Import and Export Companies Can Cut Costs in FTZs, But Few Do
by Bill Armbruster, blog anchor
Whether you’re an importer, exporter or distributor, doing business within a Foreign Trade Zone offers many opportunities to trim costs, yet relatively few companies pick up on them.
“We were surprised that that so few companies were in [Savannah’s FTZ] and understood the benefits,” says Brynn Grant, vice president of World Trade Center Savannah, which assumed control of the Savannah Foreign Trade Zone earlier this year.
FTZs allow US-based companies to defer, reduce or even eliminate Customs duties on products that are admitted into the zones, where a range of merchandise activities can be conducted, including assembly, manufacturing, repackaging, testing and storage.
Customs duties come due for payment only if and when merchandise is moved from the FTZ into territory under the authority of US Customs and Border Protection. And here importers have a choice: they can choose to pay whichever is lowest, the rate on the foreign inputs admitted to the FTZ or the rate on the finished product.
No duties at all need be paid on merchandise that is exported from an FTZ.
In some cases, duties previously paid on exported merchandise may be refunded through a process called drawback.
In addition, users are authorized to exclude the costs of processing or fabrication, general expenses, and profit from the valuation of the merchandise. Therefore, duties are not owed on labor, overhead and profit attributed to production in an FTZ.
Other benefits for import and export companies involve taxes, quotas and inventory control. Those benefits are spelled out on the website of the National Association of Foreign Trade Zones.
Giant oil companies such as Exxon Mobil and Conoco Philips are by far the biggest users of FTZs. Oil refining accounted for $218 billion of the total $732 billion in FTZ business activity last year, according to the annual report of the Foreign Trade Zone Board, the federal agency that oversees the zones.
Other major industries doing business at the zones are automotive, electronics, pharmaceuticals and machinery/equipment. Multinationals such as BMW, GE, Caterpillar and Canon dominate those sectors, but retail and distribution has been a major growth sector in recent years, according to Dan Griswold, executive director of the NAFTZ.
Griswold also notes that small to mid-size import and export companies have been flocking to FTZs, accounting for most of the recent increase in FTZ users, which jumped from 2,800 in 2011 to 3,200 last year. Regulatory reform was the primary driver of that increase, he told me in a telephone interview.
Most of the zones are clustered around ports, but many are also located in inland states such as Ohio, Indiana and Nevada. The zones are listed state by state in the FTZ report.
The FTZ program was created in the 1930s to promote American competitiveness by encouraging companies to maintain and expand operations in the US.
That’s what Grant plans to do with the Savannah FTZ. Ten companies operate there now, but by spreading the word, she hopes to double that number within the next 10 years. “Economic development is our business,” she says.
In my next blog post I will focus on how US exporters can take advantage of FTZs.
This posting was changed on October 11, 2013, to correct an earlier error in Brynn Grant’s title. -Editor
You may also be interested in Bill’s posts on:
- International Buyer Program B2B match-making
- A fast way to figure tariffs as they phase out under FTAs
- 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: October 2, 2013