By using a Foreign-Trade Zone, a company can gain a competitive edge over foreign-based competitors. This is done through the reduction of certain operational costs that are incurred when conducting international business.
The Foreign-Trade Zone program in Hawaii is operated by the Hawaii State government, Department of Business, Economic Development and Tourism, Foreign-Trade Zone Division, in an effort to encourage international business and economic development. As Grantee, the Foreign-Trade Zone Division oversees all aspects of the FTZ project in Hawaii. Inspectors from the Honolulu District of the U.S. Customs Service supervise and audit all Zone activities.
Storage and distribution. Merchandise that is admitted into an FTZ may be stored indefinitely. It may be unpacked, repacked, displayed, assembled, disassembled, sorted, graded, cleaned, relabeled or even destroyed. It may be distributed as is or combined with other foreign or domestic merchandise. Only when merchandise is taken from an FTZ into U.S. Customs territory is it subject to customs duties and quotas. If the merchandise is shipped to a foreign port, no duties or taxes are collected. Goods may also be transferred directly from one FTZ to another without being subject to Customs duties or quotas.
Manufacturing. Goods may also be manufactured in an FTZ except when specifically limited by law. Products may then be exported or sent into U.S. Customs territory. When products enter Customs territory, they are subject to Customs duties; if they are shipped to foreign points, they are not. All new manufacturing operations are subject to the approval of the Foreign-Trade Zones Board and the District Director of Customs.
Note: machinery or supplies of foreign origin used in the manufacturing process are subject to duty when admitted to an FTZ. In the particular case of imported textiles subject to quota, manufacturing is permitted only if the finished products are exported.
Status designations of merchandise. At the time merchandise is admitted into a Foreign-Trade Zone, the owner applies for one of four status designations. Firms may use this status designation to legally minimize payment of U.S. Customs duties.