A Foreign Trade Zone (FTZ) is set up in Title 19 of the US Code. It is
an area designed to remove certain disincentives associated with
manufacturing in the U.S. A FTZ is a boundary outside the customs
territory of the United States. It must be adjacent to a port of
entry. The river is our port of entry, and will tie the primary zone
and sub-zones together.
One of our first priorities after the port is functioning is to
establish a foreign trade zone in the region for immediate economic
benefit to all the states. We will have a primary zone, and sub-zones
in our area. These will provides tax benefits for warehousing and
Relief from inverted tariffs
In certain instances, there are duty fee relationships that
penalize companies for making their product in the U. S. This occurs
when a component item or raw material used in manufacture carries a
higher duty rate than the finished product. In those instances, the
importer of the finished product pays a lower duty rate than a
manufacturer of the same product in the United States. This gives
the importer an unfair and unintended advantage over the domestic
manufacturer. The Foreign-Trade Zones removes this disincentive for
our U.S. manufacturers. For example: A manufacturer in a Foreign
Trade Zone imports a motor which carries a 4% duty rate and uses it
as a component in manufacturing a vacuum cleaner. When the vacuum
cleaner leaves the FTZ and crosses the boundary of the U.S., the
duty rate drops to the zero tariff rate for vacuum cleaners.
Duty exemption on re-exports
Without a FTZ a manufacturer or processor who imports a component
or raw material into the United States, is required to pay the duty
at the time the component or raw material enters the U.S. at the
point-of-entry. However, since a Foreign-Trade Zone is considered to
be outside the boundary of the U.S. for customs, no Customs duty is
owed until the merchandise leaves the zone and crosses the boundary.
If the imported merchandise is exported back out of the country from
the FTZ, no Customs duty is ever paid.
Duty elimination on waste, scrap, and yield loss
Without a FTZ, an importer pays the Customs duty owed as material
is brought into the United States. This is because the material is
considered imported at this point. If the processor or manufacturer
is within a zone environment, the merchandise is not considered
imported, and therefore no duty is owed until it leaves the zone for
shipment into the United States. Also, the material lost due to
waste, scrap, and yield loss will never incur a Customs duty.
While at first glance it might look like the Zones program is simply
benefiting an importer, it is important to remember that its
competitors making the same product overseas already have the
benefit of not having to pay on the yield loss in the production of
Weekly Entry benefit.
There is a 0.21 percent merchandise processing fee based on value
for each and every formal entry with $25 minimum, $485 maximum
charged. Prior to 2000 if you had five shipments per week with a
value that would rate the maximum charge (that is, over $230,953
each), the cost for processing the ten shipments would be $2,425 per
week. Under rules passed in 2000, shipments received during one week
are now processed as a single shipment with a maximum of $485
charged per week. For five shipments per week at the maximum charge
per shipment, this means an annual savings of $100,880 per year
would be realized. Savings increase with the number of shipments
FTZ sub zones, not co-located with the general purpose FTZ are also
available. The sub-zone can only contain a single manufacturer. Until
the Mid-America FTZ is operating, sub-zones in the region will be
administered through FTZ-114, out of Peoria, Illinois.
See the presentation for more discussion of FTZ issues.