About FTZ 207
EXECUTIVE SUMMARY
 A Foreign-Trade Zone (FTZ) is an area of land within the United States, located at or near a U. S. Customs port-of-entry, where foreign and domestic merchandise is generally considered to be in international commerce (not in U. S. Commerce Territory). Foreign merchandise may enter this area without formal Customs entry or the payment of Customs duties or government excise taxes.

If the merchandise is later exported from the Zone, no U.S. Customs duty or excise tax is levied. If the final product is imported into the United States, Customs duty and excise taxes are due, but only at the time they leave the FTZ and enter U.S. Customs Territory.

In cases where foreign components are brought into the Zone and combined into a new product, the user may elect to pay the lower of the duty applicable to the product or to the component parts, and no duty must be paid on the portion of the value of the product created by domestic parts or labor in the Zone.

Finally, Zone procedures provide an extremely flexible method of handling domestic and imported merchandise, allowing users to save time, transportation and handling charges.

An FTZ provides U.S. businesses the opportunity to save both money and time on goods sourced abroad.

The Foreign-Trade Zone contributes to Richmond's commercial attractiveness as a place to do business. Receiving imported goods through the airport's general purpose zone, or acquiring sub-zone status, offers an opportunity for local companies to reduce certain operating costs that would not apply if they were located in a foreign country. Basically, U.S. production within a zone is treated the same as foreign production for U.S. Customs duty purposes.

The Foreign-Trade Zone Program is one of four common duty management programs available to U.S. companies, the other three are: 1) a bonded warehouse, 2) duty drawback and 3) temporary importation bond (TIB). The zone program offers a financial advantage over each of the alternatives and allows greater flexibility for inventory and operations management.

Companies operating under the zone program can defer Customs duty on all imported merchandise and eliminate duty on merchandise that is re-exported. Merchandise may be handled in many manners while in the zone, including stored, tested, sampled, relabeled, repackaged, displayed, repaired, mixed, cleaned, assembled, manufactured, processed and even destroyed. No duty is assessed unless the imported merchandise enters United States commerce.

Many domestic manufacturers faced with import competition on products subject to an inverted tariff structure use the zone program to 'level the playing field'. Under an inverted tariff structure, imported inputs (components or raw materials) are dutiable at higher rates than the finished product into which they are incorporated. Zone procedures eliminate the incentive to manufacture the finished article off-shore by allowing the company to pay duty on the input at the finished product tariff rate. Virtually all U.S. automobile manufacturers use the zone program for this purpose.

Recent revisions to Customs regulations also allow companies to apply for a 'weekly entry' program which offers substantial savings for importers who receive multiple shipments each week. The new program allows the company to report all import entries and inventory releases once a week. This offers many companies extraordinary savings in brokerage fees and merchandise processing fees.

SUBZONES
Under the law, the FTZ Board's review of Subzone applications is carefully focused, and a company should evaluate its proposal against the well know criteria which will be applied. The FTZ Board will review Subzone applications to determine the need for Subzone services -- as opposed to locating in an existing general purpose zone, the adequacy of the operational and financial plans of the applicant, the suitability of the site, the extent of local and state support for the project, its compatibility with economic development goals and land use plans, and the interests of affected persons.

The Board is required to consider three threshold factors, and the presence of one must disqualify the application. Is the application, considered on a product by product basis, inconsistent with trade or tariff law of the U.S.? Would granting the application seriously prejudice ongoing trade negotiations of the U.S.? Would use of the FTZ Subzone be the direct and sole cause of extra imports where either the goods are subject to a quota or to an inverted tariff schedule?

If the application passes scrutiny under the threshold factors, then the Board faces the core of its inquiry: will the Subzone yield a positive net economic effect on the U.S. and locality; will the Subzone help improve the international competitiveness of U.S. firms engaged in domestic economic activity; and will use of the Subzone counterbalance the Customs advantages available to overseas producers who export their products to the U.S. and other markets in competition with products made in the U.S.? The Board will look to such factors as impact on overall employment, imports, exports, and re-exports, manufacturing, extent of value-added activity, foreign economic competition and the like.

In the event the Subzone application is for permission to manufacture on site, the Board must consider an additional criteria: is the Subzone in the "public interest?" The Board examines whether the application will produce demonstrable public benefit, including: will it expedite international trade, especially in competition with foreign plants?; will it encourage and facilitate exports; will it help attract offshore activity and encourage retention of domestic activity?; will it help local and state economic development efforts?; and, will it help create employment opportunities?

Technically, the application for a Subzone is submitted by the local FTZ on behalf of itself and the ultimate Zone user. RIC is willing to assist potential Subzone applicants with all aspects of their application and operation.

The requirements for a Subzone application are spelled out in detail in Regulations and Manuals. The key elements are: (1) a Site Description, which should include facilities and services, production process, materials and components, foreign source items with relevant tariff information; (2) Operations and Finances, which describe the operational plan, including who the operator will be, physical security and a summary of plans for financing capital and operating costs; (3) Economic Justification, outlining how the Subzone will benefit the community economically, how it is congruent with the community's goals and strategies, and the anticipated impact, both directly and indirectly on the community; and (4) Letters of Support.