FTZs: No Drawbacks for Exporters, Big Gains for Local Economies
by Bill Armbruster, blog anchor
For exporters that use significant amounts of imported components or raw materials, there are significant benefits to be had from setting up in a Foreign Trade Zone.
The most obvious benefit is that they do not pay Customs duties on those inputs to produce finished products for foreign markets. Nor do they have to go through any Customs procedures, a free pass that saves time and money, as well as allowing companies to operate on regular schedules without worries about Customs delays inbound or outbound.
Operating within a zone allows exporters to bypass drawback, the complicated and tedious process that companies operating outside a zone use to apply for a refund of the Customs duties they paid on imported inputs after their final products are exported.
Companies that use zones for distribution operations enjoy similar benefits on imports that are then re-exported.
Besides making companies more competitive, FTZs benefit their local communities by stimulating job growth and economic development.
The popularity of FTZs is evidenced by the skyrocketing growth in zone exports, which totaled $70 billion last year, up from $54 billion in 2011 and about $28 billion in 2009, according to the Foreign Trade Zone Board, the Commerce Department agency that oversees FTZs.
The board grants the authority to operate a zone, typically to public or nonprofit organizations such as port authorities and local economic development agencies.
The process of setting up in an FTZ is fairly simple, according to Dan Griswold, president of the National Association of Foreign Trade Zones. The first step is to identify the FTZ nearest you, which you can find on the FTZ Board web site, or by calling the NAFTZ office, (202) 331-1950, and then determine whether you fall within the zone’s service area.
If you have a fairly sizable business and operate within an FTZ service area – which usually encompass multiple counties – there’s a good chance that you will not have to move any of your operations to qualify.
“The key is to work with the local grantee. It will sponsor your application to the FTZ board,” Griswold told me. Applications for manufacturing or production operations are approved within 120 days more than 80% of the time.
There are 256 authorized FTZs around the country, with at least one in every state and Puerto Rico. However, 82 of them are inactive. That’s because they have no active users – in some cases due to the grantee’s failure to market the FTZ, Griswold said.
FTZs are divided into general-purpose zones and subzones. General-purpose zones are usually located at ports or industrial parks and must be open to multiple users. The biggest companies typically operate their own subzones
Companies operating within a zone pay an annual fee to the grantee. The FTZ Board requires the fees to be fair and uniform to all operators within a zone, although they can vary depending on the type of activity, such as manufacturing versus non-manufacturing, and business volume.
For example, at FTZ 82, which serves Mobile and Baldwin counties in Alabama, a smaller manufacturer, with less than $10 million in zone-related imports per year, pays an annual fee of $15,000, while a large manufacturer, with up to $25 million in imports, pays $25,000, according to Greg Jones, the zone coordinator.
The two companies that use the zone for export operations, DuPont and Aker Subsea, a maker of umbilical systems for undersea energy exploration, provide $180 million in export activity at the zone.
Jones noted that about half of Mercedes’ production at its plant in Vance, Ala., a subzone of FTZ 98 in Birmingham, is export-related. The plant produces all of Mercedes’ M class vehicles sold worldwide, and starting next year, it will begin producing the automaker’s C class vehicles for markets in the Western Hemisphere. Jones attributed the new business to the competitive advantages of operating within a zone.
Those same advantages contributed to BMW’s decision last summer to award new business to its US subsidiary in South Carolina. As a result, BMW will move export operations to a new facility, where it will occupy 413,000 square feet, up from 156,000 square feet in its current location. That means a lot of new jobs.
- Import and export companies can cut costs with FTZs
- International Buyer Program B2B match-making
- Using carnets to cut costs on temporary exports
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected]
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: November 6, 2013