eCommerce companies constantly search for ways to reduce costs and optimize operational efficiency. The fast-paced online shopping industry is growing every day with high customer expectations. Many multinational companies are taking advantage of using foreign trade zones (FTZ).
Foreign Trade Zones (FTZs) are designated areas close to U.S. ports of entry where importers and exporters can transport goods with little to no customs charges, taxes, or fees. Companies operating in an FTZ are treated as though they are outside of the United States for duty purposes. This was initially intended to help American businesses maintain their worldwide competitiveness.
In addition to deferrals and exemptions from customs, FTZs can also aid businesses in making financial savings in various ways. By strategically utilizing FTZs, companies can improve their supply chains, simplify logistics, gain control over their inventory, reduce regulatory difficulties, and benefit from tax incentives.
How Foreign Trade Zones Work
Foreign trade zones are sites with specific designations within 60 miles of a U.S. port of entry. Both public and private entities may use FTZs.
FTZs permit storing goods of all types without being subject to customs duties or added value taxes. Foreign cargo usually needs to be cleared through customs when it arrives in the U.S. This necessitates immediate payment of U.S. Customs charges which many importers, manufacturers, and distributors try to avoid. Reducing tariffs and taxes will help US-based companies operate more affordably in international commerce. Doing so helps generate and preserve the job and capital investment possibilities that flow from those activities.
FTZs are governed and supervised by US Customs and Border Protection, a division of the US Homeland Security Council. FTZs are on US soil even if considered outside the US Customs territory. Because of this, all applicable federal, state, and local laws and regulations apply to goods and activities in FTZs. Articles that violate copyright, trademark, or patent rights are not permitted admittance, nor are articles prohibited by law. There are also rules regarding animal quarantine. US Customs laws governing the entry of goods into Customs territory and the payment of duty on those items don’t apply to these products if they are in an FTZ.
Foreign trade zones are divided into two classifications: general and special purpose.
Facilities that are frequently sizable warehouses or industrial parks. Perfect for businesses that need to keep finished goods, machinery, supplies, or other items. A company’s specific storage requirements are considered while leasing space, which can be used continuously or on an as-needed basis.
Also known as “Subzones.” These are given to specific businesses, such as manufacturing factories, oil refineries, and distribution centers, whose requirements can’t be met by general-purpose FTZs. Although any company can request its facilities designated as a subzone FTZ, the corporation is liable for all costs. These include building expenses, site upkeep, security, etc.—so a subzone designation is typically only financially advantageous for larger companies.
Five Ways Foreign Trade Zones Help Your Business
Utilizing foreign trade zones allows importers to adapt to changing consumer demand, purchasing patterns, and trade policy changes. The flexibility that an FTZ offers assists in maintaining some amount of control during periods of market instability. FTZs can aid shippers in boosting profits, reducing inventory carrying costs, and streamlining and simplifying customs processes. Your company may also save money with fewer or delayed customs duties and other import fees and taxes.
1. Customs Consolidation
Companies can import shipments into the FTZ and be admitted into US Commerce for one week. They can combine these into weekly “consolidated” customs entries, saving you from paying processing fees. There’s less paperwork and expenses, which results in more significant savings and a bigger bottom line.
Companies can also deliver imports directly to the zone with U.S. Customs’ approval. Businesses may also ask for authorization to remove and apply Customs seals. Only one entry must be made for entries and exports over seven days.
2. Deferred and Reduced Customs Duties
Importers can arrange for their products to be delivered right to their designated FTZ upon arrival in the U.S. You’re free to assemble, test, or even destroy the items without paying customs taxes. Before their goods are sold or depart the FTZ to enter the U.S., importers are not required to pay tariffs.
Companies may also permanently hold imported goods in FTZ warehouses, enabling them to postpone paying customs charges. You may also pay in installments while keeping merchandise nearby and accessible.
For instance, a clothing company might import several containers’ worth of goods, but they would only bring in enough for a month’s shelf space. That company would have to pay duties on the items when they are withdrawn from the zone and brought into the US. This way, they can avoid paying the entire duty on everything when they arrive.
FTZs are advantageous for healthcare companies. The goods stored there do not need immediate or prior FDA approval. Businesses can hold unapproved items in preparation for approval. Then they can be delivered right after receiving FDA permission.
3. Merchandise Reclassification
Raw materials can be assembled or configured within an FTZ after arrival. This results in a new tariff classification with a lower tax rate upon entry.
For example, a computer company might import hundreds of components to build a laptop. The producer can import the parts to an FTZ first, where workers can assemble the unit, saving money on duty. This laptop is imported into the US as a single item with its own, frequently lower, duty rate. Fees are also eliminated for scrapped, wasted, destroyed, or consumed merchandise in a zone.
4. Duty Exemption for Re-exports
FTZs allow for the storage and transportation of goods without the shipper having to pay U.S. import duties. Automakers are one example of this, frequently sourcing components from many countries. They will then export these materials to another country for assembly. As they are not technically on “U.S. soil,” the manufacturers are not required to pay import charges on the parts even though they are gathered and consolidated in the FTZ.
5. Quota Avoidance
Once a quota has been met, they may keep quota-restricted imports inside a foreign-trade zone. This gives zone users access to possible discounted inputs and the opportunity to admit more 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 an allocation while in the zone.
Are Foreign Trade Zones Right For You?
Many global companies use FTZ to keep their American operations’ costs competitive with their competitors’ operations abroad. Certain operating expenditures connected with a U.S. location can be avoided thanks to zone status when operating from a foreign site.
Generally, any item not restricted from entering the United States may be permitted into a Zone. The FTZ Board must expressly approve any manufacturing, processing, or other activity that alters the tariff classification before it can take place in a zone. Take note in foreign trade zones, retail business is not permitted.
Although FTZs are included in international trade, municipal, state, and/or federal governments, and agencies continue to have jurisdiction over FTZ sites and facilities. Other governmental organizations’ import licenses or permits may still be necessary if relevant. If agencies find that zone facilities are insufficient for storage and handling needs, products may be excluded. The Foreign Trade Zones Board has the authority to bar products it determines are dangerous to the public’s health, interests, or safety. Similarly, the Board may impose limitations on the zone status and kind of operation that may be carried out on specific goods.
You’ll need to conduct a feasibility study to yield an insightful cost-benefit analysis. Doing so lets you determine if your business has the necessary security, inventory, and management skills to maintain and oversee its own FTZ.
When system integration is taken into account, the process of establishing an FTZ within an enterprise may take six months or longer. IT systems, inventories, compliance, and U.S. Customs and Border Protection permission are all included in the integration. An FTZ-experienced third-party logistics (3PL) provider can assist in guiding your firm through this procedure.
Foreign trade zones can be operated by nearly any company participating in import/export activity. They are not only cost-effective for huge corporations. ZhenHub gets you connected globally through a network of fulfillment centers worldwide. Make storing, packing, and shipping products to your customer no matter where they are simple and easy. Sign up for access to our online dashboard.