Issue Example
Custom clearance Done inland instead of at the gateway port (merchandises go directly to the FTZ).
Simpler and faster.
Consignment can stay for an unlimited amount of time in the FTZ.
Consignee gets further advance notice that shipment is ready.
Quotas can be managed through postponement.
Duties and Fees Duties and merchandise processing fee not paid until the consignment is released and moved out of the FTZ (storage).
Not paid if goods are exported or re-exported.
Deferred if goods moved to another FTZ.
Not paid for damaged, defective or obsolete goods.
Lower insurance premiums since no duties.
Settlement Vendors often not paid until consignments leave the facility for delivery (Delay settlement).
Remove damaged or defective products from the settlement.
Security Higher security level since under jurisdiction of national customs.
Lower insurance premiums.
Transformations and manufacturing Product remarked or labeled to meet national requirements.
If transformation is performed in the FTZ, the duty class may change (Select the taxation regime).
Added value activities performed in a FTZ not subject to custom duties.
Operational Advantages of Foreign Trade Zones (FTZ)
A Foreign Trade Zone (FTZ) is an area that is considered outside the customs jurisdiction of a country where cargo can be placed in a duty and tax free environment until ready to enter the country. The main advantages of FTZ are thus regulatory and financial, which enables rather unique and flexible supply chain management practices:
  • Custom clearance. Since the FTZ is a bounded facility, the custom clearance can be done inland instead of at the port of entry and the consignment can stay in the bounded area for an unlimited amount of time. It is likely that this can be done faster inland because the facility is less congested than a large gateway port. The consignee thus gets a better notice about the availability of his shipment and can plan his supply chain management accordingly. If a quota is imposed on a type of good, a FTZ can be used to postpone the entry until the quota is lifted or until the good is transformed into another good not subject to quotas.
  • Duties and fees. In spite of decades of trade liberalization, duties and merchandise processing fees (fee paid to customs to cover inspection and processing costs even if not duties are levied) are still levied on international trade. With a FTZ duties are not paid until the consignment is shipped out (re-exported) and can be deferred further if moved to another FTZ. Therefore a FTZ can be an inventory management strategy for high duty goods as well as servicing a multinational market from a single distribution center. For instance a large quantity of high duty goods can be imported and stored in a FTZ. Then the products can be gradually sold with the duty paid only when they leave the FTZ. If a transformation (e.g. assembly, labeling, testing) is performed within the FTZ, this added value activity is not subject to duties and can change the duty class of a product to a more preferential level. Commonly, duties are not levied if a product is damaged, defective or obsolete since its commercial value is considerably reduced. Thus, by inspecting products in a FTZ, the duty will be waived for any defective products. This is particularly useful for products that have a higher propensity to be damaged or defective.
  • Settlement. For most transactions, particularly through letters of credit, the vendor is not paid until the consignment has left a facility (FTZ and/or transport terminal). A FTZ can thus be used to delay settlement until judged suitable by the consignee and also offers the opportunity to readily remove the value of damaged or defective products from the settlement.
  • Security. Since FTZ are secure areas customs jurisdiction, insurance rates are lower because of the reduced risks of theft. FTZ can also present the opportunity to delay the inspection and entrance of cargo that does not comply to national regulation.
  • Transformation and manufacturing. Cargo can be brought to a FTZ and transformed (e.g. labels) so that it may comply to custom regulations, such as for labels. It makes possible to import specific categories of goods without going through custom procedures as long as the goods remain within the FTZ. In the FTZ, the goods can be transformed (e.g. assembled, tested, packaged) into other goods and then "exported" out under a different custom category.