Companies may employ a variety of duty-saving techniques to save money, reduce customs charges and tariffs, and request refunds. For enterprises engaged in international commerce, these tactics have always been a top focus, but now much more so. In this blog entry, we examine the benefit of foreign-trade zones for non-U.S. businesses. Is setting up in Foreign-trade zones right for you?
What Definition of U.S. Foreign-trade zones?
Foreign-trade zones (FTZs) are secure areas located within the United States that are considered outside U.S. customs territory. These zones are designed to encourage and facilitate international trade by allowing businesses to operate with reduced or eliminated customs duties and taxes on imported goods.
Assembling, exhibiting, cleaning, manipulating, manufacturing, mixing, processing, relabelling, repackaging, repairing, salvaging, sampling, storing, testing, displaying, and destroying domestic activity involving foreign items is permitted in FTZs through the use of special customs procedures.
FTZs are overseen by the Foreign-Trade Zones Board, which is part of the U.S. Department of Commerce. Businesses that operate within an FTZ can benefit from increased efficiency, reduced costs, and improved supply chains.
What Benefits and Cost-Savings Opportunities Do U.S. Foreign-trade Zones Offer to Non-US Businesses?
In a nutshell, foreign-trade zones provide a valuable opportunity for non-US businesses to reduce costs and improve efficiency in their international trade. U.S. FTZs cut effective duty rates, provide specific entry processes, and promote manufacturing near the market to assist enterprises in reducing production, transaction, and logistics-related costs.
Specifically:
A. Reduced or eliminated customs duties and taxes on imported goods
B. Increased efficiency in supply chain operations
C. Reduced transportation costs
D. Improved inventory management
E. Access to specialized equipment and facilities
F. Potential for increased profits and competitiveness
Foreign-trade zones provide a valuable opportunity for non-US businesses to reduce costs and improve efficiency in their international trade
Access To Foreign Markets
Overall, foreign-trade zones offer a competitive advantage for non-US businesses looking to expand their international trade operations. By taking advantage of the various benefits provided by these zones, businesses can reduce costs, increase efficiency, and improve their overall competitiveness in the global market. Therefore, it is worth considering setting up a foreign-trade zone for any non-US business looking to expand their international trade operations.
How are U.S. Foreign Trade Zones controlled?
The daily oversight of FTZ activities is handled by U.S. Customs and Border Protection. A location that has been given zone status cannot be utilised for zone activities unless local CBP authorities have separately cleared it for FTZ activation.
When removing goods, CBP entry or transportation under bond procedures is used. Goods are accepted into a zone on CBP form 214 (import licences or permissions from other governmental agencies may still be necessary).
The control of products in an FTZ rests with CBP, and spot checks and other verifications are permitted for both commodities and zone records.
How Can U.S Foreign Trade Zones Contribute Generate Cost-Savings to Non-U.S. Businesses?
No Customs Duty
If goods (or the products they are used to manufacture) are exported from an FTZ and subject to permitted activities, they are not liable to the tariff.
Instead, if these items are sold in the United States, duty payment on the imported components is postponed while they remain within the zone, and if the goods are sold there, customers often have the option of selecting the completed product with the lower duty rate.
Manufacturing Operations in the FTZ
Practically, an operation that takes place in an FTZ can use a non-U.S.-status part to make a product that is then moved to another FTZ operation, where it can be used as input to make a product further down the line.
Move it from one FTZ to another
Under a customs bond, goods can be moved from one FTZ business to another without having to pay customs duty. This allows for increased flexibility in supply chain operations and can lead to reduced transportation costs. Additionally, being located in an FTZ can improve inventory management by allowing for better control and tracking of goods.
Your choice
These goods could then be sold, brought into the United States, or moved to another FTZ business under a customs bond. The right customs duty rate to charge on the value of the component would depend on the classification of the final goods sold to the U.S. market unless the original foreign-status component is accepted in favoured foreign status.
More benefits
Other advantages of FTZs include the availability of streamlined customs procedures like weekly entry (which can reduce merchandise processing fees) or direct delivery, the exclusion of domestic and foreign goods held for export from state and local inventory taxes, the absence of duties on foreign-status components that end up as scrap or waste, the postponement or reduction of duties on foreign-status production equipment, and potential eligibility for other state and local benefits.
Challenges for setting up in a U.S. Foreign Trade Zone
While there are numerous benefits to setting up in a foreign-trade zone, there are also some potential disadvantages to consider. One of the main drawbacks is the cost of setting up and maintaining operations within the zone. Businesses may need to invest in specialized infrastructure and equipment, as well as hire additional staff to manage operations within the zone. Another potential disadvantage is the regulatory complexity of operating within a foreign-trade zone. Businesses must comply with a range of rules and regulations governing the movement of Setting up in a Foreign-trade zone.
As such, production authority from the FTZ Board is required to conduct FTZ activity under zone procedures if it results in a change in HTSUS classification at the six-digit level for the imported good or otherwise results in substantial transformation or a change in eligibility for entry (and typically takes 120 days to secure). Along with conventional manufacturing processes, production may also include kitting or assembly procedures.
The use of FTZs is subject to several limitations.
An FTZ cannot accept products that are illegal to import into the United States. Although it is not possible to get around a quota by putting products into an FTZ, you may put such things into a zone until the quota opens. Explosives, for example, may be prohibited, and goods like alcoholic drinks that are subject to an internal revenue tax may not be produced in a zone. Additionally, goods whose storage and handling are governed by federal authorities may also be excluded. FTZ admissions that are not properly licenced or approved may be blocked by organisations that licence importers or grant importation licences.
Any commodities that are deemed to be harmful to the public interest, health, or safety may be excluded from a zone by the FTZ Board. Additionally, it may impose limitations on certain goods categories, limiting the permitted zone status, the sort of operations permitted on the goods in a zone, the entrance of the products into U.S. commerce, or other similar transactions or activities.
So, Does an FTZ Fit Your Needs?
FTZs aren't practical for all company models, and various FTZ arrangements could be appropriate depending on the situation. Customs Manager Ltd can assess a firm's activities, choose the best FTZ-related choices, and then lead the company through all the required stages thanks to its knowledge and skills. Additionally, Customs Manager Ltd closely monitors any changes that can have an impact on zone operations through our weekly Trade Intelligence.
If you need further advice, please e-mail info@customsmanager.org and schedule a free call.