Foreign-trade zones (FTZs) allow companies to delay, reduce or eliminate import duty payment on foreign merchandise through special U.S. Customs and Border Protection (CBP) procedures. New Department of Commerce (Commerce) regulations provide easier access to FTZs to U.S. companies importing goods for assembly, exhibition, manufacture, storage, processing or export. Commerce revised the regulations to accelerate the application process and simplify the procedures used by the FTZ Board, which licenses FTZs. The reforms provide export-oriented companies more flexibility in establishing and using FTZs.
FTZs are deemed to be outside of U.S. customs territory for the purposes of import duty payment. Foreign and domestic merchandise may be moved into an FTZ for operations involving storage, exhibition, assembly, manufacturing or processing. Under FTZ procedures, the usual formal customs entry and import duty payment requirements are not imposed on the foreign merchandise unless and until it enters U.S. customs territory for domestic consumption, at which time the importer normally has a choice of paying duties either on the original foreign materials or the finished product. If the finished product is shipped from the FTZ to a place outside the United States, it never officially enters the United States or U.S. commerce and is not subject to formal customs entry procedure and import duty payment.
A site granted FTZ status may not be used until the site or a section of it – a “subzone” – has been licensed by the FTZ Board and approved by local CBP officials. Generally, FTZs can be either general-purpose or special-purpose zones. A general-purpose zone is usually located at a seaport, airport or industrial park and used for warehousing and distribution activity (although manufacturing is permitted); also, it must be open to multiple-zone users. A special-purpose zone is a subzone that covers one company and one activity, usually manufacturing.
Many of the reforms announced by Commerce would ease the application process for the establishment, use and expansion of FTZs:
- Reduced application processing: The revised regulations call for shorter time periods to decide on the scope of permissible activity in an FTZ and establishment of special-purpose zones. The regulations reduce the standard processing time from 12 months to 120 days for approval of permissible activities in an FTZ and establishment of specific-purpose zones.
- Standard public notice of production activity: The revised regulations establish a standard public notification process for all activity proposed in an FTZ. A proposed activity may be reviewed for longer than the 120-day period if an objection is raised.
- Special AD/CVD provisions: In the case of imported goods subject to antidumping duty (AD) or countervailing duty (CVD) orders, if objections are raised during the public comment period – for example, by representatives of a domestic industry benefiting from a trade remedy order – the review process could be delayed and ultimately lead to a denial of the FTZ application.
U.S. companies that import goods for manufacturing, assembly, processing or distribution should consider whether using an FTZ would significantly decrease costs.