There are numerous trade schemes around the world that businesses can take advantage of to import, process and export goods without the need to pay customs charges or other duties. These may be called freeports, free trade zones, special economic zones or similar terminology, but they broadly work on the same basic principles - enabling the easier movement of goods while deferring or eliminating costly duties.

In the US, these are called foreign-trade zones (FTZs). Typically located in close proximity to ports of entry, there are more than 230 of these across all 50 states, as well as Puerto Rico. This offers businesses major opportunities to streamline their operations and save money. But what does this involve and what advantages can traders expect to see?

What are foreign-trade zones in the US?

Foreign-trade zones are defined as secure, designated geographical areas that are supervised by Customs and Border Protection, but are considered outside US customs territory for the purposes of duties.

This means companies may import, process and export goods to and from these areas without paying duties, taxes or other fees. Such payments are only made when items leave an FTZ and enter the rest of the US. Meanwhile, domestic goods that are moved into such zones are already considered to have been exported for the purposes of excise tax rebates and drawback.

FTZs fall into two categories. These are general purpose, or magnet, zones, which are typically large, multi-tenant warehouses or industrial areas where companies can lease space according to their individual needs, and special purpose 'subzones'.

These are granted to individual companies with more complex needs, such as manufacturing plants, oil refineries and distribution facilities, which cannot be accommodated in general zones. Any organization can apply to create a subzone, but it will be responsible for all costs involved, including buildings, site maintenance and security.

What can firms do within an FTZ?

FTZs can be used for a wide variety of purposes, including warehousing, distribution, manufacturing, sorting, grading and other processing or value-add activities. However, no retail trade of foreign merchandise is permitted within an FTZ.

Other restrictions may be determined by the Foreign-Trade Zones Board, which can exclude certain items from being moved into an FTZ. Meanwhile, many products that are subject to internal revenue taxes, such as alcohol, tobacco and firearms, may not be manufactured within a zone.

However, despite these restrictions, most FTZs offer businesses a great deal of freedom to import, process and export items as they see fit. So how can firms take advantage of these special customs regimes?

4 advantages of operating in an FTZ

There are a range of benefits that businesses can enjoy from operating within an FTZ. Some of the most common positives available to firms include:

• Duty deferral - Not needing to pay import duties until goods leave the FTZ allows businesses more flexibility to adjust to demand fluctuations or manage their cash flow.
• Duty exemption - Because no duties are paid until leaving the FTZ, any items that have become damaged, degraded or destroyed during transit do not attract fees. Similarly, products that incur a large amount of wastage or scrap during processing will not be subject to as much duty.
• Duty reduction - FTZs enable firms to take advantage of 'inverted tariffs', which means they have the option of paying duties on individual components or the finished product - whichever is cheaper. This can offer significant savings for manufacturers.
• Quota avoidance - Items in FTZs are not subject to quotas until they enter the rest of the US, so as there are no limits on how long goods may be stored, the facilities can therefore be held until needed, or processed into a different category to avoid quotas.

All this means firms can save money, streamline their supply chains and reduce overheads, making the use of FTZs an option every firm importing goods into the US should consider.