Foreign Trade Zones

1. By: Yaakov Bloch & Kyle Mcniff Foreign Trade Zones

2. Definition • An area where goods maybe received, stored, manipulated and manufactured without entering a country's customs jurisdiction and hence without payment of duty. Outside the United States it is usually called a "free trade zone." • Secure geographical areas under CBP • Near a U.S. Customs port of entry • Merchandise outside of U.S. Customs territory • Duties & excise taxes are due if enters U.S. CBP: U.S. Customs and Border Protection

3. FTZ: Foreign Trade zone Activities Permitted in a FTZ • Merchandise entering a Zone may be: • Assembled • Tested • Sampled • Relabeled • Manufactured* • Stored • Salvaged • Processed • Repackaged • Destroyed • Mixed • Manipulated * *The user must receive special approval from the FTZ Board for manufacturing.

4. Types of Zones General-Purpose Zones Subzones (Special-Purpose Zones) • located at ports or industrial parks. • involve public facilities. • They are open to multiple zone users. • manufacturing is permitted • Sponsored by general-purpose zones • Typically involve a single firm's site • Inability to relocate existing facilities into a general-purpose zone site. • Applications must demonstrate a significant public benefit for approval.

5. Different Types of Zones: Continued General Purpose zone Subzones (Special purpose zone) • Used by small to medium sized businesses for warehousing/distribution and processing/assembly. • Mostly used for: Storage & Distribution. • Approved for use by one company for a specific activity. • Located at manufacturing plants. • Used for more extensive manufacturing/processing or warehousing/distribution (cannot easily be accomplished in a general-purpose zone.)

6. The Purpose • Facilitate international trade • Increase global competitiveness of U.S. companies • Neutralize negative impact of U.S. tariffs • Encourage domestic operations that otherwise move overseas • Expedite exportation of domestic goods with foreign and domestic content

7. Benefits for Users

8. Inverted Tariff

9. Benefits for Users

10. Quality Control Finished Product Quality Control Receiving & Manufacturing Process Can be returned, scrapped, or destroyed withoutpaying duty Detection of damaged, defective, or unused material

11. Benefits for Users

12. Benefits for Public • Lowers costs for consumers • Creates employment opportunities • Retains domestic operations • Assists in local economic development

13. Who can apply? • Any public company in any industry • The process is lengthy — 9 to 12 months • Depending on: • Includes port authorities, cities, counties, & economic development organizations • Industry • FTZ is created • Participating in one that already exists.

14. Application Process 6 types of applications • New General Purpose Zone • New Subzone (Manufacturing/Distribution) • Manufacturing Authority within a General Purpose Zone • Manufacturing Authority Expansion • Temporary/Interium Manufacturing Authority • Major Boundary Modification

15. Application Process • All applications for FTZ are submitted to the Foreign-Trade Zones Board • Through the local grantee. • Fees included FTZ: Foreign Trade zone

16. Application Process: Fees • $0 For the initial zone project at a CBP port of entry or for minor modification requests. • $3,200 For an Additional general-purpose zone applications within a CBP port of entry • $4,000 to $6,500 For subzone applications. • $1,600 For the expansion of an existing foreign-trade zone. CBP: U.S. Customs and Border Protection

17. Application Process : Description • Provide extensive information • Propose zone project • Purpose of the project • Legal descriptions • Public interest explanations • HTSUS descriptions (if necessary). • Published in the federal registrar • Subject to public notice and comment proceedings

20. FTZ Structure

21. Foreign-Trade Zones Board • Responsible for the • approval and • administration of • Zones • Does not handle day • to-day administration • Executive Secretariat • located within the • Import Administration • of the US DOC

22. U.S. Customs & Border Patrol • Responsible for • ensuring compliance • with regulations • Controls of • merchandise moving • to/from a zone • Collects of all revenue • Ensure proper • security measures at • facilities

23. Grantee • Public entity (port authorities, cities, counties, economic development org) • Files all applications • with FTZ Board • Oversees all activity • Compiles info and • files annual reports to • the FTZ Board • Markets the Zone

24. Zone Operators • Accepts direct • Customs liability for • Zone • Must post a bond to • ensure compliance • Responsible for day- • to-day activities • Inventory control and • record compliance

25. Disadvantages & Criticism • Finished article may be dutiable at a higher rate than the components. • Being able to receive product which are dumped • Facilitates for underground market growth • Gives corporations more economic liberty than is given ordinary citizens • Free trade zones’ Exploitation of third world nations (ex: Cheap labor) • Reduction of gov’t revenue from the decrease or elimination of Customs duties. • Security required to avoid the risk of smuggling into Customs territory without paying duties. • Cost & maintenance FTZ: Foreign Trade zone

26. References • http://www.integrationpoint.com/products/foreigntradezones.html • http://www.foreigntradezone106.org/main_glossary.htm • http://www.sbaer.uca.edu/research/sribr/1999/17.pdf • http://www.naftz.org/index_categories.php/ftzs/29 • http://ia.ita.doc.gov/FTZPAGE/letters/ftzlist.htmL • http://ia.ita.doc.gov/ftzpage/info/ftzstart.html • http://ia.ita.doc.gov/ftzpage/process.htm; • http://ia.ita.doc.gov/ftzpage/tic.html • http://www.aapa-ports.org/industry/content.cfm?itemnumber=1077&navitemnumber=545

27. Thank you for your attention!