Foreign Trade Zone

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Foreign Trade Zones – General Info

The foreign trade zones (FTZ) program was established by the FTZ Act of 1934 to provide a competitive advantage, by way of savings on Customs duties, for companies with locations on U.S. soil. By providing this cost savings, companies were encouraged to maintain and grow their businesses here in the U.S. rather than setting up shop off-shore where labor and operating costs were lower. A property that has been given designation as an FTZ is treated as being outside U.S. Customs territory for purposes of tariff laws and Customs entry procedures. Duties on merchandise admitted into a zone may be deferred, reduced, or eliminated. When merchandise that has entered the FTZ is removed from the zone, customs duties may be eliminated if the goods are re-exported from the U.S. If the merchandise is transferred into U.S. commerce, duties and taxes are due only at the time of transfer from the zone. If re-exported, duty is never paid. Approval for designation of zone status is given by the FTZ Board, an independent agency within the Department of Commerce.

Benefits of the Foreign Trade Zones Program

It is the intent of the U.S. FTZ program to stimulate economic growth and development in the United States. In an expanding global marketplace, there is increased competition among nations for jobs, industry and capital. The FTZ program was designed to promote American competitiveness by encouraging companies to maintain and expand their operations in the United States.

The FTZ program encourages U.S. based operations by removing certain disincentives associated with manufacturing in the United States. The duty on a product manufactured abroad and imported in the U.S. is paid at the rate of the finished product rather than that of the individual parts, materials or components of the product. The U.S. based company finds itself at a disadvantage from its foreign competitor when it must pay the higher rate on parts, materials, or components imported for use in the manufacturing process. To correct this imbalance, the program treats a product made in a U.S. FTZ for purposes of tariff assessment as if it were produced abroad.

What is a Foreign Trade Zone

FTZs are treated as being outside the Customs territory of the United States, for the purposes of the tariff laws and Customs entry procedures. Under FTZ procedures, foreign and domestic merchandise may be admitted into zones for operations such as storage, exhibition, assembly, manufacture and processing, without being subject to formal Customs entry procedures, the payment of Customs duties or the payment of federal excise taxes.

When merchandise is removed from a FTZ, Customs duties may be eliminated if the goods are then exported from the U.S. If the merchandise is formally entered into the U.S. commerce, Customs duties and excise taxes are due at the time of transfer from the zone.