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Last week the Foreign-Trade Zone Board released the 76th ANNUAL REPORT of the Foreign-Trade Zones Board to the Congress OF THE UNITED STATES.

Foreign-trade zones are secure areas under supervision of U.S. Customs and Border Protection (CBP) that are considered outside the customs territory of the United States for the purposes of duty payment. Located in or near customs ports of entry, they are the U.S. version of what are known internationally as free trade zones. Authority for establishing these facilities is granted by the Foreign-Trade Zones Board under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u), and the Board’s regulations (15 C.F.R. Part 400). The Executive Secretariat of the Board is located within Enforcement and Compliance of the U.S. Department of Commerce in Washington, D.C.

During Fiscal Year 2015, the FTZ Board received and docketed 85 requests, and issued 87 decisions. The FTZ Board’s decisions included the establishment of four new foreign-trade zones, the reorganization or expansion of 22 zones under the alternative site framework (ASF), as well as decisions on 54 applications and notifications for new or expanded production authority. Under delegated authority, the FTZ Board Staff processed an additional 181 requests that included minor boundary modifications and scope determinations.

There were 186 FTZs active during the year, with a total of 324 active production operations. Over 420,000 persons were employed at some 2,900 firms that used FTZs during the year. The value of shipments into zones totaled nearly $660 billion, compared with $798 billion the previous year. About 63 percent of the shipments received at zones involved domestic status merchandise. The level of domestic status inputs used by FTZ operations indicates that FTZ activity tends to involve domestic operations that combine foreign inputs with significant domestic inputs.

Warehouse/distribution operations received nearly $228 billion in merchandise while production operations received over $431 billion (65 percent of zone activity). The largest industries accounting for zone production activity include the oil refining, automotive, electronics, pharmaceutical, and machinery/equipment sectors.

Exports (shipments to foreign countries) from facilities operating under FTZ procedures amounted to over $84 billion.

Main Foreign-Status Products Received in U.S. FTZs

FTZ Procedures Under Utilized in New England

Connecticut

FTZ 71, WINDSOR LOCKS, no activity.

FTZ 76, BRIDGEPORT, no activity.

FTZ 162, NEW HAVEN, no activity.

Maine

FTZ 58, BANGOR, no activity.

FTZ 179, MADAWASKA:

• Production: Evergreen Trading Co. LLC (Fragrances/Cosmetics), $25-50 million.

FTZ 186, WATERVILLE, no activity.

• Flemish Master Weavers(Textiles/Footwear) was approved in 2016, but effectively limited to warehousing/distribution and production for export.

FTZ 263, AUBURN, no activity.

FTZ 282, BRUNSWICK, no activity.

Massachusetts

FTZ 27, BOSTON:

• Warehousing/Distribution: 14 companies, $500-750 million.
• Production: AstraZeneca (Pharmaceuticals), $1-5 million.
• Production: Claremont Flock was approved in late 2015 and actived in 2016.

FTZ 28, NEW BEDFORD:

• Warehousing/Distribution: 1 company, $100-250 million.
• Production: Acushnet Company (Textiles/Footwear), $70-100 million

FTZ 201, HOLYOKE, no activity.

New Hampshire

FTZ 81, PORTSMOUTH:

• Production: Millipore Corporation (Advanced Fiber Materials), $100-250 million.

Rhode Island

FTZ 105, PROVIDENCE & NORTH KINGSTOWN:

• Warehousing/Distribution: 1 company, $1-5 million.

Vermont

FTZ 55, BURLINGTON:

• Production: Wyeth Nutritionals, Inc. (Food Product), $0-0.5 million.

FTZ 268, BRATTLEBORO, no activity.

FTZ 286, CALEDONIA, ESSEX AND ORLEANS COUNTIES, no activity.

What is a Foreign Trade Zone?

In 1934, Congress enacted the Foreign Trade Zones Act “to expedite and encourage foreign commerce.” The Act created domestic “foreign-trade zones”, and was designed to stimulate international trade and create jobs in the United States.

When you operate under Foreign Trade Zone procedures, your company is treated (for purposes of customs duties) like it’s located outside the United States. That can mean that U.S. import duties don’t have to be paid on imported components coming to your factory. If your finished product is ultimately shipped to the U.S. market, you may have the option of paying the finished product duty rate rather than the component duty rate. (Many finished products have lower duty rates – or are duty-free – than their components.) And if you re-export the finished product, you don’t ever pay duties on the component materials. There are other potential savings, too, like avoiding duties on imported materials that become scrap, and possible administrative savings and efficiencies.

What are the benefits?

Duty Exemption. No duties on re-exports compared to duty drawback which is a refund of duty paid when the product is later exported.

Duty Deferral. Customs duties and federal excise tax deferred on imports.

Inverted Tariff. In situations where zone manufacturing results in a finished product that has a lower duty rate than the rates on foreign inputs (inverted tariff), the finished products may be entered at the duty rate that applies to its condition as it leaves the zone — subject to public interest considerations.

Logistical Benefits. Companies using Foreign Trade Zone procedures may have access to streamlined customs procedures (e.g. “weekly entry” or “direct delivery”).

Other Benefits. Foreign goods and domestic goods held for export are exempt from state/local inventory taxes. Foreign Trade Zone status may also make a site eligible for state/local benefits which are unrelated to the Foreign Trade Zone Act.

Examples of successful Foreign Trade Zone implementation

Claremont Flock, a textile company in Leominster, Massachusetts, imports textile fiber called “tow” and processes it into another form of textile fiber called “flock.” Claremont was paying 7.5% duty on their imports of tow. We helped Claremont qualify for Foreign Trade Zone procedures. Now they import tow without paying the duty, turn it into flock, and when the flock leaves the factory it is subject to the rate of duty applicable to flock, which is zero. Claremont said in a newspaper article that this will save them $200,000 per year.

Millipore Corporation located in Jaffrey, New Hampshire, manufacturers filters containing the imported material polyvinylidene fluoride.  Utilizing Foreign Trade Zone procedures they avoid the 6.5% import duty on polyvinylidene fluoride.   On its domestic shipment and exports to NAFTA markets, the company is entitled to elect the duty rate that applies to finished filters, (0 %) and thus save the company significant amounts of money.

Interested in learning how setting up a Foreign Trade Zone can save your company money? Schedule a consultation with a FTZ expert.