When a BMW automobile arrives at a U.S. port from Germany (as I understand it, BMWs are still manufactured in Germany and not China), among other things a charge, known as a “duty,” is made by the Customs Department of the Federal Government. The duty is 5.0% of the value of the product, which can be quite a lot for a high priced item like a car. If you happen to be an importer of components for cars, computers or other items, you will normally have to pay the same duty on those parts as they hit the American shores. That too can be expensive. It seems unfair that a German company can ship a fully finished automobile to the U.S. and yet an importer of parts must pay the same duty on components that must be assembled in the U.S. to create the finished product.
Enter the Foreign Trade Zone – FTZ. An FTZ is a location to which imported goods can be shipped upon arriving in the U.S. and treated for the most part as if they have not yet entered the U.S. They are not just near seaports. There are 275 U.S. government approved FTZs across the country, including one in Salt Lake City and another in Las Vegas. Imported products admitted to the FTZ are not entered into the U.S. customs territory until their withdrawal from the FTZ. Products can be moved from one FTZ to another and still avoid customs (and duty) payments.
Thus, a product arriving in Long Beach, California, from China can be processed into the FTZ there and then be shipped to the FTZ in Salt Lake City. If the process takes weeks or even months because the product, for some reason, is warehoused in the FTZ, the products are “Kings-xed” from U.S. Customs. This allows the importer to pay the duty at a point in time much closer to delivery into the market. For items that take a long time to sell, such as large equipment and vehicles, this deferral of the payment of duty can be critical. In fact, it is possible that the FTZ could even be used to move imported products across the country from FTZ to FTZ and then on to Canada without ever becoming subject to payment of duty in the US.
Another advantage is if products are imported into the U.S. but are defective, become obsolete, or otherwise need to be destroyed. If held within the FTZ, no duty will have been charged to the importer – obviously important to the importer who may be unable to sell the products.
Now, back to our unassembled goods vs. finished BMW example. If you arrange to have your product assembled from the imported components (as well as those already here in the U.S.) at a facility within an FTZ you only pay 2.5% duty on your imported components. This can be a significant incentive to assemble and warehouse your products in an FTZ.
The benefits of an FTZ to a small Utah-based importer can be significant. The benefits range from deferring, eliminating or reducing customs duties, improving cash flow by lowering inventory costs as well as inventory levels, and other consolidation advantages.
The Utah Foreign Trade Zone is located at 1105 South 4800 West in Salt Lake City, not far from Salt Lake International Airport. The Las Vegas Foreign Trade Zone is at McCarran International Airport. For more information go to www.commerce.gov, www.goed.utah.gov or www.expand2nevada.com.
Tags: components, Customs Department, duty, Foreign Trade Zone, FTZ, imports, international commerce, International trade, Las Vegas, Salt Lake City