9 Benefits of Doing Business in a U.S. Foreign Trade Zones
- December 22, 2015
- Posted by: Lalo Solorzano
- Category: Blog
In the face of a rapidly expanding global marketplace, the business world is witnessing increased competition among nations for industry, jobs, and capital. Many American businesses are considering moving to a foreign facility so as to reduce costs; but is that the only option?
While there are some benefits to outsourcing production such as low-wage labor, storage and shipping services; there are some adjustments and risks to consider as well.
One inescapable adjustment is the difference in time zones which can make it difficult to schedule meetings, and create annoying lag times. Another adjustment that business owners can’t avoid and may have a hard time with, is giving up a certain amount of control over cost and production processes. Should your supplier make a poor decision, you could see an increase in production cost, a decrease in production quality, and inefficient production practices. Additionally, depending on foreign suppliers may increase manufacturing costs due to likely wage increases over time.
Communication is a major disadvantage if you don’t write, speak, or understand the language; and can cost a hefty amount should you need translation services for legal documents, additional marketing campaigns, and employee training materials.
So, how do we not only keep business operations at home, but stay competitive in the global market and ensure that business and profit expand, all at the same time?
One option is to keep manufacturing and distribution operations in the United States by taking advantage of the Foreign-Trade Zone (FTZ) program, supervised by U.S. Customs and Border Protection (CPB). The FTZ program encourages activity for U.S. facilities in competition with foreign alternatives by allowing reduced and delayed duty payments on foreign merchandise.
A U.S. Foreign-Trade Zone (FTZ) is a secure geographical area typically located in or adjacent to a U.S. Port of Entry, where both domestic and foreign commercial merchandise receive the same customs treatment as if they were outside the commerce of the United States.
The following benefits of the FTZ program may be the competitive advantage your business needs:
- No duties are paid on merchandise exported from a FTZ; along with imported goods that will be re-exported later.
- No duties are paid on defective parts, scrap, waste or goods that are consumed within the zone.
- Record keeping and document storage is automated, which improves inventory management.
- Increased visibility of the supply chain.
- Theft protection via security requirements provided by CPB.
- Delayed payment options of duties on goods entering the U.S. market.
- Reduced duties if a lower tariff rate applies to the finished product leaving the zone than would have been applied on foreign components (based on case-by-case approval by the FTZ board). This helps to level the playing field so that companies are not penalized for making their products in the U.S.
- Merchandise can remain in the zone indefinitely.
- Reduced merchandise processing fees if zone users are able pay a single fee per week instead of multiple entries.
The FTZ program encourages investment and helps to create jobs while enhancing competitiveness for local employers. With production in a U.S. foreign trade zone, you can avoid the risks of having to move your operations overseas such as time zone inconveniences, increased wages over time, language barriers and misunderstandings, and giving up control of your overall costs and production processes.
Automated record keeping, increased visibility of the supply chain and theft protection are extremely beneficial supplements to your business. With reduced or eliminated tariffs and duties, many of these benefits equate to a cash flow savings that will allow your company to keep critical funds accessible, while your merchandise remains in the zone.
Without being subject to import duty, these ‘free-trade zones’ can be extremely beneficial to your profits, and help you keep your business at home.