Foreign Trade Zone Advantages

Our Purpose is to use our resources, efforts, and focus to provide a high quality
service and product to our clients.

Examples of FTZ Advantages

I. Matching Cost With Revenues/ Saving Cash Flows

  • A company wishes to import $300,000.00 in inventory to be distributed into the United States.
  • The duty rate on the goods is 13%

Example 1: Duty Paid Up Front Upon Entry

The goods go directly into a “non trade zone” facility to be distributed, sales are made in June, October, and February:

example1.png

$39,000.00 duty is paid up front, cash outflow for sales not occurring for months.

 

Example 2: Duty Paid in Installments

The goods go into a Foreign Trade Zone in February, sales are made in June, October, and February:

example2.png

The duty is paid in three payments, when the goods are released for sale into the U.S. market, matching cash flows with sales.

  • Because the company does not pay the duty up front, it does not need to borrow money from its operation, or its bank. In this example, with an annual interest rate of 12%, the company will save $3,341.00 in interest expense.
  • Notwithstanding, the company can invest the cash into short term investments. In this example, with an annual interest rate of 5%, the company will earn $130.00 in interest.
  • The net value of using a FTZ in this case amounts to $3,471.00.
  • Also, if the company re-exported some of its goods from the zone, it would never have to pay the import duty on these goods. If the company used a “non trade zone” facility, it could apply for a duty drawback from U.S. Customs. The portion that would be refunded may be tied up for nine months or more. The time value for money must again be considered.

II. IMPORTING PARTS FOR MANUFACTURE & ASSEMBLY/DECREASING DUTIES

  • A company is importing $5,000,000.00 copy machine parts to be assembled into copy machines in the United States.
  • The duty rate on these parts is 4.9% or $245,000.00
  • If the parts are assembled into a complete unit within a FTZ, the duty rate on the finished unit is 4.1% or $205,000.00 *The savings in this case is $40,000.00 for this shipment alone.
  • As illustrated above, this $40,000.00 does not drain cash flow or have to be financed through outside sources. Likewise, the $40,000.00 could be invested to earn interest.

III. IMPORTING PARTS FOR MANUFACTURE & ASSEMBLY/DECREASING DUTIES

When a product enters the United States border without proper labeling, missing documentation or above quota, U.S. Customs will either seize the goods, fine the importer, or both.

  1. Textiles coming in from Asia without proper labeling of country of origin, material content, flammability, etc., will face seizure and penalties of up to fifteen times the value of the goods.
  2. Autos coming in from Europe, missing necessary documentation will face seizure and fines in the neighborhood of $1,000.00 per day.
  3. Any goods coming in above quota will face seizure, extreme fines, anti-dumping penalties, etc.

Goods brought into a FTZ can be re-labeled to meet U.S. Customs requirements, await proper documentation, and be stored above quota without the threat of U.S. Customs seizure and stiff penalties. .