By: Cynthia Kurtz
Posted 10/02/2013
There are several
Foreign Trade Zones or FTZs in the San Gabriel Valley. They allow merchandise
to be brought into the U.S. without paying the duties and excise tax upon
entry. Instead, the tariffs are paid when the merchandise leaves the FTZ.
FTZs have been
around under the oversight of the U.S. Department of Commerce since 1934 so
clearly they are providing value but many people don’t understand what that
value is and how important they are in a region like the SGV. Recently Craig M.
Pool, President of Foreign-Trade Zone Corporation was the speaker at the Industry
Manufacturers Council (IMC) lunch. He promised to make FTZ’s simple kept his
word.
Foreign trade zones are always located near U.S. points of entry. Property within the zone is considered to be outside the supervision of the U.S. Customs and Border Protection. That means the entry procedures and payments of duties are not required on the foreign merchandise as long as it remains in the FTZ. The duties are paid when the merchandise leaves the zone for “domestic consumption.”
Foreign trade zones are always located near U.S. points of entry. Property within the zone is considered to be outside the supervision of the U.S. Customs and Border Protection. That means the entry procedures and payments of duties are not required on the foreign merchandise as long as it remains in the FTZ. The duties are paid when the merchandise leaves the zone for “domestic consumption.”
You may be
wondering what the big deal is. Why does the government bother authorizing and
overseeing these zones just so duties and excise taxes are delayed. Mr. Pool
explained why FTZs are good policy and good for business.
FTZs create jobs
here. The combined tariffs on the components of a product are sometimes higher
than the tariff on the finished product. In order to survive in a competitive
market, companies have no choice but to assembly off shore. If the components
are brought into and assembled in the zone, the jobs are created here and the
company reduces costs by paying the tariff on the finished product. A win-win.
Sometimes a single
major component has a higher duty rate than the finished product. For example,
the duty rate for the motor used in the “Little Green Machine” vacuum cleaner
is 5.3 percent. The duty rate for a vacuum cleaner is 3 percent. If the
machines are assembled in an FTZ, it reduces the rate, reduces the product cost
and creates jobs.
If during
processing, your project has a high yield loss, paying the duty on the end
product rather than the raw materials can add up to huge savings.
Duty deferral can
be a big help to companies purchasing expensive production equipment. If the
equipment goes into the zone and is held until it is ready to be put into use,
no duties or excise taxes need to be paid until that time. The cash flow
impacts on big projects or seasonal production facilities can be the difference
between making or not making the purchase.
In the past the
FTZ was a defined geographic area and to take advantage of the benefits, a
company had to move some of all of their operations into the zone. That is
changing. Now there are alternative frameworks available that allow a company
to take advantage of the FTZ benefits without moving. If you are located within
the “service area” of an FTZ, the benefits can come to you.
If you think your
business might benefit, you can contact the U.S. Department of Commerce Foreign
Trade Zone in Washington D.C. at 202-482-2862.
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