Foreign Trade Zone
The Foreign Trade Zone (FTZ) program was created by the U.S. government to facilitate international trade and increase the global competitiveness of U.S. based companies. The program, which has existed since the 1930’s, continues to thrive and change to better meet the needs of American companies in the global economy.
What is an FTZ?
A U.S. Foreign Trade Zone is a site within the United States, in or near a U.S. Customs port of entry, where foreign and domestic merchandise is considered to be outside the country, or at least, outside of U.S. Customs territory. Certain type of merchandise can be imported into a Zone without going through formal Customs entry procedures or paying import duties. Customs duties and excise taxes are due only at the time of transfer from the FTZ for U.S. consumption. If the merchandise never enters the U.S. commerce, then no duties or taxes are paid on those items.
- Outside the commerce of the United States- single building, industrial park, existing production facility, and/or warehousing facility.
What Can Occur Within a Foreign Trade Zone?
Foreign and domestic merchandise permitted in a zone may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, otherwise manipulated, destroyed, or be manufactured without being subject to U.S. Customs laws. This exemption does not apply to machinery and equipment that is imported for manufacturing use or the like within a zone.
FTZs provide users with the opportunity to lower costs and boost profits through the following three duty savings benefits:
- Reduce- in many cases duties are higher for parts than for finished product. Therefore, many companies enter a FTZ in order to import parts duty-free, assemble a product and then be required to only pay the duty on the final product.
- Eliminate- Customs duties are never paid on goods that are brought into a zone and then re-exported or scrapped. No formal entry with Customs is filed and the goods never enter the U.S. stream of commerce.
- Defer- since FTZs are outside the Customs territory of the United States, goods are not considered to be imported until they leave the zone and enter the U.S. stream of commerce. This allows a company to defer Customs duties until merchandise leaves the zone instead of having substantial monies tied up in inventory Customs duties.
- Weekly Entry- the Trade and Development Act of 2000 contains provisions permitting FTZ “Weekly Entry” procedures that can help zone users save time and money. Under this, the zone user files only one Customs Entry per week rather than filing one Customs Entry per shipment. Customs no longer has to process an entry for each and every shipment being imported into the zone and the zone user no longer has to pay for the processing of each and every entry.
- Logistical Flexibility- Goods may be transferred from U.S. ports of arrival directly to a FTZ or between zones duty free. Products made overseas may be brought into a zone for storage or consolidation with other products, allowing distribution of complete shipments to customers. This not only provides flexibility but can improve supply chain velocity.
- Supply Chain Security-FTZs can help a company achieve “best practices” when it comes to supply chain security
- Lower Taxes- Goods in a FTZ avoid or defer federal exercise taxes.