Foreign Trade Zone


What is an FTZ?

An FTZ is an area within the United States, in or near a U.S. Customs port of entry, where foreign and domestic merchandise is considered to be outside the country, or at least, outside of U.S. Customs territory. Certain types of merchandise can be imported into an FTZ without going through formal Customs entry procedures or paying import duties. Customs duties and excise taxes are due only at the time of transfer from the FTZ for U.S. consumption. If the merchandise never enters the U.S. commerce, then no duties or taxes are paid on those items.

What activities are permitted in a Foreign Trade Zone?

Merchandise entering an FTZ may be:

  • Assembled
  • Tested
  • Sampled
  • Relabeled
  • Manufactured*
  • Stored
  • Salvaged
  • Processed
  • Repackaged
  • Destroyed
  • Mixed
  • Manipulated

*The user must receive special approval from the FTZ Board.

What activities are permitted in a Foreign Trade Zone?

  • Deferral, reduction, and possible elimination of duties.
  • Tighter inventory control that may virtually eliminate year-end inventory loss adjustments.
  • Potential direct delivery benefit reduces long hold times at crowded ports of entry.

Why do companies use foreign trade zones?

To maintain the cost competitiveness of their U.S.-based operations as compared to foreign-based competitors. For a company, zone status provides an opportunity to reduce certain operating costs associated with a U.S. location that are avoided when operating from a foreign site.

How does the U.S. FTZ program fit within the economic development efforts of the various States?

It is a federal program so the underlying authority to approve the creation of a foreign trade zone resides with the federal government. Every state, however, has enabling legislation providing statutory authority for the establishment of FTZs. The creation and development of individual zone projects typically result from a combination of interests generated by both the private and public sectors. The Foreign-Trade Zones Board Staff advises zone organizers to integrate the zone project into the state or local area's overall economic development strategy rather than segmenting the zone as an individual development effort. In this way, FTZs complement other state and local incentives that are incorporated into the overall efforts of a community to maintain their attractiveness as a business location.

Is zone status more beneficial to foreign-owned companies than it is to American-owned companies?

The benefit of zone use is determined by the location of a company's operations in the United States, not by its ownership. If an American-owned company and a foreign-owned company have identical trade operations, the potential benefits for each of them are identical. The U.S. FTZ program encourages investment and production in the United States that might otherwise take place in another country.

Does the cost reduction feature of zone status translate into an import subsidy or a cause of imports?

The reverse is true; the increasing importance of international trade in the U.S. economy has caused a corresponding increase in the use of zones. Periodically, oversight agencies such as the International Trade Commission and the General Accounting Office examine the impact of the U.S. Foreign Trade Zones program. These periodic reviews have not produced any information leading to the conclusion that zones cause imports. The decision to import precedes the decision to use zones.

How do zones "expedite and encourage" direct foreign investment in the United States?

The United States welcomes foreign investment but does nothing to overtly attract or discourage it. Through the policy of "National Treatment," foreign investors are offered the same conditions, rights, and benefits associated with investing in the United States as an American investor can expect to receive. In keeping with this policy, zones encourage foreign and domestic investment by removing a tariff bias that unintentionally discourages investment in the United States and encourages supplying the U.S. market from off-shore.

Are there any practical or economic limits to the number and uses of zones?

For the foreseeable future, there are no economic limits to the use of zones. As the U.S. economy becomes even more internationalized, and as markets become globally homogenous, the operational flexibility and other benefits for which zones are used will motivate a commensurate increase in zone use. As a practical matter, the limits on the number of zones are a function of the number of U.S. Customs ports of entry and the individual communities adjacent to them.

Is the maintenance of the FTZ program costly to the United States?

The establishment and maintenance of FTZs require a minimal expenditure of federal tax dollars. The cost of processing applications by the Foreign Trade Zones Board is offset by application fees and the cost of processing FTZ merchandise by the U.S. Customs Service is offset by merchandise processing fees. Therefore, foreign-trade zones are a self-sustaining tool of international commerce offering significant benefits to U.S. industry and aiding the U.S. balance of trade.

SOURCE: National Association of Foreign Trade Zones

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