Benefits
- Details
- Published: Thursday, 11 April 2019 10:46
1. Duty Deferral and Avoidance. By using Foreign-Trade Zones, firms defer payment of duty until merchandise enters U.S. Customs territory. Foreign merchandise transiting U.S. ports for foreign designations avoids the payment of U.S. Customs duties and taxes through the use of Foreign-Trade Zones. Merchandise is inspected and sorted in Foreign-Trade Zones with only the saleable portion entering U.S. Customs Territory. Duty deferral or avoidance results in substantial cash savings.
2. Taking Advantage of the Tariff Schedule. The Tariff Schedule of the United States (Harmonized Code) adopted in 1989 provides many new opportunities for FTZ users. Products manufactured from foreign-sourced components within an FTZ may be subject to a lower rate of duty than the sum of the parts with which they are made. This also applies to the assembly of sets or kits. Pineapple canneries and can-making companies, animal-feed mixing operations, and auto and typewriter assembly plants are some operations which gain tariff advantages from being within FTZ’s.
If, on the other hand, the finished product of a manufacturing operation is subject to a higher rate of duty, the importer may apply to have the imported components designated as Privileged Foreign status merchandise and thus subject to the lower rate of duty that applies to those components. Oil refineries in FTZs operate in this manner.
3. Import Quotas. Quota restrictions apply at the time merchandise seeks entry into U.S. Customs territory. Merchandise which would be denied entry because of quotas may be stored, and in some cases, altered and manufactured in Foreign-Trade Zones. Merchandise may be stored awaiting the beginning of a new quota period. Merchandise, in some instances, may be altered or manufactured into a product not subject to quota limits. Quota merchandise is processed in Foreign-Trade Zones for export markets. This is particularly advantageous to food processors manufacturing for export markets.
4. "Made in U.S.A." Products that are manufactured in FTZ’s may, if certain requirements are met, qualify for "Made in U.S.A." labels, even if the finished product incorporates foreign components.
5. Avoiding Drawback Costs and Delays. Drawback procedures can be quite restrictive. They allow a manufacturer to receive a 99 percent refund of the duty paid on an imported component incorporated into subsequently-exported products. The manufacturer, however, must declare at the time of importation what will be subsequently exported in manufactured form to qualify for drawback. Zone users avoid these costs and delays.
6. Avoiding Bonded Warehouse Limitations. Importers who store their goods in bonded warehouses must post a bond, and their goods may be stored for a maximum of five years. Importers who use FTZ’s post no bonds and their merchandise may remain in the Zone indefinitely. Manufacturing, processing or altering goods in Customs bonded warehouses are limited. In Foreign-Trade Zones, similar restrictions do not apply.
7. Avoiding Certain State and Local Taxes. Goods which are in a Zone for a bona fide Customs reason are exempt from State and local ad valorem taxes.
FTZ activity must not conflict with U.S. trade policy or harm domestic industry or other domestic plants outside of zones. The FTZ Board requires that zone manufacturing activity result in a significant public benefit and a net positive economic effect. In addition, the U.S. Customs Service supervises all zone activity and ensures that all customs and FTZ Board requirements are observed.
