Import From China Business

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A practical guide for starting a small business

Foreign Trade Zones

Overview of Foreign Trade Zones

Foreign Trade Zones have been in existence in Europe since the 1800's. However, they only have been in existence in the United States since 1934 after the the Foreign Trade Act was passed.  It was the U.S. government's attempt to mitigate the effects of protective tariffs imposed during the Great Depression.

Foreign Trade Zones are operated by the Foreign Trade Zones Board on a charge basis for importers to use them.  The Foreign Trade Zone Board reviews and approves applicants who want to operate within a Foreign Trade Zone.  A Foreign Trade Zone is typically near a Customs Port of Entry within a 60 mile distance or a 90 minute drive from a Customs Supervising Office.

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What are Foreign Trade Zones?

Foreign Trade Zones are enclosed areas outside of U.S. Customs which are supervised by Customs supervisors.  The Foreign Trade Zones also known as Free Trade Zones provide the opportunity for the Importers to improve cash flow by deferring or reducing the amount of tariffs or duties to be paid.

While goods are in a Foreign Trade Zone, no duties are payable.  This could go on indefinitely.  The goods can be manipulated or be used in actual manufacturing during its stay in a Foreign Trade Zone.  If the finished goods are exported out of the U.S., then no duties need to be paid at all.  If the finished goods are for U.S. consumption, tariffs are paid only when the goods leave the Foreign Trade Zone.

The concept of a Foreign Trade Zone encourages operations and employment to occur within the United States.  Without it, jobs and manufacturing may have gone abroad.

Foreign Trade Zone Benefits

There can be significant benefits to the importer if Foreign Trade Zones are utilized.  Here are a number of the reasons why you should definitely consider Foreign Trade Zones:

  1. Convert Imported Products

    You can reduce the tariff rate by converting the imported product into another product that has a lower tariff rate.  This occurs often in manufacturing where the tariffs for the finished goods are lower than those for the raw materials. Tariffs are paid only when goods leave the Foreign Trade Zone.
  2. No Time Limit

    There is no time limit regarding how long imported goods may remain in a Foreign Trade Zone.  You can control the release of your products according to market conditions.  This will prevent you from having to pay for your tariffs all at once.
  3. Circumvent Quotas

    Import quotas do not apply for goods stored in a Foreign Trade Zone.  If the imported goods category has exceeded the import quota for the year, you can store your imported goods in a Foreign Trade Zone until the next quota period.
  4. Subzones

    Subzones are auxiliary zones approved by the Foreign Trade Board for companies not able to operate or function properly within a public Foreign Trade Zone.  Company must demonstrate that by operating within a subzone, it will generate benefit to the general public. Subzones are typically manufacturing facilities of companies.
  5. Drying Goods

    Goods shipped in bulk can be dried while in a Foreign Trade Zone. If the goods are normally shipped in a pre-evaporation state, they are heavier and bulkier.  Lower tariffs may apply if the goods are classified by weight.  It will also save you shipping charges when you are ready to move the goods out of the Foreign Trade Zone.
  6. Save Shipping Costs

    You can send your goods to the Foreign Trade Zone to save on subsequent shipping costs.  Goods can be unpacked and allocated in quantities to give you the flexibility of shipping separate shipments.
  7. Transfer Duties

    Goods brought into the Foreign Trade Zone may be sold and the tariffs transferred to the purchaser.
  8. Reduce Duties from Goods to be Returned

    You can sort your imported goods in a Foreign Trade Zone to identify damaged, defective, or nonstandard goods.  You will not need to pay tariffs on imported goods that you end up returning.

Foreign Trade Zones do offer financial benefits to the Importer.   To determine whether it is right for your operations, you need to carefully take into account the time, money and effort required to apply and maintain an operation within a Foreign Trade Zone.  Whether you import from China or from any other country, Foreign Trade Zones can be an advantage for you.