Home / April 2026 CBLE / Question 27

Tariff-rate quota goods in privileged foreign status in an FTZ: which statement is true?

April 2026 examQuotaQuestion 27 of 80

Bake 4U, Inc.(B4U) imports bulk pastry dough. The dough is subject to a tariff-rate quota, with an annual aggregate limit of 3,500,000 kg. The 2026 quota period runs from April 1, 2026, through March 30, 2027. B4U sources its pastry dough from the Netherlands, and at importation admits the dough into a Foreign Trade Zone (FTZ) in Texas. The dough is admitted in privileged foreigh status. Within its subzone, B4U operates commercial baking machines in temperature controlled facilities wherein the dough is used to create individually portioned baked pastries that are packaged into designer cartons for bulk sale to hotel and restaurant groups across Texas. B4U files the requisite entry for consumption in order to withdraw the baked pastries from the FTZ. Today, an emergency arose in B4U's subzone due to a failure of the temperature controlled refrigerators. To prevent the dough in those refrigerators from becoming unuseable, B4U decided to immediately bake all of the affected dough in its commercial baking machines. Since this will result in B4U producing a greater amount of pastries than it can package into designer cartons for bulk sale to restaurant and hotel groups, B4U has decided to sell its excess pastries at retail on-site to all persons who work at the FTZ. As of today, the annual dough quota has not yet filled. Under these facts, which of the following answer choices is a TRUE statement?

How to get there

The key fact: the dough was admitted in privileged foreign (PF) status. Under PF status the goods are classified as they were when PF was granted. For quota goods, the regulation adds a specific rule:

19 CFR 146.65(a)(1): Privileged foreign merchandisePrivileged foreign merchandise … will be subject to tariff classification according to its character, condition and quantity, at the rate of duty and tax in force on the date of filing … the application for privileged status. Classification of merchandise subject to a tariff-rate import quota will be made only at the higher non-quota duty rate in effect on the date privileged foreign status was granted.

So the pastries withdrawn for bulk sale are dutiable as dough, at the higher non-quota rate in effect when PF status was granted, even though the quota hasn't filled. That's C.

Why the other choices are wrong

A) CBP Form 214 gives quota status: Form 214 is the application for PF status (§ 146.41(b)), not for quota. Quota priority and status are set when an entry summary or withdrawal for consumption is presented in proper form (§ 132.11(a)). And for PF goods, the in-quota rate isn't available at all.
B) Switch to nonprivileged status because of the emergency: "A status as privileged foreign merchandise cannot be abandoned and remains applicable to the merchandise even if changed in form by manipulation or manufacture" (§ 146.41(e)). Retail sales inside the zone are also prohibited (§ 146.14), so the on-site sales are a separate problem.
D) In-quota rate, dutiable as the pastries are at withdrawal: that describes nonprivileged treatment (§ 146.65(a)(2): classified as constructively transferred at entry). PF merchandise is classified as of the PF grant, and quota goods in PF only get the non-quota rate.
Trap!
Privileged foreign status locks in the classification and rate as of the grant date, and for TRQ goods it locks in the non-quota rate. It can't be undone, emergency or not. Nonprivileged status is the one that lets goods be classified in their condition when they leave the zone.

Sources: 19 CFR 146.65(a)(1)–(2); 146.41(b), (e); 146.14; 132.11(a)–(b) (eCFR).

CBP answer key: Answer C · 19 CFR 132.11(a)-(b); 19 CFR 146.14; 19 CFR 146.41(e); 19 CFR 146.65(a)(1)Source: CBP past exams ↗