If you thought that FTZs were only for distribution centers and freight-forwarding facilities, think again. Locating in an FTZ can save your operation millions of dollars per year, and you can do a lot more than move goods from Point A to Point B.
Eugene Preston, vice president of the Rockefeller Development Group, says the FTZ’s customs advantages go beyond the deferral of duties, pointing out that a manufacturing process might transform materials with a relatively high duty rate into finished goods with a lower duty rate, which would be the rate assessed upon those goods’ departure from the zone.
Plus, notes Preston, a change in FTZ regulations in 2000 made shipment reporting a weekly obligation instead of a task tied to every shipment transaction, saving some companies huge amounts in customs and broker fees.
Preston also points out that companies go through a rigorous screening process in order to use an FTZ, meaning increased speed of operations in a security-conscious world. Asked to characterize the operational savings the FTZ confers, he says, “It would not be unusual for a company in a warehouse building with rent of $4.50 a square foot to save a dollar or more per square foot in customs duty savings. So it can be meaningful in a half-million-sq.-ft. (46,450-sq.-m.) building. But there are no hard and fast rules. You have to do a very detailed analysis.”
The U.S. Federal Govern-ment permits a wide variety of activities in a Foreign-Trade Zone. Merchandise entering a Zone may be assembled, tested, sampled, relabeled, repackaged, destroyed, mixed, manipulated, cleaned, stored, salvaged, processed and, in some cases, even manufactured.
The government does require special approval from the FTZ Board for any manufacturing operations.
Still, there is no doubt that a company can save substantial dollars by moving some operations to an FTZ. In fact, according to the National Association of Foreign-Trade Zones, there are at least 10 ways your company can benefit from locating an operation in one of the country’s 252 officially designated FTZs:
• Imports may be admitted and held in an FTZ without paying U.S. Customs duties.
• FTZ users can pay the duty rate on component material or merchandise produced from component material, whichever is lower.
• Customs duties are never paid on merchandise exported from a Zone.
• Duties are reduced or eliminated on materials subject to defect, damage, obsolescence, waste or scrap.
• Merchandise may be exported and returned to an FTZ without duty payment.
• Spare parts may be stored, returned or destroyed without duty payment.
• Delays in Customs clearances and duty drawback are eliminated.
• Duties are not owed on labor, overhead or profit attributed to FTZ production operations.
• Quality-control inspections can identify sub-standard goods to be destroyed or returned without duty payment.
• No duty is owed on in-bond, Zone-to-Zone transfer of FTZ merchandise.
Major companies that use FTZs in America to take advantage of these cost savings include BMW, Caterpillar, Conair, Conoco Phillips, Eastman Kodak, JVC, Kawasaki, Northrop Grumman and Wyeth.