When you think about countries trading with each other, you might picture a process tangled up in tight regulations, or perhaps you’ve heard it can be like a well-oiled machine— a super smooth operation. Well, it can be a bit of both.
The ease or complexity of trading between countries often hinges on their specific trade agreements. It can range from being fast and streamlined to slow and challenging. This is where Foreign-Trade Zones (FTZs) make their mark.
Many big U.S. companies have been tapping into FTZs to cut down on duties and make their supply chains more effective. But it's not just the big players who can reap these benefits.
Virtually any business engaged in international import/export activities can use FTZs strategically, and there are plenty of good reasons to consider it – from cost savings to more efficient logistics.
What Is a Foreign-Trade Zone (FTZ)?
Foreign-Trade Zones are secure areas in the United States, often located near a U.S. Customs Port of Entry. They are usually considered part of international commerce, effectively outside U.S. Customs territory.
This allows businesses operating in an FTZ to reduce or altogether avoid duties on imported goods potentially.
The U.S. Congress established the concept of FTZs in the Foreign-Trade Zones Act of 1934 to keep American businesses competitive in an increasingly globalized economy. In these zones, certain types of merchandise can be imported without the immediate need for formal customs procedures or import duties.
7 Benefits of a Foreign-Trade Zone
FTZs gives importers a strategic advantage in adapting to fluctuating consumer demands, shifts in purchasing patterns, and changes in trade policy. Its flexibility allows your business to maintain a level of control even during periods of market uncertainty.
This can be crucial for navigating the dynamic global trade environment.
1. Duty Exemption
One of the significant benefits of using an FTZ is the exemption from duties and quota charges on re-exports – with the notable exception of exports to Canada and Mexico under NAFTA. This feature allows companies to bypass the complex and time-consuming Customs duty drawback process.
If your business involves imports that are fragile or prone to damage or if your manufacturing processes generate a considerable amount of scrap, the FTZ offers a notable advantage. Goods that are destroyed within an FTZ do not incur any duty, providing financial relief for companies dealing with such circumstances.
2. Duty Deferral
In an FTZ, customs duties, and federal excise taxes on imports are deferred until the merchandise leaves the zone to enter U.S. Customs territory. This means that while your goods are in the zone, you're not required to pay these duties and taxes. Merchandise can be transferred from one FTZ to another in-bond (without paying duty).
This is a notable difference from bonded warehouses or temporary importing under bond programs, where there are time limits on how long merchandise can remain.
There's no restriction on the duration for which goods can be stored, offering greater flexibility for long-term planning and inventory management. This is particularly beneficial for businesses that require extended storage or processing times before their products are ready for the U.S. market.
3. Duty Reduction (Inverted Tariff)
The concept of an 'inverted tariff' comes into play in FTZs when it involves manufacturing. This is beneficial if you have manufacturing authorization in an FTZ and the U.S.
The harmonized Tariff rate for your finished product is lower than the rates for the foreign inputs used. The product can enter U.S. Customs territory at the duty rate applicable to its final condition, not the higher rates of the individual components.
This can lead to considerable duty savings, especially for businesses that transform high-tariff components into lower-tariff finished goods. But, take note that FTZ users are not liable for duty on labor, overhead, or profit attributed to production operations within the zone, adding to the financial incentives of using an FTZ for manufacturing.
4. Merchandise Processing Fee (MPF) Reduction
Another financial advantage for FTZ users is the reduced Merchandise Processing Fees (MPF). These fees only apply to goods entering U.S. Customs territory from the zone. One of the standout features here is the ability to consolidate entries.
FTZ users can file a single customs entry for all goods shipped from the zone over seven days rather than filing a separate entry for each shipment. This excludes merchandise subject to live entry.
The MPF is calculated at 0.3464% of the Total Estimated Value (TEV) of the shipment, with a minimum fee of $25 and a cap of $485 per entry. This consolidation can lead to significant savings in terms of reduced MPF and potentially lower brokerage fees due to fewer entry filings.
5. Quota Avoidance
For most imports subject to quota restrictions, FTZ users have the benefit of storing these goods within the zone even after the quota has been reached. Businesses can access inputs at potentially lower costs and to admit merchandise as soon as a new quota year begins.
Except for certain textile products, quota-restricted inputs can be manipulated or manufactured within the zone into products not subject to quotas. This flexibility is a significant boon for businesses that deal with quota-restricted imports, enabling them to plan and operate more efficiently.
6. Streamlined Logistics
FTZ users, upon obtaining approval from Customs, can enjoy streamlined logistics, including direct delivery to an FTZ. This eliminates the need for intermediate handling and can significantly speed up the supply chain process.
Users can also request permission to break and affix Customs seals, which adds to the logistical efficiency. Additionally, the convenience of filing a single customs entry for all imports and exports over seven days simplifies the process, saving time and administrative effort.
7. Cash Flow Benefits
Cash flow management is crucial in international trade, and FTZs offer several benefits. One notable advantage is the quarterly payment of the Harbor Maintenance Fee instead of paying it at the time of each import's arrival. This allows for better cash flow management and reduces the immediate financial burden on businesses.
Merchandise Processing Fees are only due when goods leave the zone, further aiding in effective cash flow management. These aspects of FTZs give businesses more flexibility in their financial planning and can contribute to overall cost savings.
Make Global Trade Easier with Premier Logistics
Global trade can be complex, but it's essential for business success. FTZs help make this easier by offering significant benefits for handling international trade. These zones can help your business save on duties, streamline logistics, and better manage your money and product quotas.
At Premier Logistics, we specialize in making international trade more straightforward. Our large FTZ has 400,000 sq ft of indoor storage and over 20 acres of outdoor space, providing secure and ample room for your goods.
As the primary goods handler in our FTZ, we give you control over when to pay duties – when goods enter our storage or when they leave. This choice and not needing to pay bonds on the goods stored in the FTZ means more savings and efficiency for your business.
Don't let the challenges of global trade slow you down. Use Premier Logistics' Foreign Trade Zone in Tulsa, Oklahoma, to make your international trade smoother, more affordable, and suited to your business needs.
Get a quote today and move forward into a world of simpler, smarter international trade with the help of Premier Logistics – where we combine global experience with local know-how.