Reducing Sourcing Costs through Foreign Trade Zones

Although the free zone has existed in Europe for centuries, the FTZ was established in 1934 by the US Foreign-Trade Zone Act. The FTZ programme is administered by the Foreign-Trade Zones Board in the Department of Commerce and by the US Customs Service.

Production refers to assembly, manufacturing, or processing.

GPZ and SZ site aspects, such as land, facilities, and access to transportation modes and Customs ports of entry, are stipulated by the US Foreign Trade Zone Act of 1934.

See Miller & Steuart P.C. A Reference Guide to US Foreign Trade Zones, Kansas City, Missouri: Miller & Steuart, P.C., 1989.

See ‘A Fifty-Year Fight That Finally Paid Off, American Import/Export Manager, March 1984, pp. 18–20.

See Douress Joe , ‘Prospective Users Have Plenty of Variety When Picking A Foreign Trade Zone’, Global Trade Executive, July 1986, Vol. 10, No. 12; Mullaney, Tim, ‘NJ Zones Have Different Appeal’, The Journal of Commerce, 29 October 1986; Rachid, Rosalind, ‘US Companies Passing Up Benefits of TradeZones’, Journal of Commerce, 28 October 1987, 14A.

See ‘Effective Marketing Is Key to FTZ Success’, Global Trade Executive, March 1986, p. 19.

See Rachid Rosalind , ‘US Companies Passing Up Benefits of Trade Zones’, Journal of Commerce, 28 October 1987, 14A.

See Heydt Bruce , ‘The Secret Agents of International Logistics’, Distribution, October 1982, pp. 84–92.

See O'Connor, Joseph F. , ‘FTZs: Good News for the Economy’, Global Trade Executive, July 1986, pp. 6–9.

See ‘US Foreign Trade Zones Grow in Scope and Number’, Business America, 2 June 1980, pp. 13–15.

See Foreign-Trade Zones Board, 48th Annual Report of the Foreign-Trade Zones Board to the Congress of the United States, Washington, D.C.: Foreign-Trade Zones Board, 2 May 1989.

FTZ use allows firms to circumvent inverted tariffs, where the sum of tariffs on parts exceeds the finished product tariff, such as for automotive or electronic products. FTZ users can select the more advantageous tariff. Tariff rate levels may also change over time due to the General Agreement on Tariffs and Trade and trade legislation.

See Haar Jerry , and Ortiz-Buonafina, Marta , Import Marketing - A Management Guide to Profitable Operations, Lexington, Massachusetts: Lexington Books, 1989.

See ‘The US Lags in Trade Zones’, Business Week, 17 November 1980, pp. 82 and 87.

See O'Connor, Joseph F. , ‘FTZs: Good News for the Economy’, Global Trade Executive, July 1986, pp. 6–9; Rachid, Rosalind, ‘US Companies Passing Up Benefits of Trade Zones’, Journal of Commerce, 28 October 1987, p. 14A.

See Bertrand Kate , ‘Trade “Secret”: Drawbacks Give Exporting Edge’, Business Marketing, May 1988, pp. 30–31; ‘Customs' Plans for Automated FTZ Module’, Global Trade, September 1990, p. 26; deKieffer, Donald E. and George W. Thompson, ‘Political and Policy Dimensions of Foreign Trade Zones: Expansion or the Beginning of the End?’ Vanderbilt Journal of Transnational Law, Vol. 18, Summer 1985, pp. 481–513; Drago, Brandi, ‘NAFTZ: Your Washington Watchdog’, Global Trade, September 1990, p. 23; Durda, Catherine, ‘The Care and Marketing of FTZs’, Global Trade, September 1990, pp. 24–25; ‘Effective Marketing‘ 1986; Harwick, Robert, ‘Drawing Back on Drawback?’ American Shipper, December 1985, p. 71; Illingworth, Montieth M., ‘Big Changes Are Ahead for FTZs’, Journal of Commerce, 28 October 1987, pp. 13A and 17A; Jaeger, Roy H., ‘Foreign Trade Zones’, Global Trade, September 1987, pp. 6–7; Joye, Mark C., ‘Importing for Exporters’, Distribution, October 1982, pp. 95–108; McDaniel, William R. and Kossack, Edgar W., ‘The Financial Benefits to Users of Foreign-Trade Zones’, Columbia Journal of World Business, Vol. 18, Fall 1983, pp. 33–41.

FTZ entry is formal for merchandise status application where firms note the origin and destination of tariffable goods that impact tariff deferral, reduction, and avoidance.

Products in the manufacturing bonded warehouse must be exported or destroyed.

The great detail, time commitment, and administrative costs of drawback or bond use may prohibit approval of their use.

See McDaniel, William R. , and Kossack, Edgar W. , ‘The Financial Benefits to Users of Foreign-Trade Zones’, Columbia Journal of World Business, Vol. 18, Fall 1983, pp. 33–41.

Miller, Marshall V. , ‘Foreign-Trade Zones Will Come of Age in the 1980s’, American Import/Export Bulletin, March 1981, pp. 20–24.

See Smith, Leslie E. Jr. , ‘It Makes Sense to Locate in a US Foreign Trade Zone’, Global Trade Executive, January 1986, p. 18; ‘World Trade Profiles’, American Import/Export Manager, March 1982, pp. 6-11.

See Clasen, Thomas F. , ‘US Foreign-Trade Zone Manufacturing and Assembly: Overview and Update’, Law and Policy in International Business, Vol. 13, No. 1, 1981, pp. 339–80.