COAC Approves Recommended Changes to FTZ Regulations

The Commercial Customs Operations Advisory Committee (COAC) approved a broad set of recommendations for updating the foreign-trade zone regulations in 19 CFR 146 during its Oct. 3 meeting. The recommendations, which came through the Trade Modernization Subcommittee, are meant to address several issues, including confusion over the application of trade remedies to goods in FTZs and Section 321 entries for small value items. "Updating our FTZ practices and regulations is overdue," said Treasury Department Deputy Assistant Secretary Timothy Skud.

Among other things, the COAC recommended that CBP revisit the treatment of Section 321 entries through FTZs. A recent CBP ruling found against the use of Section 321 exemptions for consolidated shipments broken up in FTZs (see 1807180022), and there is an "increasing flow of such shipments from warehouses abroad located in Mexico and Canada," the recommendation said. A COAC working group "should examine the impact such restrictions are having on the domestic FTZ industry and the efficacy of a regulatory interpretation to enable such operation to occur in the U.S." There's an effort underway to change the treatment of such goods, though a legislative change may be necessary (see 1808150007).

FTZ handling of Section 321 entries would offer a higher level of security than the foreign warehouses that are breaking up those shipments, said COAC member Kathy Wilkins, vice president at Alliance Operating Services. "We actually unpack everything, so we validate what's in the package before the end-user purchases it," she said. "I understand the ownership model and I understand the way the import model is set to work, but the way it is working today where you're getting a manifest and what's in the box may or may not be what's manifested, in a zone environment we actually unpack it."

CBP should update the FTZ regulations to explain the treatment of merchandise subject to trade remedies, including the Section 232 and 301 tariffs, another recommendation said. "The regulatory changes clarify that any applicable AD/CV duties would apply regardless of the processing conducted in the FTZ, but as applicable trade remedy duties may not apply based on the FTZ processing," it said. CBP should also "provide clarification regarding the appropriate country of origin for duty purposes due to Census' requirement," the COAC said.