Worried About Tariffs? Find out More About Foreign Trade Zones
If you are an importer of raw materials, component parts or finished goods, you may be concerned about how the current administration's proposed import tariffs may impact your business. Through a series of announcements over the past several weeks, the White House has proposed tariffs on approximately 1,300 products, ranging from solar panels and washing machines to steel and aluminum. Specific industries being targeted include Chinese aerospace, technology, medical devices, communications, and machinery.
What can importers do?
While the notion of tariffs (as high as 25% on steel) may have importers worried, there may be ways to defer, reduce or even eliminate the associated customs duties. Have you heard of a foreign trade zone (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 next?
To determine if a FTZ is a good fit for your organization, you'll want to consider your level of international trade, specifically the volume of imports. You will also want to work with professionals who can help you through the application, implementation, activation and approval phases. 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.
