Foreign Trade Zone

As part of the expansion of the Mobile General Purpose Foreign-Trade Zone, Baldwin County has been approved for four sites by the U.S. Department of Commerce Foreign- Trade Zones Board. The General Purpose Foreign Trade Zone sites are located in Loxley, Robertsdale, Fairhope, and Gulf Shores and encompass total of 1,139 acres and are part of area industrial and business complexes.

There are several advantages in terms of cost savings for businesses that operate in a Foreign-Trade Zone environment. The principal advantage is the ability to store, manufacture, process or assemble foreign and domestic merchandise with duty payment being deferred on that merchandise unless and until it enters into the commerce of United States. If the products are re-exported to foreign countries, no duty is owed. Some of the ways in which Zones help Zone users save money are:

1. Relief for “Inverted Tariff” Rates
An “inverted tariff” exists when the Customs duty rate for a given finished product is lower than the duty rate which applies to one or more of that product’s component parts. In many manufacturing situations, the Zone User may be granted relief from inverted duty rates and thereby have the choice of paying the lower finished product rate on foreign components or materials incorporated into that product. For example, a U.S.-based chemical manufacturer imports certain chemicals as raw materials. Normally, the U.S.-based manufacturer would pay a 3% duty rate on its imported raw materials, whereas its foreign competitor who imports the same finished product pays only 2% on the value of any non-U.S. value in its product. However, if the U.S.-based chemical manufacturer is in a Foreign-Trade Zone environment, and its operation has been approved for relief from inverted tariff rates by the Foreign-Trade Zones Board, it pays the same 2% finished product rate on the value of its foreign raw materials when its finished product leaves the Zone for U.S. consumption. This levels the competitive playing field for the U.S.-based manufacturer vis-à-vis its foreign-based counterparts.

2. Cash Flow
Unless and until the goods are imported into the United States, no duty payment is required on merchandise brought into a Foreign-Trade Zone. This allows these funds to be used as working capital for the Zone user to earn interest or be invested.

3. Damaged Items
No duty payment is required if merchandise is not brought into the United States. Therefore, if merchandise is defective, damaged, or ruined either during shipment or while being manipulated or stored in the FTZ, no duty payment is owed for them. (The actual importation does not occur until merchandise leaves the Zone and is entered for consumption in the United States).

4. No Duty on Value Added
Due to an Amendment to Customs regulations in 1980, the “value added” to a product in a FTZ (cost of labor, overhead, facilities and profit) is not included in its dutiable value (19 CFR 146.48e), which means the duty on the final product shipped from the Zone is computed on its market value minus the value added. No duty is assessed on domestic parts or materials, domestic labor, overhead, or profit.

5. No Duty on Re-exports
If merchandise is re-exported from a Foreign-Trade Zone, no duty is paid. This is a savings to exporters who would otherwise be required to pay duty on merchandise brought into the United States, the exporter must normally engage in the time-consuming process of filing for “drawback” from U.S. Customs. The FTZ user never pays duty on the merchandise – thus saving administrative burdens and cash.

6. Storage
Large quantities of merchandise may be placed in a Foreign-Trade Zone and stored (with duty payment being deferred) until the U.S. market can absorb them. They are therefore available for the market, but a cash deferral results for the importer until the goods are brought into the United States. Also, if the goods are not needed in the U.S. market, they may be re-exported with no duty incurred.

7. Inspection Requirements
Merchandise may be altered, repackaged and/or relabeled to meet U.S. requirements. Zones are often used for the purpose of properly marketing the Country of Origin on goods prior to their entry into the United States.

8. Repair
Damaged items in a Zone may be repaired or upgraded to meet U.S. standards.

9. Zone-To-Zone Transfers
A vendor located at one Foreign-Trade Zone, may sell goods to a buyer in another Zone or Subzone anywhere in the U.S. and transfer those goods to the buyer’s FTZ with no duty paid on the goods. Thus, the vendor located in a Foreign-Trade Zone can sell to the buyer located in another FTZ based on a cost which excludes duty. The buyer may, in turn, obtain a discount from the vendor as well as take further advantage of FTZ cost-saving strategies. Thus, the vendor benefits through up front cost savings by becoming more cost-competitive, and the buyer benefits through the vendor discount, its other normal Zone benefits, and be extending FTZ benefits upstream through its domestic supplier network.

10. Government and Military Sales
Sales of foreign merchandise may be entered into the United States duty free if the foreign vendor has a government contract in place. Since Foreign-Trade Zones are outside U.S. commerce, the FTZ user enjoys the same duty free advantage as its foreign-based competitor.

11. Non-Tariff Benefits
Special Zone procedures such as Direct Delivery of Merchandise, Weekly Entry Procedures, Weekly Export Procedures, and other procedures, create additional savings by streamlining the flow of merchandise and by reducing the paperwork normally associated with the international receiving and shipping.