An Overview of Foreign-Trade Zones

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Presented by:

Cornelia Steinert

An Overview of

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is a restricted-access site, in or adjacent to a

Customs port of entry, operated pursuant to

public utility principles under the

sponsorship of a corporation granted

authority by the Board and under

supervision of U.S. Customs & Border

Protection

(15 CFR Part 400 - Regulations of the Foreign-Trade Zones Board)

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In Layman’s terms…….

An area considered to be outside of the

commerce of the United States

Goods can be brought into the zone

and be stored, manipulated, cleaned,

repaired, destroyed, mixed, processed,

relabeled, and tested while remaining in

the foreign-trade zone in

duty free

status

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CBP & FTZ Board Cooperation

Foreign-Trade Zones are established

under a grant of authority from the

Foreign-Trade Zones Board

Customs and Border Protection must

provide concurrence

Customs and Border Protection provides

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Some Quick Statistics

2,800 firms used foreign-trade zones in

the United States in FY 2011

Over 340,000 jobs in the United States

are directly related to foreign-trade zones

(in FY 2011)

Source: 73rdAnnual Report of the Foreign-Trade Zones Board to Congress (2011)

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Some Quick Statistics

As of 2011, there were 171 FTZs active

during the year and 269 active

manufacturing/production operations in

the U.S. (including Puerto Rico)

As of 2011, receipts were valued at $641

billion dollars

Exports from FTZ’s amounted to over

$54.3 billion dollars

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FTZ Savings in many areas:

• Significant duty deferral on average inventory first year; capital cost each year thereafter

• Significantly reduce customs broker fees and merchandise processing fees

• Duty elimination on exports, scrap

• Reduce/eliminate drawback process

• Duty reduction (inverted tariff relief) for manufacturing zones

• Enhanced Global Supply Chain efficiencies

• Increased Import/Export Compliance

• Local ad valorem tax exemption on inventory may be possible (KY, TX, AZ, OH)

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Bonded Warehouse

Five year limit

Formal entry

required

No MPF savings

Continuous

shipping is

cumbersome

Foreign-Trade Zone

No time limit

Ideal for repetitive

processing

MPF savings

No drawback needed

Savings on waste

items

Easy documentation

Bonded Warehouse vs. FTZ

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FTZ Benefits Overview

1. Reduce Costs

(Taxes, Fees, Administrative Costs,

Fines, etc.)

2. Improve Supply Chain Efficiencies

3. Support Customs Compliance and Cargo

Security Efforts

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Duty Deferral

Imported products admitted to the FTZ are

not entered into the Customs territory until

their withdrawal from the FTZ.

Therefore, users obtain a cash flow savings

by deferring Customs duties until the

merchandise leaves the FTZ for

consumption in the U.S.

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Spark plug

Dutiable at 2.5% Admitted to FTZ

Withdrawn from FTZ for entry into U.S. commerce

2.5% Duty Paid

Duty Deferral – Example 1

Zone to U.S. Commerce

Zone-to-Zone Transfers:

Duty deferral benefits may be further extended by transferring merchandise from zone to zone.

Stored in FTZ -

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Certain duty deferral and reduction benefits

also apply on production equipment

admitted to the FTZ for assembly and

testing prior to use in production.

• Reduces importing costs, CHB fees,

MPF, CBP delays on manifesting

requirements for individual containers…

• Examples: racking systems,

conveyors, new lines of production

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Zone-to-Zone Transfer

If the company utilizes more than one FTZ,

merchandise may be transferred from zone

to zone in order to extend the deferral

benefits further.

This benefit can be implemented up and

down the supply chain by incorporating the

activities of suppliers and customers.

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Duty Elimination

Goods may be exported from a zone free

of duty and federal excise tax

Goods may be destroyed in a zone

without payment of duty and federal

excise tax

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Stored in FTZ -

Duty Deferral

Withdrawn from FTZ for export

No duty payment -

eliminates drawback process

Duty Elimination

Zone to Foreign Market

Spark plug

Dutiable at 2.5% Admitted to FTZ

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Received at warehouse and determined to be damaged beyond repair

Duty Elimination

Destruction

Spark plug

Dutiable at 2.5% Admitted to FTZ

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Duty Reduction

(Inverted Tariff Relief)

• With approval from the Foreign-Trade Zones Board,

when merchandise is admitted into the zone, the importer may elect a zone status that requires payment of the:

– Duty rate applicable to either the materials as

admitted, -- Or --

– Duty rate applicable to the finished product as

removed from the zone

--depending upon which is lower • Only applicable to zones conducting production

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Inverted Tariff Example

Windshield

Dutiable at 4.9% Admitted to FTZ

Withdrawn from FTZ for entry into U.S. commerce – 2.5% Duty Paid

Used in production in FTZ

Finished Product (Automobile) Dutiable at 2.5%

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Direct Delivery &

Weekly Entry/Export

• From a just-in-time inventory perspective, the FTZ program offers significant benefits. Goods move in and out of the facility on an expedited basis

allowing for a seamless supply chain from vendor to customer without maintaining unnecessarily high levels of inventory.

• Users may obtain permission from Customs to

move merchandise directly from the port of arrival to the FTZ without undergoing commercial

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Other Benefits

Commingling of foreign and domestic

merchandise

Lower Administrative Costs

Lower Security and Insurance Costs

No Time Constraints on Storage

Improved Inventory Control through use

of FIFO

Recordkeeping Identity vs. Specific

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Direct Delivery Benefits

Reduces CBP inspections and delays at the border/docks

24/7 cross-dock, receiving

e-movements to FTZ (paperless and automated; e-214) Weekly Entry Benefits

Cross-dock/shipping out of the FTZ 24/7

One Estimated CBPF 3461 in advance of withdrawals / One CBPF 7501 Entry Summary five days after close of the seven-day period

Reduces MPF/Customs Broker fees Weekly Export Benefits

24/7 Cross-dock / export to foreign markets

e-process, Denied Party review

Lean Supply Chain and

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Start up costs to consider:

Security modifications

FTZ Bond

Annual FTZ grantee fee

Application preparation charges

(designation, production authority,

activation)

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FTZ Summary

Foreign-trade zones offer incentives for

U.S. distributors and manufacturers.

Many U.S. manufacturing plants face

competitive situations which can quickly

change or evolve.

Foreign-trade zones are advantageous and

offer a good return on investment as well as

a level playing field on which to compete

against foreign sources.

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S

IGNIFICANCE

OF

THE

A

LTERNATIVE

S

ITE

F

RAMEWORK

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Alternative Site Designation &

Management Framework

• The FTZ Board implemented an alternative

framework for participating grantees to designate and manage their general-purpose FTZ sites

• The Alternative Site Framework (ASF) offers

greater flexibility and predictability for a

participating grantee to use administrative “minor boundary modifications” to modify FTZ sites

• Greater flexibility is made possible by participating grantees’ increased focus on the FTZ sites needed for current or near-term zone activity, with a

resulting improvement in the efficiency of FTZ oversight by government agencies

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Traditional vs. Alternative

Framework

Traditional FTZ Framework

• Designation via:

–Submission of application for FTZ Board action

• Generally 10 month process

• Greater documentation requirements

–Submission of request for

administrative “minor boundary modification” for FTZ Board action

• Generally 30 day process

• Involves swapping like

Alternative Site Designation & Management Framework

• Designation via:

– Once approved for ASF, generally 30 day process

– Simplified and rapid minor boundary modification actions

• Enhanced ability to respond quickly to evolving FTZ-related needs of community

• Magnet sites

• Usage-driven sites

• Subzones

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Service Area

• Geographic area for which Grantee intends to be able to propose FTZ sites

• Must be consistent with state enabling legislation and grantee organization’s charter

• Must comply with the FTZ Board’s adjacency

requirements (within 60 miles/90 minutes drive from CBP port of entry boundaries)

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Magnet Sites

• Selected by Grantee for ability and readiness to attract multiple FTZ users

• Generally, six or fewer simultaneously existing magnet sites; more if justified

• One site designated as anchor/permanent site

• Designated through application for FTZ Board action (reorganization application)

• Subject to sunset time limits (five years), which would self-remove FTZ designation from a site not activated before the site’s sunset date

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Usage-Driven Sites

• Serves companies not located in a magnet site

• For companies ready to pursue activity under FTZ procedures

• Limited to areas required by companies specifically identified as ready to pursue zone activity

• No specific limit on number of usage-driven sites

• Designated through minor boundary modification

process

• Subject to sunset time limits (three years), which would self-remove FTZ designation from a site not used for FTZ purposes before the site’s sunset date

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ASF Reorganization

Application

• The standard processing time is 8 to 10 months.

• Expedited processing is possible based on public- interest and/or on the relative simplicity of the

analysis generally required.

• Expedited processing within 6 to 8 months is

possible for ASF reorganization applications that do not involve the addition of new Magnet sites.

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FTZ # 93 Status

ASF approved 12/11/2012

Counties covered: Chatham, Durham,

Franklin, Granville, Harnett, Johnston,

Lee, Moore, Orange, Peron, Vance, Wake

and Warren Counties

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Usage-Driven MBM

Applications

• Complete requests for minor boundary

modifications (MBM) generally processed within 30 to 45 days

• Does not entail a property swap (as was required under the traditional site framework)

A separate production notification will need to be filed for production activity

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Production Notification

A Production Notification will need to be

filed with the FTZ Board if

manufacturing, or processing will take

place in the FTZ

Under newly published FTZ regulations,

non-controversial

applications may be

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Contact Us

4807 Colley Avenue Suite 9 Norfolk, VA 23508 Cornelia Steinert Sr. Manager Tel: (757) 489-0475 csteinert@pointtradeservices.com www.pointtradeservices.com

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