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Foreign Trade Zone

Foreign Trade Zone

Foreign-Trade Zones (FTZ) are secure areas under U.S. Customs and Border Protection (CBP) supervision that are generally considered outside CBP territory upon activation. Located in or near CBP ports of entry, they are the United States’ version of what are known internationally as free-trade zones.

Domestic goods moved into the zone for export may be considered exported upon admission to the zone for purposes of excise tax rebates and drawback. A typical general-purpose zone provides leasable storage/distribution space to users in general warehouse-type buildings with access to various modes of transportation.

Subzones are normally private plant sites authorized by the Board and sponsored by a grantee for operations that usually cannot be accommodated within an existing general-purpose zone.

The Advantages of Using a Foreign-Trade Zone

  • CBP duty and federal excise tax, if applicable, are paid when the merchandise is transferred from the zone for consumption.
  • While in the zone, merchandise is not subject to U.S. duty or excise tax. Certain tangible personal property is generally exempt from state and local ad valorem taxes.
  • Goods may be exported from the zone free of duty and excise tax.
  • CBP security requirements provide protection against theft.
  • Merchandise may remain in a zone indefinitely, whether or not subject to duty.

Establishing a Foreign-Trade Zone

The Foreign-Trade Zones Act of 1934 created a Foreign-Trade Zones Board to review and approve applications to establish, operate, and maintain foreign-trade zones. The Board may approve any zone or subzone which it deems necessary to serve adequately “the public interest”.

It is the intent of the U.S. foreign-trade zone program to stimulate economic growth and development in the United States. In an expanding global marketplace, there is increased competition among nations for jobs, industry, and capital. The FTZ program was designed to promote American competitiveness by encouraging companies to maintain and expand their operations in the United States.

Role of CBP

CBP is responsible for the transfer of merchandise into and out of the FTZ and for matters involving the collection of revenue. The Office of Regulations and Rulings at CBP Headquarters provides legal interpretations of the applicable statute, CBP Regulations, and procedures.

Zones are supervised by FTZ Coordinators (i.e., CBP Officers, Import Specialists, Entry Specialists or Agricultural Specialists, etc.) through compliance reviews and visits; the security of the zone must meet certain requirements.

What may be placed in zones

Any foreign or domestic merchandise not prohibited by law or other exception listed below, whether dutiable or not, maybe taken into a foreign-trade zone.

Merchandise, which lawfully cannot be imported into the United States, is prohibited without exception. Furthermore, placing merchandise subject to a quota into a zone cannot circumvent quota on the imported merchandise.

The Foreign-Trade Zones Board may exclude from a zone any merchandise that is in its judgment detrimental to the public interest, health, or safety. The Board may place restrictions on certain types of merchandise, which would limit the zone status allowed, the kind of operation on the merchandise in a zone, the entry of the merchandise into the commerce, or similar transactions or activities.

What may be done in zones

The Foreign-Trade Zones Board may exclude from a zone any merchandise that is in its judgment detrimental to the public interest, health, or safety. The Board may place restrictions on certain types of merchandise, which would limit the zone status allowed, the kind of operation on the merchandise in a zone, the entry of the merchandise into the commerce, or similar transactions or activities.

Many products subject to an internal revenue tax may not be manufactured in a zone. These products include alcoholic beverages, products containing alcoholic beverages except domestic denatures distilled spirits, perfumes containing alcohol, tobacco products, firearms, and sugar. In addition, the manufacture of clock and watch movements is not permitted in a zone.

No retail trade of foreign merchandise may be conducted in an FTZ. However, foreign and domestic merchandise may be stored, examined, sampled, and exhibited in a zone.

Entering merchandise from a zone into the United States for consumption

The entry, classification, and appraisement of merchandise transferred from a foreign-trade zone are affected by the “status” of the merchandise.

Privileged foreign status

Prior to any manipulation or manufacture, which would change its tariff classification, an importer may apply to the Port Director to have imported merchandise in the zone given privileged foreign status. The merchandise is classified and appraised and duties and taxes are determined as of the date the application is filed. When such merchandise is transferred from the zone for U.S. consumption, either in its original state or after manipulation or manufacture the applicable duties and taxes would be paid based on the rate established when the privileged foreign status was granted.

Zone restricted status

Merchandise transferred to a zone from CBP territory for storage or for the purpose of satisfying a legal requirement for exportation or destruction is considered exported and cannot be returned to CBP territory for consumption unless the Foreign-Trade Zones Board rules that it’s return is in the public interest. The status of merchandise transferred to a zone under these circumstances is “zone restricted.” Zone restricted merchandise may not be manipulated, except to destroy it, or manufactured in a zone. As in the case of privileged foreign status, the zone user must apply for zone restricted status on the appropriate CBP form.

Nonprivileged foreign status

Merchandise composed entirely of or derived entirely of nonprivileged merchandise is appraised and classified in its condition at the time of transfer into CBP territory for consumption or for CBP bonded warehousing. Waste recovered from privileged foreign merchandise is assigned NPF status. Domestic merchandise, which has lost its identity, will be assigned NPF status. NPF may be changed to PF prior to manipulation or manufacture.

Domestic status

Domestic status, which may be approved upon application to the Port Director, is available for merchandise which is (a) the growth, product, or manufacture of the United States on which all internal revenue taxes, if applicable, have been paid, (b) previously imported merchandise on which all internal revenue taxes have been paid, or (c) merchandise previously admitted free of duty. Domestic merchandise may be admitted to a zone without a CBP permit, and also removed from a zone without a CBP permit if it has not been combined with any other merchandise of any other status.

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