[Federal Register Volume 66, Number 193 (Thursday, October 4, 2001)]
[Rules and Regulations]
[Pages 50534-50541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24991]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 10 and 163

[T.D. 01-74]
RIN 1515-AC89


Preferential Treatment of Brassieres Under the United States-
Caribbean Basin Trade Partnership Act

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Interim regulations; solicitation of comments.

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SUMMARY: This document sets forth interim amendments to the Customs 
Regulations to implement those provisions within the United States-
Caribbean Basin Trade Partnership Act (the CBTPA) that establish 
standards for preferential treatment for brassieres imported from CBTPA 
beneficiary countries. The regulatory amendments contained in this 
document involve specifically the methods, procedures and related 
standards that will apply for purposes of determining compliance with 
the 75 percent aggregate U.S. fabric components content requirement 
under the CBTPA brassieres provision.

DATES: Interim rule effective October 4, 2001. Comments must be 
received on or before December 3, 2001.

ADDRESSES: Written comments may be addressed to, and inspected at, the 
Regulations Branch, U.S. Customs Service, 1300 Pennsylvania Avenue, 
NW., 3rd Floor, Washington, DC 20229.

FOR FURTHER INFORMATION CONTACT: Legal issues: Cynthia Reese, Office of 
Regulations and Rulings (202-927-1361).
    Other issues: Dick Crichton, Office of Field Operations (202-927-
0162).

SUPPLEMENTARY INFORMATION:

Background

United States-Caribbean Basin Trade Partnership Act

    On May 18, 2000, President Clinton signed into law the Trade and 
Development Act of 2000 (the ``Act''), Public Law 106-200, 114 Stat. 
251. Title II of the Act concerns trade benefits for the Caribbean 
Basin and is referred to in the Act as the ``United States-Caribbean 
Basin Trade Partnership Act'' (the ``CBTPA''). Within Subtitle B of 
Title II of the Act, section 211 sets forth temporary provisions for 
the purpose of providing additional trade benefits to Caribbean Basin 
countries designated by the President as CBTPA beneficiary countries.
    Subsection (a) of section 211 of the Act revised section 213(b) of 
the Caribbean Basin Economic Recovery Act (the CBERA, also referred to 
as the Caribbean Basin Initiative, or CBI, statute codified at 19 
U.S.C. 2701-2707). The CBI is a duty preference program that applies to 
exports from those Caribbean Basin countries that have been designated 
by the President as program beneficiaries. Section 213(b) as amended by 
section 211(a) of the Act consists of five principal paragraphs. 
Paragraph (1) of amended section 213(b) lists six categories of goods 
which are excluded from standard duty-free treatment under the CBI (one 
of these categories consists of textile and apparel articles which were 
not eligible articles for purposes of the CBI on January 1, 1994, as 
the CBI was in effect on that date). Paragraph (2) of amended section 
213(b) provides, during the ``transition period,'' for the application 
of preferential treatment (that is, entry in the United States free of 
duty and free of any quantitative restrictions, limitations, or 
consultation levels) to specific textile and apparel articles; thus, 
paragraph (2) operates in part as an exception to the exclusion rule 
for textile and apparel articles under paragraph (1). Paragraph (3) of 
amended section 213(b) applies to the goods excluded from CBI duty-free 
treatment under paragraph (1) other than textile and apparel articles 
and in effect provides for the application of NAFTA tariff treatment to 
those goods during the ``transition period.'' Paragraph (4) of amended 
section 213(b) sets forth regulatory and related standards for purposes 
of preferential treatment under paragraph (2) or (3) and, among other 
things, requires the use of Certificate of Origin procedures modeled on 
the NAFTA. Paragraph (5) of amended section 213(b) sets forth 
definitions and special rules and, among other things, defines 
``transition period'' for purposes of section 213(b) as meaning, with 
respect to a CBTPA beneficiary country, the period that begins on 
October 1, 2000, and ends on the earlier of September 30, 2008, or the 
date on which a free trade agreement enters into force with respect to 
the United States and the CBTPA beneficiary country and defines ``CBTPA 
beneficiary country'' for purposes of section 213(b) as meaning any 
``beneficiary country'' as defined in section 212(a)(1)(A) of the CBI 
statute (19 U.S.C. 2702(a)(1)(A)) which the President designates as a 
CBTPA beneficiary country.
    One of the specific textile and apparel article categories to which 
preferential treatment may apply during the transition period under 
paragraph (2) of amended section 213(b) consists of brassieres 
described in paragraph (2)(A)(iv) as follows:

    (iv) CERTAIN OTHER APPAREL ARTICLES.--(I) Subject to subclause 
(II), any apparel article classifiable under subheading 6212.10 of 
the HTS, if the article is both cut and sewn or otherwise assembled 
in the United States, or one or more of the CBTPA beneficiary 
countries, or both.
    (II) During the 1-year period beginning on October 1, 2001, and 
during each of the six succeeding 1-year periods, apparel articles 
described in subclause (I) of a producer or an entity controlling 
production shall be eligible for preferential treatment under 
subparagraph (B) only if the aggregate cost of fabric components 
formed in the United States that are used in the production of all 
such articles of that producer or entity during the preceding 1-year 
period is at least 75 percent of the aggregate declared customs 
value of the fabric contained in all such articles of that producer 
or entity that are entered during the preceding 1-year period.
    (III) The United States Customs Service shall develop and 
implement methods and procedures to ensure ongoing compliance with 
the requirement set forth in subclause (II). If the Customs Service 
finds that a producer or an entity controlling production has not 
satisfied such requirement in a 1-year period, then apparel articles 
described in subclause (I) of that producer or entity shall be 
ineligible for preferential treatment under subparagraph (B) during 
any succeeding 1-year period until the aggregate cost of fabric 
components formed in the United States used in the production of 
such articles of that producer or entity in the preceding 1-year 
period is at least 85 percent of the aggregate declared customs 
value of the fabric contained in all such articles of that producer 
or entity that are entered during the preceding 1-year period.

    Thus, the preferential treatment available to brassieres under the 
CBTPA amendments represents a departure from historical practice under 
the CBI which (1) excluded most textile and apparel articles, including 
brassieres, from CBI duty-free treatment and (2) had no provision 
regarding exemption from quantitative restrictions, limitations or 
consultation levels. Although brassieres may receive preferential 
treatment under the CBTPA during the first year of the ``transition 
period'' (that is, through September 30, 2001) without regard to any 
U.S. fabric component content requirement, for each year after that 
first year the 75 percent U.S. fabric component content

[[Page 50535]]

requirement under paragraph (2)(A)(iv)(II) of the statute (or the 85 
percent U.S. fabric component content requirement under paragraph 
(2)(A)(iv)(III) of the statute) must have been met by the producer or 
entity controlling production for all brassieres produced and entered 
in the United States during the preceding year in order for the U.S. 
importer to be able to file a claim for preferential treatment on 
brassieres during the current year. If a producer or entity controlling 
production fails to meet the 75 percent standard in a given year, then 
during the entire following year claims for preferential treatment may 
not be made on its brassieres and the 85 percent standard must be met 
in order for its brassieres to be eligible for preferential treatment 
in the next year. Under the statute, preferential treatment for 
brassieres under the CBTPA will terminate when the ``transition 
period'' ends either by adoption of a new trade agreement between the 
United States and the CBTPA beneficiary country or on September 30, 
2008, whichever is earlier. If preferential treatment under the CBTPA 
terminates without adoption of a new free trade agreement, then the 
prior CBI regime would come back into operation and brassieres would 
revert to dutiable status and could be subject to quantitative 
restrictions, limitations or consultation levels.

Presidential and Regulatory Action Under the CBTPA

    On October 2, 2000, President Clinton signed Proclamation 7351 
(published in the Federal Register at 65 FR 59329 on October 4, 2000) 
to implement the CBTPA. This Proclamation (1) included a list of 
countries designated as CBTPA beneficiary countries, (2) authorized the 
United States Trade Representative to make certain determinations 
regarding designated beneficiary countries under paragraph (4) of 
amended section 213(b) and to publish a notice of those determinations 
and of consequential changes to the HTSUS in the Federal Register, and 
(3) set forth, in an Annex, modifications to the HTSUS to accommodate 
the preferential treatment and other CBTPA import provisions. Included 
in those HTSUS modifications was the addition of a new Subchapter XX to 
Chapter 98 to reflect the specific textile and apparel article 
provisions of paragraph (2) of amended section 213(b), including, in 
subheading 9820.11.15, the brassieres of paragraph (2)(A)(iv). 
Subsequently, on October 10, 2000, the United States Trade 
Representative published in the Federal Register (65 FR 60236) a 
notice, with an effective date of October 2, 2000, setting forth a 
determination regarding certain designated CBTPA beneficiary countries 
and making conforming changes to the HTSUS as required by Proclamation 
7351 and thus putting into effect the trade benefit provisions of the 
CBTPA.
    On October 5, 2000, Customs published in the Federal Register (65 
FR 59650) as T.D. 00-68, with an effective date of October 1, 2000, an 
interim rule document setting forth amendments to the Customs 
Regulations which included, among other things, the addition of new 
Secs. 10.221 through 10.227 (19 CFR 10.221 through 10.227) to implement 
those textile and apparel preferential treatment provisions within 
paragraphs (2), (4) and (5) of amended section 213(b) of the CBI 
statute that relate to U.S. import procedures. The regulatory 
amendments contained in that document reflected and clarified the 
statutory standards for the trade benefits applicable to textile and 
apparel articles under the CBTPA and also included specific 
documentary, procedural and other related requirements that must be met 
in order to obtain those benefits. Section 10.223(a) of those 
regulations describes the various categories of textile and apparel 
articles to which preferential treatment may apply and includes, in 
paragraph (a)(6), a reference to brassieres as described in paragraph 
(2)(A)(iv)(I) of amended section 213(b).
    The regulatory texts in T.D. 00-68 only set forth the general 
brassiere product description provision of subclause (I) of paragraph 
(2)(A)(iv) of the statute and therefore did not address the aggregate 
cost or value provisions of subclauses (II) and (III) of paragraph 
(2)(A)(iv), for two reasons. First, as indicated above, those aggregate 
cost or value provisions do not have direct application to imported 
goods until the second year of the statutory 8-year ``transition 
period.'' Second, there were a number of interpretive and operational 
issues regarding implementation of the subclause (II) and (III) 
provisions that Customs was unable to resolve within the relatively 
short time period available for preparation and timely publication of 
the basic CBTPA implementing regulations in T.D. 00-68.
    Customs recognizes, however, that appropriate regulatory standards 
should be in place for reference by the general public by October 1, 
2001. Customs notes in this regard that subclause (III) of paragraph 
(2)(A)(iv) requires that Customs develop and implement methods and 
procedures to ensure ongoing compliance with the aggregate 75 percent 
U.S.-formed fabric components cost requirement of subclause (II). 
Moreover, even though the 75 percent aggregate requirement does not 
control the application of preferential treatment to goods entered 
prior to October 1, 2001, under the terms of subclause (II) the 75 
percent requirement must have been met in the aggregate for all 
articles entered during each preceding year (that is, starting with the 
year beginning on October 1, 2000, and ending on September 30, 2001) in 
order for preferential treatment to be applied to articles entered 
during the following year (that is, starting with the year that begins 
on October 1, 2001). Therefore, for purposes of claiming CBTPA 
preferential treatment on brassieres entered during the period from 
October 1, 2001, through September 30, 2002, the U.S. importer and the 
producer or entity controlling production must, for record keeping and 
related purposes, be aware of the standards Customs will apply in 
assessing compliance with the 75 percent requirement during that 
preceding year.
    Accordingly, this document sets forth interim amendments to the 
Customs Regulations to implement the aggregate cost or value provisions 
of subclauses (II) and (III) of paragraph (2)(A)(iv) of amended section 
213(b). In view of the proximity of the publication date of these 
interim regulations to October 1, 2001, Customs has issued instructions 
to the various ports to allow importers to amend their entries as may 
be necessary to take into account the new procedures and other 
requirements of these interim regulations. The regulatory amendments 
are discussed in more detail below.

Discussion of Interim Amendments

Section 10.223(a)(6)

    This section has been modified by the addition of a proviso at the 
end to indicate that the requirements of new Sec. 10.228 also must be 
met.

Section 10.223(a)(7)

    Customs notes that Sec. 10.223(a)(7) covers apparel articles that 
are constructed of fabrics or yarns that are considered to be in 
``short supply'' for purposes of Annex 401 of the NAFTA. Customs 
further notes that the Annex 401 rule for articles classified in 
subheading 6212.10, HTSUS, requires only the performance of certain 
specified production processes (that is, ``both cut (or knit to shape) 
and sewn or otherwise assembled in the territory of one or more of the 
NAFTA parties'') and includes no requirements regarding the source of 
the fabrics or yarns. Thus, as the Annex 401 rule for subheading 
6212.10, HTSUS, includes no

[[Page 50536]]

designation of fabrics or yarns in ``short supply,'' Customs believes 
that brassieres of subheading 6212.10, HTSUS, are not covered by 
Sec. 10.223(a)(7).
    This view is supported by the decision by Congress to create a 
specific CBTPA provision providing for preferential treatment of 
brassieres (paragraph (2)(A)(iv) of amended Sec. 213(b), which is 
reflected in Sec. 10.223(a)(6) of the regulations). Were articles of 
subheading 6212.10, HTSUS, intended to be included with the articles 
falling within the scope of Sec. 10.223(a)(7) which corresponds to 
paragraph (2)(A)(v)(I) of amended section 213(b), Congress would not 
have created a separate provision with specific fabric sourcing 
requirements which must be met in order for brassieres of subheading 
6212.10, HTSUS, to receive preferential treatment under the CBTPA.
    The text of Sec. 10.223(a)(7) has been appropriately modified to 
reflect this interpretation.

New Sec. 10.228

    This new section addresses the aggregate cost or value provisions 
of subclauses (II) and (III) of paragraph (2)(A)(iv) of amended section 
213(b). Although the text is in most cases self-explanatory, the 
following specific points are noted regarding this new provision:
    1. The definitions of ``cost'' and ``declared customs value'' in 
paragraphs (a)(4) and (a)(5) are based in part on principles reflected 
in the Customs Regulations provisions that apply for purposes of 
subheading 9802.00.80, HTSUS (see, in particular, 19 CFR 10.17) and 
under the CBI (see, in particular, 19 CFR 10.196(c)). Moreover, as 
regards the definition of ``declared customs value'' in paragraph 
(a)(5), Customs notes that because the circumstance in which this 
terminology appears in the statute does not relate to a point at which 
a value is normally declared to U.S. Customs, the text includes 
multiple factual circumstances that reflect all conditions under which 
a value of fabric could exist for purposes of comparison to the 
``cost'' of fabric components defined in paragraph (a)(4).
    2. Paragraph (b)(1) reflects the 75 and 85 percent U.S. fabric 
component content requirements of paragraphs (2)(A)(iv)(II) and (III) 
of the statute and also requires the U.S. importer to include a 
specific documentation identifier assigned by Customs (see the 
discussion of paragraph (c) below) when filing the claim for 
preferential treatment. Customs considers a specific documentation 
identifier necessary. The identifier, which is to be noted on the entry 
summary or warehouse withdrawal, will serve both the importer and 
Customs. The identifier serves the importer as it is a method to 
indicate that the importer has at the time of entry a specific basis 
for claiming preferential treatment--that either the 75 or the 85 
percent requirement has been met in the preceding year--for the 
brassieres being entered and thus will facilitate the entry and 
clearance process. The identifier serves Customs as it is a means by 
which Customs can tie a particular entry to the fact that a producer of 
brassieres or an entity controlling production of brassieres has met 
the 75 or 85 percent requirement. This is essential in view of the fact 
that compliance with the 75 or 85 percent requirement must be 
established by a producer or by an entity controlling production who 
might not be the U.S. importer.
    3. Paragraph (b)(2) sets forth a number of general rules that 
Customs believes apply under paragraphs (b)(1)(i) and (b)(1)(ii) and 
for purposes of preparing and filing the documentation prescribed under 
paragraph (c) by the producer or entity controlling production. 
Paragraph (b)(2) also includes some examples to illustrate the 
application of those rules.
    4. Paragraph (c) provides that, in order for an importer to be able 
to include the distinct and unique identifier on the entry summary or 
warehouse withdrawal as required under paragraph (b)(1)(iii), the 
producer or entity controlling production must have filed with Customs 
a declaration of compliance with the applicable 75 or 85 percent 
requirement. Paragraph (c) further provides that Customs will advise 
the filer of the identifier assigned to that declaration of compliance 
so that the filer may provide that number to the appropriate U.S. 
importers for inclusion on current entry summaries or warehouse 
withdrawals covering articles of the producer or entity controlling 
production in question. So that each affected importer might know what 
the appropriate identifier is prior to the arrival of the goods in the 
United States, paragraph (c) provides that the declaration of 
compliance should be filed at least 10 days prior to the date of the 
first shipment of the goods to the United States; Customs believes that 
this 10-day period should afford sufficient time for Customs to assign 
the identifier to the declaration of compliance and provide the 
identifier to the producer or entity controlling production and for the 
producer or entity to then provide it to the appropriate U.S. 
importer(s). Paragraph (c) also provides for the filing of an amended 
declaration of compliance or for following other appropriate procedures 
if the initial filing was based on an estimate because information for 
the whole year was not available at the time of the initial filing and 
the final data differs from the estimate, or if the producer or entity 
controlling production has reason to believe for any other reason that 
the declaration of compliance that was filed contained erroneous 
information. Finally, paragraph (c) identifies the specific Customs 
office at which the filing must take place and prescribes the form the 
declaration of compliance must take and includes instructions for its 
completion.
    5. Paragraph (d) sets forth standards regarding the verification of 
a declaration of compliance and is similar to the rules that apply for 
purposes of verification of CBTPA preferential treatment claims under 
Sec. 10.227 but with changes to reflect the current context. Paragraph 
(d) also specifies the nature of the accounting books and documents 
that Customs expects to see when verifying the statements made on a 
declaration of compliance. Finally, so that affected U.S. importers 
will know when Customs, after performing a verification of a 
declaration of compliance, has determined that articles of the producer 
or entity controlling production in question failed to meet the 
applicable 75 or 85 percent requirement, paragraph (d) provides that 
Customs will publish a notice of that determination in the Federal 
Register.

Part 163

    The Appendix to Part 163 of the Customs Regulations (19 CFR Part 
163), which sets forth a list of entry records (that is, records that 
are required by statute or regulation for the entry of merchandise--the 
``(a)(1)(A)'' list), has been modified by the addition of a listing 
covering the CBTPA declaration of compliance for brassieres.

Comments

    Before adopting these interim regulations as a final rule, 
consideration will be given to any written comments timely submitted to 
Customs, including comments on the clarity of this interim rule and how 
it may be made easier to understand. 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

[[Page 50537]]

Service, 1300 Pennsylvania Avenue, NW., 3rd Floor, Washington, DC.

Inapplicability of Notice and Delayed Effective Date Requirements 
and the Regulatory Flexibility Act

    Pursuant to the provisions of 5 U.S.C. 553(b)(B), Customs has 
determined that prior public notice and comment procedures on these 
regulations are unnecessary and contrary to the public interest. The 
regulatory changes provide trade benefits to the importing public, in 
some cases implement direct statutory mandates, and are necessary to 
carry out the preferential treatment proclaimed by the President under 
the United States-Caribbean Basin Trade Partnership Act. For the same 
reasons, pursuant to the provisions of 5 U.S.C. 553(d)(1) and (3), 
Customs finds that there is good cause for dispensing with a delayed 
effective date. Because no notice of proposed rulemaking is required 
for interim regulations, the provisions of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) do not apply.

Executive Order 12866

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

Paperwork Reduction Act

    The collection of information contained in this interim rule has 
previously been reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the requirements of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.) under OMB control number 
1515-0226.
    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.

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

19 CFR Part 10

    Assembly, Bonds, Caribbean Basin Initiative, Customs duties and 
inspection, Exports, Imports, Preference programs, Reporting and 
recordkeeping requirements, Trade agreements.

19 CFR Part 163

    Administrative practice and procedure, Customs duties and 
inspection, Imports, Reporting and recordkeeping requirements.

AMENDMENTS TO THE REGULATIONS

    For the reasons set forth in the preamble, Parts 10 and 163, 
Customs Regulations (19 CFR Parts 10 and 163), are amended 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 the specific authority citation for Secs. 10.221 through 10.227 and 
Secs. 10.231 through 10.237 is revised to read, as follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 22, Harmonized 
Tariff Schedule of the United States (HTSUS)), 1321, 1481, 1484, 
1498, 1508, 1623, 1624, 3314;
* * * * *
    Sections 10.221 through 10.228 and Secs. 10.231 through 10.237 also 
issued under 19 U.S.C. 2701 et seq.


Sec. 10.222    [Amended]

    2. In Sec. 10.222, the introductory text is amended by removing the 
reference ``10.227'' and adding, in its place, the reference 
``10.228''.


Sec. 10.223    [Amended]

    3. In Sec. 10.223, paragraph (a)(6) is amended by adding at the end 
before the semicolon the words ``, provided that any applicable 
additional requirements set forth in Sec. 10.228 are met'' and 
paragraph (a)(7) is amended by adding after the words ``Apparel 
articles'' at the beginning of the sentence the words ``, other than 
articles described in paragraph (a)(6) of this section,''.

    4. A new Sec. 10.228 is added under the center heading ``Textile 
and Apparel Articles Under the United States-Caribbean Basin Trade 
Partnership Act'' to read as follows:


Sec. 10.228  Additional requirements for preferential treatment of 
brassieres.

    (a) Definitions. When used in this section, the following terms 
have the meanings indicated:
    (1) Producer. ``Producer'' means an individual, corporation, 
partnership, association, or other entity or group that exercises 
direct, daily operational control over the production process in a 
CBTPA beneficiary country.
    (2) Entity controlling production. ``Entity controlling 
production'' means an individual, corporation, partnership, 
association, or other entity or group that is not a producer and that 
controls the production process in a CBTPA beneficiary country through 
a contractual relationship or other indirect means.
    (3) Fabric components formed in the United States. ``Fabric 
components formed in the United States'' means components that were 
knit to shape from yarns in the United States and components that were 
cut or otherwise produced in the United States from fabric that was 
formed in the United States by a weaving, knitting, needling, tufting, 
felting, entangling or other process, whether or not the components 
incorporate non-textile materials.
    (4) Cost. ``Cost'' when used with reference to fabric components 
formed in the United States means:
    (i) The price of the fabric components when last purchased, f.o.b. 
United States port of exportation, as set out in the invoice or other 
commercial documents, or, if the price is other than f.o.b. United 
States port of exportation, the price as set out in the invoice or 
other commercial documents adjusted to arrive at an f.o.b. United 
States port of exportation price; or
    (ii) If the price cannot be determined under paragraph (a)(4)(i) of 
this section or if that price is unreasonable, all reasonable expenses 
incurred in the growth, production, manufacture or other processing of 
the fabric components, including the cost or value of materials and 
general expenses, plus a reasonable amount for profit, and the freight, 
insurance, packing, and other costs incurred in transporting the 
components to the United States port of exportation.
    (5) Declared customs value. ``Declared customs value'' when used 
with reference to fabric contained in an article means the sum of:
    (i) The cost of fabric components formed in the United States less 
the cost or value of any non-textile materials, and less the U.S. 
producer's expenses for cutting or other processing to create the 
components other than knitting to shape, that the producer or entity 
controlling production can verify; and
    (ii) The cost of all other fabric contained in the article, that 
is, fabric not incorporated in a fabric component formed in the United 
States, determined as follows:
    (A) In the case of fabric purchased by the producer or entity 
controlling production, the f.o.b. port of exportation price of the 
fabric as set out in the invoice or other commercial documents or, if 
the price is other than f.o.b. port of exportation, the price as set 
out in the invoice or other commercial documents adjusted to arrive at 
an f.o.b. port of exportation price, plus expenses for embroidering and 
dyeing, printing and other finishing operations applied to the fabric 
if not included in that price;

[[Page 50538]]

    (B) In the case of fabric for which the cost cannot be determined 
under paragraph (a)(5)(ii)(A) of this section or if that cost is 
unreasonable, all reasonable expenses incurred in the growth, 
production or manufacture of the fabric, including the cost or value of 
materials, general expenses and embroidering and dyeing, printing, and 
other finishing expenses, plus a reasonable amount for profit, and the 
freight, insurance, packing and other costs incurred in transporting 
the fabric to the port of exportation;
    (C) In the case of fabric components that were purchased by the 
producer or entity controlling production, either the f.o.b. port of 
exportation price of those fabric components as set out in the invoice 
or other commercial documents (or, if the price is other than f.o.b. 
port of exportation, the price as set out in the invoice or other 
commercial documents adjusted to arrive at an f.o.b. port of 
exportation price) or that f.o.b. port of exportation price less the 
cost or value of any non-textile materials and less expenses for 
cutting or other processing to create the components other than 
knitting to shape, that the producer or entity controlling production 
can verify; and
    (D) In the case of fabric components for which a fabric cost cannot 
be determined under paragraph (a)(5)(ii)(C) of this section or if that 
cost is unreasonable, all reasonable expenses incurred in the growth, 
production or manufacture of the fabric components, including the cost 
or value of materials and general expenses, but excluding the cost or 
value of any non-textile materials and excluding expenses for cutting 
or other processing to create the components other than knitting to 
shape, that the producer or entity controlling production can verify, 
plus a reasonable amount for profit, and the freight, insurance, 
packing and other costs incurred in transporting the components to the 
port of exportation.
    (6) Year. ``Year'' means the 1-year period beginning on October 1, 
2000, and ending on September 30, 2001, and any of the seven succeeding 
1-year periods.
    (7) Entered. ``Entered'' means entered, or withdrawn from warehouse 
for consumption, in the customs territory of the United States.
    (b) Limitations on preferential treatment--(1) General. During the 
year that begins on October 1, 2001, and during any subsequent year, 
articles described in Sec. 10.223(a)(6) of a producer or an entity 
controlling production will be eligible for preferential treatment only 
if:
    (i) The aggregate cost of fabric components formed in the United 
States that were used in the production of all of those articles of 
that producer or that entity controlling production that were produced 
and entered during the immediately preceding year was at least 75 
percent of the aggregate declared customs value of the fabric contained 
in all of those articles of that producer or that entity controlling 
production that were produced and entered during that year; or
    (ii) In a case in which Customs determines that the 75 percent 
requirement set forth in paragraph (b)(1)(i) of this section was not 
met during a year and therefore those articles of that producer or that 
entity controlling production were not eligible for preferential 
treatment during the following year, the aggregate cost of fabric 
components formed in the United States that were used in the production 
of all of those articles of that producer or that entity controlling 
production that were produced and entered during the immediately 
preceding year was at least 85 percent of the aggregate declared 
customs value of the fabric contained in all of those articles of that 
producer or that entity controlling production that were produced and 
entered during that year; and
    (iii) In conjunction with the filing of the claim for preferential 
treatment under Sec. 10.225, the importer records on the entry summary 
or warehouse withdrawal for consumption (Customs Form 7501, column 34), 
or its electronic equivalent, the distinct and unique identifier 
assigned by Customs to the applicable documentation prescribed under 
paragraph (c) of this section.
    (2) Rules of application--(i) General. For purposes of paragraphs 
(b)(1)(i) and (b)(1)(ii) of this section and for purposes of preparing 
and filing the documentation prescribed in paragraph (c) of this 
section, the following rules will apply:
    (A) The articles in question must conform to the description set 
forth in Sec. 10.223(a)(6) and must be both produced and entered within 
the same year;
    (B) Articles that are exported to countries other than the United 
States and are never entered are not to be considered in determining 
compliance with the 75 or 85 percent standard specified in paragraph 
(b)(1)(i) or paragraph (b)(1)(ii) of this section;
    (C) Fabric components and fabrics that constitute findings or 
trimmings of foreign origin for purposes of Sec. 10.223(c) are not to 
be considered in determining compliance with the 75 or 85 percent 
standard specified in paragraph (b)(1)(i) or paragraph (b)(1)(ii) of 
this section;
    (D) An article is considered to be produced in the year in which it 
reaches the condition in which it will be shipped to the United States;
    (E) A new producer or new entity controlling production, that is, a 
producer or entity controlling production who did not produce or 
control production during the immediately preceding year, must first 
establish compliance with the 75 percent standard specified in 
paragraph (b)(1)(i) of this section as a prerequisite to preparation of 
the declaration of compliance referred to in paragraph (c) of this 
section;
    (F) Beginning October 1, 2001, in order for articles to be eligible 
for preferential treatment in a given year, a producer of, or entity 
controlling production of, those articles must have met the 75 percent 
standard specified in paragraph (b)(1)(i) of this section during the 
immediately preceding year. If articles of a producer or entity 
controlling production fail to meet the 75 percent standard specified 
in paragraph (b)(1)(i) of this section during a year, articles of that 
producer or entity controlling production:
    (1) Will not be eligible for preferential treatment during the 
following year;
    (2) Will remain ineligible for preferential treatment until the 
year that follows a year in which articles of that producer or entity 
controlling production met the 85 percent standard specified in 
paragraph (b)(1)(ii) of this section; and
    (3) After the 85 percent standard specified in paragraph (b)(1)(ii) 
of this section has been met, will again be subject to the 75 percent 
standard specified in paragraph (b)(1)(i) of this section during the 
following year for purposes of determining eligibility for preferential 
treatment in the next year.
    (G) A declaration of compliance prepared by a producer or by an 
entity controlling production must cover all production of that 
producer or all production that the entity controls;
    (H) A producer would not prepare a declaration of compliance if all 
of its production is covered by a declaration of compliance prepared by 
an entity controlling production;
    (I) In the case of a producer, the 75 or 85 percent standard 
specified in paragraph (b)(1)(i) or paragraph (b)(1)(ii) of this 
section and the declaration of compliance procedure under paragraph (c) 
of this section apply to all articles of that producer for the year in 
question, even if some but not all of that production is also covered 
by a

[[Page 50539]]

declaration of compliance prepared by an entity controlling production; 
and
    (J) The U.S. importer does not have to be the producer or the 
entity controlling production who prepared the declaration of 
compliance.
    (ii) Examples. The following examples will illustrate application 
of the principles set forth in paragraph (b)(2)(i) of this section.

    Example 1. A CBTPA beneficiary country producer of articles that 
meet the description in Sec. 10.223(a)(6) sends 50 percent of that 
production to the CBTPA region markets and the other 50 percent to 
the U.S. market; the cost of the fabric components formed in the 
United States equals 100 percent of the value of all of the fabric 
in the articles sent to the CBTPA region and 60 percent of the value 
of all of the fabric in the articles sent to the United States. 
Although the cost of fabric components formed in the United States 
is more than 75 percent of the value of all of the fabric used in 
all of the articles produced, this producer could not prepare a 
valid declaration of compliance because the articles sent to the 
United States did not meet the minimum 75 percent standard.
    Example 2. An entity controlling production of articles that 
meet the description in Sec. 10.223(a)(6) buys for the U.S., 
Canadian and Mexican markets; the articles in each case are first 
sent to the United States where they are entered for consumption and 
then placed in a commercial warehouse from which they are shipped to 
various stores in the United States, Canada and Mexico. 
Notwithstanding the fact that some of the articles ultimately ended 
up in Canada or Mexico, a declaration of compliance prepared by the 
entity controlling production must cover all of the articles rather 
than only those that remained in the United States because all of 
those articles had been entered for consumption.
    Example 3. Fabric is cut and sewn in the United States with 
other U.S. materials to form cups which are joined together to form 
brassiere front subassemblies in the United States, and those front 
subassemblies are then placed in a warehouse in the United States 
where they are held until the following year; during that following 
year the front subassemblies are shipped to a CBTPA beneficiary 
country where they are assembled with elastic straps less than 1 
inch in width produced in an Asian country and other fabrics, 
components or materials produced in the CBTPA beneficiary country to 
form articles that meet the description in Sec. 10.223(a)(6) and 
that are then shipped to the United States and entered during that 
same year. In determining whether the entered articles meet the 
minimum 75 percent standard, the foreign-origin elastic straps are 
to be disregarded entirely because they constitute findings or 
trimmings for purposes of Sec. 10.223(c), and the front 
subassemblies are countable as components formed in the United 
States because they were used in the production of articles that 
were both produced and entered in the same year.
    Example 4. A CBTPA beneficiary country producer's entire 
production of articles that meet the description in 
Sec. 10.223(a)(6) is sent to a U.S. importer in two separate 
shipments, one covering articles produced and shipped in February 
and one covering articles produced and shipped in June of the same 
calendar year; the articles produced and shipped in February do not 
meet the minimum 75 percent standard but the two shipments, taken 
together, do meet that standard; the articles covered by the 
February shipment are entered for consumption on March 1 of that 
calendar year, and the articles covered by the June shipment are 
placed in a Customs bonded warehouse upon arrival and are 
subsequently withdrawn from warehouse for consumption on November 1 
of that calendar year. The CBTPA beneficiary country producer may 
not prepare a valid declaration of compliance for any portion of 
these two shipments because the articles in the first shipment did 
not meet the minimum 75 percent standard and the articles in the 
second shipment were not both produced and entered in the same year 
and therefore cannot be included either on a declaration of 
compliance that would apply to the articles of the first shipment or 
on a declaration of compliance that would apply to articles produced 
in a different year.
    Example 5. A producer in the second year begins production of 
articles exclusively for the U.S. market that meet the description 
in Sec. 10.223(a)(6); the articles do not meet the minimum 75 
percent standard until the third year; the articles fail to meet the 
minimum 75 percent standard during the fourth year; and the articles 
do not attain the 85 percent standard until the sixth year. The 
producer's articles may not receive preferential treatment during 
the second year because there was no production in the immediately 
preceding year on which to assess compliance with the 75 percent 
standard. The producer's articles also may not receive preferential 
treatment during the third year because the 75 percent standard was 
not met in the immediately preceding (that is, second) year. The 
producer's articles are eligible for preferential treatment during 
the fourth year based on compliance with the 75 percent standard in 
the immediately preceding (that is, third) year. The producer's 
articles may not receive preferential treatment during the fifth 
year because the 75 percent standard was not met in the immediately 
preceding (that is, fourth) year. The producer's articles may not 
receive preferential treatment during the sixth year because the 85 
percent standard has become applicable and was not met in the 
immediately preceding (that is, fifth) year. The producer's articles 
are eligible for preferential treatment during the seventh year 
because the 85 percent standard was met in the immediately preceding 
(that is, sixth) year, and during that seventh year the 75 percent 
standard is applicable for purposes of determining whether the 
producer's articles are eligible for preferential treatment in the 
following (that is, eighth) year.
    Example 6. An entity controlling production (Entity A) uses five 
CBTPA beneficiary country producers (Producers 1-5), all of whom 
produce only articles that meet the description in 
Sec. 10.223(a)(6); Producers 1-4 send all of their production to the 
United States and Producer 5 sends 10 percent of its production to 
the United States and the rest to Europe; Producers 1-3 and Producer 
5 produce only pursuant to contracts with Entity A, but Producer 4 
also operates independently of Entity A by producing for several 
U.S. importers, one of which is an entity controlling production 
(Entity B) that also controls all of the production of articles of 
one other producer (Producer 6) who sends all of its production to 
the United States. A declaration of compliance prepared by Entity A 
must cover all of the articles of Producers 1-3 and the 10 percent 
of articles of Producer 5 that are sent to the United States and 
that portion of the articles of Producer 4 that are produced 
pursuant to the contract with Entity A, because Entity A controls 
the production of those articles. There is no need for Producers 1-3 
and Producer 5 to prepare a declaration of compliance because they 
have no production that is not covered by a declaration of 
compliance prepared by an entity controlling production. A 
declaration of compliance prepared by Producer 4 would cover all of 
its production, that is, articles produced for Entity A, articles 
produced for Entity B, and articles produced independently for other 
U.S. importers; a declaration of compliance prepared by Entity B 
must cover that portion of the production of Producer 4 that he 
controls as well as all of the production of Producer 6 because 
Entity B also controls all of the production of Producer 6. Producer 
6 would not prepare a declaration of compliance because all of its 
production is covered by the declaration of compliance prepared by 
Entity B.

    (c) Documentation--(1) Initial declaration of compliance. In order 
for an importer to comply with the requirement set forth in paragraph 
(b)(1)(iii) of this section, the producer or the entity controlling 
production must have filed with Customs, in accordance with paragraph 
(c)(4) of this section, a declaration of compliance with the applicable 
75 or 85 percent requirement prescribed in paragraph (b)(1)(i) or 
(b)(1)(ii) of this section. After filing of the declaration of 
compliance has been completed, Customs will advise the producer or the 
entity controlling production of the distinct and unique identifier 
assigned to that declaration. The producer or the entity controlling 
production will then be responsible for advising each appropriate U.S. 
importer of that distinct and unique identifier for purposes of 
recording that identifier on the entry summary or warehouse withdrawal. 
In order to provide sufficient time for advising the U.S. importer of 
that distinct and unique identifier prior to the arrival of the 
articles in the United States, the declaration of compliance should be 
filed with Customs at least 10 calendar days prior to the date of the 
first shipment of the articles to the United States.

[[Page 50540]]

    (2) Amended declaration of compliance. If the information on the 
declaration of compliance referred to in paragraph (c)(1) of this 
section is based on an estimate because final year-end information was 
not available at that time and the final data differs from the 
estimate, or if the producer or the entity controlling production has 
reason to believe for any other reason that the declaration of 
compliance that was filed contained erroneous information, within 30 
calendar days after the final year-end information becomes available or 
within 30 calendar days after the date of discovery of the error:
    (i) The producer or the entity controlling production must file 
with the Customs office identified in paragraph (c)(4) of this section 
an amended declaration of compliance containing that final year-end 
information or other corrected information; or
    (ii) If that final year-end information or other corrected 
information demonstrates noncompliance with the applicable 75 or 85 
percent requirement, the producer or the entity controlling production 
must in writing advise both the Customs office identified in paragraph 
(c)(4) of this section and each appropriate U.S. importer of that fact.
    (3) Form and preparation of declaration of compliance--(i) Form. 
The declaration of compliance referred to in paragraph (c)(1) of this 
section may be printed and reproduced locally and must be in the 
following format:

BILLING CODE 4820-02-P
[GRAPHIC] [TIFF OMITTED] TR04OC01.007



[[Page 50541]]


BILLING CODE 4820-02-C
    (ii) Preparation. The following rules will apply for purposes of 
completing the declaration of compliance set forth in paragraph (c)(3) 
of this section:
    (A) In block 1, fill in the year commencing October 1 and ending 
September 30 of the calendar year during which the applicable 75 or 85 
percent standard specified in paragraph (b)(1)(i) or paragraph 
(b)(1)(ii) of this section was met;
    (B) Block 2 should state the legal name and address (including 
country) of the preparer and should also include the preparer's 
importer identification number (see Sec. 24.5 of this chapter), if the 
preparer has one;
    (C) Block 3 should state the legal name and address (including 
country) of the CBTPA beneficiary country producer if that producer is 
not already identified in block 2. If there is more than one producer, 
attach a list stating the legal name and address (including country) of 
all additional producers;
    (D) Blocks 4 and 5 apply only to articles that were both produced 
and entered during the year identified in block 1;
    (E) In block 6, the 75 percent space should be checked if that 
figure applies under paragraph (b)(1) of this section for the year 
identified in block 1, and the 85 percent space should be checked if 
that figure applies under paragraph (b)(2) of this section for the year 
identified in block 1; and
    (F) In block 7, the signature must be that of an authorized 
officer, employee, agent or other person having knowledge of the 
relevant facts and the date must be the date on which the declaration 
of compliance was completed and signed.
    (4) Filing of declaration of compliance. The declaration of 
compliance referred to in paragraph (c)(1) of this section:
    (i) Must be completed either in the English language or in the 
language of the country in which the articles covered by the 
declaration were produced. If the declaration is completed in a 
language other than English, the producer or the entity controlling 
production must provide to Customs upon request a written English 
translation of the declaration; and
    (ii) Must be filed with the New York Strategic Trade Center, U.S. 
Customs Service, 1 Penn Plaza, New York, New York 10119.
    (d) Verification of declaration of compliance--(1) Verification 
procedure. A declaration of compliance filed under this section will be 
subject to whatever verification Customs deems necessary. In the event 
that Customs for any reason is prevented from verifying the statements 
made on a declaration of compliance, Customs may deny any claim for 
preferential treatment made under Sec. 10.225 that is based on that 
declaration. A verification of a declaration of compliance may involve, 
but need not be limited to, a review of:
    (i) All records required to be made, kept, and made available to 
Customs by the importer, the producer, the entity controlling 
production, or any other person under part 163 of this chapter;
    (ii) Documentation and other information regarding all articles 
described in Sec. 10.223(a)(6) that were produced and exported to the 
United States and entered during the preference year in question, 
whether or not a claim for preferential treatment was made under 
Sec. 10.225. Those records and other information include, but are not 
limited to, work orders and other production records, purchase orders, 
invoices, bills of lading and other shipping documents;
    (iii) Evidence to document the cost of fabric components formed in 
the United States that were used in the production of the articles in 
question, such as purchase orders, invoices, bills of lading and other 
shipping documents, and customs import and clearance documents, work 
orders and other production records, and inventory control records;
    (iv) Evidence to document the cost or value of all fabric other 
than fabric components formed in the United States that were used in 
the production of the articles in question, such as purchase orders, 
invoices, bills of lading and other shipping documents, and customs 
import and clearance documents, work orders and other production 
records, and inventory control records; and
    (v) Accounting books and documents to verify the records and 
information referred to in paragraphs (d)(1)(ii) through (d)(1)(iv) of 
this section. The verification of purchase orders, invoices and bills 
of lading will be accomplished through the review of a distinct audit 
trail. The audit trail documents must consist of a cash disbursement or 
purchase journal or equivalent records to establish the purchase of the 
fabric or component. The headings in each of these journals or other 
records must contain the date, vendor name, and amount paid for the 
fabric or component. The verification of production records and work 
orders will be accomplished through analysis of the inventory records 
of the producer or entity controlling production. The inventory records 
must identify the date of production of the finished article which must 
be referenced to the original purchase order or lot number covering the 
fabric or component used in production. In the inventory production 
records, the inventory should show the opening balance of the inventory 
plus the purchases made during the year and the inventory closing 
balance.
    (2) Notice of determination. If, based on a verification of a 
declaration of compliance filed under this section, Customs determines 
that the applicable 75 or 85 percent standard specified in paragraph 
(b)(1)(i) or paragraph (b)(1)(ii) of this section was not met, Customs 
will publish a notice of that determination in the Federal Register.

PART 163--RECORDKEEPING

    1. The authority citation for Part 163 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1484, 1508, 1509, 1510, 
1624.


    2. The Appendix to Part 163 is amended by adding a new listing 
under section IV in numerical order to read as follows:

Appendix to Part 163--Interim (a)(1)(A) list

* * * * *
    IV. * * *


Sec. 10.228  CBTPA Declaration of Compliance for brassieres

* * * * *

Charles W. Winwood,
Acting Commissioner of Customs.
    Approved: October 2, 2001.
Gordana S. Earp,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 01-24991 Filed 10-2-01; 11:16 am]
BILLING CODE 4820-02-P