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Why do multinational firms use Foreign-Trade Zones?
To maintain the cost competitiveness of their U.S. based operations vis-à-vis their foreign-based competitors. For a firm, zone status provides an opportunity to reduce certain operating costs associated with a U.S. location that are avoided when operating from a foreign site.

How are they established?
The Foreign-Trade Zones Act of 1934 created a Foreign-Trade Zones Board to review and approve applications to establish, operate, and maintain Foreign Trade Zones.

The Board may approve any zone or subzone that it deems necessary to serve adequately "the convenience of commerce."

The Board also regulates the administration of Foreign-Trade Zones and the rates charged by "grantees."

U.S. Customs and Border Protection must approve activation of the zone before any merchandise is admitted under the Foreign-Trade Zones Act.

What may be placed in them?
Any foreign or domestic merchandise not prohibited by law, whether dutiable or not, may be taken into a Foreign-Trade Zone.

Merchandise that lawfully cannot be imported into the United States is prohibited without exception. Since foreign merchandise is considered imported by the time it is taken into a zone, placing such a quota merchandise in a zone cannot circumvent a quota on importation.

Merchandise that lawfully cannot be entered into the customs territory may be placed in a Foreign-Trade Zone, because zones are considered outside customs territory. For instance, merchandise may be stored in a Foreign-Trade Zone until a quota on entry is removed or may be manufactured or manipulated in a zone into a product not subject to quota with the exception of certain textile products (146.63 (d)).

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 requirement and the particular characteristics of the zone facility, such merchandise may be excluded. Moreover, agencies that license importers or issue importation permits may block entries into a zone that are not licensed or permitted.

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 vitiate other trade laws of the United States.

What may be done in them?
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 be manufactured, without being subject to U.S. Customs laws. This exemption does not apply to machinery and equipment that is imported for use (for manufacturing or the like) within a zone.

In specific cases, the Foreign Trade Zones Board may deny permission to manipulate, manufacture, or exhibit merchandise in a zone in order to protect the public interest, health, or safety.

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, perfumes containing alcohol, tobacco products, firearms, and sugar. In addition, the manufacture of clocks and watch movements is not permitted in a zone.

No retail trade of foreign merchandise may be conducted in a Foreign-Trade Zone. However, foreign and domestic merchandise may be stored, examined, sampled, and exhibited.

How is U.S. Customs and Border Protection involved?
U.S. Customs and Border Protection is responsible for the transfer of merchandise into and out of a zone and for matters involving the collection of revenue. The Office of Regulations and Rulings at Customs Headquarters provides legal interpretations of the applicable statue, Customs Regulations and procedures.

The Port Director of Customs in whose district a zone is located is in charge of the zone as the local representative of the Foreign Trade Zones Board. He controls the admission of merchandise into the zone, the handling and disposition of merchandise in the zone, and the removal of merchandise from the zone. In addition to the Foreign Trade Zones Act, he enforces all laws normally enforced by the Customs that are relevant to Foreign-Trade Zones.

Zones are supervised by U.S. Customs and Border Protection officers through periodic checks and visits; the security of the zone must meet U.S. Customs and Border Protection requirements.

Is a Zone Right For Your Operations?
If you are concerned about Zone operational issues or regulations, or you think Zones are only suited to a particular industry, consider this:
    • Car manufacturing plants, oil refineries, computer manufactures, and textile distributors are all utilizing Zones. So are companies with as few as 15 employees.
    • If you are already using another Customs tariff-reduction program, such as Duty Drawback, Temporary Importation Bond, or a Bonded Warehouse, you need to consider U.S. FTZs as a way to streamline you operations, cut down on paperwork, increase your flexibility, and save additional money, all at the same time. Many companies are discovering that Zones more efficiently meet their needs than other Customs programs