An FTZ in SLC?

Great effort has been expended by many organizations as Salt Lake City awaits approval for its Foreign Trade Zone (FTZ), but some might ask what all the fuss is about. Here’s a primer on what an FTZ is and how it can benefit Utah businesses.

An FTZ is a geographical area in or adjacent to a Customs Ports of Entry. Commercial merchandise within an FTZ receives the same Customs treatment it would if it were outside the commerce of the United States.

The U.S. Foreign-Trade Zones program was created by the Foreign-Trade Zone Act of 1934 to expedite and encourage foreign commerce. The Act was one of two key pieces of legislation passed in an attempt to mitigate some of the destructive effects of the Smoot-Hawley Tariffs, which had been imposed in 1930. FTZs provide businesses with tariff and tax relief because merchandise of every kind may be held in the zone without being subject to Customs duties and other ad valorem taxes. What’s more, goods manufactured within a FTZ are segregated from the domestic economy until entered into domestic commerce.

Because FTZs are treated as being outside of the Customs territory of the United States, they can help lower the costs of American businesses engaged in international trade. Consequently, FTZs are seen as catalysts to help create and retain employment and capital investment opportunities that result from international trade operations. U.S.-based companies can thereby enhance their cost-competitiveness while the United States can practice both the letter and the spirit of its trade laws.

In 1970 there were 8 Foreign-Trade Zone projects (with 3 Subzones) in the U.S. Today there are over 230 Foreign-Trade Zone projects (with nearly 400 Subzones). California has 18 FTZs, Texas has 33, and Florida has 27. Utah had an active FTZ from 1977 until 1996, and a bonded warehouse is still located at the site; however, the FTZ certification was allowed to expire.

The Wasatch Front has seen dramatic growth in manufacturing and distribution, and consequently a resurgence of requests for reactivation of the FTZ. International trade accounts for nearly 20 percent of all Utah manufacturing jobs and over 2,100 companies export, 83 percent of which are small and medium sized businesses. Every penny saved through tariff and tax relief translates into more jobs, new equipment and strengthened operations for Utah business. Through the FTZ program, Utah companies could use a warehouse within the FTZ to store, manufacture or assemble products in essentially a Customs deferral, elimination, or duty-free area.
FTZ Benefits Overview

• Duty deferral: Imported products admitted to the FTZ are not entered into the Customs territory until their withdrawal from the FTZ, which provides users a cash flow savings by deferring Customs duties until the merchandise leaves the FTZ for consumption in the U.S.
• Duty elimination: Imported products admitted to the FTZ and subsequently destroyed in the FTZ or exported from the FTZ are not subject to Customs duties.
• Duty reduction: Imported products admitted to the FTZ can be placed in a special status that allows the merchandise to be classified and appraised in its condition as withdrawn from the FTZ. For manufacturers, this means an imported component with a higher rate of duty can be classified and appraised in its finished product form, with a potentially lower rate of duty, thereby reducing the amount of duty owed.
• Zone to zone transfer: If a company utilizes more than one FTZ, merchandise may be transferred from zone to zone in order to extend the deferral benefits. This benefit can be implemented up and down the supply chain, incorporating the activities of suppliers and customers.
• Direct delivery and weekly entry/export: Users may obtain permission from Customs to move merchandise directly from the port of arrival to the FTZ, thus avoiding delays at congested ports and minimizing exams. On the outgoing side, users may obtain permission to ship unrestricted weekly (24/7), based on an estimate approved by Customs before the start of the business week. Broker fees and merchandise processing fees paid to Customs may be significantly reduced by filing one entry per week versus daily entries or one per shipment. Goods move in and out of the zone on an expedited basis, allowing for a seamless supply chain from vendor to customer without maintaining unnecessarily high levels of inventory.
• Production equipment: Certain duty deferral and reduction benefits also apply on production equipment admitted to the FTZ for assembly and testing before use in production.