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Foreign Trade Zones: Possibly the best tax incentive you’ve never heard of
With duty rates on imported goods increasing substantially over the last five years, the FTZ program is more important than ever. FTZs offer a range of direct and indirect savings opportunities for companies that import or export, including duty deferral, reduction, or elimination, as well as bundling of processing fees. Learn what FTZs can do for your bottom line by joining this virtual information session featuring Marshall Miller, president of Miller & Company, renowned expert in strategies and techniques for importing and exporting, special customs procedures, including analysis of benefits and establishment of U.S. Foreign Trade Zones.
View the recording.
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Business Benefits
We can now provide your company with unique FTZ options and services to compete globally while doing business locally. Start improving your bottom line today.
FTZs can help businesses by:
Minimizing Duty Payments
- Deferring and Reducing Duty Payments - Merchandise in inventory within an FTZ may be held indefinitely without paying Customs duty. You only pay duty when the merchandise is brought into U.S. Customs territory so you can manage and conserve cash.
- Reducing Costs - Your goods may be cleaned, stored, tested, assembled, manipulated (subject to required approvals), displayed or destroyed while in the Zone. If you combine domestic and foreign goods in an FTZ, duty is paid only on the foreign content of the finished product imported into the U.S. market.
- Making Duty-Free Exports - Goods imported and stored in a Foreign Trade Zone may be re-exported without ever incurring Customs duties, avoiding lengthy drawback procedures.
Making Distribution Easier and More Profitable
- Improving Quality Control - The FTZ may be used to inspect your incoming products duty-free. Product not meeting specifications can be repaired, re-exported or scrapped without duty payments.
- Comply with Country of Origin Marking/Labeling - Correct marking and/or labeling may be applied on merchandise in an FTZ. This can substantially reduce expenses for improper marking on goods entering the U.S.
- Reduce Overhead-Increase Profit - Production or assembly operations within an FTZ can result in significant savings. By importing finished product, U.S. duty is applicable on foreign labor, overhead and profit since it is included in the value of the product. Substantial savings in duty may be obtained by making the finished product within an FTZ.
- Managing Products Subject to Import Quotas - Merchandise under quota restrictions can be stored until quotas are changed or lifted. Quota-restricted goods may also be processed in a Zone into products not subject to a quota.
Success Stories
The Foreign Trade Zone has helped many companies realize significant savings. You'll find some of their stories below. Our hope is that they will inspire you to contact us for ideas on how your company can realize the same type of successes with Foreign Trade Zones.
"Once our clients get over the feeling that the program is "too good to be true" they are excited about the savings they can generate through the use of a Foreign Trade Zone. The FTZ provides a reduction - and in some case elimination - of duties on imports. The resulting reduction of raw material costs helps to level the playing field for domestic manufacturers in competition with foreign producers. Furthermore, the benefits are not only sanctioned by Federal Law, but Federal agencies encourage their use."
Deb Anderson - President Anderson and Roers
Certified Public Accountants and Consultants
Former Assistant Commissioner of Revenue - State of Minnesota
FTZ Cost Savings Surpass Duty Drawback
Competing Globally with Inverted Tariffs
Weekly Customs Entry/Returned Goods Sheltered
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Compare Trade Options
Definitions of Terms
Foreign Trade Zones
Generally used for storage, testing, cleaning, processing, assembling, manufacturing, re-labeling, repackaging, displaying, exhibition and repairing of merchandise.
Bonded Warehouses
Generally used solely for the storage of imported merchandise.
Temporary Importation Board
Allows articles to be entered into the United States on a temporary basis and are not expected to be sold or consumed themselves but are to be used to facilitate other aspects of business or other purposes.
Duty Drawback
A refund of duties and is generally permitted on the imported portion of goods that are manufactured or produced in the U.S. and then exported.
FTZ vs. Bonded Warehouse
| FTZ Features |
Bonded Warehouse Features |
| Outside commerce of the U.S. |
Warehouse entry into the commerce |
| Advanced inventory methods |
Limited inventory methods |
| Combine domestic and foreign merchandise |
May not combine domestic and foreign |
| Reduced Customs liabilities for imports |
Increased Customs involvement/increase Customs liabilities |
Seamless transactions concept
Direct delivery; receive merchandise 24/7 without Customs prior clearance |
Bonded warehouses do no have similar procedures for "seamless receipt and shipment of merchandise" |
| Estimated weekly 7512 |
No weekly 7512 |
| Estimated weekly entry |
No weekly entry |
| No Customs entry admitted on CF214 |
Entry made on CF7501 |
| Choose PF or NPF status |
Duty paid at rate in effect at withdrawal |
| Manufacturing may occur in Zone with FTZB approval |
Manufacturing in Class 6 for export only |
| Broad range of scrap/waste savings |
Limited scrap/waste savings |
| Merchandise can remain in FTZ indefinitely |
Can only remain for 5 years from importation |
| FTZ Benefits |
| Simplicity of management |
| Less expensive to maintain a company's inventory |
FTZ vs. Temporary Importation Board
| FTZ Features |
Temporary Importation Bond Features |
| Merchandise can remain in FTZ indefinitely |
Can only remain in U.S. for one year from date of import, with up to two additional one-year extensions, then must be re-exported |
| Zone benefits limited to the FTZ site |
Can only moved freely within the U.S.
Often used to temporarily import race cars for races in U.S. |
| Scrap can be entered into U.S. |
No scrap - must re-export 100% of merchandise |
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Easy to prepare TIB entry and obtain authority to temporarily enter the U.S. |
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Generally not used for warehouse inventory - not good for warehouse merchandise |
| FTZ Benefits |
| Less restrictive in re-exports |
| Saves time and money |
FTZ vs. Duty Drawback
| FTZ Features |
Duty Drawback Features |
| Eliminates duty on exported goods |
Requires claim for refund of duties paid on eligible goods - drawback of 99% of duties paid |
| Immediate savings of duty on imported goods for export |
Lengthy processing to recoup eligible duty paid |
| International advantages (direct delivery, weekly entry, zone-to-zone transfers, etc.) |
Audited more often |
| Works with the Duty Drawback Program |
Outsourced services can cost 3-25% of savings on top of 1% government administrative costs |
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Claims could be shared with an additional party |
| FTZ Benefits |
| Saves money |
| Simpler process |
FTZ Conclusions
Minimize Customs liability through FTZ flexible inventory methods which allows adjustments up and down without penalties.
Proper setup of an FTZ will significantly reduce cost for importation and reduce Customs involvement.
Facilitates the expedited movement of merchandise.
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Meetings
The Greater Metropolitan Area Foreign Trade Zone Commission (GMAFTZC) Board meets every other month, usually on the second Wednesday, from 9:00 a.m. - 10:30 a.m. Meetings are open to the public.
Please contact us for access details if you have an interest in participating.
Upcoming 2023 Meetings
- January 17
- March 14
- May 16
- July 18
- September 19
- November 14
- December 12
Past 2022 Meetings
- December 14
- November 10
- August 22
- April 27
- June 27
- February 14
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Locations
Currently, there are three foreign trade zones and six magnet sites in Minnesota: this includes two magnet sites in the Minneapolis/St. Paul area (FTZ #119); one site in Duluth (FTZ #51) and three sites in International Falls (FTZ #259).
In addition to the magnet site options, businesses anywhere in the state can establish a subzone or usage-driven site at their facility. See On-Site Alternatives for more details.
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FAQ
Frequently Asked Questions
What Exactly is a Foreign Trade Zone?
A Foreign Trade Zone (FTZ) is the U.S. version of an international Free Trade Zone. An FTZ may be used to store foreign or domestic goods, re-package materials, assemble products, or manufacture. Goods may also be re-exported without paying Customs duties. Participation in an FTZ helps companies gain two major benefits: Duty minimization and ease of distribution.
There are basically two types of FTZs:
- General Purpose Zone
- Always located near a Customs Port of Entry, a General Purpose Zone (GPZ) offers leased storage or distribution space in general warehouse buildings. A GPZ may be used on an occasional or long-term basis.
- Single Purpose Zone
- Many times, distance from a General Purpose Zone prevents a company from participating in the benefits of a GPZ. Individual companies may apply to the U.S. Department of Commerce to designate their facility as a Single Purpose Zone or Subzone.
Why Consider an FTZ? Aren't Duties Going Away?
Companies are moving to FTZs in record numbers. Subzone applications have increased by 30% over the last few years. 370,000 people are now employed due to activity in FTZs (six "indirect" jobs are created by every "direct" FTZ job). New products with new duties are arriving on the scene every day. Also, FTZs offer protection from tariff and non-tariff restrictions. Country of Origin marking, defects and damage, quotas and production waste are a few examples of non-tariff considerations. Ultimately, companies become involved in FTZs due to dramatic cost savings.
What Companies use FTZ Subzones?
Many companies are excellent Subzone candidates. Products moving through U.S. FTZs include electronics, computers, petroleum, pharmaceuticals, food products, office equipment, sporting goods, manufacturing components and more. Manufacturers, distributors and suppliers are all candidates for FTZ Subzones.
- General Electric now manufactures refrigerators, stoves, dishwashers, washing machines and clothes dryers in an FTZ Subzone. This helps GE keep prices down and be more competitive in both U.S. and foreign markets.
- Eastman Kodak manufactures a disposable camera in the Subzone. This helps them keep their prices down and enjoy a money-saving benefit.
- Oneida Limited manufactures and distributes stainless steel cookware. By taking advantage of FTZ policy regarding weekly Customs entry, significant cost savings were realized.
How Much Can a Company Save with Subzone Status?
Your Customs Broker and the Greater Metropolitan Area Foreign Trade Zone Commission (GMAFTZC), will explain the requirements and process of successful Subzone applications. Together, you and the GMAFTZC will prepare the applications for Subzone status. If the benefits of Subzone status look promising, the GMAFTZ will help your company establish its own FTZ turn-key program.
How Does a Company Apply for Subzone Status?
Together with you and your Customs Broker, the GMAFTZC, will explain the requirements and process of successful Subzone applications. If the benefits of Subzone status look promising, the GMAFTZ will help you establish an FTZ turn-key program.
How Long Does the Application Process Take?
Like cost savings, the length of the application process will vary by company. Normally, the application and approval by the U.S. Commerce Department is approximately six months to one year. With the help of the GMAFTZC, some applications may be expedited.
How Does a Company Get Involved?
It's easy to check out the benefits of using a General Purpose Zone or establishing a Subzone. You may ask your Customs Broker to GMAFTZC.
Traditional Site Framework (TSF) or Alternative Site Framework (ASF)?
Traditional Site Framework
A foreign-trade zone is a designated location in the United States where companies can use special procedures that help encourage U.S. activity and value added - in competition with foreign alternatives - by allowing delayed or reduced duty payments on foreign merchandise, as well as other savings.
A site which has been granted zone status may not be used for zone activity until the site has been separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under the supervision of CBP, FTZ sites and facilities remain within the jurisdiction of local, state or federal governments or agencies.
Alternate Site Framework
The "alternative site framework" (ASP) is an optional framework for organizing and designating sites that allows zones to use quicker and less complex procedures to obtain FTZ designation for eligible facilities.
To reorganize under the ASF, each zone grantee will propose a "service area." Once approved by the FTZ Board, a subzone or usage-driven site can be designated anywhere in the service area within 30-days using a simple application form. The ASF allows zone designation to be brought to any company that needs it, eliminating the need for zone guarantees to predict where the zone will be needed and pre-designate sites.
What is Meant by the Terms "Manufacturing" and "Manipulation"?
The Foreign Trade Zones Board has established definitions for the types of activity that can be done within a Zone. These definitions are generally based on determining the level and type of change that is being done to a good or product. According to the FTZ Board and manual, manipulation and manufacturing are defined as follows:
- Manipulation
- Processing wherein merchandise is packed, unpacked, repacked, cleaned, sorted graded or otherwise changed in condition.
- Manufacturing
- Any process that results in a change in Customs classification of the merchandise. With manufacturing, because of the Customs classification change, prior clearance from the Board is necessary.
There are some basic differences to note. In the case of manufacturing, the merchandise itself is changed, but in manipulation, the condition of the merchandise is changed. For some, this may be a point of disagreement.
If in doubt, feel free to contact the local FTZ office who can help determine if your business activity is closer to "manipulating" or "manufacturing." And, because distinction between manipulation and manufacturing is subject to interpretation and has a long history of case law, don't take these definitions lightly!
Learn more about Foreign Trade Zones from U.S. Customs and view their Frequently Asked Questions.
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Contact Us
For more about how you can benefit from a foreign trade zone (FTZ), contact an FTZ administrator below.
Foreign trade zones are listed below; see our Locations page for more details. Keep in mind, a subzone/usage-driven site can be established at your existing place of business – anywhere in Minnesota.
David Heyer
Minnesota Department of Employment and Economic Development
P.O. Box 4933
St. Paul, MN 55101
651-259-7468
Kate Ferguson, Director of Business Development
Duluth Seaway Port Authority
1200 Port Terminal Drive
Duluth, MN 55802
218-727-8525
Paul Nevanen, Director
Koochiching Economic Development Authority
P.O. Box 138
International Falls, MN 56649
218-283-8585
