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COMMENTARY: In the zone

Foreign trade zones programs exist around the globe for companies willing to understand their differences

By: Clay Perry
 | 
Photo: Joseph Sohm / Shutterstock.com
   Many importers and exporters throughout the United States have participated in or are aware of our nation’s nearly 90-year-old Foreign-Trade Zone (FTZ) program. Foreign-Trade Zones are secure areas under U.S. Customs and Border Protection (CBP) supervision, but considered outside CBP territory so that they can provide significant duty and related savings to U.S. manufacturers and distributors.
   Foreign and domestic merchandise may be moved into a zone for operations that include storage, assembly, manufacturing, and other processing. Under zone procedures, payments of duties are not required on the foreign merchandise until it enters CBP territory for domestic consumption, at which point the importer generally has the choice of paying duties at the lower rate of either the original foreign materials or the finished product. Deferring and/or inverting duty to the lower rate can result in savings in the millions of dollars for many companies.
   Although FTZs are well known in the U.S., many companies fail to realize that there are similar zone programs available across the rest of the world. Companies can participate in these global zone programs and drive greater savings for their company.
   Perhaps global zones have not been on your radar. But with today’s changing political landscape including Brexit and new administrations in the U.S., Europe and parts of Asia, now is the time to proactively leverage zones across the globe to reduce costs and/or protect against new duties and taxes.
   Many times, importers do not look to other zone programs outside of the U.S., so they never recognize other zone programs could be a money-saver for their organization. Understanding the types, timing and necessary forms needed to participate in these zone programs is the first step in the process.
The zone toolbox

1. Assess Your Corporate Landscape

Regions
  • What regions does your company operate in?
  • What types of operations take place in each region?
Divisions
  • Do you have multiple business units/divisions?
  • Do you produce or import similar or vastly different commodities?
Organizational
  • Do you work at the divisional or corporate level?
  • Is compliance in a single group globally or various regional groups?
  • Who are the key decision makers for compliance?
  • Who are other key players in the region?
Systems
  • Do the other regions and divisions use the same inventory control and manufacturing systems (common data source)?

2. Assess Operations and Potential Savings

Manufacturing
  • What commodities are you manufacturing in other regions?
  • What are the key inputs / components?
  • Are those inputs imported or made locally?
  • Are the imported goods subject to a Free Trade Agreement?
  • Is the final product imported, exported, or both?
  • What are the critical duty rates?
Distribution
  • What are my imported commodities and volumes?
  • What are my exported commodities and volumes?
  • What types of drawback programs are available in the region?
  • (Note: Drawback is no longer available in the EU as of 2016)

   Compare and contrast. Before beginning, it is best to understand how zone programs vary from region to region. Some key differences to monitor:
   • Program names can be tricky and varied among countries. In the United States, FTZs can be called subzones and general-purpose zones. In Brazil, a zone is called a Drawback Suspension program, which is not to be confused with U.S. Drawback (a special customs regime that provides for the suspension of taxes and duties applied to imports that are later manufactured for exportation and or domestic consumption, just like the U.S. FTZ program).
   • Customs declaration forms for the U.S. FTZ use a weekly entry document for domestic outbound shipments that is called CBPF 7501-06 form, while China uses a number of import and export Customs Clearance Sheets (CCS) clearance sheets supported by a Handbook for manufacturing.
   • Electronic filing raises another difference to note. While the U.S. may file using the Automated Commercial Environment (ACE), consider that Europe has dozens of customs systems such as the UK’s CHIEF, Germany’s ATLAS and France’s DELTA program for making import and export declarations.
   • The time limit for maintaining material in the zone also varies across the globe. In the U.S., merchandise in an FTZ can remain indefinitely. Mexico, however, allows material to remain for 18 to 36 months in a Maquiladora/IMMEX program.
   But there are also some commonalities among zones around the world similarities. Even though there are differences in names, forms, and customs systems, the inventory tracking and data requirements are very similar among all zone programs:
   • Inventory allocation methods across the United States, Mexico, Europe, Brazil, Thailand and China all support the FIFO (First In/First Out) method. This method is an inventory accounting technique that matches the oldest goods received with the most recent goods sold or shipped. Being able to use the FIFO approach across the globe allows U.S. FTZ experts to participate in and lead global FTZ projects in other regions based on their core knowledge.
   • The inventory movements that need to be tracked are also similar, including receipts, shipments, adjustments and production records.
   • Tracked data elements, like classification, duty, origin, value, quantity, weight and preference codes are present in all zone programs.
   • Finally, the biggest similarity is the deferral and eliminiation of duties that all of the aforementioned countries provide in order to incentivize companies to operate in their local economy.

   With many zone programs available throughout the world, having a global zone strategy can be a powerful addition to any company’s trade compliance toolbox. And understanding how the programs can provide valuable bottom line savings across a supply chain can bring the compliance department into the corporate spotlight.

Clay Perry is senior vice president, global markets at the global trade management solutions provider Integration Point.