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.
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
Being in a zone presents many advantages. By utilizing an FTZ,
manufacturers and distributors gain an opportunity for significant
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.
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.
To subscribe to our blog, or to receive notifications about QAD
Precision events, webinars and news, please click here.
PRESIDENTS, TARIFFS & THE BENEFITS OF FOREIGN TRADE ZONES
NEW USTR KATHERINE TAI AND TARIFF MITIGATION STRATEGIES
MANAGEMENT: THE IMPORTANCE OF CORRECT CLASSIFICATION