In an increasingly globalized economy, businesses constantly seek ways to enhance
competitiveness, streamline operations, and reduce costs. One powerful tool available
to companies operating in the United States is the Foreign Trade Zone (FTZ). These
designated areas offer a range of benefits that can significantly impact a company’s bottom
line. This blog will explore what FTZs are, how they operate, and the myriad advantages they
provide to businesses.
What is a Foreign-Trade Zone (FTZ)?
A Foreign-Trade Zone (FTZ) is a specific location within the United States where companies
can benefit from special customs procedures. These zones are designed to encourage the U.S.
activity and add value by providing competitive advantages over foreign alternatives. FTZs
are under the supervision of U.S. Customs and Border Protection (CBP) and must be
approved for activation by local CBP officials. The primary goal of FTZs is to facilitate
international trade and enhance the global competitiveness of U.S.-based businesses.
Key Benefits of Using an FTZ
1. Duty Exemption:
One of the most significant benefits of an FTZ is the exemption from
duties on re-exported goods. Companies can import foreign merchandise into an FTZ
without paying customs duties, provided the goods are eventually re-exported. This
can result in substantial cost savings for businesses involved in international trade.
For example, a company that imports raw materials from abroad, processes them in
the U.S., and then exports the finished products can avoid paying duties on the
imported materials.
2. Duty Deferral:
For goods that are eventually sold in the U.S. market, customs duties
and federal excise taxes are deferred until the merchandise leaves the FTZ. This
deferral can improve cash flow and reduce the financial burden on companies. By
delaying the payment of duties, businesses can allocate their resources more
effectively and invest in other areas of their operations.
3. Logistical Benefits:
FTZs offer streamlined customs procedures, such as “weekly
entry” or “direct delivery,” which can simplify and expedite the import and export
process. This can lead to faster turnaround times and reduced administrative costs.
For instance, a company using the “weekly entry” procedure can consolidate multiple
shipments into a single customs entry, reducing paperwork and processing time.
4. Inventory Tax Exemption:
Foreign and domestic goods held for export within an FTZ
are exempt from state and local inventory taxes. This can result in significant tax
savings for companies with extensive inventories. By storing goods in an FTZ, businesses can avoid the financial burden of inventory taxes, which can be particularly beneficial
for companies with seasonal or fluctuating inventory levels.
5. Production Flexibility:
Companies can use foreign-status components to
manufacture products within an FTZ. If these products are exported, no U.S. duties
are payable on the value of the foreign components. If the products are sold in the
In the U.S. market, duties are generally based on the classification of the finished product,
which can sometimes result in lower duty rates. This flexibility allows businesses to
optimize their production processes and reduce costs.
6. Privileged Foreign (PF) Status:
Merchandise admitted to an FTZ in PF status is
subject to duties based on its condition at the time of admission, regardless of any
transformation within the FTZ. This can provide predictability and potential cost
savings for companies. For example, if a company imports raw materials and
transforms them into a finished product within the FTZ, the duties will be based on the
raw materials’ value rather than the finished product’s value.
7. Transfer Flexibility:
Merchandise can be transferred between FTZ operations under
customs bond without duty payment. This allows for manufacturing products
using foreign-status components, which can then be transferred to another FTZ
operation for further processing or export. This transfer flexibility enables businesses
to create efficient supply chains and reduce costs associated with multiple duty
payments.
How FTZs Work
FTZs operate under the supervision of CBP and must be approved for activation by local CBP
officials. Once a site has been granted zone status, it cannot be used for zone activity until it
has been separately approved for FTZ activation. The zone activity remains under the
supervision of CBP, ensuring compliance with all relevant regulations.
Adjacency Requirements
FTZ sites must be within or adjacent to a CBP port of entry. This requirement can be satisfied
if the site is within 60 statute miles or 90 minutes’ driving time from the outer limits of a CBP
port of entry. Subzones outside these limits can qualify if they work with the CBP Port
Director to ensure proper oversight. This proximity to CBP ports of entry ensures efficient
customs processing and oversight.
Conclusion
Foreign-Trade Zones offer a wealth of benefits that can help U.S. businesses reduce costs,
improve cash flow, and enhance their competitiveness in the global market. By taking
advantage of duty exemptions, deferrals, and streamlined customs procedures, companies
can optimize their operations and achieve significant financial savings. FTZs provide a flexible and efficient way for businesses to manage their international trade activities, making
them an invaluable tool in today’s global economy.
