Foreign Trade Zone (FTZ) #220

Businesses that import dutiable components and/or products can benefit from a Foreign-Trade Zone.

In this section:

  1. What is a Foreign-Trade Zone?
  2. What are the FTZ benefits for users and the public?
  3. Where are the FTZ areas in the Port?
  4. Who are the Port area’s FTZ contacts?
  5. What other FTZ resources are there?

What is a Foreign-Trade Zone?

As defined by Foreign-Trade Zones Board:

Foreign-trade zones are designated sites licensed by the Foreign-Trade Zones (FTZ) Board (the Secretary of Commerce is Chairman) at which special US Customs and Border Protection procedures may be used. FTZ procedures allow domestic activity involving foreign items to take place as if it were outside US Customs and Border Protection's territory, thus offsetting US Customs and Border Protection's advantages available to overseas producers who export in competition with products made here. Subzones are special-purpose zones, usually at manufacturing plants.

What are the FTZ benefits for users and the public?

As defined by Foreign-Trade Zones Board:

  • User Benefits

    1. Cash Flow

      US Customs and Border Protections (CBP) duties are paid only when imported merchandise is shipped into the CBP territory. Merchandise may be held in inventory in the FTZ without Customs duty payment.

    2. Merchandise Processing Fee

      Fees are owed only when and if merchandise is transferred to the CBP territory.

    3. Harbor Maintenance Fee

      Fees are paid quarterly on merchandise received in the FTZ.

    4. Exports

      No customs duties are paid on merchandise exported from a FTZ. While drawback law allows the recovery of CBP duties previously paid after the merchandise is exported, payments may be delayed for a variety of reasons. In a FTZ, the duties are simply never paid.

    5. Defects / Damage / Obsolescence / Waste / Scrap

      CBP duties are significantly reduced or eliminated on merchandise subject to these accountable losses.

    6. Inverted CBP Duty Savings

      In a FTZ, uniquely, the FTZ user may elect to pay the duty rate applicable to either component materials or the finished merchandise produced from the component material, depending upon which is lower. Many articles have different duty rates for component materials and finished merchandise, offering substantial Customs duty savings.

    7. Nondutiability of Labor, Overhead and Profit

      CBP duties are not owed on labor, overhead and profit attributed to production operations in a FTZ. If the same production operations were done overseas, the value of the labor, overhead and profit would be subject to CBP duty. The substantial CBP duties savings may create additional incentives to undertake activity in the United States rather than in a foreign country.

    8. International Returns

      A number of firms that export have a percentage of the exports returned to the United States. CBP duties are owed each time merchandise of foreign origin that has not been registered with CBP is returned. This further avoids the problem of American Goods Returned that are not American. By being returned to a FTZ, no Customs duties are paid upon return.

    9. Spare Parts

      To service many products, spare parts must be on hand in the United States for prompt shipment. However, it is impossible for most firms to know the requirements for spare parts, especially in the start-up mode. Spare parts may be held in the FTZ without CBP duty payment, generating cash flow savings. If it is determined that the spare parts are not needed, they may either be returned to the foreign vendor free of duty or destroyed, avoiding CBP duties.

    10. U.S. Quota

      Most merchandise may be held in a FTZ, even if it is subject to U.S. quota restriction. When the quota opens, the merchandise may be immediately shipped into CBP territory. Voluntary restraint and orderly marketing agreements are not impacted by FTZ use.

    11. Quota Avoidance

      Quota merchandise may be substantially transformed in a FTZ into a non-quota article that may be entered into the CBP territory free of quota restrictions.

    12. Simplification of Import / Export Procedures

      Delays relating to CBP clearances and duty drawback procedures are eliminated. Cash flow savings accrue as well from simplification of these products.

    13. Quality Control

      The FTZ may be used for quality control inspections to insure that only merchandise that meets specifications is imported and duty paid. All other materials may be repaired, returned to the foreign vendor, or destroyed under CBP' supervision.

    14. Country-of-Origin Marking/Labeling

      No country-of-origin labels are required on merchandise admitted to the FTZ. Merchandise shipped into CBP territory must have appropriate labeling which will vary depending on the circumstances.

    15. Security

      The FTZ is subject to CBP supervision and security requirements. Unauthorized withdrawal of merchandise, such as employee pilferage or stealing, is a violation of 19 U.S.C. 549, carrying a penalty of two (2) years in a federal penitentiary and a $5,000 fine per offense. Many firms have found the security and federal penalty provisions to be of substantial benefit.

    16. Inventory Control

      Operations in a FTZ require careful accounting of receipt, processing and shipment of merchandise. Firms have found that the increased accountability cuts down on inaccurate inventory, receiving and shipping concerns, and waste and scrap.

    17. Consumed Merchandise

      Merchandise consumed in processing in a FTZ generally is not subject to CBP duties.

    18. Production Equipment

      Production equipment and components thereof may be admitted to a zone without depositing CBP duties until the time it is completely assembled, installed, tested and used in full-scale production.

    19. Entireties Provision

      An importer can choose whether or not the entireties provision is applicable to merchandise admitted to or withdrawn from a foreign trade zone.

    20. Exhibition

      Merchandise may be held for exhibition without Customs duty payment.

    21. Reduced Insurance Costs

      The insurable value of merchandise held in a FTZ need not include the Customs duty payable on the merchandise. Therefore, insurance costs will be less.

    22. Cargo Insurance

      Some users of FTZ's have negotiated up to a 40% reduction in cargo insurance rates because imported merchandise is shipped directly to a FTZ without the opportunity for potential pilferage at deepwater ports or major international airports.

    23. Zone-to-Zone Transfer

      An increasing number of firms are making use of the ability to transfer merchandise from one zone or subzone to another. If the transfer of the merchandise is in-bond, CBP duty is not owed until the product is finally shipped into the CBP territory. A number of suppliers of materials, components and subassemblies store or produce a product in one zone and ship it to their customer that incorporates the merchandise into a final product, in many instances having a lower duty rate than the duty rate of the materials, components or subassembly produced in the first FTZ. In this manner, the supplier totally avoids CBP duties.

    24. Tax Exemption

      Foreign Goods held for export are exempt from state and local inventory taxes.

  • Public Benefits

    1. Help facilitate and expedite international trade.
    2. Provide special US Customs & Border Protection procedures as a public service to help firms conduct international trade related operations in competition with foreign plants.
    3. Help attract offshore activity and encourage retention of domestic activity.
    4. Assist state/local economic development efforts.
    5. Help create employment opportunities.

Where are the FTZ areas in the Port?

Five sites are designated as Foreign-Trade Zones. There are four non-activated sites and one activated site. These non-activated sites are located in the Sioux Falls industrial parks, at the airport, Burns Moving and Storage, and at Parker Transfer. The activated site is at Nordica Warehouse Inc. 801 South 6th Ave. These sites are all within a few miles of two major interstates (I-90 and I-29), and the Sioux Falls Regional Airport.

Who are the Port area’s FTZ contacts?

See the Directory -> Foreign-Trade Zone

What other FTZ resources are there?