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.
Simply, it is a secured place authorized by the federal government, considered to be outside the Customs territory of the United States although they are still under U.S. Customs supervision and control.
Normally, when foreign cargo lands on U.S. soil, it is subject to clearance through US Customs and the payment of U.S. Customs duty. Many firms use Foreign-Trade Zones to postpone and, in the case of reexport cargo, avoid the imposition of duties, taxes, bonds, quotas and certain other requirements.
Domestic and foreign merchandise may be stored within a Foreign-Trade Zone. It may be manufactured, displayed, sold or altered in almost any way that isn’t prohibited by U.S. law.
As long as the merchandise remains in the Zone, it is not subject to U.S. Customs laws governing the entry of goods into Customs territory or payment of duty on those goods. In addition, Zone users can legally minimize the payment of U.S. Customs duties by either paying duty based on the classification of the merchandise at time of admission to the Zone or by paying duty based on the classification of the merchandise when it subsequently enters U.S. Customs territory. Merchandise subject to quotas may be admitted to a Zone without regard to those quotas. And no duty is assessed on domestic merchandise that enters Customs territory from a Zone.
Even though Hawaii’s FTZ is considered to be outside the Customs territory of the United States, it is on U.S. soil. For that reason, goods and activities in the Zone are subject to federal, state and local laws and regulations. Articles prohibited by law are not allowed admission, nor are articles that violate copyright, trademark or patent laws. Animal quarantine restrictions apply as well.
There are two types of FTZs in Hawaii: general purpose zones and special purpose subzones. General purpose zones operate as public utilities providing a variety of services to many users. Special purpose subzones are single-use facilities which cannot be accommodated within the general purpose zone.
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.