In today’s global economy, US manufacturers and importers face heavy competition from international companies in manufacturing and selling goods. To even the playing field, the United States enacted the Foreign Trade Zone (FTZ) Act of 1934. These FTZs are geographical areas “in or adjacent to” U.S. Ports of Entry, designed to allow local manufacturers to compete with foreign enterprises by creating special economic zones that are “outside” of U.S. commerce. Merchandise can be held in these zones without being subject to duties and other taxes. In essence, a Foreign Trade Zone (aka Free Trade Zone) is a highly regulated bonded facility that supports US import and export activities.
Who benefits from using FTZs?
- United States
- Job growth
- Increased competitiveness in the global economy
- Inverted tariff rule allows for importing raw materials, components, and/or partially finished goods and then manufacturing/assembling into a final, single tariffed good
- When selling this final good domestically, manufacturers declare only one product, thereby potentially reducing duty rate
- Ability to export goods in-bond without ever having to pay duty to the United States, bypassing duty drawback
- Importers with their own distribution centers
- Direct delivery in-bond prevents delays at port
- Weekly Customs Entry minimizes MPF (Merchandise Processing Fee) payment
- Importing goods in-bond into own warehouse delays duty payment until time of order placement (unlimited storage time)
- Re-export or destroy goods without ever paying duty
- Importers using a forwarder’s FTZ
- Import goods into the U.S through an FTZ warehouse in order to gain Weekly Custom’s Entry benefits. Note: this method slows the movement of freight by adding an extra stop before delivery to the final destination.
One of the more financially interesting benefits of having an FTZ is the ability to declare customs on a weekly basis vs. a per shipment basis. This allows shippers to maximize their MPF payment at $485 on all shipments imported during the zone week, instead of on a per shipment basis.
Thinking about converting your facility to an FTZ?
Companies looking to convert their facilities will need to apply with the FTZ Board. After the board has reviewed your application, you can expect a 9-12 month process before your FTZ is up and running. Having an FTZ comes with the responsibility of running a bonded facility, so 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.