Glossary

Foreign Trade Zone (FTZ)

Tags: Glossary

A Foreign Trade Zone (FTZ) is a special economic zone in which merchandise is not subject to duties or other taxes.

Flexport

Event

Save Your Spot at FORWARD 2020

A 3-day event of ideas and insights to make global trade easy for everyone.

Pre-Register Now

What is a Foreign Trade Zone?

A Foreign Trade Zone (FTZ) is a secure geographical area “in or adjacent” to a U.S. Port of Entry that is considered to be outside of CBP territory.

Merchandise foreign to the U.S. won’t be subject to CBP procedures and duty payments until the goods leave the FTZ and enter the U.S.

The United States enacted the Foreign Trade Zone Act of 1934 to allow local manufacturers to compete with foreign enterprises.

What are some benefits of using an FTZ?

You can bring raw materials, components, and/or partially finished goods that might individually have a high duty rate into the FTZ and assemble them into one product that has a lower duty rate. This allows U.S. manufacturers to compete with foreign manufacturers who are importing finished products.
You can export goods in-bond without ever having to pay duty to the United States. If merchandise foreign to the U.S. is brought into a FTZ and then exported from the FTZ, duty drawback does not need to be applied, because no import duties were ever paid.
You can declare customs on a weekly basis instead of a per shipment basis, allowing shippers to maximize their MPF payment at $485 on all shipments imported during the zone week.

How do I convert my facility into an FTZ?

Companies who are looking to convert their facilities will need to apply with the FTZ board. After the board reviews your application a 9-12 month process will follow before your FTZ is up and running. Customs will require tight security and robust inventory software to provide real-time accountability of any goods moving in and out of the zone. The “Operator” of the FTZ is liable for any goods that leave the zone and are unaccounted for, and Customs needs to ensure that duty is paid on any item leaving the zone for consumption into the United States. Heavy fines are issued by CBP for any unaccounted inventory.