AhoyCargo

This memo refers to recent discussions with the trade community pertaining to International Travel Merchandise (ITM) and vessel supplies. During discussions with field offices and Customs Headquarters, both field offices and the trade recommended that Customs amend operations involving vessel supplies and International Travel Merchandise (ITM) sold on board aircraft. I am pleased to say that Customs will amend certain operations. The effective date of the changes below is immediately.

Five key areas dealing with control of vessel supplies and ITM were discussed in the conference as outlined in the enclosed document. The enclosure includes the trade's recommendations followed by solutions developed in the conference, subsequently reviewed and approved by Headquarters, Office of Field Operations, U.S. Customs.

Recent Customs audits of Customs Approved Storage Rooms (CASRs), commonly used to retain ITM and vessel supplies, indicate that accountability and control of merchandise is inadequate. The changes enclosed will increase Customs control of such merchandise, and will be in effect until such time a new facility is established by regulation to retain ITM and vessel supplies. We intend to establish a new class of warehouse for this type of merchandise.

Let this exercise serve as an example for others to show how government and the trade can work together and come to mutually beneficial and practical solutions. Together, we have provided the trade with a more effective way to conduct their daily business, while allowing Customs to continue its important role in the enforcement of laws and regulations.

For further information on this matter, please contact Timothy Sushil, Headquarters, Office of Field Operations, at (202) 927-0564.

/signed/
Robert S. Trotter

Attachment

REENGINEERING VESSEL SUPPLY & ITM OPERATIONS
U.S. CUSTOMS SERVICE

1. RECOMMENDATION: ALLOW REMOVAL OF MERCHANDISE FROM CARTS
   In the vessel supply and in-flight business, the package of international travel merchandise (ITM) and liquor is loaded as a kit and placed onto an airplane, where goods are sold to passengers. The remaining merchandise is often stored overnight or for some period at the foreign destination point and is likely to be loaded on a return flight and further depleted. Once it arrives in the United States, it is taken to the Customs Approved Storeroom (CASR) where it is replenished.

   Some ports do not allow a return to the shelves for these goods from the carts. This causes a problem for the in-flight and vessel supply operators if they are unable to sell certain items, or if there is a product change.

   SOLUTION: APPLIES TO BOTH ITM & VESSEL SUPPLIES
   Merchandise removed from carts may be stored in a CASR so long as a new Customs entry (e.g., Consumption, Quota Entry), or a CF 7512, is filed with Customs within five business days of aircraft entry. Merchandise to be transferred from the carts to a Customs Approved Storeroom (CASR) may be removed from carts pending entry provided it is segregated from existing merchandise, properly documented and accounted for. Merchandise so removed from the various carts of one airline for return to the same CASR or other singular authorized facility (e.g., bonded warehouse, FTZ) may be consolidated under one entry. Applicable entry restrictions on alcohol, tobacco, and textiles apply (e.g., ATF, FDA, quota requirements).

2. RECOMMENDATION: SUMMARIZE MANIFEST DISCREPANCY REPORTING (MDRs)
   An inventory is conducted in the U.S. upon the kit's return to the CASR. Differences between the manifested quantity and the physical quantity in the kits reflect whether a discrepancy exists. Discrepancies arise by the following:
   1. clerical errors,
   2. overages, and shortages. Due to large volumes of discrepancies generated by in-flight operators, the "immediate" reporting requirement causes reports to be submitted daily. To reduce paperwork, operators of in-flight merchandise seek relief from an "immediate" discrepancy reporting requirement to a 30 day summary reporting of shortages, as well as uniform requirements for the treatment of overages and shortages.

   SOLUTION: APPLIES ONLY TO ITM GOODS
   A review of manifesting of ITM merchandise reveals that discrepancies have occurred. ITM merchandise on board aircraft entering the Customs territory is not of a type or character that is excepted from manifesting by statute or regulation. Along with the lack of reporting manifest discrepancies, Customs is concerned with a repetitive pattern of numerous "clerical errors." A pattern or practice of manifest discrepancies can reveal negligence or illegal activity, diverting revenue from the trade and from Customs collection. Inaccurate reporting impedes Customs ability to account for merchandise and protect revenue. Timely and accurate reporting, on the other hand, can assist Customs with its collection and enforcement responsibilities.

   In consideration of the trade's attempt to improve required reporting of discrepancies, we are providing relief to ITM discrepancy reporting in the following areas:

   Manifest discrepancy reports for ITM shall be submitted to Customs for any:

   a) Evidence of seal tampering; b) Differences between the seal numbers on the kit and those recorded on the manifest located in the kit and attached to the Aircraft General Declaration; c) Difference in quantity (overages and extraordinary shortages) as shown on the manifest.

   A discrepancy report shall contain the following information: airline, flight number, arrival date, unique ITM manifest number, item description, amount of overage, shortage, discrepant quantity, unit value, and total value.

   In the event of extraordinary shortages or overages, (defined as a discrepancy of six individual units or more between the manifested quantity and the physical quantity), a consolidated discrepancy report shall be submitted to Customs within 30 calendar days of aircraft entry pursuant to 19 C.F.R. '122.49.

   2(a). When security seals are intact upon arrival in the United States and no evidence of tampering exists: In the instance of nonextraordinary shortages or overages, (defined as a discrepancy of five units or less between the manifested quantity and the physical quantity), no submission of reports to the Port Director will be required. However, the CASR operator will maintain all discrepancies noted on an ITM manifest, which shall be immediately available for Customs audit or spot-check. 2(b). When security seals on ITM carts are not intact upon arrival in the United States: All manifest discrepancies shall be reported within 30 calendar days from aircraft entry. 2(c). When indication of theft or seal tampering exists, or there is a difference between the seal numbers on the kit and those recorded on the ITM manifest located in the kit and attached to the Aircraft General Declaration: Any amount of discrepancy (overage or shortage) shall be reported immediately to the Port Director and confirmed in writing within 5 days after aircraft entry.

   Upon notice by Customs, a consumption entry may be required for shortages. Failure to submit a manifest discrepancy report to Customs subjects a party to monetary penalties under 19 U.S.C.'1584.

   If Customs receives an adequate manifest discrepancy report (MDR) within the time period provided for by regulation (60 days for vessels per 19 C.F.R. '4.12, 30 days for aircraft per 19 C.F.R. '122.49(a)(2), then no penalty action is warranted under 19 U.S.C. '1584 for failure to submit a corrected manifest.

   Discrepancy reports will be accompanied by any evidence, if any, to substantiate a claim that the discrepancy occurred outside the Customs territory.

   Consolidation of manifest discrepancy reports for ITM will provide relief to both Customs and the trade. Customs determines whether discrepancies occur within the Customs territory, and whether a loss of revenue exists. The trade's responsibility to report discrepancies (both clerical and non-clerical) to Customs remains a vital element to establish compliance of a manifest and to protect revenue.

   Immediate reporting of discrepancies for vessel supplies to the port director is required by regulation [19 C.F.R. '122.135(e)]. An amendment is under consideration.

3. RECOMMENDATION: ALLOW TRANSFER OF MERCHANDISE AMONG CASRs
   CASR operators sometimes experience a depletion of merchandise as a result of unexpected sales volume. This may result in stock shortages reducing operators' profits if they do not have an ample supply of product. Other CASR's maintain an overabundance of a particular product. Operators want to be able to transfer merchandise to another CASR to enhance and balance inventory levels among CASR's.

   SOLUTION: APPLICABLE TO BOTH ITM AND VESSEL SUPPLY OPERATORS
   ITM and vessel supplies may be transferred to another CASR by initiating a Customs Form 7512, Transportation & Exportation, entry type 62, in accordance with 19 C.F.R. '18.26. To effect transfers from one CASR to another CASR, a new CF 7512 shall be prepared. The quantity reported on the CF 7512 must accurately provide the total number of cases and individual units on the CF 7512. The carrier will account and remain liable for transportation and exportation of the merchandise under its bond by noting the following on the new CF 7512, T&E:

   a) The original CF 7512 foreign arrival information (date, piece count, description, flight info); b) Original entry number on the new CF 7512 along with airline bond number, original date of entry and date of importation.

   A new CF 7512 will be required to effect transfers. Utilizing the original CF 7512 would be inappropriate and illegible, since the designation and destination will change for a transportation in bond to another CASR.

   The bonded carrier is liable for the exportation of the bonded merchandise pursuant to 19 C.F.R. '18.26(d) and must cause the merchandise to be exported by providing evidence of exportation as required by the Port Director under 19 C.F.R. '113.55 within 30 days of exportation, unless ITM is admitted into a CASR pursuant to Customs Directive 099 3280-008 which allows for an extended storage period beyond 30 days.

   TRANSFER TO AN FTZ OR BONDED WAREHOUSE FROM A CASR:
   Instead of transferring merchandise to another CASR, merchandise may be transferred from a CASR and admitted to an FTZ on a CF 214, or entered into a bonded warehouse by filing an appropriate warehouse entry. The document required to initiate movement from a CASR to an FTZ or bonded warehouse shall be on a CF 7512, Immediate Transportation, type 61.

4. RECOMMENDATION: SIMPLIFY DESIGNATIONS OF CF 7512s
   The trade states that variances occur among Customs ports with respect to the designation required on a CF 7512. For example, some ports require a "VSIE" designation, whereas other ports require an "IE" designation. The trade notes this causes confusion to both Customs and the industry. The trade requests a simplified designation be used for CF 7512s for vessel supplies and ITM.

   SOLUTION: APPLIES TO VESSEL SUPPLIES & ITM
   CF 7512 designations will be simplified for ITM and vessel supplies. Since ITM goods do not qualify as vessel supplies or equipment within the meaning of 19 U.S.C. '1309, they are not entitled to duty free privileges under that section. To distinguish this difference on the designation of a CF 7512, CF 7512's for movement of vessel supplies shall begin with a "VS." For example, if vessel supplies are removed from a CASR for immediate exportation, the designation shall state, "VSIE."

   For Vessel supplies removed for transportation in-bond to another port for exportation, the CF 7512 shall state, "VSTE." For ITM merchandise, no "VS" designation shall apply. For example, for ITM arriving in a CASR directly from foreign and stored in a CASR for immediate exportation, the CF 7512 shall be designated "IE." If ITM is withdrawn from a Customs bonded warehouse for transportation in bond to a CASR in another port for exportation, the CF 7512 shall indicate, "WDTE."

5. RECOMMENDATION: INCREASE MERCHANDISE STORAGE PERIOD
   Both CASR operators of vessel supplies and ITM note the existing 90 day retention period under 19 C.F.R. '18.24 and C.D. 099 3240-034 ("In-bond: Time Limits For Exportation" ) are inadequate because inventory "turn over" time demands a longer period. Customs has allowed carriers to import vessel supplies and ITM for retention at a CASR for a period of 90 days, with limited extensions approved by the port director. To provide relief, one member of the trade seeks an 18 month retention period while another party seeks one year to store merchandise under transportation in bond.

   SOLUTION: APPLIES TO BOTH VESSEL SUPPLIES & ITM
   A recently published Headquarters ruling (226238) stated that the maximum retention period in a CASR is 6 months. Customs has recently reconsidered its position on the length of time that goods may be stored in a CASR.

   Prior to the Customs Modernization Act ("Mod Act"), Customs imposed a one year limit on goods in a CASR. This was based on the times specified in 19 U.S.C. '1491 and 19 C.F.R. '18.24. The Mod Act changed the time in 19 U.S.C. '1491 to six months. Customs adjusted the CASR retention period accordingly.

   Customs has now determined that the changes wrought by the Mod Act rendered the six month time limit inapplicable to ITM and vessel supplies stored in a CASR. This is because the new language in 19 U.S.C. '1491 narrows the scope of that section to merchandise already in a bonded warehouse. Since CASRs are not bonded warehouses, goods in a CASR are not subject to the provisions of 19 U.S.C. '1491. The correct retention period, therefore, is that stated in 19 C.F.R.'18.24(a). This regulation imposes a 90 day limit, which may be extended in increments of 90 days, not to exceed one year from the date of importation.

   As an alternative storage method, vessel supplies (not ITM) stored in a bonded warehouse may be eligible for blanket withdrawals under 19 C.F.R. '19.6(d)(1)(ii). This procedure would allow for the elimination of multiple CF 7512's, since blanket withdrawal procedures apply. Storage in a bonded warehouse allows a 5 year retention period. Retention of merchandise in a bonded warehouse would provide relief to the trade's concern for vessel supply retention time periods.