Key Points:
- Foreign-Trade Zones house domestic merchandise for operations
- There are approximately 293 active FTZs in the United States
- Foreign-trades zones are domiciled within the country, while the free-trade zone is located outside the United States
As commonly referred to, Foreign-Trade zones, or the FTZ, are secure areas under the U.S. Customs and Border Protection (CBP) supervision. They are instituted to ensure that companies and businesses in America have better trading opportunities in the global economy.
In an FTZ, there is a free movement of goods and international and domestic merchandise is free from customs duties and other value-added taxes.
It is inevitable to face some challenges when you import goods regularly for your business, and these challenges can come from foreign policy and tariff compliances. To keep your business floating, you can maximize the benefits of the foreign-trade zones.
This blog post will give you detailed information on FTZs and how they can benefit you and your business.
Table of Contents
What is a Foreign Trade Zone?
A foreign-trade zone is a secure geographical area authorized by the federal government. At an FTZ, domestic and foreign commercial merchandise are treated as if they were outside the commerce of that particular country.
In the United States, approximately 293 active FTZs and over 3,300 companies take advantage of the foreign trade zone program. The benefits of these zones for merchants are the minimal administrative procedures and zero custom duties, making trading between borders more efficient.
Examples of foreign-trade zones
Foreign-trade zones are established in every U.S. state and territory; however, some states are more active than others. Some of the most active foreign-trade zones are located in states like Texas, Louisiana, Texas, and California.
What’s the Difference Between a Free Trade Zone and a Foreign-Trade Zone?
The free-trade zone and foreign-trade zone are commonly used interchangeably by logistics companies. A major distinguishing factor is their location. While the free trade zone is located outside the United States, Foreign-Trade zones reside within the country.
A free trade zone can be considered a special economic zone usually found around international airports, significant seaports, or national boundaries. It is a majorly an area where goods are kept for several reasons. These reasons could be one or more: storing, importing, manufacturing, reconfigurations, handling, or re-exportation. These activities are usually done under the customs regulations, although they are not subject to duty rates.
Foreign-trade zones operate in the U.S., usually close to a Port of Entry. Like the Free-trade zones, goods can be modified, relabeled, repackaged, and manipulated without custom regulations. And since the zones are within the United States’ jurisdiction, companies can engage in inventory control and operate their supply chain without paying duties or any processing fee.
How Do Foreign Trade Zones Work?
A common question that merchants ask is how foreign-trade zones work. For both long-time business owners and starters, the knowledge of the operations of FTZs can help make a business impact, most especially concerning the import and export of merchandise.
In an FTZ, the following operations are carried out on merchandise: mixing, exhibition, testing, repackaging, relabeling, cleaning, mixing, salvage, sampling, storage, repair, display, and processing, among others. However, the FTZ Board has to authorize production activity, and retail trade is not allowed in FTZs.
Additionally, FTZs are subject to the scrutiny of local, state, and federal agencies to checkmate the safety of products imported for the consumers and the general public. If merchandise does not comply with laid-down requirements, the FTZ board can move a motion for its exclusion.
Related post: Easyship Feature: A Guide to Calculating and Displaying Taxes
What are the Benefits of Trade Zones?
Though the benefits of FTZs vary from one to another, there are primary benefits that importers enjoy from using them. At a glance, FTZs can guarantee users substantial control over market instability. In addition, with FTZs, both brick and mortar and eCommerce merchants can save money through optimized shipping. The following are other benefits that can make FTZs worth your trial:
Duty deferral and elimination
Since FTZs are not within the legal jurisdiction of the customs, merchandise entering the zones is, therefore, free from custom laws and duties. This means that importers can assemble, test, repair, or even repackage their merchandise till they leave the FTZ without paying customs duties.
Companies also do not have a time limit on how long their goods can stay on the FTZs, which affords them easy access to the goods and evasion of customs duties. For example, a merchant specializing in the import of computer accessories can decide to store the bulk of their goods at the FTZ and only bring them into the country when they need to restock. You only pay duties for the items you get into the country rather than paying for them at once.
Inverted tariff relief
Inverted tariffs are penalties that U.S. manufacturers face when importing parts to manufacture goods in the U.S, mainly when they sell the finished products overseas. With inverted Tariffs, manufacturers pay more rates on the individual components than on the finished product. The adverse effect is that manufacturers are encouraged to manufacture overseas to avoid tariffs.
FTZ operations make it possible for companies to manufacture in the U.S. without incurring inverted Tariffs.
Ad valorem tax relief
Also known as the inventory tax, the Ad Valorem tax is the tax often charged on existing inventory. However, as a relief to importers who utilize FTZs, the stock is free from taxes until the merchants transport them into the U.S.
Since FTZs allow merchants to avoid taxes, they can use the saved money for other aspects of their business.
Damaged or non-conforming items
For companies that deal in fragile and brittle goods, using an FTZ can save them from paying for damaged goods. FTZs afford companies to inspect their goods properly before moving them to the United States. In case goods have been damaged, companies have the option of repacking, repairing, or destroying within the zone.
It’s essential to note that these activities must be approved by the U.S. Customs & Border Protection.
Exportation requirements
FTZs also serve as export distribution centers. So for companies who rely on imported parts to manufacture before exporting, FTZs can help them minimize the amounts paid on import duties. Companies also gain by using FTZs when selling goods Internationally.
The Benefits of International Trade with Easyship
Utilizing Foreign-Trade Zones is an innovative and calculated strategy for companies with commercial transactions between international borders. Businesses can also take vast and positive leaps by maximizing the benefits of FTZs.
To make the process seamless, engaging the services of 3PL (third-party logistics) with an experience in Foreign-Trade Zones can simplify your business. Easyship can offer you a comprehensive guide on international trade. With the following features, selling across borders becomes hassle-free:
- Duties & Taxes Visibility: Easyship works out all duties and taxes for your international shipments to handle your international orders with ease. Calculate your duties for overseas shipments here
- Global Fulfillment: Easyship has warehouse partners on four continents to reach your customers worldwide. Plus, Easyship helps scale up fulfillment capabilities without increasing overhead costs
- Shipping Policy Generator: Our shipping policy generator helps merchants and crowdfunding campaigns generate their shipping policy by providing tracking and insurance options, plus other vital information for your shipping process
Ready to ship? Sign up for a FREE Easyship account and create your optimized shipping strategy for your online store
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