19 U.S.C. § 81c — Exemption from customs laws of merchandise brought into foreign trade zone

submitted 92 years ago by ch. 590 to r/title-19-CUSTOMS-DUTIES · 2,075 words · no verdicts yet

in plain englishAI-generated · not legal advice

Foreign and domestic goods can move into a foreign-trade zone and be stored, sold, or reworked there without normally being subject to U.S. customs duties. Once goods leave the zone into the regular U.S. market, ordinary customs and tax rules apply again, with special rules for goods headed to Canada, Chile, or other USMCA countries.

(a) Handling merchandise in the zone. Almost any foreign or domestic goods — except goods the law bans outright — may enter a zone free of U.S. customs law. Inside, they may be stored, sold, shown, broken apart, repacked, combined, sorted, graded, cleaned, mixed with other goods, or manufactured, then shipped out again, destroyed, or sent into the regular U.S. market ("customs territory"), in their original packaging or not. Once foreign goods move from the zone into customs territory, ordinary U.S. import law applies to them. If someone asks, and nothing about the goods' processing has changed how they are classified for tariffs, a customs officer may take a batch of foreign goods under supervision, have it appraised, and settle the duties and taxes right away. Goods handled this way may still be stored or processed under Treasury Department rules, and may later be exported, destroyed, or sent into the regular market once the settled duties and taxes are paid. If the goods were reworked or manufactured, duty is charged only on however much foreign material actually went into the finished item, with credit for recoverable waste — which is later taxed on its own weight and condition when it enters customs territory — and no credit for waste that cannot be recovered. When one batch of goods yields several different products, the duty is split among the products based on their relative value at the time they are separated. Goods made in the United States that already paid all required taxes, and imported goods that already paid duty and tax (or came in duty- and tax-free), may be brought into a zone under Treasury supervision and later taken back out free of quotas, duty, or tax — even if they were combined with other goods while inside. But if the Secretary of the Treasury decides their identity was lost inside the zone, and they do not meet the Treasury's requirements, they are treated as foreign goods once they reenter customs territory. Under rules set by the controlling federal agencies, goods brought into a zone purely to be exported, destroyed (other than destroying distilled spirits, wine, or fermented malt liquor), or stored count as "exported" for drawback, warehousing, and bonding purposes, and for internal-revenue drawback, refund, and exemption purposes; other federal agencies may also treat this as an export for their own laws. Such goods generally may not be brought back into the regular U.S. market for domestic use unless the Foreign-Trade Zones Board decides that is in the public interest — and if it does allow that, ordinary import rules on reentry apply. Certain operations tied to specific federal tax-code provisions, or to manufacturing certain listed tariff items, are not allowed in a zone at all — except operations that were already permitted in a zone before July 1, 1949 (other than rectifying distilled spirits or wine, or making alcohol products unfit to drink). Goods manufactured or produced in a zone and then exported are, if later imported into the United States, treated like goods made in a foreign country — unless they were made entirely from domestic goods whose identity was tracked and preserved, in which case they may be entered as "American goods returned." Goods eligible for "USMCA drawback" that are manufactured or changed in condition in the zone may not be exported to a USMCA country without first paying a duty, based on the goods' condition, quantity, and weight at the time of export (or at the time they entered the zone, if the early-appraisal option described above was used), within 60 days of export. If proof is given, before that 60th day, of customs duty already paid to the USMCA country, the U.S. duty may be reduced or waived — but only up to the smaller of the total U.S. duty owed or the total duty already paid to that country. If Canada ever stops being a USMCA country and the older, suspended U.S.–Canada Free-Trade Agreement's suspension ends, then — except for certain drawback-eligible goods — nothing changed in a zone (besides simple cleaning, testing, or repacking) may be exported to Canada during that Agreement's operation without paying duty at the time of export, unless the early-appraisal option was used. Goods eligible for "Chile FTA drawback" that are manufactured or changed in condition in the zone may not be exported to Chile without paying duty, within 60 days of export (or at the time of admission into the zone, if early appraisal was used) — except that the duty could be reduced: waived entirely during an eight-year period starting January 1, 2004; reduced 75 percent during 2012; 50 percent during 2013; and 25 percent during 2014. (b) Bicycle component parts. This customs exemption did not apply, on or before December 31, 1992, to bicycle component parts, unless those parts were reexported from the United States — whether alone, as part of a fully assembled bicycle, or otherwise. (c) Products made from tax-free distilled spirits. Despite the general restriction on alcohol-related manufacturing in a zone: any article may be manufactured or produced in a zone from denatured distilled spirits withdrawn tax-free from a distilled spirits plant. And distilled spirits removed from a plant after tax was paid or determined may be used in a zone to make medicines, food products, flavors, or extracts unfit for drinking; those products get the same drawback treatment they would get if made in ordinary customs territory. (d) Petroleum refineries. For figuring the relative value of products made at a petroleum refinery operating in a zone, the "time of separation" means the entire manufacturing period, and the price used for each product is its average per-unit value over that period. How much of each product came from which feedstock may be measured either by industry-standard "producibility" methods approved by the Secretary of the Treasury, or by another Treasury-approved method that protects government revenue. (e) Production equipment. Machinery, and parts for it, brought into a zone to be used there as production equipment is not subject to duty until it is fully assembled, installed, tested, and actually put to use in production — as long as all other customs rules are followed. Whoever brings the equipment in must certify to the Customs Service, at that time, that it is entering under this rule for use as production equipment, and that it will be formally entered and estimated duties paid once it starts being used. When that use actually begins, the equipment must be entered under section 484 of the Tariff Act of 1930, and estimated duties deposited, based on its type, condition, and quantity, and the duty rate that applies at that time. For this subsection, "foreign trade zone" includes a subzone.

the actual law source: uscode.house.gov ↗public domain

(a) Handling of merchandise in zone; shipment of foreign merchandise into customs territory; appraisal; reshipment to zone

Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States, except as otherwise provided in this chapter, be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured except as otherwise provided in this chapter, and be exported, destroyed, or sent into customs territory of the United States therefrom, in the original package or otherwise; but when foreign merchandise is so sent from a zone into customs territory of the United States it shall be subject to the laws and regulations of the United States affecting imported merchandise: Provided, That whenever the privilege shall be requested and there has been no manipulation or manufacture effecting a change in tariff classification, the appropriate customs officer shall take under supervision any lot or part of a lot of foreign merchandise in a zone, cause it to be appraised and taxes determined and duties liquidated thereon. Merchandise so taken under supervision may be stored, manipulated, or manufactured under the supervision and regulations prescribed by the Secretary of the Treasury, and whether mixed or manufactured with domestic merchandise or not may, under regulations prescribed by the Secretary of the Treasury, be exported or destroyed, or may be sent into customs territory upon the payment of such liquidated duties and determined taxes thereon. If merchandise so taken under supervision has been manipulated or manufactured, such duties and taxes shall be payable on the quantity of such foreign merchandise used in the manipulation or manufacture of the entered article. Allowance shall be made for recoverable and irrecoverable waste; and if recoverable waste is sent into customs territory, it shall be dutiable and taxable in its condition and quantity and at its weight at the time of entry. Where two or more products result from the manipulation or manufacture of merchandise in a zone the liquidated duties and determined taxes shall be distributed to the several products in accordance with their relative value at the time of separation with due allowance for waste as provided for above: Provided further, That subject to such regulations respecting identity and the safeguarding of the revenue as the Secretary of the Treasury may deem necessary, articles, the growth, product, or manufacture of the United States, on which all internal-revenue taxes have been paid, if subject thereto, and articles previously imported on which duty and/or tax has been paid, or which have been admitted free of duty and tax, may be taken into a zone from the customs territory of the United States, placed under the supervision of the appropriate customs officer, and whether or not they have been combined with or made part, while in such zone, of other articles, may be brought back thereto free of quotas, duty, or tax: Provided further, That if in the opinion of the Secretary of the Treasury their identity has been lost, such articles not entitled to free entry by reason of noncompliance with the requirements made hereunder by the Secretary of the Treasury shall be treated when they reenter customs territory of the United States as foreign merchandise under the provisions of the tariff and internal-revenue laws in force at that time: Provided further, That under the rules and regulations of the controlling Federal agencies, articles which have been taken into a zone from customs territory for the sole purpose of exportation, destruction (except destruction of distilled spirits, wines, and fermented malt liquors), or storage shall be considered to be exported for the purpose of—

(1)

the draw-back, warehousing, and bonding, or any other provisions of the Tariff Act of 1930, as amended, and the regulations thereunder; and

(2)

the statutes and bonds exacted for the payment of draw-back, refund, or exemption from liability for internal-revenue taxes and for the purposes of the internal-revenue laws generally and the regulations thereunder.

Such a transfer may also be considered an exportation for the purposes of other Federal laws insofar as Federal agencies charged with the enforcement of those laws deem it advisable. Such articles may not be returned to customs territory for domestic consumption except where the Foreign-Trade Zones Board deems such return to be in the public interest, in which event the articles shall be subject to the provisions of paragraph 1615(f) of section 1201 of this title: Provided further, That no operation involving any foreign or domestic merchandise brought into a zone which operation would be subject to any provision or provisions of section 1807, chapter 15, chapter 16, chapter 17, chapter 21, chapter 23, chapter 24, chapter 25, chapter 26, or chapter 32 of the Internal Revenue Code if performed in customs territory, or involving the manufacture of any article provided for in paragraphs 367 or 368 of section 1001 of this title, shall be permitted in a zone except those operations (other than rectification of distilled spirits and wines, or the manufacture or production of alcoholic products unfit for beverage purposes) which were permissible under this chapter prior to July 1, 1949: Provided further, That articles produced or manufactured in a zone and exported therefrom shall on subsequent importation into the customs territory of the United States be subject to the import laws applicable to like articles manufactured in a foreign country, except that articles produced or manufactured in a zone exclusively with the use of domestic merchandise, the identity of which has been maintained in accordance with the second proviso of this section may, on such importation, be entered as American goods returned: Provided, further, That no merchandise that consists of goods subject to USMCA drawback, as defined in section 4534(a) of this title, that is manufactured or otherwise changed in condition shall be exported to a USMCA country, as defined in section 4502 of this title, without an assessment of a duty on the merchandise in its condition and quantity, and at its weight, at the time of its exportation (or if the privilege in the first proviso to this subsection was requested, an assessment of a duty on the merchandise in its condition and quantity, and at its weight, at the time of its admission into the zone) and the payment of the assessed duty before the 61st day after the date of exportation of the article, except that upon the presentation, before such 61st day, of satisfactory evidence of the amount of any customs duties paid or owed to the USMCA country on the article, the customs duty may be waived or reduced (subject to section 4534(e) of this title) in an amount that does not exceed the lesser of (1) the total amount of customs duties paid or owed on the merchandise on importation into the United States, or (2) the total amount of customs duties paid on the article to the USMCA country: Provided, further, That, if Canada ceases to be a USMCA country and the suspension of the operation of the United States-Canada Free-Trade Agreement thereafter terminates, with the exception of drawback eligible goods under section 204(a) of the United States-Canada Free-Trade Agreement Implementation Act of 1988, no article manufactured or otherwise changed in condition (except a change by cleaning, testing or repacking) shall be exported to Canada during the period such Agreement is in operation without the payment of a duty that shall be payable on the article in its condition and quantity, and at its weight, at the time of its exportation to Canada unless the privilege in the first proviso to this subsection was requested: Provided further, That no merchandise that consists of goods subject to Chile FTA drawback, as defined in section 203(a) of the United States-Chile Free Trade Agreement Implementation Act, that is manufactured or otherwise changed in condition shall be exported to Chile without an assessment of a duty on the merchandise in its condition and quantity, and at its weight, at the time of its exportation (or if the privilege in the first proviso to this subsection was requested, an assessment of a duty on the merchandise in its condition and quantity, and at its weight, at the time of its admission into the zone) and the payment of the assessed duty before the 61st day after the date of exportation of the article, except that the customs duty may be waived or reduced by (1) 100 percent during the 8-year period beginning on January 1, 2004; (2) 75 percent during the 1-year period beginning on January 1, 2012; (3) 50 percent during the 1-year period beginning on January 1, 2013; and (4) 25 percent during the 1-year period beginning on January 1, 2014.

(b) Applicability to bicycle component parts

The exemption from the customs laws of the United States provided under subsection (a) shall not be available on or before December 31, 1992, to bicycle component parts unless such parts are reexported from the United States, whether in the original package, as components of a completely assembled bicycle, or otherwise.

(c) Articles manufactured or produced from denatured distilled spirits withdrawn free of tax from distilled spirits plant; products unfit for beverage purposes

(1)

Notwithstanding the provisions of the fifth proviso of subsection (a), any article (within the meaning of section 5002(a)(14) of title 26) may be manufactured or produced from denatured distilled spirits which have been withdrawn free of tax from a distilled spirits plant (within the meaning of section 5002(a)(1) of title 26), and articles thereof, in a zone.

(2)

Notwithstanding the provisions of the fifth proviso of subsection (a), distilled spirits which have been removed from a distilled spirits plant (as defined in section 5002(a)(1) of title 26) upon payment or determination of tax may be used in the manufacture or production of medicines, medicinal preparation, food products, flavors, or flavoring extracts, which are unfit for beverage purposes, in a zone. Such products will be eligible for drawback under the internal revenue laws under the same conditions applicable to similar manufacturing or production operations occurring in customs territory.

(d) Foreign trade zones

In regard to the calculation of relative values in the operations of petroleum refineries in a foreign trade zone, the time of separation is defined as the entire manufacturing period. The price of products required for computing relative values shall be the average per unit value of each product for the manufacturing period. Definition and attribution of products to feedstocks for petroleum manufacturing may be either in accordance with Industry Standards of Potential Production on a Practical Operating Basis as verified and adopted by the Secretary of the Treasury (known as producibility) or such other inventory control method as approved by the Secretary of the Treasury that protects the revenue.

(e) Production equipment

(1) In general

Notwithstanding any other provision of law, if all applicable customs laws are complied with (except as otherwise provided in this subsection), merchandise which 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.

(2) Admission procedures

The person who admits the merchandise described in paragraph (1) into the zone shall, at the time of such admission, certify to the Customs Service that the merchandise is admitted into the zone pursuant to this subsection for use within the zone as production equipment or as parts for such equipment and that the merchandise will be entered and estimated duties deposited when use of the merchandise in production begins.

(3) Entry procedures

At the time use of the merchandise in production begins, the merchandise shall be entered, as provided for in section 484 of the Tariff Act of 1930 [19 U.S.C. 1484], and estimated duties shall be deposited with the Customs Service. The merchandise shall be subject to tariff classification according to its character, condition, and quantity, and at the rate of duty applicable, at the time use of the merchandise in production begins.

(4) Foreign trade zone

For purposes of this subsection, the term “foreign trade zone” includes a subzone.

Source credit: (June 18, 1934, ch. 590, § 3, 48 Stat. 999; June 17, 1950, ch. 296, § 1, 64 Stat. 246; Pub. L. 91–271, title III, § 309, June 2, 1970, 84 Stat. 292; Pub. L. 98–573, title II, § 231(a)(2), Oct. 30, 1984, 98 Stat. 2990; Pub. L. 99–514, title XVIII, § 1894, Oct. 22, 1986, 100 Stat. 2931; Pub. L. 100–418, title I, § 1783(f), Aug. 23, 1988, 102 Stat. 1300; Pub. L. 100–449, title II, § 204(c)(5), Sept. 28, 1988, 102 Stat. 1863; Pub. L. 100–647, title IX, § 9002, Nov. 10, 1988, 102 Stat. 3808; Pub. L. 101–382, title III, §§ 481, 484F, Aug. 20, 1990, 104 Stat. 706, 710; Pub. L. 103–182, title II, § 203(b)(5), Dec. 8, 1993, 107 Stat. 2091; Pub. L. 104–295, § 31(a), Oct. 11, 1996, 110 Stat. 3536; Pub. L. 106–36, title I, § 1001(b)(2), June 25, 1999, 113 Stat. 131; Pub. L. 108–77, title II, § 203(b)(5), Sept. 3, 2003, 117 Stat. 929; Pub. L. 116–113, title V, § 501(e)(5), Jan. 29, 2020, 134 Stat. 69; Pub. L. 116–260, div. O, title VI, § 601(c)(2)(B), Dec. 27, 2020, 134 Stat. 2150.)

history & why it existsrecord from the source credit

1934Enacted · Act of June 18, 1934, ch. 590 · 48 Stat. 999
1950Amended · Act of June 17, 1950, ch. 296 · 64 Stat. 246
1970Amended · Pub. L. 91-271 · 84 Stat. 292
1984Amended · Pub. L. 98-573 · 98 Stat. 2990
1986Amended · Pub. L. 99-514 · 100 Stat. 2931
1988Amended · Pub. L. 100-418 · 102 Stat. 1300
1988Amended · Pub. L. 100-449 · 102 Stat. 1863
1988Amended · Pub. L. 100-647 · 102 Stat. 3808
1990Amended · Pub. L. 101-382 · 104 Stat. 706, 710
1993Amended · Pub. L. 103-182 · 107 Stat. 2091
1996Amended · Pub. L. 104-295 · 110 Stat. 3536
1999Amended · Pub. L. 106-36 · 113 Stat. 131
2003Amended · Pub. L. 108-77 · 117 Stat. 929
2020Amended · Pub. L. 116-113 · 134 Stat. 69
2020Amended · Pub. L. 116-260 · 134 Stat. 2150

A history note hasn’t been published yet. The record shows enactment by ch. 590 on 1934-06-18.

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