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Proposed Rule

Modernization of the Customs Brokers Examination

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Start Preamble Start Printed Page 63149

AGENCY:

U.S. Customs and Border Protection, Department of Homeland Security.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

This document proposes to update the U.S. Customs and Border Protection (CBP) regulations concerning the customs broker's examination provisions. Specifically, this document proposes to transition to a computer automated customs broker examination, increase the examination fee to cover the increased cost of delivering the exam, and adjust the dates of the examination to account for the fiscal year transition period and payment schedule requirements.

DATES:

Comments must be received on or before November 14, 2016.

ADDRESSES:

You may submit comments, identified by docket number, by one of the following methods:

  • Federal eRulemaking Portal at http://www.regulations.gov. Follow the instructions for submitting comments via Docket No. USCBP-2016-0059.
  • Mail: Trade and Commercial Regulations Branch, Regulations and Rulings, Office of Trade, U.S. Customs and Border Protection, 90 K Street NE., 10th Floor, Washington, DC 20229-1177.

Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be posted without change to http://www.regulations.gov, including any personal information provided. For detailed instructions on submitting comments and additional information on the rulemaking process, see the “Public Participation” heading of the SUPPLEMENTARY INFORMATION section of this document.

Docket: For access to the docket to read background documents or comments received, go to http://www.regulations.gov. Submitted comments may be inspected during regular business days between the hours of 9 a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch, Regulations and Rulings, Office of Trade, Customs and Border Protection, 90 K Street NE., 10th Floor, Washington, DC 20229-1177. Arrangements to inspect submitted comments should be made in advance by calling Mr. Joseph Clark at (202) 325-0118.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

John Lugo, Broker Management Branch, Office of Trade, (202) 863-6015, John.lugo@cbp.dhs.gov.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Public Participation

Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments on all aspects of this proposed rule. U.S. Customs and Border Protection (CBP) also invites comments that relate to the economic, environmental, or federalism effects that might result from this regulatory change. Comments that will provide the most assistance to CBP will reference a specific portion of the rule, explain the reason for any recommended change, and include data, information or authority that support such recommended change.

Background

Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641), provides, among other things, that a person (an individual, corporation, association, or partnership) must hold a valid customs broker's license and permit in order to transact customs business on behalf of others, sets forth standards for the issuance of broker's licenses and permits, and provides for disciplinary action against brokers that have engaged in specific infractions. This section also provides that an examination may be conducted to assess an applicant's qualifications for a license.

The regulations issued under the authority of section 641 are set forth in title 19 of the Code of Federal Regulations, part 111 (19 CFR part 111). Part 111 sets forth the regulations regarding, among other things, the licensing of, and granting of permits to, persons desiring to transact customs business as customs brokers. These regulations also include the qualifications required of applicants and the procedures for applying for licenses and permits, including examination procedures and requirements.

In this rule, CBP proposes to modernize the customs broker examination provisions contained in 19 CFR part 111 by allowing for automation of the examination, by increasing the fee to cover the increased cost of delivering the exam, and by adjusting the dates of the examination to account for the fiscal year transition period and payment schedule requirements.

Discussion of Proposed Amendments

Subpart B, Procedure To Obtain License or Permit

Section 111.11 (19 CFR 111.11) provides the basic requirements for individuals, partnerships, and associations or corporations to obtain a customs broker's license. An applicant for an individual broker's license must be a U.S. citizen, at least 21 years old, of good moral character, and must attain a passing grade on a written examination. (19 CFR 111.11(a).) Paragraph (a)(4) of section 111.11 currently refers to a “written” examination. To allow for greater flexibility in test administration and for the transition from a paper and pencil format to computer automated exams, CBP proposes to remove the word “written” before examination in paragraph (a)(4) (19 CFR 111.11(a)(4)). The automated examination will be held at private testing centers and administered by professional proctors. These spaces will each be equipped with computers programed to accommodate the examination while blocking web access. Examinees are only permitted access to those resources allowed to be brought into the examination as listed on cbp.gov. Examination automation presents many benefits for both the applicant as well as CBP. First, automation will provide faster notification of test scores to the examinee. In addition, CBP expects examination automation to help standardize the testing environment and Start Printed Page 63150equipment for all examinees across the country. For CBP, automation decreases the staff and administrative resources necessary to conduct the examination.

Section 111.12 (19 CFR 111.12) sets forth the license application requirements. Paragraph (a) of section 111.12 currently includes two references to a “written” examination. CBP proposes to remove the word “written” before examination in both places that it appears in paragraph (a) for the reasons set forth above.

Section 111.13 (19 CFR 111.13) provides details and procedures for the customs broker written examination. Reference to a “written” examination currently appears in the heading and throughout section 111.13. Again, CBP proposes to remove the word “written” in references to the examination throughout the section as well as in the section heading.

In addition, paragraph (a) currently states that the examination is graded at CBP Headquarters. Currently, the Office of Personnel Management (OPM) administers the examination contract with the testing facilities. To allow for greater flexibility in grading the examination, including grading by OPM or an OPM contractor, CBP proposes to remove the language requiring that the examination will be graded at CBP Headquarters. Removing this restriction will also reduce the time required to grade the examination.

Paragraph (b) of section 111.13 (19 CFR 111.13(b)) sets forth the basic requirements, date, and place of the examination. The regulations currently provide that examinations will be given on the first Monday in April and October. In the past few years, CBP has started the new fiscal year operating under a Continuing Resolution passed by the U.S. Congress. This fiscal uncertainty has created a logistical challenge in meeting the payment schedule required by the OPM. To allow more time between the start of the fiscal year and the October examination, CBP proposes to adjust the examination dates to the fourth Monday in April and October. In addition, while the current regulations set forth when the examination will be offered, CBP proposes to publish additional notice of each examination on its Web site to increase transparency and the availability of examination information. CBP has instituted an electronic registration process for the broker examination and proposes to amend the regulations to reflect this change in process.

The current examination fee is $200. (19 CFR 111.13(b).) As part of the review of the customs brokers regulations, CBP conducted a fee study and determined that a fee of $390 is necessary to recover the costs associated with administering the customs broker license examination. A fee study documenting the proposed fee change, entitled “Customs Broker License Examination Fee Study,” has been included in the docket of this rulemaking (Docket No. USCBP-2016-0059). The examination fee has remained at $200 since 2000 and has not been adjusted to account for inflation. In addition, the cost to deliver the examination is expected to increase. CBP has relied upon port staff to administer the examination using mainly government facilities and a few hotel sites. With automated examinations, CBP will need to hire proctors and reserve testing centers. As a result, CBP proposes to increase the examination fee from $200 to $390.

Paragraph (c) of section 111.13 (19 CFR 111.13(c)) provides for a special examination in the case that a partnership, association, or corporation loses the member or officer with the individual broker's license that is required by the regulations. Under the current regulation, the party seeking a special examination bears the cost of CBP's developing and administering the examination. Since the examination is offered twice each year, however, firms have a large pool of licensed brokers from which to find a replacement. To date, CBP has never used the special examination provision. Consequently, CBP has determined that the special examination provision is unnecessary and proposes to remove current paragraph (c) and redesignate the remaining paragraphs (d), (e), and (f) as (c), (d), and (e). A corresponding amendment is proposed to remove the sentence addressing failure to appear for a special examination in redesignated paragraph (c).

Current paragraph (d) (19 CFR 111.11(d)) explains the procedure when an applicant fails to appear for an examination. As noted above, CBP proposes to redesignate paragraph (d) as paragraph (c). In addition, CBP proposes to amend the CBP contact who should receive notice by removing the reference to the port director and instead directing the applicant to the Broker Management Branch within the Office of Trade.

Current paragraph (f) (19 CFR 111.11(f)) describes the procedure for appealing a failing grade on the examination. As noted above, CBP proposes to redesignate paragraph (f) as paragraph (e). In addition, CBP proposes to amend the CBP contact for appeals by removing the reference to Trade Policy and Programs and instead directing the applicant to the Broker Management Branch within the Office of Trade. Lastly, CBP proposes to update the cross reference to current paragraph (e) to correspond with the redesignated paragraph (d).

Subpart E, Monetary Penalty and Payment of Fees

As discussed above, CBP has conducted a fee study to review the broker examination fees. The fee study documenting the proposed fee changes, entitled “Customs Broker License Examination Fee Study,” has been included in the docket of this rulemaking (Docket No. USCBP-2016-0059). The current broker examination fee set forth in paragraph (a) of section 111.96 (19 CFR 111.96(a)) is $200. Based on the findings of the fee study, CBP proposes to increase the examination fee referred to in paragraph (a) from $200 to $390.

In addition, paragraph (e) (19 CFR 111.96(e)) of section 111.96 describes the method of payment. CBP proposes a nomenclature update by replacing the phrase United States Customs Service with U.S. Customs and Border Protection. Lastly, to allow for greater flexibility in accepting payments, CBP proposes to add the language “or other CBP approved payment method” to the end of paragraph (e).

Executive Orders 13563 and 12866

Executive Orders 13563 and 12866 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule is not a “significant regulatory action,” under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed this regulation. CBP has prepared the following analysis to help inform stakeholders of potential impacts of this proposed rule.

1. Purpose of the Rule

Customs brokers are private individuals and/or business entities (partnerships, associations or corporations) that are regulated and empowered by CBP to assist importers and exporters in meeting federal requirements governing imports and exports. Customs brokers have an enormous responsibility to their clients Start Printed Page 63151and to CBP that requires them to properly prepare importation and exportation documentation, file these documents timely and accurately, classify and value goods properly, pay duties and fees, safeguard their clients' information, and protect their license from misuse.

CBP currently licenses brokers who meet a certain set criteria. One criterion is that each prospective broker must first pass a broker license examination. CBP's current paper based examination method will soon no longer be available and so CBP is shifting to an all-electronic examination. The all-electronic examination has some benefits to both CBP and the trade, such as a faster processing time, which lets examinees know their results more quickly and efficiently, and a significant reduction in administrative duties for CBP employees. However, administering this new electronic examination is also more expensive. Additionally, the current $200 fee does not cover the costs of the current paper examination. CBP is therefore proposing to increase the examination fee from $200 to $390 in order to fully cover all of CBP's costs of administering the broker examination.

CBP is also proposing to change the date of the semi-annual customs broker examination from the first Monday in October and April to the fourth Monday in October and April for easier administration.

2. Background

It is CBP's responsibility to ensure that only qualified individuals and business entities can perform customs business on another party's behalf. The first step in meeting the eligibility requirements for a customs broker license requires an individual to pass the customs broker license examination. Currently paper-based, the customs broker examination is an open-book examination consisting of 80 multiple-choice questions.

An individual must meet the following criteria in order to be eligible to take the customs broker examination:

  • Be a U.S. citizen at least 18 years of age; [1]
  • Not be an employee of the U.S. federal government; and
  • Pay a $200 examination fee.

The customs broker examination is offered semi-annually, in April and October, and an examinee has four and a half (4.5) hours to complete it. Based on prior year exams from 2004 to 2013, CBP estimates that there will be approximately 2,600 examinees per year, or 1,300 examinees per session. Currently the broker examination is given at 50 testing locations around the country. CBP anticipates that changing the examination format from paper-based to electronic would result in no change in the number of testing locations in the country; the only change would be the type of testing location. According to the Broker Management Branch, the examination is currently administered at hotels and ports throughout the country. In the future, the examination will instead be held at privately operated formal testing locations.

Beginning in April 2017, the current paper testing option will no longer be available and the broker examination will be fully electronic. Despite the higher costs of an electronic exam, it has many favorable features which would benefit both CBP and the examinees, including shorter wait times for examinees to get their test results and a reduction in the time CBP staff spends on administrative matters related to the exam, such as fielding questions from examinees and mailing test result notices.

3. Costs

As discussed above, CBP currently charges a $200 fee for the customs broker license examination. This fee is used to offset the costs associated with providing the services necessary to operate the customs broker license examination. Based on a recently completed fee study entitled, “Customs Broker License Examination Fee Study,” CBP has determined that these fees are no longer sufficient to cover its costs.[2] Currently, examinees go to either a port or to a rented event space in a hotel to take the paper examination with a 35-page test booklet and a scantron sheet, which must subsequently be collected and graded. The new all-electronic version of the examination will be administered entirely on a computer where the examinees answer the questions directly on the screen and the examination is graded automatically. As the electronic examination uses all private facilities with professional proctors, this automated method will be more expensive than the paper examination. Furthermore, the current fee is not enough to cover even the current costs of administering the examination. As stated above, the current $200 fee has not been changed since 2000. According to data provided by CBP's Broker Management Branch, administrative and testing costs have increased since the fee was last changed. This increase in administrative fees coupled with switching to an all-electronic exam, makes it necessary to increase the customs broker examination fee from $200 to $390 for CBP to recover all of its costs to administer the customs broker examination.

CBP has determined that the fee of $390 is necessary to recover the costs associated with administering the customs broker license examination once the examination is made electronic. The customs broker examination is an established service provided by CBP that already requires a fee payment. Though the change to an electronic examination raises the costs of the examination and also has some benefits for the examinees, that change is happening independently of this rule. Absent this rule, CBP would be operating the examination at a loss and this fee is intended to offset that loss. As such, a change in the fee is not a net cost to society, but rather a transfer payment from test takers to the government. CBP does recognize, however, that the proposed fee change may have a distributional impact on prospective customs brokers. In order to inform stakeholders of all potential effects of the proposed rule, CBP has analyzed the distributional effects of the proposed rule in section “5. Distributional Impacts.”

4. Benefits

As discussed above, CBP is proposing to increase the customs broker license examination fee from $200 to $390. The broker examination fee was last changed in 2000 when it was reduced from $300 to the current fee of $200. The lower cost paper-based examination that is currently being administered is being replaced by an all-electronic examination in an ongoing effort to fully modernize the customs broker testing procedure. This proposed fee increase will allow CBP to fully recover all of its costs, including those to provide a fully electronic version of the customs broker examination beginning in April 2017. As discussed above, the fee increase is neither a cost nor a benefit to this rule since the broker examination fee is already an established fee. Thus, the proposed fee increase is considered a transfer payment. As stated above, in order to inform stakeholders of all potential effects of the proposed rule, CBP has analyzed the distributional Start Printed Page 63152effects of the proposed rule in section “5. Distributional Impacts.”

In addition to proposing an increase in the examination fee, CBP is proposing to change the date the examination is given from the first Monday in October and April to the fourth Monday in October and April. Administering the examination on the first Monday in October is administratively difficult because it is too close to the conclusion of the Federal Government's fiscal year at the end of September. With this rule's changes, CBP and the examinees will benefit through greater predictability in years where federal budgets are uncertain.

5. Distributional Impact

Under the proposed rule, the customs broker license examination fee will increase from $200 to $390 in order for CBP to fully recover all of its costs to administer the broker examination. As noted above, these costs are increasing due to a shift in the administration of the examination that will go into effect beginning with the April 2017 examination.

The proposed customs broker license examination fee will cost individuals an additional $190 when they register to take the customs broker license examination. As discussed above, CBP estimates that there will be 2,600 examinees per year (1,300 per session) who will take the customs broker license examination. Using this estimate and the additional cost that each examinee will incur, CBP estimates that the proposed fee increase will result in a transfer payment to the government of approximately $494,000 per year (2,600 examinees per year * $190 proposed fee increase = $494,000).

Regulatory Flexibility Act

This section examines the impact of the rule on small entities as required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996 (SBREFA). A small entity may be a small business (defined as any independently owned and operated business not dominant in its field that qualifies as a small business per the Small Business Act); a small not-for-profit organization; or a small governmental jurisdiction (locality with fewer than 50,000 people).

The proposed rule will apply to all prospective brokers who take the broker examination. The fee is paid by the individual taking the broker examination and individuals are not considered small entities under the Regulatory Flexibility Act. However, many of these individuals are sole proprietors or are reimbursed for this expense by their brokerage, so we consider the impact on these entities. As shown in Exhibit 1 below, approximately 96 percent of businesses entities in this North American Industry Classification (NAICS) code are small. As this rule would affect any prospective broker or his/her employer, regardless of its size, this rule has an impact on a substantial number of small entities.

The direct impact of this proposed rule on each individual customs broker examinee, or his/her employer, is the fee increase of $190. To assess whether this is a significant impact, we examine the annual revenue for customs brokers. The U.S. Census Bureau categorizes customs brokers under the NAICS code 488510. In addition to customs brokers, this NAICS code also includes freight forwarders.[3] The Small Business Administration (SBA) publishes size standards that determine the criteria for being considered a small entity for the purposes of this analysis. The SBA considers a business entity classified under the 488510 NAICS code as small if it has less than $15 million in annual receipts. We obtained the number of firms in each revenue category provided by the U.S. Census Bureau (see Exhibit 1 below). To estimate the average revenue of all firms under this NAICS code, we first assumed that each firm in each revenue category had receipts of the midpoint of the range. For example, we assumed that the 4,354 firms with annual receipts of between $100,000 and $499,000 had average receipts of $300,000. We then used the number of firms in each category to calculate the weighted average revenue across all small firms. Using this method, we estimate that the weighted average revenue for small businesses in this NAICS code is $1,496,197. The $190 increase in the broker examination fee, then, represents 0.01 percent of the weighted average annual revenue for brokers. We acknowledge that a company might pay for more than one examination annually which would increase the total cost to that company, but the impact would still be small. For example, even if a company paid for 10 exams annually, the total cost of $1,900 would represent 0.1 percent of the weighted average annual revenue for brokers. CBP does not consider 0.01 percent or even 0.1 percent of revenue to be a significant economic impact. Accordingly, CBP certifies that this proposed rule will not have a significant economic impact on a substantial number of small entities.

Exhibit 1—Business Entity Data for NAICS Code 488510

Annual receipts (Midpoint) ($)Number of firmsSmall
<100,000 (50,000)1,834Yes.
100,000-499,999 (300,000)4,354Yes.
500,000-999,999 (750,000)2,040Yes.
1,000,000-2,499,999 (1,750,000)2,300Yes.
2,500,000-4,999,999 (3,750,000)1,087Yes.
5,000,000-7,499,999 (6,250,000)427Yes.
7,500,000-9,999,999 (8,750,000)242Yes.
10,000,000-14,999,999 (12,500,000)233Yes.
>15,000,000548No.
Total13,06596 Percent are Small (12,517/13,065).
Source: U.S. Census Bureau.
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Signing Authority

This document is being issued in accordance with 19 CFR 0.2(a), which provides that the authority of the Secretary of the Treasury with respect to CBP regulations that are not related to customs revenue functions was transferred to the Secretary of Homeland Security pursuant to section 403(l) of the Homeland Security Act of 2002. Accordingly, this proposed rule to amend such regulations may be signed by the Secretary of Homeland Security (or his delegate).

Start List of Subjects

List of Subjects in 19 CFR Part 111

  • Administrative practice and procedure
  • Brokers
  • Customs duties and inspection
  • Penalties
  • Reporting and recordkeeping requirements
End List of Subjects

Proposed Amendments to the CBP Regulations

For the reasons set forth in the preamble, part 111 of title 19 of the Code of Federal Regulations (19 CFR part 111) is proposed to be amended as set forth below.

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PART 111—CUSTOMS BROKERS

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1. The authority citation for part 111 continues to read as follows:

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Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized Tariff Schedule of the United States), 1624; 1641.

End Authority

Section 111.3 also issued under 19 U.S.C. 1484, 1498; Section 111.96 also issued under 19 U.S.C. 58c, 31 U.S.C. 9701.

[Amended]
Start Amendment Part

2. In § 111.11, paragraph (a)(4) is amended by removing the words “a written” and adding in its place the word “an”.

End Amendment Part
[Amended]
Start Amendment Part

3. In § 111.12, paragraph (a) is amended by removing the word “written” from the two places that it appears in the fifth and sixth sentences.

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2. In § 111.13:

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a. The section heading is revised;

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b. Paragraph (a) is amended by:

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1. Removing the word “written” from the first sentence;

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2. Removing the words “and graded at” from the second sentence and adding in their place the word “by”; and

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3. Removing the phrase “Headquarters, Washington, DC” from the second sentence;

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c. Paragraph (b) is revised;

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d. Paragraph (c) is removed;

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e. Paragraph (d) is redesignated as paragraph (c) and revised;

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f. Paragraph (e) is redesignated as paragraph (d); and

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g. Paragraph (f) is redesignated as paragraph (e) and revised.

End Amendment Part

The revisions read as follows:

Examination for individual license.
* * * * *

(b) Basic requirements, date, and place of examination. In order to be eligible to take the examination, an individual must on the date of examination be a citizen of the United States who has attained the age of 18 years and who is not an officer or employee of the United States Government. CBP will publish a notice announcing each examination on its Web site. Examinations will be given on the fourth Monday in April and October unless the regularly scheduled examination date conflicts with a national holiday, religious observance, or other foreseeable event and the agency publishes in the Federal Register an appropriate notice of a change in the examination date. An individual who intends to take the examination must complete the electronic application at least 30 calendar days prior to the scheduled examination date and must remit the $390 examination fee prescribed in § 111.96(a) at that time. CBP will give notice of the exact time and place for the examination.

(c) Failure to appear for examination. If a prospective examinee advises the Office of Trade at the Headquarters of U.S. Customs and Border Protection, Attn: Broker Management Branch, electronically in a manner specified by CBP at least 2 working days prior to the date of a regularly scheduled examination that he will not appear for the examination, CBP will refund the $390 examination fee referred to in paragraph (b) of this section.

* * * * *

(e) Appeal of failing grade on examination. If an examinee fails to attain a passing grade on the examination taken under this section, the examinee may challenge that result by filing a written appeal with the Office of Trade at the Headquarters of U.S. Customs and Border Protection, Attn: Broker Management Branch, within 60 calendar days after the date of the written notice provided for in paragraph (d) of this section. CBP will provide to the examinee written notice of the decision on the appeal. If the CBP decision on the appeal affirms the result of the examination, the examinee may request review of the decision on the appeal by writing to the Executive Assistant Commissioner, Office of Trade, U.S. Customs and Border Protection, within 60 calendar days after the date of the notice on that decision.

[Amended]
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3. In § 111.96:

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a. Paragraph (a) is amended by removing the word “written” from the second sentence and removing the phrase “$200 examination fee” from the second sentence and adding in its place the phrase “$390 examination fee”; and

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b. Paragraph (e) is amended by removing the words “United States Customs Service” and adding in their place the words “U.S. Customs and Border Protection, or by another CBP-approved payment method”.

End Amendment Part Start Signature

Dated: September 8, 2016.

Jeh Charles Johnson,

Secretary.

End Signature End Supplemental Information

Footnotes

1.  Although U.S. citizens at least 18 years old may take the broker license exam, a U.S. citizen must be at least 21 years old to apply to become a licensed customs broker. An individual has three years, from the time s/he takes the customs broker exam, to apply to become a licensed customs broker.

Back to Citation

2.  The fee study is included in the docket of this rulemaking (Docket No. USCBP-2016-0059).

Back to Citation

[FR Doc. 2016-21935 Filed 9-13-16; 8:45 am]

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