s the world flat or round? I guess that depends on which book you are reading at the moment. Regardless of shape, one thing is certain: U.S. companies are facing difficult global supply chain challenges. Challenges are coming from tightening of our borders, rising energy costs, reliability of suppliers in an uncertain economy –and the list continues to grow.
      There is a logistics program available that helps companies to address these challenges: the U.S. Foreign-Trade Zone (FTZ) program. Although it has been around for a while, it is receiving renewed attention. In the '90s, interest in the FTZ program was somewhat flat, mainly because profits were so strong during that time. With the economic downturn that started in 2000, companies downsized, rightsized and did everything to reduce costs. They are now beginning to recognize the benefits of this unique global supply chain management tool as an additional cost-cutting measure. With more and more companies selling and sourcing globally, the FTZ process is playing an important role in keeping import and export goods moving, while reducing costs for U.S. manufacturers and distribution companies.
      Created by Congress back in 1934, the FTZ program was designed as an incentive to encourage companies to keep investment and jobs in the United States and not move production offshore. Our forefathers at that time must have had a crystal ball that saw the exodus of U.S. companies, beginning in the '80s, moving to lower-cost locations beyond the U.S. borders. The FTZ program "levels the playing field" by removing certain costs and barriers that do not exist in foreign locations. It is meant to maximize the return on investment for both U.S. and foreign-owned companies located in the U.S.
      Is the Foreign-Trade Zone program right for any company engaged in international trade? That depends on several factors. Does your company have high volume or high value of imported products? Do you apply for duty drawback of imports that are re-exported? Do you use bonded warehouses or Temporary Importation Bonds? Is consistent and/or expedited delivery important? Are you subject to import quotas? And do you receive multiple import shipments in a week? If any or all of these apply, your company should take a closer look at the FTZ program.
      Why then don't we see more companies taking advantage of the FTZ program? Certainly, one reason is a low volume of business that might not exceed the administrative costs. But from where I sit as Grantee of FTZ 181 in Northeast Ohio, I see many other reasons. I see misconceptions about the program, most notably that it is complex to administer and that it opens the company to more U.S. Customs oversight. Another common reason, related to oversight, is the fact that many companies don't have accurate inventory control procedures in place – a fact that I find incredible. Security requirements in an FTZ are also misunderstood. Typically, well-run companies already have the proper measures in place that meet or exceed the requirements of U.S. Customs. Concrete walls with razor wire and guards at the gate are not required. However, as a business owner or manager, you need to know who is in your facility at any given time, and you need to control that access, whether you are operating in a Foreign-Trade Zone or not.
      The FTZ program should be viewed as another "business process" such as ISO certification, where you document your business activity – then do what is documented. The FTZ business process will require that you go through "activation" in which you will operate under U.S. Customs FTZ procedures, thereby receiving the benefits the program provides. Activated FTZ status doesn't reduce your responsibility as an importer, but gives you the authorization to act on behalf of U.S. Customs in certain situations. One such situation is "direct delivery," when you take shipments directly into your facility, break seals and file to "clear Customs." A company can reduce transit times by receiving authority from U.S. Customs to perform this function on their behalf.
      Sometimes, concerns are expressed about the administration of the FTZ program. However, it is worthy to note that importers are still required to follow procedures, whether located in an FTZ or not. The potential liability and responsibility still exist.
      In terms of compliance, there are many tools available to assist a company operating under FTZ procedures. Inventory control, first and foremost, can be handled with the various software programs that are available, some of which can bolt on to existing systems. A knowledgeable freight forwarding company can be invaluable for businesses operating under FTZ procedures. Contracting with one of several consulting firms across the U.S. that specializes in FTZ procedures can be a good insurance policy and a good investment. In terms of initial and ongoing training, there is no better source than the National Association of Foreign-Trade Zones (NAFTZ). Located in Washington, DC, the NAFTZ membership is comprised of grantees, operators, users, consultants and other related service providers. The association holds several meetings throughout the year that provide a forum for basic to advanced training and networking opportunities. I can't imagine anyone even remotely connected to the U.S. Foreign-Trade Zone Program not being a member of the NAFTZ organization.
      Since 1970, when there were 10 approved FTZ Grants of Authority, the program has been on a steady upward trajectory with 272 approved Grants in 2008, and FTZs located in all 50 states and Puerto Rico. In 1970, there were 1,400 employees within FTZ operating companies. Today, there are more than 350,000 employed.
      FTZ benefits can be significant for the right company. The NAFTZ is constantly evaluating the program for opportunities to increase or enhance these benefits. One legislative initiative that is being proposed is the Trade Agreement Parity (TAP) Initiative. The issue at hand is that the U.S. extends duty-free treatment of goods manufactured abroad by firms in "Free Trade Agreement" (FTA) partner countries but not to manufacturing firms using foreign components located in U.S. Foreign-Trade Zones. The proposed TAP legislation would extend U.S. FTA treatment to U.S. FTZ-based producers who sell product in the U.S. using imported components or inputs that are sourced from FTA partner countries. Simply put, if we give foreign-based companies duty-free treatment under trade agreements when selling to U.S. customers, why not give the same duty-free treatment to U.S. based companies that sell to the same customers? It seems like a simple correction to a quirk in the various trade agreements that unintentionally penalized and disadvantaged U.S. companies, but like other trade legislation, you can count on a debate.
      With the pervasiveness of the global economy, we are expecting continued growth, as companies look at more efficient ways to manage global supply chains. The U.S. Foreign-Trade Zone Program is not a silver bullet to end all global supply challenges, but for the right company, the benefits of reduced costs and streamlining processes can be very significant.