Foreign Trade Zone (FTZ)

Are there different types of FTZ warehouses?

General purpose zones and special purpose subzones are the two different categories of FTZs.

General purpose areas function as public utilities, offering a range of services. Single-use facilities that cannot be accommodated within the general purpose zone are placed in special purpose subzones.

There are more differences between these zones:

• Although subzones are not general purpose locations, they must be located 60 miles or less from the port of entry.
• General purpose zones (GPZs) give various users who comply with FTZ rules access to a public area that has already been set up for security, yearly reporting, and oversight of the FTZ operations.
• GPZs are prepared for the business sector to begin utilizing zone benefits once there is a valid FTZ need.
• Subzones enable businesses who import and/or re-export goods to profit from FTZ advantages without actually moving into the FTZ general purpose areas.

 Key Takeaways

• • What does FTZ stand for? FTZ stands for Foreign Trade Zone, a safe, geographical area designated by the federal government where domestic and foreign commercial goods are treated by U.S. Customs the same as if they were outside of U.S. Customs territory.
  • Benefits include Duty exemption, duty deferral, inverted tariffs, merchandise processing fee reduction (MPF), streamlined logistics and quota avoidance.

What is inside a Foreign Trade Zone?

You can import practically any kind of legal goods into an FTZ warehouse without having to pay hefty import fees or go through other formal Customs entrance processes.

However, the FTZ Board must expressly approve all production-related activity that occurs inside the warehouse. For instance, goods that enter an FTZ warehouse can be put together, shown, cleaned, handled, made, processed, repackaged, mended, retrieved, examined, stored, tested, displayed, and destroyed.

Specific articles that violate copyright, trademark, or patent rights are not permitted admittance, nor are articles that are prohibited by law. There are also rules regarding animal quarantine.

The laws of U.S. Customs governing the entry of goods into Customs territory and the payment of duty on those items are not applicable to the products as long as they are in an FTZ.

What are the benefits of FTZ?

There are many advantages to using Foreign Trade Zones. Duty exemption, duty deferral, inverted tariffs, merchandise processing fee reduction (MPF), streamlined logistics and quota avoidance are among the most significant benefits.

• Duty Exemption: Re-exports are exempt from duties and quota fees (exception applies for exports to Canada and Mexico under NAFTA). The business skips the protracted Customs duty drawback procedure by utilizing a foreign-trade zone. A business with imports that are delicate or industrial procedures that generate a lot of scrap can benefit from the fact that no tax is paid on products destroyed in the zone.
• Duty Deferral: Imports are exempt from paying customs duties and the federal excise tax until they leave the zone and enter U.S. Customs territory. Zone-to-Zone transactions are permitted in-bond and without the payment of duty. There is no time restriction on how long goods may stay in the Zone, whether or not duty is owing, unlike bonded warehouses or temporary importation under bond programs.
• Inverted Tariff: When zone manufacturing produces a finished good with a lower US Harmonized Tariff rate than the rates on foreign inputs, the good may be imported into the US at the duty rate that corresponds to its finished condition. Additionally, no duty is due on the labor, expenses, or profit related to zone production operations.
• MPF (Merchandise Processing Fee) Reduction: Only products entering U.S. Customs territory are subject to MPF. Instead of submitting a separate entry for each shipment, zone users may submit a single entry for all products transported from a zone throughout the course of a consecutive seven-day period (excluding merchandise subject to live entry). Brokerage costs may be reduced by fewer entry filings.
• Streamlined Logistics: Imports may be delivered straight to the zone with Customs’ approval. Users may also ask for authorization to remove and apply Customs seals. For entries and exports made over the course of seven days, only one entry needs to be made.
• Quota Avoidance: Once a quota has been met, most quota-subject imports may be kept inside a foreign-trade zone, giving zone users access to potentially cheaper inputs and the opportunity to admit goods as soon as a new quota year begins. Additionally, inputs subject to quota may be modified or made into a product not subject to a quota while in the zone, with the exception of certain textiles.