Trade is unequivocally one of the most important aspects of life in the 21st century, with trillions in shipments crisscrossing the globe yearly. For millennia, our species has engaged in trading all kinds of goods, but we’ve never been more interconnected and reliant on one another as we are right now.
Since the turn of the Industrial Revolution, global trade has hit a fever pitch, leading to the need for specialized organizations and programs to help facilitate trade. One such introduction to trade is free trade zones, which are known as foreign trade zones (FTZs) in the United States.
But what exactly are foreign trade zones, and how do they help the government and businesses? In this blog, we’ll discuss these topics and how Cesar-Scott can help you benefit from these crucial programs!
A Brief Primer On Foreign Trade Zones
Foreign trade zones are secure areas in or near the U.S. Customs and Border Protection (CBP) ports of entry. These areas are under the direct supervision of CBP but are considered outside of CBP territory when activated. Basically, an FTZ is an area where goods can arrive and be handled without CBP intervention but with CBP supervision.
Foreign trade zones were first introduced in 1934 via the Foreign-Trade Zones Act, which was partially a response to economic hardships due to the Great Depression to spur economic growth. In addition, it served as a way to even the playing field between other countries that had free-trade zones of their own.
FTZs are not complete free-for-all areas, however. While they behave like international commerce areas, they are still under the jurisdiction of local, state, and federal entities that may be concerned. Some permits or licensing may still be required, and not all goods are eligible to be sent to foreign trade zones. Retail activity is also not permitted in these areas. Despite these limitations, free trade or foreign trade zones are beneficial to companies and governments alike.
Since the strength of a country’s companies has some correlation to the amount of influence it can command, this became an important program to reduce the burden on companies and expand American influence in global trade. But how exactly do these foreign trade zones benefit the companies that take advantage of these zones?
Deferred Duty
Deferred duty programs allow for the decoupling of duty payments and import clearance. Instead, items can be taken in, handled/manufactured, and exported before the duty has to be paid. This system is incredibly beneficial for companies because it streamlines the process and helps facilitate just-in-time manufacturing.
Inverted Tariffs
FTZs are also beneficial to companies due to the ability to lower tariffs via an inverted tariff structure. This works by applying a lower U.S. Harmonized Tariff rate on a finished product manufactured in the zone versus the foreign inputs. Companies may also be able to escape duty on overhead, labor, or profit attributable to operations within the zone.
Efficiency
FTZs are also zones for increased efficiency because they reduce some of the tedious processing and customs checks. Transportation costs are reduced because of simplified logistics, and customs security further reduces private security and insurance expenditures. In addition to aspects like duty deferral, these zones specialize in reducing barriers to efficient, well-oiled trade.
Inventory Management
Foreign trade zones are also designed so as to be convenient for storing and processing goods. These goods can also be stored free of tariff charges, which reduces the overhead and logistical complexity on the business end. In total, zones allow companies to do the following activities with their merchandise:
- Salvage
- Store
- Test
- Display
- Destroy
- Relabel
- Process
- Repackage
- Manufacture
- Clean
- Repair
- Manipulate
- Sample
- Mix
This gives companies an extraordinary amount of freedom when handling their products, all while benefiting from some of the aforementioned benefits. The benefits listed above do not exhaust all of the benefits of FTZs, but they do highlight some of the most consequential ones.
How Cesar-Scott Can Help Your Operation
As a response to tariffs, Cesar-Scott, Inc. has applied to obtain Foreign Trade Zone Registration to offer FTZ services to CMs, OEMs, and distributors. Through Cesar-Scott, your company can benefit from streamlined U.S Customs processing, reduced/deferred duties, and other benefits.
As always, our goal is to improve the processes involved in the manufacturing processes from beginning to end, which includes the trade and handling of goods upon entry or exit. From a financial and organizational standpoint, the benefits of FTZs for companies are crystal clear.
To learn more about FTZs and how our team at Cesar-Scott can help you, please get in touch with us via phone, email, or by visiting our offices in person!