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Foreign-Trade Zones Provide a Unique Opportunity

by Mary Rooney | May 04, 2020

One of the biggest supply-chain challenges many companies face in the current environment is how to best manage inventory and determine sourcing locations going forward. One option for U.S. businesses may be to utilize a Foreign-Trade Zone for safety stock and value-added production activities so that inventory is easily accessible.

U.S. Foreign-Trade Zones (FTZs) are designated sites in the United States which are considered outside the United States for Customs purposes. Duties on goods stored in the activated FTZ are deferred until they are removed from the zone into U.S. commerce or may be eliminated entirely on goods exported out of the country from the FTZ. Operating in an FTZ offers companies several important benefits including duty deferral, duty exemption, duty reduction (inverted tariff), Merchandise Processing Fee (MPF) reduction, quota avoidance, and overall streamlined logistics.

America first deployed FTZs during the Great Depression, when Congress created these special economic zones to relieve exporters from tariffs imposed by the 1930 Smoot-Hawley Act. From the beginning, the intent of the FTZ program has been to stimulate economic growth in the United States. It’s designed to promote American competitiveness and keep jobs in the country by having value-added work completed by U.S. employees. In an FTZ, merchandise may be assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and destroyed. The program is an incentive for firms to maintain and expand their business in the U.S.

From their origins, FTZs have grown to play a major role in today’s economy. In 2018 there were 195 active zones with 330 active production operations in the U.S. The value of shipments into zones totaled over $793 billion, and over 440,000 people were employed in zones in all 50 States and Puerto Rico.

In KC, the Greater Kansas City Foreign-Trade Zone (GKCFTZ) is the regional grantee of the national FTZ program. GKCFTZ sponsors both FTZ No. 15 in Missouri (22 counties in western Missouri) and Zone No. 17 in Kansas (9 counties in eastern Kansas). In 2019, the GKCFTZ had over 3,100 full-time employees in 10 active sites. The GKCFTZ received over $2 billion of shipments during the year. 

GKCFTZ is one of the largest zone operators in the country with more than 500 million sq. ft. of approved foreign trade zone space that includes General Purpose and Subzone space on both sides of the state line. The Kansas City FTZ handles more volume than most Midwest cities. 

To determine if an FTZ is a good fit for your business, the GKCFTZ will do an initial analysis to identify potential savings based on a company’s current import volumes and value, customs and MPF fees, export volumes, scrap losses, potential for inverted duty and other elements. GKCFTZ will also estimate the costs to participate in the FTZ program, which differ based on the size and nature of the FTZ operation.

Learn more here

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