Frequently Asked Questions about Foreign Trade Zones

What types of work are permitted inside a FTZ?

Work permitted inside a FTZ include: Assembly, Cleaning, Destruction, Display, Exhibit, Manipulation, Manufacture, Mixing, Processing, Relabeling, Repackaging, Repair, Salvage, Sampling, Storage, and Testing.

What types of work are prohibited within a FTZ?

Retail trade is not allowed, along with certain other activities as defined by commercial code or law enforcement regulations. If your proposed activity is not included in the list of permitted activities, contact the Foreign-Trade Zones Board for a ruling.

Why do firms use foreign trade zones?

To maintain the cost competitiveness of their U.S. based operations vis-à-vis their foreign based competitors. For a firm, zone status provides an opportunity to reduce certain operating costs associated with a U.S. location that are avoided when operating from a foreign site.

Why do communities organize FTZs?

A local trade zone contributes to an area’s commercial attractiveness as a place to do business. By using local business initiative and existing facilities, organizing a zone can be a relatively inexpensive feature of an area’s overall economic development efforts. A well organized zone will provide immediate service to the area’s current business base as well as aiding in the attraction of new business to the area.

Is zone status more beneficial for a foreign owned U.S. based firm (or operation) than a traditional U.S. firm?

No. The benefit of zone use is determined by the firm’s operations, not its ownership; if a U.S. and a foreign owned firm have identical trade operations, the potential benefit of zone status for each of them will be identical. To the extent to which zones treat ownership differently, the difference is that zones encourage U.S. firms to stay in or return to the U.S. and encourages foreign firms to come to the U.S. Currently, over 90% of FTZ users are U.S. based firms.

Does the cost reduction features of zone status translate into an import subsidy or a cause of imports?

No. Zones do not cause imports. The reverse is true--the increasing importance of international trade in the U.S. economy, imports and exports, has caused an increase in the use of zones. The International Trade Commission and the General Accounting Office examined the zones program in 1983-1988; Congress held two hearings on F1-Zs in 1989; none of the examinations produced any information for concluding that zones cause imports. ?he decision to import precedes the decision to use zones.

The import decision is usually motivated by one or a combination of factors: price, quality, and product availability. The "cost reduction feature" of zones relates to the cost of conducting business operations in the United States (distribution, manufacturing, and other non-manufacturing activities) that otherwise will be avoided by conducting these operations at a foreign site. in some respects a suggestion that zones cause imports is equivalent to the suggestion chat imports are caused by the trucks, ships, and planes that transport these products to the United States.

Do zones provide a vehicle for evading U.S. trade laws and regulations (including tariffs and quotas)?

No. Once a foreign product leaves a zone and enters U.S. commerce, the product is subject to the same legal compliance as a product entering the U.S. commerce after being unloaded from a truck, ship or airplane. To insure this legal compliance is maintained, all zones operate under direct accountability to the U.S. Customs Service and all uses of zones are subject to a public interest review by the Foreign-Trade Zones Board.

How do zones "expedite and encourage" foreign direct investment in the United States?

The United States welcomes foreign investment but does nothing to overtly attract, discourage, or direct it. Through this policy of "National Treatment," foreign investors are offered the same conditions, rights, and benefits for and from investing in the United States as a U.S. investor can expect to receive. In keeping with this policy, zones encourage foreign investment by equalizing a tariff bias that unintentionally discourages investment in the U.S. and encourages supplying the U.S. market from off-shore.

Does the employment generated by zone operations represent new jobs, or employment displacement?

There are a large number of jobs attributable to zone based operations that represent new jobs created by companies both regaining and increasing U.S. market shares or competing in export markets more effectively. On a national level, the majority of employment directly attributable to zone operations is job retention. In some instances, this retention has been criticized as relocation or displacement; with the general availability of zone status throughout the United States, no community has lost a plant or job due to a relocation that was motivated just by obtaining zone status.

Why consider a FTZ? Aren’t duties going away?

Companies are moving to FTZs in record numbers. Subzone applications have increased by 30% over the last few years. 370,000 people are now employed due to activity in FTZ’s (6 “indirect” jobs are created by every “direct” FTZ job). New products with new duties are arriving on the scene every day. Ultimately, companies become involved in FTZs due to dramatic cost savings.

What are the types of FTZs?

There are two types of foreign-trade zones: general-purpose zones and subzones. General-purpose zones are usually an industrial park with facilities that may be available for use by the general public. Subzones are single-purpose sites for operations that cannot be feasibly moved to or accommodated in a general-purpose zone.

How do FTZs differ from other programs administered by Customs?

With FTZs, there is generally no time restraints on merchandise remaining in a zone, unlike other similar programs (bonded warehouses, drawback and temporary importing under bond) administered by Customs. Domestic and foreign goods may be admitted to a zone without being subject to Customs' duties or certain excise taxes. Goods may be exported from a zone free of duty and tax. For more information on bonded warehouses, drawback or temporary importation bonds contact your local US Customs Service Port Director.

Are duties paid on the value added in a FTZ?

No, a company is only responsible for paying duties on the foreign content that is entered into U.S. Customs territory. Domestic content for materials, labor, overhead, profit, etc. is not subject to duties.

Does using a FTZ add administrative work?

It is reasonable to expect additional administrative responsibilities will occur as a result of using a FTZ. However, a company may be able to simplify the administrative burden by having a good FTZ inventory system.