Foreign Trade Zone
Foreign Trade Zone
What is Foreign Trade Zone (FTZ)?
A Foreign Trade Zone (FTZ) is a secure area under the supervision of the Customs and Border Protection (CBP) that is physically located within the United States, but is considered to be outside of the Customs territory of the United States for the purposes of payment of duty.
FTZs are located in or adjacent to a port of entry and each port of entry is entitled to at least one zone project. Additional zones may be approved if the port of entry is located within more than one state, if two cities separated by a body of water are embraced in one port of entry, or if the Board finds that existing zones will not adequately serve the convenience of commerce
The purpose of the U.S. FTZ program is to stimulate economic growth and development in the United States. The program was designed to promote American competitiveness by encouraging companies to maintain and expand their operations in the United States by allowing activity to occur in the United States prior to the application of US Customs laws.
Under FTZ procedures, foreign and domestic merchandise may be admitted into FTZs for operations such as storage, exhibition, manipulation, destruction, assembly, manufacture and processing, without being subject to formal CBP entry procedures and payment of duties, unless and until the foreign merchandise enters the Customs territory for domestic consumption. If the merchandise does not enter the U.S. commerce, then no duties or taxes are paid on those items. Therefore, the FTZ program encourages U.S.-based operations by removing certain disincentives associated with manufacturing in the United States. Merchandise may remain in a zone indefinitely, whether or not subject to duty.
What may be placed in FTZs?
Any foreign or domestic merchandise not prohibited by law or other exception, whether dutiable or not, may be taken into FTZs.
Placing merchandise subject to a quota into a zone cannot circumvent quota on the imported merchandise. However, merchandise for which a quota is filled or for which a quota on entry is established, may be placed into a zone until the quota opens or is removed since foreign-trade zones are considered outside CBP territory for entry purposes. Such products, with the exception of certain textiles, may be manipulated or manufactured while in the zone into a product not subject to quota.
In-Depth Coverage: Country of Origin
- Country of Origin of Imported Merchandise
- Customs Ruling: Country of Origin
- Country of Origin: Food Products
- Country of Origin: Chemical and Pharmaceutical Products
- Country of Origin & Country of Manufacture: CBP vs. FDA
- Country of Origin: Substantial Transformation or Country of Assembly Test
- Country of Origin and Free Trade Agreement
- Country of Origin and Section 301
Zone Status of Merchandise in FTZs
Zone status means the legal status of merchandise, which has been admitted to a zone, thereby becoming subject to the provisions of the FTZ Act. The entry, classification, and appraisement of merchandise transferred from an FTZ are affected by the “status” of the merchandise. There are four zone statuses, i.e. privileged foreign status, nonprivileged foreign status, domestic status, and zone restricted status. The choice, of which zone status is applicable to merchandise, is normally at the option of the applicant for admission or the owner of merchandise in the zone.
Privileged Foreign Status
Foreign Status Merchandise is imported merchandise that has not been properly released from CBP custody in the Customs territory. Domestically-produced merchandise which has been exported and re-imported into the United States, but not properly released from CBP custody prior to entry, is foreign merchandise.
An importer usually chooses privileged foreign status when the rate of duty on a product manufactured in a zone is higher than the rate of duty on some or all of the components as introduced into the zone. As a privileged foreign status, the merchandise will be treated, for tariff purposes, in its condition at the time of admission to the zone, although the choice of that status need not be exercised at the time of admission. The election of privileged foreign status may be made after merchandise has been admitted to the zone provided that the merchandise has not been manufactured or manipulated in any way which may have effected a change in tariff classification.
Prior to any manipulation or manufacture, which would change its tariff classification, an importer may apply to the Port Director to have imported merchandise in the zone given privileged foreign status. Privileged foreign merchandise is classified and appraised at the time at which the operator files an application for privileged foreign status.
When privileged foreign merchandise is entered into the customs territory, either in its original state or after manipulation or manufacture, the applicable duties and taxes would be paid based on the rate established when privileged foreign status was granted. Once elected, privileged status cannot be abandoned, except in the case of recoverable waste. However, if the merchandise is exported or properly withdrawn for supplies, equipment, or repair material of vessels or aircraft, no duties or taxes are paid.
In-Depth Coverage: Marketing and Advertising Compliance
- Federal Trade Commission (FTC) Advertising Rules
- Made in USA Standard
- FTC Regulation on Environmental Claims
- Adverting and Marketing on the Internet
- Label Claims for Conventional Foods and Dietary Supplements
- Dietary Supplement Advertising: What is FTC's Truth-in-Advertising Law?
- USDA Country of Origin Labeling (COOL)
- FTC Rules & Regulations on Food Advertisement
Nonprivileged Foreign Status
While privileged foreign merchandise will be treated, for tariff purposes, in its condition at the time of admission to the zone, nonprivileged foreign merchandise is appraised and classified in its condition at the time of transfer into customs territory for consumption or for CBP bonded warehousing. As a result, nonprivileged foreign merchandise is dutiable at the rate applicable at the time of its constructive transfer from the zone into customs territory. Waste recovered from privileged foreign merchandise is assigned nonprivileged foreign status. Domestic merchandise, which has lost its identity, will be assigned nonprivileged foreign status. Nonprivileged foreign status may be changed to privileged foreign prior to manipulation or manufacture.
Restricted merchandise in nonprivileged foreign status, which cannot be entered for consumption, may be transformed in a zone into merchandise which may be entered for consumption into the commerce of the United States unless prohibited under the operation of another law.
Nonprivileged foreign merchandise may also be transferred to the Customs territory for warehousing, exportation, vessel or aircraft supply use, temporary importation bond, or transfer to another zone or port. After the merchandise is admitted to a zone, nonprivileged foreign merchandise may be changed to privileged foreign or zone restricted status at the option of the zone User, if the merchandise is legally entitled to receive that status. For example, merchandise may not be changed to privileged foreign status if it has already been manufactured, processed or manipulated so as to change its tariff classification.
Merchandise is nonprivileged foreign if it is: (1) foreign merchandise properly in a zone that does not have privileged or zone-restricted status; (2) waste recovered from any manipulation or manufacture of privileged foreign merchandise within a zone; or (3) domestic merchandise in a zone that has lost its identity as such. Any domestic merchandise will be considered to have lost its identity if Customs determines that it cannot be identified positively as domestic merchandise on the basis of an examination of the merchandise or consideration of any proof that may be submitted.
Even though the dutiable value of nonprivileged foreign merchandise is determined by the condition and value of the merchandise upon its transfer from a zone, the following items are excluded from the calculation of its dutiable value: (1) the cost of processing in the zone (including labor cost); (2) the general expenses and profit attributable to zone operations; (3) expenses incurred in the zone that are incidental to placing the merchandise packed ready for transfer to the customs territory; and (4) freight, insurance and similar costs incurred after the merchandise is packed ready for transfer to the Customs territory.
Because nonprivileged foreign merchandise is dutiable at the rate applicable at the time of its transfer from the zone into customs territory, the duty paid on nonprivileged foreign merchandise is essentially computed by multiplying the cost of the imported component parts by the duty rate applicable to the finished merchandise as it is transferred from the zone into the Customs territory.
In-Depth Coverage: Customs Valuation
Domestic Status
Domestic status, which may be approved upon application to the Port Director, is available for merchandise which is (a) the growth, product, or manufacture of the United States on which all internal revenue taxes, if applicable, have been paid, (b) previously imported merchandise on which all internal revenue taxes have been paid, or (c) merchandise previously admitted free of duty. Domestic merchandise on which not all internal revenue taxes have been paid is not eligible for domestic status. Neither is it eligible for privileged or non-privileged foreign status. It may be admitted to a zone only in zone-restricted status
Domestic merchandise may be admitted to a zone without a CBP permit, and also removed from a zone without a CBP permit if it has not been combined with any other merchandise of any other status.
No application or permit is required for the manipulation, manufacture, exhibition, destruction or transfer of domestic merchandise except: (1) where it is mixed or combined with merchandise having another zone status; or (2) upon order of the Commissioner of Customs. Domestic merchandise may be returned to customs territory free of quotas, duty or tax.
Zone Restricted Status
Merchandise transferred to a zone from CBP territory for storage or for the purpose of satisfying a legal requirement for exportation or destruction (except destruction of distilled spirits, wines and fermented malt liquors) is considered exported and cannot be returned to CBP territory for consumption unless the Foreign-Trade Zones Board rules that it's return is in the public interest. The status of merchandise transferred to a zone under these circumstances is “zone restricted.” That status may be requested at any time the merchandise is located in a zone, even after it has been manufactured, but cannot be abandoned once granted, except by order of the Board.
Since zone-restricted status is granted for the sole purpose of storage, exportation, or destruction, merchandise in zone-restricted status may not be manufactured or processed in the zone. Merchandise may not be manipulated except to the extent necessary for its exportation, destruction, or storage, i.e., except for packing, unpacking, repacking, testing or similar operation incidental to exportation or destruction. After merchandise in non-privileged foreign or domestic status has been manufactured, processed or manipulated in the zone, the Port Director may approve a change to zone-restricted status
Merchandise which arrives at a port on an entry for exportation or transportation and exportation (IE or T&E) will usually be admitted in zone-restricted status; however, the Port Director may approve admission in another status if he or she is satisfied that exportation is not required by any Federal law or regulation.
An application for zone-restricted status may be made at any time the merchandise is located in the zone, but zone-restricted status cannot be abandoned once it is granted. Zone-restricted merchandise may be considered “exported” for the purpose of any Customs law, including drawback and warehousing, if all applicable Customs requirements for actual export are met.
In-Depth Coverage: Importing Medical Device
What are the Benefits of a Foreign Trade Zone?
The benefits associated with FTZ use depend upon the status of merchandise, the type of operation performed on the merchandise, and authority granted by the Foreign Trade Zones Board and Customs.
Duty deferral
CBP duty and federal excise tax, if applicable, are paid when the merchandise is transferred from the zone for consumption. While in the zone, merchandise is not subject to U.S. duty or excise tax. Certain tangible personal property is generally exempt from state and local ad valorem taxes.
Duty exemption
Merchandise may be exported from the zone free of duty and excise tax. Merchandise in a FTZ is considered to be outside the customs territory of the United States, and thus no Customs duty is applied as long as it remains in the Zone.
Duty reduction – avoid inverted tariff
The rate of duty and tax on the merchandise admitted to a zone may change as a result of operations performed within the zone. The importer ordinarily has a choice of paying duties either at the rate applicable to the foreign material in its admitted condition, or, if used in manufacturing or processing, at the rate applicable to the emerging product.
In the Harmonized Tariff Schedule of the United State, the tariff rate is generally higher on finished products than the rate on raw materials or component parts, but not always. An inverted tariff refers to a situation where imported parts are dutiable at higher rates than the finished product into which they are incorporated.
Where zone manufacturing results in a finished product that has a lower Tariff rate than the rates on foreign imported parts, the finished product may be entered into the U.S. Customs territory at the duty rate that applies to its finished condition. Conversely, if the tariff rate is lower for the imported parts, the zone user can choose to pay at the rate applicable to the foreign parts. Moreover, duty is not owed on labor, overhead or profit attributable to zone production operations.
Because the status of privileged foreign or nonprivileged foreign merchandise may be selected with respect to each imported item, a manufacturer can choose the lower of the imported foreign parts or completed product duty rate on an item-by-item basis.
For example, the duty on a product manufactured abroad and imported into the U.S. is assessed on the finished product rather than on its individual parts, materials, or components. The U.S. based manufacturer finds itself at a disadvantage compared with its foreign competitor when it must pay a higher rate on parts, materials, or components imported for use in a manufacturing process.
In-Depth Coverage: Importing Food Products
- What is FDA Food Safety Modernization Act (FSMA)?
- Prior Notice of Imported Foods
- FDA Food Facility Registration
- Risk-Based Preventive Controls for Human Food
- Risk-Based Preventive Control for Animal Food
- Protect Food against Intentional Adulteration
- What is Foreign Supplier Verification Program (FSVP)?
- What is FSMA Produce Safety Rule?
What is Weekly Entry Filing (WEF)?
CBP has implemented a weekly entry filing (WEF) program allowing customs brokers (entry filers) to submit a weekly estimate for repetitive, high volume entries of low-risk products. Under this program, a customs broker (entry filer) can submit a single entry estimating the amount of product that will be withdrawn from the FTZ and offered for consumption into the U.S. during the subsequent week.
Merchandise processing fee (MPF) reduction by using WEF
MPF is only paid on goods entering the U.S. Customs territory. Zone users may be allowed to file a single entry for all goods transferred into customs territory in a consecutive seven-day period instead of one entry file for each shipment (excluding merchandise subject to live entry). MPF fees are charged at 0.3464% of the Total Estimated Value (TEV) of the shipment, with a minimum fee of $25 and a maximum fee of $485 per entry. Fewer entry filings can also reduce Brokerage fees.
Direct Delivery of Merchandise
An importer may bypass normal customs clearance procedures and move imported product directly into a FTZ (direct delivery). This procedure is for delivery of merchandise to a zone without prior application and approval. In general, the merchandise to be admitted to the zone by direct delivery procedure, and the operations to be conducted therein, are known well in advance, are predictable and stable over the long term, and are relatively fixed in variety by the nature of the business conducted at the site; and the operator is the owner or purchaser of the goods. The direct delivery procedure improves supply chain efficiency and lower processing costs and allows goods to move directly from port to zones, thus greatly reducing clearance delays and expediting the movement of cargo.
Quota avoidance
Quota Avoidance: In most instances, imports subject to quota may be retained within a Foreign-Trade Zone once a quota has been reached allowing zone users access to potentially discounted purchases of over-quota merchandise, store the merchandise in a foreign trade zone, and bring merchandise into domestic commerce as soon as a new quota year starts.
Tax relief
Foreign merchandise (tangible personal property) admitted to a zone and domestic merchandise held in a zone for exportation are exempt from certain state and local ad valorem taxes. However, articles admitted into zones for purposes not specified in the FTZ Act shall be subject to the tariff laws and regular entry procedures, including the payment of applicable duties, taxes, and fees.
In-Depth Coverage: USDA-Regulated Products
- Importing USDA-Regulated Food Products
- Import Regulation by USDA Agricultural Marketing Service (AMS)
- Food Products – FDA or USDA Regulated
- Country of Origin Labeling
- Importing Animals, Animal Products, and Biologics into the US
- Importing Meat, Poultry, and Egg Products into the US
- Labeling and Marking of Imported Meat, Poultry, and Egg Products
- USDA National Organic Program (NOP)
- Agricultural Safeguards and USDA Licensing
Merchandise Subject to Antidumping or Countervailing Duties
The zone procedures shall not be used to circumvent ADD/CVD orders. Items subject to ADD/CVD orders will only be admitted to the zone in privileged foreign status. When these items are entered into the Customs territory for consumption, the items shall be subject to ADD/CVD procedures as appropriate. HTSUS duty rates are established for privileged foreign status merchandise based on the date of admission to the zone. However, the rates of antidumping or countervailing duties to be deposited are those in effect at the time of entry of the merchandise into the commerce of the United States.
Upon entry for consumption, such items shall be subject to bonding or cash deposit requirements under the ADD/CVD order or the suspension of liquidation, as appropriate.
An ADD/CVD investigation or order may be initiated on merchandise that has been previously admitted to a zone in nonprivileged foreign status. When this merchandise is entered for consumption, a determination is made as to whether the merchandise is within the scope of an ADD/CDV investigation or order.
What can be done in a Foreign Trade Zone?
Any merchandise that is not prohibited from entry into the U.S. may generally be admitted into a Zone. Manufacturing, processing and any activity that results in a change of the tariff classification can occur in a Zone but must be specifically approved by the FTZ Board.
No retail trade of foreign merchandise may be conducted in an FTZ. However, foreign and domestic merchandise may be stored, examined, sampled, and exhibited in a zone.
Many products subject to an internal revenue tax may not be manufactured in a zone. These products include alcoholic beverages, products containing alcoholic beverages except domestic denatures distilled spirits, perfumes containing alcohol, tobacco products, firearms, and sugar. In addition, the manufacture of clock and watch movements is not permitted in a zone.
The Foreign-Trade Zones Board may exclude from a zone any merchandise that is in its judgment detrimental to the public interest, health, or safety. The Board may place restrictions on certain types of merchandise, which would limit the zone status allowed, the kind of operation on the merchandise in a zone, the entry of the merchandise into the commerce, or similar transactions or activities.
Importer Security Filing (ISF) and Foreign Trade Zone (FTZ)
Importer Security Filing (ISF) and Additional Carrier Requirements (commonly known as “10+2”) apply to import cargo arriving at the United States by vessel. Under this rule, the “Importer Security Filing (ISF) Importer,” or their agent (e.g., licensed customs broker), must electronically submit certain advance cargo information to CBP in the form of an Importer Security Filing. This requirement only applies to cargo arriving in the United States by ocean vessel; it does not apply to cargo arriving by other modes of transportation.
Failure to comply with the new rule could ultimately result in monetary penalties, increased inspections, and delay of cargo. The information submitted in Importer Security Filings improves U.S. Customs and Border Protection’s (CBP) ability to identify high-risk shipments in order to prevent smuggling and ensure cargo safety and security.
For goods to be delivered to a foreign trade zone (FTZ), the ISF Importer is the party filing the FTZ documentation. For shipments consisting of goods intended to be delivered to a foreign trade zone (FTZ), ISF Importers, or their agents, must submit 10 data elements to CBP.
Those data elements include:
- Seller
- Buyer
- FTZ applicant identification number
- Consignee number(s)
- Manufacturer (or supplier)
- Ship to party
- Country of origin
- Commodity Harmonized Tariff Schedule of the United States (HTSUS) number*
- Container stuffing location
- Consolidator
Foreign Trade Zone, Bonded Warehouses, and Temporary Importation under Bond
Importers and logistics providers can obtain significant benefits in cash flow and supply chain management by using duty deferral programs such as Foreign Trade Zones (FTZs), bonded warehouses, and temporary Importations under Bond (TIB).
A Foreign Trade Zone (FTZ) is a secure area under the supervision of the Customs and Border Protection (CBP) that is physically located within the United States, but is considered to be outside of the Customs territory of the United States for the purposes of payment of duty.
CBP duty and federal excise tax, if applicable, are paid when the merchandise is transferred from the zone for consumption. While in the zone, merchandise is not subject to U.S. duty or excise tax. Certain tangible personal property is generally exempt from state and local ad valorem taxes.
Users of Customs bonded warehouses enjoy similar benefits of duty deference or exemption: deferred duty payment on stored goods, and in some cases, reduced duties on goods manipulated in a bonded warehouse. no duties on re-exported goods
Temporary Importations under Bond (TIB) may be utilized to temporarily import merchandise into the United States for certain specified purposes without the payment of duties provided that they are subsequently exported.
Section 301 Trade Remedy and Foreign Trade Zone (FTZ)
Section 301 procedures apply to foreign acts, policies, and practices that the United States Trade Representative (USTR) determines either (1) violate, or are inconsistent with, a trade agreement; or (2) are unjustifiable and burden or restrict U.S. commerce.
Section 301 tariffs were imposed on Chinese products in response to the investigation of the Office of the United States Trade Representative (USTR) that found the government of China was engaging in unfair trade acts, policies, and practices related to the unreasonable and discriminatory transfer of American technology, intellectual property, and innovation. This is a group of tariffs to be assessed on certain products from China. Unlike the 201 tariffs under this law, they did not require specific petitions from domestic companies. Consequently, the United States has implemented three rounds of tariff increases on a total of $250 billion worth of Chinese products, while China has increased tariffs on $110 billion worth of U.S. products.
These duties are eligible to be refunded through drawback when the product is exported.
The Section 301 duties only apply to products of China and are based on the country of origin, not the country of export.
How are goods subject to Section 301 duties treated when they are admitted into a foreign trade zone (FTZ)?
Per the Federal Register notices published by the USTR, any product listed in the Federal Register notices, except any product that is eligible for admission under domestic status, which is subject to the additional duty imposed by these determinations, and that is admitted into a U.S. foreign trade zone on or after 12:01 am eastern daylight time on July 6, 2018, (for products on the June 20 list), August 23, 2018 (for products on the August 16 list), or September 24, 2018 (for products on the September 21 list) only may be admitted as privileged foreign status. Such products will be subject upon entry for consumption to any ad valorem rates of duty or quantitative limitations related to the classification under the applicable HTSUS subheading.
At this time, products covered by the Section 301 remedy that were admitted as privileged foreign status prior to the relevant effective date, will not be subject to the additional duties; products admitted on or after the relevant effective date, may only be admitted as privileged foreign status, unless eligible for admission under domestic status.
Customs Clearance and Import Requirements
- Entry of Imported Merchandise
- What is Section 321 Entry?
- What is Automated Commercial Environment (ACE)
- What is an Automated Broker Interface (ABI)?
- Who is Ultimate Consignee?
- What is Non-Resident Importer Program?
- Country of Origin of Imported Merchandise
- What is the Country of Assembly?
- What if the FDA's Country of Manufacture?
- Marking of Country of Origin on U.S. Imports
- What is Customs Bond?
- Reconciliation Prototype and Bond Rider
- Who Needs a Customs Broker?
- What is Customs Ruling Program?
- Classification of Imported Goods
- How is imported merchandise appraised?
- What are Import Quotas?
- What are Trade Remedy Duties?
- Antidumping Duty (AD) and Countervailing Duty (CVD)
- What is Foreign Trade Zone (FTZ)?
- What is Importer Security Filing (ISF)?
- What is Temporary Importation under Bond (TIB)
- What is In-Bond Process?
FDA-Regulated Products and Import Requirements
- What is Food Safety Modernization Act (FSMA)?
- Prior Notice of Imported Foods
- Food Facility Registration
- Risk-Based Preventive Controls for Human Food
- Risk-Based Preventive Control for Animal Food
- Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption
- What is Foreign Supplier Verification Program (FSVP)?
- Protect Food against Intentional Adulteration
- FDA Regulated Product in Foreign Trade Zone (FTZ)
- Entry Review Process for FDA Regulated Products
- Country of Origin VS Country of Manufacture
- Foods Regulated by FDA or USDA: What is the Difference?
- Label and Labeling Claims for Conventional Food and Dietary Supplements
- What is USDA Country of Origin Labeling (COOL)?
- Import for Export of FDA Regulated Products
- FDA Regulated Products in Personal Baggage or Sending by Mail or Courier
- International Mail Facility (IMF) and FDA Regulation
- Importing Biological Product Regulated by CBER
- Importing Cosmetics and Voluntary Cosmetic Registration Program (VCRP)
- Importing Drugs into the U.S.
- Importing OTC Drugs into the U.S.
- Importing Veterinary Drugs into the U.S.
- Importing Tobacco Products into the U.S.
- Importing Medical Devices into the U.S
- Importing Food Products into he U.S.
- Importing Radiation-Emitting Products into the U.S.
Quick Link To U.S. Customs & Import Requirements