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.
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.
By using Foreign-Trade Zones, firms defer payment of duty until merchandise enters U.S. Customs territory. Foreign merchandise transiting U.S. ports for foreign designations avoids the payment of U.S. Customs duties and taxes through the use of Foreign-Trade Zones. Merchandise can be inspected and sorted in Foreign-Trade Zones with only the saleable portion entering U.S. Customs Territory. Duty deferral or avoidance results in substantial cash savings.
The Tariff Schedule of the United States ( also known as the Harmonized Code) adopted in 1989 provides many new opportunities for FTZ users. Products manufactured from foreign-sourced components within an FTZ may be subject to a lower rate of duty than the sum of the parts with which they are made. This also applies to the assembly of sets or kits. Pineapple canneries and can-making companies, animal-feed mixing operations, and automobile factories and polyethylene terephthalate (PET) plastic production plants are some operations which gain tariff advantages from being within FTZs.
If, on the other hand, the finished product of a manufacturing operation is subject to a higher rate of duty, the importer may apply to have the imported components designated as Privileged Foreign status merchandise and thus subject to the lower rate of duty that applies to those components. Oil refineries in FTZs operate in this manner.
In some cases, quota restrictions apply at the time merchandise seeks entry into U.S. Customs territory. Merchandise which would be denied entry because of quotas may be stored, and in some cases, altered and manufactured in Foreign-Trade Zones. Merchandise may be held in storage awaiting the beginning of a new quota period. Merchandise, in some instances, may also be altered or manufactured into a product not subject to quota limits. Quota merchandise can be processed in Foreign-Trade Zones for export markets. This is particularly advantageous to food processors manufacturing for export markets.
Products that are manufactured in FTZs may, if certain requirements are met, qualify for “Made in U.S.A.” labels, even if the finished product incorporates foreign components.
Drawback procedures can be quite restrictive. They allow a manufacturer to receive a 99 percent refund of the duty paid on an imported component incorporated into subsequently-exported products. The manufacturer, however, must declare at the time of importation what will be subsequently exported in manufactured form to qualify for drawback. Zone users avoid these upfront costs and re-payment delays.
Importers who store their merchandise in bonded warehouses must post a bond, and their goods may be stored for a maximum of five years. Importers who use FTZs post no bonds and their merchandise may remain in the Zone indefinitely. Manufacturing, processing or altering goods in Customs bonded warehouses are limited. In Foreign-Trade Zones, similar restrictions do not apply.
Goods which are in a Zone for a bona fide Customs reason are exempt from State and local ad valorem taxes.Moreover, customers of Hawaii’s Foreign-Trade Zone No. 9 enjoy excellent security, the convenience of warehouse inventory reports and release receipts, the assistance of knowledgeable personnel, and highly professional service in all aspects of the Foreign-Trade Zone operations. The FTZ’s goal is to serve your needs effectively, efficiently and economically.