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Foreign Trade Zones Explained
Faster than the typical customs process…
More powerful than state and local inventory taxes…
Able to exempt or defer customs duties in a single bound…
No, it isn’t Superman, but instead, a great mechanism for economic development called a Foreign Trade Zone. These mechanisms, which may be granted the federal FTZ Board, allow for the establishment of a “Zone” designed to expedite international trade for U.S. companies while retaining local or state control of them in conjunction with the U.S. Customs and Border Protection agency. Once established, the companies operating within these Zones may engage in a wide array of manufacturing and distribution activities while being exempted from many customs duties and some local taxes, enjoying an inverted tariff scheme, and taking advantage of a streamlined customs process. Essentially, these Zones serve to operate as a storage or manufacturing hub free from many U.S. Customs obligations. Meanwhile, the local entity managing the Zone can market these benefits to entice large multi-national companies to open shop in their region, thus providing new job opportunities and creating new tax revenue streams.
Establishing A Foreign Trade Zone
This, of course, leads to the question of how such a Zone is established. Although obtaining a Zone can take years, the process itself is relatively simple. An application for a Zone must be submitted by a “grantee,” (who will ultimately be in charge of administering the Zone and ensuring that it is being run in accordance with federal law and Zone rules). The grantee may be virtually any type of public entity, from a city to an economic development. The application must include a proposed location, description of existing or planned infrastructure, potential expansion plans, and finance records. It is important to note that the Zone must be located with convenient access to one or more “ports of entry,” which is an area (usually a seaport or airport) wherein goods in foreign commerce enter or are stored within the U.S. free from custom duties. Further, an FTZ grantee that seeks to establish itself in an area in which another Zone already operates must also show that the newly-proposed Zone will enhance the convenience of commerce (it is not rare for multiple FTZs to be established near a major Port of Entry, in fact, three separate Zones currently operate within Maricopa County, serving both Sky Harbor and Mesa airports). Applications should include support from legislators, local governmental entities and community groups, and should also detail concrete interest from potential Zone users. If possible, the grantee should schedule a public hearing to show the FTZ Board up close and personal how much support exists.
Once submitted, the Board will docket the application for review, and publish a notice of application in the Federal Register allowing for public comment (a period usually lasting 60 days). Then, a preliminary decision will usually be rendered by an analyst (with the grantee generally afforded the opportunity to respond as needed) and given to the FTZ Board. If tentatively approved, the application is then sent to both the U.S. Customs and Border Protection agency and the Department of Treasury, before ultimately returning to the FTZ Board for final action. Assuming the application is approved, the Zone must simply be “activated” prior to use.
Though time consuming, if you are ultimately successful in this endeavor, the Zone users and their newly-minted employees will surely line up to thank you for your “heroic” efforts.
