 
Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Department 
Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs Regulations (19 
CFR 103.11(b)), on regular business days between the hours of 9 a.m. 
and 4:30 p.m. at the Regulations Branch, Office of Regulations and 
Rulings, U.S. Customs Service, 1300 Pennsylvania Anenue, N.W., 3rd 
Floor, Washington, D.C.

Executive Order 12866

    This document does not meet the criteria for a ``significant 
regulatory action'' as specified in Executive Order 12866.

Regulatory Flexibility Act

    Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is certified that, if adopted, the proposed 
amendments will not have a significant economic impact on a substantial 
number of small entities. The amendments reflect statutory requirements 
that are already in effect and follow existing regulatory provisions 
that implement similar statutory programs. Accordingly, the proposed 
amendments are not subject to the regulatory analysis or other 
requirements of 5 U.S.C. 603 and 604.

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    The collection of information in these proposed regulations is in 
Sec. 10.207. This information conforms to requirements in 19 U.S.C. 
3203(a) and is used by Customs to determine whether goods imported from 
designated beneficiary countries are entitled to duty-free entry under 
that statutory provision. The likely respondents are business 
organizations including importers, exporters, and manufacturers.
    Estimated total annual reporting and/or recordkeeping burden: 5,000 
hours.
    Estimated average annual burden per respondent/recordkeeper: 2 
minutes.
    Estimated number of respondents and/or recordkeepers: 150,000.
    Estimated annual number of responses: 150,000.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attention: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, D.C. 20503. A copy should also be sent to the 
Regulations Branch, Office of Regulations and Rulings, U.S. Customs 
Service, 1300 Pennsylvania Avenue, N.W., Washington, D.C. 20229. 
Comments should be submitted within the time frame that comments are 
due regarding the substance of the proposal.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information shall have practical utility; (b) the 
accuracy of the agency's estimate of the burden of the collection of 
information; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; (d) ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques or other forms of information 
technology; and (e) estimates of capital or startup costs and costs of 
operations, maintenance, and purchase of services to provide 
information.

Drafting Information

    The principal author of this document was Francis W. Foote, Office 
of Regulations and Rulings, U.S. Customs Service. However, personnel 
from other offices participated in its development.

List of Subjects in 19 CFR Part 10

    Andean trade preference, Customs duties and inspection, Entry 
procedures, Exports, Imports, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    For the reasons set forth above, it is proposed to amend Part 10, 
Customs Regulations (19 CFR Part 10), as set forth below.

PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE, 
ETC.

    1. The general authority citation for Part 10 continues to read, 
and a specific authority citation for Secs. 10.201 through 10.207 is 
added to read, as follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508, 
1623, 1624, 3314;
* * * * *
    Sec. 10.201 through 10.207 also issued under 19 U.S.C. 3203.

    2. Part 10 is amended by adding a new center heading followed by 
new sections 10.201 through 10.208 to read as follows:

Andean Trade Preference

10.201  Applicability.
10.202  Definitions.
10.203  Eligibility criteria in general.
10.204  Imported directly.
10.205  Country of origin criteria.
10.206  Value content requirement.
10.207  Procedures for filing duty-free treatment claim and 
submitting supporting documentation.
10.208  Duty reductions for certain products.

Andean Trade Preference


Sec. 10.201  Applicability.

    Title II of Public Law 102-182 (105 Stat. 1233), entitled the 
Andean Trade

[[Page 4605]]

Preference Act (ATPA) and codified at 19 U.S.C. 3201-3206, authorizes 
the President to proclaim duty-free treatment for all eligible articles 
from any beneficiary country, to designate countries as beneficiary 
countries, and to proclaim duty reductions for certain goods not 
eligible for duty-free treatment. The provisions of Secs. 10.202 
through 10.208 of this part set forth the legal requirements and 
procedures that apply for purposes of obtaining such duty-free or 
reduced-duty treatment for articles from a beneficiary country which 
are identified for purposes of such treatment in General Note 11, 
Harmonized Tariff Schedule of the United States (HTSUS), and in the 
``Special'' rate of duty column of the HTSUS.


Sec. 10.202  Definitions.

    The following definitions apply for purposes of Secs. 10.201 
through 10.208:
    (a) Beneficiary country. Except as otherwise provided in 
Sec. 10.206(b), the term ``beneficiary country'' refers to any country 
or successor political entity with respect to which there is in effect 
a proclamation by the President designating such country or successor 
political entity as a beneficiary country in accordance with section 
203 of the ATPA (19 U.S.C. 3202).
    (b) Eligible articles. The term ``eligible'' when used with 
reference to an article means any merchandise which is imported 
directly from a beneficiary country as provided in Sec. 10.204, which 
meets the country of origin criteria set forth in Sec. 10.205 and the 
value-content requirement set forth in Sec. 10.206, and which, if the 
requirements of Sec. 10.207 are met, is therefore entitled to duty-free 
treatment under the ATPA. The following merchandise shall not be 
considered eligible articles entitled to duty-free treatment under the 
ATPA:
    (1) Textile and apparel articles which are subject to textile 
agreements;
    (2) Footwear not designated on December 4, 1991, as eligible for 
the purpose of the Generalized System of Preferences under Title V, 
Trade Act of 1974, as amended (19 U.S.C. 2461-2466);
    (3) Tuna, prepared or preserved in any manner, in airtight 
containers;
    (4) Petroleum, or any product derived from petroleum, provided for 
in headings 2709 and 2710, Harmonized Tariff Schedule of the United 
States (HTSUS);
    (5) Watches and watch parts (including cases, bracelets, and 
straps), of whatever type including, but not limited to, mechanical, 
quartz digital or quartz analog, if such watches or watch parts contain 
any material which is the product of any country with respect to which 
HTSUS column 2 rates of duty apply;
    (6) Sugars, syrups, and molasses classified in subheadings 
1701.11.03, 1701.12.02, 1701.99.02, 1702.90.32, 1806.10.42, and 
2106.90.12, HTSUS;
    (7) Rum and tafia classified in subheading 2208.40.00, HTSUS; or
    (8) Articles to which reduced rates of duty apply under section 
204(c) of the ATPA (19 U.S.C. 3203(c)) (see Sec. 10.208).
    (c) Entered. The term ``entered'' means entered, or withdrawn from 
warehouse for consumption, in the customs territory of the United 
States.
    (d) Wholly the growth, product, or manufacture of a beneficiary 
country. The expression ``wholly the growth, product, or manufacture of 
a beneficiary country'' has the same meaning as that set forth in 
Sec. 10.191(b)(3) of this part.


Sec. 10.203  Eligibility criteria in general.

    An article classifiable under a subheading of the Harmonized Tariff 
Schedule of the United States for which a rate of duty of ``Free'' 
appears in the ``Special'' subcolumn followed by the symbol ``J'' or 
``J*'' in parentheses is eligible for duty-free treatment, and will be 
accorded such treatment, if each of the following requirements is met:
    (a) Imported directly. The article is imported directly from a 
beneficiary country as provided in Sec. 10.204.
    (b) Country of origin criteria. The article complies with the 
country of origin criteria set forth in Sec. 10.205.
    (c) Value content requirement. The article complies with the value 
content requirement set forth in Sec. 10.206.
    (d) Filing of claim and submission of supporting documentation. The 
claim for duty-free treatment is filed, and any required documentation 
in support of the claim is submitted, in accordance with the procedures 
set forth in Sec. 10.207.


Sec. 10.204  Imported directly.

    In order to be eligible for duty-free treatment under the ATPA, an 
article shall be imported directly from a beneficiary country into the 
customs territory of the United States. For purposes of this 
requirement, the words ``imported directly'' mean:
    (a) Direct shipment from any beneficiary country to the United 
States without passing through the territory of any non-beneficiary 
country; or
    (b) If shipment from any beneficiary country to the United States 
was through the territory of a non-beneficiary country, the articles in 
the shipment did not enter into the commerce of the non-beneficiary 
country while en route to the United States, and the invoices, bills of 
lading, and other shipping documents show the United States as the 
final destination; or
    (c) If shipment from any beneficiary country to the United States 
was through the territory of a non-beneficiary country and the invoices 
and other documents do not show the United States as the final 
destination, then the articles in the shipment, upon arrival in the 
United States, are imported directly only if they:
    (1) Remained under the control of the customs authority in the 
intermediate country;
    (2) Did not enter into the commerce of the intermediate country 
except for the purpose of sale other than at retail, and the articles 
are imported into the United States as a result of the original 
commercial transaction between the importer and the producer or the 
latter's sales agent; and
    (3) Were not subjected to operations in the intermediate country 
other than loading and unloading, and other activities necessary to 
preserve the articles in good condition.


Sec. 10.205  Country of origin criteria.

    (a) General. Except as otherwise provided in paragraph (b) of this 
section, an article may be eligible for duty-free treatment under the 
ATPA if the article is either:
    (1) Wholly the growth, product, or manufacture of a beneficiary 
country; or
    (2) A new or different article of commerce which has been grown, 
produced, or manufactured in a beneficiary country.
    (b) Exceptions. No article shall be eligible for duty-free 
treatment under the ATPA by virtue of having merely undergone simple 
(as opposed to complex or meaningful) combining or packaging 
operations, or mere dilution with water or mere dilution with another 
substance that does not materially alter the characteristics of the 
article. The principles and examples set forth in Sec. 10.195(a)(2) of 
this part shall apply equally for purposes of this paragraph.


Sec. 10.206  Value content requirement.

    (a) General. An article may be eligible for duty-free treatment 
under the ATPA only if the sum of the cost or value of the materials 
produced in a beneficiary country or countries, plus the direct costs 
of processing operations performed in a beneficiary country or 
countries, is not less than 35 percent of the appraised value of the 
article at the time it is entered.
    (b) Commonwealth of Puerto Rico, U.S. Virgin Islands and CBI 
beneficiary

[[Page 4606]]

countries. For purposes of determining the percentage referred to in 
paragraph (a) of this section, the term ``beneficiary country'' 
includes the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and 
any CBI beneficiary country as defined in Sec. 10.191(b)(1) of this 
part. Any cost or value of materials or direct costs of processing 
operations attributable to the Virgin Islands or any CBI beneficiary 
country must be included in the article prior to its final exportation 
to the United States from a beneficiary country as defined in 
Sec. 10.202(a).
    (c) Materials produced in the United States. For purposes of 
determining the percentage referred to in paragraph (a) of this 
section, an amount not to exceed 15 percent of the appraised value of 
the article at the time it is entered may be attributed to the cost or 
value of materials produced in the customs territory of the United 
States (other than the Commonwealth of Puerto Rico). The principles set 
forth in paragraph (d)(1) of this section shall apply in determining 
whether a material is ``produced in the customs territory of the United 
States'' for purposes of this paragraph.
    (d) Cost or value of materials. (1) ``Materials produced in a 
beneficiary country or countries'' defined. For purposes of paragraph 
(a) of this section, the words ``materials produced in a beneficiary 
country or countries'' refer to those materials incorporated in an 
article which are either:
    (i) Wholly the growth, product, or manufacture of a beneficiary 
country or two or more beneficiary countries; or
    (ii) Substantially transformed in any beneficiary country or two or 
more beneficiary countries into a new or different article of commerce 
which is then used in any beneficiary country as defined in 
Sec. 10.202(a) in the production or manufacture of a new or different 
article which is imported directly into the United States. For purposes 
of this paragraph (d)(1)(ii), no material shall be considered to be 
substantially transformed into a new or different article of commerce 
by virtue of having merely undergone simple (as opposed to complex or 
meaningful) combining or packaging operations, or mere dilution with 
water or mere dilution with another substance that does not materially 
alter the characteristics of the article. The examples set forth in 
Sec. 10.196(a) of this part, and the principles and examples set forth 
in Sec. 10.195(a)(2) of this part, shall apply for purposes of the 
corresponding context under paragraph (d)(1) of this section.
    (2) Questionable origin. When the origin of a material either is 
not ascertainable or is not satisfactorily demonstrated to the 
appropriate port director, the material shall not be considered to have 
been grown, produced, or manufactured in a beneficiary country or in 
the customs territory of the United States.
    (3) Determination of cost or value of materials. (i) The cost or 
value of materials produced in a beneficiary country or countries or in 
the customs territory of the United States includes:
    (A) The manufacturer's actual cost for the materials;
    (B) When not included in the manufacturer's actual cost for the 
materials, the freight, insurance, packing, and all other costs 
incurred in transporting the materials to the manufacturer's plant;
    (C) The actual cost of waste or spoilage, less the value of 
recoverable scrap; and
    (D) Taxes and/or duties imposed on the materials by any beneficiary 
country or by the United States, provided they are not remitted upon 
exportation.
    (ii) Where a material is provided to the manufacturer without 
charge, or at less than fair market value, its cost or value shall be 
determined by computing the sum of:
    (A) All expenses incurred in the growth, production, or manufacture 
of the material, including general expenses;
    (B) An amount for profit; and
    (C) Freight, insurance, packing, and all other costs incurred in 
transporting the material to the manufacturer's plant.
    (iii) If the pertinent information needed to compute the cost or 
value of a material is not available, the appraising officer may 
ascertain or estimate the value thereof using all reasonable ways and 
means at his disposal.
    (e) Direct costs of processing operations. (1) Items included. For 
purposes of paragraph (a) of this section, the words ``direct costs of 
processing operations'' mean those costs either directly incurred in, 
or which can be reasonably allocated to, the growth, production, 
manufacture, or assembly of the specific merchandise under 
consideration. Such costs include, but are not limited to the 
following, to the extent that they are includable in the appraised 
value of the imported merchandise:
    (i) All actual labor costs involved in the growth, production, 
manufacture, or assembly of the specific merchandise, including fringe 
benefits, on-the-job training, and the cost of engineering, 
supervisory, quality control, and similar personnel;
    (ii) Dies, molds, tooling, and depreciation on machinery and 
equipment which are allocable to the specific merchandise;
    (iii) Research, development, design, engineering, and blueprint 
costs insofar as they are allocable to the specific merchandise; and
    (iv) Costs of inspecting and testing the specific merchandise.
    (2) Items not included. For purposes of paragraph (a) of this 
section, the words ``direct costs of processing operations'' do not 
include items which are not directly attributable to the merchandise 
under consideration or are not costs of manufacturing the product. 
These include, but are not limited to:
    (i) Profit; and
    (ii) General expenses of doing business which either are not 
allocable to the specific merchandise or are not related to the growth, 
production, manufacture, or assembly of the merchandise, such as 
administrative salaries, casualty and liability insurance, advertising, 
and salesmen's salaries, commissions, or expenses.
    (f) Articles wholly the growth, product, or manufacture of a 
beneficiary country. Any article which is wholly the growth, product, 
or manufacture of a beneficiary country as defined in Sec. 10.202(a), 
and any article produced or manufactured in a beneficiary country as 
defined in Sec. 10.202(a) exclusively from materials which are wholly 
the growth, product, or manufacture of a beneficiary country or 
countries, shall normally be presumed to meet the requirement set forth 
in paragraph (a) of this section.


Sec. 10.207  Procedures for filing duty-free treatment claim and 
submitting supporting documentation.

    (a) Filing claim for duty-free treatment. Except as provided in 
paragraph (c) of this section, a claim for duty-free treatment under 
the ATPA may be made at the time of filing the entry summary by placing 
the symbol ``J'' as a prefix to the Harmonized Tariff Schedule of the 
United States subheading number applicable to each article for which 
duty-free treatment is claimed on that document.
    (b) Shipments covered by a formal entry. (1) Articles not wholly 
the growth, product, or manufacture of a beneficiary country. (i) 
Declaration. In a case involving an article covered by a formal entry 
for which duty-free treatment is claimed under the ATPA and which is 
not wholly the growth, product, or manufacture of a single beneficiary 
country as defined in Sec. 10.202(a), the exporter or other appropriate 
party having knowledge of the relevant facts

[[Page 4607]]

in the beneficiary country as defined in Sec. 10.202(a) where the 
article was produced or last processed shall be prepared to submit 
directly to the port director, upon request, a declaration setting 
forth all pertinent detailed information concerning the production or 
manufacture of the article. When requested by the port director, the 
declaration shall be prepared in substantially the following form:

ATPA DECLARATION

    I, __________________ (name), hereby declare that the articles 
described below (a) were produced or manufactured in ______________ 
(country) by means of processing operations performed in that 
country as set forth below and were also subjected to processing 
operations in the other beneficiary country or countries (including 
the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and any 
CBI beneficiary country) as set forth below and (b) incorporate 
materials produced in the country named above or in any other 
beneficiary country or countries (including the Commonwealth of 
Puerto Rico, the U.S. Virgin Islands, and any CBI beneficiary 
country) or in the customs territory of the United States (other 
than the Commonwealth of Puerto Rico) as set forth below:

----------------------------------------------------------------------------------------------------------------
                                       Processing operations performed on    Material produced in a beneficiary 
                                                    articles                       country or in the U.S.       
                                     ---------------------------------------------------------------------------
                     Description of                                           Description of                    
 Number and date      articles and      Description of                          material,                       
   of invoices          quantity          processing      Direct costs of       production      Cost or value of
                                        operations and       processing        process, and         material    
                                          country of         operations         country of                      
                                          processing                            production                      
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------

Date-------------------------------------------------------------------

Address----------------------------------------------------------------

Signature--------------------------------------------------------------

Title------------------------------------------------------------------
    (ii) Retention of records and submission of declaration. The 
information necessary for the preparation of the declaration shall be 
retained in the files of the party responsible for its preparation and 
submission for a period of 5 years. In the event that the port director 
requests submission of the declaration during the 5-year period, it 
shall be submitted by the appropriate party directly to the port 
director within 60 days of the date of the request or such additional 
period as the port director may allow for good cause shown. Failure to 
submit the declaration in a timely fashion will result in a denial of 
duty-free treatment.
    (iii) Value added after final exportation. In a case in which value 
is added to an article in the Commonwealth of Puerto Rico or in the 
United States after final exportation of the article from a beneficiary 
country as defined in Sec. 10.202(a), in order to ensure compliance 
with the value requirement under Sec. 10.206(a), the declaration 
provided for in paragraph (b)(1)(i) of this section shall be filed by 
the importer or consignee with the entry summary. The declaration shall 
be completed by the party responsible for the addition of such value.
    (2) Articles wholly the growth, product, or manufacture of a 
beneficiary country. In a case involving an article covered by a formal 
entry for which duty-free treatment is claimed under the ATPA and which 
is wholly the growth, product, or manufacture of a single beneficiary 
country as defined in Sec. 10.202(a), a statement to that effect shall 
be included on the commercial invoice provided to Customs.
    (c) Shipments covered by an informal entry. The normal procedure 
for filing a claim for duty-free treatment as set forth in paragraph 
(a) of this section need not be followed, and the filing of the 
declaration provided for in paragraph (b)(1)(i) of this section will 
not be required, in a case involving a shipment covered by an informal 
entry. However, the port director may require submission of such other 
evidence of entitlement to duty-free treatment as deemed necessary.
    (d) Evidence of direct importation. (1) Submission. The port 
director may require that appropriate shipping papers, invoices, or 
other documents be submitted within 60 days of the date of entry as 
evidence that the articles were ``imported directly'', as that term is 
defined in Sec. 10.204.
    (2) Waiver. The port director may waive the submission of evidence 
of direct importation when otherwise satisfied, taking into 
consideration the kind and value of the merchandise, that the 
merchandise was, in fact, imported directly and that it otherwise 
clearly qualifies for duty-free treatment under the ATPA.
    (e) Verification of documentation. The documentation submitted 
under this section to demonstrate compliance with the requirements for 
duty-free treatment under the ATPA shall be subject to such 
verification as the port director deems necessary. In the event that 
the port director is prevented from obtaining the necessary 
verification, the port director may treat the entry as fully dutiable.


Sec. 10.208  Duty reductions for certain products.

    (a) General. Handbags, luggage, flat goods, work gloves, and 
leather wearing apparel that were not designated on August 5, 1983, as 
eligible articles for purposes of the Generalized System of Preferences 
under Title V, Trade Act of 1974, as amended (19 U.S.C. 2461-2466), are 
not eligible for duty-free treatment under the ATPA. However, any such 
article from a beneficiary country may be subject to a reduced rate of 
duty set forth in the Harmonized Tariff Schedule of the United States 
in the applicable ``Special'' subcolumn followed by the symbol ``J'' in 
parenthesis, provided the article is a product of any beneficiary 
country. For purposes of this section, an article is a ``product of'' a 
beneficiary country if the article is either:
    (1) Wholly the growth, product, or manufacture of a beneficiary 
country; or
    (2) A new or different article of commerce which has been grown, 
produced, or manufactured in a beneficiary country.
    (b) Filing reduced-duty claim. A claim for reduced-duty treatment 
under the ATPA may be made at the time of filing the entry summary or 
other entry document by placing thereon the symbol ``J'' as a prefix to 
the Harmonized Tariff Schedule of the United States subheading number 
applicable to each article for which reduced-duty treatment is claimed 
and

[[Page 4608]]

by placing thereon the reduced duty rate applicable to each such 
article.
    (c) Verification of reduced-duty claim. Any claim for reduced-duty 
treatment under this section shall be subject to such verification as 
the port director deems necessary. In the event that the port director 
is prevented from obtaining the necessary verification, the port 
director may treat the entry as dutiable at the applicable non-ATPA 
rate.
Samuel H. Banks,
Acting Commissioner of Customs.

    Approved: December 24, 1997.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 98-2249 Filed 1-29-98; 8:45 am]
BILLING CODE 4820-02-P