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.
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.
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.