Learn How to Set Up a Foreign-Trade Zone

Shanghai, where there is a free-trade zone (FTZ).

Want to avoid customs authorities in the trade process and even defer paying duties on merchandise? Establish a foreign-trade zone (FTZ) or what is often identified outside the United States as a free-trade zone. Below I define what a foreign-trade zone is, what are the benefits and how to set one up.

Foreign-Trade Zone

A foreign-trade zone is a dedicated area where goods can land, be repackaged, modified, manipulated, relabeled, manufactured further and re-exported without customs authorities stepping in.

An FTZ is especially useful to firms that import components to manufacture finished products for export.

According to the United States Department of Commerce, International Trade Administration's website: "A foreign-trade zone helps encourage U.S. activity and value added in competition with foreign alternatives by allowing delayed or reduced duty payments on foreign merchandise, as well as other savings."

Free-Trade Zone

A free-trade zone, on the other hand, is a dedicated area where goods can land, be repackaged, modified, manipulated and relabeled, along with the performance of a number of other operations in some cases excluding manufacturing (similar to a bonded warehousing situation)--and re-exported without customs authorities stepping in. Free-trade zones are located outside the United States.

Foreign-Trade Zone vs Free-Trade Zone

As you can see, the biggest differences between a foreign-trade zone and free-trade zone are the manufacturing element and location.

If you need to manufacture merchandise further, the foreign-trade zone is the route to take. If you want only to relabel products, a free-trade zone is your best option. In either case, once you re-export goods, you will have to pay customs duties at the value of the merchandise at the time of export.

While merchandise is in the foreign trade zone, no payment of any customs duties is required. Further, goods can be exported to other countries from the foreign trade zone free of duty and tax. However, if the goods are moved for consumption, the merchandise will be dutiable at the value of the goods at the time of withdrawal. The rate may vary due to production activity and any tariff reclassification of the product; typically the importer should pay the lowest duty possible on the imported goods.

Many countries designate a free-trade zone area that permits these sorts of trade activities and helps American exporters. To find out if a country has a free-trade zone area, contact the embassy or customs officials of that country for information and documentation requirements. Contact information for foreign embassies is available by calling 800-USA-TRAD(E).

Many U.S. freight forwarders also have established contacts with many of these foreign free-trade zones and can provide information on the appropriate documentation needed to ship goods through them. It is important to thoroughly check all the requirements to ensure you can fulfill the commitment and claim a duty-free status on your goods.

Benefits to Establishing a Foreign-Trade Zone

The main benefits to establishing a foreign-trade zone include but are not limited to:

  • Streamlined customs paperwork and procedures.
  • No duties on or quota charges on re-exports.
  • Customs duties and federal excise tax deferred on imports.
  • Goods can remain in a zone indefinitely regardless of whether it is subject to duty or taxation. There may be exceptions to this, so make sure to check.
  • Save money-Squeeze out additional profits!
  • Save time-Goods destined for an FTZ are not delayed at the port for customs because they are given priority for pier-side movement.

How to Set up a Foreign-Trade Zone

To get foreign-trade zone status:

  1. Apply Online
  2. Designate what type of authority you wish to have (e.g., general purpose, subzones, and production).
  3. Pay a fee to enter an FTZ.
  1. Activate your license through the U.S. Customs and Border Protection (CBP). Once your zone or subzone is approved by the FTZ Board, activation must occur before merchandise can be admitted under zone procedures.

More FTZ Info