The concept behind Foreign-Trade Zones (FTZs) is not hard to grasp — they act as secured places for receiving cargo into the U.S. without incurring tariffs, yet. Then, there are multiple ways those tariffs can be reduced. And yet, many companies are failing to make the most of FTZs to reduce costs, because they’re intimidated by the legal and organizational hurdles.

Using an FTZ allows importers to insulate themselves against trade policy volatility. In any FTZ, materials can be kept indefinitely, but the tariff rate can also be locked in at the time goods enter the FTZ, or be assessed at the time they’re withdrawn, whichever is lower. For example, if raw materials or parts and are manufactured into finished goods within the FTZ, it achieves a beneficial tariff shift, because finished products often attract a lower rate. This is known as “inverted tariff relief.”

Another advantage is that an FTZ can be used in the same way as a bonded warehouse, where no duty becomes payable if those goods are exported to another country — with the added benefit that there is no time limit on deciding to do so, as there is with bonded warehouses. The absence of time limits also means that safety stock can be kept and no duty paid on it until it’s optimum to be deployed (duty deferral). Also, any scrap or unusable materials can be counted in order to mitigate the duties on those materials. When it comes to high-tariff raw materials such as steel, that can deliver significant savings. 

Other benefits include streamlined customs operations, and a generally more efficient supply chain, because operating an FTZ means companies need to be exactly on top of where everything came from and where it’s going.

Read on for a more detailed look at the financial and strategic benefits of FTZs in the current world climate.

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