What is a Foreign-Trade Zone?

A foreign-trade zone is an area where foreign and domestic merchandise or commodities are considered to be in an international commerce zone and not within a U.S. Customs territory. 

A foreign trade zone is a restricted-access site authorized by the Foreign-Trade Zones Board. Upon activation under regulations of the U.S. Customs Service, FTZs are secure areas under U.S. Customs supervision. These zones are at or near U.S. Customs ports of entry (the Port of Port Lavaca-Point Comfort). Formal customs entry procedures do not apply in these zones, although FTZs are within the territory and jurisdiction of the United States.  

The FTZ offers operational and financial benefits to the user.  Both foreign and domestic cargoes can be moved into the FTZ without formal Customs entry, without payment of duties or excise taxes, and without inclusion in quotas or other import restrictions.

Foreign-trade zones are used primarily as a way for firms to maintain the cost competitiveness of their U.S.-based operations.  Zone status provides an opportunity to reduce certain operating costs associated with a U.S. location – costs that are avoided when operating from a foreign site.

Foreign trade zones (FTZs) are designated sites where special customs procedures apply. Foreign trade zones in the United States are comparable to so-called free trade zones in many countries, though procedures vary widely from country to country.

FTZs allow domestic activity involving foreign items to take place as if it were outside the customs territory of the United States for duty payment purposes, thus offsetting customs advantages available to overseas producers who export in competition with products made in the United States.

Why Were Such Zones Established?
Congress established the Foreign-Trade Zones Board in 1934 to license and regulate FTZs in the United States. FTZs were established for a number of reasons, the primary being to encourage and expedite U.S. participation in international trade. Foreign goods may be admitted to an FTZ without being subject to customs duties and certain excise taxes.

FTZs allow deferred payment of duties until goods are entered into the commerce of the United States. Under zone procedures, the usual customs entry procedures and payment of duties are not required on foreign merchandise until it actually enters customs territory for domestic consumption. Foreign merchandise that is re-exported is not subject to U.S. customs duties. Domestic goods admitted into a zone, in zone-restricted status (for storage, destruction, or export), are considered exported when admitted to the zone for other government agency requirements, excise tax, and duty drawback.

The FTZ Board’s criteria require that zone activity be consistent with U.S. trade policy and result in a net positive economic effect, taking into account potential impact on U.S. plants that are not located in zones.

What Are the Types of FTZs?
There are two types of foreign trade zones: general-purpose zones and subzones. General-purpose zones are usually located in industrial parks or in seaport and airport complexes with facilities available for use by the general public.

Subzones are sites sponsored by a general-purpose zone grantee on behalf of an individual firm or firms. Subzones are single-purpose sites for operations that cannot be feasibly moved to, or accommodated in, a general-purpose zone (for instance, oil refining and automobile manufacturing).

The Foreign-Trade Zones Board grants zones to qualified public and private entities such as port authorities and city/county economic developers. In a general-purpose zone, the grantee usually has an operator to run the zone. Operators can sublet to tenants, called users. In a subzone environment, the user and operator are usually the same.

Do Other Countries Have FTZs?
Many other countries operate special customs areas, such as free trade zones (also referred to as FTZs) and export processing zones. U.S. exporters and other interested parties should contact the embassy or customs officials of individual countries for specific procedures, requirements, and arrangements. Although there may be several similarities, it should not be assumed that a free trade zone overseas operates under the same principles as a foreign trade zone in the United States.