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Foreign Trade Zones
U.S. Customs Procedures and Requirements
What is a foreign trade zone?
Foreign Trade Zones (FTZs) are restricted access sites authorized by the
Foreign Trade Zones Board consisting of the Secretary
of Commerce and the Secretary of the Treasury. FTZs, upon activation under
regulations of the U.S. Customs Service, are secured areas under U.S.
Customs supervision and are located in or near a U.S. Customs port
of entry. Customs entry procedures do not apply
although FTZs are within the territory and jurisdiction of the United
States.
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Why
were foreign trade zones established? |
- To encourage and
expedite United States’ participation in international trade. Foreign
goods may be admitted to an FTZ without being subject to Customs duties
or certain excise taxes.
- To defer 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 enters Customs territory for domestic
consumption. 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 drawback
purposes.
Zones are granted
by the Foreign Trade
Zones Board to qualified public or private
entities (port authorities, city/county economic developers). In a general-purpose
zone, the grantee usually has an operator to operate the zone. Operators
can sublet to tenants, called users. In a subzone environment, the user
and operator are usually the same.
Authority for establishing
these facilities is granted by the Foreign Trade Zone Board under the
Foreign Trade Zone Act of 1934, as amended (19 USC 81a-81u). The regulations
of the Foreign Trade Zone Board are published in 15 CFR Part 400. The
regulations of the U.S. Customs Service governing the transfer of merchandise
to and from zones are published in 19 CFR Part 146. The Foreign Trade
Zones Manual is available from the U.S. Customs Service by contacting
the Office of Trade Programs, Office of Field Operations, Washington,
D.C. 20229, or may be viewed on the Customs Web site at www.customs.gov.
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Advantages
of Using Foreign Trade Zones |
The financial benefits are:
Duty Deferral
Customs duty and federal excise tax, if applicable, are paid only when
merchandise is transferred from an FTZ to the Customs territory of the
U.S. or transferred to a NAFTA country (Canada and Mexico).
Duty Elimination
Goods may be imported into, and then exported from, a zone without the
payment of duty and excise taxes except to certain countries, such as
NAFTA countries, in which case, any applicable duty and excise tax will
be levied. Goods may also be imported into, and destroyed in, a zone
without the payment of duty and excise taxes.
Inverted Tariff
Relief
Inverted tariff relief occurs when imported parts are dutiable at higher
rates than the finished product into which they are incorporated. For
example, the duty rate on an imported muffler for an automobile is 4.5
percent if imported directly into United States commerce. However, if
that muffler is brought into a Foreign Trade Zone and incorporated into
an assembled automobile, the duty rate on the finished automobile, including
the muffler, is 2.5 percent.
Ad Valorem
Tax Exemption
Merchandise imported from outside the United States and held in a zone
for the purpose of storage, sale, exhibition, repackaging, assembly,
distribution, sorting, grading, cleaning, mixing, display, manufacturing,
or processing, and merchandise produced in the United States and held
in a zone for exportation, either in its original form or altered by
any of the above methods, is exempt from State and local ad valorem
taxes.
Other benefits include:
No Time Constraints
on Storage
Merchandise may remain in a zone indefinitely, whether or not its subject
to duty.
Satisfy Exportation
Requirements
Merchandise entered into the U.S. on an entry for warehousing, temporary
importation under bond, or for transportation and exportation may be
transferred to a foreign trade zone from the Customs territory to satisfy
a legal requirement to export the merchandise. For instance, merchandise
may be taken into a zone in order to satisfy an exportation requirement
of the Tariff Act of 1930, or an exportation requirement of any other
Federal law insofar as the agency charged with its enforcement deems
it advisable. Exportation may also fulfill requirements of certain state
laws. Items admitted to a zone to satisfy exportation requirements must
be admitted in zone restricted status – meaning they are only for direct
export, immediate export, and transportation and export.
Security and
Insurance Costs
Customs security requirements and federal criminal sanctions are deterrents
against theft. This may result in lower insurance costs and fewer incidents
of loss for cargo imported into an FTZ.
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Role
of the Foreign Trade Zone Board Staff |
- Review applications
to establish or alter the boundaries of foreign trade zones.
- Recommend approval
of any zone or subzone application, which is in the public interest.
- Regulate the administration
of foreign trade zones.
- Inspect and examine
the premises, operations or accounts of the zone grantees and operators.
- Revoke the grant
of any zone for willful and repeated violations of the Foreign Trade
Zone Act after due notice and a hearing.
The Executive Secretary
is the chief operating official of the Board.
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Role
of the U.S. Customs Service |
- Regulatory control
over merchandise moving to or from a zone.
- Ensure that all
revenue is properly collected.
- Ensure adherence
to the laws and regulations governing the merchandise.
- Ensure that merchandise
has not been overtly or clandestinely removed from the zone without
proper Customs permits.
- The Office of Regulations
and Rulings, at Customs Headquarters, provides legal interpretations
of the applicable status, Customs regulations and procedures.
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Role
of the Port Director |
- Oversees the zone
as the Board representative.
- Responsible for
the supervision of the activities, including admission, operation and
transfer of merchandise.
- Reviews port policy
and comments on applications.
- Approves the activation
of the zone before any merchandise is admitted.
- Approves discretionary
requirements.
- Requires an adequate
FTZ Operator’s Bond.
- Assesses penalties
and liquidated damages.
- Initiates suspension
of a zone, zone site or zone activity, if necessary.
- Recommends to the
FTZ Board that the privilege of establishing, operating and maintaining
a zone or subzone be revoked, if necessary.
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Frequently
Asked Questions |
What are the types of Foreign Trade Zones?
There are two types of foreign trade zones: General
Purpose Zones and Subzones. General purpose zones are usually located in
an industrial park, on raw land or in port complexes whose facilities are
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; e.g., oil refineries, automobile manufacturers.
What
may be placed in an FTZ?
Any foreign or domestic merchandise not prohibited
by law, whether dutiable or not, may be admitted to a foreign trade zone.
Conditionally
admissible merchandise is merchandise subject to permits or licenses,
or that must be reconditioned to bring it into compliance with the laws
administered by various Federal agencies before entering the United States.
Because zones are considered outside the Customs territory, requirements
that would otherwise apply to imported merchandise are suspended as long
as the merchandise remains in the FTZ. An example of conditionally admissible
merchandise is a substance subject to the Toxic Substances Control Act
(15 USC 2601 et seq.) which has not received approval by the Environmental
Protection Agency for use in the United States.
However, merchandise that is illegal, i.e. Heroin, may not be imported
under any circumstances.
Some
Federal agencies regulate storage and handling in the United States of
certain types of merchandise, such as explosives. Depending on the nature
of the requirements and the particular characteristics of the zone facility,
such merchandise may be excluded. Most agencies that license importers
or issue importation permits may block admission of merchandise that is
not licensed or permitted into a zone.
The
Foreign Trade
Zone Board may exclude from a zone any merchandise
that in its judgement is detrimental to the public interest, health, or
safety. The Board ensures that foreign trade zones are not used to violate
other trade laws of the United States.
Merchandise
subject to quota restrictions may be admitted into a zone until a quota
on entry is removed or may be manufactured or manipulated in a zone into
a product that is not subject to quota. The FTZ Board can restrict or
prohibit activity on public interest grounds.
What
may be done in an FTZ?
Foreign and domestic merchandise permitted in a
zone may be stored, sold, exhibited, broken-up, repacked, assembled, distributed,
sorted, graded, cleaned, mixed with foreign or domestic merchandise, otherwise
manipulated, destroyed, or manufactured. On the other hand, machinery
and equipment that is imported for use within a zone is not exempt from
the payment of duty. Such equipment and supplies may include, but are
not limited to: office furniture, machines, and equipment; construction
machinery and materials; manufacturing machinery and equipment, tooling,
and supplies; packaging machinery and equipment; food to be eaten in the
zone and water and fuel that do not become part of a zone product.
What
may not be done in an FTZ?
In specific cases, the Foreign Trade
Zones Board may prohibit or restrict any activity
in a zone in order to protect the public interest, health, or safety.
All manufacturing is reviewed in terms of government policy and its net
economic effect.
Many
products subject to an internal revenue tax may not be manufactured in
a zone. These products include alcoholic beverages, products containing
alcoholic beverages (except domestic denatured distilled spirits), perfumes
containing alcohol, tobacco products, firearms and sugar. In addition,
the manufacture of clocks and watch movements is not permitted in a zone.
Retail
trade is prohibited in zones, unless conducted under a permit issued by
the zone grantee and approved by the Foreign Trade Zones Board. Retail
trade is then allowed only for the sale of domestic goods, or goods brought
from the Customs territory following a regular Customs entry on which
any applicable duties and/or taxes have been paid.
How
is merchandise admitted into a zone?
Merchandise does not achieve zone status until a
permit is given by the port director for its admission (except in the
case of domestic status merchandise for which no permit is required),
and the zone operator signs for receipt of the merchandise into the zone.
Customs
Form 214 Application
Merchandise
may be admitted into a zone after application has been made on a Customs
Form 214, "Application for Foreign Trade-Zone Admission and/or Status
Designation," or its electronic equivalent, and a permit is issued by
the Port Director. The application for admission is submitted to the port
director, including a statistical copy on Customs Form 214A to be transmitted
to the Bureau of Census, unless the applicant has made arrangements for
the direct transmittal of statistical information to that agency. The
form will be signed by the zone operator, unless a separate individual
or blanket approval has been given.
Application
for admission may be made only by the person with the right to make entry.
Right to make entry will be determined according to the provisions of
Section 484(a) (19USC 1484(a)) Tariff Act, Customs Directive 099 3530-002,
and other pertinent Service-wide instructions. However, a Customhouse
broker or foreign trade zone operator may prepare and/or file the application
on behalf of the person with the right to make entry, if a proper power
of attorney is on file.
The
CF214 will be presented to the location designated by the port director
within a port of entry. Customs will review the application and supporting
documentation for completeness and to determine whether the application
may be approved without a physical examination of the merchandise. Customs
approves permits of admission for most low-risk shipments without examination.
Customs
may examine merchandise to be admitted to a foreign trade zone to:
- Determine
if the goods are admissible to the zone.
- Determine
the true liability of the zone operator for merchandise received in
a zone under its bond.
- Reduce
the need for further examination of the merchandise if it is later transferred
to Customs territory, in the same condition, for consumption or warehouse.
- Ensure
full compliance with all applicable laws and regulations.
After
document review and physical examination, as appropriate under the above
provisions, the port director shall issue a permit for the admission of
merchandise to a zone.
Direct
Delivery
Direct delivery allows for the delivery of merchandise into a zone without
prior application and approval on Customs Form 214. The operator, meeting
all the requirements outlined below, shall file a written application
with the appropriate port director at least 30 days before the special
procedure is to become effective. The application will describe the merchandise
to be handled or processed and the kind of operation which it will undergo
in the zone (19 CFR 146.39).
Criteria
to be met for direct delivery approval:
- The
merchandise is not restricted or of a type which requires Customs examination
or documentation review before or upon its arrival at the zone, (example,
quota/visa merchandise).
- The
merchandise to be admitted to the zone, and the operations to be conducted
in the zone, are known well in advance, are predictable and stable over
the long term, and are relatively fixed in variety by the nature of
the business conducted at the site.
- The
operator is the owner or purchaser of the goods.
What
documents are needed for admission?
The following documents must accompany the CF 214:
- Commercial
Invoice - The applicant shall submit two copies of an examination invoice
meeting the requirements of Subpart F, Part 141 CR, for any merchandise,
other than domestic status merchandise for which no permit is required,
to be admitted into a zone. The notation on the invoice of tariff classification
and value required by Section 141.90 CR need not be made, unless the
merchandise is to be admitted in privileged foreign status.
- Evidence
of Right to Make Entry - The applicant for admission shall submit a
document similar to that which would be required as evidence of the
right to make entry for merchandise in Customs territory under Section
141.11 or 141.12 CR and CD 099 3530-002.
- Release
Order - Customs officers shall not authorize any merchandise for delivery
to a zone until a release order has been executed by the carrier which
brought the merchandise to the port, unless the merchandise is released
back to that same carrier for delivery to the zone.
- Application
to Unlade - For merchandise unladen in the zone directly from the importing
carrier, the application on Customs Form 214 shall be supported by an
application to unlade on Custom Form 3171.
- Other
Documentation - The port director may require additional information
or documentation as needed to examine the merchandise under Customs
selective processing criteria, or to determine whether the merchandise
is admissible to the zone. This includes documentation such as export
certificates for certain steel products and machine tools under voluntary
restraint and information needed for selectivity processing such as
importers' and manufacturers' numbers.
How
is merchandise removed from a zone for U.S. consumption?
Normal entry, classification and appraisement procedures
covering foreign merchandise entering the U.S. commerce are used.
What
are the four types of zone status?
Privileged Foreign Status (PF): Prior to any manipulation
or manufacturing in the zone that would change the tariff classification,
the port director will, if requested by the importer, give imported merchandise
privileged foreign status. The merchandise is classified and appraised
and duties and taxes are determined, but not collected, as of the date
the application is filed, (First Proviso, Sec.3 (a) FTZA). Under this
provision, the importer chooses to have the merchandise classified, for
tariff purposes, as what it is at the time privilege is granted, rather
than what it becomes at a later date.
Zone-Restricted
Status is given to merchandise brought into to a zone from the Customs
Territory for the purpose of exportation, destruction (except destruction
of distilled spirits, wines, and fermented malt liquors) or storage. The
merchandise is considered exported and cannot be returned to the Customs
territory for consumption unless the Foreign Trade Zones Board rules specifically
that its return is in the public interest. Zone-restricted status merchandise
may not be manipulated, manufactured, processed or assembled in a zone.
Nonprivileged
Foreign Status (NPF) is a residual category for foreign merchandise that
does not have privileged or zone-restricted status. Articles in NPF status
are classified and appraised in their condition at the time of transfer
to the Customs territory and NAFTA countries.
Domestic
Status is available for merchandise that is:
- Wholly
grown, produced or manufactured in the U.S. on which all revenue taxes,
if applicable, have been paid.
- Previously
imported merchandise on which all duties and internal revenue taxes
have been paid.
- Merchandise
that was previously admitted into the U.S. free of duty.
Articles
of Mixed Status: Since manipulation and manufacturing may be permitted
in a zone, a shipment of articles transferred to the Customs territory
may be made up of merchandise that is privileged and nonprivileged, whether
foreign and/or domestic status. The articles are appraised according to
that status of the merchandise of which they are composed, or from which
derived, as explained above. Privileged Foreign Status merchandise is
classified in its condition at the time of that privilege was granted.
Privileged Status merchandise has a fixed classification rate previously
established at the time of request.
Where
is additional information available?
The Executive Secretary of the Foreign Trade Zone
Board is located in the U.S. Department of Commerce, Washington, DC 20230,
telephone (202) 482-2862. The website address is http://ia.ita.doc.gov/ftzpage.
For
answers to specific questions, contact the U.S. Customs Port Director
where the zone is located or the U.S. Customs Service Headquarters, Office
of Trade Programs, Washington, DC 20229, telephone (202) 927-0510.
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Drug Smuggling to the
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1-800-BE ALERT
Revised August 2000 Customs
Publication 0000-0538
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