The City of Compton has Foreign Trade Zones (FTZ) located in certain areas of the City. FTZ’s stimulate economic development by providing a climate that encourages growth for firms involved in international trade. They also reduce or eliminate the tariffs in defined geographic areas. Zones are valuable to companies that import parts or supplies from abroad for the manufacturing of their products for exporting. In FTZ’s companies are not required to pay a tariff on components imported from abroad as long as the finished product is exported.
How do Foreign Trade Zones work?
Under zone procedures, the usual Customs entry procedures and payment of duties are not required on foreign merchandise until it enters Customs territory for domestic consumption. Domestic goods admitted into a zone, in zone-restricted status, (for storage, destruction or export) are considered exported when admitted to the zone for other government agency requirements, excise tax and drawback purposes.
Zones are granted by a Foreign-Trade Zones Board to qualified public or private entities (port authorities, city/county economic developers). In a general-purpose zone, the grantee usually has an operator to operate the zone. Operators can sublet to tenants, called users. In a sub-zone environment, the user and operator are usually the same.
Advantages of using Foreign Trade Zones:
Specific financial benefits are:
Duty Deferral
Customs duty and federal excise tax, if applicable, are paid only when merchandise is transferred from an FTZ to the Customs territory of the U.S. or transferred to a NAFTA country (Canada and Mexico).Duty Elimination
Goods may be imported into, and then exported from, a zone without the payment of duty and excise taxes except to certain countries, such as NAFTA countries, in which case, any applicable duty and excise tax will be levied. Goods may also be imported into, and destroyed in, a zone without the payment of duty and excise taxes.Inverted Tariff Relief
Inverted tariff relief occurs when imported parts are dutiable at higher rates than the finished product into which they are incorporated. For example, the duty rate on an imported muffler for an automobile is 4.5 percent if imported directly into United States commerce. However, if that muffler is brought into a Foreign-Trade Zone and incorporated into an assembled automobile, the duty rate on the finished automobile, including the muffler, is 2.5 percent.Ad Valorem Tax Exemption
Merchandise imported from outside the United States and held in a zone for the purpose of storage, sale, exhibition, repackaging, assembly, distribution, sorting, grading, cleaning, mixing, display, manufacturing, or processing, and merchandise produced in the United States and held in a zone for exportation, either in its original form or altered by any of the above methods, is exempt from State and local ad valorem taxes.
Other benefits:
No Time Constraints on Storage
Merchandise may remain in a zone indefinitely, whether or not it’s subject to duty.
Satisfy Exportation Requirements
Merchandise entered into the U.S. on an entry for warehousing, temporary importation under bond, or for transportation and exportation may be transferred to a foreign-trade zone from the Customs territory to satisfy a legal requirement to export the merchandise. For instance, merchandise may be taken into a zone in order to satisfy an exportation requirement of the Tariff Act of 1930, or an exportation requirement of any other Federal law insofar as the agency charged with its enforcement deems it advisable. Exportation may also fulfill requirements of certain state laws. Items admitted to a zone to satisfy exportation requirements must be admitted in zone restricted status – meaning they are only for direct export, immediate export, and transportation and export.
Security and Insurance Costs
Customs security requirements and federal criminal sanctions are deterrents against theft. This may result in lower insurance costs and fewer incidents of loss for cargo imported into an FTZ.
FREQUENTLY ASKED QUESTIONS:
What are the types of Foreign-Trade Zones?
There are two types of foreign-trade zones: General Purpose Zones and Sub zones. General purpose zones are usually located in an industrial park, on raw land or in port complexes whose facilities are available for use by the general public.
Sub zones are sites sponsored by a general purpose zone grantee on behalf of an individual firm or firms. Sub zones are single-purpose sites for operations that cannot be feasibly moved to, or accommodated in, a general purpose zone; e.g., oil refineries, automobile manufacturers.
What may be placed in an FTZ?
Any foreign or domestic merchandise not prohibited by law, whether dutiable or not, may be admitted to a foreign trade zone.
Conditionally admissible merchandise is merchandise subject to permits or licenses, or that must be reconditioned to bring it into compliance with the laws administered by various Federal agencies before entering the United States. Because zones are considered outside the Customs territory, requirements that would otherwise apply to imported merchandise are suspended as long as the merchandise remains in the FTZ. An example of conditionally admissible merchandise is a substance subject to the Toxic Substances Control Act (15 USC 2601 et seq.) which has not received approval by the Environmental Protection Agency for use in the United States. However, merchandise that is illegal, i.e. Heroin, may not be imported under any circumstances.
Some Federal agencies regulate storage and handling in the United States of certain types of merchandise, such as explosives. Depending on the nature of the requirements and the particular characteristics of the zone facility, such merchandise may be excluded. Most agencies that license importers or issue importation permits may block admission of merchandise that is not licensed or permitted into a zone.
The Foreign-Trade Zone Board may exclude from a zone any merchandise that in its judgment is detrimental to the public interest, health, or safety. The Board ensures that foreign-trade zones are not used to violate other trade laws of the United States.
Merchandise subject to quota restrictions may be admitted into a zone until a quota on entry is removed or may be manufactured or manipulated in a zone into a product that is not subject to quota. The FTZ Board can restrict or prohibit activity on public interest grounds.
What may be done in an FTZ?
Foreign and domestic merchandise permitted in a zone may be stored, sold, exhibited, broken-up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, otherwise manipulated, destroyed, or manufactured. On the other hand, machinery and equipment that is imported for use within a zone is not exempt from the payment of duty. Such equipment and supplies may include, but are not limited to: office furniture, machines, and equipment; construction machinery and materials; manufacturing machinery and equipment, tooling, and supplies; packaging machinery and equipment; food to be eaten in the zone and water and fuel that do not become part of a zone product.
What may not be done in an FTZ?
In specific cases, the Foreign-Trade Zones Board may prohibit or restrict any activity in a zone in order to protect the public interest, health, or safety. All manufacturing is reviewed in terms of government policy and its net economic effect.
Many products subject to an internal revenue tax may not be manufactured in a zone. These products include alcoholic beverages, products containing alcoholic beverages (except domestic denatured distilled spirits), and perfumes containing alcohol, tobacco products, firearms and sugar. In addition, the manufacture of clocks and watch movements is not permitted in a zone.
Retail trade is prohibited in zones, unless conducted under a permit issued by the zone grantee and approved by the Foreign-Trade Zones Board. Retail trade is then allowed only for the sale of domestic goods, or goods brought from the Customs territory following a regular Customs entry on which any applicable duties and/or taxes have been paid.
How is merchandise admitted into a zone?
Merchandise does not achieve zone status until a permit is given by the port director for its admission (except in the case of domestic status merchandise for which no permit is required), and the zone operator signs for receipt of the merchandise into the zone.
