Understanding Foreign Trade Zones and How They Can Benefit Your Business
As the U.S. economy continues to fluctuate in the wake of a simmering global trade war, companies must continue to find creative ways to cut costs and protect their bottom line. Looking to save money isn’t anything new for U.S. companies, but in the wake of all the recent uncertainty it has become more vital that they remain flexible and look for solutions to rising costs.
One such way to cut costs, especially with increased tariffs flying around, is to take advantage of Foreign-Trade Zones (FTZs). FTZs, also known around the world as free-trade zones, are specially designated areas in the U.S. that fall outside of U.S. Customs & Border Protection (CBP) territory.
FTZs can have a variety of uses and benefits for U.S. companies that handle international business. They are generally located near U.S. ports of entry, but you can also find them in warehouses around the country. These sites allow companies to move product into and out of the country while paying reduced or no customs duties or excise taxes. Essentially, these sites act as if they’re outside of the United States when it comes to customs duties and taxes.
And they aren’t just designated storage areas, either. Once goods are inside an FTZ, they’re eligible for the same type of treatment as anywhere else. Goods inside FTZs may be stored, repackaged, manipulated, assembled, relabeled, manufactured, and much more.
These areas must be authorized by the by the Foreign-Trade Zones Board and operate under the FTZ Regulations and CBP Regulations. Once established, these zones offer a host of benefits to U.S. companies.
The biggest benefit, as mentioned previously, is the ability to save money. Even better is that there are a variety of different options for companies to take advantage of to best complement their existing business models.
Save on Duties
One of the simpler ways FTZs can help save money is on duties. There are multiple different options depending on the final use of the goods. Perhaps the most straightforward process is duty exemption. No duties are due on goods that are either re-exported or destroyed in the FTZ. By taking advantage of this feature, companies can save time and money and avoid having to go through the duty drawback process on goods that aren’t distributed in the U.S. This is also beneficial to companies that import fragile products or have large amounts of scrap material that need to be destroyed.
Duty deferral is another option available while goods are inside an FTZ. In this case, duties and federal excise taxes are deferred until after the shipment leaves the zone and enters CBP territory. There is also no limit on how long goods can remain in the zone, allowing for duties to be deferred as long as necessary.
The last major duty-related option available is duty reduction, also known as inverted tariffs. In this scenario, different parts can be imported into the FTZ, and the final product is then manufactured in the zone. If the finished product has a lower tariff rate than the total rate for all the foreign parts, the duties are only owed on the foreign content of the finished product. Moreover, duty isn’t owed on labor done in the FTZ. Any manufacturing done in the FTZ must first be approved by the U.S. Department of Commerce, though.
Merchandise Processing Fee (MPF) Reduction
This type of saving is especially beneficial for companies that bring in large amounts of merchandise shipments every year. With MPF reductions, they don’t have to file an entry for every shipment that comes into the FTZ. This allows for one entry file per week that accounts for all shipments that come in during that span. For companies that use a customs broker, this can also significantly reduce costs on brokerage fees throughout the course of a year.
Operational Advantages
Outside of duty and cost savings, FTZs offer strong operational and supply chain advantages as well. Many companies see a more streamlined supply chain as a result of using an FTZ. Due to the inventory and reporting requirements associated with these zones, companies tend to have better inventory management which leads to more efficient processes. Less paperwork, fewer entry filings, and less regulatory hassle also allows companies to save valuable time, allowing them to focus more on their operations.
Enhanced customs security requirements in these zones lead to fewer thefts, which often lowers insurance premiums for companies.
If your business could benefit from any of these benefits provided by an FTZ, reach out to Scarbrough today for custom solutions tailored to your business needs.
