Foreign Trade Zone
A U.S. Foreign-Trade Zone (FTZ or Zone) is a designated area which, for Customs purposes, is considered outside the U.S. Nearly any imported merchandise can be brought into a Zone for almost any kind of manipulation, duty-free.
To find out if your business is located in the Foreign Trade Zone, or one of our other incentive zones, check our Incentive Zone Address Locator.
For questions regarding the Foreign Trade Zone, e-mail Kelly Vaughan Trevino or call (559) 621-8426.
Foreign-Trade Zone Benefits
Through utilization of an FTZ, imported material avoids any Customs duties under the following scenarios:
- Any previously-imported material Re-exported.
- Rejected, scrapped, destroyed, waste, or returned-to-vendor material.
- Sales to companies operating in other U.S. FTZs. (There are nearly 2500 companies utilizing Zones and nearly 250 manufacturing Subzones.)
Manufacturing in an FTZ: Inverted Tariffs
A manufacturer can sometimes take special advantage of an FTZ to reduce tariff exposure. If the manufacturer is producing a final product which, if imported, would be subject to a lower duty rate than the rate(s) currently being paid on the imported components, then the imported-component rates can be reduced to the final product rate upon making entry of the final product from the Zone into the U.S. If other components are assessed rates lower than that of the final product, the importer has the option of fixing those rates at their lower levels.
Through utilization of a Zone, the manufacturer will be able to reduce the rate on Components A and B from 10% and 6% respectively to the final product rate of 3.5% while "fixing" the rate of Component C at "Free."
Duty Deferral for High Volume Importers
If a distribution facility is importing in large quantities, holding inventory for long periods of time, or is facing high duty rates, by using a Zone that facility can improve its cash-flow and money management by deferring payment of duties until the time they are removed from the Zone--much closer to the time of actual sale.
Is a Zone Right For Your Operations?
If you are concerned about Zone operational issues or regulations, or you think Zones are only suited to a particular industry, consider this:
Car manufacturing plants, oil refineries, computer manufacturers, and textile distributors are all utilizing Zones. So are companies with as few as 15 employees.
If you are already using another Customs tariff-reduction program, such as Duty Drawback, Temporary Importation Bond, or a Bonded Warehouse, you need to consider U.S. FTZs as a way to streamline your operations, cut down on paperwork, increase your flexibility, and save additional money, all at the same time. Many companies are discovering that Zones more efficiently meet their needs than other Customs programs.
Foreign-Trade Zone Background and Terminology
U.S. FTZs are made possible by the FTZ Act of 1934 as amended. The Act establishes the U.S. Foreign-Trade Zones Board (FTZ Board) as the agency responsible for the establishment and administration of Zones through the Board's regulations. The Board does not handle day-to-day administration of any Zones, but provides grants to Grantees to establish, operate, and maintain Zones. Grantees are almost always public corporations or governmental agencies. A Grantee will usually enter into an agreement with an Operator or Subzone for actual Zone operation. Customs holds the Operator responsible for compliance with the Customs regulations relating to Zones. A Zone User uses a Zone for its benefits and pays the Grantee or Operator for their services such as rent on facilities, storage, handling, etc.
There are two types of Zone sites: General Purpose sites and Subzones. A General Purpose site is usually run by an Operator with Multiple Users. A Subzone is a special purpose site for operations such as manufacturing which cannot be accommodated within an existing Zone. In a Subzone, the Operator and User are usually the same entity.
Admission, Removal, Activities, and Required Documents
There are only two Customs Forms (CF) specifically related to Zone operations: CF 214 and CF 216. The CF 214 is used for admission of foreign merchandise into the Zone. Under most circumstances, no 214 is necessary for domestic status merchandise. The form is usually handled by a Customs Broker for the Zone User or Operator, but the Operator may take responsibility for execution of 214s. Information included on a 214 is the same as the information on a Customs entry form, except that it may also be used as a delivery ticket.
One additional information item required on the 214 is a declaration of the material's FTZ status. There are four types of Zone status: domestic, privileged foreign (PF), non-privileged foreign (NPF), and Zone restricted (ZR). Status on material is maintained through its entire stay in the Zone and is critical in determining the amount of duties owed upon entry into the U.S. from the Zone. The 214 and the Operator's internal Receiving Report together make up the initiation of the inventory control and record-keeping system which must meet Customs requirements.
For any action to be performed on or with the merchandise, a CF 216 is required. The CF 216 is an application for activity; however a blanket 216 may be filed for a period of up to one year covering all types of activity anticipated. The Operator must maintain records, documenting approved activities so as to provide an accounting and audit trail of the merchandise through the approved operation.
To remove material from a Zone, the appropriate Customs document must be filed: either a CF 3461 for Entry into the U.S. or a CF 7512 for Export or transfer to another U.S. Zone. These documents are usually handled by a Customs Broker, unless the Operator also is a licensed Broker and chooses to conduct these operations in-house.
Inventory Control and Record-Keeping
An Operator's or User's inventory tracking system (ITS) must be able to account for all merchandise in a Zone and provide enough information to make entry for merchandising being removed from the Zone. Our experience shows that 99 times out of 100, the corporation's existing MRP, bill of materials or internal inventory tracking system(s) are 80-90% complete and sufficient for Customs purposes. The inventory records must indicate:
- Location of merchandise
- Zone status
- Beginning balance receipts, removals and current balance
- Any destruction, scrape, waste, and byproducts
- Cost or value unless the Operator's financial records maintain cost or value and are made available for Customs review
Customs requires a physical inventory at least once per year, and an annual reconciliation report. The annual reconciliation report must be available for Customs review and a letter stating that the report has been prepared must be sent to the local Customs District Director.
Customs, by regulation, accepts First-In-First-Out, Foreign-In-First-Out, lot specific, part number, bill of materials, liquid bulk FIFO, serial number specific, and almost any other inventory tracking system that "protects the Revenue of the U.S." For the 300 operating Zones and Sub-zones of the U.S., there are approximately 300 different ITS and operating systems. Customs also accepts the concept of "Work in Progress" as a "Black Box" that they are not allowed to penetrate. This means that if an Operator can demonstrate raw material balance, inputs to production, finished product balance and some form or correlation between the three, this is satisfactory for Customs.
Confidentiality of Proprietary Information
U.S. Customs is currently under specific legal restrictions against divulging company cost, quantity, and specification data on imported products. Becoming an FTZ makes your firm no more and no less subject to currently gathered and publicly reported trade statistics through the Department of Census, the PIERS network, and other statistical summations. Any application filed with the FTZ Board become public information; however, procedures exist in the regulations to protect sensitive and proprietary information. The protection supersedes the Freedom of Information Act and allows a level of confidentiality which has been acceptable to a large percentage of Fortune 500 companies who currently enjoy FTZ status.
Summary of U.S. Foreign-Trade Zone Benefits
Merchandise which is imported into the U.S. for admission into a Foreign-Trade Zone and later re-exported from the Zone is never assessed any Customs duties.
Reject, Scrap, and "Consumed" Merchandise: Imported merchandise which is admitted into a Zone and then rejected, scraped, or consumed in the Zone, is not assesses any Customs duties whatsoever. Duties are reduced significantly for all merchandise which is scrapped through a manufacturing operation in a Foreign-Trade Zone, and then sold from the Zone as commercial scrap material.
Imported merchandise which is admitted into a Zone and then shipped to another U.S. Foreign-Trade Zone can be shipped duty-free to the receiving Zone with the receiving Zone's concurrence. As a duty-free transfer, Zone-to-Zone shipments allow both the shipping Zone and the receiving Zone to reduce their duty exposure. Duties are eliminated completely on imported components which are transshipped through several Zones and eventually re-exported.
While duties are eventually assessed on imported merchandise shipped to U.S. locations from Foreign-Trade Zones, these duties are deferred while the merchandise remains in the Zone. The time that duty is paid is moved from the date of importation to the date of shipment from the Zone. The cost-of-money savings on the duty deferral can be significant for large-volume distributors, or operations with long inventory turnover periods.
When components are imported and admitted into a Foreign-Trade Zone, they can be manufactured into a new product for re-export or sale in the U.S. In these cases, the importer may elect to apply the finished product duty rate, or the component duty rate, whichever is lower. When the finished product rate is lower than the imported component rate, the importer can save the difference between the two rates.
In states that assess taxes on business inventories, all imported merchandise, and even domestic merchandise when held for export, can be stored in a Foreign-Trade Zone without having to pay business inventory taxes.
Merchandise Processing Fee:
Customs assesses a "Merchandise Processing Fee" (MPF) per entry which is calculated as 0.21% (.0021) of the full declared value of the merchandise, up to a maximum of $485. Foreign-Trade Zones are only required to submit one entry per week for all shipments from the Zone, thus ensuring a maximum MPF of only $485 per week, reducing MPF costs to importers who currently file several entries per week, and pay more than $485 total per week for all entries.
These are just some of the benefits of U.S. Foreign-Trade Zones. To discuss how your operation could benefit from the U.S. Foreign-Trade Zones program, call IMS Worldwide, Inc. at (713) 286-0008, or FAX us at (713) 286-0009.
Foreign Trade Zone Map - pdf format
Economic Development Department
2600 Fresno Street
Fresno, Ca. 93721
Phone: (559) 621-8350