Free or Foreign Trade Zones: What are they and what are the benefits?

MIC Products | | MIC Customs Solutions |

Here, we'll take a look at Free or Foreign Trade Zones and examine how they might benefit businesses using them, particularly in the US.

Free Trade Zones are defined by the World Bank as "duty-free areas, offering warehousing, storage, and distribution facilities for trade, trans-shipment, and re-export operations".

Essentially, they are a class of special economic zone where goods may be taken in, stored, handled and re-exported under specific customs regulations and usually not subject to customs duties.

This usually involves the importing of raw materials and the eventual exportation of factory products, but more Free Trade Zones in the 21st century are now focusing on software, research and financial services.

Generally, Free Trade Zones are organised around major international airports and seaports due to their geographic advantages for trade. They should not be confused with Free Trade Areas, which are set up between countries, or customs unions.​

FTZs and specifics in the US

In the US, Free Trade Zones are referred to as Foreign Trade Zones (FTZs) under an act passed in 1934 and are managed by US Customs and Border Protection (CBP).

According to the Foreign-Trade Zones Board in its 2018 Annual Report to Congress, there are more than 195 active FTZ programmes across the US and they are generally considered outside CBP territory upon activation.

Under zone procedures, the usual entry requirements and payments of duties on goods are not required until the foreign products enter CBP territory for domestic consumption. At that point, the importer may choose whether to pay duties at the rate of either the original foreign materials or the finished product.

There are customs-related advantages to this, as well as exemptions from state and local inventory taxes, while domestic goods moved into the zone for export may be considered exported once they are admitted to the zone in terms of excise tax rebates and Duty Drawback.

Benefits of FTZs

FTZs aim to boost economic activity and employment by providing special exemption from typical immigration procedures and foreign investment restrictions.

Businesses that set up within a zone may benefit from a number of regulatory and fiscal incentives depending on the type of operation, including:

  • Duty exemption
  • Duty deferral
  • Inverted Tariffs
  • Quota avoidance

Other advantages could include the faster turnaround of ships or planes due to fewer customs examinations, CBP duty only being payable when the merchandise is transferred for consumption, and reduced onus on filing requirements. 

The FTZ initiative was designed to boost American competitiveness on the global markets by treating products made in such zones - for the purposes of tariff assessment at least - as though they were manufactured abroad.

Exemptions and requirements for FTZs

FTZs are supervised by FTZ Coordinators, who may be CBP Officers, Import Specialists, Entry Specialists or Agricultural Specialists, and they may carry out compliance reviews and visits at any time.

The security of a zone must meet requirements laid out in law and there may be exemptions on what merchandise is permitted within them, depending on these regulations and the characteristics of particular zone facilities.

Businesses may also find admissions to a zone could be blocked if they do not have issue importation permits or licences where they are required.

Avoid complications - let MIC do the hard work

As ever, these requirements and stipulations sound prohibitively difficult when laid out like this, especially if you are concerned about falling foul of the law.

However, don't let it put you off, because the benefits may be significant. Instead, get the help you need with MIC's MIC-CUST® FTZ module.

This ensures an accurate Inventory Control and Recordkeeping System (ICRS) to keep the CBP satisfied and provides a central dashboard with an integrated suite of tools to manage and oversee all aspects of operating a zone.

What's more, it can even automatically transfer zone withdrawals to MIC-CUST® US ENTRY, removing another bureaucratic hurdle in the process.


Why not contact us today to find out how this solution could help you make your business more competitive and use FTZs to their full advantage?