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
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.
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.
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.
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
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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ZONES: Q&A WITH FTZ EXPERT GREG JONES
FROM THE 2021 FOREIGN-TRADE ZONE ANNUAL REPORT
PRESIDENTS, TARIFFS & THE BENEFITS OF FOREIGN-TRADE ZONES