The foreign-trade zone program provides customs relief and support for U.S. businesses, whose operations include import and export activities. Companies that become zone operators are able to be more competitive. They can defer payment of U.S. Customs duties and excise taxes until merchandise is shipped from the zone into the U.S. market.
This benefit applies to imported finished goods, as well as goods manufactured in a zone using foreign components. Here’s how:
If the duty rate on imported components or raw materials used in the production of a finished product is higher than the duty rate of the finished product, the lower rate is applied to the imported merchandise. The so-called inverted-tariff benefit results in lower duty payments to U.S. Customs. There are also certain duty-reduction benefits to production equipment admitted to the FTZ for assembly and testing prior to use in production.
Duty is not paid on imported products admitted to an FTZ until the items enter U.S. commerce. This lets importers postpone payment of duties until the merchandise leaves the zone for U.S. consumption. Duty payment is delayed even further if the merchandise moves in a zone-to-zone transfer, meaning from one FTZ directly to another. This benefit can be implemented throughout the supply chain by incorporating the activities of suppliers and customers.
Goods may be exported from a zone free of duty and tax. This includes the elimination of duty on imported materials used in the production of a finished product that is exported from the FTZ. Therefore, the production cost of goods being made in a zone for export is lower. This benefit can generate new export opportunities and increase production.
In calculating the dutiable value on foreign merchandise removed from a zone, zone users can exclude costs of processing or fabrication, general expenses, and profit. Therefore, duties are not owed on labor, overhead, and profit associated with FTZ-produced goods.
Many FTZ users are eligible for direct delivery and weekly entry, which can streamline cargo movement and support just-in-time inventory. Weekly entry also can reduce Merchandise Processing Fees (MPF) and brokerage fees.