Foreign Trade Zones:
U.S.
Customs Procedures and
Requirements
by Dennis Puccinelli
Foreign-Trade Zones Board,
Import Administration
Reprinted from an article
appearing in Export America,
February 2003
Foreign trade zones (FTZs)
are designated sites where
special customs procedures
apply. Foreign trade zones in
the United States are
comparable to so-called free
trade zones in many countries,
though procedures vary widely
from country to country.
FTZ
STATISTICS
U.S. communities with
zones: 240
States with zone
projects: 50
Pending cases for new
zones and expansion:
60+
Value of merchandise
handled by zones: $225
billion (2001)
Employment at active
zone facilities:
330,000
Exports: $15 billion
(2001)
Share of zone receipts
in domestic status:
60% |
FTZs allow domestic
activity involving foreign
items to take place as if it
were outside the customs
territory of the United States
for duty payment purposes,
thus offsetting customs
advantages available to
overseas producers who export
in competition with products
made in the United States.
A foreign trade zone is a
restricted-access site
authorized by the
Foreign-Trade Zones Board,
which consists of the treasury
and commerce secretaries (the
secretary of commerce chairs
the board). FTZs, upon
activation under regulations
of the U.S. Customs Service,
are secure areas under U.S.
Customs supervision. These
zones are at or near U.S.
Customs ports of entry. Formal
customs entry procedures do
not apply in these zones,
although FTZs are within the
territory and jurisdiction of
the United States.
Congress established the
Foreign-Trade Zones Board in
1934 to license and regulate
FTZs in the United States.
FTZs were established for a
number of reasons, the primary
being to encourage and
expedite U.S. participation in
international trade. Foreign
goods may be admitted to an
FTZ without being subject to
customs duties and certain
excise taxes.
FTZs allow deferred payment of
duties until goods are entered
into the commerce of the
United States. Under zone
procedures, the usual customs
entry procedures and payment
of duties are not required on
foreign merchandise until it
actually enters customs
territory for domestic
consumption. Foreign
merchandise that is
re-exported is not subject to
U.S. customs duties. Domestic
goods admitted into a zone, in
zone-restricted status (for
storage, destruction, or
export), are considered
exported when admitted to the
zone for other government
agency requirements, excise
tax, and duty drawback.
The FTZ Board’s criteria
require that zone activity be
consistent with U.S. trade
policy and result in a net
positive economic effect,
taking into account potential
impact on U.S. plants that are
not located in zones.
There are two types of foreign
trade zones: general-purpose
zones and subzones.
General-purpose zones are
usually located in industrial
parks or in seaport and
airport complexes with
facilities available for use
by the general public.
Subzones are sites sponsored
by a general-purpose zone
grantee on behalf of an
individual firm or firms.
Subzones are single-purpose
sites for operations that
cannot be feasibly moved to,
or accommodated in, a
general-purpose zone (for
instance, oil refining and
automobile manufacturing).
The Foreign-Trade Zones Board
grants zones to qualified
public and private entities
(for instance, port
authorities and city/county
economic developers). In a
general-purpose zone, the
grantee usually has an
operator to run the zone.
Operators can sublet to
tenants, called users. In a
subzone environment, the user
and operator are usually the
same.
Duty Deferral
Customs duty and federal
excise tax, if applicable, are
paid only when merchandise is
transferred from an FTZ to the
customs territory of the
United States, or transferred
to Canada or Mexico.
Duty Elimination
Goods may be imported into,
and then exported from, a zone
without the payment of duties
and excise taxes, except to
certain countries subject to
trade agreements, such as
Canada and Mexico (in which
case, any applicable duties
and excise taxes are levied).
Goods may also be imported
into, and destroyed in, a zone
without the payment of duty
and excise taxes.
Inverted Tariff Relief
Inverted tariff relief
occurs when imported parts are
dutiable at higher rates than
the finished product into
which they are incorporated.
For example, the duty rate on
imported glass for automobiles
is 5.5 percent if imported
directly into the United
States. However, if that auto
glass is brought into a
foreign trade zone and
incorporated into an assembled
automobile, the duty on the
finished automobile, including
the glass, is 2.5 percent.
Tax Exemption
Merchandise imported into
the United States and held in
a zone for the purpose of
storage, sale, exhibition,
repackaging, assembly,
distribution, sorting,
grading, cleaning, mixing,
display, manufacturing, or
processing, as well as
merchandise produced in the
United States and held in a
zone for exportation, either
in its original form or
altered by any of the above
methods, is exempt from state
and local ad valorem taxes.
Storage
Merchandise may remain in a
zone indefinitely, whether or
not it is subject to duty.
Other customs procedures, such
as bonded warehouses and
temporary import bonds, are
subject to time limits.
Exportation
Merchandise brought into
the United States on an entry
for warehousing, temporary
importation under bond, or for
transportation and exportation
may be transferred to a
foreign trade zone from
customs territory to satisfy a
legal requirement to export
the merchandise. For instance,
merchandise may be taken into
a zone in order to satisfy an
exportation requirement of the
Tariff Act of 1930, or an
exportation requirement of any
other federal law insofar as
the agency charged with its
enforcement deems it
advisable. Exportation may
also fulfill requirements of
certain state laws. Items
admitted to a zone to satisfy
exportation requirements must
be admitted in zone-restricted
status (meaning they are only
for direct export, immediate
export, or transportation and
export).
Security and Insurance
Customs security
requirements and federal
criminal sanctions deter
theft. Deterrence may result
in lower insurance costs and
fewer incidents of loss for
cargo imported into an FTZ.
In order to admit merchandise
into a zone, the zone operator
must submit a request with
appropriate documentation to
the Customs Service port
director. Merchandise does not
achieve zone status until a
port director issues a permit
for its admission (except in
the case of domestic status
merchandise for which no
permit is required) and the
zone operator signs for
receipt of the merchandise
into the zone.
U.S. communities often have to
compete globally for
investment in local
manufacturing and commerce. In
some instances, locations
overseas may offer more
favorable customs environments
for businesses. Therefore,
U.S. foreign trade zones help
level the playing field in
terms of the business costs
associated with importation
and customs clearance. FTZs
also assist state and local
officials to develop their
economies by attracting
foreign commerce. And by
helping U.S. companies improve
their international
competitiveness, FTZs can help
retain local business and
encourage the development of
additional jobs. FTZs also
facilitate international
trade, as noted in the
advantages above.
FTZ's Abroad
Many other countries
operate special customs areas,
such as free trade zones (also
referred to as FTZs) and
export processing zones. U.S.
exporters and other interested
parties should contact the
embassy or customs officials
of individual countries for
specific procedures,
requirements, and
arrangements. Although there
may be several similarities,
it should not be assumed that
a free trade zone overseas
operates under the same
principles as a foreign trade
zone in the United States.
Contact information for
foreign embassies is available
by calling the Trade
Information Center at (800)
USA-TRAD(E), or by visiting www.export.gov/tic.
Many U.S. freight forwarders
also have working
relationships with trade zones
overseas and can provide
information on the
documentation required to ship
goods through them.
WHERE
IS ADDITIONAL INFORMATION
AVAILABLE?
For additional information
about FTZs, including their
benefits, contact the
executive secretary of the
Foreign-Trade Zones Board at
the U.S. Department of
Commerce: (202) 482-2862. The
Web address is http://ia.ita.doc.gov/ftzpage.
For questions about a
particular FTZ, contact the
zone grantee using the list of
zones on the FTZ Web page. For
further information on customs
procedures in zones, contact
the U.S. Customs port director
where the zone is located, or
phone the Office of Field
Operations, U.S. Customs
Service: (202) 927-0300.
Date Updated: March 27, 2007
