The acronym FTZ (Foreign Trade Zone) may be unfamiliar to most people but in the world of security and surveillance for the protection of commercial merchandise at ports of entry, foreign trade zones are essential to ensuring the free flow of commerce. This article will focus on the impact Free Trade Zones can have on import and export commerce activities and how such zones help to reduce costs in domestic and foreign ports of entry.
Historical Perspective of Foreign Trade Zones
The impetus for creating a Free Trade Zone occurred in the United States, when the Foreign-Trade Zones Act was instituted in 1934. The primary goal for making the Free Trade Zone Act a reality was to reduce the high cost of customs duties and taxes on merchandise held in ports of entry, which led to advancing the smooth flow of commerce in the United States.
In explaining how the creation of Free Trade Zones helped to encourage foreign commerce, the Foreign-Trade Zone Resource Center states that “This tariff and tax relief is designed to lower the costs of U.S. based operations engaged in international trade and thereby create and retain the employment and capital investment opportunities that result from those operations.”
The exchange of import and export merchandise can be a costly endeavor, whether manufactured, stored or handled in geographic areas such as large-scale warehouses, international airports or major seaports designated as free trade zones. Companies and businesses who integrate the use of a Free Trade Zones in their operations gain a competitive edge due to significant reductions in customs duties, tariffs, and taxes, all of which accelerates the exchange of products in the United States for the purpose of foreign or international commerce.
From a historical perspective, the establishment of the Foreign-Trade Zones Act has certainly played an instrumental role in the world of international commerce, creating tremendous benefits for businesses.
Benefits of Foreign Trade Zones
As a process that allows for exemption of many of the rules associated with U.S. Customs regulations, businesses can employ the practices of a Foreign Trade Zone relationship and enjoy greater cash flow, enhanced efficiency of global trade logistics, reduce costs, and more flexibility in how they orchestrate their operations. In fact, according to the International Trade Administration, the benefits of doing business in a Foreign Trade Zone include the following:
- No duties on imported goods that are later re-exported
- Production-specific benefits – with case-by-case approval by the FTZ Board – that can include reduction of duties if a lower tariff rate applies to the finished product leaving the zone than the tariff that would have been applied on foreign components
- Elimination of duties on waste, scrape and rejected or defective parts
- Customs efficiencies including direct delivery and weekly entry
Clearly, the benefits of promoting business operations in a Foreign Trade Zone far outweigh the high cost of loading commercial merchandise through traditional routes of U.S. Customs and paying additional taxes. One of the main benefits listed above includes theft protection, which appeals to businesses who want assurances that they won’t have to worry about missing or stolen merchandise. The U.S. Customs and Border Protection even states that “CBP security requirements provide protection against theft.”
Integrate a Free Trade Zone Into Your Business
In today’s highly competitive world of business and commerce, focusing on cost-cutting measures to improve efficiency and productivity should be an important focus of any business. Whether through domestic or international channels, Foreign Trade Zones offer a path to lowering the costs of warehousing merchandise, thereby opening the door for your business to invest in other needed expenditures to help accelerate growth.