A FREE TRADE ZONE PRIMER: There are many advantages in arranging for shipments to go through a Foreign Trade Zone (FTZ). Not all will apply to your particular situation. U.S. Customs and Foreign Trade Zone rules change so check with us for the most current information beforehand.
1) CASHFLOW. Customs duties are paid only when merchandise is shipped into U. S. Customs territory. The inventory on-hand can be held at the FTZ without Customs duty payments — a temporary, but often significant savings of carrying costs.
2) EXPORTS. No Customs Duties are paid on merchandise exported from a FTZ. While the DRAWBACK Law allows the recovery of Custom Duties previously paid after exportation, the law is complex and repayments may be delayed. In a FTZ, the duties are simply never paid.
3) DEFECTS/DAMAGE/OBSOLESCENCE/WASTE/SCRAP. Customs duties are not paid on merchandise subject to these accountable losses(except for limited types where the duties are substantially less).
4) INVERTED CUSTOMS DUTY SAVINGS. Unique to a FTZ, the importer may elect, in most cases, to pay the duties applicable to either the parts or the finished unit. Depending upon which is lower, this can offer substantial Customs Duty savings.
5) INTERNATIONAL RETURNS. A number of firms that export have a percentage of the exports returned to the United States. Customs duties are owed a second time upon the return of the product if it is of a foreign origin. By being returned to a FTZ these duties are avoided.
6) SPARE PARTS. To service many products, spare parts must be on hand in the United States for prompt assembly and shipment. Spare parts may be held in the FTZ without Customs Duty payment, generating cash-flow savings. If it is determined that the spare parts are not needed, they may be returned to the foreign vendor or destroyed, avoiding Custom duty payment.
7) U.S. QUOTA. Most merchandise may be held in a FTZ, even if it is subject to U.S. Quota restrictions. As soon as the quota opens, the goods may be shipped to U.S. Customs territory.
8) QUOTA AVOIDANCE. Many types of quota merchandise may be substantially transformed in a FTZ into a non-quota item that may be entered to the USA free of quota restrictions.
9) QUALITY CONTROL. The FTZ may be used for quality control to insure that only merchandise that meets specifications is imported and duty paid. All others may be repaired, returned to the foreign vendor, or destroyed under U. S. Customs supervision.
10) COUNTRY OF ORIGIN MARKING/LABELING. Depending upon the merchandise, the level of activity and the use of U. S. sources goods and processes, merchandise may be eligible for "MADE IN USA" labeling/marking.
11) SECURITY. The FTZ is subject to U. S. Customs Service supervision and security requirements. Unauthorized withdrawal of merchandise such as employee pilferage is a violation of 19 U. S. code 549 carrying a penalty of two (2) years in a Federal Penitentiary AND a $5,000.00 fine per offense. Many firms have found the security requirements and the Federal penalty provisions to be of substantial benefit.
12) INVENTORY CONTROL. Operations in a FTZ require accuracy of receipt, processing and shipment of merchandise. Firms have found that the increased accountability cuts down on inaccurate inventory and requirements for emergency air freight shipments from overseas of necessary merchandise. It also allows for identification of particular problem areas in production.
13) CONSUMED MERCHANDISE. Merchandise consumed in processing in a FTZ is not subject to US Customs duties.
14) PRODUCTS OF COMMUNIST COUNTRIES. Merchandise from communist countries, which may have a very high rate of Customs duty, can be substantially transformed in the FTZ to a new and different article of commerce and may be subject to lower tariffs.
15) INVENTORY TAXES. By Federal Statute, foreign and domestic merchandise held for export are not subject to State inventory taxes. Most State and Country taxing authorities exempt all merchandise in a FTZ from inventory taxation.
16) EXHIBITATION. Merchandise may be held for exhibition to customers without Custom Duty payment.
17) REDUCED INSURANCE COSTS. The insurable value of merchandise held in a FTZ need not include the Customs Duty payable on the merchandise thereby lowering insurance costs. Some FTZ users have negotiated up to 400% reductions in cargo insurance rates because imported merchandise is shipped directly to the FTZ without the opportunity for potential pilferage at ports and/or Airports.
18) ZONE TO ZONE TRANSFER. An increasing number of firms are making use of the ability to transfer merchandise fiom one zone (or subzone) to another. If the transfer of the goods is in-bond, Customs Duty is not owed until the product is finally shipped into U.S. Customs territory.
19) TEMPORARY IMPORTATION BONDS. Merchandise may be entered into the USA by means of a T.I.B. without Customs Duty payment, processed and shipped to a FTZ for further processing, reieasing the T.I.B. and allowing the finished product to be imported to the United States. Similarly, merchandise may be shipped from a FTZ into the Customs territory under a T.I.B. for processing and return to a FTZ for further processing and sale in the United States. The use of a TIB offers a great deal of operational flexibility without the payment of Custom Duties.
20) NONDUTIABILITY OF LABOR, OVERHEAD AND PROFIT. Customs Duties are not owed on labor, overhead and profit from production operations at the FTZ. If the same procedure were done overseas, the value of the labor, overhead and profit would be subject to US Customs Duties. The substantial savings may create additional incentives to undertake activity in the United States (and at FTZ) rather than at a foreign country.
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