In the Zone: What Your Company Needs to Know About Foreign Trade Zones
You have probably heard of it, you might even be able to define the acronym, but do you know what a Foreign Trade Zone (FTZ) is? FTZs can save businesses millions of dollars and are an important corporate recruitment tool for states. Having a Foreign Trade Zone is an important part of Utah’s economy, and this article will explain why.
What is a Foreign Trade Zone?
Foreign Trade Zones are federally designated, secure locations in the United States that are considered outside of the commerce of the U.S. The major advantage of merchandise admitted to an FTZ is that it is treated as though it were located outside the United States for customs duty purposes. FTZs are the United States’ version of free-trade zones.
World Trade Center Utah in partnership with EDCUtah and Salt Lake City Corporation recently hosted a seminar on Foreign Trade Zones. Lesley Couch, principal at the consulting firm Indigo Trade Solutions, provided a simplified definition of a FTZ.
Couch said that in the United States, a Foreign Trade Zone is an area designated by both the Customs and Border Protection agency and the FTZ board in Washington D.C. that allows companies to take advantage of savings related to duties and customs fees. The Foreign Trade Zone can be designated for any facility located within an approved FTZ area.
What are the benefits?
One of the main benefits of Foreign Trade Zones is the option to bring imported merchandise into an FTZ-approved facility without paying customs duties and taxes. These costs are not due unless and until the product leaves the facility and enters the U.S. market, which increases cash flow and gives companies more flexibility. When a product is in a designated FTZ area, for reporting purposes, it is considered to be outside of the United States. If a product is exported directly from the FTZ, no Customs duties or taxes are paid at all.
According to the Salt Lake City Corporation, Foreign Trade Zones provide the following benefits:
- Manufacturers or distributors pay no duty on imported items or raw materials until such goods enter the commerce of the U.S.
- Warehousing imported goods in the FTZ defers duty and improves cash flow
- No Customs duty is assessed when re-exporting goods from the FTZ to foreign countries
- Processing goods within the FTZ can eliminate or lower tariffs
- FTZ users may submit one Customs Entry per week rather than submitting one Customs Entry per shipment. This can result in significant cost savings
- FTZ users may also receive permission from Customs to move imported items directly from ports to the FTZ, thereby avoiding delays at congested ports
History of Utah’s FTZ
A Foreign Trade Zone has existed in Utah since the 1970s. It was originally located at the International Center out by the Salt Lake City International Airport, but has since moved to a site near the Union Pacific Intermodal Terminal. The Foreign Trade Zone is located on 55 acres managed by Salt Lake City. It is currently under the traditional site framework, but it is in the process of moving to a more modern framework known as Alternative Site Framework (ASF).
Under the current traditional framework, companies either have to be located within the 55 acres designated as the FTZ, known as the magnet site, or they have to create a subzone. A subzone can be created within a 60-mile radius of the port limits. Under the traditional site framework, Utah only has 55 acres to activate within its magnet site.
According to Peter Makowski with the Department of Economic Development at Salt Lake City Corporation, one of the main reasons the state is looking at Alternative Site Framework is to expand the acreage restrictions. ASF would take the 55 acres Utah is currently allotted and expand it to 2,000 acres available for the creation of subzones. On top of the benefit of more companies being able to take advantage of subzones, ASF cuts down on the time it takes for a company to get approved. Salt Lake City hopes to have Alternative Site Framework up and running in a year.
Currently, a company applying for a subzone under the traditional site framework can expect the process to take eight to 12 months. Alternative Site Framework reduces the approval time to 30 days, which can save a company money since they will be able to access the savings associated with a FTZ sooner.
Where to start
The first step companies interested in accessing the Foreign Trade Zone should take is to reach out to Salt Lake City Corporation. The staff there is available to answer questions and advise companies on if a FTZ may be a good fit.
The Foreign Trade Zone has the potential to save companies a lot of money on duties and fees, but there are costs associated with applying for and running a FTZ. So it is not right move for every business. A cost/benefit analysis is needed to determine the return on investment.
Couch explained that activating a Foreign Trade Zone is a two-phase process. First a company needs to complete an application process run by the Foreign Trade Zones Board in Washington D.C. The local grantee, which in Utah’s case is Salt Lake City Corporation, assists in this process. The second phase of the process is activation with local customs officers and implementation of an FTZ software. The purpose of the second phase is to ensure the applying company’s facility is secure and inventory is being properly tracked and reported to Customs.