WHAT IS A FOREIGN-TRADE ZONE?
Best Kept Secret of International Trade!
A Foreign-Trade Zone (FTZ) is a designated area within the U.S. where goods are treated as if they are outside U.S. Customs territory, allowing for duty deferral or elimination, and other benefits for businesses engaged in international trade.
Purpose:
- FTZs are designed to enhance the competitiveness of U.S. businesses in the global market by facilitating international trade and promoting economic activity.
Benefits:
- Duty Deferral/Elimination: Companies can defer or potentially eliminate customs duties and taxes on foreign goods imported into an FTZ until they are moved out of the zone for consumption in the U.S.
- Simplified Customs Procedures: FTZs streamline customs procedures, potentially reducing paperwork and delays.
- Flexibility: Goods can be stored, processed, manufactured, or assembled within an FTZ without being subject to immediate customs duties.
- Reduced Costs: By deferring or eliminating duties, FTZs can help businesses reduce their overall costs and improve their competitiveness.
- Logistical Benefits: Companies using FTZ procedures may have access to streamlined customs procedures (e.g. “weekly entry” or “direct delivery”).
- Other Benefits: FTZ status may also make a site eligible for state/ local benefits which are unrelated to the FTZ Act.
How it works:
- Goods enter the FTZ and are treated as if they are outside U.S. Customs territory.
- Duties and taxes are not paid until the goods leave the FTZ for domestic consumption.
- Companies can store, process, or manufacture goods within the FTZ before exporting them or moving them to the domestic market.
Regulation:
The Foreign-Trade Zones Board, an independent agency within the Department of Commerce, oversees the FTZ program. U.S. Customs and Border Protection (CBP) provides supervision and control.
Is this right for your company?
While there’s no single “average ROI” for Foreign Trade Zone (FTZ) investments, businesses can see a return on investment in 6-12 months or even as quickly as 3-4 months after implementation, primarily through duty deferrals and streamlined customs procedures.
Here’s a more detailed breakdown of how FTZs can lead to ROI:
Duty Deferral: FTZs allow businesses to defer paying duties and taxes on imported goods until they are moved out of the zone for domestic consumption or export. This can significantly improve cash flow and reduce inventory holding costs.
Streamlined Customs Procedures: FTZs offer simplified customs procedures, reducing delays and costs associated with importing and exporting goods. This can lead to faster turnaround times and improved supply chain efficiency.
Lower Inventory Costs: FTZs can help businesses reduce inventory carrying costs by allowing them to hold goods in a duty-free environment. This can be particularly beneficial for businesses with high inventory turnover rates.
Improved Margins: By reducing costs associated with importing and exporting, FTZs can help businesses improve their profit margins.
Faster Time to Market: FTZs can help businesses get their products to market faster by reducing delays associated with customs clearance and other import/export procedures.
Reduced Broker Fees: FTZ status can also reduce the amount you pay your broker per container.
CASE STUDIES
Company names have been changed for privacy reasons.
Company Profile:
- Electrical Products Manufacturer
- Ada County, Idaho
- Private Company
- Annual Revenue: $6.7 million
- 21 employees
- Annual Value of Imports: $3 million
- Duty Rate: 45%
- Annual Duty Paid: $1,350,000
Financial Benefits
Based on the ELECTRIC PRODUCTS MFG Feasibility Questionnaire and other information provided, we conclude that immediate financial advantages will be realized primarily from the Duty Deferral and Duty Elimination aspects of the Foreign Trade Zone Program.
The Duty Deferral benefit allows ELECTRIC PRODUCTS MFG to defer paying duty on foreign products until it is entered into US commerce from FTZ. Based on the number of estimated days in storage (90 days) and the estimated cost for daily storage, the savings amount is estimated to be $24,966 annually.
The Duty Elimination benefit allows for savings in duties/taxes that would otherwise have been paid on products destined for export. This includes products from your facility which may be transferred to duty-free retail operations anywhere in the world. Duty Elimination eliminates the need for drawbacks and the costs associated. Since the duties/taxes are never incurred upon importation, this process and fee is eliminated upon exportation. The export value of ELECTRIC PRODUCTS MFG is estimated at $450,000 or 15% of the annual volume. The savings amount is estimated to be $202,500 annually.
There are numerous other financial advantages with smaller savings that include duty deferral, scrap savings, shrinkage prevention, et cetera.
The Feasibility analysis identifies financial savings for ELECTRIC PRODUCTS MFG of $227,725 per year.
Company Profile:
- Clean Energy Products Manufacturer
- Ada County, Idaho
- Public Company
- Annual Revenue: $1.4 billion
- 2,000 employees
- Annual Value of Imports: $204 million
- Duty Rate: 64%
- Annual Duty Paid: $130.5 million
Financial Benefits
Based on the PUBLIC COMPANY IDAHO Feasibility Questionnaire and other information provided, we conclude that immediate financial advantages will be realized primarily from the Weekly Entry and Duty Deferral aspect of the Foreign Trade Zone Program.
The Weekly Entry concept identifies savings through the minimization of the merchandise processing fees and Custom Brokerage fees. PUBLIC COMPANY IDAHO will only file 1 entry a week. With a weekly maximum of $634.62 for the MPF fee, the weekly savings created is $195.27 per week. This creates savings of $10,154 annually.
The Duty Deferral benefit allows PUBLIC COMPANY IDAHO to defer paying duty on foreign products until it is entered into US commerce from FTZ. Based on the number of estimated days in storage (~134 days) and the estimated cost for daily storage the savings amount is estimated to be $3,594,871 annually.
There are numerous other financial advantages with smaller savings that include duty deferral, scrap savings, shrinkage prevention, et cetera.
The Feasibility analysis identifies financial savings for PUBLIC COMPANY IDAHO of $3,622,679 per year.
It Helps Idaho Manufacturing
- Help facilitate and expedite international trade.
- Provide special customs procedures as a public service to help firms conduct international trade related operations in competition with foreign plants.
- Encourage and facilitate exports.
- Help attract offshore activity and encourage retention of domestic activity.
- Assist state/local economic development efforts.
- Help create employment opportunities.
Cost of Participation
Because the FTZ Program is unique in its benefits, it is also unique in the requirement for a financial investment. In most cases, the savings usually outweigh the costs. Below are bullet points to identify the average cost to set up an FTZ (year 1) and the operating costs to maintain the program (year 2 and beyond). Idaho Manufacturing Alliance uses ITC Diligence as the Development and Administrative Consultant for FTZ #280; however, Operators are free to use consultant or in-house administrator of their own choice.
Consultant fees are separate and not related to IMA ZONE GRANTEE fees.
- IMA Membership is included as a benefit of FTZ registration.
Set-Up and First Year: FTZ#280
- Consulting Application Fee: Dependent on broker used
- Bond Premium: Estimated: Estimated $1,500 Dependent on broker used
- Grantee Application Fee: $1,250 (one-time fee)
- Grantee Activation Fee: $1,250 (one-time fee)
- Annual Grantee Fee: $5,000 (due upon CBP approval of FTZ)
- Security Enhancements: $1,000 +/-
- Inventory Control / Automation – TBD
Subsequent Years: FTZ Operator
- Consulting Management Oversight: Dependent on broker used
- Grantee Annual Fee: $5,000
- Annual Bond Premium: Estimated $1,500 Dependent on broker used
- Inventory Control / Automation – TBD
Please note this does not include manufacturing authority as this is a separate application required.
On May 12, 2012, the U.S. Department of Commerce granted the Caldwell Economic Development Council (CEDC) the authority to establish and administer the Foreign Trade Zone #280 under the Alternative Site Framework.
FTZ #280’s administration was transferred to the Southwest Idaho Manufacturers’ Alliance (SWIMA) upon its inception in late 2013. In 2021, SWIMA transitioned to the Idaho Manufacturing Alliance to better serve the industry.
The FTZ provides exciting and significant benefits to both businesses and the community at large and will prove to make a major impact on the commerce and development of southwest Idaho.
The FTZ stimulates economic growth and development through job retention and creation.