Foreign-Trade Zones
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Transcript of Foreign-Trade Zones
Foreign-Trade Zones
Bruce Frallic – Moderator
Greg Jones – FTZ CorporationPam Berry – Marisol InternationalRuss Clark – Austal USA
The Global Trade Environment
Today’s Global Trade Environment is characterized by:
Cheap and efficient transportation and telecommunications
Multilateral, bilateral and regional tariff reduction initiatives
The Global Trade Environment
Environment drives:
Outsourcing manufacturing operations to low-cost countries; or,
Streamlining (reducing costs of) global supply chain
One solution: U.S. FTZ program
Types of Zones General-Purpose
May be multiple sites May be non-contiguous sites Must be in or adjacent to a port of entry
Subzone Special purpose conditional site Limited purpose Generally a single firm site
Structure of the Zones Program
FTZ Board Secretaries of Commerce and Treasury Staff Reviews applications, issues grants of authority Regulates certain types of Zone activity Reports to Congress
Grantee Establishes and operates Zone project Delivers FTZ program to the community
Operator Uses Zone procedures Realizes Zone-related savings and efficiencies
CBP/other government agencies Responsible for oversight of day-to-day operations Uses Audit-inspection methodology
Zone Benefits: Duty Deferral
No duty is paid until the merchandise enters the commerce of the U.S.
Zone Benefit: No duty on Re-exports
Goods stored in Zones are exempt from duties if they are subsequently re-exported without being entered into U.S. commerce.
Goods manufactured/produced in Zones are exempt from duties if they are subsequently re-exported to non-NAFTA countries without being entered into U.S. commerce.
Zone Benefit: Relief From Inverted Tariff Rates
Duty rate reduction on manufactured or produced merchandise that subsequently enters U.S. commerce.
Zone Benefit: Reduction in Customs Fees
FTZ “Weekly Entry” process may result in lower Merchandise Processing Fees (MPF) MPF is assessed on a “per Entry” basis MPF = .3464% of Entry Value (with $25 minimum and $485 cap) Zone admissions are not Customs Entries
Subzone Zone Operator can consolidate all shipments during a calendar week
into 1 Customs Entry Pays 1 MPF Cap remains at $485
FTZ FACILITY
MonMPF=$0
TueMPF=$0
WedMPF=$0
ThuMPF=$0 Fri
MPF=$0
Mon
Tue
Wed
Thu
Fri
SHIPPED TODOMESTIC U.S.
MPF With Weekly Entry
No MPF on Admissions
Only one EntryPer WeekMPF =$485
MPF Savings of $1,940
How are FTZ Benefits Obtained?
What are overall processes for implementation? What are operational requirements?
Implementation: FTZ ApplicationRequired for: Manufacturing/Production within the General-
Purpose Zone Establishment of a Subzone Alteration of boundaries or scope of
manufacturing activity
FTZ Application
Generally, the application must demonstrate a positive economic effect for the U.S. economy. Evaluation criteria include:
Overall employment impact Enhancement of U.S. value-added activity Overall effect on imports Impact on domestic and foreign competitors
FTZ Application
Recent FTZ Board regulations provide opportunities for faster approval of site designation and FTZ Production authority:
“Subzone” site designation can take as little as 3 months in FTZ Board processing time
Alternative Site-Management Framework can further shorten site designation timeframe
Non-controversial Production activity can be approved in as little as 120 FTZ Board processing time
Activation
Actual use of Zone procedures requires prior “activation” of Zone site.
Activation involves the approval of: Zone Grantee (Operator Agreement) Bureau of Customs and Border Protection
Zones Program in Mississippi and Alabama: a 2012 Snapshot
Zone-related activity = 25% of Mississippi economic output and 12% of Alabama economic output. Major industries:
Shipbuilding and Maritime Energy Exploration Chemical Production and Oil Refining Automotive Manufacturing Furniture Manufacturing Textile and Apparel Distribution
Zone Users by Industry
Shipbuilding and Maritime Energy Exploration: Aker Subsea Austal USA BAE Systems Huntington Ingalls Signal International Technip VT Halter
Zone Users by Industry
Chemical Production and Oil refining: Chevron DuPont Shell
Zone Users by Industry
Automotive Manufacturing: Hyundai Mercedes-Benz Nissan
Zone Users by Industry
Furniture Manufacturing: Bauhaus USA Lane Furniture Max Home H.M. Richards
Zone Users by Industry
Textile and Apparel Distribution: Channel Control Merchants Gum Tree fabrics Morgan Fabrics Levi Strauss & Company
To and From the Zone:
Success of Zone operation requires management of movements to and from the Zone.
The objects of this management are: Avoid duty payments Proper permitting of all admissions and transfers of
Zone status merchandise
Admission and Transfer Permits: Necessity
Regulations: 19 CFR Part 146 All foreign status merchandise that is admitted to
or transferred from a Foreign-Trade Zone requires an executed Customs permit
No exceptions!!! Domestic status merchandise requires no Customs permit
Admission and Transfer Permits
Admission• Admission documents
Commercial documentation In-bond documentation CF214
Timeliness Requirements for Various Types of Movements/Transactions Zone Admission
• Standard admission sequence1) Arrival at port of unlading2) In-bond movement3) Approval of CF214/PTT4) Arrival at zone5) Completion of CF214/Close-out of manifest
Timeframe from arrival at port where zone is located: 15 days
Timeliness Requirements for Various Types of Movements/Transactions Zone Admission
• “Direct delivery” sequence1) Arrival at port of unlading2) In-bond movement3) Arrival at zone4) Completion of CF214/Close-out of manifest
Timeframe from arrival at port where zone is located: 15 days
Types of Transfers and the Appropriate Permits for Each
Goods leaving the Zone must be:• Entered into U.S. commerce
CF3461 followed by CF7501• Exported
CF7512: “IE” or “T&E” • Transferred to another zone
CF7512: “IT”
Timeliness Requirements for Various Types of Movements/Transactions Transfer to U.S. Customs territory
1) CF3461 is presented to Customs2) Customs approves in writing3) Goods leave zone (5 days)4) CF7501 is presented to Customs (10 days from approval of CF3461)
Re-exports1) CF7512 is presented to Customs2) Customs approves in writing (or via QP/WP)3) Goods leave zone (5 days)4) In-bond movement is closed at port of exportation
Timeliness Requirements for Various Types of Movements/Transactions
Transfers to another zone1) CF7512 is presented to Customs2) Customs approves in writing (or via QP/WP)3) Goods leave zone (5 days)4) Zone-related data sent to destination zone (10 days)
Timeliness Requirements for Various Types of Movements/Transactions
FTZ From a User Perspective
FTZ From a User Perspective
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Zone Operators use Zones because it is in their financial interest to do so
• Benefits include Customs-related savings
• Costs include the costs of compliance and the costs of Zone privileges
Austal USAMobile, Alabama
Two Major US Navy Programs
Austal LCS and JHSV make up over 20% of the US Navy fleet by 2030
JOINT HIGH SPEED VESSELLength: 338 ftBeam: 94 ftSpeed: 35 knotsRange: 1200 nmPayload: 624 MT
LITTORAL COMBAT SHIPLength: 419 ftBeam: 104 ftSpeed: 40+ knotsRange: >3,500 nmModular Mission Payload:180 MT
Global Content
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Austal imports $100 million+ annually…24% of material spend
Country of OriginGermanyNetherlandsAustraliaSwedenFinlandOther
2011 2012 2013$0
$20,000,000 $40,000,000 $60,000,000 $80,000,000
$100,000,000 $120,000,000
Imports
FTZ Benefits for Shipbuilders
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Relief from Inverted Tariffs• Duties on all foreign-status components admitted to the Zone
are eliminated
Avoid duties, while also avoiding:• Drawback filings on export jobs• DOD certification process for military vessels• Merchandise Processing Fees on foreign purchases• CBP “Rate advances” on entered foreign merchandise
Speed• Reduces delays in clearance at port• Can get material to shop floor quicker
FTZ Benefits for Shipbuilders
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Austal imports >$100 million annually• The majority of imports are incorporated into finished
ships• Duty rate on finished ship = zero
Example • Extruded aluminum from Sweden• Value of shipment = $103K • Normal duty rate = 3% ($3,090) • Duty rate as a finished ship = 0%• Savings using FTZ = $3,090
Total savings = $1.2 million annually
Once up and running, what’s required?
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Compliance operational and recordkeeping requirements• Manage inbound and outbound logistics and permitting
processes• Manage internal processes (e.g. inventory control)• Manage periodic reporting requirements (Quarterly HMF, Annual
reporting)
Changes in contractual relationships with foreign vendors and customers• No DDP terms of purchase• Specify in-bond movement from port of unlading• Make FTZ available for customers’ foreign-sourced materials
FTZ Costs
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Administration and Material Control• Must have good records of material used in finished product• Material leaving zone not as finished product must be reported
(temporary or permanent entry)• Need tight control over material and shipments
Scrap Must be reported if material was imported
Security• FTZ facility must adhere to Customs requirements
Freight• Material travels in-bond from port to destination
Periodic Reporting
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Prompt submission of reports:• Harbor Maintenance Fees• CF216s (Annual Activity Permit)• Annual Reconciliation/Systems Review• Annual FTZ Board reporting• Special Report: Monthly Scrap
FTZ Operations 1-2-3
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1. Have foreign goods move in-bond to FTZ
2. Use in the manufacturing process
3. Use “Temporary Removal” procedure for material temporarily outside FTZ (example: sea trials)
4. Account for foreign-status material in finished vessel
5. Make Customs Entry and deliver finished product at finished product rate of duty