Benefits of a Foreign Trade Zone

What is a Foreign Trade Zone?

Foreign Trade Zones (FTZs) are designated areas within the United States that are treated by Customs as if they are outside of the United States.

By allowing merchandise to be entered into a zone free of duty, and allowing manufacturing processes to transform that merchandise, a Foreign Trade Zone can provide opportunities for tariff and tax relief.

Foreign Trade Zone Benefits

There are many potential advantages to using an FTZ:

1. Deferring duties and taxes

Duties and taxes due on merchandise entered into a zone are not due until the merchandise leaves the zone for consumption.

An importer can use an FTZ to enter a large quantity of merchandise all at once, and defer duties and taxes until the merchandise is withdrawn.

2. Lower duty rates

Manufacturing is allowed inside a foreign trade zone. In some cases, the finished product may be subject to a rate of duty that is lower than the duty that would have been due on the parts and materials themselves.

When the finished product is withdrawn from the zone and entered into the US, the importer can pay duties at the lower tariff rate that applies to the finished product.

3. Exporting merchandise duty-free

If merchandise entered into an FTZ is later exported directly from the zone, no duty will be due.

An importer can use an FTZ to enter parts into the zone, assemble the parts (and create jobs by using domestic labor), and then export the finished product duty-free.

4. Quota restrictions

Merchandise subject to quota restrictions can be entered into a zone duty-free until the merchandise is withdrawn from the zone.

If the quota is filled, the importer can place the merchandise into a zone until the quota reopens. Some products may even be manufactured while in the zone and turned into a product not subject to quota.

Should I use an FTZ?

In practice, using an FTZ can become much more complex. But with careful planning, an FTZ can provide many competitive advantages.

As a full-service Customs broker and Freight Forwarder, C J International can help you analyze your operations and determine if using an FTZ would make sense for your company.

Our blog posts are for informational purposes only. While we use reasonable efforts to furnish accurate information, C J is not liable or responsible for the accuracy or reliability of any information contained herein.


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