FTZ Subzones: Not a Remote Possibility Anymore

It is no secret that there are many benefits to taking advantage of Foreign Trade Zones (FTZs).  Regardless of the size of an importer or exporter, using FTZs can significantly reduce costs from customs duties and taxes, and as a result increase  a company’s  global market competitiveness.  By definition, a foreign-trade zone is a geographical area (located within 60 miles of a United States port) where commercial merchandise is considered to be outside the jurisdiction of U.S. Customs and Border Protection. Even though the site is physically within the United States, it is treated as being outside of the Customs’ jurisdiction.  Therefore ordinary Customs rules, regulations, and fees do not apply.

A downside to FTZs is that by law they may only be operated by a city or county.  For private parties wanting their own zones, however, there is a solution, and it goes by the name of “Foreign Trade Zone Subzones”.  An FTZ subzone is an area approved by the Foreign-Trade Zone Board for use by a specific company.  Subzones endow all of the same benefits as general-purpose FTZs, but they relieve companies from having to relocate within the established Foreign Trade Zone sites.  Essentially, if you are able to have a pre-existing site or warehouse permitted as a subzone for your company, then you are operating your own private Foreign-Trade Zone.

This establishment of subzones provides many potential benefits for companies, especially those that import or re-export products. For example, let’s take a look at Volkswagen.  This company was able to have one of its production plants in Chattanooga, TN declared an FTZ subzone, and as a result VW has estimated that it could save upwards of $1.9 million dollars in inverted tariffs. (FAS.org) Tires and parts otherwise subject to high duties enter the subzone completely exempt from them, and then later  enter the U.S.  after being incorporated into cars, no longer as parts, at a much lower duty rate.  The ability to manufacture within a subzone coupled with the exemption from ordinary Customs’ duties and tariffs can translate to very significant savings.  There are many other legal advantages we don’t have space to list here.

Declaring locations as subzones used to be seen as more a privilege than a right, but there has been a shift in this attitude over the past few years.  The application process for forming a subzone is fairly streamlined, and all of the required steps and documentation can be found at the following link: http://enforcement.trade.gov/ftzpage/sz-application.html.  The average total cost including necessary permit and legal fees may range from $15,000 to $25,000, and the average time span from application to operation can be  6 months or less.  It is important to consider the costs and benefits before proceeding with a decision to pursue subzone declaration, but it is clear that there a number of significant advantages from this classification.

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