February 14, 2000
		
				
Memo For:	Foreign-Trade Zone Grantees
		U.S. Customs Service Port Directors

From:		Dennis Puccinelli
		Acting Executive Secretary

Re:		Clarification of Production Equipment Provision


Section 81c(e) of the FTZ Act allows zone users to admit production 

equipment that is intended for use in Board authorized FTZ activity.  

Payment of duty would be deferred until such equipment goes into use as 

production equipment as part of FTZ activity, at which time the equipment 

is entered for consumption as completed equipment.  Alternatively, 

production equipment that is not for use within a zone may continue to 

be treated as normal merchandise. Section 81c(e) is interpreted as 

follows:

1.	The provision applies only to production equipment and equipment 
	components that are for use in conducting FTZ Board authorized 
	activity.  For example, a subzone that is authorized by the FTZ 
	Board to produce automobiles would be able to admit to the 
	subzone equipment related to the production and distribution of 
	automobiles at that facility. 

2.	The provision applies only to merchandise that can be specifically 
	identified as production equipment or equipment components.  It 
	does not apply to general materials (such as steel mill products) 
	that are used in the installation of production equipment or in 
	the assembly of equipment.  It also does not apply to materials 
	used in the construction or modification of the plant that houses 
	the equipment.  (A good test would be to ask whether the article 
	would otherwise be classified as an equipment component if it 
	were immediately entered for consumption.)

3.	The equipment should be evaluated for Customs duty purposes in 
	its condition when it goes into production (i.e., as complete 
	production equipment), keeping in mind the requirements for 
	evaluating incoming articles subject to antidumping/countervailing 
	(AD/CVD) orders.  The FTZ regulations require the election of 
	privileged foreign status, upon admission to the zone, on any 
	incoming merchandise that is subject to AD/CVD orders 	(15 CFR 
	Sec. 400.33).  When such merchandise leaves the zone for U.S. 
	commerce, it will be subject to AD/CVD procedures based on its 
	condition when it arrived at the zone.

4.	Production equipment that is not intended for use within a zone 
	for FTZ Board authorized activity may be admitted to a zone as 
	normal merchandise, provided the equipment is entered for 
	consumption or exported prior to its use.  Such equipment may be 
	treated as any other type of merchandise.  For example, it may 
	admitted to a zone as merchandise for storage and minor 
	manipulation under a zone’s general scope of authority.  
	It may also be assembled, processed or manufactured provided 
	there is specific authority from the FTZ Board (as is the case 
	with any merchandise).


Grantees making applications to the FTZ Board that involve activity that 

is likely to involve production equipment that may be admitted under the 

provision (usually subzones) should ensure that the application 

discusses the potential for use of the provision and include a range of 

potential savings in the discussion of the overall FTZ saving estimate.  

If you have any further questions, you may call me at (202) 482-2862.