[Code of Federal Regulations]
[Title 19, Volume 1]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 19CFR19.12]

[Page 301-306]
 
                        TITLE 19--CUSTOMS DUTIES
 
  CHAPTER I--UNITED STATES CUSTOMS SERVICE, DEPARTMENT OF THE TREASURY
 
PART 19--CUSTOMS WAREHOUSES, CONTAINER STATIONS AND CONTROL OF MERCHANDISE THEREIN--Table of Contents
 
Sec. 19.12  Inventory control and recordkeeping system.

    (a) Systems capability. The proprietor shall maintain either manual 
or automated inventory control and recordkeeping systems or combination 
manual and automated systems capable of:
    (1) Accounting for all merchandise transported, deposited, stored, 
manipulated, manufactured, smelted, refined, destroyed in or removed 
from the bonded warehouse and all merchandise collected by a proprietor 
or his agent for transport to his warehouse. The records shall provide 
an audit trail from deposit through manipulation, manufacture, 
destruction, and withdrawal from the bonded warehouse either by specific 
identification or other Customs authorized inventory method. The records 
to be maintained are those which a prudent businessman in the same type 
of business can be expected to maintain. The records are to be kept in 
sufficient detail to permit effective and efficient determination by 
Customs of the proprietor's compliance with these regulations and 
correctness of his annual submission or reconciliation;
    (2) Producing accurate and timely reports and documents as required 
by this part; and
    (3) Identifying shortages and overages of merchandise in sufficient 
detail to determine the quantity, description, tariff classification and 
value of the missing or excess merchandise so that appropriate reports 
can be filed with Customs on a timely basis.
    (b) Procedures manual. (1) The proprietor shall have available at 
the warehouse an English language copy of its written inventory control 
and recordkeeping systems procedures manual in accordance with the 
requirements of this part.
    (2) The proprietor shall keep current its procedures manual and 
shall submit to the port director a new certification at the time any 
change in the system is implemented.
    (c) Entry of merchandise into a warehouse--(1) Identification. All 
merchandise collected by a proprietor or his

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agent for transport to his warehouse shall be receipted. In addition, 
all merchandise entered in a warehouse will be recorded in a receiving 
report or document using a Customs entry number or unique identifier if 
an alternate inventory control method has been approved. All merchandise 
will be traceable to a Customs entry and supporting documentation.
    (2) Quantity verification. Quantities received will be reconciled to 
a receiving report or document such as an invoice with any discrepancy 
reported to the port director as provided in Sec. 19.6(a).
    (3) Recordation. Merchandise received will be accurately recorded in 
the accounting and inventory system records from the receiving report or 
document using the Customs entry number or unique identifier if an 
alternative inventory control method has been approved.
    (d) Accountability for merchandise in a warehouse--(1) 
Identification of merchandise. The Customs entry number or unique 
identifier, as applicable under Sec. 19.4(b)(8), will be used to 
identify and trace merchandise.
    (2) Inventory records. The inventory records will specify by Customs 
entry number or unique identifier if an alternative inventory control 
method is approved:
    (i) The location of the merchandise within the warehouse;
    (ii) Except for merchandise in general order, the cost or value of 
the merchandise, unless the proprietor's financial records maintain cost 
or value and the records are made available for Customs review; and
    (iii) The beginning balance, cumulative receipts and withdrawals, 
adjustments, destructions, and current balance on hand by date and 
quantity.
    (3) Theft, shortage, overage or damage. Any theft or suspected theft 
or overage or any extraordinary shortage or damage (equal to one percent 
or more of the value of the merchandise in an entry or covered by a 
unique identifier; or if the missing merchandise is subject to duties 
and taxes in excess of $100) shall be immediately brought to the 
attention of the port director, and confirmed in writing within five 
business days after the shortage, overage, or damage has been brought to 
the attention of the port director. An entry for warehouse must be filed 
for all overages by the person with the right to make entry within five 
business days of the date of discovery. The applicable duties, taxes and 
interest on thefts and shortages so reported shall be paid by the 
responsible party to Customs within 20 calendar days following the end 
of the calendar month in which the shortage is discovered. The port 
director may allow the consolidation of duties and taxes applicable to 
multiple shortages into one payment; however, the amount applicable to 
each warehouse entry is to be listed on the submission and shall specify 
the applicable duty, tax and interest. These same requirements shall 
apply when cumulative thefts, shortages or overages under a specific 
entry or unique identifier total one percent or more of the value of the 
merchandise or if the duties and taxes owed exceed $100. Upon 
identification, the proprietor shall record all shortages and overages 
in its inventory control and recordkeeping system, whether or not they 
are required to be reported to the port director at the time. The 
proprietor must also record all shortages and overages as required in 
the Customs Form 300 or annual reconciliation report under paragraphs 
(g) or (h) of this section, as appropriate. Duties and taxes applicable 
to any non-extraordinary shortage or damage and not required to be paid 
earlier must be reported and submitted to the port director no later 
than the date the certification of preparation of Customs Form 300 is 
due or at the time the certification of preparation of the annual 
reconciliation report is due, as prescribed in paragraphs (g) or (h) of 
this section. Discrepancies found in a Class 9 warehouse with integrated 
locations as set forth in Sec. 19.35(c) will be the net discrepancies 
for a unique identifier (see Sec. 19.4(b)(8)(ii) of this part) such that 
overages within one sales location will be offset against shortages in 
another location that is within the integrated location. A Class 9 
proprietor who transfers merchandise between facilities in different 
ports without being required to file a rewarehouse entry in accordance 
with Sec. 144.34 of this chapter may offset overages and shortages

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within the same unique identifier for merchandise located in stores in 
different ports (see Sec. 19.4(b)(8)(ii) of this part).
    (4) Permit file folders--(i) Maintenance. Permit file folders shall 
be maintained and kept up to date by filing all receipts, damage or 
shortage reports, manipulation requests, withdrawals, removals and 
blanket permit summaries within five business days after the event 
occurs. The permit file folders shall be kept in a secure area and shall 
be made available for inspection by Customs at all reasonable hours.
    (ii) Review. When the final withdrawal of merchandise relating to a 
specific warehouse entry, general order or seizure occurs, the warehouse 
proprietor shall: review the permit file folder to ensure that all 
necessary documentation is in the file folder accounting for the 
merchandise covered by the entry; notify Customs of any merchandise 
covered by the warehouse entry, general order or seizure which has not 
been withdrawn or removed; and file the permit file folder with Customs 
within 30 calendar days after final withdrawal, except as allowed by 
paragraph (b)(4)(iv) of this section. The permit file folder for 
merchandise not withdrawn during the general order period shall be 
submitted to the port director upon receipt from Customs of the Customs 
Form 6043.
    (iii) Exemption to maintenance requirement. Maintenance of permit 
file folders will not be required, if the proprietor has an automated 
system capable of: satisfactorily summarizing all actions by Customs 
warehouse entry; providing upon demand by Customs an entry activity 
summary report which lists all individual receipts, withdrawals, 
destructions, manipulations and adjustments by warehouse entry and is 
cross-referenced to the source documents for each transaction; and 
maintaining source documents so that the documents can be readily 
retrieved upon request. Failure to provide the entry activity summary 
report or documentation supporting the entry activity summary report 
upon demand by the port director or the field director of regulatory 
audit could result in reinstatement by the port director of the 
requirement to maintain the permit file folder for all warehouse 
entries. When final withdrawal is made, the proprietor must submit the 
entry activity summary report to Customs. Prior to submission, the 
proprietor must ensure the accuracy of the summary report and assure 
that all supporting documentation is on file and available for review if 
requested by Customs.
    (iv) Exemption to submission requirement. At the discretion of the 
port director, a proprietor may be allowed to furnish formal 
notification of final withdrawal in lieu of the requirement to submit 
the permit file folder or entry activity summary within 30 calendar days 
of each final withdrawal. If approved to use this procedure the 
proprietor could be required by the port director to submit permit file 
folders or entry activity summaries on a selective basis. Failure to 
promptly provide the permit file folder or entry activity summary upon 
request by the port director or the field director of regulatory audit 
could result in withdrawal of this privilege.
    (5) Physical inventory. The proprietor shall take at least an annual 
physical inventory of all merchandise in the warehouse, or periodic 
cycle counts of selected categories of merchandise such that each 
category is counted at least once during the year, with prior 
notification of the date(s) given to Customs so that Customs personnel 
may observe or participate in the inventory if deemed necessary. If the 
proprietor of a Class 2 or Class 9 warehouse has merchandise covered by 
one warehouse entry, but stored in multiple warehouse facilities as 
provided for under Sec. 144.34 of this chapter, the facility where the 
original entry was filed must reconcile the on-hand balances at all 
locations with the record balance for those entries with merchandise in 
multiple locations. The proprietor shall notify the port director of any 
discrepancies, record appropriate adjustments in the inventory control 
and recordkeeping system, and make required payments and entries to 
Customs, in accordance with paragraph (d)(3) of this section.
    (e) Withdrawal of merchandise from a warehouse. All bonded 
merchandise withdrawn from a warehouse will be

[[Page 304]]

accurately recorded within the inventory control and recordkeeping 
system. The inventory control and recordkeeping system must have the 
capability to trace all withdrawals back to a Customs entry and to 
ultimate disposition of the merchandise by the proprietor.
    (f) Special provisions for use of FIFO inventory procedures--(1) 
Notification. A proprietor who wishes to use FIFO procedures for all or 
part of the merchandise in a bonded warehouse shall provide the port 
director a written certification that: The proprietor has read and 
understands Customs FIFO procedures set forth in this section; the 
proprietor's procedures are in accordance with Customs FIFO procedures, 
and the proprietor agrees to abide by those procedures; and the 
proprietor of a public warehouse will obtain the written consent of any 
importer using the warehouse before applying FIFO procedures to their 
merchandise.
    (2) Qualifying merchandise. FIFO inventory procedures may be used 
only for fungible merchandise. For purposes of this section, ``fungible 
merchandise'' means merchandise which is identical and interchangeable 
for all commercial purposes. While commercial interchangeability is 
usually decided between buyer and seller or between proprietor and 
importer, Customs is the final arbiter of fungibility in bonded 
warehouses. The criteria for determining whether merchandise is fungible 
include, but are not limited to, Governmental and recognized industrial 
standards, part numbers, tariff classification, value, brand name, unit 
of quantity (such as barrels, gallons, pounds, pieces), model number, 
style and same kind and quality. Fungible textile and textile products 
which are withdrawn from a Class 9 warehouse may be accounted for using 
FIFO inventory procedures, inasmuch as such articles would be exempt 
from textile quotas.
    (3) Merchandise specifically excluded. FIFO procedures cannot be 
applied to the following merchandise, as well as any other merchandise 
which does not comply with the requirements of paragraph (f)(2) of this 
section:
    (i) Merchandise subject to quota, visa or export restrictions 
chargeable to different countries of origin;
    (ii) Textile and textile products of different quota categories;
    (iii) Merchandise with different tariff classifications or rates of 
duty, except where the difference is within the merchandise itself (such 
as kits, merchandise in unusual containers) or where the tariff 
classification or dutiability is determined only by conditions upon 
withdrawal (for example, withdrawal for vessel supplies, bonded wool 
transactions);
    (iv) Merchandise with different legal requirements for marking, 
labeling or stamping;
    (v) Merchandise with different trademarks;
    (vi) Merchandise of different grades or qualities;
    (vii) Merchandise with different importers of record;
    (viii) Damaged or deteriorated merchandise;
    (ix) Restricted merchandise; or
    (x) General order, abandoned or seized merchandise.
    (4) Maintenance of FIFO. FIFO procedures used for merchandise in any 
inventory category, must be used consistently throughout the warehouse 
storage and recordkeeping practices and procedures for the merchandise. 
For example, merchandise may not be added to inventory by FIFO but 
withdrawn by bypassing certain inventory layers to reach a specific 
warehouse entry other than the oldest one. However, this does not 
preclude the use of specific identification for some merchandise in a 
warehouse entry and FIFO for other merchandise, so long as they are 
segregated in physical storage and clearly distinguished in the 
inventory and accounting records.
    (5) FIFO recordkeeping. In the inventory and accounting records, the 
proprietor shall establish an inventory layer for each warehouse entry 
represented in each inventory category. The layers shall be established 
in the order of time of acceptance of the entry or by the date of 
importation of merchandise covered by each applicable warehouse entry. 
There shall be no mixing of layering both by time of acceptance and date 
of importation in

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the same warehouse. Records for each layer shall, as a minimum, show the 
warehouse entry number, date of acceptance, date of importation, 
quantity and unit of quantity. They shall also show for each entry the 
type of warehouse withdrawal number or other specific removal event 
charged against the entry, by date and quantity. Each addition to or 
deduction from the inventory category shall be posted in the appropriate 
inventory category within 2 business days after the event occurs. All 
FIFO records and documentation shall consistently use the same unit of 
quantity within each inventory category.
    (6) Entry requirements. Warehouse entries covering any merchandise 
to be accounted for under FIFO must be prominently marked ``FIFO'' on 
the face of the entry document. The entry document or an attachment 
thereto shall show the unique identifier of each inventory category to 
be accounted for under FIFO, the quantity in each inventory category and 
the unit of quantity.
    (7) Receipts. Any shortages, overages, or damage found upon receipt 
shall be attributed to the entry under which the merchandise was 
received. FIFO procedures will not take effect until the merchandise is 
physically placed in the storage location for the inventory category 
represented in the entry.
    (8) Manipulation. When manipulation results in a product with a 
different unique identifier, the inventory and accounting records shall 
show the quantities of merchandise in each inventory category appearing 
in the product covered by the new unique identifier. The withdrawal 
shall show the unique identifiers of both the materials used in the 
manipulation and the product as manipulated. The quantities of the 
original unique identifiers will be deducted from their respective 
warehouse entries on a FIFO basis when the resultant product is 
withdrawn.
    (9) Discontinuance of FIFO. A proprietor may voluntarily discontinue 
the use of FIFO procedures for all or part of the merchandise currently 
under FIFO by providing written notification to the port director. The 
notification shall clearly describe the merchandise, by commercial names 
and unique identifiers, to be removed from FIFO. Following notification, 
the merchandise shall be segregated in both the recordkeeping system and 
the physical location by warehouse entry number and the quantities so 
removed shall be deducted from the appropriate FIFO inventory category 
balances. Merchandise so removed shall be maintained under the specific 
identification inventory method. FIFO procedures which were voluntarily 
discontinued may be reinstated, but not for merchandise covered by any 
warehouse entry for which FIFO was discontinued.
    (g) Warehouse proprietor submission. Except as otherwise provided in 
paragraph (h) of this section or Sec. 19.19(b) of this part, the 
warehouse proprietor must prepare a Warehouse Proprietor's Submission on 
Customs Form (CF) 300 within 45 calendar days from the end of the 
business year and maintain the Submission on file for 5 years from the 
end of the business year covered by the Submission. The proprietor must 
submit to the port director, within 10 business days after preparation 
of the CF 300, a letter signed by the proprietor certifying that the CF 
300 has been prepared, is available for Customs review, and is accurate. 
If the proprietor of a Class 2 or Class 9 warehouse has merchandise 
covered by one warehouse entry, but stored in multiple warehouse 
facilities as provided for under Sec. 144.34 of this chapter, the CF 300 
shall cover all locations and warehouses of the proprietor. An 
alternative format may be used for providing the information required on 
the CF 300.
    (h) Annual reconciliation--(1) Report. Instead of preparing Customs 
Form 300 as required under paragraph (g) of this section, the proprietor 
of a class 2, importers' private bonded warehouse, and proprietors of 
classes 4, 5, 6, 7, 8, and 9 warehouses if the warehouse proprietor and 
the importer are the same party, must prepare a reconciliation report 
within 90 days after the end of the fiscal year unless the port director 
authorizes an extension for reasonable cause. The proprietor shall 
retain the annual reconciliation report for 5 years from the end of the 
fiscal year covered by the report. The report must be available for a 
spot check or audit by Customs, but need not be furnished to

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Customs unless requested. There is no form specified for the preparation 
of the report.
    (2) Information required. The report must contain the company name; 
address of the warehouse; class of warehouse; date of inventory or 
information on cycle counts; a description of merchandise for each entry 
or unique identifier, quantity on hand at the beginning of the year, 
cumulative receipts and transfers (by unit), quantity on hand at the end 
of the year, and cumulative positive and negative adjustments (by unit) 
made during the year. If the proprietor of a Class 2 or Class 9 
warehouse has merchandise covered by one warehouse entry, but stored in 
multiple warehouse facilities as provided for under Sec. 144.34 of this 
chapter, the reconciliation shall cover all locations and warehouses of 
the proprietor at the same port. If the annual reconciliation includes 
entries for which merchandise was transferred to a warehouse without 
filing a rewarehouse entry, as allowed under Sec. 144.34, the annual 
reconciliation must contain sufficient detail to show all required 
information by location where the merchandise is stored. For example, if 
merchandise covered by a single entry is stored in warehouses located in 
3 different ports, the annual reconciliation should specify individually 
the beginning and ending inventory balances, cumulative receipts, 
transfers, and positive and negative adjustments for each location.
    (3) Certification. The proprietor must submit to the port director 
within 10 business days after preparation of the annual reconciliation 
report, a letter signed by the proprietor certifying that the annual 
reconciliation has been prepared, is available for Customs review, and 
is accurate. The certification letter must contain the proprietor's IRS 
number; date of fiscal year end; the name and street address of the 
warehouse; the name, title, and telephone number of the person having 
custody of the records; and the address where the records are stored. 
Reporting of shortages and overages based on the annual reconciliation 
will be made in accordance with paragraph (d)(3) of this section. Any 
previously unreported shortages and overages should be reported to the 
port director and any unpaid duties, taxes and fees should be paid at 
this time.
    (i) System review. The proprietor shall perform an annual internal 
review of the inventory control and recordkeeping system and shall 
prepare and maintain on file a report identifying any deficiency 
discovered and corrective action taken, to ensure that the system meets 
the requirements of this part.
    (j) Special requirements. A warehouse proprietor submission (CF 300) 
or annual reconciliation must be prepared for each facility or location 
as defined in Secs. 19.2(a) and 19.35(c) of this part. When merchandise 
is transferred from one facility or location to another without filing a 
rewarehouse entry, as provided for in Sec. 144.34(c) of this chapter, 
the submission/reconciliation for the warehouse where the entry was 
originally filed should account for all merchandise under the warehouse 
entry, indicating the quantity in each location.

[T.D. 97-19, 62 FR 15836, Apr. 3, 1997, as amended by T.D. 99-78, 64 FR 
57565, Oct. 26, 1999]

                        Manufacturing Warehouses