Foreign Trade Zones were created to help America’s economy remain globally competitive. There are a lot of savings to be had if your business can create one.
There are currently 296 Foreign-Trade Zones in America, which are also referred to as Free Trade Zones internationally. These important spaces are used domestically by over 2,900 businesses, employ 420,000 people and generate $85 billion in exports for the USA.
Merchandise both foreign and domestic can be moved into FTZs for manufacturing, assembly, processing, exhibition or simple storage. The Foreign-Trade Zones Act of 1934 governs these activities, as do the general laws of the United States and of the individual state the FTZ is in. Private or public entities may choose to operate their own FTZ or contract the operations.
The nearest FTZ may be closer than you think
The fact they have “foreign” in the title may make FTZs seem like distant things. Tell that to Miami, which has 134 of them (making it the largest market in the country). The fact is that any building can become an FTZ, so why aren’t more businesses doing it?
The answer is a mix of assumption, bias and simple lack of awareness. Some businesses may not even know FTZs exist. It’s true that an FTZ site must be within or adjacent to a U.S. Customs and Border Protection (CBP) port of entry, but “adjacent” is a roomy term here. The adjacency requirement can be satisfied if one of the following factors is met:
- the zone or subzone site is within the limits of a CBP port of entry,
- the zone or subzone site is within 60 statute miles of the outer limits of a CBP port of entry,
- the zone or subzone site is within 90 minutes’ driving time from the outer limits of a CBP port of entry as verified by the CBP Service Port Director.
Even these limits can be flexible. Subzone sites that are outside of the 60 miles or 90 minutes driving limit may qualify to be considered adjacent if they work with the Port Director to ensure that proper oversight measures are in place. Further CBP regulations can be reviewed here.
Some other misconceptions about FTZs
There’s no limit to the amount of FTZs in any given market, contrary to some opinions. Some businesses may have felt that FTZs weren’t worth the effort since tariff percentages have been so low in the past. Today, tariffs are at 30 percent and that’s a figure that looks set to hold.
A further misconception is that setting up an FTZ will require a customs broker and/or a fleet of lawyers. There’s a lot of false information spread by brokers that creating an FTZ will be a struggle. Far from resisting, ports will typically welcome the opening of another FTZ because it creates more jobs. FTZs by their very nature were designed to stimulate economic growth for America.
The process of becoming an FTZ
Creating an FTZ takes around 120 days and is governed by the Foreign Trade Zone Board (FTZB) and the National Association of Foreign Trade Zones (NAFTZ). The FTZB governs those FTZs which are under contract. Applicants approach either body with their request to convert a building to an FTZ, and that request is then passed to the board and is subject to approval within 30 days.
A request may be denied if the proposed site is an unsuitable location, has conflicting residential activity or engages in certain retail activities. Generally, FTZ authorities will only deny activities deemed possibly harmful to the public interest. A few examples of the best FTZ fits are manufacturers of foreign components, alcohol and spirits, furniture tools, apparel and auto parts.
Even if a business is denied, it still has options. They can apply to U.S. Customs, which may require a response time of 2 to 8 weeks for approval (the lesser is usually the case). Security is naturally a priority but, assuming the premises have taken all possible precautions on that front, there’s no need to erect a gate or fence around an FTZ.
The natural question is: How much does it cost? The best question is: How much will I save? Costs may reach $40k as a one-time fee, but savings from there can be regularly in the hundreds or thousands of dollars.
How FTZ savings work
Duties on products manufactured abroad and imported into the U.S. are based on the finished product, not individual components or materials. Any product manufactured in an FTZ is considered to have been manufactured abroad in terms of tariffs. Further duties like federal excise taxes aren’t required until the goods enter CBP/American territory for domestic consumption.
Any goods placed into an FTZ for export are considered exported. Alternatively, they may remain there indefinitely or be exported without duty and excise tax. The required security levels of an FTZ help keep merchandise safer and cut down on replacement costs caused by theft or damage.
The Trade and Development Act of 2000 allows Weekly Entry procedures to be used by any FTZ involved in manufacturing and distribution. This led to big savings for operators of FTZs because it did away with the old system of having to file a Customs Entry for every shipment. Today’s system of one filing per week is more cost- and labor-efficient. The bigger your business, the more you stand to save.
Do FTZs sound right for your business? There’s no fee for a first zone application, and it could net you thousands in savings in the coming years. 71lbs is also here to make your shipping as hassle-free and cost-effective as it can be.
At 71lbs, we uncomplicate the shipping process for our customers, making it easier and faster for them to access refunds and reduce their expenses. Our automated platform gathers all your shipping information into one easy-to-use custom analytics dashboard. Drop by the contact page to get in touch!