Foreign Trade Zone (“FTZ”) General Overview
1. General:
FTZs exist as a means through which U.S. and foreign companies can become more
competitive in their individual markets through a reduction, delay or
exemption from tariffs, duties, taxes or related costs affecting business.
2. Permitted
Activities in the FTZ: Merchandise in a zone may be assembled,
exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled,
repackaged, repaired, salvaged, sampled, stored, tested, displayed and
destroyed. However, any activity
involving the substantial transformation of a foreign article or activity
involving a change in the condition of the article which results in a change in
the customs classification of the article or in its eligibility for entry for
consumption is “production activity” and must be specifically authorized by the
FTZ Board. All retail trade is prohibited in an FTZ.
3. FTZ Board: The Board is comprised of the Secretary of
Commerce, the Secretary of the Treasury and the Commissioner of U.S. Customs
and Border Protection (“CBP”), with the Secretary of Commerce as Chair.
4.
Application Process: 4 main stages: (1) Pre-docketing (preparing
application), (2) Docketing (publishing application on Federal Register), (3)
Review (Internal FTZ process) and (4) Interagency Clearance (review at CBP and
Dept. of Treasury). While the process is
shorter in time for a subzone application, the stages are the same.
Subzone Overview
1.
General: To qualify as a subzone,
the potential facility generally must exist within (1) the limits of a CBP port
of entry, (2) 60 statute miles from the outer limits of a CBP port of entry or
(3) 90 minutes’ driving time from the outer limits of a CBP port of entry. There is one exception to this geographic rule,
but it is easier to fit in the above 3 categories.
2.
Subzone
site: If
a company is interested in pursuing FTZ designation for its specific facility
on a case-by-case basis, the facility should consult legal and/or tax
professionals to analyze the business opportunity and burden posed by obtaining
subzone approval. Depending on the specific
procedure used for application to be a subzone, approval can take 1-5 months.
3.
Fees: For subzone
applications, there is a two-tier structure, based manufacturing needs and number
of intended product types. For non-manufacturing/processing or manufacturing only
1-2 products, the application fee is $4,000.
For manufacturing/processing 3+ products, the application fee is $6,500. If the local FTZ site reorganizes as an
Alternative Site Framework (“ASF”), then no fees will apply.
4.
Activation
on Approved subzone:
Once approved, the operator of the subzone must apply for “activation” and
submit annual reports to the FTZ board on the previous FY activity within the
subzone. If a subzone is approved, but
never activated for 5 years, then the approval will lapse, subject to an 18
month re-instatement period.
Analyzing
whether it makes sense to apply for a subzone designation requires considering
various legal, business and tax concerns.
Don’t hesitate to contact the law firm above for a free discussion of
relevant concerns. Further, to assist
with some of the financial concerns, the US Department of Trade has an excel
calculator to project future duty savings from which your company could
benefit. See http://www.enforcement.trade.gov/ftzpage/info/toolbox.html
