FREQUENTLY-ASKED QUESTIONS ABOUT
FOREIGN-TRADE ZONES
Q. Why do companies use foreign-trade zones?
A. To maintain the cost competitiveness of their U.S.-based
operations vis-a-vis their foreign-based competitors. For
a company, zone status provides an opportunity to reduce certain
operating costs associated with a U.S. location that are avoided
when operating from a foreign site.
Q. How does the zones program fit within the
economic development efforts of the various states?
A. The zones program is a federal program. The underlying
authority to approve the creation of a foreign-trade zone
resides with the federal government. However, every state
has enabling legislating providing statutory authority for the
establishment of FTZs in each state. The creation and
development of individual zone projects typically results from a
combination of interests generated by both the private and
public sectors. The Foreign-Trade Zone Board Staff advises
zone organizers to integrate the zone project into the state or
local area's overall economic development strategy rather than
segmenting the zone as an individual development effort.
This way, FTZs complement other state and local incentives that
are incorporated into the overall efforts of a community to
maintain their attractiveness as a business location.
Q. Is zone status more beneficial to
foreign-owned companies as compared to American-owned companies?
A. The benefit of zone use is determined by the location of the
company's operations in the United States, not by its ownership.
If an American-owned company and a foreign-owned company have
identical trade operations, the potential benefit of the U.S.
Foreign-Trade Zones program for each of tem will be identical.
The U.S. FTZ program encourages investment and production in the
United States that might otherwise take place in another
country.
Q. Does the cost reduction feature of zone
status translate into an import subsidy or a cause of imports?
A. No. Zones do not cause imports. In fact, the reverse is
true. The increasing importance of international trade in
the U.S. economy has caused an increase in the use of zones.
Periodically, oversight agencies including the International
Trade Commission and the General Accounting Office examine the
impact of the U.S. Foreign-Trade Zones program. Congress
has also held hearings on the subject. These periodic
studies and reviews have not produced any information leading
the conclusion that zones cause imports. The decision to
import precedes the decision to use zones.
Decisions about where to source various products and inputs
is motivated by one or a combination of factors including:
price, quality, and product availability. The "cost
reduction feature" of zones relates to the cost of conducting
business operations in the United States (distribution,
manufacturing, and other non-manufacturing activities) that
otherwise would be avoided by conducting these operations at a
foreign site.
Q. How do zones "expedite and encourage"
direct foreign investment in the United States?
A. The United States welcomes foreign investment but does
nothing to overtly attract or discourage it. Through the
policy of "National Treatment," foreign investors are offered
the same conditions, rights and benefits associated with
investing in the United States as an American investor can
expect to receive. In keeping with this policy, zones
encourage foreign and domestic investment by removing a tariff
bias that unintentionally discourages investment in the U.S. and
encourages supplying the U.S. market from off-shore.
Q. Are there any practical or economic limits
to the number and uses of zones?
A. For the foreseeable future, there are no economic limits to
the use of zones. As the U.S. economy becomes even more
internationalized and as markets become more globally
homogenous, the operational flexibility and other benefits for
which zones are used will motivate a commensurate increase in
zone use.
Q. Is the maintenance of the FTZ program
costly to the U.S.?
A. The establishment and maintenance of FTZs require a minimal
expenditure of federal tax dollars. The cost of processing
applications by the Foreign-Trade Zones Board is offset by
application fees and the cost of processing FTZ merchandise by
the Bureau of Customs and Border Protection is offset by
merchandise processing fees. Therefore, foreign-trade
zones area self-sustaining tool of international commerce
offering significant benefits to U.S. industry and aiding the
U.S. balance of trade.
Q. How long does it take for an application
to be processed by the Board after it has been submitted?
A. Generally, it takes nine months to a year for an application
to be approved.
Q. What are the differences between free
zones, export processing zones, enterprise zones, duty-free
shops and U.S. Foreign-Trade Zones?
A. Free Zones - Allow merchandise to enter an area for storage
and to be exported or entered into the host country.
Export Processing Zone (EZP)
- EZPs are duty-free zones dedicated to manufacturing for
export. No customs duties are charged for entry of raw
materials, components, machinery, equipment and supplies used to
produce manufactured goods provided these are then exported.
Enterprise Zones - Encourage
new industrial and commercial activity in economically depressed
areas by removing most zoning, taxation, and federal and local
business regulations from carefully defined districts.
Duty-Free Shops - Retail
shops, usually at airport or border locations, where an importer
has brought in certain items for resale to travelers, who then
take these goods out of the country, without either being
required by the host country to pay taxes and duties, or paying
less tax and duty than importers selling the merchandise
domestically.
U.S. Foreign-Trade Zones -
Are treated, for the purpose of the tariff laws and Customs
entry procedures, as being outside the Customs Territory of the
United States. Under FTZ procedures, foreign and domestic
merchandise may be admitted into zones for operations such as
storage, exhibition, assembly, manufacture and processing,
without being subject to formal Customs entry procedures, the
payment of Customs duties or the payment of federal excise
taxes. When merchandise is removed from a foreign-trade
zone, Customs duties may be eliminated if the goods are then
exported from the United States. If the merchandise is
formally entered into U.S. Commerce, Customs duties and excise
taxes are due at the time of transfer from the foreign-trade
zone.
©, Copyright, 2002 Sedgwick County Economic Development
last update:
02/11/08
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