Foreign-Trade Zones (FTZ) are geographical areas where goods can be landed, handled, manufactured and re-exported without the U.S. Customers and Border Protection (CBP) intervening. FTZs can be a huge benefit to domestic companies by significantly reducing costs from customs duties, taxes and tariffs. FTZs encourage businesses to keep manufacturing jobs in the country by competing with the benefits of manufacturing outside of the United States.
How can your company benefit from a FTZ?
Relief from inverted tariffs
In certain instances, there are tariff, or import duty, relationships that actually penalize companies for making their product in the United States. This happens when a component item or raw material carries a higher duty rate than the finished product. The importer of the finished product then pays a lower duty rate than a manufacturer of the same product in the U.S. This gives the importer an unfair and unintended advantage over the domestic manufacturer. The FTZ program levels the playing field in these circumstances.
Duty exemption on re-exports
Without an FTZ, if a manufacturer or processor imports a component or raw material into the U.S., it is required to pay the import tax (duty) at the time the component or raw material enters the country. However, an FTZ is considered to be outside the commerce of the United States and U.S. customs. So, when foreign merchandise is brought into a FTZ, no customs duty is owed until the merchandise leaves the zone and enters the commerce of the United States. Only then is the merchandise considered imported and the duty paid. If the imported merchandise is exported back out of the country, no customs duty is ever due.
Duty elimination on waste, scrap, and yield loss
Without an FTZ, an importer pays the customs duty owed as material is brought into the United States. If the processor or manufacturer is conducting its operations within an FTZ environment, the merchandise is not considered imported, and therefore no duty is owed until it leaves the FTZ for shipment into the United States.
How can your company take advantage of a FTZ?
To take advantage of an FTZ, companies need to be able to:
- Track inventory
- Trace manufacturing and production orders
- Determine whether material came from domestic or international sources
- Classify goods for duty deferrals and reductions
How much a company saves by using an FTZ depends on the size of the company and its business model. Contact an Anders advisor to conduct a cost benefit analysis to determine if a FTZ would benefit your company.All Insights