BENEFITS
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:
Duty Reduction
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 Deferral
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.
Duty Elimination
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.
Lower Business Costs, Greater Profit
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.
Simplified Processes
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.
Regional Advantages
More efficient companies build a stronger business climate. FTZ use can:
- Help facilitate and expedite international trade.
- Provide special customs procedures as a public service to help firms conduct international trade-related operations in competition with foreign plants.
- Encourage and facilitate exports.
- Help attract offshore activity and encourage retention of domestic activity.
- Assist state/local economic-development efforts.
- Help create employment opportunities.
19 Ways FTZs Save Companies Money
- Duty Deferral: Imports may enter an FTZ and be held in inventory indefinitely without payment of U.S. Customs duties.
- Re-exports: Customs duties are not paid on merchandise exported from an FTZ.
- Damage, Defects, Scrap, Waste: Customs duties are reduced or eliminated on merchandise subject to damage, defect, obsolescence, scrap, and waste in an FTZ.
- Inverted Customs Duty Savings: FTZ operators may elect to pay the duty rate on component material or merchandise produced from the component material — whichever is lower.
- Labor, Overhead, and Profit Not Dutiable: Customs duties are not owed on labor, overhead, and profit attributed to FTZ production operations.
- U.S. Quotas: Most merchandise may be held in an FTZ until quotas open.
- International Returns: Duties are not paid on merchandise that is repaired in a zone and re-exported.
- Quicker Delivery: Delays in Customs clearances and duty drawback procedures are eliminated. Delivery times are reduced by direct shipments to the FTZ.
- Quality Control: The FTZ may be used for quality-control inspections to ensure that only products that meet specifications are imported. Substandard goods can be destroyed or returned before duty is paid.
- Country of Origin Marking and Labeling: No country-of-origin labels are required on merchandise admitted to an FTZ. If needed, the labels may be applied in the FTZ.
- Cargo Insurance: Reduction in cargo insurance is possible because imported merchandise is shipped directly to an FTZ, avoiding potential theft at ports.
- Reduction of Merchandise Processing Fee (MPF): Importers may file one estimated entry per week reducing the MPF.
- Inventory Control: FTZ operations require careful accounting on receipt, processing, and shipment of merchandise, improving overall systems quality.
- Consumed Merchandise: Generally, merchandise consumed in processing in an FTZ is not subject to duties.
- Exhibition: Merchandise and machinery may be held for exhibition or displayed in an FTZ without duty payments.
- Reduced Insurance Costs: Insurance costs may be reduced due to increased security and lower insurable value (duty does not need to be included in calculating rate).
- Zone-to-Zone Transfer: Merchandise may be transferred, in-bond, from one zone to another.
- Transfer of Title: Title to merchandise may be transferred in an FTZ, provided there is no “retail” sale. The global supplier can own it until it is shipped just-in-time to local manufacturers.
- Foreign Production Machinery: Duty may be deferred on foreign production equipment imported into a designated zone area for plant construction until equipment is assembled, installed, tested, and used in the production for which it was admitted to zone.
