The Hidden Benefits of an FTZ

A Foreign Trade Zone (FTZ) is a geographical territory inside the United States that is considered outside the Customs territory of the US, whereby goods can be imported without entry processing and subsequent payment of duty and taxes.  These zones, originally created during the depression to bolster foreign commerce in the US, provide several advantages to importers.  The benefits of utilizing an FTZ far outweigh the costs, and every company should be aware of the unrealized opportunities to not only compete, but thrive in an ever increasing global economy.

The majority of savvy importers recognize the rewards of using an FTZ, and many capitalize on the benefits, as the zones have grown from 8 in 1970 to over 230 in 2016.  The obvious and most attractive convenience to competitive businesses is the ability to avoid paying duties and taxes on imported goods.  Goods can be brought into the zone to be stored, assembled, manipulated, cleaned, repaired, tested, destroyed, mixed and repackaged while remaining under a duty free status.  Duty is only paid once the goods leave the zone and are imported into the commerce of the US.  If a company manufacturers a product of low or free duty rate in the FTZ from component parts brought in with a high duty rate, they only pay duty on the finished article once removed from the zone.  That alone should inspire a second glance, especially for manufacturing companies, but some shy away from the arduous and costly application process. Before you completely rule out FTZ consideration, ponder some of these lesser known incentives.

Many companies utilize a duty drawback program to recover 99% of duties and taxes previously paid on goods imported into the US and later exported.  This can be a complicated and time consuming process that involves requesting a refund from Customs on duties and taxes already paid.  Since there is no time limit for goods to remain in an FTZ, companies can import goods without paying Customs and later export at their discretion so money can be retained for operating costs, and cash flow remains within the company.  

Quota restrictions on imported merchandise are not applicable to goods in an FTZ.  Businesses that import merchandise subject to quota can store goods in a FTZ until the quota restrictions are lifted, then import into the US.  Furthermore, quota merchandise can be imported into the zone, transformed into a non-quota article, and entered into the commerce of the US without any limitations.  In addition to money saving opportunities and circumvention of quota obstacles, increased efficiency drives competitive importers to use Foreign Trade Zones.

The FTZ allows importers to improve supply chain efficiency and lower processing costs through direct delivery and weekly entry savings. Direct delivery allows goods to move directly from port to zones without prior approval on CBP 214, thus expediting the movement of cargo.   Weekly entry savings provide an incentive to companies that import several shipments daily.  On May 18, 2000, President Clinton signed and passed the Trade and Development Act, enabling FTZ importers to make one weekly entry on numerous shipments, thereby eliminating most of the fees like MPF and HMF per shipment.  By consolidating several weekly shipments into one entry, businesses can save hundreds of thousands annually in these processing fees alone.

Foreign Trade Zones were created to establish an even playing field with foreign competitors.  Not only do they provide economic advantages and time saving opportunities for US based companies, but they also provide jobs and strengthen economic growth.  If you are looking to remove duty drawback, take advantage of duty deferral/elimination, reduce taxes and fees, and streamline supply chain procedures, please contact Allyn International to explore FTZ benefits at sales@allynintl.com or visit our website, www.allynintl.com.