What happens in Foreign-Trade Zones?

What happens in Foreign-Trade Zones?

Posted on February 22, 2013

Storage and distribution. Merchandise that is admitted into an FTZ may be stored indefinitely. It may be unpacked, repacked, displayed, assembled, disassembled, sorted, graded, cleaned, relabeled or even destroyed. It may be distributed as is or combined with other foreign or domestic merchandise. Only when merchandise is taken from an FTZ into U.S. Customs territory is it subject to customs duties and quotas. If the merchandise is shipped to a foreign port, no duties or taxes are collected. Goods may also be transferred directly from one FTZ to another without being subject to Customs duties or quotas.

Manufacturing. Goods may also be manufactured in an FTZ except when specifically limited by law. Products may then be exported or sent into U.S. Customs territory. When products enter Customs territory, they are subject to Customs duties; if they are shipped to foreign points, they are not. All new manufacturing operations are subject to the approval of the Foreign-Trade Zones Board and the District Director of Customs.

Note: machinery or supplies of foreign origin used in the manufacturing process are subject to duty when admitted to an FTZ. In the particular case of imported textiles subject to quota, manufacturing is permitted only if the finished products are exported.

Status designations of merchandise. At the time merchandise is admitted into a Foreign-Trade Zone, the owner applies for one of four status designations. Firms may use this status designation to legally minimize payment of U.S. Customs duties.

  • Domestic Status is granted to goods that are grown, produced or manufactured in the United States provided all applicable internal revenue taxes have been paid, to goods that have been previously imported on which duties and taxes have been paid, and to goods that have been previously entered free of duties and taxes. Identifiable Domestic status merchandise may be returned to the Customs territory free of quotas, duties or taxes.
  • Non-privileged Foreign (NPF) Status applies to merchandise of foreign origin. It can also apply to certain domestic merchandise which, by reason of non-compliance with FTZ regulations, has lost its Domestic status. Recoverable waste generated in a manufacturing process may also be granted Non-privileged Foreign status. Non-privileged Foreign status allows Zone users to pay duty based on the character, condition and quantity of the merchandise at the time it enters Customs territory.
  • Privileged Foreign (PF) Status Merchandise applies to merchandise of foreign origin when classified and appraised with duties liquidated and taxes determined, as of the date the application for this status is approved. Privileged Foreign status allows the importer to alter or manufacture merchandise into new products without changing, for duty-assessment purposes, the original product classification. Privileged Foreign status cannot be changed even though the form of the merchandise has been changed. This status, however, cannot be granted to Non-privileged Foreign merchandise which has previously been manufactured in a Zone.
  • Zone-Restricted (ZR) Status is granted to either domestic or foreign merchandise that is admitted to a Zone for the purpose of eventual exportation or destruction. This status may not be changed once it has been granted. Zone-Restricted merchandise may not enter U.S. Customs territory for domestic consumption unless determined to be in the public interest by the Foreign-Trade Zones Board.

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