Foreign Trade Zones: Strategic Advantages in Global Commerce

With a changing administration on the horizon and new priorities for both trade and bolstering American manufacturing at home, Foreign Trade Zones (FTZs) have emerged as powerful tools for businesses engaged in international commerce and may play a greater role for companies in the coming years. According to the Foreign-Trade Zones Board’s 85th Annual Report to Congress, these secure areas under U.S. Customs and Border Protection supervision processed nearly $949 billion in shipments during 2023, demonstrating their vital role in American commerce.

“Foreign Trade Zones serve as essential hubs in the global supply chain,” explains Steve Panzarella, President of Global CFS, which operates FTZ Site #43 in Chicago. “They provide businesses with strategic advantages that can significantly impact their bottom line when the programs are administered and executed correctly and recordkeeping meticulous to ensure compliance with all customs regulations.”

The concept is straightforward but powerful: FTZs are considered outside U.S. customs territory for duty payment purposes. This designation offers multiple strategic advantages that companies can leverage:

Duty Deferral and Potential Reduction:

Companies can bring foreign merchandise into an FTZ without immediately paying customs duties. Duties are only paid when goods enter U.S. commerce, providing significant cash flow benefits. In some cases, companies can choose whether to pay duties on the foreign materials or the finished product, whichever yields the lower duty rate.

This has become crucial for companies whose goods are subject to Section 301 and Section 232 trade remedy duties on imports from China and other countries.

Manufacturing and Processing Benefits:

Within FTZs, companies can conduct a wide range of operations including storage, exhibition, assembly, manufacturing, and processing. For manufacturers, this means the ability to combine foreign and domestic components in their production process while optimizing duty payments. The data shows this benefit in action – in 2023, about 68% of shipments into FTZs involved domestic status merchandise, with production operations using an impressive 80% domestic content.

With an approved process within a zone, foreign and domestic components can be assembled into something entirely different – a vehicle, for instance – and the finished product which leaves the zone is an automobile, not the individual dutiable items which entered.

Export Advantages:

When domestic goods move into an FTZ for export, they are considered exported upon entering the zone for purposes of excise tax rebates and duty drawback. In 2023, exports from FTZ facilities amounted to nearly $149 billion, highlighting their role in facilitating U.S. exports.

Global CFS’s FTZ operation in Chicago exemplifies modern zone management. Operating with over 8,000 square feet of designated FTZ space and handling more than 10,000 entries annually – representing over a billion dollars in freight value – the facility demonstrates how FTZs can be effectively integrated into complex supply chains.

Key industries that typically benefit most from FTZ usage include:

• Pharmaceuticals
• Oil refining and petrochemicals
• Automotive manufacturing
• Electronics
• Machinery and equipment
• Consumer goods distribution

The 2023 statistics show the program’s substantial economic impact:

– Over 550,000 persons employed within FTZ operations

– 374 active production operations

– 200 active FTZs across the country

– Production operations accounted for 62% of zone activity, receiving nearly $585 billion in merchandise

Looking ahead, FTZs are becoming increasingly important as companies seek to optimize their supply chains and manage trade-related costs. The program’s success is evident in its growth and adaptation to modern commerce needs. In 2023, the FTZ Board received and docketed 66 requests and issued 73 decisions, including the reorganization or expansion of nine zones under the alternative site framework.

For companies considering FTZ usage, the process begins with understanding their specific needs and opportunities. Operators like Global CFS can provide crucial expertise in navigating the complexities of FTZ operations. The facility must operate under strict CBP supervision, with specific requirements outlined in federal regulations (19 CFR Part 146).

The benefits of FTZ usage are particularly relevant in today’s volatile trade environment. With shifting tariffs and trade policies, the ability to defer, reduce, or even eliminate duties can provide crucial competitive advantages. Companies can use FTZs to mitigate the impact of trade disputes, manage inventory more effectively, and optimize their global supply chains.

The FTZ program’s focus on promoting U.S. economic growth is evident in its outcomes. The high percentage of domestic status merchandise used in FTZ operations demonstrates that the program successfully encourages domestic operations while facilitating global trade. As international commerce continues to evolve, FTZs remain a vital tool for companies seeking to maintain competitive advantages in the global marketplace.