What is a Foreign-Trade Zone?

Simply, it is a secured place authorized by the federal government, considered to be outside the Customs territory of the United States although they are still under U.S. Customs supervision and control.

Normally, when foreign cargo lands on U.S. soil, it is subject to clearance through US Customs and the payment of U.S. Customs duty. Many firms use Foreign-Trade Zones to postpone and, in the case of reexport cargo, avoid the imposition of duties, taxes, bonds, quotas and certain other requirements.

Domestic and foreign merchandise may be stored within a Foreign-Trade Zone. It may be manufactured, displayed, sold or altered in almost any way that isn’t prohibited by U.S. law.

As long as the merchandise remains in the Zone, it is not subject to U.S. Customs laws governing the entry of goods into Customs territory or payment of duty on those goods. In addition, Zone users can legally minimize the payment of U.S. Customs duties by either paying duty based on the classification of the merchandise at time of admission to the Zone or by paying duty based on the classification of the merchandise when it subsequently enters U.S. Customs territory. Merchandise subject to quotas may be admitted to a Zone without regard to those quotas. And no duty is assessed on domestic merchandise that enters Customs territory from a Zone.

Even though Hawaii’s FTZ is considered to be outside the Customs territory of the United States, it is on U.S. soil. For that reason, goods and activities in the Zone are subject to federal, state and local laws and regulations. Articles prohibited by law are not allowed admission, nor are articles that violate copyright, trademark or patent laws. Animal quarantine restrictions apply as well.

There are two types of FTZs in Hawaii: general purpose zones and special purpose subzones. General purpose zones operate as public utilities providing a variety of services to many users. Special purpose subzones are single-use facilities which cannot be accommodated within the general purpose zone.