A Foreign Trade Zone (FTZ) is a secure area located in or near a U.S. Customs & Border Protection (CBP) Port of Entry. FTZs are legally outside the U.S. Customs territory for duty/tariff payment purposes. This means companies can store, process, manufacture and export imported goods without having to pay duties/tariffs until the goods enter the domestic market. Retail trade in an FTZ is prohibited by law but nearly every other wholesale business activity can be accommodated.

In an FTZ, merchandise may be:

Duty/Tariff & Excise Tax Deferral: FTZ importers pay tariffs and excise tax only when goods ship out of the FTZ into the U.S. market, which generates a cash flow benefit. The slower a company turns its inventory, the larger the benefit.

Duty/Tariff & Excise Tax Elimination: FTZ importers can eliminate tariffs and excise tax on imported goods that are exported ‘in bond’ from the FTZ or goods that are considered destroyed scrap/waste under FTZ procedures.

Duty Reduction (“Inverted Tariff”): Traditionally, FTZ manufacturers could reduce duty costs from the typically higher duty rates associated with imported parts and components to the lower duty rate(s) associated with finished goods made in the FTZ. However, the current trade policy environment including the imposition of Reciprocal and other trade remedy tariffs requires that most imported goods be admitted into FTZs in Privileged Foreign (PF) Status. PF Status “locks in” the tariff rates that are in effect at the time of admission to the FTZ and prevents traditional duty reduction benefits through manufacturing for the time being.