3 Minute Explainer: All About Foreign-Trade Zones (FTZs) 

Foreign-Trade Zones enable companies to reduce import duties and taxes, as well as simplify import procedures. In this 3 Minute Explainer, we look at the who, what, when, where and why of FTZs.

The United States Foreign-Trade Zones (FTZ) program was created in 1934 as a way to counteract the Smoot-Hawley Tariffs of 1930. This was a protectionist trade policy that raised tariffs on thousands of imports.

The FTZ program has expanded in recent decades to meet the needs of the rapidly growing global trade environment.

A Foreign-Trade Zone is a specifically designated, secure area that is considered outside of US Customs territory. FTZs are similar to its global counterparts, Free Trade Zones. FTZs are located in, or near, US Customs Ports of Entry. There are FTZs in all 50 states and Puerto Rico. 

The Foreign-Trade Zones Board is responsible for reviewing and approving applications to establish, operate, and maintain an FTZ.

The US Customs and Border Protection (CBP) are responsible for compliance enforcement in zones.

The types of organizations looking to establish a zone are typically public or quasi- public entities. These include port authorities, cities, or counties. 

Corporations are also eligible to participate in the FTZ program. The benefits of an FTZ are available to both importers and exporters engaged in global trade.

What Can You Do in a Foreign-Trade Zone?

Almost any merchandise can be manufactured in an FTZ with very few exceptions. Some exceptions include the manufacture of alcoholic beverages, firearms, tobacco products, and sugar. 

It should change very little, if any, current operating or inventory control procedures for companies.

Both domestic and foreign merchandise can be utilized in an FTZ.

In an FTZ, merchandise may be

• Assembled

• Exhibited

• Cleaned

• Manipulated

• Manufactured

• Mixed

• Processed

• Relabeled

• Repackaged

• Repaired

• Salvaged

• Sampled

• Stored

• Tested

• Displayed

• Destroyed

What are the Benefits of FTZs?

Being in a zone presents many advantages. By utilizing an FTZ, manufacturers and distributors gain an opportunity for significant cost savings. 

The most popular advantage for companies utilizing a zone is the ability to defer, reduce, or even eliminate payment of duties. 

No duty is owed if or until the merchandise enters US commerce. 

Duties may also be reduced if the finished product carries a lower duty rate than its imported parts. This protects companies from “inverted tariffs” which could damage their competitiveness.

If merchandise is exported from an FTZ, no duty is ever owed. This eliminates the need for duty drawback. 

Depending on the company, additional savings may be obtained through waste, scrap, and yield loss in manufacturing. 

Companies can also save on reducing importing costs from the streamlined entry procedures. 

Companies not using an FTZ pay a Merchandise Processing Fee (MPF) for every Customs entry or shipment. Whereas, companies inside an FTZ can file a weekly Customs entry, no matter how many shipments were received that week. As a result, they need only pay a single MPF every week.

As a result, FTZs allow companies to reduce duties owed and enhance supply chain performance, all while remaining globally competitive and keeping jobs and capital domestically. 

A company can establish and run its FTZ operations in-house. However, many companies choose to outsource part, or even all, of its zone management. 

FTZ managed services offer a greater level of compliance and savings all while reducing common pain points. These include customs fees and penalties.

How We Can Help

QAD Precision has over 25 years of FTZ experience. We are able to offer every service needed to establish, implement, and maintain a compliant FTZ.  In addition, QAD Precision FTZ software solution enables manufacturers and distributors to simplify FTZ administration and management. 

Using QAD Precision FTZ software, companies will be able to address regulatory requirements for FTZ Inventory Control and Record Keeping System (ICRS). In addition, the solution accurately tracks and records FTZ activities, and includes reporting for regulatory and financial purposes. To find out more, please schedule a consultation here.

WHITE PAPER

For an in-depth look at the benefits of FTZs, please download our white paper,  Everything You Want To Know About Foreign-trade Zones, which you'll find here .

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Further Reading

US PRESIDENTS, TARIFFS & THE BENEFITS OF FOREIGN TRADE ZONES

THE NEW USTR KATHERINE TAI AND TARIFF MITIGATION STRATEGIES

IMPORT MANAGEMENT: THE IMPORTANCE OF CORRECT CLASSIFICATION