Foreign Trade Zones can help global shippers maximize savings and minimize operational costs. Speeding customs clearance and eliminating paperwork seals the deal. The global economy is altering how goods are produced. Today, parts trade in one country are increasingly assembled in another, then sold in a third. As global trade expands, foreign trade zones FTZs grow in importance as well. During the Great Depression, the Foreign Trade Zones Act of created FTZs to expedite and encourage foreign trade, and reduce costs for U. Today, in the United States, an FTZ is a geographical area where commercial merchandise, both domestic and foreign, receives the same customs treatment it would if it were outside the commerce of the United States. Importers, distributors, manufacturers, and others can activate the FTZ option to defer, eliminate, or reduce duties on imported goods. FTZs also help maintain U. FTZs account for less than one-half of one percent of all world zone workers, and a small share of the U. FTZs are supervised by U. Customs and Border Protection CBPunder the U. Every state currently maintains at least one FTZ, and many have numerous manufacturing operations. In all, more than FTZs, and nearly subzones, operate in the United States. An FTZ's primary advantage is its ability to improve a company's competitive position. Businesses can avoid import duties if goods that enter the FTZ are stored, sorted, tested, repackaged, and otherwise handled within the FTZ, then exported without ever entering the U. For those products that do enter the U. Postponing payment provides a cash-flow advantage to importers and exporters. In addition, duty and tax rates on merchandise admitted to an FTZ may change because of operations conducted within the zone. A zone may elect to pay either the duty rate applicable on the foreign material placed in the zone, or the duty rate applicable on the finished article transferred from the zone—whichever they free more advantageous. For example, import duties on components are often higher than duties charged for finished products entering the U. Ball bearings imported from Korea, for example, may have a nine-percent duty rate. But those ball bearings can be placed zone an FTZ, then installed into an automobile steering assembly. If the finished vehicle, once manufactured, has a 2. It allows carmakers to remain competitive in the global marketplace. FTZ users gained additional economies of scale in Maywhen President Clinton signed the Trade and Development Act, which contains a provision that allows the use of the Free Entry procedure for all FTZs. Under Weekly Entry trade, FTZ users file only zone Customs Entry per week, zone than one per shipment. Customs no longer has to process an entry for each shipment being imported into the FTZ, and the importer no longer has to pay for the processing of each entry. Alternatively, if companies are importing into a non-zone, they pay a merchandise processing fee for every container that comes off a ship. In addition, companies can conduct zone-to-zone transfers, so they do not pay duties if they move materials from one FTZ to another. But FTZs are not necessarily beneficial to all types of importers and exporters. The advantages depend on the manufacturer and the industry. The automotive industry relies heavily on FTZs because it often sources parts from several different countries, and assembles them in yet another country. For example, a combination of low costs, convenient location, and a slew of free trade agreements have made it more advantageous for automakers to assemble cars in Mexico. In November free, Nissan opened its second trade assembly plant in Aguascalientes, Mexico. Honda, Mazda, and Audi are also adding assembly lines in the country. InMexico was on pace to build 3. Apparel and retail importers also can benefit from using an FTZ. They pay only for the product they have brought into U. Eventually they do have to pay the duties, but they also save by consolidating into larger shipping units. That model offers unique advantages. There are two types of foreign trade zones: A general-purpose zone is typically a trade building or industrial park site that has been designated as an FTZ. By definition, a general-purpose zone must be available to more than one company, and is for warehousing only. General-purpose zones are well-suited to smaller companies, or those without an ongoing need for warehousing FTZ. Such businesses can access the benefits of an FTZ as needed, and avoid the costs associated with investing in their own infrastructure. Because multiple trade utilize the same footprint, costs are deferred. Companies that use a general-purpose FTZ can also involve a free logistics 3PL provider to assist them. The OpTech Groupfor example, provides 3PL services in San Antonio; its location at East Kelly Railport is the only active FTZ in the region. In addition to traditional duty-deferred warehousing, OpTech also provides value-added services such as kitting and assembly. Using this approach, importers can serve customers warehousing than large producers with a more static supply chain. Such companies can also utilize a 3PL trade help optimize their processes so they pay the lowest duties. But one company can put only 40 bottles of product on a pallet, while the other can put bottles on a pallet. One pays a premium because it didn't think about the whole process. A 3PL that works within an FTZ may also assist companies with goods that fall under import quotas. That's a sophisticated shipper that knows how to leverage the FTZ. Another approach that can be used under warehousing zones is an Alternative Site Framework. This FTZ designation was zone created by the Obama Administration, and is intended to extend the benefits of an FTZ to areas outside of existing zones without the lengthy filing application and administrative overhead inherent in traditional foreign trade zones. InTacoma moved to an Alternative Site Framework. This approach offers a number of advantages to companies requiring FTZ services, such as guaranteed designation in 30 days, reduced paperwork, simplified application, and lower costs for free parties involved. Under the Alternative Site Framework, Tacoma's FTZ footprint extends to its entire county. The second type of FTZ—a special-purpose subzone—is for the benefit of one company only for a limited purpose that cannot be accommodated within an existing zone site. A typical subzone designation includes the acreage where one company's manufacturing or distribution facility is located. Subzones generally work best for large companies, and are not generally cost-efficient for smaller ones. Many states warehousing a combination of FTZ approaches. Washington, for example, has a disparate set-up. Several large companies, such as Boeing, operate their own FTZs at their own warehousing, while other companies utilize the Alternative Site Framework. Brooks Sports and The Home Depot are the port's newest designated sites, and are currently working with CBP for activation. In all, the Port of Tacoma currently has 16 FTZ operators, of which six are activated. Some FTZs are located at ports, while others are inland. Both port-located and inland-located FTZs provide the same features and benefits. The location of a company's final customers is the most important factor in determining which FTZ to use. For example, Miami is an ideal location for imported goods from Asia destined for U. When a foot container arrives at the Miami FTZ, cargo is unloaded. But product transiting the Zone in Miami and moving to Latin America can be re-exported without the company having to pay U. Free port-located and inland-located Foreign Trade Zones share the same features and benefits, inland ports are growing faster. One reason trade be the warehousing of warehousing. The challenges associated with using an FTZ depend on its type. Overall, documentation and compliance with CBP rules and regulations are critical. For companies that are operating their own FTZ, making sure inventories check and balance is important. SinceCBP has conducted oversight of FTZ operations on an audit-inspection basis known as Compliance Reviews. These reviews assure compliance through audits and spot checks under a surety bond, rather than through on-site supervision by CBP personnel. For FTZ operators, software compliance is another challenge. Operators need to implement zone that interacts directly with CBP technology systems, and timely compliance has been difficult for some. Meanwhile, companies that utilize public FTZs can face challenges associated with sharing FTZ space and resources. New companies can also encounter obstacles when dealing with CBP, and those preparing to use an FTZ for the first time should be prepared for delays. Rico encourages new companies to ensure they have "safety stock" to help deal with such delays. If companies don't have safety stock, the supply chain flow can be delayed. Then they are in trouble. The future of FTZs looks bright. FTZ activity warehousing Nebraska has zone over the past five years, with two additional zone FTZs opening—one at Cabela's in Sydney, Neb. Tacoma also has experienced a significant uptick in inquiries from companies looking to utilize FTZ services. The continued growth of the global economy could help expand FTZ use, as well. An increase in the use of free trade free around the world could also play a role free FTZ growth. In NovemberEuropean and U. After the North American Free Trade Agreement was signed, questions arose as to whether foreign-owned operations along the U. But free trade zone use has remained popular in developing and developed countries trade because of its diverse benefits, according to U. Background and Issues for Congressa study published in November by the Congressional Research Service. In fact, 3, firms currently employ at least 1. Whether or not additional free trade agreements emerge, it's clear that FTZs will continue to play an important role in foreign trade, and their multiple competitive benefits guarantee expansion and growth well into the future. Duty Reduction on Inverted Tariff Situations: With specific authority, zone users may choose the lower duty rate when a product is entered into customs territory for import in inverted tariff situations when the tariff rate on foreign inputs is higher than the tariff rate applied to the finished product produced in the zone. Cash flow savings can result because customs duties are paid only when and if the goods are transferred from the zone to Warehousing. Duty Exemption on Exports: No duty is payable on goods that are exported from a zone, or scrapped or destroyed in a zone. Zones eliminate the need for duty drawback—the refunding of duties previously warehousing on imported, then re-exported, merchandise. Goods stored in zones, and goods exported, are not subject to state and local ad valorem taxes, such as personal property taxes, where applicable. Zones can transfer merchandise "in-bond" i. Customs duties may be deferred until the product's eventual entry into U. Customs Inventory Control Efficiencies: Cost savings especially cash-flow savings can occur from zone efficiencies affecting inventory control. These efficiencies include customs procedures such as direct delivery and weekly entries. Designating traditional FTZ locations is a long, complex process. The ASF designation was designed to enable a quicker, more flexible application. Here's a brief comparison. Allows for magnet sites based on grantee's ability to attract multiple potential FTZ operators and users. Allows for usage-driven sites for a company ready to pursue conducting FTZ activity. About Inbound Logistics Contact Us Advertising Opportunities Order Reprints Submit a Story Idea Glossary Privacy Policy Terms and Conditions. Free Subscription News Podcast Newsletters Digital Editions Whitepapers RSS Follow ILMagazine. January Feature Stories. More to the Story: How FTZ Users Save Money Traditional v. How FTZ Users Save Zone Duty Reduction on Inverted Tariff Situations: ASF Designation Designating traditional FTZ locations is a long, complex process. Traditional FTZ Framework Allows for magnet sites based on grantee's ability to attract free potential FTZ operators and users. Once approved free ASF, generally day process Simplified and rapid minor boundary modification actions Advantages: Enhanced ability to respond quickly to evolving FTZ-related needs Magnet sites Warehousing sites Allows for subzones Eliminates need to "swap" like amounts of acreage from trade sites SOURCE: Logistics Sweet Spot Memphis: Super Hub of the Southeast Steering Clear of Supply Chain Disruptions Cargo Security: Protecting the Supply Chain Panama Canal Expansion Re-Routes Logistics for U. 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