A foreign-trade zone is a designated site licensed by the Foreign-Trade Zones (FTZ) Board at which special customs procedures may be used. These procedures allow domestic activity involving foreign items to take place prior to formal customs entry.

Duty-free treatment is accorded items that are re-exported and duty payment is deferred on items sold in the U.S. market, thus offsetting customs advantages available to overseas producers who compete with producers located in the United States.

Subzones are special-purpose zones, usually at manufacturing plants. A site which has been granted zone status may not be used for zone activity until the site has been separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under the supervision of CBP. FTZ sites and facilities remain within the jurisdiction of local, state or federal governments or agencies.

The benefits of operating within an FTZ are obvious. At the very least, a FTZ can help you defer paying duties. More often, the company pays lower costs, not only to U.S. Customs, but to its bank, insurance company, and other vendors.

Benefits of an FTZ

• Cash Flow - Payment of duty is deferred until goods are actually brought into the U.S. Customs Territory. This results in cash flow savings
• Waste/Scrap/Defect/Damage - Duties are reduced or eliminated on materials subject to defect, waste, scrap and damaged
• Exports - No U.S. Customs duties are paid on merchandise exported from an FTZ
• Inverted U.S. Customs Duty Savings - In an FTZ, the FTZ user may elect to pay the duty rate applicable to either component material or the finished product manufactured from the component material, depending upon which is lower (must be chosen at time of entry into the Zone). The reduction or elimination of duties is significant.
• Reduced Cycle Time - Delays relating to U.S. Customs clearances are eliminated. Special direct delivery procedures expedite the receipt of merchandise in company facilities, reducing inventory cycle time.
• Production Machinery/Merchandise Consumed - Machinery for use in a zone may be assembled and installed before duties are owed on either parts or finished product rate. Merchandise used/consumed in Zone processing is generally not subject to duties.
• No Duties on Labor, Overhead and Profit - U.S. Customs duties are not owed on labor, overhead and profit attributed to production operations in an FTZ. If the same production operation were done overseas, the value of the labor, overhead and profit would be subject to U.S. Customs duty.
• Storage - The goods may be stored indefinitely
• Quota - Most merchandise subject to U.S. quotas may be held in a Zone until quotas open
• Zone to Zone Transfer - Transfers between Zones are permitted with no entry or duty requirement
• Security - Lower insurance costs: the Zone is a high security area

Other Benefits

• Help facilitate and expedite international trade
• Provide special customs procedures as a public service to help firms conduct international trade related operations in competition with foreign plants
• Encourage and facilitate exports
• Help attract offshore activity and encourage retention of domestic activity
• Assist state/local economic development efforts
• Help create employment opportunities

Is operating within a foreign trade zone right for your business?

FTZ 106 offers a free analysis of your current operations to determine your level of savings by using an FTZ. This no-cost analysis is designed to illuminate all the different types of benefits previously mentioned while taking into account any Customs programs you are currently utilizing. The analysis will make it much clearer whether or not a Foreign-Trade Zone is right for your firm. Contact the Alliance to find out if a FTZ is right for your business.