The Ultimate FTZ FAQ
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Free Trade Zones
Free Trade Zones are economic development projects set up in countries around the world to promote employment and international trade. They are typically established by governments in locations targeted for increased job growth. Often these free trade zones (also known as FTZs) will offer limited assembly, packaging, and shipping services to companies wishing to take advantage of the preferential duty treatment offered in the FTZ.
Um, none. There are no free trade zones in the United States. The U.S. program has the same acronym, but a different name. It also offers deferral of Customs duties and fees, but works quite differently. See ‘What is a Foreign-Trade Zone?’
Foreign-Trade Zone
A foreign-trade zone (FTZ) is an area, typically a factory or warehouse, where special U.S. Customs procedures are permitted to defer, and possibly alter the cost of international trade in the United States. Customs duties and fees are generally deferred until merchandise is sold into the United States, and eliminated if the merchandise is exported, scrapped, or destroyed. The program works to equate the U.S. Customs duties and fees paid by domestic and foreign manufacturers.
Just over 300 foreign-trade zones have been established around the United States, though only about 2/3 are currently available for use. There are active foreign-trade zones in all 50 states and Puerto Rico. Foreign-trade zones are located in or near ports of entry to the United States.
The foreign-trade zone program is administered by the U.S. Department of Commerce. The Secretary of Commerce is the CEO of the Foreign-Trade Zones Board that oversees the program with a staff of about 10 people. U.S. Customs and Border Protection of the Department of Homeland Security also plays a active role in the setup and operation of zones.
The foreign-trade zones program was created by Congress in 1934 as a way to promote U.S. employment in international trade. Since then, the program has been regularly updated through both changes in legislation and regulation.
Just over 300 foreign-trade zones have been established around the United States, though only about 2/3 remain active. There are active foreign-trade zones in all 50 states and Puerto Rico.here, then distributed to each of the controlled copy holders.
The User is the legal entity using a zone site or subzone for storage, handling, or processing of merchandise in a zone site or subzone.
The Operator is the legal entity responsible to U.S. Customs and the Grantee for the compliant operation of the zone site or subzone.
Zone status is the way zone users elect the duty rate they intend to pay if and when the merchandise is sold in the United States. Zone status is selected at the time merchandise is admitted to a foreign-trade zone for the first time. There are four options: Domestic, Non Privileged Foreign, Privileged Foreign, and Zone Restricted.
Domestic (D) status merchandise in an FTZ is either a product of the United States, or imported merchandise on which all duties, fees, and applicable excise taxes have been paid. One benefit of admitting material in domestic status is that duties and fees will not be collected again at the time the merchandise is withdrawn from the FTZ.
Non Privileged Foreign (N, or NPF) status merchandise in an FTZ is taxed based on its condition at the time is withdrawn from the FTZ.
Privileged Foreign (P, or PF) status merchandise in an FTZ is taxed based on its condition at the time is admitted to the FTZ. For certain types of merchandise, PF status is mandated by the Foreign-Trade Zones Board even if NPF status would be advantageous.
Zone Restricted (Z, or ZR) status merchandise in an FTZ may only be exported or destroyed. This restriction means it is used sparingly, but one benefit is that drawback claims may be filed on merchandise that has been admitted in ZR status.
In the context of foreign-trade zones, the Port Director is the U.S. Customs and Border Protection director responsible for the port of entry. Some smaller ports of entry have only an Officer physically located at the port, and are under the jurisdiction of an Area Port Director.
Foreign-trade zones are subject to additional security requirements. The guidelines for bonded facilities are interpreted by the Port Director based on the merchandise to be stored in the zone, and the location of the zone site or subzone.
A 3-character alphanumeric code assigned by U.S. Cutoms which permits electronic filing directly into ABI/ACE. A Filer Code is not required unless the FTZ Operator or User would like to self-file some or all of the electronic filing requirements.
U.S. Customs and Border Protection assigns a 4-character alphanumeric Facility Information and Resources Management System (FIRMS) Code for each activated zone site, including each activated site within a subzone.
U.S. Customs and Border Protection assigns a 7-character alphanumeric Zone ID for each activated zone site, including each activated site within a subzone. The Zone ID is required for electronic submission of certain filing requirements. number assigned to the activated portion of the subzone by CBP is also shown. The Port Director has authorized the use of local control procedures for transportation within Subzone 22AE, in accordance with 19 CFR§146.66(a). Local control procedures will also be in effect for merchandise approved by the Port Director for temporary removal. Any loss of merchandise during a movement under local control procedures will be treated as if the loss occurred in the zone. Therefore once material has been admitted to the subzone, it may be transferred without additional filings for any of the purposes under Tele-Fonika’s activity permit. Merchandise so transferred remains continuously on Tele-Fonika’s bond until withdrawn from the subzone. Tele-Fonika will at all times maintain location records which will allow CBP to pinpoint the site number, specific location, and zone status of merchandise in inventory.
The cost to establish and operate an FTZ varies somewhat by location. The largest expense is typically the internal cost to setup and operate an inventory control and recordkeeping system (ICRS) that meets the special reporting requirements of U.S. Customs. Costs generally do not increase with volume, so there are significant economies of scale to FTZ operation.
U.S. Department of Commerce
Tele-Fonika will prepare and submit an Annual Report to the FTZ Board in the electronic format of the FTZ Board’s design. The FTZ Board Annual Report is now
separately under the “Value-Added” heading. This includes labor, profit and overhead and other value added to material inputs at the plant. One way to estimate plant value-added is: Value of Sales from Plant (or ex-factory value of shipments) minus the Value of Merchandise Received at the Plant. Value added is not included in the Movement of Merchandise figures.
Employment figures should include both direct and contract persons working within the activated area that had zone operations during the year. For part time workers, please report a full time equivalent (e.g., 60 contract employees working for 6 months would equal a full time equivalent of 30 workers).
In general, all data must be in a non-proprietary form. Information in addition to that which is required and would be useful to the FTZ Board but is business proprietary, must be marked BUSINESS PROPRIETARY and submitted separately in a marked envelope.
Illinois International Port District, Grantee of FTZ 125, requires its operators to submit their Annual Reports by February 15th of each year.
The Zone Grantee is the corporate recipient of a grant of authority for a zone. The Zone Grantee is typically referred to as the ‘Grantee’.
U.S. Customs
There is no form to use when you are ready to activate your zone site or subzone with U.S. Customs and Border Protection. The activation application is a letter to the Port Director that includes all of the materials need by Customs to approve activation. It usually requires one visit from the Port office to confirm security and operational requirements are in place.
Transportation
All of your foreign-status (duty-unpaid) merchandise must arrive to the zone site or subzone in-bond via a bonded carrier. Your outbound transportation will also need to be bonded in order to defer or eliminate duties on exports or zone to zone transfers from the zone site or subzone.
FTZ Definitions
An approval by U.S. Customs and Border Protection and the Grantee permitting FTZ operations to begin at a specific zone site or subzone.
The physical arrival of goods into a zone, and assignment of a specific zone status. “Admission” is a separate and distinct process from “entry”.
A change in the boundaries (larger or smaller) of an activated zone site or subzone.
Customs territory is the territory of the U.S. in which the general tariff laws of the U.S. apply. Customs territory of the United States includes only the States, the District of Columbia and Puerto Rico. The activated area of an FTZ is considered outside the Customs Territory.
Voluntary discontinuation of the activation of an entire zone or subzone by the Grantee or Operator. (Discontinuance of the activated status of only part of a zone is an alteration.)
A procedure for delivery of merchandise to a zone without prior application or approval from CBP. Direct delivery procedures simplify zone operations, especially for locations outside the limits of the port where merchandise first arrives in the United States.
Status of zone merchandise grown, produced or manufactured in the U.S. on which any and all federal excise taxes have been paid, or merchandise previously imported on which all applicable duties and federal excise taxes have been paid.
Drawback means the refund or remission, in whole or in part, of a CBP duty, fee or internal revenue tax which was imposed on imported merchandise. Certain CBP duties, including as anti-dumping and countervailing duties, are not eligible for drawback and can only be avoided by storage in a bonded facility such as a foreign-trade zone.
Notification to CBP of the arrival of imported goods in the Customs territory of the U.S. Merchandise withdrawn from a zone for consumption in the U.S. is entered when it is removed from the zone. Goods brought into a zone are admitted, not entered.
Internet-based system used to confirm eligibility for employment in the United States. Foreign-trade zone operators are currently required to use E-Verify as part of their background investigation process for permanent and temporary employees within the activated area of a zone site or subzone.
A general-purpose zone (GPZ) is established for multiple activities by multiple Users. Storage, distribution, testing, repackaging and repair are some of the possible activities in a GPZ. Processing or manufacturing in a GPZ requires prior approval by the Foreign-Trade Zones Board.
A corporation to which the privilege of establishing, operating and maintaining a foreign-trade zone has been granted by the Foreign-Trade Zones Board. Grantee corporations must be either public corporations or private corporations organized for the purpose of establishing a zone project. Examples of public entities that might receive an FTZ grant include: a political subdivision (including a municipality), a public agency, or a corporate municipal instrumentality of one or more states. Qualified private corporations must be chartered for this purpose under a law of the state in which the zone is located.
Published by the U.S. International Trade Commission, the HTSUS is used in the classification of imported merchandise for rates of duty and statistical purposes.
Where imported parts are dutiable at higher rates than the finished product into which they are incorporated.
Free form letter with supporting documentation prepared by the carrier or Operator and submitted to U.S. Customs and Border Protection. Used to report quantity discrepancies found before or upon admission to zone.
As defined in Section 562 of the Tariff Act, processing wherein merchandise is packed, unpacked, repacked, cleaned, sorted, graded or otherwise changed in condition. The precise distinction between manipulation, manufacturing and now production is subject to interpretation.
CBP determines what constitutes manufacturing on a case-by-case basis, distinguishing it from other operations such as manipulation, processing, production and blending. The U.S. Foreign-Trade Zones Board has defined “Production” as any process that results in (1) a substantial transformation resulting in a change in the essential character of the merchandise, whether or not there is a change in the HTSUS classification (2) a change in the HTSUS classification, or (3) a change in the eligibility for entry of the merchandise. Production activity with foreign status merchandise requires prior approval from the FTZ Board.
Status of zone merchandise not previously cleared by CBP which is appraised in the condition of the merchandise at the time it enters Customs territory. NPF status may be changed upon approval from CBP, provided the merchandise is still in the same condition as when admitted to the zone. While in the zone, NPF status merchandise can be manipulated, manufactured, or used in production to create a new commercial item with a different tariff classification. NPF status allows zone Users to pay duty at the rate of the finished product produced in the zone.
A corporation, partnership or person that operates a zone or subzone under the terms of an agreement with the Grantee. A Grantee may act as its own Operator. An Operator may also be a User, and in this case is referred to as a Operator/User.
An Activity Type 4 bond submitted electronically to CBP to assure compliance with CBP Operator responsibilities.
Permit to move merchandise in-bond from one location to another within the same port. Now generally filed electronically and referred to as an ePTT.
A place designated by the U.S. Government at which CBP personnel is assigned with authority to accept entries of merchandise, collect duties and enforce the various provisions of CBP laws.
Zone status whereby merchandise is classified and appraised, with duties and taxes determined, at the time the status is elected. Once chosen, the privileged foreign status cannot be changed.
See “Manufacturing”.
Any zone activity (other than manufacturing) requiring a change in condition of merchandise which results in a change in the CBP classification of an article or in its eligibility for entry for consumption.
A special-purpose zone established for a specific purpose. Subzones, like zone sites, must be sponsored by the Grantee of a foreign-trade zone.
A person or company using a zone for storage, handling or processing of merchandise. An Operator may authorize a User to maintain its own inventory system and procedures manual. However, the Operator remains responsible to CBP for inventory control unless the User posts its own Operator’s bond.
A CBP procedure that permits approved zones and subzones to file a weekly cargo release for the estimated removals of merchandise destined for domestic consumption during the following business week. Weekly entry may be approved for zone operations of a repetitive nature in order to allow for expedited removal of merchandise from the zone.
A collection of merchandise maintained under an inventory control method based on specific identification of merchandise admitted into a zone by lot and lot number (ZLN).
Status of zone merchandise transferred to a zone for the sole purpose of exportation or destruction. Zone restricted merchandise cannot be changed or brought into Customs territory without the specific permission of the Foreign-Trade Zones Board on a case-by-case review.
The status of merchandise admitted to a zone, i.e. domestic (D), non-privileged (NPF), privileged foreign (PF) or zone restricted (ZR). restricted (ZR).
The 7-day period elected by the Operator for the purpose of consolidating 7-days of zone withdrawals onto a singl cargo release and entry summary. The zone week may begin on Sunday, the same as the calendar week, but most often does not.
The 12-month period which sets certain FTZ Operator reporting responsibilities with U.S. Customs and Border Protection. The Zone Year typically matches the Operator’s fiscal year.
U.S. Customs Form Numbers For FTZs
US Customs form issued by Customs in order to notify the broker/importer of a change made to an entry summary. Such changes often result in additional duties due.
CBP form used to request an annual blanket permit for FTZ activity at an activated zone. Also used to request permission for one-time activities such as temporary removal to occur.
Customs Bond, though the paper version of this form is no longer used, e-bonds are often printed using this format.
The Harbor Maintenance Fee Quarterly Summary Report, a CBP form used to submit Quarterly Harbor Maintenance Fee reports.
Harbor Maintenance Fee Amended Quarterly Summary Report, used when a revision needs to be made to CBP Form 349.
Cargo Release, a CBP form that must be approved before merchandise can be withdrawn from an FTZ into the commerce of the United States. Also referred to as the ‘weekly estimate’ when FTZ weekly entry procedures are used.
Delivery Ticket, a CBP form still used in some ports and for some transportation situations for within-port in-bond transfers instead of the ePTT.
Acronyms Used In The Foreign-Trade Zones Program
Automated Commercial Environment, the ‘single window’ Customs and Border Protection.
Automated Clearing House, allows wire payment of duties and fees directly from the importer’s bank account.
Antidumping Duty, penalty duty imposed on merchandise that has been sold at less than fair market value in the US. Also referred to as AD.
Bill of lading
Central American-Dominican Republic FTA
Center of Excellence and Expertise (U.S. Customs organizations for handling information and entries related to specific merchandise categories)
Code of Federal Regulations – rules of the Executive branch and agencies of the Federal Government. The CFR is amended by rules published in the Federal Register.
Employer Identification Number, equals IOR number after the last two characters of the IOR number are removed
ICE form used to certify employers have reviewed employees’ documents and documents appear genuine and relate to individual presenting them
Immediate Exportation; in-bond movement for direct export filed via QP or CBP Form 7512
Importer of Record; the Importer of Record number consists of the Employer Identification Number (EIN) issued by the Department of the Treasury plus a 2-character suffix issued by Customs and Border Protection (00 unless specified) after registration
Office of Foreign Assets Control – administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers based on US foreign policy and national security goals
U.S. Principle Party in Interest – person who receives primary benefit of an export transaction
Transportation and Exportation, in-bond movement from one port to a port of export filed via QP or CBP Form 7512
United States Mexico Canada Agreement, free trade agreement which replaced the North America Free Trade Agreement
CTPAT
Customs-Trade Partnership Against Terrorism (C-TPAT) is a U.S. Customs and Border Protection (CBP) voluntary trade partnership program in which CBP and members of the trade community work together to secure and facilitate the movement of legitimate international trade. The program focuses on improving security throughout the supply chain, beginning at the point of origin (including manufacturer, supplier, or vendor) through a point of distribution to the destination. C-TPAT member companies, called partners, agree to implement certain security procedures throughout their supply chains to protect those supply chains from terrorist infiltration and other illegal activities that threaten the security of the United States. C-TPAT partners who undertake these protections receive facilitated processing by CBP. As a result, the program helps CBP achieve its twin goals of improving security while facilitating the flow of global trade. In the course of enrolling, certifying, and validating C-TPAT applicants/partners and their supply chains, the C-TPAT system will receive personally identifiable information and confidential business information from the applicant/partner, as well as sensitive law enforcement information from existing law enforcement systems.
Not sure, but now that its gone, CBP will know your documents are dated if the hyphen still appears as C-TPAT.
