The implementation and subsequent fluctuation of tariffs and their applicability to different products from different countries has increased interest in leveraging Foreign Trade Zones and Bonded facilities. But what are they and when do they make sense to use? Let’s look into each one below:
Foreign Trade Zone, Commonly Expressed as an FTZ
- A secure area considered to be outside of the US customs territory – goods inside the FTZ haven’t officially arrived into the USA consumption market and so duties are not paid upon arrival into the zone
- Duties are assessed when the products are removed from the zone and enter into the US officially – known as entering into consumption. The rate will depend on the status assigned to the goods when they arrived:
- Privileged Foreign (PF) Status: Duty and applicable taxes are calculated at the time the product enters the zone. Whatever duties and taxes were applicable upon arrival will apply when the product is removed from the zone. These will not change, even if the product is manipulated or manufactured while in the zone. This can be beneficial if you think duties and tariffs may increase in the future
- It is important to note that any goods that enter an FTZ that are subject to the current trade remedies (Sec 301, Sec 232, IEEPA Fentanyl, and IEEPA Reciprocal) must be entered as Privileged Foreign Status
- Non-Privileged Foreign (NPF) Status: Often the default assignment unless you elect otherwise. The product is appraised and classified based on its condition when it leaves the zone. Duties and applicable taxes are calculated based on the rates relevant on the date of withdrawal. This can be beneficial if you think duties and tariffs may decrease in the future.
- NPF goods can be manipulated or manufactured while in the zone to produce a new product with a different classification
- There is no limit to the amount of time a product can remain within an FTZ
- If products are destroyed or exported before being entered into consumption, no duties or taxes are due (proof is required)
- Customs and Border Protection (CBP) oversight is managed via an approved inventory control system, not necessarily by direct physical supervision. This includes recordkeeping for those products that are destroyed as well as any scrap that is generated and/or disposed of
Bonded Warehouse
- A secure area considered to be inside the US customs territory – the products have officially arrived in the US consumption market although they remain within a customs bonded area. CBP has greater oversight over these facilities
- Duties and applicable taxes are assessed when the product is removed from the bonded area and made available for consumption
- Products can be manipulated or manufactured on a limited basis but may require authorization from CBP. CBP will also have greater oversight into the operation within the bonded warehouse
- Products may be stored for up to 5 years from the date of importation
- If products are destroyed or exported before being entered into consumption, no duties or taxes are due
- Leveraging a bonded warehouse has advantages if you think duties and tariffs may be reduced while your products are in storage
There’s a lot to consider so leverage the support and guidance Alba can provide to make the best decision with the information available. Contact us to learn more.
