Foreign-Trade Zone Overview

General Overview

Common Products in Zones

Application Process

General-Purpose Zone

Alternative Site Framework

Subzone

Production Notification Application

General-Purpose Zone Expansion

Traditional Site Framework Boundary Modification

Scope Determination

 

Activation

Operations Manual

FTZ Operator's Bond

Cargo Security Survey

Zone Management Plan/Foreign-Trade Zone System Design

Training

Foreign-Trade Zone Agreement


General Overview

The Foreign-Trade Zones Board, chaired by the Secretary of Commerce, administers the U.S. Foreign-Trade Zones program.  The Secretary of the Treasury and the Secretary of Commerce are members of the Board. The Board is staffed at the Commerce Department. There is an Executive Secretary of the Board. U.S. Customs and Border Protection oversees the day-to-day operations.  Foreign-trade zones are considered outside the U.S. Customs territory of the United States.  Companies that operate in foreign-trade zones can admit foreign merchandise into the area without payment of U.S. Customs duties and take on the imposition of U.S. quotas.  This allows companies to defer, reduce, or eliminate Customs duties on foreign products admitted into zones for storage, exhibition, assembly, manufacturing, and processing. 

There are two types of foreign-trade zones:  general-purpose zones and special-purpose subzones.  A general-purpose zone site is typically a multi-tenant building or an industrial park site that has been designated as a foreign-trade zone.  By definition, a general-purpose zone must be available to more than one company and is for warehousing approval only.  Under the Alternative Site Framework an individual usage-driven site may be for one company only and is still technically a general-purpose zone site. If activity within the zone will change the HTS number of merchandise and secure a financial savings, then Production authority must be secured from the FTZ Board by Board Order. Production authority for an individual company must be requested in a separate application and a Board Order must be issued authorizing same.  A subzone, by definition, is for the benefit of one company only for a limited purpose that cannot be accommodated within an existing zone site.  A typical subzone designation includes the acreage upon which a manufacturing or distribution facility for one company is located. 

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Common Products in Zones

Greater than 2,800 companies are zone users in the United States.

Many products offered in the market today are manufactured/distributed in subzones in the United States.  The reduction in Customs duties has assisted many companies in retaining their operations in the United States.  A few of the well-known products manufactured/distributed in subzones are:

  • Conair Corporation – small electric appliances
  • BP Products, CITGO, Chevron, ConocoPhillips, Equistar Chemicals, Exxon, NuStar, Shell Oil, Tesoro, Valero, etc. - gasoline/jet fuel
  • General Electric - refrigerators, stoves, dishwashers, and washing machines
  • Kodak - digital products
  • Intel - computer chips
  • Kawasaki - jet skis and ATV’s
  • Airstream, Thor, Winnebago - motor homes
  • BMW, Chrysler, Ford, GM, Honda, Hyundai, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Smith Electric, Toyota, Volkswagen, etc. - motor vehicles
  • Abbott, Astra Zeneca, BMS, Eli Lilly, Merck, Pfizer, etc.- pharmaceutical products
  • Ricoh – photocopiers;
  • Skechers – shoes;
  • STIHL – chain saws;
  • Sony - digital products;
  • Canon, HP, Minolta, Ricoh, etc. - toner cartridges

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Application Process

General-Purpose Zone

There are 288 general-purpose zones that have been approved and 270 general-purpose zones that are currently authorized which cover a wide geographical area in the United States.*

A new Foreign-Trade General-Purpose Zone Application consists of several detailed questions.  Each Application requires a significant amount of information regarding site information on the physical attributes of the property, detailed information regarding the community and companies at the foreign-trade general-purpose zone.  There are also several attachments to each of these questions that are required including site plans of the proposed foreign-trade general-purpose zone site.  The Application must be filed under the sponsorship of the nearest local Grantee organization.  The Grantee organization has the direct relationship with the Foreign-Trade Zones Board in Washington, D.C.

The Foreign-Trade Zones Board will file a notice in the Federal Register announcing the official filing of the Application.  This will commence a sixty (60) day public comment period where any impacted party may express its opinions regarding the application and file comments regarding the application.  Upon conclusion of the public comment period, if there are no negative comments, the Foreign-Trade Zones Board will prepare an Examiner’s Report which summarizes the Application, any correspondence received during the process and additional research that may be conducted by the Foreign-Trade Zones Board staff regarding the impact of the approval of this Application.  Upon completion of the Report, the Foreign-Trade Zones Board submits the Application packet to Customs Headquarters and the Department of Treasury for final review.  Once approved, the Application packet is sent back to the Department of Commerce and the Foreign-Trade Zones Board where a Foreign-Trade Zones Board Order is issued granting zone status.  The average processing time from the date of the official filing of an Application to the approval is currently six (6) to ten (10) months.  This time frame can sometimes be expedited if there are compelling circumstances.

*Current as of June 1, 2015.

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Alternative Site Framework

The Alternative Site Framework (ASF) provides additional flexibility for Grantees to more quickly add new zone operations.  This is optional for each Grantee organization. Our firm pioneered the implementation of the ASF. We have structured over forty (40) ASFs. More than any other entity. We have also structured dozens of companies under the ASF in usage-driven sites.   

One of the benefits of the ASF is that companies may be added in just thirty (30) days.  This ASF option does not require a Grantee to locate other zone status property to remove or transfer to the proposed new site as with a traditional boundary modification.  The Alternative Site Framework allows a Grantee Organization to restructure its zone with a formal Reorganization Application so that there is one primary or “magnet” site, with a permanent approval followed by up to five (5) additional “magnet” sites.  Magnet sites are essentially the same as the current general-purpose zone industrial park sites.   There will also be “usage-driven” sites for single operators only.  If a Grantee opts into this, the total acreage of a zone cannot exceed 2,000 acres of “activated” space.  To date no zone has reached 2,000 acres of “activated” space.   

“Usage-driven” sites are individual sites where an actual warehousing or manufacturing company will commit to activating its operation after approval by the Foreign-Trade Zones Board.  “Usage-driven” sites are able to be secured through an administrative boundary modification proceeding in thirty (30) days.  If a company has a manufacturing facility it would be permitted to secure Production Notification authority (120-day approval for manufacturing) if it qualifies.  The major benefit to Grantees and companies is that they may quickly add sites without having to identify zone status property to remove from the existing zone.  There is a three (3) year time limit on usage-driven sites and a five (5) year time limit placed on “magnet” zone sites.  Usage-driven sites must have an operator activate and have zone activity within the three (3) year time limit.  Magnet sites must have at least one operator activate within the five (5) year time limit.  While sites added through the new Expansion Applications may already face these same time limits, the majority of older existing zone projects do not.  Time limits will require at least one company to activate within each site to preserve that site for the future within a certain time period such as five (5) years. 

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Subzone

The data required for a subzone has been significantly reduced. It now requires information on the site: including local zoning, name of property owner, number of acres, and a site plan. The new subzone application designates the site as a zone only. If a company is manufacturing it must apply for production authority through a separate request.

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Production Notification/Application

If merchandise is processed in a foreign-trade zone and the HTS number of imported materials changes to secure a financial savings a Production Notification must be filed with the Board. A Foreign-Trade Zone Production Notification consists of detailed questions to identify the imported and finished products by HTS number and rate of duty.  A company must provide a list of imported parts, respective Harmonized Tariff Schedule of the United States (HTSUS) classifications, and Customs duty rates as well as HTSUS classifications and Customs duty rates for all finished products to be manufactured.  The Notification must be filed under the sponsorship of the nearest local Grantee organization.  The Grantee organization has the direct relationship with the Foreign-Trade Zones Board in Washington, D.C.

The Foreign-Trade Zones Board will file a notice in the Federal Register announcing the official filing of the Notification.  This will commence a forty (40) day public comment period where any impacted party may express its opinions regarding the application on and file comments regarding the application.  Upon conclusion of the public comment period, if there are no negative comments, the Foreign-Trade Zones Board will prepare an Examiner’s Report which summarizes the Notification, any correspondence with the Company during the process and additional research that may be conducted by the Foreign-Trade Zones Board staff regarding the impact of the approval of this Notification on the domestic industry.  Upon completion of the Report, the Foreign-Trade Zones Board submits the Notification packet to Customs Headquarters and the Department of Treasury for final review.  Once approved, the Notification packet is sent back to the Department of Commerce and the Foreign-Trade Zones Board where a Foreign-Trade Zones Board Order is issued granting zone status.  The average processing time from the date of the official filing of a Notification to the approval is currently four (4) months.  This time frame can sometimes be expedited if there are compelling circumstances. Should there be opposition during the public comment period, a more detailed Production Application must be filed. This Application requires a significant amount of information regarding site information on the physical attributes of the property, detailed information regarding the company, industry and products to be manufactured and/or distributed at the foreign-trade subzone. This application determines the Scope of Authority for the proposed Zone Operator. Future activity must be consistent with this approval or another application to expand the Scope may be necessary. 

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General-Purpose Zone Expansion

A Foreign-Trade General-Purpose Zone Expansion Application consists of detailed questions.  Each Application requires a significant amount of information regarding site information on the physical attributes of the property, detailed information regarding the community and companies at the foreign-trade general-purpose zone.  There are also several attachments to each of these questions that are required, such as site plans of the proposed foreign-trade general-purpose zone site.  The Application must be filed under the sponsorship of the nearest local Grantee organization.  The Grantee organization has the direct relationship with the Foreign-Trade Zones Board in Washington, D.C.

The Foreign-Trade Zones Board will file a notice in the Federal Register announcing the official filing of the Application.  This will commence a sixty (60) day public comment period where any impacted party may express its opinions regarding the application and file comments regarding the application.  Upon conclusion of the public comment period, if there are no negative comments, the Foreign-Trade Zones Board staff will prepare an Examiner’s Report which summarizes the Application, any correspondence during the process and additional research that may be conducted by the Foreign-Trade Zones Board staff regarding the impact of the approval of this Application on the domestic industry.  Upon completion of the Report, the Foreign-Trade Zones Board submits the Application packet to Customs Headquarters and the Department of Treasury for final review.  Once approved, the Application packet is sent back to the Department of Commerce and the Foreign-Trade Zones Board where a Foreign-Trade Zones Board Order is issued granting zone status.  The average processing time from the date of the official filing of an Application to the approval is currently six (6) to ten (10) months.  This time frame can sometimes be expedited if there are compelling circumstances.

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Traditional Site Framework Boundary Modification

A portion of acreage at an existing General-Purpose Zone or Subzone can be transferred to the proposed new general-purpose zone site.  As long as the acreage and square footage is approximately similar or less than what was originally approved, there should be no difficulty in utilizing this procedure.  Once we have received a basic understanding of what is intended, along with a description of the acreage, square footage of building or buildings, and other details of the intended new site, we can prepare a Boundary Modification letter to the Foreign-Trade Zones Board.  Thereafter, we would file the document at the Foreign-Trade Zones Board and seek prompt approval by the Board.  The average processing time for a Boundary Modification at the Foreign-Trade Zones Board is thirty (30) days.  However, each application is considered on a case by basis.  Some applications require additional time.

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Scope Determination

A Foreign-Trade Zones Board Order approving a zone project clearly sets out the Scope of Authority. A Scope Determination letter to the Executive Secretary of the Foreign-Trade Zones Board can clarify whether new activity or facilities are within the scope or spirit of a previously approved zone project.  This is an alternative to a formal Expansion Application which requires additional amounts of time, effort, and costs to prepare and secure approval for. Miller & Company secures approval of the majority of these filings at the Foreign-Trade Zones Board each year.

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Activation

Once a foreign-trade zone is approved, the FTZ Board Regulations require that companies wishing to operate in foreign-trade zone secure approval from the Grantee and must submit and obtain approval of a Request for activation from U.S. Customs and Border Protection (formerly the U.S. Customs Service). The company must comply with Customs security standards, employee background investigations, develop a detailed plan to manage FTZ Operations, file an FTZ Operations Manual documenting their inventory control and documentation procedures before they begin operations (i.e., “activated”).  19 C.F.R. § 146.6; 15 C.F.R. § 400.42.  The foreign-trade zone firm must comply with Customs and Foreign-Trade Zones Board Regulations governing the receipt handling, storage, assembly, production, manufacturing, documenting, reporting, and shipment of all materials in the zone.  An Annual Report must be filed with the Foreign-Trade Zones Board; an Annual Reconciliation of inventory must occur and be reported to Customs for each zone year.  There also must be a cycle count or annual physical inventory at the zone operation.

The initial document to be provided is the Application for Activation.  We recommend that this document include all of the necessary attachments, including an Operations Manual if possible upon submission to Customs.  An Application for Activation letter must be prepared and filed with the local U.S. Customs and Border Protection (Customs) Port Office for various activities to be conducted under foreign-trade zone procedures.  The Application for Activation contains different information for different foreign-trade zone operations.  However, there are several general areas that must be discussed in some manner, including the following: Site Plans, Purpose of Activation, Procedures Manual, Concurrence of Grantee Organization, Background Investigation, Security Inspection, FTZ Operator’s Bond, FIRMS Code, Authority to Manufacture (If Applicable), Statistical Reporting, Zone Inventory Management, Automated Commercial System Commitment, and Application for Specific Authorities set out in the CBP Regulations that must be approved by the CBP Port Director.

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Operations Manual

The Foreign-Trade Zone Operations Manual to be provided to Customs is a document that describes on a high-level, but very detailed basis, exactly how all aspects of the zone site project would be managed with all forms to be filed with Customs completed to Customs specifications based upon the Company’s intended zone admissions and shipments.

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FTZ Operator’s Bond

A Foreign-Trade Zone operator bond must be secured from an approved bonding company to be filed by the firm with Customs.  The minimum face amount of the bond required by Customs is generally $100,000 or $400,000 in Los Angeles.  The actual cost is only a fraction of the face amount.  The bond must be in an amount equal to the Customs duties owed on the average value of foreign nonduty-paid material held in the facility. 

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Cargo Security Survey

U.S. Customs and Border Protection is required to conduct a Cargo Security Survey before approval for activation can be issued.  Physical, employee, and visitor security is reviewed. This will consist of a Foreign-Trade Zone officer inspecting the proposed zone facility to ensure it is a secure facility so that the foreign nonduty-paid merchandise is protected.  One of the missions of U.S. Customs is to protect the revenue. In this case, the revenue for duty has not been collected and is deferred while merchandise is in a zone.  Customs must confirm that the merchandise and resulting duty is adequately protected while in a zone. While CBP has security requirements, most firms current security standards meet CBP requirements. 

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Zone Management Plan/Foreign-Trade Zone System Design

An important step in the process is to develop an overall foreign-trade zone management plan.    A meeting with Company personnel to develop the necessary knowledge foundation is necessary.  It is best to utilize a “Team Approach” of Import/Export, Manufacturing (if applicable), Logistics, Receiving/Shipping, Purchasing, Finance, Legal, and others directly related to all activities that should participate in the initial meetings.  It will be necessary to methodically review and analyze existing operations, inventory systems, and available reports.  We can provide a detailed Questionnaire in the form of a multiple page spreadsheet to be sent in advance for the Company to complete, identifying pertinent information that must be taken into account when designing the zone management system. 

There are two options offered to manage FTZ operations. A determination must be made as the necessary modifications to Company’s existing inventory management systems in order to adequately manage a foreign-trade zone.  We will assess the current capabilities of the computer system in order to identify any necessary modifications, including the identification of additional data elements, plus additional reports and modification or combination of existing reports to satisfy other federal agency requirements.  A determination must be made as to whether the existing system can be enhanced to include data elements such as county of origin, zone status, and Harmonized Tariff Schedule of the United States (HTSUS) classifications and Customs duty rates and report writing capability.  Otherwise, a “bolt-on” system is required.  Once we have completed this process, a detailed Foreign-Trade Zone System Specification document is prepared based upon the information obtained.  The document will contain a detailed explanation of what is required to organize; implement and maintain the structuring of the foreign-trade zone management system; monitor the activity for compliance purposes on an ongoing basis; and to identify new zone financial saving opportunities as new products or operations arise.  The document will also contain exhibits of sample reports. 

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Training

We will develop with Company personnel necessary training in Foreign-Trade Zone management to assure that multiple company employees are well-versed in all aspects of FTZ management before zone start-up.  Finally, we will review the first CBPF 214 admission document for receipt of merchandise into the zone site and the first CBPF 3461/CBPF 7501 Customs Entry for the shipment of zone merchandise out of the facility.  These documents will be reviewed for accuracy and completeness before they are filed with Customs.  Thirty (30) days after the zone start-up we can return to the zone to review in detail all aspects of the first month of operation, confirm its accuracy, and identify any necessary improvements.  

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Foreign-Trade Zone Agreement

A contract between the Grantee and any foreign-trade zone Operator is required.  This contract should outline the responsibilities of the Operator and the Grantee organization.  For example, the contract covers areas such as liability, termination options, indemnity, annual fees and other fees due to the Grantee Organization, and many other areas.  As a law firm, we have structured hundreds of these contracts for a variety of situations.

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