Using(FTA’s(and(FTZ’s(to(drive(...

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Using FTA’s and FTZ’s to drive Supply Chain Savings

Matt Robeson Product Manager Amber Road


Agenda

§ Free Trade Agreement Benefits and Challenges

§ Foreign Trade Zone Benefits and Challenges



Reliance on International Supply Chains Continues to Increase

§ 48% of companies now do business in more than 50 countries, and 32% do business in more than 100 countries.

§ 41% of companies now import over half of their products / materials from foreign suppliers

Source: Managing Global Trade – Rising Importance But Lagging Execution, SCM World, July 2013


Free Trade Agreements Perspectives

• Growth in overall trade and exports

• Lower import tariffs

• Access to new markets

• Cost advantage over non participating countries

• Qualification of finished products

• Determination of origin

• Applying accurate rules of origin

• Managing certificates

• Record keeping & audit trail

Opportunities Challenges


Trans Pacific Partnership Agreement (TPP)

§ The Trans-Pacific Partnership is a “21st Century Trade Agreement” that is currently being negotiated between 12 countries

– Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, U.S. & Vietnam

§ U.S. announced participation in November of 2009

§ TPP Chief Negotiators meeting held in ATL 9/26-9/29 2015


Trans Pacific Partnership Agreement (TPP)

§ Member economies represent 40% of global trade

§ Covers manufactured goods, agricultural products and services

§ The U.S. exported $622.5b to TPP countries in 2013

– $58b in food & agricultural products

§ The TPP Tariff Schedule will include over 11,000 items


Trans Pacific Partnership Agreement (TPP) : Key Chapters

§ Trade in Goods

– Removal of tariff & non-tariff barriers to trade

§ Services

– Special sections on Express delivery services, financial and insurance markets

§ Investment

§ Labor

§ Environment

§ Labeling: contents, assembly, origin


Trans Pacific Partnership Agreement (TPP): Apparel & Footwear

Apparel & Textiles Footwear

• Vietnam exported 11.6% of the apparel imported by US (2012) and could increase 50%

• TPP could be ‘long-‐term tail wind for Vietnam’s textile industry’

• Potential 16% -‐ 33% tariff savings per item• Potentially 16-‐17% on woven shirts and

18-‐19% on denim

• ‘Yarn Forward Rule’ or ‘Flexible rule’?

• 5% -‐ 40% tariff on footwear imported into US

• Tariffs will be significantly lower when TPP is ratified

• Vietnam exported 13.9% of the footwear imported by US in 2014

• Footwear exports increased from 7.6% in 2009 to 13.9% in 2014


Case Study

Manufacturing

Exports

Manufacture Yarn

Yarn Vendors

Fabric

Trade Compliance

VendorsLabel Thread

Apparel IMP1

IMP2

S

Q

Q

C

C

S

Q

C

Supplier Solicitations

BOM Qualification

Certificate Management

S

Yarn forward rules


Illustration - Footwear

* TPP is still to be ratified by participating countries

Q

C


BOM Qualification

Certificate Management

S

C

Q

S

SS

Q

Q

Q

Q

S

S

C


How do I Manage Complexity?

• Manual qualification process

• Decentralized spreadsheets, emails, documents etc.

• Limited quality control & accuracy

• Inefficient

• Can lead to compliance errors

• Consistent and reliable results

• Utilizes latest trade content

• Higher productivity

• Increased quality & accuracy

• Audit trail

• Ensures compliance

Manual Process With Automation


• Finished products’ FTA qualification• Audit qualification results• What if analysis• Qualification reports• Origin determination

Recommended Solution Footprint

BOM Qualification


Certificate Manager

• Request qualification of purchased parts• Review supplier responses and certificates• Multi FTA campaigns• Auto certificate generation process

• Generate preferential and non-‐preferential certificates• Certificate expiry alerts• Certificate notifications• Transactional certificates


Foreign Trade Zones

§ In conjunction with use of FTA’s, can drive significant reduction in the cost to source foreign goods



How familiar are you with the Foreign Trade Zones (FTZs) program?a) First time hearing about it

b) Evaluating the possibility of establishing FTZ

c) In the process of becoming FTZ

d) Already operating/using FTZ

e) Other (specify in blank space)


What is a Foreign-Trade Zone?

§ A specific area (Zone Site) in the US that is designated as being outside Customs Territory (for duty purposes).

– Where items are brought into the Zone duty deferred.

– Where Customs duty is determined when the merchandise leaves the Zone.

§ A Zone Site could be:

– An Industrial Park.

– A Development Inside a Port or Airport.

– A Private Distribution or Manufacturing Facility.


History

§ The Foreign-Trade Zone Program was created by the U.S. government in the 1930s with the stated purpose being to “expedite and encourage foreign commerce.''

– Facilitate international trade

– Increase the global competitiveness of U.S.-based companies

– Encourage manufacturing on shoring


What Can I Do in an FTZ?

§ Distribute or Store

§ Test or Inspect

§ Repack

§ Repair

§ Manufacture or Assemble

In a Zone, Direct Retail Sale is Prohibited


FINANCIAL BENEFITS OF FTZS


Financial Benefits

§ Duty Deferral

§ Duty Elimination on Exports & Scrap

§ Duty Reduction (Inverted Tariff Relief) for Manufacturing Zones Only

§ Local Ad Valorem Tax Exemption on Inventory

§ Administrative Savings:

– Elimination of drawback

– Fewer entries

– Reduced Merchandise Processing Fees (MPF)

– Lower brokerage fees


Duty Deferral

§ Duty is not paid when goods are brought to the zone in July

§ Duty is paid when goods leave the zone in November

§ Deferral savings can be significant particularly in First-In, First-Out inventory tracking environments and when implemented up and down the supply chain



Duty Deferral—Example 1: Zone to U.S. Commerce

Girls Pajamas (6208.21.0030)Dutiable at 8.9% Admitted to FTZ

Stored in Warehouse for Unlimited Time

Withdrawn from FTZ for Entry into U.S. Commerce8.9% Duty PaidDuty Deferral


Duty Deferral—Example 2Zone-to-Zone Transfer

Stored in Warehouse 1 for Unlimited Time

Transferred to Zone 2In-Bond and Stored in Warehouse Duty Paid Upon Removal from Zone 2 - Entry into U.S. Commerce

Girls Pajamas (6208.21.0030)Dutiable at 8.9% Admitted to FTZ


Duty Elimination

Goods move from FTZ to 2nd FTZ via bonded carrier

Export

Zone Transfer

Duty exempt on exported goods

In-‐Bond filed to 2nd FTZFTZ Facility

Goods scrapped

Destruction


Duty Reduction (Inverted Tariff)

§ For manufacturing or assembly Zones, a company can choose the lowest duty rate associated with its components and finished product(s).

§ A company imports 2 components.

– Components A and B have duty rates of 10%

§ The company’s finished product has a 5% duty rate.

– Savings of 5%

§ May be applicable to certain kitting/packaging activities


Merchandise Processing Fee Savings

§ Each entry into the United States is assessed a Merchandise Processing Fee (MPF), maximum of $485

§ With Weekly Entry procedures, Foreign-Trade Zones are allowed one entry per week.

§ The MPF is collected on that one entry.


Sample Merchandise Processing Fee (MPF) Savings

2000 Entries per year

x $485 MPF per entry

= $970,000 per year

with Zone Processing 52 Weekly Entries

x $485 MPF per entry

= $25,220 per year, Saving $944,780 per year


Operating Challenges

§ Foreign Trade Zones offer significant benefits, including duty and MPF savings

§ The regulations require strict inventory and procedural controls

§ Software solutions are necessary to utilize complex or high volume operations

§ Customs regularly audits FTZs and has the authority to penalize and stop operators


FTZ Complexity is Driven By Multiple Trading Partners and Compliance Requirements

Supplier Freight Forwarder

Goods Admitted to FTZ

Goods Ship

Goods Arrive

Carrier Files

Goods Move to

FTZ

Supplier ships goods via FF and invoices buyer

Freight forwarder (FF) books goods on

MBOL/HBOL

Goods shipped via ocean, air, rail, or truck

Goods arrive in US port of unlading and held at a CFS

Carrier files IT or ePTT to clear freight

Goods move from CFS to FTZ via bonded carrier

Goods admitted to FTZ on CBPF

214


§ Customs requires that operators accurately track goods received into the zone

§ Foreign Shipments require that accurate commercial and shipping data reported

§ Determine Zone Status

Zone Admissions


Inventory Control

§ Goods admitted and withdrawn from the zone activated space should be tracked

§ Regular inventory cycle counts or physical annual counts are required

§ Records to be maintained and readily available for Customs audit

§ Complete production or assembly activity should be tracked


Systems Review

§ Inventory Control and Record Keeping required for zone approval

§ Operators should perform an annual review of systems

§ (19 CFR 113.73(a)(2), 19 CFR 146.4(d))

§ Account for all merchandise transferred to or removed from a zone with audit trail

§ Provide all information necessary to make entry to Customs territory


Can Automation Help? Software Must-haves

§ Data Management

§ Connectivity

§ Inventory Control and Accounting

§ Reporting Internally and to Authorities

§ Product & Vendor Compliance

§ Remote Program Management


Data Management

§ Software solutions consolidate and make actionable the multitudes of data required

– Shipping manifests, POs, Commercial Invoices, Packing lists, certificates, etc

– Inventory movements and balances

– In-Bonds or domestic movement tracking

– Admissions, Entries, and other Customs docs

§ Retain searchable transactions and records

– Trace throughout admission, work in progress, and withdrawal


Product and Vendor Compliance

§ Operators should maintain product classifications, weights, values, origin

§ Manufacturer/Supplier Name & Address (MID)

§ ADD/CVD, Customs Rulings

§ PGAs

§ Avoid Restricted Parties

§ Carrier and other partner master data


Reporting

§ Zone Admission and related (PTT, Arrivals)

§ Estimate and Entry for US commerce

§ In-Bond for Export and Zone Transfer

§ Foreign Trade Zones Board Annual Report

§ CBP Annual Reconciliation

§ Quarterly HMF

§ CBPF 216 for zone activities

§ Various inventory and savings reports


Electronic Connectivity

§ Your trade systems should connect to other systems, partners, and authorities

– Customs reporting: admissions, entries, in-bonds

– ERP or warehouse management system

• Receipts, shipments, adjustments, bill of material

• Inventory counts and balances

– Shipper and carrier integrations for manifest and commercial shipping data

– Other Master data systems

• Products and Partners


The Benefits are Real

FTZ automation leaders are 3.3 times more likely to qualify BOMs against multiple free trade agreement rules of origin. (2)

A multi-billion copier manufacturer is reducing its total landed cost by operating FTZs at seven facilities. (1)

57% of companies in our survey reported a decrease in import fees since more effectively using FTZs. These companies also experienced more optimal Total Landed Costs per unit. (2)

Sources:1 - “Strategic Inbound Optimization – FTZs & Reshoring Increase,” Aberdeen Group, October 20132 - “Advancing Global Trade: Foreign Trade Solutions Revealed,” Aberdeen Group, April 2014


Summary

§ Properly operated FTZ and FTA programs offer numerous benefits:

– Saves on duties, taxes and fees

– Streamlines the supply chain

§ The programs work in conjunction

§ Review the activation, operational, and system requirements

§ Software solutions are essential to manufacturing and high volume operations


More Questions?

Contact Amber Road:

www.AmberRoad.com

[email protected]

+1-201-935-8588

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