FAQs

How Can I Benefit From a Foreign Trade Zone?

Foreign Trade Zones (FTZs) are designated areas within the geographic boundary of the United States, which are considered to be outside the Customs territory of the United States. Importers may bring foreign and domestic merchandise into FTZ's without making formal Customs entry of paying Customs duties or excise taxes. One of the principal advantages of using an FTZ is the cash flow savings achieved by deferring the payment of Customs duties and excise taxes until the merchandise is shipped from the zone into the U.S. market. This advantage allows firms to warehouse goods in the U.S. at locations near their markets or distribution centers, while keeping down their inventory costs. If the merchandise is exported from the zone, no duties or taxes are owed. In addition, the merchandise may be inspected, repaired, or destroyed prior to payment of Customs duties and excise taxes. No duties or taxes are owed when the merchandise is destroyed in the zone.

Firms, which manufacture, manipulate, or assemble articles using imported components can use FTZs to adjust the tariff classification of the imported merchandise to a different classification, which carries a lower duty rate. Zone procedures allow firms to choose between the tariff classifications applicable to the components and the tariff classification applicable to the finished article. This zone procedure is particularly advantageous when the finished article has a duty rate lower than the rate applicable to its components, the so-called "inverted tariff."

The FTZ program is intended to keep U.S.-based operations competitive with those offshore, and it does. Foreign trade zones offer companies the operational flexibility and cost savings that are vitally important to improving their market positions. The only way companies can benefit from the use of zones is by locating their operations in the United States, thereby employing domestic labor, which is precisely what the program is about.

To encourage and facilitate international trade, more than 300 free ports, free-trade zones, and similar customs-privileged facilities are now in operation in some 75 foreign countries, usually in or near seaports or airports. Many U.S. manufacturers and distributors use free-trade zones for receiving shipments of goods that are reshipped in smaller lots to customers throughout the surrounding areas.

REG FAQ #0032