By: Brandi Hanback Issue: Global Trade Section: Collaborator Profile
The FTZ Provides Cost Savings Opportunities and Supports Global Businesses
In a public-private partnership between Salt Lake City and The Rockefeller Group, Utah is poised to attract and expand global business in the state.
“We are pleased to be working with the Rockefeller Group to reorganize the Salt Lake City Foreign Trade Zone.
The Trade Zone is a great location for businesses dealing in international trade and is one of the lynchpins in our plan to fortify Salt Lake City as the leading international city in the Rocky Mountain region. is one of the lynchpins in our plan to fortify Salt Lake City as the leading international city in the Rocky Mountain region.
The Zone dovetails nicely with our international airport expansion, global business and cultural relationships, and many other connections that still come into play as a result of Salt Lake City’s role as host city for the Winter Olympics in 2002,” commented Salt Lake City Mayor Ralph Becker.
In 2006 Salt Lake City partnered with The Rockefeller Group, a leader in foreign-trade zone FTZ and real estate development nationally, to evaluate and revitalize Utah’s foreign-trade zone. A three-year effort was undertaken to identify a site, obtain federal approval, begin to educate local companies about the benefits of FTZs, and identify potential beneficiaries.
The FTZ reorganization application was filed with the U.S. Foreign-Trade Zones Board in May 2008 and was approved February 2009. As a result, the zone project is now comprised of 55 acres adjacent to the Union Pacific Intermodal Terminal and in close proximity to the city’s international airport and major interstate transportation arteries.
“The Rockefeller Group firmly believes that Salt Lake City is primed for industrial growth and that Utah offers one of the most vibrant business climates in the country,” said Tom McCormick, SIOR, Senior Vice President Development for Rockefeller Group Development Corporation. “We are confident that our Foreign Trade Zone is going to fill the needs of companies looking at the area.”
Development plans for the site currently include eight buildings ranging in size from 40,000 square feet to 360,000 square feet. Construction will commence as tenants are secured. The Rockefeller Group will then work with individual tenants as needed to activate the zone and realize FTZ savings. Individual subzones for existing importers/exporters in the region may also be applied for on a case-by-case basis as circumstances warrant where it is not feasible to move operations to the general-purpose zone.
The U.S. Foreign-Trade Zones Program has existed since 1934. In times of global expansion and cost cutting strategies to support U.S.-based manufacturing and distribution, interest in the program has intensified. Combined with a relatively weak dollar and renewed interest by foreign investment in the U.S.,economic developers can also leverage the benefits of FTZs to attract jobs and investment and encourage maintenance and expansion of their existing industrial base.
“We are excited about the reorganization and revitalization of the Salt Lake City Foreign Trade Zone,” says Jeff Edwards, President and CEO of Economic Development Corporation of Utah. “As U.S. companies look to expand their efforts internationally, foreign trade zones are an important part of the puzzle. With Salt Lake City’s Foreign Trade Zone, Utah gains another critical asset as it reinforces its position as a global player. This will be a key decision point for many of our international clients as we help them implement their expansion, relocation and consolidation strategies, and will help existing Utah companies expand their global reach.”
Financial savings from U.S. FTZs are derived from a combination of benefits including traditional savings from duty deferral, reduction and/or elimination along with logistics and supply chain facilitation. Fundamentally, instead of filing a Customs entry and paying U.S. duty (import tax) when a shipment arrives at a U.S. port, duty payment is deferred until the goods are actually withdrawn from the zone for consumption in the U.S., providing valuable cash flow benefits.
Multimodal transport at portIn a pure distribution FTZ environment, merchandise from abroad can be deconsolidated and inspected and in some cases repairs, repackaging, labeling and marking may be performed to prepare the goods for final sale. For those products exported out of the FTZ, U.S. duty is eliminated entirely upon export of the goods from the FTZ. Returns to vendors or destruction of product in the zone may also supplement duty elimination benefits in FTZs.
For manufacturing, assembly and processing operations, FTZs can mean reduction of U.S. duties in addition to deferral. With permission from the U.S. Foreign-Trade Zones Board, a federal agency housed in the U.S. Department of Commerce, applicants may seek permission to classify their goods for duty purposes in their condition after manufacturing and processing in the U.S. FTZ. Many finished goods have a lower duty rate than components and only the foreign value of the inputs is taxable so U.S. value added in the zone is exempt from duty.
A transport truck getting loaded at a loading dock.As an example, a part is imported into a U.S. FTZ at a duty rate of 5% and valued at $100. The Finished Good is made in the FTZ and carries an import duty of 2.5% with a total value of $1,000.
The FTZ program provides importers the ability to apply for permission to withdraw the finished goods from the U.S. FTZ for sale in the U.S. at a duty cost of 2.5% x $100 or $2.50. This is the same duty rate that would apply if finished goods were imported from overseas.
Compare this outcome to the $5.00 in duty due if the Part was Customs cleared upon arrival into the U.S.
This represents a 50% reduction in the amount of duty owed in this example and encourages U.S. based production and value added activities.
Over time and volume, the savings can be significant. Value added activity is encouraged in the U.S. while equalizing the duty treatment with products finished abroad and imported into the U.S. without the addition of U.S. labor or inputs.
If finished goods are exported from the FTZ, no U.S. duty is owed except for exports to Canada and Mexico based on an exception provision under the North American Free Trade Agreement that applies to manufactured goods in U.S. FTZs.
In addition to duty savings, FTZ usage as part of an integrated supply chain strategy can result in lower inventory levels and expedited movement of goods to and from the zone. FTZ usage as part of an integrated supply chain strategy can result in lower inventory levels and expedited movement of goods to and from the zone.
Direct delivery provides for imported shipments to move directly from the port of unloading to a U.S. manufacturing or distribution facility in-bond, eliminating certain types of delays that can be associated with Customs entry at the port.
Full security reviews are still in place at the port, based on manifest and advance trade data information, and are supplemented by additional security at the FTZ to complement government efforts to secure international cargo.
Outbound from the FTZ, users may qualify for weekly entry procedures allowing for one weekly entry summary for all goods shipped from the FTZ over a seven-day period. For high volume, 24/7 operations, weekly entry equates to flexible and just-in-time delivery schedules to customers, as well as fewer Customs entries. Fewer Customs entries equates to administrative savings in the form of reduced Customs broker filing fees and merchandise processing fees.
From an import compliance perspective, by filing Customs entries after goods have been physically received, verified and shipped, high volume importers find that FTZs support their Customs compliance efforts by allowing for more accurate Customs reporting and reduced post entry adjustments and amendments.
Companies can also position themselves to realize FTZ benefits throughout the supply chain for inventory moves between facilities using zone-to-zone transfers. Transfer of title can be performed in an FTZ, providing flexibility in support of vendor managed inventory strategies. For new or expanded capital investments in the U.S., certain FTZ benefits also apply to imported production equipment for use in the zone. Given the high value and extended timeframe for shipping, assembly and testing of production equipment can realize significant duty benefits.
While FTZs are flexible in terms of operational set up, for example allowing commingling of foreign and domestic status merchandise, FTZs are secure areas requiring physical security as well as access and inventory controls. As such, FTZs complement and support secure supply chains. Participants in the Customs Trade Partnership Against Terrorism (C-TPAT) should know that U.S. Customs and Border Protection recognizes use of U.S. FTZs as a C-TPAT best practice.
U.S. Customs and Border Protection recognizes use of U.S. FTZs as a C-TPAT best practice.
Over $500 billion in value of merchandise is received at U.S. FTZs annually and that number is growing. This represents approximately 7% of the value of imports generally. At the same time, many designated FTZs across the country remain dormant as companies lack understanding of how to realize the program’s benefits. In some instances public and private interests have sought FTZ designation without an integrated plan of how to market the program, attract potential beneficiaries and assist FTZ users in realizing the benefits.
FTZs are not a panacea for marketing an undesirable location. However, combined with the right mix of incentives, attractions and education, FTZs do support many companies’ global initiatives to successfully compete internationally from a U.S. base of operations while streamlining their critical transitions from suppliers to customers.
For Salt Lake City and Utah, this is where distinct advantages exist. The geographic location of the region as the “Crossroads of the West” for national distribution activities, combined with Rockefeller Group’s private investment and 30+ year history of extensive FTZ development experience and FTZ implementation expertise create the ideal synergy to drive success.
Brandi Hanback is Managing Director at the Rockefeller Group Foreign Trade Zones Services. Contact her at 410.897.4858.