What are the benefits of using a Foreign-Trade Zone?
The benefits and advantages associated with Foreign-Trade Zone use will vary depending upon the type of operation involved and authority granted by the Foreign-Trade Zones Board and Customs. Zones may provide some or all of the following benefits.
There are no duties or quota charges on re-exports (exception applies for exports to Canada and Mexico under NAFTA). By using a Foreign-Trade Zone companies avoid the lengthy Customs duty drawback process. Users that destroy goods in an FTZ do not pay duty on the goods the destroy and that can benefit a company with fragile imports or with manufacturing processes that result in large amounts of scrap.
Customs duties and federal excise tax are deferred on imports until they leave the zone and enter the U.S. Customs territory. (Zone merchandise may move in-bond, Zone-to-Zone transfers without payment of duty.) Unlike bonded warehouses or temporary importing under bond programs, there is no limit on the length of time that merchandise may remain within the Zone.
Duty Reduction (Inverted Tariff)
When finishing a production though FTZ manufacturing authorization and that production has a lower US Harmonized Tariff rate than the rates on foreign inputs, it may be enter U.S. Customs territory at the duty rate that applies to its final condition. FTZ Users do not owe duty on labor, overhead, or profit due to zone production operations.
Merchandise Processing Fee (MPF) Reduction
FTZ Users only pay MPF on goods entering U.S. Customs territory. Zone users are able to file a single entry for all goods shipped from a zone in a consecutive seven day period instead of one entry file for each shipment (excluding merchandise subject to live entry). MPF fees are charged at 0.3464% of the Total Estimated Value (TEV) of the shipment, with a minimum fee of $25 and a maximum fee of $485 per entry. Fewer entry filings can also reduce Brokerage fees.
In most instances, imports subject to quota may be retained within a Foreign-Trade Zone once a quota has been reached allowing zone users access to potentially discounted inputs and the ability to admit merchandise as soon as a new quota year starts. Additionally, except for certain textiles, inputs subject to quota may be manipulated or manufactured while in the zone into a product not subject to a quota.
Upon approval from Customs, users can take advantage of direct deliver to an FTZ. Users may also request permission to break and affix Customs seals. A single entry may be filed for seven consecutive days’ worth of entries and exports.
Other Cash Flow Benefits
Harbor Maintenance Fee is paid quarterly instead of at the time imports arrive. Merchandise Processing Fees are paid at the time goods leave the zone.
Better inventory control and security lead to better compliance with CBP requirements; Customs supervision may result in lower security and insurance costs. Duty payable on FTZ merchandise does not need to be included in the calculation of insurable value, again lowering insurance costs. Reduced transportation costs may also result from streamlined logistics.
What are the benefits of a Foreign-Trade Zone versus a Bonded Warehouse?
A Foreign-Trade Zone is outside U.S. Customs territory and users file Customs entries when removing goods from the Zone. The benefits of using an FTZ differ from some of the opportunities that a bonded warehouse offers. Firms using an FTZ may file weekly entries, saving on administrative work and potentially MPF. Bonded Warehouses users are within the Customs territory and must file entries at the time goods enter the warehouse.
FTZ users do not need a Customs Bond
An FTZ Bond covers all admissions in an FTZ whereas regulations require a Customs Bond for goods in a Bonded Warehouse .
Users can place both foreign and domestic merchandise within an FTZ
Users may place foreign and domestic products within an FTZ but may only place foreign merchandise in a Bonded Warehouse. FTZ users may store goods indefinitely in an FTZ, however Bonded Warehouse users may only store merchandise for a maximum of 5 years.
Users can manufacture goods in an FTZ
Foreign-Trade Zone users, upon approval from the FTZ Board, may engage in manufacturing and firms may benefit from inverted tariff and scrap, thereby lowering duty. Regulations do not permit manufacturing in a Bonded Warehouse and the total value of the merchandise at the time goods enter the Warehouse provides the basis for duty. Users pay duty on the value of the entire shipment including any damaged goods or scrap.
An FTZ has full control of merchandise allowing uninterrupted access
FTZ users generally have free movement of goods in and out of an FTZ. Customs has primary control of goods within a Bonded Warehouse. Bonded Warehouse users can only inspect and transfer goods during regular working hours. Regulations limit goods movement in a Bonded Warehouse and require specific Customs authorization for every movement.
What is the costs of using a Foreign-Trade Zone?
Current and prospective operators/users can review the Foreign-Trade Zone in the Complete Zone Schedule for FTZ #121.
Applications for Magnet sites, Usage-Driven sites, Subzones and Manufacturing are subject to fees, which vary according to the type of site and authority sought (see Foreign-Trade Zones Board website for application fees: http://www.ia.ita.doc.gov/ftzpage/applications.html . Applications are free for firms seeking warehousing and distribution authority within an established Magnet Site. The Capital Region FTZ #121 charges administrative fees to establish new zones. There are annual fees based on the type of operation and site activity.
Any company interested in pursuing zone procedures should perform a cost-benefit analysis. Costs will vary depending upon the type of operation and industry.
Revised FTZ Savings Calculator (Excel File)
Simplified Duty Savings Estimator for Foreign-Trade Zone Manufacturing (Foreign-Trade Zone Board Link)
Duty Savings Estimator for FTZ Production (Foreign-Trade Zones Board link)
Harmonized Tariff Schedule of the U.S. (External Link)