Companies can use foreign-trade zones to maintain the cost competitiveness of their U.S.-based operations in relation to their 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.
The fundamental benefit offered by the FTZ program to U.S.-based companies is the ability to defer, reduce or even eliminate Customs duties on products admitted to the zone. For the U.S.-based companies involved in international trade, the FTZ program provides a means of improving their competitive position in relation to their counterparts abroad.
Deferral of Duties
Customs duties are paid only when and if merchandise is transferred into U.S. Customs territory. This benefit equates to a cash flow savings that allows companies to keep critical funds accessible for their operating needs while the merchandise remains in the zone. There is no limit on the length of time that merchandise can remain in a zone.
Reduction of Duties
In a foreign-trade zone, with the permission of the Foreign-Trade Zones Board, users are allowed to elect a zone status on merchandise admitted to the zone. This zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered into U.S. commerce from the FTZ. This process allows users to elect the lower duty rate of that applicable to either the foreign inputs or the finished product manufactured in the zone. If the rate on the foreign inputs admitted to the zone is higher than the rate applied to the finished product, the FTZ user may choose the finished product rate, thereby reducing the amount of Customs duty owed.
Elimination of Duties
No Customs duties are paid on merchandise exported from a FTZ. Therefore, duty is eliminated on foreign merchandise admitted to the zone but eventually exported from the FTZ. Generally, Customs duties are also eliminated for merchandise that is scrapped, wasted, destroyed, or consumed in a zone.
Zone Stats
- Over 2,900 firms use FTZs.
- Over 420,000 people are employed at facilities operating under FTZ status.
- More than 57% of merchandise received in FTZs is domestic. Domestic status merchandise is mainly merchandise of domestic origin but includes some foreign-origin goods on which Customs entry and duty payments have been made prior to zone admission.
- The total value of merchandise moving through FTZs amounts to more than $692 billion annually.
- Exports from FTZs exceed $85 billion dollars annually.
- All 50 states plus Puerto Rico have established Foreign-Trade Zones.
Updated March 2019