An Overview of

Foreign-Trade Zones
Presented by:

Cornelia Steinert
Sr. Manager
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 A Foreign-Trade Zone…

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
on-going oversight

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

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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 vs. FTZ
Bonded Warehouse Foreign-Trade Zone
• Five year limit • No time limit
• Formal entry • Ideal for repetitive
required processing
• No MPF savings • MPF savings
• Continuous • No drawback needed
shipping is • Savings on waste
cumbersome items
• Easy documentation

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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

Companies across many industries utilize the FTZ program

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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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 Duty Deferral – Example 1
Zone to U.S. Commerce
Spark plug
Dutiable at 2.5%
Admitted to FTZ

Withdrawn from FTZ for entry into Stored in FTZ -

U.S. commerce Duty Deferral
2.5% Duty Paid

Zone-to-Zone Transfers:
Duty deferral benefits may be
further extended by transferring
merchandise from zone to zone.

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 Production Equipment

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
including manufacturing

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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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 Duty Elimination
Zone to Foreign Market
Spark plug
Dutiable at 2.5%
Admitted to FTZ

Withdrawn from FTZ for export

Stored in FTZ -
Duty Deferral

No duty payment -
eliminates drawback process

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 Duty Elimination
Destruction
Spark plug
Dutiable at 2.5%
Admitted to FTZ

Received at warehouse and determined

to be damaged beyond repair

Destroyed in the FTZ under permit –

no commercial value; no duty paid

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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
activity
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 Inverted Tariff Example

Windshield
Dutiable at 4.9%
Admitted to FTZ

Withdrawn from FTZ for entry into Used in

production in FTZ
U.S. commerce – 2.5% Duty Paid

Finished Product (Automobile)

Dutiable at 2.5%

2.4% Savings

*Duty rates for example only

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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
selectivity exams.

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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
Identity (Fungibility)

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 Lean Supply Chain and
Import/Export Compliance

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

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 Start up costs to consider:

• Security modifications
• FTZ Bond
• Annual FTZ grantee fee
• Application preparation charges
(designation, production authority,
activation)
• Software

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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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 SIGNIFICANCE OF THE
ALTERNATIVE SITE FRAMEWORK
(ASF)

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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
properties from existing sites
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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
• Eliminates need to “swap” like
amounts of acreage from
existing sites
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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
approved within 120 days by FTZ Board.

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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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