What is a Foreign-Trade Zone (FTZ)?

The US Foreign-Trade Zones program allows manufacturers and distributors to significantly reduce costs. In this QAD Precision Report, we explain what an FTZ is, and its benefits.

The United States Foreign-Trade Zones program was established in 1934 when Congress passed the US Foreign Trade Zones Act. The act allowed for the creation of “Foreign-Trade Zones” — that is, specifically designated, secure areas under the oversight of US Customs and Border Protection (CBP) but outside US commerce. FTZs are located in, or near, US Customs Ports of Entry and they are in all 50 states and Puerto Rico.

By using an FTZ, a company can realize a number of benefits, including significant cost savings. 

Eliminating and Reducing Duties with FTZs

Eliminating and reducing duties is a major advantage of the Foreign-Trade Zone program. There are a number of ways this is achieved: 

RELIEF FROM INVERTED TARIFFS

Inverted tariffs occur when a component or raw material is subject to a higher duty rate than the end product. The Foreign-Trade Zone program grants companies relief from inverted tariffs. 

DUTY DEFERRAL

In an FTZ operation, companies can defer duty payments on merchandise brought into a zone. Duties are only paid when goods enter into US commerce. 

DUTY ELIMINATION

Companies can use a Foreign-Trade Zone to eliminate duties on waste, scrap, and yield loss. Without a zone, all material imported into the United States is dutiable. In a zone, an importer pays the customs duty only on the merchandise that subsequently enters the domestic market. Importers pay no duty on irrecoverable yield loss or merchandise that is scrapped or destroyed in the zone. Duty is only paid on the finished product.

DUTY EXEMPTION ON RE-EXPORTS

Foreign-Trade Zones are legally outside of US commerce. Therefore, companies owe no customs duty on foreign imports unless and until they leave the zone for the domestic market. If the FTZ user exports the foreign goods from the zone, no duty is ever paid. 

ZONE-TO-ZONE TRANSFERS

A vendor located in one FTZ may transfer merchandise to a company located in another zone. The vendor can transfer those goods to the purchasing company’s FTZ with no duty paid on the goods.

Reducing Import Fees with Weekly Entries

A significant benefit that is sometimes overlooked, is that importers using an FTZ can use Weekly Entries as their goods enter the United States. Under Weekly Entry procedures, the zone user files only one Customs entry per week, rather than filing one per shipment. As a result, the zone user pays for only one entry per week.

Companies must pay a Merchandise Processing Fee (MPF) for every Customs entry. The cost of the MPF is a percentage of the value of the imported goods. The cost is set at a minimum $27.23 and a maximum $528.33.

Zone users can group all imports in a given week into a single Customs entry and pay a single MPF for that week. The reduction of MPF under FTZ weekly entry procedures is where many importers can yield substantial savings from the FTZ Program. For some importers, these savings can be as high as those achieved through duty elimination and reduction.

How QAD Precision Can Help 

QAD Precision is uniquely qualified to ensure your company receives zone status from the US Foreign-Trade Zones Board.  Our FTZ experts have years of hands-on experience combined with an exceptional success rate for applications to the FTZ Board. 

We can help you with a cost-benefit analysis. This analysis calculates the cost savings manufacturers and distributors can obtain by leveraging the Foreign-Trade Zones program. This includes eliminating duties, duty deferral and other cost saving opportunities such as relief from inverted tariffs and reduced merchandise processing fees and brokerage fees. 

In addition, QAD Precision FTZ offers the most technologically advanced Inventory Control Recordkeeping (ICRS) software available. Designed by true FTZ practitioners, our software ensures that your company remains compliant.

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Further Reading

ELIMINATING AND REDUCING DUTIES WITH FTZS

REDUCING IMPORT FEES WITH WEEKLY ENTRIES

US PRESIDENTS, TARIFFS & THE BENEFITS OF FOREIGN-TRADE ZONES