Foreign-trade zones are designated sites licensed by the Foreign-Trade Zones (FTZ) Board (Commerce Secretary is Chairperson) at which special customs procedures may be used. These procedures allow domestic activity involving foreign items to take place prior to formal customs entry. Duty-free treatment is accorded items that are re-exported and duty payment is deferred on items sold in the U.S. market, thus offsetting customs advantages available to overseas producers who compete with producers located in the United States. Subzones/usage-driven sites are approved for a specific company/use. A site which has been granted zone status may not be used for zone activity until the site or a section thereof has been separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under the supervision of CBP. FTZ sites and facilities remain within the jurisdiction of local, state or federal governments or agencies.
A foreign-trade zone is a designated location in the United States where companies can use special customs procedures that help encourage U.S. activity and value added – in competition with foreign alternatives – by allowing delayed or reduced duty payments on foreign merchandise, as well as other savings.
A site which has been granted zone status may not be used for zone activity until the site has been separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under the supervision of CBP. FTZ sites and facilities remain within the jurisdiction of local, state or federal governments or agencies.
The “alternative site framework” (ASF) is an optional framework for organizing and designating sites that allows zones to use quicker and less complex procedures to obtain FTZ designation for eligible facilities.
To reorganize under the ASF, each zone grantee will propose a “service area”. Once approved by the FTZ Board, a subzone or usage-driven site can be designated anywhere in the service area within 30-days using a simple application form. The ASF allows zone designation to be brought to any company that needs it, eliminating the need for zone grantees to predict where the zone will be needed and pre-designate sites.
•Magnet Sites are usually located at ports or industrial parks. They are open to multiple zone operators.
•Subzones/Usage-driven sites are approved for a specific company/use.
The Foreign-Trade Zones Board is comprised of the Secretary of Commerce and the Secretary of the Treasury.The Board is chaired by the Secretary of Commerce. The Commissioner of U.S. Customs and Border Protection also plays a key role, as it did prior to its recent move from Treasury to the Department of Homeland Security, providing a position during the FTZ Board voting process with respect to customs security, control, and resource matters. The Board has delegated action authority on most matters to a Committee of Alternates, which is composed of the Assistant Secretary of Commerce for Enforcement and Compliance and the Deputy Assistant Secretary of the Treasury for Tax, Trade, and Tariff Policy.
- Duty Exemption. No duties on or quota charges on re-exports.
- Duty Deferral. Customs duties and federal excise tax deferred on imports.
- Logistical Benefits. Companies using FTZ procedures may have access to streamlined customs procedures (such as “weekly entry” or “direct delivery”).
- Other Benefits. Foreign goods and domestic goods held for export are exempt from state/local inventory taxes. FTZ status may also make a site eligible for state/local benefits which are unrelated to the FTZ Act.
Additional user benefits specific to production activity are addressed in a separate Frequently Asked Question.
Imported merchandise may be “admitted” to an FTZ in foreign status – that is, before payment of any U.S. duty(ies). A formal customs “entry” with duty payment is not made unless and until the merchandise is shipped from the FTZ to the U.S. market.
Production activity (as defined in 15 CFR 400.2(o)) involving foreign-status components requires case-by-case authorization in advance from the FTZ Board pursuant to 15 CFR 400.14(a).
If admitted to an FTZ in “privileged foreign” (PF) status (19 CFR 146.41), any U.S. duty(ies) paid is at the rate(s) applicable to the merchandise in its condition at the time of admission – regardless of whether the merchandise was transformed under FTZ procedures into a different product.
If a foreign-status component is used to make a product that is subsequently exported, no U.S. duty(ies) is payable on the value of the component.
If a foreign-status component is used to make a product that is shipped to the U.S. market, U.S. duty(ies) on the value of the foreign-status component generally is payable at the rate that applies to the product. The exception is when the component’s FTZ admission was in PF status – including in circumstances below that are examples of requirements for admission in PF status.
In some instances, an applicant limits its own request for FTZ authority to admission in PF status for one or more components. The FTZ Board’s regulations require admission in PF status for merchandise subject to antidumping/countervailing duty actions – as detailed in 15 CFR 400.14(e). U.S. government actions setting duties under Section 232 of the Trade Expansion Act of 1962 or Sections 201 or 301 of the Trade Act of 1974 have required FTZ admission in PF status for subject merchandise. In some decisions on requests for FTZ authority, the FTZ Board sets case-specific requirements for admission of certain merchandise in PF status. Other circumstances over time may result in requirements for admission in PF status on a general or case-specific basis.
Merchandise may be transferred from one FTZ operation to another under customs bond (that is, without duty payment when the merchandise is transferred). Therefore, a foreign-status component may be used in an FTZ operation to manufacture a product that is transferred to another FTZ operation – at which time that product could be used as an input to make a downstream product. That downstream product could be shipped to the U.S. market, exported or transferred under customs bond to a different FTZ operation. Unless the original foreign-status component was admitted in PF status, the applicable rate(s) on any U.S. duty(ies) payable on the value of the component would be based on the classification of the merchandise ultimately shipped to the U.S. market.
No duty is payable on foreign-status components which become scrap/waste. Customs duties may also be deferred or reduced on foreign-status production equipment. (Details of the applicability of the production-equipment benefit are addressed in memoranda in the “Policy Guidance and Reports” subsection of the “Reading Room” section of the FTZ Board’s website – currently accessible at https://www.trade.gov/policy-guidance.)
Additional user benefits applicable to all FTZ activity – rather than applying only to production activity – are addressed in a separate Frequently Asked Question.
•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.
By statute and regulation, CBP (U.S. Customs and Border Protection) is responsible for enforcement of importation laws and protecting the revenue. CBP handles the day-to-day monitoring of zone activity. Merchandise is brought into a zone(admitted) on CBP form 214 and is removed from the zone through CBP entry or transportation under bond procedures. CBP is consulted on every application for a zone or zone activity. Merchandise in a zone is under customs control and merchandise and zone records are subject to spot check and other verifications at any time.
After a zone or subzone has been approved by the FTZ Board, the zone operator must activate with CBP to begin using FTZ procedures.
No. While merchandise within a zone is considered outside the customs territory of the U.S., this is for formal entry procedures only. Foreign merchandise in a zone is within the territory and jurisdiction of the U.S. and is considered imported.
•Merchandise in a zone may be assembled, exhibited, cleaned, manipulated, manufactured, mixed,processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and destroyed.
•Production activity must be specifically authorized by the FTZ Board. (Production activity is defined as activity involving the substantial transformation of a foreign article or activity involving a change in the condition of the article which results in a change in the customs classification of the article or in its eligibility for entry for consumption.)
•Retail trade is prohibited in zones.
•Any merchandise that is not prohibited from entry into the territory of the U.S. may be admitted to a zone.
•If applicable, import licenses or permits from other government agencies may still be required to bring the merchandise into the zone.
Zone sites must be within or adjacent to a U.S. Customs and Border Protection (CBP) port of entry.
The adjacency requirement can be satisfied if one of the following factors is met:
1. The zone or subzone site is within the limits of a CBP port of entry.
2. The zone or subzone site is within 60 statute miles of the outer limits of a CBP port of entry.
3. The zone or subzone site is within 90 minutes’ driving time from the outer limits of a CBP port of entry as verified by the CBP Service Port Director.
4. For subzones only: subzone sites that are outside the 60 miles/90 minutes driving time from the outer limits of the CBP port of entry may alternatively qualify to be considered adjacent if they work with the CBP Port Director to ensure that proper oversight measures are in place.
•New Zone: The first things that should be done are 1) to assess the level of international trade in the area and if there is a need for zone services for local companies and 2) to determine if is an existing zone(s) adjacent to the CBP port(s) of entry that will already serve companies needs. A new zone can only be approved if the applicant demonstrates that the existing zone(s) will not meet the “convenience of commerce.” The application requirements are extensive and the process is lengthy (requiring approx. 10 months after the FTZ Board “dockets” the completed application). Also, if the zone is approved there are security and operating requirements that may be cost prohibitive if there is not a strong need for zone services. It may be much more efficient (from time, resource, and cost perspectives) to discuss with the existing zone(s) the sponsorship of subzones for companies in your community.
•Subzone/usage-driven site: If a company is interested in pursuing FTZ designation for its facility,the process under the FTZ Board’s 2012 regulations is quick (as little as 30 days with a maximum time of 5 months, depending on the specific procedure used by the applicant) and straightforward. The FTZ Board staff and the grantee of your nearby FTZ(s) can provide guidance on specific procedure to follow.
•Production Authority: Any company interested in applying for production authority in a zone should perform a cost-benefit analysis to make sure that the FTZ benefits outweigh the costs of operating in the zone. The first step to request production authority is to submit a “Production Notification” The standard timeframe for the FTZ Board to make a decision on a production notification is 120 days from submission. If the FTZ Board determines not to authorize certain activity at the end of the notification process, the applicant may choose to use the more extensive “application” process for production authority.
•Expansions or reorganizations of the zone: Includes reorganizations under the Alternative Site Framework (ASF) or expansions to add new sites. This process generally takes 7.5 months for ASF reorganizations and 10 months from the time the application is “docketed” for other expansions/reorganizations.
•Subzones/usage-driven sites: For one company/use. Under the ASF, subzone/usage-driven sites can be designated in a simple 30-day process.
•Production: Any substantial transformation, change in the HTSUS classification of an imported article (at the 6-digit level)or change in the condition of an article which results in a change in its eligibility for entry for consumption
Specific production authority within a FTZ is required if the activity:
•Results in a change in the HTSUS number at the 6-digit level of any imported component.
•Involves the substantial transformation of a foreign article.
•Results in a change in the eligibility for entry of any foreign article.
To obtain authority to conduct production activity within a designated FTZ site, the first step is to submit a “Production Notification”.
The production notification includes a list of imported components and finished products as well as a brief summary of the activity.
The standard processing time for production notifications is 120 days and generally includes a 40-day public comment period.
If the FTZ Board determines not to authorize certain activity at the end of the notification process, the applicant may choose to use the more extensive “application” process for production authority.
Certain applications do have fees. Applications combining requests for more than one type of approval are subject to the fee for each category:
1. Additional general-purpose zones within a port of entry: $3,200
2. Special-purpose subzones:
a.Non-manufacturing/processing or less than 3 products: $4,000
b.Manufacturing/processing 3 or more products: $6,500
3. Expansions: $1,600
•Once a zone or subzone is approved by the FTZ Board, the operator must enter into an “operator’s agreement” with the zone grantee and then apply for activation with U.S. Customs and Border Protection (CBP) before merchandise can be admitted under zone procedures.
•Each zone is required to report annually to the FTZ Board on the activity that has occurred within the zone and its subzones for the fiscal year. The FTZ Board uses these reports to monitor zone activity and to report on zone activity with an Annual Report to Congress.