WAR-2-01-CO:R:C:E 224237 AJS
Director
Office of Regulatory Audit
Attn: Ms. Kandance Black
RE: Request for Internal Advice; Multiple Storage Locations
for Bonded FIFO Merchandise; C.S.D. 83-63; C.D. 3260-11 A(4);
Bonded Warehouse Manuel, section 6.6; 19 CFR 19.12(b)(6); C.D.
3260-11 F(1) & F(2); 19 CFR 19.4; 19 CFR 161.1.
Dear Sir:
This is in reply to your Internal Advice request of October
7, 1992, regarding the storage of First-In First-Out (FIFO)
bonded merchandise with the same identifier in more than one
location within a bonded warehouse.
FACTS:
A bonded warehouse facility requests permission to store
FIFO bonded merchandise with the same identifier in more than one
location of the warehouse. Commingling of merchandise with
different identifiers will not take place within the same
location.
ISSUE:
Whether FIFO bonded merchandise with the same identifier may
be located within more than one location of a bonded warehouse.
LAW AND ANALYSIS:
FIFO is an inventory method that may be used to account for
fungible merchandise which is commingled. If there is
commingling of fungible goods the method is based on an
assumption regarding the flow of fungible merchandise that older
stock is disposed of first, in accordance with good
-2-
merchandising policy. Customs Directive (C.D.) 3260-11, A(4)
(September 30, 1985); see also Bonded Warehouse Manuel, section
6.6 (1990). Thus, in bonded warehouses, fungible merchandise
deducted from the inventory is deducted from the oldest entry
first. C.D. 3260-11, A(4). In Customs Service Decisions
(C.S.D.) 83-63, we ruled that FIFO accounting may be applied to
identify fungible merchandise that is commingled in storage in a
Customs bonded warehouse.
The legal requirements regarding warehoused goods are set
forth in 19 U.S.C. 1557 (period in warehouse), 1558 (remission of
duty) and 1559 (abandonment). Without an example of the manner
in which the subject warehouse facility proposes to meet these
statutory limits with non-commingled goods it would be unclear
how the above statutes would be applied. The statutes as written
require direct identification. FIFO satisfies that requirement
only when goods are commingled. While a FIFO system for non-
commingled goods might be possible, it would appear to be just as
difficult to administer as direct identification.
Under FIFO procedures, each type of fungible merchandise
constitutes a separate inventory category. C.D. 3260-11, F(1);
see also Bonded Warehouse Manuel, section 6.6(c)(1). An
inventory category is a specific collection of fungible
merchandise which distinguishes it from other collections of
fungible merchandise, for both recordkeeping and physical storage
purposes. C.D. 3260-11, A(4). Each inventory category shall be
assigned a unique number or other identifier by the proprietor to
distinguish it from all other inventory categories under FIFO
procedures. C.D. 3260-11, F(1).
This requests specifically asks the question of whether FIFO
merchandise of the same identifier must be stored in only one
location of a bonded warehouse. Regarding segregation of
inventory categories under FIFO procedures, all merchandise in a
given inventory category shall be physically placed so as to be
segregated from merchandise under other inventory categories or
merchandise accounted for under other methods. C.D. 3260-11,
F(2); see also Bonded Warehouse Manuel, section 6.6(c)(2).
Furthermore, the unique identifier shall be marked on the
merchandise, its container, or the location where it is stored so
as to clearly show the inventory category of each article under
FIFO procedures. The use of the singular term "location"
indicates that the segregation of FIFO merchandise was intended
to be in only one location, and not several locations.
Therefore, we are of the view that FIFO merchandise of the same
identifier is required to be stored within only one location of a
bonded warehouse.
-3-
19 CFR 19.12(b)(6) provides that "[a]ll containers covered
by a given warehouse entry, general order or seizure shall be
stored in the same location and not mixed with goods covered by
any other entry, general order or seizure unless approval has
been given in writing by the district director for an exception
from this requirement." While this provision does not
specifically address FIFO merchandise, it does emphasize that
merchandise which requires segregated storage should be stored in
the same location. We find this provision supportive for
determining that FIFO merchandise, which is also required to be
segregated, should likewise be stored in the same location.
Assuming arguendo that C.D. 3260-11 does not specifi- cally
require that FIFO merchandise be stored in only one location, it
would nevertheless be within the discretion of
the principal Customs field officer to require this manner of
storage. 19 CFR 19.4 provides that "[t]he character and
extent of Customs supervision to be exercised in connection with
any warehouse facility or transaction provided for in this part
shall be in accordance with Section 161.1 of this chapter." 19
CFR 161.1 states that "[i]n the absence of a governing regulation
or instruction, supervision [generally] shall be direct and
continuous, or by such occasional verification as the principal
Customs field officer shall direct if such officer determines
that less intensive supervision will ensure proper enforcement of
the law and protection of the revenue." The governing regulation
for bonded warehouse supervision provides that the District
Director may authorize a Customs Officer to supervise any
procedure at the bonded warehouse facility. 19 CFR 19.4. Such
supervision may be performed through reviews of the conditions of
storage in a warehouse facility. 19 CFR 19.4. Therefore, the
District Director is authorized to require that in instances when
the conditions of storage are under supervision, that FIFO
merchandise be stored in only one location.
If 19 CFR 19.4 is alternatively not viewed as governing the
storage issue, Customs would continue to possess the authority
to require that FIFO merchandise be stored in only one location.
As stated previously, 19 CFR 161.1 provides that generally
supervision shall at a minimum be by such occasional verification
as the principal Customs field officer shall direct if such
officer determines that less than direct and continuous
supervision will "ensure proper enforcement of the law and
protection of the revenue". The key to this type of warehouse
supervision is that it must "ensure proper enforcement of the law
and protection of the
-4-
revenue". Accordingly, if the principal Customs field officer
determines that the storage of FIFO merchandise in only one
location is required in order to "ensure proper enforcement of
the law and protection of the revenue", then such officer may
require this type of storage pursuant to their general
supervisory authority.
HOLDING:
Under the current regulations the only permissible controls
by record over inventory such as the application of FIFO require
that the procedure be applied to merchandise commingled in one
location. However, if your office devises an alternative system
we would assist you in amending the Customs Regulations.
Sincerely,
John Durant, Director
Commercial Rulings Division