Foreign-trade zones

Foreign-trade zones (FTZs), also known as free-trade zones, are facilities, usually established in enclosed areas near U.S. ports of entry that receive special treatment with regard to taxation of imported of goods. Technically FTZs are treated as being outside the customs territory of the United States and are subject to local and state labor, public health, and other laws. However, state regulations regarding food, drugs, or cosmetics do not apply to imported goods transshipped through foreign-trade zones. Although FTZs have existed in Europe since the 1800s, they were first established in the United States after passage of the Foreign Trade Zone Act in 1934 as an attempt to mitigate the impact of protective TARIFFs imposed during the GREAT DEPRESSION. FTZs were not widely used until the 1980s and 1990s. In 1970 there were only eight FTZ projects; by 2001 there were over 230 FTZs. Goods imported into FTZs are treated for tariffs primarily as either “privileged foreign merchandise” or “nonprivileged foreign merchandise.” Privileged foreign merchandise is assessed tariffs based on condition upon the entry into the zone, but the actual duties are deferred until the merchandise is removed from the FTZ and enters the United States. In addition to having the tariffs deferred, privileged foreign merchandise status continues even if the goods are manufactured or processed before leaving the zone. This avoids additional tariffs if the good is changed from one classification to another and would otherwise be subject to a higher tariff. Nonprivileged foreign merchandise is not categorized for tariff purposes until it leaves the FTZ. Thus its value, classification, condition, and applicable tariff rate are determined by the PRODUCT leaving the zone. Because of the ability to take advantage of differences in the U.S. tariff structure, there has been substantial growth in the use of foreign-trade zones in the United States. In one case, Japanese steel plates were brought into an FTZ on a nonprivileged basis and left the zone as barges. The steel plates would have been subject to a U.S. tariff, but barges are not subject to tariffs. Another advantage of foreign-trade zones is that U.S. quotas do not apply. If an import quota has been filled, FTZs can be used to store products until the next quota period. Goods from countries not subject to mostfavored- nation status can be brought into foreign-trade zones and, if they are transformed into products subject to lower most favored nation (MFN) tariffs, receive the lower tariff rate. Even though foreign-trade zones are intended to benefit U.S. exporters, allowing them to bring products into the U.S. for processing and then reexport without having to pay tariffs, many foreign companies use FTZs to bring products into the United States subject to lower tariffs.
The National Association of Foreign Trade Zones list of FTZ benefits include
1. duty deferral
2. exports
3. reduced or eliminated duties related to defects, d amage, obsolescence, waste, and scrap
4. nondutiability of labor, overhead, and PROFIT
5. inverted customs duty savings
6. international returns
7. spare parts
8. U.S. quotas
9. simplification of import/export procedures
10. QUALITY CONTROL
11. cargo insurance
12. security
13. INVENTORY CONTROL
14. consumed merchandise (generally not subject to duties)
15. inventory taxes
16. exhibition of market goods before payment of duty
17. reduced INSURANCE costs
18. country of origin marking and labeling
19. zone-to-zone transfer
20. transfer of title.
See also RULES OF ORIGIN.