WTC Denver

What is a Foreign Trade Zone?

The Foreign-Trade Zone program expedites and encourages foreign commerce by lowering the costs of U.S.-based operations engaged in international trade thus providing a secure, efficient and profitable way to compete effectively in domestic and global markets.

The FTZ program allows the U.S. to achieve its trade policy goals, including export promotion, while at the same time supporting domestic job growth and economic development. Companies operating FTZs have become a thriving sector in the U.S. economy.

For 90 years, the Foreign-Trade Zones (FTZ) program has been instrumental in promoting international trade, economic development and job creation in the United States. Authorized by the Foreign-Trade Zones Act of 1934, a FTZ is a federally approved location within the United States, which is considered outside of US Customs territory where domestic and foreign merchandise may be placed without formal Customs entry and without payment of duties and taxes.

FTZs help the U.S. economy by allowing companies to source components from around the world at competitive prices, while keeping important value-added activities such as manufacturing in the U.S. Foreign and domestic merchandise can be admitted into a zone without formal Customs entry procedures, the payment of Customs duties or the payment of Federal Excise Tax. The program is available to most U.S.-based companies and can be established in industrial parks, distribution centers and warehouse facilities. FTZs can be multi-user facilities or specific to one company’s use.

Is an FTZ right for my company?

The general Rule of Thumb follows the below 3 points:

10 or more Customs Entries annually.

Annual Import Volume of $50,000 or more.

Annual US Customs Duties payment exceeding $50,000.

The World Trade Center Denver can assist with an evaluation of your operations and potential savings.

Benefits of a Foreign Trade Zone

Foreign Trade Zones were established with the intent to help US Businesses offset tariff on foreign manufacturing material with the opportunity to Minimize, Defer, or Eliminate Customs Tariffs and fees along with potential cash flow improvements by eliminating the need for a Duty Drawback program. FTZ’s also allow the ability to shorten inbound material lead time by eliminating the need for an import Customs entry at a Port of Entry, saving 2-3 days transit time in general. Foreign goods and domestic goods held for export are exempt from state/local inventory taxes.

Reducing or Eliminating Costs

Cut your duty tariff payments on imported merchandise, potentially all the way down to zero percent.
Cap your spending on government mandated Merchandise Processing Fees to $30,000 per year.

Delaying Expenses

Hold onto your money longer by delaying duty payments until your imported merchandise leaves your factory or warehouse and enters the U.S. market.
Withhold payment on duties on merchandise that is rejected, scrapped, exported, or consumed within an FTZ.

Saving Time

Shorten your supply chains by bypassing the need for a customs entry before receiving your merchandise from a port of entry.
Start filing a consolidated weekly entry with U.S. Customs and Border Protection (CBP) rather than reporting individual shipments.

FTZ Operators can take advantage of the fact that they report Weekly Entry activity rather than shipment by shipment.  This means a maximum of $614.35 per week ($31,946.20 annually) in Merchandise Processing Fees (MPF) compared to a shipment by shipment payment

Increased efficiency and lower costs: Streamlined customs reporting helps businesses save meaningfully on imported merchandise.

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Minimize Import Taxes: Take advantage of the lower duty rate in manufacturing, either raw material vs finished goods duty rate.  For example (use the auto verbiage)

Domestic job creation: Lower duty rates on imported parts encourage companies to manufacture finished products in the U.S. rather than overseas

Duty Avoidance: Improve cash flow by avoiding Duty payments on material that is imported and subsequently exported directly out of an FTZ. Duties are also waived on imported material that is scrapped, rejected, or consumed within an FTZ.

Shortened supply chain: An FTZ’s direct delivery process eliminates the need for a customs entry before receiving materials, shortening delivery time by up to three days in many instances.

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Who benefits the most from Foreign Trade Zones (FTZ)?

Large Exporters moving ≥ $5M annually
Manufacturers using ≥ $10M in imported parts annually
Retail importers using ≥ 100,000 sq. ft. of import inventory

Import duty benefits when using an FTZ site depend on these actions:

 Goods enter the zone duty free
Goods are inside the zone. Storage, processing, and manufacturing are permitted
Goods exit the zone and import duties are reduced or completely eliminated

What Activities Can Be Done in A Zone?

Test

Repair

Process

Manipulate

Salvage

Destroy

Production*

Assemble

Repackage

Relabel

Display

Store

*Must receive special approval from the FTZ Board for production.  (Production activity is defined as activity involving the substantial transformation of a foreign article or activity involving a change in the condition of the article which results in a change in the customs classification of the article or in its eligibility for entry for consumption.)

APPLICATION PROCESS FOR a Foreign Trade Zone

The process of obtaining Foreign Trade Zone status begins by first contacting the World Trade Center (WTC) Denver team. WTC Denver assists with the application process, and can help companies locate consultants with the specialized knowledge for an in-depth evaluation of the risks and benefits associated with operating in a Foreign Trade Zone.