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


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DEPARTMENT OF COMMERCE

Foreign-Trade Zones Board

15 CFR Part 400

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


Foreign-Trade Zones in the United States

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

ACTION: Proposed rule; request for comments.

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

[[Page 82341]]

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

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

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

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

SUPPLEMENTARY INFORMATION:

Background

    Foreign-Trade Zones (FTZs or zones) are restricted-access sites in 
or near U.S. Customs and Border Protection (CBP) ports of entry. The 
zones are licensed by the Board and operated under the supervision of 
CBP (see 19 CFR part 146). Specifically, zones are physical areas into 
which foreign and domestic merchandise may be moved for operations 
involving storage, exhibition, assembly, manufacture or other 
processing not otherwise prohibited by law. Zone areas ``activated'' by 
CBP are considered outside of U.S. customs territory for purposes of 
CBP entry procedures. Therefore, the usual formal CBP entry procedure 
and payment of duties is not required on the foreign merchandise in 
FTZs unless and until it enters U.S. customs territory for U.S. 
domestic consumption. In fact, U.S. duties can be avoided on foreign 
merchandise re-exported from a FTZ, including after incorporation into 
a downstream product through activity in the FTZ. Zones have as their 
public policy objective the creation and maintenance of employment 
through the encouragement of operations in the United States which, for 
customs reasons, might otherwise have been carried on abroad.
    Domestic goods moved into a zone for export may be considered 
exported upon entering the zone for purposes of excise tax rebates and 
drawback. ``Subzones,'' a special-purpose type of ancillary zone, are 
authorized by the Board, through grantees of general-purpose zones, in 
situations such as when the ``adjacency'' requirement (distance/driving 
time) for general-purpose zones cannot be met. Goods that are in a zone 
for a bona fide customs reason are exempt from State and local ad 
valorem taxes. Zones and subzones are operated by corporations that 
have met certain regulatory criteria for submitting applications to the 
Board to operate zones. Under the FTZ Act, zones must be operated under 
public utility principles, and provide uniform treatment to all that 
apply to use the zone. The Board reviews and approves applications for 
authority to establish zone locations and to conduct certain activity 
within zones, and oversees zone grantees' compliance with zone 
regulations. The Board can limit or deny zone use on a case-by-case 
basis on public interest grounds. In response to applications, the 
Board can also provide the applicant with specific authority to choose 
whether to pay duties either on the original foreign material or on a 
downstream product incorporating the foreign material.
    To receive approval to operate a zone, an applicant must 
demonstrate the need for zone services, a workable plan that includes 
suitable physical facilities for zone operations, and financing for the 
operation. Successful applicants are granted licenses to operate zones. 
License grantees' sponsorship of specific sites for proposed FTZ 
designation is based on the grantees' determinations regarding the 
sites' appropriateness and potential for FTZ use, and a grantee may 
subsequently request removal of FTZ designation from a site based on 
factors such as the grantee's determination that projected FTZ use has 
not occurred.
    Through this proposed action, the Board intends to update and 
modify the rules for FTZs. Continued interest in zones, on the part of 
both communities providing zone access as part of their economic 
development efforts and firms using zone procedures to help improve 
their international competitiveness, demonstrates zones' importance to 
international trade and to investment in the domestic economy. Since 
the issuance of the Board's current regulations (last revised 
substantively in 1991), several issues or trends have emerged which 
necessitate fresh approaches in the regulations, as detailed below. Key 
revisions in the proposed regulations pertain to activity in zones in 
which an imported component is combined with one or more other 
components to create a different finished product. The current 
regulations divide such activity into two categories--``manufacturing'' 
or ``processing,'' depending on whether the activity involves 
``substantial transformation'' of the component--and apply procedures 
that can differ between the two categories. The proposed regulations 
would simplify use of the FTZ program through application of a unified 
concept--``production'' as defined in Sec.  400.2(l)--and provide a 
single set of procedures pertaining to that type of activity. All 
changes to rules pertaining to production activity have been carefully

[[Page 82342]]

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

[[Page 82343]]

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

[[Page 82344]]

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

Classification

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

Executive Order 12866

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

Regulatory Flexibility Act

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

[[Page 82345]]

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

Executive Order 13132

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

Paperwork Reduction Act

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

[[Page 82346]]

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

List of Subjects in 15 CFR Part 400

    Administrative practice and procedure, Confidential business 
information, Customs duties and inspection, Foreign-trade zones, 
Harbors, Imports, Reporting and recordkeeping requirements.

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

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

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

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

[[Page 82347]]

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

Subpart A--Scope, Definitions and Authority


Sec.  400.1  Scope.

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


Sec.  400.2  Definitions.

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


Sec.  400.3  Authority of the Board.

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

[[Page 82348]]

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


Sec.  400.4  Authority and responsibilities of the Executive Secretary.

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


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

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


Sec.  400.6  Board headquarters.

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

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


Sec.  400.11  Number and location of zones and subzones.

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

[[Page 82349]]

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


Sec.  400.12  Eligible applicants.

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


Sec.  400.13  General conditions, prohibitions and restrictions 
applicable to grants of authority.

    (a) In general. Grants of authority issued by the Board for the 
establishment of zones or subzones, including those already issued, are 
subject to the Act and this part and the following general conditions 
or limitations:
    (1) Approvals from the grantee and the Port Director, pursuant to 
19 CFR part 146, are required prior to the activation of any portion of 
an approved zone project.
    (2) Prior to activation of a zone, the zone grantee or operator 
shall obtain all necessary permits from federal, state and local 
authorities, and except as otherwise specified in the Act or this part, 
shall comply with the requirements of those authorities.
    (3) A grant of authority for a zone or a subzone shall lapse unless 
the zone project (in case of subzones, the subzone facility) is 
activated, pursuant to 19 CFR part 146, and in operation not later than 
five years from the Board order authorizing the zone or subzone.
    (4) A grant of authority approved under this part includes 
authority for the grantee to permit the erection of buildings necessary 
to carry out the approved zone project subject to concurrence of the 
Port Director.
    (5) Zone grantees, operators, and users shall permit federal 
government officials acting in an official capacity to have access to 
the zone project and records during normal business hours and under 
other reasonable circumstances.
    (6) Activity involving production is subject to the specific 
provisions in Sec.  400.14.
    (7) A grant of authority may not be sold, conveyed, transferred, 
set over, or assigned (FTZ Act, section 17; 19 U.S.C. 81q).
    (8) Private ownership of zone land and facilities is permitted 
provided the zone grantee retains the control necessary to implement 
the approved zone project. Such permission shall not constitute a 
vested right to zone designation, nor interfere with the Board's 
regulation of the grantee or the permittee, nor interfere with or 
complicate the revocation of the grant by the Board. Should title to 
land or facilities be transferred after a grant of authority is issued, 
the zone grantee must retain, by agreement with the new owner, a level 
of control which allows the grantee to carry out its responsibilities 
as grantee. The sale of a zone site or facility for more than its fair 
market value without zone status could, depending on the circumstances, 
be subject to the prohibitions set forth in section 17 of the Act.
    (b) Board authority to restrict or prohibit activity. Pursuant to 
section 15(c) of the Act (19 U.S.C. 81o(c)), the Board has authority to 
restrict or prohibit zone activity ``that in its judgment is 
detrimental to the public interest.'' In approvals of the applications 
for zone or subzone production authority required by Sec.  400.14(a), 
the Board may adopt restrictions to protect the public interest, 
health, or safety. The Commerce Department's Assistant Secretary for 
Import Administration may similarly adopt restrictions in exercising 
authority under Sec. Sec.  400.14(d) and (e). When evaluating zone or 
subzone production activity, either as proposed in an application or as 
part of a review of an ongoing operation, the Board shall determine 
whether the

[[Page 82350]]

activity is in the public interest by reviewing it in relation to the 
evaluation criteria contained in Sec.  400.25.
    (c) Additional conditions, prohibitions and restrictions. Other 
conditions/requirements, prohibitions and restrictions under Federal, 
State or local law may apply to the zone or subzone authorized by the 
grant of authority.


Sec.  400.14  Production--activity requiring approval or reporting; 
restrictions.

    (a) Activity requiring advance approval. Approval in advance by the 
Board (or notification to the Board under the circumstances described 
in Sec.  400.37) is required for all production activity in zones or 
subzones which involves:
    (1) A foreign article for which the actual or effective duty rate 
for U.S. entries will be reduced through incorporation into a different 
product or article (inverted tariff);
    (2) A foreign article that would be subject (if it were to enter 
U.S. customs territory) to an antidumping duty (AD) or countervailing 
duty (CVD) order or which would be otherwise subject to suspension of 
liquidation under AD/CVD procedures, to an order of the International 
Trade Commission pursuant to 19 U.S.C. 1337 (Section 337), or to a 
quantitative import control (quota);
    (3) Duty avoidance on scrap or waste resulting from the production 
activity (except for production activity that is for export only); or,
    (4) For a production operation that had been the subject of prior 
Board consideration and approval (including delegated authority), a 
foreign article:
    (i) For which there is a new (or increased) inverted tariff due to 
a new (or increased rate of) general or special duty relative to the 
circumstances in effect at the time of the Board's prior consideration 
of the foreign article's use in the production operation;
    (ii) Which is subject (were it to enter U.S. customs territory) to 
an AD/CVD duty or suspension of liquidation under AD/CVD orders that 
were not in effect at the time of the Board's prior consideration of 
the foreign article's use in the production operation; or,
    (iii) Which is subject (were it to enter U.S. customs territory) to 
a Section 337 order that was not in effect at the time of the Board's 
prior consideration of the foreign article's use in the production 
operation.
    (b) Activity requiring reporting. All production activity in zones 
or subzones must be reported to the Board annually in accordance with 
any instructions, guidelines, forms and related documents specifying 
time, place, manner and format(s) established by the Executive 
Secretary pursuant to Sec.  400.51(d)(1).
    (c) Scope of approved authority. The Board's approval of production 
authority for a particular operation is limited to the inputs, finished 
products, and production capacity presented in the approved application 
pursuant to Sec.  400.22(a) (or for which notification has been made to 
the Board pursuant to Sec.  400.14(e)). If a grantee, operator or user 
is uncertain of whether activity falls within the scope of activity 
approved by the Board, the grantee, operator or user may request a 
scope determination pursuant to Sec.  400.14(f). Applications for 
expanded production authority shall meet the requirements of Sec.  
400.22 and shall be processed pursuant to Sec. Sec.  400.31-32 and 
400.34-35 (or Sec.  400.14(d), where applicable). Activity conducted 
without required authority from the Board could be subject to penalties 
pursuant to Sec.  400.62.
    (d) Delegation to Assistant Secretary for Import Administration. 
The Commerce Department's Assistant Secretary for Import Administration 
may make determinations in cases requiring production authority, based 
upon a review by the Board staff and the recommendation of the 
Executive Secretary, when:
    (1) The Port Director determines that the proposed production 
activity could otherwise be conducted under CBP bonded procedures;
    (2) The sole zone benefit requiring advance approval from the Board 
is for scrap or waste resulting from the production activity; or,
    (3) The Assistant Secretary for Import Administration's 
determination will only be on an interim basis, in response to a 
request from the applicant, to enable some or all of the activity in 
question to commence until the Board is able to complete action 
pursuant to Sec.  400.35. Interim authority may only be approved after 
the close of the period for public comment for the application in 
question based on a recommendation from the Executive Secretary, which 
will take into account the factors in Sec.  400.25, any public comments 
received, and any other relevant considerations. Any request for 
interim authority must provide a public interest-based justification 
and a full explanation of the need for such interim authority, and must 
include both a realistic projected timeframe for commencement of the 
proposed activity and written concurrence from the CBP port director 
that specifically addresses the applicant's projected timeframe. 
Interim authority, once approved, will remain at the discretion of the 
Assistant Secretary for Import Administration until the Board has acted 
and is subject to modification or rescission for cause during the 
interim period.
    (e) Production changes and capacity increases.
    (1) Production changes. Where advance approval is required under 
Sec.  400.14(a), an applicant requesting production authority from the 
Board (or with existing production authority from the Board) may also 
request authority to notify the Board on a quarterly retrospective 
basis of production changes involving new finished products or foreign 
components/inputs resulting in inverted tariff or scrap benefits. 
Foreign articles subject (were they to enter U.S. customs territory) to 
AD or CVD orders or which would be otherwise subject to suspension of 
liquidation under AD/CVD procedures, to an order of the International 
Trade Commission pursuant to Section 337, to any ongoing AD/CVD or 
Section 337 proceeding, or to quantitative import controls (quotas) are 
not eligible for the production change notification procedure. Sec.  
400.37 delineates applicable criteria and procedures for requests for 
authority to utilize the production change notification provision and, 
where such authority has been approved, for subsequent notifications to 
the Board.
    (2) Capacity increases. For a production operation approved by the 
FTZ Board, the operator shall notify the Board of any increases in 
production capacity (Sec.  400.22(a)(3)(vii)) relative to the capacity 
level approved by the Board (or for which notification was previously 
submitted to the Board pursuant to this paragraph) no later than the 
end of the calendar quarter during which the capacity increase becomes 
effective. The notification shall name the zone or subzone operation 
for which the notification is occurring and address the impact of the 
notified change(s) on the elements in Sec. Sec.  400.22(a)(3)(v), (vi) 
and (vii) relative to the most recent prior Board approval (or 
notification pursuant to this paragraph) for the production operation 
in question. The Executive Secretary shall establish any guideline or 
format necessary to implement this paragraph, and may request 
additional information as needed. Upon notification of an increase in 
capacity pursuant to this paragraph, the Executive Secretary within 45 
days will conduct a preliminary analysis of the increase in relation to 
the approved (or previously notified) capacity level for the production 
operation in question, taking into account the factors

[[Page 82351]]

enumerated in Sec.  400.25(a)(2) as appropriate, and determine whether 
further review is necessary to ensure that activity involved in these 
situations continues to be in the public interest. The procedures of 
Sec. Sec.  400.32 and 400.34 shall be used in these situations when 
appropriate.
    (3) The Commerce Department's Assistant Secretary for Import 
Administration may, based on public interest grounds, order the 
prohibition or restriction of the use of zone procedures in regard to a 
production change or capacity increase notified pursuant to Sec. Sec.  
400.14(e)(1) and (2), including requiring that items be placed in 
privileged foreign status (19 CFR 146.41) upon admission to a zone or 
subzone. Any party so ordered shall comply or potentially be subject to 
actions that could include penalties pursuant to Sec.  400.62(b). Such 
a prohibition or restriction on the use of zone procedures in regard to 
the production change or capacity increase may occur, depending on the 
circumstances, either after further review of the production change or 
capacity increase or, where warranted by the circumstances, prior to 
the conduct of further review in order to avoid or mitigate potential 
or ongoing negative effects during the pendency of the further review.
    (f) Scope determinations. Determinations may be made by the 
Executive Secretary as to whether changes in activity are within the 
scope of related activity already approved for the facility involved 
under this part. When warranted, the procedures of Sec. Sec.  400.32 
and 400.34 will be followed.
    (g) Restrictions on items subject to antidumping and countervailing 
duty actions.
    (1) Board policy. Zone procedures shall not be used to circumvent 
antidumping duty (AD) and countervailing duty (CVD) actions under 19 
CFR part 351.
    (2) Admission of items subject to AD/CVD actions. Items subject to 
AD/CVD orders or items which would be otherwise subject to suspension 
of liquidation under AD/CVD procedures if they entered U.S. customs 
territory, shall be placed in privileged foreign status (19 CFR 146.41) 
upon admission to a zone or subzone. Upon entry for consumption, such 
items shall be subject to duties under AD/CVD orders or to suspension 
of liquidation, as appropriate, under 19 CFR part 351.


Sec.  400.15  Production equipment.

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


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

    Foreign merchandise (tangible personal property) admitted to a zone 
and domestic merchandise held in a zone for exportation are exempt from 
state and local ad valorem taxation while such merchandise remains in 
the zone in zone status (19 U.S.C. 81o(e)). The exemption from such 
taxation is limited to tangible personal property imported from outside 
the United States and held in a zone for the purposes stated in 19 
U.S.C. 81o(e), and tangible personal property produced in the United 
States and held in a zone for exportation, either in its original form 
or as altered by any of the processes stated in 19 U.S.C. 81o(e).

Subpart C--Applications To Establish and Modify Authority


Sec.  400.21  Application for zone.

    (a) In general. An application for a grant of authority to 
establish a zone project (including pursuant to the Alternative Site 
Framework procedures adopted by the Board; see 74 FR 1170, Jan. 12, 
2009, 74 FR 3987, Jan. 22, 2009, and 75 FR 71069-71070, Nov. 22, 2010) 
shall consist of an application letter and contents to meet the 
requirements of this part.
    (b) Application format. Applications shall comply with any 
instructions, guidelines, and forms or related documents, published in 
the Federal Register and made available on the Board's Internet site, 
as established by the Executive Secretary specific to the type of 
application in question.
    (c) Application letter. The application letter shall be currently 
dated and signed by an officer of the corporation authorized in the 
resolution for the application (see Sec.  400.21(d)(1)(iii)). The 
application letter shall also describe:
    (1) How the proposal is consistent with the state enabling 
legislation and the grantee's charter;
    (2) The type of authority requested from the Board;
    (3) The proposed zone site(s) and facility(ies) and the larger 
project of which the zone is a part;
    (4) The project background;
    (5) The relationship of the project to the community's and state's 
international trade-related goals and objectives;
    (6) Any production authority requested, where applicable; and,
    (7) Any additional pertinent information needed for a complete 
summary description of the proposal.
    (d) Detailed contents.
    (1) Legal Authority for the Application shall be documented with:
    (i) A current copy of the state enabling legislation described in 
Sec. Sec.  400.12(b) and (c);
    (ii) A copy of the sections of the applicant's charter or 
organization papers pertinent to foreign-trade zones; and,
    (iii) A certified copy of a recent resolution of the governing body 
of the corporation specific to the application authorizing the official 
signing the application letter.
    (2) Site Descriptions (including a table with site designations 
when more than one site is involved) shall be documented with:
    (i) A detailed description of the zone site, including size, 
location, and address (and legal description or its equivalent in 
instances where the Executive Secretary determines it is needed to 
supplement the maps in the application), as well as dimensions and 
types of existing and proposed structures, master planning, and 
timelines for construction of roads, utilities and planned buildings;
    (ii) Where applicable, a summary description of the larger project 
of which the site is a part, including type, size, location and 
address;

[[Page 82352]]

    (iii) A statement as to whether the site is within or adjacent to a 
CBP port of entry (including distance from the limits of the port of 
entry and, if the distance exceeds 60 miles, driving time from the 
limits of the port of entry);
    (iv) A description of existing or proposed site qualifications, 
including appropriate land-use zoning (with environmentally sensitive 
areas avoided) and physical security;
    (v) A description of current and planned activities associated with 
the site;
    (vi) A summary description of transportation systems, facilities, 
and services, including connections from local and regional points of 
arrival to the zone;
    (vii) A statement regarding the environmental aspects of the 
proposal;
    (viii) The estimated time schedules for construction and 
activation; and,
    (ix) A statement as to the possibilities and plans for future 
expansion of the proposed zone site.
    (3) Operation and financing shall be documented with:
    (i) A statement as to site ownership (if not owned by the applicant 
or proposed operator, evidence as to their legal right to use the 
site);
    (ii) A discussion of plans for operations at the proposed site(s);
    (iii) A commitment to satisfy the requirements for CBP automated 
systems; and,
    (iv) A summary of the plans for financing the project.
    (4) Economic justification shall be documented with:
    (i) A statement of the community's overall economic and trade-
related goals and strategies in relation to those of the region and 
state, including a reference to the plan or plans on which the goals 
are based and how they relate to the zone project;
    (ii) An economic profile of the community including discussion of:
    (A) Dominant sectors in terms of percentage of employment or 
income;
    (B) Area strengths and weaknesses;
    (C) Unemployment rates; and,
    (D) Area foreign trade statistics;
    (iii) A statement as to the role and objective of the zone project 
and a discussion of the anticipated economic impact, direct and 
indirect, of the zone project, including references to public costs and 
benefits, employment, and U.S. international trade;
    (iv) A separate justification for each proposed site, including 
specific explanation addressing the degree to which each proposed site 
may be duplicative of types of facilities at other proposed or existing 
sites in the zone project;
    (v) A statement as to the need for zone services in the community, 
with specific expressions of interest from proposed zone users and 
letters of intent from those firms that are considered prime prospects 
for each specific proposed site; and,
    (vi) A description of proposed production operations, if 
applicable, with the information required in Sec.  400.22.
    (5) Maps and Blueprints shall be documented with:
    (i) State and county maps showing the general location of the 
proposed site(s) in terms of the area's transportation network;
    (ii) For any proposed site, a local community map showing in red 
the location of the site;
    (iii) For any proposed site, a legible, detailed blueprint of the 
zone or subzone area showing zone boundaries in red, with dimensions, 
and showing existing and proposed structures; and,
    (iv) For proposals involving existing zones, one or more maps 
showing the relationship between existing zone sites and the proposed 
changes.
    (e) Additional information. The Board or the Executive Secretary 
may require additional information needed to adequately evaluate 
proposals.
    (f) Amendment of application. The Board or the Executive Secretary 
may allow amendment of the application. Amendments which substantively 
expand the scope of a request shall be subject to comment period 
requirements such as those of Sec.  400.32(c)(2) with a minimum comment 
period of 30 days.
    (g) Drafts. Applicants are encouraged to submit a draft application 
to the Executive Secretary for review. A draft application must be 
complete with the possible exception of the application letter and/or 
resolution from the grantee.
    (h) Format and number of copies. Unless the Executive Secretary 
alters the requirements of this paragraph, submit an original 
(including original documents to meet the requirements of paragraphs 
(c) and (d)(1)(iii) of this section) and one copy of the application on 
8\1/2\'' x 11'' (216 x 279 mm) paper and one electronic copy.
    (i) Where to submit an application. Mailing address is: Executive 
Secretary, Foreign-Trade Zones Board, U.S. Department of Commerce, 1401 
Constitution Avenue, NW., Washington, DC 20230. Options for submission 
of electronic copies are described on the FTZ Board's Internet site.


Sec.  400.22  Application for production or subzone authority.

    (a) In general. In addition to any applicable requirements of Sec.  
400.21, an application involving proposed production authority under 
Sec.  400.14(a) shall include:
    (1) A summary as to the reasons for the application and an 
explanation of its anticipated economic effects;
    (2) Identity of the user and its corporate affiliation;
    (3) A description of the proposed activity, including:
    (i) Products;
    (ii) Materials and components;
    (iii) For each product or material/component, the tariff schedule 
category, tariff rate, other import requirements or restrictions, and 
whether the material/component is subject to any antidumping or 
countervailing duty proceeding, a proceeding pursuant to 19 U.S.C. 1337 
(Section 337), or other trade-related proceeding(s) or issue(s);
    (iv) Domestic materials, foreign materials, and plant value added 
(as percentages of finished product value);
    (v) Projected shipments to domestic market and export market 
(percentages);
    (vi) Estimated total or range of annual value of benefits to 
proposed user (broken down by category), including as a percent of 
finished product value;
    (vii) Annual production capacity (current and planned) for the 
proposed FTZ activity, in units;
    viii) Information to assist the Board in making a determination 
under Sec. Sec.  400.25(a)(1)(iii) and 400.25(a)(2);
    (ix) Information as to whether alternative procedures have been 
considered as a means of obtaining the benefits sought;
    (x) Information on the industry involved and extent of 
international competition; and,
    (xi) Economic impact of the operation on the area.
    (4) Information regarding any request for authority to submit 
notifications of future production changes pursuant to Sec.  400.37; 
and,
    (5) Any additional information requested by the Board or the 
Executive Secretary in order to conduct the review.
    (b) An application to establish a subzone as part of a proposed or 
existing zone shall be submitted in accordance with the requirements in 
Sec.  400.21, except that the focus of the information pursuant to 
Sec.  400.21(d)(4) (Economic Justification) shall be on the specific 
activity involved and shall include:
    (1) A summary as to the reasons for the subzone and a detailed 
explanation of its anticipated economic effects;
    (2) Identity of the subzone user and its corporate affiliation;
    (3) A description of the proposed activity, including the 
information

[[Page 82353]]

required in Sec. Sec.  400.22(a)(3)(i), (iv), (v), (vi), (x), (xi), and 
tariff schedule headings and duty rates for products;
    (4) For subzone applications involving requests for production 
authority, the information required in Sec.  400.22(a);
    (5) Reason operation cannot be conducted within a general-purpose 
zone; and,
    (6) Statement as to environmental impact.


Sec.  400.23  Application for expansion or other modification to zone 
project.

    (a) In general. (1) A grantee may apply to the Board for authority 
to expand or otherwise modify its zone project (including pursuant to 
the Alternative Site Framework procedures adopted by the Board; see 74 
FR 1170, Jan. 12, 2009, 74 FR 3987, Jan. 22, 2009, and 75 FR 71069-
71070, Nov. 22, 2010).
    (2) The Executive Secretary, in consultation with the Port 
Director, will determine whether the proposed modification involves a 
major change in the zone plan and is thus subject to paragraph (b) of 
this section, or is minor and subject to paragraph (c) of this section. 
In making this determination the Executive Secretary will consider the 
extent to which the proposed modification would:
    (i) Substantially modify the plan originally approved by the Board; 
or,
    (ii) Expand the physical dimensions of the approved zone area as 
related to the scope of operations envisioned in the original plan.
    (b) Major modification to zone project. An application for a major 
modification to an approved zone project shall be submitted in 
accordance with the requirements of Sec.  400.21, except that the 
content submitted pursuant to Sec.  400.21(d)(4) (Economic 
Justification) shall relate specifically to the proposed change.
    (c) Minor modification to zone project. Other applications or 
requests under this subpart, including those for minor revisions of 
general-purpose zone boundaries based on immediate need for zone use 
and of subzone boundaries where the scope of authorized production 
activity is not affected, shall be submitted in letter form with 
information and documentation necessary for analysis, as determined by 
the Executive Secretary, who shall determine whether the proposed 
change is a minor one subject to this paragraph (c) instead of 
paragraph (b) of this section (see, Sec.  400.36).
    (d) Applications for other revisions to grants of authority. 
Applications or requests for revisions to grants of authority, such as 
modification of a restriction or reissuance of a grant of authority, 
shall be submitted in letter form with information and documentation 
necessary for analysis, as determined by the Executive Secretary. If 
the change involves removal or significant modification of a 
restriction included by the Board in a grant of authority or reissuance 
of a grant of authority, the review procedures of Sec. Sec.  400.31-
400.35 shall be followed, where relevant. If not, the procedure set 
forth in Sec.  400.36 shall generally apply (although the Executive 
Secretary may elect to follow the procedures of Sec. Sec.  400.31-
400.35 when warranted).


Sec.  400.24  Criteria for evaluation of zone proposals or expansion or 
other modifications to zone projects.

    The Board will consider the following factors in determining 
whether to issue a grant of authority for a zone project:
    (a) The need for zone services in the port of entry area, taking 
into account existing as well as projected international trade-related 
activities and employment impact;
    (b) The suitability of each proposed site and its facilities based 
on the plans presented for the site, including existing and planned 
buildings, zone-related activities, and the timeframe for development 
of the site;
    (c) The specific need and justification for each proposed site, 
taking into account existing sites and/or other proposed sites;
    (d) The extent of state and local government support, as indicated 
by the compatibility of the zone project with the community's master 
plan or stated goals for economic development and the views of state 
and local public officials involved in economic development. Such 
officials shall avoid commitments that anticipate the outcome of Board 
decisions;
    (e) The views of persons likely to be affected by proposed zone 
activity; and,
    (f) If the proposal involves production activity, the criteria in 
Sec.  400.25.


Sec.  400.25  Criteria for evaluation of production and subzone 
proposals.

    (a) Production. The Board will apply the criteria delineated in 
Sec.  400.25(a) in determining whether to authorize proposed production 
activity. The Board's evaluation will take into account such factors as 
market conditions, price sensitivity, degree and nature of foreign 
competition, intra-industry and intra-firm trade, effect on exports and 
imports, and net effect on U.S. employment:
    (1) Threshold factors. It is the policy of the Board to authorize 
zone activity only when it is consistent with public policy and, in 
regard to activity involving foreign merchandise subject to quotas or 
inverted tariffs, when zone procedures are not the sole determining 
cause of imports. Thus, without undertaking a review of the economic 
factors enumerated in Sec.  400.25(a)(2), the Board shall deny or 
restrict authority for proposed or ongoing activity if it determines 
that:
    (i) The activity is inconsistent with U.S. trade and tariff law, or 
policy which has been formally adopted by the Executive branch;
    (ii) Board approval of the activity under review would seriously 
prejudice U.S. tariff and trade negotiations or other initiatives; or,
    (iii) The activity involves items subject to quantitative import 
controls or inverted tariffs, and the use of zone procedures would be 
the direct and sole cause of imports that, but for such procedures, 
would not likely otherwise have occurred, taking into account imports 
both as individual items and as components of imported products.
    (2) Economic factors. After its review of threshold factors, if 
there is a basis for further consideration, the Board shall consider 
the following factors in determining the net economic effect of the 
proposed activity:
    (i) Overall employment impact;
    (ii) Exports and re-exports;
    (iii) Retention or creation of value-added activity;
    (iv) Extent of value-added activity;
    (v) Overall effect on import levels of relevant products;
    (vi) Extent and nature of foreign competition in relevant products;
    (vii) Impact on related domestic industry, taking into account 
market conditions; and
    (viii) Other relevant information relating to the public interest 
and net economic impact considerations, including technology transfers 
and investment effects.
    (3) The significant public benefit(s) that would result from the 
production activity, taking into account the factors in paragraphs 
(a)(1) and (a)(2) of this section.
    (b) Subzones. In reviewing proposals for subzones, in addition to 
application of the factors delineated in Sec.  400.25(a) where 
production activity is involved, the Board will also consider:
    (1) Whether the operation could be located in or otherwise 
accommodated by the multi-purpose facilities of the zone project 
serving the area; and,
    (2) The specific zone benefits sought and whether the proposed 
activity is in the public interest supported by evidence pursuant to 
Sec. Sec.  400.22(b)(1) and (3).

[[Page 82354]]

    (c) Contributory effect. In assessing the significance of the 
economic effect of the zone activity as part of the consideration of 
economic factors, and in consideration of whether there is a 
significant public benefit, the Board may consider the contributory 
effect zone savings have as an incremental part of cost effectiveness 
programs adopted by companies to improve their international 
competitiveness.


Sec.  400.26  Burden of proof.

    (a) In general. An applicant must demonstrate to the Board that the 
proposal meets the criteria delineated in these regulations. Applicants 
seeking production-related authority shall submit evidence regarding 
the positive economic effect(s) and significant public benefit(s) that 
would result from the activity and may submit evidence and comments as 
to policy considerations.
    (b) Responses to evidence of negative effects. Applicants making 
submissions in response to comments received during the public comment 
period or pursuant to Sec.  400.33(e)(1) or Sec.  400.34(a)(5)(iv)(A) 
should submit evidence that is probative and substantial in addressing 
the matter in issue.


Sec.  400.27  Application fees.

    (a) In general. This section sets forth a uniform system of charges 
in the form of fees to recover some costs incurred by the Foreign-Trade 
Zones staff of the Department of Commerce in processing the 
applications listed in paragraph (b) of this section. The legal 
authority for the fees is 31 U.S.C. 9701, which provides for the 
collection of user fees by agencies of the Federal Government.
    (b) Uniform system of user fee charges. The following graduated fee 
schedule establishes fees for certain types of applications and 
requests for authority based on their average processing time. 
Applications combining requests for more than one type of approval are 
subject to the fee for each category.
    (1) Additional general-purpose zones (Sec.  400.21; Sec.  
400.11(a)(2))--$3,200
    (2) Special-purpose subzones (Sec.  400.22(b)):
    (i) Not involving production activity or less than three products--
$4,000
    (ii) Production activity with three or more products--$6,500
    (3) Expansions (Sec.  400.23(b))--$1,600
    (c) Applications submitted to the Board shall include a currently 
dated check drawn on a national or state bank or trust company of the 
United States or Puerto Rico in the amount called for in paragraph (b) 
of this section. Uncertified checks must be acceptable for deposit by a 
Federal Reserve bank or branch.
    (d) Applicants shall make their checks payable to the U.S. 
Department of Commerce ITA. The checks will be deposited by ITA into 
the Treasury receipts account. If applications are found deficient 
under Sec.  400.31(b), or withdrawn by applicants prior to formal 
docketing, refunds will be made.

Subpart D--Procedures for Application Evaluation and Reviews


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

    (a) In general. Sections 400.31-400.36 outline the procedures 
followed in docketing and processing applications submitted under 
Sec. Sec.  400.21-400.23. In addition, these sections set forth the 
time schedules which will normally be applied in processing 
applications. The schedules will provide guidance to applicants with 
respect to the time frames for each of the procedural steps involved in 
the Board's review. Under these schedules, applications involving 
production activity would be processed within 1 year, and those not 
involving such activity, within 10 months. While the schedules set 
forth a standard time frame, the Board may determine that it requires 
additional time based on special circumstances, such as when the public 
comment period must be reopened pursuant to Sec. Sec.  400.33(e)(2) and 
400.34(a)(5)(iv)(B).
    (b) Pre-docketing review. The grantee shall submit a single 
complete copy of an application for pre-docketing review. (For requests 
relating to production in already approved zone or subzone space, the 
request may be submitted by the operator, provided a copy of the 
request is furnished at the same time to the grantee.) The Executive 
Secretary will determine whether the application satisfies the 
requirements of Sec. Sec.  400.12, 400.21, 400.22, 400.23, and other 
applicable provisions of this part such that the application is 
sufficient for docketing. If the pre-docketing copy of the application 
is deficient, the Executive Secretary will notify the applicant within 
30 days of receipt of the pre-docketing copy, specifying the 
deficiencies. An affected zone participant may also be contacted 
regarding relevant application elements requiring additional 
information or clarification. If the applicant does not correct the 
deficiencies and submit a corrected pre-docketing application copy 
within 30 days of notification, the pre-docketing application (single 
copy) will be discarded.


Sec.  400.32  Procedures for docketing application and case review.

    (a) Once the pre-docketing copy of the application is determined to 
be sufficient, the Executive Secretary will notify the applicant within 
15 days so that the applicant may then submit the original and 
requisite number of copies (which shall be dated upon receipt at the 
headquarters of the Board) for docketing by the Board. For applications 
subject to Sec.  400.27, the original shall be accompanied with a check 
in accordance with that section.
    (b) After the procedures described in paragraph (a) of this 
section, the Executive Secretary shall within 15 days of receipt of the 
original and required number of copies of the application:
    (1) Formally docket the application, thereby initiating the 
proceeding or review;
    (2) Assign a case docket number in cases requiring a Board order; 
and,
    (3) Notify the applicant of the formal docketing action.
    (c) After initiating a proceeding based on an application under 
Sec. Sec.  400.21-400.22, or Sec.  400.23(b), the Executive Secretary 
will:
    (1) Designate an examiner to conduct a review and prepare a report 
with recommendations for the Board;
    (2) Publish in the Federal Register a notice of the formal 
docketing of the application and initiation of the review which 
includes the name of the applicant, a description of the zone project, 
information as to any hearing scheduled at the outset, and an 
invitation for public comment. Normally, the comment period will close 
60 days after the date the notice appears, except that, if a hearing is 
held (see Sec.  400.52), the period will not close prior to 15 days 
after the date of the hearing. The closing date for general comment 
will ordinarily be followed by an additional 15-day period for rebuttal 
comments. All submissions of evidence, factual information, and written 
arguments by parties other than the applicant must be made during the 
comment period. A comment period may be opened or reopened for cause 
(for example, as a result of submission by the applicant of new factual 
information for which an opportunity for comment is warranted);
    (3) Transmit or otherwise make available copies of the docketing 
and initiation notice and the application to the Commissioner of CBP 
and the Port Director, or a designee of either;
    (4) Arrange for hearings, as appropriate;
    (5) Transmit the reports and recommendations of the examiner and

[[Page 82355]]

of the Port Director to the Board for appropriate action; and,
    (6) Notify the applicant in writing and publish notice in the 
Federal Register of the Board's determination.
    (d) CBP review. The Port Director, or a designee, in accordance 
with CBP regulations and directives, will submit a report to the 
Executive Secretary within 45 days of the conclusion of the public 
comment period described in paragraph (c)(2) of this section.


Sec.  400.33  Examiner's review--case not involving production 
activity.

    An examiner assigned to a case not involving production activity 
shall conduct a review taking into account the factors enumerated in 
Sec.  400.24 and other appropriate sections of this part, which shall 
include:
    (a) Conducting or participating in necessary hearings scheduled by 
the Executive Secretary;
    (b) Reviewing case records, including public comments;
    (c) Requesting information and evidence from parties of record;
    (d) Developing information and evidence necessary for evaluation 
and analysis of the application in accordance with the criteria of the 
Act and this part; and,
    (e) Developing recommendations to the Board (and submitting a 
report to the Executive Secretary), generally within 120 days of the 
close of the period for public comment (see Sec.  400.32):
    (1) If the recommendations are unfavorable to the applicant, they 
shall be considered preliminary and the applicant shall be notified in 
writing (via electronic transmission where appropriate) of the 
preliminary recommendations and the factors considered in their 
development. The applicant shall be given 30 days from the date of 
notification in which to respond to the recommendations and submit 
additional evidence pertinent to the factors considered in the 
development of the preliminary recommendations. Public comment may be 
invited on preliminary recommendations when warranted.
    (2) If the response contains new evidence on which there has not 
been an opportunity for public comment, the Executive Secretary will 
publish notice in the Federal Register after completion of the review 
of the response. The new material will be made available for public 
inspection and the Federal Register notice will invite further public 
comment for a period of not less than 30 days, with an additional 15-
day period for rebuttal comments.
    (3) If the bases for an examiner's recommendation(s) change based 
on new evidence, the procedures of Sec. Sec.  400.33(e)(1) and (2) 
shall be followed, where applicable.
    (4) The CBP adviser shall be requested, when necessary, to provide 
further comments, which shall be submitted within 45 days after the 
request.


Sec.  400.34  Examiner's review--case involving production activity.

    (a) The examiner shall conduct a review taking into account the 
factors enumerated in this section, Sec.  400.25, and other appropriate 
sections of this part, which shall include:
    (1) Conducting or participating in hearings scheduled by the 
Executive Secretary;
    (2) Reviewing case records, including public comments;
    (3) Requesting information and evidence from parties of record;
    (4) Developing information and evidence necessary for analysis of 
the threshold factors and the economic factors enumerated in Sec.  
400.25; and,
    (5) Conducting an analysis to include:
    (i) An evaluation of policy considerations pursuant to Sec. Sec.  
400.25(a)(1)(i) and (ii);
    (ii) An evaluation of the economic factors enumerated in Sec. Sec.  
400.25(a)(1)(iii) and 400.25(a)(2), which shall include an evaluation 
of the economic impact on domestic industry, considering both producers 
of like products and producers of components/materials used in the 
production activity;
    (iii) Conducting appropriate industry surveys when necessary; and
    (iv) Developing recommendations to the Board (and submitting a 
report to the Executive Secretary), generally within 150 days of the 
close of the period for public comment:
    (A) If the recommendations are unfavorable to the applicant, they 
shall be considered preliminary and the applicant shall be notified in 
writing (via electronic transmission where appropriate) of the 
preliminary recommendations and the factors considered in their 
development. The applicant shall be given 45 days from the date of 
notification in which to respond to the recommendations and submit 
additional evidence pertinent to the factors considered in the 
development of the preliminary recommendations. Public comment may be 
invited on preliminary recommendations when warranted.
    (B) If the response contains new evidence on which there has not 
been an opportunity for public comment, the Executive Secretary will 
publish notice in the Federal Register after completion of the review 
of the response. The new material will be made available for public 
inspection and the Federal Register notice will invite further public 
comment for a period of not less than 30 days, with an additional 15-
day period for rebuttal comments.
    (C) If the bases for an examiner's recommendation(s) change based 
on new evidence, the procedures of Sec. Sec.  400.34(a)(5)(iv)(A) and 
(B) shall be followed, where applicable.
    (b) Methodology and evidence. The evaluation of any proposal for 
production authority shall include the following steps:
    (1) The first phase (Sec.  400.25(a)(1)) involves consideration of 
threshold factors. If an examiner or reviewer makes a negative finding 
on any of the factors in Sec.  400.25(a)(1) in the course of a review, 
the applicant shall be informed pursuant to Sec.  400.34(a)(5)(iv)(A). 
When threshold factors are the basis for a negative recommendation in a 
review of ongoing activity, the zone grantee and directly affected 
party shall be notified and given an opportunity to submit evidence 
pursuant to Sec.  400.34(a)(5)(iv)(A). If the Board determines in the 
negative regarding any of the factors in Sec.  400.25(a)(1), it shall 
deny or restrict authority for the proposed or ongoing activity.
    (2) The process for Sec.  400.25(a)(2) involves consideration of 
the enumerated economic factors, taking into account their relative 
weight and significance under the circumstances. Previous evaluations 
in similar cases will be considered.


Sec.  400.35  Completion of case review.

    (a) The Executive Secretary will circulate the examiner's report 
with recommendations to the Treasury Board member for its review and 
vote (by resolution).
    (b) The Treasury Board member will return its vote to the Executive 
Secretary within 30 days, unless a formal meeting is requested (see, 
Sec.  400.3(b)).
    (c) The Commerce Department will complete the decision process 
within 15 days of receiving the vote of the Treasury Board member, and 
the Executive Secretary will publish the Board decision.
    (d) The Board or the Commerce Department's Assistant Secretary for 
Import Administration may opt to terminate review of an application 
with no further action if the applicant has failed to provide in a 
timely manner information needed for evaluation of the application, or 
if the Board is unable to reach a unanimous decision regarding

[[Page 82356]]

the disposition of the application. The Executive Secretary may 
terminate review of an application where the circumstances presented in 
the application are no longer applicable as a result of a material 
change, and will generally notify the applicant of the intent to 
terminate review and allow 30 days for a response prior to completion 
of any termination action.


Sec.  400.36  Procedure for application for minor modification of zone 
project.

    (a) The Executive Secretary, with the concurrence of the Port 
Director, will make a determination in cases under Sec.  400.23(c) 
involving minor changes to zone projects that do not require a Board 
order, such as boundary modifications, including certain relocations, 
and will notify the applicant in writing of the decision within 30 days 
of the determination that the application or request can be processed 
under Sec.  400.23(c).
    (b) Evidence of concurrence from the Port Director and all other 
documentation required for the request or application shall be provided 
by the applicant to the Board as part of the applicant's submission of 
the request or application for minor modification.


Sec.  400.37  Procedure for notification and review of production 
changes.

    (a) Requests for authority to use notification procedure. Pursuant 
to Sec.  400.14(e)(1), an applicant for FTZ production authority (or a 
grantee or operator with existing FTZ production authority) may request 
authority from the Board to notify the Board of future production 
changes involving new finished products or foreign status components/
inputs.
    (1) Format for request for authority. A request for authority to 
use the notification procedure shall include a list of the tariff 
schedule headings (4-digit HTSUS) within which such notifications are 
projected to occur (separated into headings that relate to finished 
products and headings that relate to components), to which such 
notifications shall then be limited, and shall explain the relevance of 
each heading to current or projected activity and provide an economic 
justification for the request based on the elements in Sec.  400.22. 
The Executive Secretary shall establish any guidelines or format 
necessary to implement this section.
    (2) Review and decision on request for authority. The review of a 
request submitted pursuant to Sec.  400.37(a) shall be conducted in 
accordance with the procedures delineated in Sec. Sec.  400.31-32 and 
400.34-35. A Board approval of authority to use the production change 
notification provision may be subject to specific restrictions on a 
case-by-case basis, as warranted.
    (b) Procedure for notification of production change.
    (1) Deadline for notification. For any production change subject to 
this provision, the grantee or operator shall notify the Board no later 
than 45 days after the end of the calendar quarter during which the 
production change took place.
    (2) Format for notification. The notification shall name the zone 
or subzone operation for which the notification is occurring and 
delineate new finished products or foreign components associated with 
the change, including tariff schedule numbers and duty rates, as well 
as provide information addressing the impact of the notified change(s) 
on the elements in Sec. Sec.  400.22(a)(3)(iv) and (vi) relative to 
prior approvals and notifications pursuant to Sec.  400.14(e)(1). The 
Executive Secretary may modify the requirements of this paragraph and 
shall establish any guideline or format necessary to implement this 
section.
    (c) Review of notifications. Upon notification of a production 
change, the Executive Secretary will conduct a preliminary review of 
the change:
    (1) Public comment period. Within 30 days after the deadline for 
receipt of notifications pursuant to Sec.  400.37(b)(1), the Executive 
Secretary shall transmit for publication in the Federal Register a 
notice describing any production change for which such notification was 
received. The notice shall identify the zone or subzone operator/user 
associated with a change, the specific finished products or components 
notified for the operator/user, and the tariff schedule categories and 
tariff rates for the notified products or components. Such notice may 
be done in combination with notices for any other production changes 
notified for the same quarter. A public comment period of not less than 
30 days shall be allowed.
    (2) Analysis and recommendation. The Executive Secretary's 
preliminary review will examine the notified production change in 
relation to the operation's previously approved activity to determine 
whether it could have significant adverse effects (individually or 
cumulatively with other notified changes under this section associated 
with the same production operation), taking into account the factors 
enumerated in Sec.  400.25 and any comments received in response to the 
Federal Register notice announcing the notified change. Based on the 
review, the Executive Secretary shall make a recommendation to the 
Commerce Department's Assistant Secretary for Import Administration 
regarding whether further review is warranted for the notified 
production change. The Executive Secretary's recommendation shall be 
made within 90 days of the deadline for receipt of notifications 
pursuant to Sec.  400.37(b)(1), except where a notified production 
change was the subject of negative public comment or of a hearing 
pursuant to Sec.  400.52.
    (3) Decision on further review. Based upon the Executive 
Secretary's recommendation, the Commerce Department's Assistant 
Secretary for Import Administration shall determine whether further 
review is necessary. When warranted, further review shall be conducted 
in accordance with the procedures delineated in Sec. Sec.  400.31-32 
and 400.34-35, as appropriate. The Assistant Secretary for Import 
Administration may terminate any further review based upon a 
recommendation by the Executive Secretary.
    (d) Limitations on use of notification provision. Pursuant to Sec.  
400.14(e)(1), the notification procedure described in this section does 
not apply to changes involving foreign status components/inputs subject 
to antidumping duty (AD) or countervailing duty (CVD) orders or which 
would be otherwise subject to suspension of liquidation under AD/CVD 
procedures (if they were to enter U.S. customs territory), subject to 
an order of the International Trade Commission pursuant to 19 U.S.C. 
1337 (Section 337) (if they were to enter U.S. customs territory), 
subject to any ongoing AD/CVD or Section 337 proceeding, or subject to 
quantitative import controls (quotas).


Sec.  400.38  Monitoring and reviews of zone operations and activity.

    (a) Ongoing zone operation(s) and activity may be reviewed at any 
time to determine whether they are in the public interest and in 
compliance and conformity with the Act and regulations, as well as the 
authority granted by the Board. Reviews involving production activity 
may also be conducted to determine whether there are changed 
circumstances that raise questions as to whether the activity is 
detrimental to the public interest, taking into account the factors 
enumerated in Sec.  400.25. The Board may prescribe special monitoring 
requirements in its decisions when appropriate.
    (b) Reviews may be initiated by the Board, the Commerce 
Department's Assistant Secretary for Import Administration, or the 
Executive Secretary; or, they may be undertaken in

[[Page 82357]]

response to requests from parties directly affected by the activity in 
question showing good cause. After initiation of a review, any affected 
party shall provide in a timely manner any information requested as 
part of the conduct of the review. If a party fails to timely provide 
information requested as part of such a review, a presumption 
unfavorable to that party may be made.
    (c) Upon review, if a finding is made that zone activity is no 
longer in the public interest (taking into account the provisions of 
Sec.  400.25 where production activity is involved), the Board or the 
Commerce Department's Assistant Secretary for Import Administration may 
order the prohibition or restriction of the activity in question. Such 
prohibitions or restrictions may be put in place after a preliminary 
review (e.g., prior to potential steps such as a public comment period) 
if circumstances warrant such action until further review can be 
completed. The appropriateness of a delayed effective date will be 
considered.

Subpart E--Operation of Zones and Administrative Requirements


Sec.  400.41  Operation of zones; general.

    Zones shall be operated by or under the contractual oversight of 
zone grantees, subject to the requirements of the FTZ Act and this 
part, as well as those of other federal, state and local agencies 
having jurisdiction over the site and operation. Zone grantees shall 
ensure that the reasonable zone needs of the business community are 
served by their zone projects. The Port Director represents the Board 
with regard to the zone projects adjacent to the port of entry in 
question and is responsible for enforcement, including physical 
security and access requirements, as provided in 19 CFR part 146.


Sec.  400.42  Operation as public utility.

    (a) In general. Pursuant to Section 14 of the FTZ Act (19 U.S.C. 
81n), each zone shall be operated as a public utility, in that all 
rates and charges for all services or privileges within the zone shall 
be fair and reasonable. Any rate or charge (fee) imposed on zone 
participants shall be based on costs incurred by the grantee and shall 
be directly related to the service provided by the grantee (for which 
the rate or charge recovers costs incurred) to the zone participants. 
Rates or charges may incorporate a reasonable return on investment. 
Rates or charges may not be tied to the level of benefits derived by 
zone participants. For any functions that a grantee contracts to third 
parties for which costs are passed on (wholly or in part) through 
charges to zone participants, costs must reflect going rates for the 
performance of such contracted functions. Any rates, charges or 
penalties paid by zone participants related to grantee functions shall 
be paid directly to the grantee (or, where applicable, to another 
public entity pursuant to a legal or contractual relationship with the 
grantee).
    (b) Delayed compliance date. Recognizing that some grantees' 
existing business arrangements may not comply with the requirements 
detailed in this section, the effective date for compliance with the 
requirements of Sec.  400.42 shall be no later than two years after the 
date of publication of the final rule.


Sec.  400.43  Uniform treatment.

    Pursuant to Section 14 of the FTZ Act (19 U.S.C. 81n), a grantee 
shall afford to all who may apply to make use of or participate in the 
zone project uniform treatment under like conditions.
    (a) Standard contractual provisions. Uniform treatment shall be 
ensured through the grantee's offer of standard contractual provisions 
for agreements for zone participants. The standard provisions proposed 
by the grantee must be included in the grantee's zone schedule (see 
Sec.  400.45).
    (b) Agreements to be made in writing directly with grantee. Any 
agreement or contract related to one or more grantee function(s) and 
involving a zone participant (e.g., agreements with property owners, 
agreements with zone operators) must be in writing between the zone 
participant and the grantee.
    (c) Neutral evaluation criteria. Uniform treatment shall be ensured 
in the grantee's evaluation of proposals from potential zone 
participants through the grantee's application of evaluation criteria 
that are neutral and public interest-based. Uniform treatment does not 
require a grantee to accept all proposals by zone participants, but the 
bases for a grantee's decision on a particular proposal must be 
consistent with the grantee's evaluation criteria.
    (d) Justification for differing treatment. Given the requirement 
for uniform treatment under like conditions, for any instance of 
divergence from uniform treatment a grantee must be able to document 
upon request by the Executive Secretary the specific dissimilarity of 
conditions that justifies any difference in treatment.
    (e) Preclusion of conflicts of interest. To avoid non-uniform 
treatment of zone participants, this section seeks to preclude certain 
conflicts of interest in agents' performance of the following zone-
related grantee functions: Reviewing, making recommendations regarding 
or concurring on proposals/requests by zone participants pertaining to 
FTZ authority or activation by CBP; any oversight of zone participants' 
operations within the zone project; or collecting/evaluating annual 
report data from zone participants. None of those zone-related grantee 
functions shall be undertaken by:
    (1) A third party (or person on behalf of a third party) that 
currently engages in, or which has during the prior two years engaged 
in, offering/providing a zone-related product/service to or 
representing a zone participant in the grantee's zone project;
    (2) Any person that stands to gain from a specific third party's 
offer/provision of a zone-related product/service to or representation 
of a zone participant in the zone project; or,
    (3) Any person related, as defined in paragraph (f) of this 
section, to the third party/person identified in paragraphs (e)(1) and 
(2) of this section.
    (f) Definition of related parties. For purposes of this section, 
persons that are related would include:
    (1) Members of a family;
    (2) Organizations that are wholly or majority-owned by members of 
the same family;
    (3) An officer or director of an organization and that 
organization;
    (4) Partners;
    (5) Employers and their employees;
    (6) An organization and any person directly or indirectly owning, 
controlling, or holding with power to vote, 20 percent or more of the 
outstanding voting stock or shares of that organization;
    (7) Any person who controls any other person and that other person 
(the term control means the power, direct or indirect, whether or not 
exercised, through any means, to determine, direct, or decide important 
matters affecting an entity); or,
    (8) Any two or more persons who directly control, are controlled 
by, or are under common control with, any person (see definition of 
control in paragraph (f)(7) of this section).
    (g) Requests for determinations. A grantee or other party may 
request a determination by the Executive Secretary regarding the 
consistency of the grantee's or other party's actual or potential 
provision or arrangement with the requirements of this section.
    (h) Identification of agent. The Board, the Commerce Department's 
Assistant Secretary for Import Administration, or the Executive 
Secretary may require a zone grantee to identify any agent that has 
performed one or more of the zone-related grantee functions cited in

[[Page 82358]]

Sec.  400.43(e) in the zone project during a specified period of time.
    (i) Delayed compliance date. Recognizing that some grantees' 
existing business arrangements may not comply with the requirements 
detailed in this section, the effective date for compliance with the 
requirements of Sec.  400.43 shall be no later than two years after the 
date of publication of the final rule.


Sec.  400.44  Requirements for commencement of operations in a zone 
project.

    The following actions are required before operations in a zone may 
commence:
    (a) Approvals from the grantee and the Port Director, pursuant to 
19 CFR part 146, are required prior to the activation of any portion of 
an approved zone project;
    (b) Prior to activation of a zone, the zone grantee or operator 
shall obtain all necessary permits from federal, state and local 
authorities, and except as otherwise specified in the Act or this part, 
shall comply with the requirements of those authorities;
    (c) The grantee shall submit the zone schedule to the Executive 
Secretary and to the Port Director, as provided in Sec.  400.45.


Sec.  400.45  Zone schedule.

    (a) In general. The zone grantee shall submit to the Executive 
Secretary (in both paper and electronic copies) and to the Port 
Director a zone schedule which sets forth the elements required in this 
section. No element of a zone schedule may be considered to be in 
effect until such submission has occurred. If warranted, the Board may 
subsequently amend the requirements of this section by Board Order.
    (b) Each zone schedule shall contain:
    (1) A title page, with information to include:
    (i) The name of the zone grantee;
    (ii) The date of the original schedule; and,
    (iii) The name of the preparer;
    (2) A table of contents;
    (3) One or more sections with internal rules and regulations and 
policies for the zone, including a clear presentation of the standard 
contractual provisions offered to the various categories of zone 
participants. Inclusion of the standard contractual provisions in the 
zone schedule may take the form of one or more sample contracts or 
agreements presented in one or more appendices to the zone schedule;
    (4) All rates or charges assessed by or on behalf of the grantee;
    (5) Information regarding any operator(s) offering services to the 
user community, including the operator(s)'s rates or charges for all 
services offered; and,
    (6) An appendix with definitions of any FTZ-related terms used in 
the zone schedule (as needed).
    (c) The Executive Secretary may review the zone schedule (or any 
amendment to the zone schedule) to determine whether it contains 
sufficient information for zone participants concerning the operation 
of the zone and the grantee's rates and charges as provided in 
paragraphs (b)(3) and (b)(4) of this section. If the Executive 
Secretary determines that the zone schedule (or amendment) does not 
satisfy these requirements, the Executive Secretary will notify the 
zone grantee. The Executive Secretary may also conduct a review under 
400.46(b).
    (d) Amendments to the zone schedule shall be prepared and submitted 
in the manner described in paragraph (b) of this section, and listed in 
the concluding section of the zone schedule, with dates. A grantee may 
not apply rates/charges or other provisions required for the zone 
schedule unless those specific fees or provisions are included in the 
most recent zone schedule submitted to the Board and made available to 
the public in compliance with paragraph (e) of this section.
    (e) Availability of zone schedule. A complete copy of the zone 
schedule shall be freely available for public inspection at the offices 
of the zone grantee and any operator offering FTZ services to the user 
community. For any such grantee or operator that maintains a site on 
the internet, the current complete zone schedule shall also be made 
available via that internet site. The Board may make copies of zone 
schedules available via its own Internet site. The zone grantee shall 
send a copy to the Port Director, who may submit comments to the 
Executive Secretary.
    (f) Delayed compliance date. Recognizing that some grantees may 
need additional time to comply with the requirements detailed in this 
section, the effective date for compliance with the requirements of 
Sec.  400.45 shall be no later than two years after the date of 
publication of the final rule.


Sec.  400.46  Complaints related to public utility and uniform 
treatment.

    (a) In general. A zone participant may submit to the Executive 
Secretary a complaint regarding conditions or treatment that the 
complaining party believes are inconsistent with the public utility and 
uniform treatment requirements of the FTZ Act and these regulations. 
Complaints may be made on a confidential basis, if necessary. Grantees 
shall not enter into or enforce contractual provisions for agreements 
or contracts with zone participants that would require zone 
participants to disclose to other parties, including the grantee, any 
confidential communication with the Board under this section.
    (b) Objections to rates and charges. A current or prospective zone 
participant showing good cause may object to any rate or charge related 
to the zone project on the basis that it is not fair and reasonable by 
submitting to the Executive Secretary a complaint in writing with 
supporting information. The Executive Secretary will review the 
complaint and issue a report and decision, which will be final unless 
appealed to the Board within 30 days. The Board or the Executive 
Secretary may otherwise initiate a review for cause. The factors 
considered in reviewing fairness and reasonableness will include:
    (1) The actual costs of the specific services rendered by the zone 
grantee or operator, taking into account any extra costs incurred 
relative to non-zone operations and including return on investment, and 
reasonable out-of-pocket expenses; and,
    (2) The going-rates and charges for like zone operations (including 
based on other like operations at other similarly situated zones, 
taking into account any specific factors that may lead to differing 
underlying costs).


Sec.  400.47  Grantee liability.

    A grant of authority will not ordinarily be construed to make the 
zone grantee automatically liable for violations by zone participants 
because grantees generally provide for operators/users a framework of 
general authority within which individual parties may operate under the 
detailed supervision of CBP. In such circumstances, it would not be in 
the public interest to discourage public entities from zone sponsorship 
because of concern about liability without fault. Grantees should not 
be liable for the acts or violations of operators or users in which 
they share no fault. However, this section will not necessarily apply 
to a grantee that undertakes detailed operational oversight or 
direction to operators/users within its zone.


Sec.  400.48  Retail trade.

    (a) In general. Retail trade is prohibited in zones, except that 
sales or other commercial activity involving domestic, duty-paid, and 
duty-free goods may be conducted within an activated zone project under 
permits

[[Page 82359]]

issued by the zone grantee and approved by the Board, with the further 
exception that no permits shall be necessary for sales involving 
domestic, duty-paid or duty-free food and non-alcoholic beverage 
products sold within the zone or subzone for consumption on premises by 
individuals working therein. The Executive Secretary will determine 
whether an activity is retail trade, subject to review by the Board 
when the zone grantee requests such a review with a good cause.
    (b) Procedure. Requests for Board approval under this section shall 
be submitted in letter form, with supporting documentation, to the 
Executive Secretary, who is authorized to act for the Board in these 
cases, subject to the concurrence of the Port Director.
    (c) Criteria. In evaluating requests under this section, the 
Executive Secretary and the Port Director will consider:
    (1) Whether any public benefits would result from approval; and,
    (2) The economic effect such activity would have on the retail 
trade outside the zone in the port of entry area.


Sec.  400.49  Zone-restricted merchandise.

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

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


Sec.  400.51  Accounts, records and reports.

    (a) Zone accounts. Zone accounts shall be maintained in accordance 
with generally accepted accounting principles, and in compliance with 
the requirements of Federal, State or local agencies having 
jurisdiction over the site or operation.
    (b) Records and forms. Zone records and forms shall be prepared and 
maintained in accordance with the requirements of CBP and the Board, 
consistent with documents issued by the Board specific to the zone in 
question, and the zone grantee shall retain copies of applications it 
submits to the Board.
    (c) Maps and drawings. Zone grantees or operators, and Port 
Directors, shall keep current layout drawings of approved sites as 
described in Sec.  400.21(d)(5), showing activated portions, and a file 
showing required approvals. The zone grantee shall furnish necessary 
maps to the Port Director.
    (d) Annual reports. (1) Each zone grantee shall submit a complete 
and accurate annual report to the Board within 90 days of the end of 
the reporting period, in accordance with any instructions, guidelines, 
forms and related documents specifying place, manner and format(s) 
prescribed by the Executive Secretary, for use by the Executive 
Secretary in the preparation of the Board's annual report to the 
Congress. Each zone operator shall submit to the grantee a complete and 
accurate annual report, in accordance with any instructions, 
guidelines, forms and related documents specifying place, manner and 
format(s) prescribed by the Executive Secretary, in a timeframe that 
will enable the grantee's timely submission of a complete and accurate 
annual report to the Board.
    (2) The Board shall submit an annual report to the Congress.


Sec.  400.52  Notice and hearings.

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


Sec.  400.53  Official record; public access.

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

[[Page 82360]]

the Department of Commerce. A certified copy of the record will be made 
available to any court before which any aspect of a proceeding is under 
review, with appropriate safeguards to prevent disclosure of 
proprietary or privileged information.


Sec.  400.54  Information.

    (a) Request for information. The Board may request submission of 
any information, including business proprietary information, and 
written argument necessary or appropriate to the proceeding.
    (b) Public information. Except as provided in paragraph (c) of this 
section, the Board will consider all information submitted in a 
proceeding to be public information, and if the person submitting the 
information does not agree to its public disclosure, the Board will 
return the information and not consider it in the proceeding. 
Information to meet the basic requirements of Sec. Sec.  400.21 through 
400.23 and 400.37 is inherently public information to allow meaningful 
public evaluation pursuant to those sections and Sec.  400.32.
    (c) Business proprietary information. Persons submitting business 
proprietary information and requesting protection from public 
disclosure shall mark the cover page ``business proprietary,'' as well 
as the top of each page on which such information appears. Any business 
proprietary document submitted for a proceeding other than pursuant to 
Sec.  400.46 shall contain brackets at the beginning and end of each 
specific piece of business proprietary information contained in the 
submission. Any such business proprietary submission shall also be 
accompanied by a public version that contains all of the document's 
contents except the information bracketed in the business proprietary 
version, with the cover page and the top of each additional page marked 
``public version.'' Any data for which business proprietary treatment 
is claimed must be ranged or summarized in the public version. If a 
submitting party maintains that certain pieces of data are not 
susceptible to summarization or ranging, the public version must 
provide a full explanation specific to each piece of data regarding why 
summarization or ranging is not feasible.
    (d) Disclosure of information. Disclosure of public information 
will be governed by 15 CFR part 4.
    (e) Availability of information. Public information in the official 
record will be available at the Office of the Executive Secretary, 
Foreign-Trade Zones Board, U.S. Department of Commerce Building, 1401 
Constitution Avenue, NW., Washington, DC 20230 and may also be 
available electronically over the internet via http://www.trade.gov/ftz 
(or a successor internet address).

Subpart G--Penalties, Prior Disclosure and Appeals to the Board


Sec.  400.61  Revocation of grants of authority.

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


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

    (a) In general. This section authorizes fines for certain specific 
violations of the FTZ Act or the Board's regulations. Each instance of 
those specific violations is subject to a fine of not more than 1,000 
dollars (as adjusted for inflation pursuant to Sec.  400.62(k)), with 
each day during which a violation continues constituting a separate 
offense subject to imposition of such a fine (FTZ Act, section 19; 19 
U.S.C. 81s). This section also establishes the party subject to the 
fine which, depending on the type of violation, would be the zone 
operator, grantee or agent of the grantee. In certain circumstances, 
the Board or the Assistant Secretary for Import Administration could 
instruct CBP to suspend the activated status of all or part of a zone 
or subzone. Violations of the FTZ Act or the Board's regulations 
(including the sections pertaining to production activity and 
submission of annual reports), failure to pay fines or failure to 
comply with an order prohibiting or restricting activity may also 
result in the Executive Secretary suspending the processing of any 
requests to the Board and staff relating to the zone or subzone in 
question. Suspensions of activated status and suspensions of the 
processing of requests will generally be targeted to the specific non-
compliant operation(s).
    (b) Violations involving production activity.
    (1) For purposes of Sec.  400.62(b), each of the following 
constitutes a separate offense, with the operator subject to a fine of 
not more than 1,000 dollars (as adjusted for inflation pursuant to 
Sec.  400.62(k)) for each such separate offense:
    (i) Each finished product or foreign component or combination 
thereof for which the operator had failed to obtain the required 
advance approval pursuant to Sec.  400.14(a) or to submit notification 
pursuant to Sec.  400.14(e)(1);
    (ii) Production involving any finished product, foreign component, 
or combination thereof authorized by the FTZ Board (or properly 
notified under Sec.  400.14(e)(1)) at a level exceeding the plant's 
capacity authorized by the Board (or properly notified under Sec.  
400.14(e)(2)); and,
    (iii) Each day during which an offense cited in Sec.  
400.62(b)(1)(i) or (ii) continues.
    (2) Consistent with Sec.  400.47, in instances where a grantee or 
agent of the grantee has undertaken detailed operational oversight or 
direction of an operator engaged in production within a zone project, 
the grantee or agent may also be subject to a fine of not more than 
1,000 dollars (as adjusted for inflation pursuant to Sec.  
400.62(k))for each offense of the operator that is subject to Sec.  
400.62(b)(1)(i), (ii) or (iii).
    (c) Violations involving requirement to submit annual report. Each 
day during which a grantee fails to submit a complete and accurate 
annual report pursuant to section 16 of the FTZ Act (19 U.S.C. 81p(b)) 
and Sec.  400.51(d)(1) of these regulations constitutes a separate 
offense subject to a fine of not more than 1,000 dollars (as adjusted 
for inflation pursuant to Sec.  400.62(k)). Further, each day during 
which a zone operator fails to submit to the zone's grantee the 
information required for the grantee's timely submission of a complete 
and accurate annual report to the Board may constitute a separate 
offense subject to a fine of not more than 1,000 dollars (as adjusted 
for inflation pursuant to Sec.  400.62(k)). Consistent with Sec.  
400.47, in

[[Page 82361]]

circumstances where the violation demonstrably results from a zone 
operator's failure to submit a complete and accurate report to the zone 
grantee, the responsible operator would be the focus of any fine-
assessment action by or on behalf of the Board.
    (d) Violations involving conflicts of interest. Each day during 
which an agent of the grantee violates the provisions of Sec.  
400.43(e) of these regulations constitutes a separate offense for which 
the agent would be subject to a fine of not more than 1,000 dollars (as 
adjusted for inflation pursuant to Sec.  400.62(k)).
    (e) Procedures for determination of violations and imposition of 
fines. When the Board or the Executive Secretary has reason to believe 
that a violation of the FTZ Act, or any regulation under the FTZ Act, 
has occurred and that the violation warrants the imposition of a fine 
(such as situations where a party has previously been notified of 
action required to comply with the FTZ Act or the Board's regulations 
and has failed to take such action within a reasonable period of time), 
the following steps will be taken:
    (1) The Executive Secretary will notify the party or parties 
responsible for the violation in writing stating the nature of the 
alleged violation, and provide the party(ies) a specified period 
(normally 30 days, with consideration given to any requests for an 
extension) to respond in writing;
    (2) The Executive Secretary will conduct a hearing, if requested or 
otherwise if appropriate;
    (3) The Executive Secretary will make a recommendation on the 
record of the proceeding not earlier than 15 days after the deadline 
for the party(ies)'s response under paragraph (e)(1) of this section. 
If the recommendation is for an affirmative determination of a 
violation, the Executive Secretary will also recommend a level of fine 
to be imposed; and,
    (4) The Board will make a determination regarding the finding of a 
violation and imposition of a fine based on the Executive Secretary's 
recommendation under paragraph (e)(3) of this section. For related 
actions where the total sum of recommended fines is no more than 10,000 
dollars (50,000 dollars in the case of violations pursuant to paragraph 
(c) of this section), the Board delegates to the Executive Secretary 
the authority to make a determination.
    (f) Mitigation. (1) In general. The Commerce Department's Assistant 
Secretary for Import Administration may approve the mitigation 
(reduction or elimination) of an imposed fine based on specific 
evidence presented by the affected party. Authority is delegated to the 
Executive Secretary to mitigate a fine where the total sum of fines 
imposed on a party for related actions does not exceed 10,000 dollars 
(50,000 dollars in the case of violations pursuant to paragraph (c) of 
this section). Mitigating evidence and argument pertaining to 
mitigating factors must be submitted within 30 days of the 
determination described in paragraph (e)(4) of this section.
    (2) Mitigating factors. Factors to be taken into account in 
evaluation of potential mitigation include:
    (i) The prior good record of a violator over the preceding five 
years with regard to the type of violation(s) at issue;
    (ii) A violator's inexperience in the type of foreign-trade zone 
activity at issue;
    (iii) Violation due to the action of another party despite 
violator's adherence to the requirements of the FTZ Act and the Board's 
regulations;
    (iv) Immediate remedial action by the violator to avoid future 
violations;
    (v) A violator's cooperation with the Board (beyond the degree of 
cooperation expected from a person under investigation for a violation) 
in ascertaining the facts establishing the violation;
    (vi) A violation resulting from a clerical error or similar 
unintentional negligence;
    (vii) Contributory Board error such as the violation resulting, at 
least in significant part, from the violator having relied on 
inaccurate written advice provided by a Board staff member; and,
    (viii) Other such factors as the Board, or the Executive Secretary, 
deems appropriate to consider in the specific circumstances presented.
    (g) Assessment of imposed fines. After evaluation of submitted 
mitigating evidence and argument, where applicable, the Commerce 
Department's Assistant Secretary for Import Administration may assess 
an imposed fine (in whole or in part). Authority is delegated to the 
Executive Secretary to assess a fine where the total sum of the imposed 
fines for related actions does not exceed 10,000 dollars (50,000 
dollars in the case of violations pursuant to paragraph (c) of this 
section).
    (h) Time for payment. Full payment of an assessed fine must be made 
within 30 days of the effective date of the assessment or within such 
longer period of time as may be specified. Payment shall be made in the 
manner specified by the Commerce Department's Assistant Secretary for 
Import Administration or the Executive Secretary.
    (i) Procedures for instruction to suspend activated status. When a 
fine assessed pursuant to Sec. Sec.  400.62(e) through (h) has not been 
paid within 90 days of the specified time period, or there is a 
repeated and willful failure to comply with a prohibition or 
restriction on activity imposed by a Board Order or an order of the 
Commerce Department's Assistant Secretary for Import Administration 
pursuant to Sec. Sec.  400.14(e)(3) or 400.38(c), the Board or the 
Commerce Department's Assistant Secretary for Import Administration may 
instruct CBP to suspend the activated status of the zone operation(s) 
in question (or, if appropriate, the suspension may be limited to a 
particular activity of an operator, such as suspension of the privilege 
to admit merchandise), and the suspension may remain in place until the 
failure to pay a fine or to comply with an order's prohibition or 
restriction on activity has been remedied. In determining whether to 
instruct CBP to suspend the activated status of a zone operation in the 
circumstances noted, the following steps shall be taken:
    (1) Notification of party(ies). The Executive Secretary will notify 
the responsible party(ies) in writing stating the nature of the failure 
to timely pay a fine or to comply with a prohibition or restriction on 
activity imposed by a Board Order or an order of the Commerce 
Department's Assistant Secretary for Import Administration. If the 
grantee is not one of the responsible parties notified, the Executive 
Secretary will also provide a copy of the notification to the grantee. 
The responsible party(ies) will be provided a specified period (of not 
less than 15 days) to respond in writing to the notification;
    (2) Hearing. If the notified responsible party(ies) requests a 
hearing (or if a hearing is determined to be warranted by the Board, 
the Commerce Department's Assistant Secretary for Import Administration 
or the Executive Secretary), it will be held before the Executive 
Secretary (or a member of the Board staff designated by the Executive 
Secretary) within 30 days following the party(ies)'s request for a 
hearing (or the determination by the Board, the Commerce Department's 
Assistant Secretary for Import Administration or the Executive 
Secretary). The party(ies) may be represented by counsel at the 
hearing, and any evidence and testimony of witnesses in the proceeding 
will be presented. A transcript of the hearing will be

[[Page 82362]]

produced and a copy will be made available to the responsible 
party(ies);
    (3) The Executive Secretary shall make a recommendation on the 
record of the proceeding not earlier than 15 days after the later of:
    (i) The deadline for the party(ies)'s response under paragraph 
(i)(1) of this section; or,
    (ii) The date of a hearing held under paragraph (i)(2) of this 
section; and,
    (4) The Board or the Commerce Department's Assistant Secretary for 
Import Administration shall make a determination regarding the 
recommendation on whether to instruct CBP to suspend activated status. 
If the determination is affirmative, the Executive Secretary shall 
convey the instruction to CBP.
    (j) Enforcement of assessment. Upon any failure to pay an assessed 
fine, the Board may request the U.S. Department of Justice to recover 
the amount assessed in any appropriate district court of the United 
States or may commence any other lawful action.
    (k) Adjustment for inflation. The maximum dollar value of a fine 
for a violation of the FTZ Act or the Board's regulations is subject to 
adjustment for inflation pursuant to the Federal Civil Penalties 
Inflation Adjustment Act of 1990 (Pub. L. 101-410), as amended by the 
Debt Collection Improvement Act of 1996.


Sec.  400.63  Prior disclosure.

    (a) A party subject to a fine pursuant to Sec.  400.62 may provide 
a written disclosure of a violation of the FTZ Act or the Board's 
regulations to the Board prior to the commencement of an investigation 
by the Board of the violation.
    (b) The disclosure should fully describe the circumstances 
surrounding the violation including:
    (1) The zone(s) or subzone(s) involved;
    (2) The CBP port(s) of entry involved;
    (3) The legal or regulatory provisions violated;
    (4) The circumstances of the act(s) constituting the violation;
    (5) The corrective measures undertaken to resolve the violation;
    (6) An assurance that the violation will not reoccur; and,
    (7) Copies of sufficient documentation for the Board to identify 
the act(s) constituting the violation.
    (c) Upon receipt of a written disclosure of a violation, the 
Executive Secretary will first determine the validity of the disclosure 
and provide written notice of the determination to the disclosing 
party.
    (d) The disclosure should be addressed to the Executive Secretary 
at the address in 400.54(e). Disclosures may also be submitted via 
electronic transmission as long as an identical, original copy is also 
mailed within two business days.
    (e) If a party subject to a fine pursuant to Sec.  400.62 submits a 
valid written prior disclosure, it shall be the general policy of the 
Board (except in cases involving fraudulent intent) to reduce to a 
maximum of 1,000 dollars the total sum of potential fines for a single 
violation or series of offenses stemming from a continuing violation.
    (f) A prior disclosure pursuant to this section shall not involve 
the loss of revenue and is only applicable to those fines imposed 
pursuant to this section. Any prior disclosure involving a loss of 
revenue must be addressed through the procedures established by 19 
U.S.C. 1592(c)(4).


Sec.  400.64  Appeals to the Board of decisions of the Assistant 
Secretary for Import Administration and the Executive Secretary.

    (a) In general. Decisions of the Commerce Department's Assistant 
Secretary for Import Administration and the Executive Secretary made 
pursuant to Sec. Sec.  400.12(d)(2), 400.14(d)-400.14(f), 400.35(d), 
400.46, 400.48, 400.49, 400.62 and 400.63(c) may be appealed to the 
Board by adversely affected parties showing good cause.
    (b) Procedures. Parties appealing a decision under paragraph (a) of 
this section shall submit a request for review to the Board in writing, 
stating the basis for the request, and attaching a copy of the decision 
in question, as well as supporting information and documentation. After 
a review, the Board will notify the complaining party of its decision 
in writing.

    Dated: December 27, 2010.
Christian Marsh,
Acting Deputy Assistant Secretary for Import Administration, Chairman, 
Committee of Alternates, Foreign-Trade Zones Board.
[FR Doc. 2010-32940 Filed 12-29-10; 8:45 am]
BILLING CODE 3510-DS-P