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Foreign Trade Zone ("FTZ")

See also Some FTZ Notifications and Applications of Interest to Textiles and Apparel and
Some FTZ Other Notifications and Applications of Interest.

NEWS!

On August 22, 2016, a bipartisan group of United States Senators and one United States Representative, wrote to the Government Accountability Office ("GAO") requesting a GAO review of the Foreign-Trade Zones Board's ("FTZ Board") process for evaluating Foreign-Trade Zone applications.

Specific they request that the GAO conduct a review of FTZ Board processes and implementation of the regulations in cases involving textile inputs that includes, but is not limited to, the following:

1) The review and evaluation of all of the required factors in the chapeau of Section 400.27;

2) The review and evaluation of the threshold tests contained in Section 400.27(a) of the regulations;

3) The review and evaluation of the net economic effect test in Section 400.27(b) of the regulations;

4) The role of other offices or agencies such as the Commerce Department Office of Textiles and Apparel (OTEXA) in the FTZ Board's evaluation.

The request was submitted by Senator Amy Klobuchar Amy [Dem. Minnesota], Senator Al Franken [Dec., Minnesota], Senator Pat Roberts [Rep., Kansas], Senator Cory Gardner [Rep., Colorado], and Representative Tom Emmer [Rep., Minnesota, 6th].

Clients of Agathon Associations can see the full text of the request at http://www.agathonassociates.com/textile-pri/ftz/GAO-request-2016.pdf. You will need your username and password. If have forgotten your username and password contact David at david@agathonassociates.com.

Definition

Although free trade is an ancient concept, free trade zones did not develop until the 19th century. The success of free trade zones in northern Europe, notably the "free port" of Hamburg, stimulated American interest in the concept and in establishing free trade zones.

In 1934, Congress enacted the Foreign-Trade Zones Act (Pub. L. 397, 73rd Congress, 48 Stat. 998-1003 (19 U.S.C. 81a-81u)) "to expedite and encourage foreign commerce." The Act created domestic "foreign-trade zones", and was designed to stimulate international trade and create jobs in the United States. At that time, zones were envisioned as storage, manipulation, and transshipment (exportation) centers. In 1950, an emendment to the Act was passed authorizing manufacturing and exhibition inside zones.

Foreign Trade Zones ("FTZs") were created in the United States to provide special customs procedures to U.S. plants engaged in international trade-related activities. Duty-free treatment is accorded items that are processed in FTZs and then reexported, and duty payment is deferred on items until they are brought out of the FTZ for sale in the U.S. market. This helps to offset customs advantages available to overseas producers who compete with domestic industry. The Foreign-Trade Zones ("FTZ") Board (composed of representatives from the U.S. Departments of Commerce and Treasury) has its operational staff in the International Trade Administration's Import Administration.

FTZs are considered to be outside of U.S. Customs Territory for the purpose of customs duty payment. Therefore, goods entering FTZs are not subject to customs tariffs until the goods leave the zone and are formally entered into U.S. Customs Territory. At that time the duty is calculated at the rate applicable to the product entering U.S. commerce (the finished product) but is applied on only the value of the dutiable components of that product. Merchandise that is shipped to foreign countries from FTZs is exempt from duty payments.

There is no time limit on goods stored inside a FTZ and certain foreign and domestic merchandise held in FTZs may be exempted from state and local inventory taxes. In addition, quota restrictions are in some cases waived for items entering an FTZ; however, the restrictions would apply if the items were to enter the U.S. market.

A variety of activities can be conducted in a zone, including assembling, packaging, destroying, storing, cleaning, exhibiting, re-packing, distributing, sorting, grading, testing, labeling, repairing, combining with foreign or domestic content, or processing. Manufacturing and processing require specific FTZ Board approval, however.

FTZ benefits:

  • Duty Exemption. No duties on or quota charges on re-exports. [Compared to duty drawback which is a refund of duty paid when the product is later exported.]

  • Duty Deferral. Customs duties and federal excise tax deferred on imports.

  • Inverted Tariff. In situations where zone manufacturing results in a finished product that has a lower duty rate than the rates on foreign inputs (inverted tariff), the finished products may be entered at the duty rate that applies to its condition as it leaves the zone -- subject to public interest considerations.

  • Logistical Benefits. Companies using FTZ procedures may have access to streamlined customs procedures (e.g. "weekly entry" or "direct delivery").

  • Other Benefits. Foreign goods and domestic goods held for export are exempt from state/local inventory taxes. FTZ status may also make a site eligible for state/local benefits which are unrelated to the FTZ Act.

Regulations and Reports

U.S. Department of Commerce

15 CFR Part 400-- Regulations of the Foreign Trade Zone Board.

  • Authority: Foreign-Trade Zones Act of June 18, 1934, as amended (Pub. L. 397, 73rd Congress, 48 Stat. 998-1003 (19 U.S.C. 81a-81u)).
  • 15 CFR Part 400 on FTZ Board Website.
  • The U.S. Department of Commerce International Trade Administration has information on FTZs on the website http://ia.ita.doc.gov/ftzpage/

Textiles and textile products are eligible for FTZ consideration, the former textile exclusion was tied to quotas and with the expiration of the last textile quotas on January 1, 2009, the exclusion also expired.

U.S. Customs and Border Protection ("CBP")

19 CFR 146

Annual Report to Congress

2015 2014 2013 2012 2011 2010
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Agathon Associates Reports

General

Agathon Associates summary of regulations (work in progress).

Selected FTZ Filings


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This page last updated 3/3/2017.