Find out more about Foreign Trade Zones
The Trump Administration imposed billions of dollars’ worth of tariffs on Chinese imports in 2018, followed by billions more on May 10, 2019. In all, the United Sates has levied tariffs of 25% on approximately $200 billion worth of Chinese goods and is said to be in the process of raising tariffs on all remaining imports from China, valued at an additional $300 billion. Many U.S. manufacturers, who rely on global supply chains, are concerned about how these new tariffs will impact their business.
With headlines of a trade war with China in the news almost every day, some companies are looking at Foreign Trade Zones (FTZs) to provide some relief. While these Chinese imports do not qualify for exemption under FTZ rules, companies importing from countries other than China may be able to benefit.
What is an FTZ?
An FTZ is a designated, restricted-access site in the U.S. that is legally considered outside of customs territory for the purpose of duties and taxes. Goods can therefore be imported into the FTZ duty-free and without formal customs entry. Tariffs and duties are paid only at the time that goods are transferred out of the zone for U.S. consumption. For those goods that are re-exported from the FTZ (i.e., they never enter the U.S. economy), it is possible that no duties will ever be owed.
Companies can establish a designated FTZ within their warehouse or facility, and products imported into the zone can then be mixed with U.S. sourced goods. Some of the activities permitted inside the zone include manufacturing, assembly, repackaging, processing, and relabeling (among others). These processes add value to the product and may allow FTZ users to elect the lower duty rate applied to either the foreign inputs or the finished product manufactured in the zone, often resulting in a reduction of duties.
What’s next?
While FTZs can offer substantial benefits, it’s our experience that most manufacturers and distributors aren’t fully aware of FTZs or the cost savings they can offer. To determine if an FTZ is a good fit for your organization, you’ll want to consider your level of international trade, specifically your volume of imports. You will also want to work with professionals who can help you through the application, implementation, activation and approval phases. If you don’t know where to start, contact your CSH advisor or reach out to me at [email protected], and we’ll get you in touch with the foreign trade zone representative in your region.