A foreign-trade zone is considered to be outside of the country’s borders for the purposes of importing and exporting. As described on the Port of New Hampshire’s Web site, “Foreign-Trade Zones are areas, designated by the U.S. Department of Commerce Foreign-Trade Zones Board, under the supervision of the U.S. Customs Service. For the purpose of duty assessment, goods entered into the zone are considered to be outside the commerce of the United States and, therefore, no duty is paid while in the zone.”
Since goods coming into an FTZ are still technically outside of the country, it is possible to bring in parts from another country, assemble them into products, then send them out to yet another country, and, legally, they have never been in the United States and are subject to no duties or tariffs. This can be a strategic advantage, lowering the cost of doing business for a company making products for foreign markets using parts and materials that are sourced overseas.
Sometimes, there are higher duties on parts than there are on a completed product. In that case, it is advantageous to bring the parts into an FTZ and assemble the product in the zone before crossing the fence into the United States. Once again, the company benefits from lower costs that allow a product using U.S. labor to be more competitive with products manufactured elsewhere.
Some products have import limits (quotas). A shipment received into an FTZ that is beyond the quota limit for that period of time may be held in the FTZ until the next cycle, when the quota refreshes.
First authorized in the United States in 1934, FTZs were created to promote employment and thereby generate economic benefits in the area around the zone. They are often set up in locations that are economically depressed or otherwise could benefit from more manufacturing in the area. The law was modified in 1950 to broaden the kinds of manufacturing activities that could be conducted in an FTZ, and yet another modification in 1980 redefined taxation for zone-produced goods coming into the U.S. market so labor value would not be subject to tariffs — just the imported raw materials. These changes greatly expanded the popularity and benefit of FTZs.
FTZs promote employment, especially manufacturing jobs, and level the playing field for products generated by U.S. labor that are exported to other countries.
Reprinted from Portsmouth Herald / Seacoastonline.com – April 02, 2012