What is a Foreign-Trade Zone?
A foreign-trade zone is a physical location that has been designated by the FTZ Board as an area where a user can gain access to the benefits of the FTZ Program. The foreign-trade zone site while located within the United States is considered outside the Customs Territory of the U.S. It is the distinction of being considered outside the Customs Territory of the U.S. that affords the opportunity for FTZ benefits. Merchandise located in a FTZ is still considered to be part of international commerce. It is only once the merchandise leaves the FTZ (either in the same condition as imported or further manufactured), that normal tariff and Customs regulations pertaining to the entry of goods are applied.
What is the Foreign-Trade Zone Program?
Congress under the FTZ Act of 1934 established the Foreign-Trade Zone Program. Its purpose is to “expedite and encourage foreign commerce” with the intent to stimulate international trade while creating jobs and investment in the United States. It is a trade program, overseen by the Foreign-Trade Zone Board which is comprised of the Secretary of Commerce and the Secretary of the Treasury. The FTZ Program is administered by the Executive Secretary and his staff who ensure that the designation of foreign-trade zone sites (both multi user and for individual companies) and their use is consistent with U.S. trade policy and provides a positive net benefit to the U.S. in terms of economic development.
In essence, approval for participation in the Foreign-Trade Zone Program affords the user an exemption to the tariff schedule of the Unites States, allowing the deferral, reduction or elimination of duties paid on imported materials and goods in exchange for sustained or increased jobs and investment in the U.S. This in turn provides a benefit to the U.S. in terms of increased economic activity in the U.S. that might otherwise move offshore.
What are the Types of Foreign-Trade Zones?
General Purpose Zones are multi user sites that can store any type of merchandise allowed to be imported into the U.S. They are most often warehouses, industrial parks with multiple tenants or acreage associated with either an ocean or air port. Multiple general purpose zone sites may exist within a foreign-trade zone project. In Orange County, there are seven different general purpose zone sites including acreage associated with the Stewart Airport and Port Newburgh as well as other sites located around Orange, Dutchess and Rockland Counties. Companies who are not manufacturing imported materials into a different article of commerce and who are willing to locate their operations in any of these sites can gain relatively quick access to FTZ benefits by gaining the approval of the Bureau of Customs and Border Protection through the activation process.
A subzone is a single user foreign-trade zone site which is authorized for the sole use of a specific company. Merchandise that can be processed through the subzone is limited in scope and is specifically approved by the Foreign-Trade Zone Board. Generally, a subzone designation is sought by a private company who cannot relocate their operations into an area designated as a general purpose zone site. The Orange County FTZ has two sites designated as subzones. However, neither is currently active.
What Companies Might Benefit from Using FTZ Procedures?
There are several basic questions that need to be answered before use of the foreign-trade zone program is even considered. They are:
If the answer to any of the above questions is yes, use of the foreign-trade zone program may provide a benefit to the company.
- Does the company import products or materials?
- Is the company paying duty on those imported products or materials?
- Does the company import on a continuous basis?
- Is the company encountering procedural or compliance problems with Customs with their existing imports that could be corrected by the importer once the merchandise arrives in the U.S. (i.e. incorrect country of origin marking)?
- Does the company currently have a duty drawback program in place?
What is Required for Activation of a FTZ by Customs?
Activation is Customs official authorization for a designated zone operator to operate the zone. Activation allows the zone user, under the supervision of a zone operator to bring merchandise into the FTZ without the payment of duty, store it and if authorized, manufacture it, and then transfer it either into the commerce of the U.S., to another FTZ or to export it. For a zone site to become activated, the following requirements must be met:
- An operator’s agreement is negotiated between the potential operator and Orange County as grantee. In a subzone situation, the company requesting subzone status generally acts as the zone operator as well as the zone user. Orange County has a zone operating schedule that details the fees payable by zone operators to Orange County as grantee.
- The area to be activated within a designated zone site is identified on a map of the area and on a blueprint of the actual facility.
- The operational procedures that will be used to receive, store, process and remove merchandise from the zone must be documented in an FTZ Procedures Manual for submission to Customs for review.
- An inventory system must be implemented that meets the requirements of the Bureau of Customs and Border Protection. It must sufficiently track the merchandise located in the zone so as to protect the revenue of the U.S. (the unpaid duty) and provide for the timely preparation of all required Customs documentation.
- Orange County, as grantee, must concur that the inventory control and recordkeeping system is in compliance with the Customs regulations and that they concur with the request for activation.
- A check of the physical security protecting the merchandise must be conducted by Customs.
- A background of key individuals involved in the control of the merchandise and the inventory control system must be conducted by Customs.
- A FTZ Operator’s Bond must be established with the bond amount determined by Customs.
- A letter requesting activation and any other special FTZ procedures must be submitted to Customs.
- Once Customs receives the request for activation, the actual written approval may take one to four months, depending on how much Customs has been involved in the activation preparation work.
Please contact Harry Porr III, Director