Foreign trade zone (FTZ)
A foreign trade zone (FTZ) is a secured site in the United States that is treated, for duty purposes, as outside US customs territory. Companies can admit imported goods into a zone and store, assemble, test, or manufacture with them while customs duties are deferred. Duty is owed only when goods enter US commerce; merchandise re-exported from the zone never pays US duty.
Examples
Inverted tariff: An electronics plant imports $30 million a year of subassemblies dutiable at 4.2%, while its finished device enters US commerce duty-free. Producing inside an FTZ with production authority, it elects the finished-product rate and avoids roughly $1.26 million in annual duty.
Re-export elimination: A pump manufacturer admits imported castings to its zone, machines and assembles them, and ships 40% of finished units to Canada and Mexico. That exported share never enters US commerce, so it never owes US duty.
Weekly entry: A high-volume importer that would otherwise file 25 customs entries a week, each hitting the merchandise processing fee cap, consolidates them into one weekly entry and saves roughly $750,000 a year in fees.
Definition
FTZs were created by the US Foreign-Trade Zones Act of 1934 and operate under Customs and Border Protection supervision. The economics rest on three mechanisms. Deferral: no duty is owed while goods sit in the zone, which frees working capital. Elimination: merchandise re-exported from a zone, along with production scrap, never pays US duty, a simpler path than claiming drawback after the fact. Reduction: with production authority, a manufacturer can elect to pay the finished product's tariff rate instead of the component rates, the inverted tariff benefit, which pays off whenever the finished rate is lower.
Zones also allow weekly entry, consolidating a week of shipments into a single customs entry, which caps merchandise processing fees for high-volume importers.
The overhead is real: activation with customs, an inventory control system that tracks zone status lot by lot, annual reporting, and audit exposure. An FTZ earns its keep when duty exposure is large, import volumes are high, or a meaningful share of output is re-exported. Run the numbers inside your total landed cost model rather than as a standalone customs project, and for storage without production, compare against a bonded warehouse, usually the lighter-weight option.
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