Site Activation Process

Activation Procedures

Activation procedures and requirements are published in 19 CFR Part 146.6. Written application to activate must be submitted to the Customs Port Director in the Port in which the Zone is located. The Operator submits this application. The Operator has the option of activating either all, or a part of, the Zone area which was approved by the Foreign-Trade Zones Board. The application to activate must include a description of all Zone sites requested for activation, and a description of the general character of the operations to be conducted therein. If operations will include the manipulation, manufacture, or processing of merchandise, the Operator may want to submit a blanket CF 216, which will provide Customs' permit for that activity, with the application to activate. A statement of the general character of merchandise to be admitted to the Zone must be included.

• The written concurrence of the Grantee.
• A blue print of the area to be activated, showing the area's measurements, including all openings and buildings; and all outlets, inlets, and pipelines to any tank for the storage of liquids.
• The Zone procedures manual which describes the inventory control and record keeping system(s) and Zone procedures. The Operator must certify that the Zone inventory control and record keeping system(s) satisfy the requirements of 19 CFR, Section 146, and Subpart B.
• The list of key employees.

BACKGROUND CHECK

In processing the application to activate, the Port Director may then order the inquiry into the background of key employees, and conduct a security survey. One of the requirements of activation is that Customs conducts a background check of key employees. It should be noted that the background check typically involves:

• Management Personnel
• Cargo Handling Personnel
• Personnel executing Customs Documents

The Operator must provide Customs with a list of employees listing each employee's:

• Name
• Address
• Date of Birth
• Place of Birth
• Social Security Number

Keep in mind that although Customs may in the future ask for information about additional employees, the requirement for activation is for information about key employees. As key employees change during the Zone' s operation, the list of key personnel should be updated.

The background check will seek so-called "Derogatory Information" about key employees. Customs defines derogatory information as:

• Fraud or misstatement of material fact
• Failure to furnish, upon request, a complete and accurate list of persons
• Presence of a person who has been convicted of theft, smuggling, fraud or similar property crimes
• Employment of persons of crimes that would jeopardize security of merchandise

Consideration should be given to revealing certain information about employees to Customs prior to the Background Check, however, other legal considerations must be addressed before any such prior disclosure of personal information.

BOND

The Port Director must then notify the applicant of his or her decision to approve or deny the activation. On approval of the application, the Foreign-Trade Zone Operator's Bond is executed on a CF 301. What is a Foreign-Trade Zone Operator's Bond? First of all, it is NOT Insurance!

Instead, the bond is assurance to Customs that assessments against the bond will indeed be paid. The Surety Company who underwrites the bond provides this assurance. If Customs assesses liquidated damages against the bond, the Surety Company will take action against the Operator to collect any amounts it may forfeit to Customs as a result of those damages.

The Port Director of Customs will establish the face amount of the bond. The face amount shall not be less than $50,000. Often, the face amount of the bond depends on the scale and nature of the anticipated activity. It is often the subject of negotiation between Customs and the Operator. The bond is executed on Customs Form 301. Zone and Subzone users who already have importers bonds on file with Customs sometimes simply add "Foreign-Trade Zone Operator" to the list of items checked on the bond. This, however, should be done only with due consideration, for the face amount on the existing bond may well exceed the amount of liability obtainable under a separate Foreign-Trade Zone Operator's bond.

Upon acceptance by Customs of the executed bond, the Zone site is considered activated. Foreign status merchandise may then be admitted to the Zone.

Procedures Manual

One of the requirements of activation is that the Operator, prior to activation, submit to Customs a written FTZ Procedures Manual. The manual describes the systems and procedures that will be employed in the Zone's operation. During the Zone's operation, the Procedures Manual must be updated to reflect any changes that are made in systems and procedures. The following subjects should be discussed in the Procedures Manual:

• Activities
• Admission of Merchandise
• Storage
• Manipulation
• Manufacture or other activities involving merchandise
• Shipment of Merchandise
• For Domestic Consumption
• For Export
• Shipments to other Zones
• Security Procedures
• Reporting Procedures

Keep in mind that Customs neither approves nor disapproves the Procedures Manual. The Zone Operator is responsible for compliance of the systems and procedures described in the Procedures Manual.

Besides meeting a Customs requirement, the Procedures Manual should serve as the Operator or user's tool in conducting its Zone activities. It should not reside on some forgotten shelf

Inventory Control

The Zone's Inventory Control and Record Keeping System (or Systems) is a vital part of the operation. It is through the System and its methodology that Customs will test the claims made by the Operator when merchandise is transferred from the Zone. In order to protect the revenue of the United States, Customs auditors will audit the Zone's systems to assure that proper methodology is used in relating the value of what leaves the Zone to the value of what is admitted to the Zone. Customs requires that the Zone's Inventory Control and Record Keeping Systems must perform the following:

Systems must account for all merchandise:

• Receipt
• Zone Admission
• Granted a Zone Status
• Stored, Exhibited, Manipulated, Manufactured, or Processed
• Destroyed, Transferred or removed from the Zone
• Produce accurate and timely reports
• Identify overages and shortages
• Provide information necessary to make Customs Entry
• Provide Audit trail to relate value of merchandise entered from Zones to value of merchandise admitted to Zone

Naturally, the Zone's Inventory Control and Record Keeping System will be designed to fit the business activity involved. The Systems required for large-scale manufacturing activity will be more complex than those required for small-scale warehousing. Nevertheless, the principles that Customs applies in evaluating each are the same. These must be thoroughly understood before the System is designed or adapted for Zone use. Standards for FTZ Inventory Control and Record Keeping Systems are published in 19 CFR, Section 146, Subpart B.

Security

Prior to activation, Customs will conduct a Cargo Security Survey. Customs security standards are published in TD 72-56, however, these standards are expensive to meet, and in most cases constitute security overkill. Generally, the Zone's security standards are established by the Port Director of Customs, and, in most cases, require only minimal enhancement by the Operator. One must keep in mind that there are Special High Security standards for firearms. Normal Security Measures may include physical security measures such as walls, fences, doors, and locks, and monitoring measures such as guards, electronic security devices and monitoring systems, as well as access control systems. Customs should always be made aware of the Operator's interest in protecting the total value of the Zone merchandise in addition to that which may be due Customs.

Customs Orientation and Inspection

For the User, this is as important as anything it will ever do. Strategy and Coordination between Grantee, and User/Operator is a must if future Zone environment is to be User Friendly.

There are several things the Operator and Grantee can do to maximize your opportunity to create a user-friendly Zone environment:

• Introduce Customs to the nature of the Zone activity. Explain the competitive problems Zone status will solve (e.g. relief from inverted tariffs).
• Explain how FTZ cost savings will serve the Public Interest.
• Let the Grantee serve as spokesperson. Make sure the Grantee thoroughly understands the Zone operation, and the need for any special Zone procedures. Remember, as a public entity, the Grantee has the most leverage in dealing with any and all government agencies. However, make sure that the Grantee is never put in a position of representing anything other than genuine public interests.

Once Customs becomes familiar with the Zone operation, discussion of special Zone procedures is in order. There are several procedures which can enhance the user-friendliness of your Zone operation. These include:

• Direct Delivery
• Weekly Entry
• Extension of five day removal time limit
• Breaking and affixing Customs Seals

Application Regulation