U.S. Companies Use Foreign-Trade Zones to Reduce Tariffs, Speed Supply Chains

A growing number of U.S.-based companies, large and small, are discovering that operating in a foreign-trade zone can reduce their tariff liability, accelerate supply-chain velocity, and build a stronger partnership with U.S. Customs.

Created by Congress in 1934, the Foreign-Trade Zones (FTZ) program is flourishing today because of America’s globalizing economy and new, streamlined FTZ Board regulations that make it easier than ever for companies to take advantage of FTZ benefits.

FTZs are areas at or near U.S. ports of entry that are considered outside U.S. Customs territory for purposes of duty collection. Today more than 250 zones have been authorized across the United States and Puerto Rico.

New regulations adopted in 2012 have cut the amount of time required for companies to receive authorization to operate in a zone. For warehouse/distribution operations, authorization takes less than 30 days, and for most production/manufacturing operations, less than 120 days. A new way of administering zones introduced in 2009, called the Alternative Site Framework, allows zone benefits to come to any qualified company operating in a multi-country service area.

For a company located in an FTZ, duties are payable only when goods leave the zone to enter U.S. commerce. Duties are eliminated on imported components that are then re-exported. If the finished product is sold in the United States, the producer can choose the lower duty on either the final product or the imported component. Firms can also drastically reduce the Merchandise Processing Fees they owe by consolidating customs filings to one, weekly entry.

According to the most recent Annual Report from the FTZ Board, the number of firms operating within a foreign-trade zone rose by a full third in the past two years, from 2,400 in 2010 to 3,200 in 2012. The amount of merchandise received in zones jumped by 37% to $732 billion in 2012. More than half the merchandise admitted to zones for production is sourced in the domestic U.S. economy.

The most spectacular success for zone-based U.S. companies has been exports. Exports from zones reached nearly $70 billion in 2012, more than double what they were just two years before. This means that FTZs have already matched President Obama’s National Export Initiative goal of doubling U.S. exports by 2014.

The major sectors accounting for FTZ production and distribution activity include oil refining, pharmaceutical, automotive, electronics, and machinery/equipment. Multinational companies using FTZs include BMW, Mercedes Benz and Nissan, Caterpillar, John Deere, and GE. Name-brand retailers operating distribution centers in FTZs include Crate and Barrel, Cabela’s, Columbia Sportswear, Home Depot and Limited Brands.

In a follow-up post to be published here in the coming days, I’ll show specific ways that companies are using FTZs to speed their supply chains, operate more efficient transportation management systems, and enhance security.

The National Association of Foreign-Trade Zones (www.naftz.org) is the collective voice of the foreign-trade zones community with nearly 700 member companies, grantees and service providers across the United States and Puerto Rico. Dan Griswold can be reached at dgriswold@naftz.org.

 

Daniel GriswoldDaniel Griswold joined the National Association of Foreign-Trade Zones (NAFTZ) as president in January 2012, representing its members in Washington before Congress and regulatory agencies. From 1997 to 2011, Griswold was a nationally known expert on U.S. trade policy at the respected Cato Institute in Washington, D.C. The author of the 2009 Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, Griswold has testified before congressional committees, commented for TV and radio, authored numerous studies and articles, and addressed business and trade groups across the country and around the world. He holds a bachelor’s degree in journalism from the University of Wisconsin at Madison, and a Masters in the Politics of the World Economy from the London School of Economics.

 

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