With the addition of FTZ 271 in Jo-Daviess and Carroll Counties, Illinois, there are 271 General Purpose Foreign-Trade Zones, and many more Subzones, in the United States. FTZ’s are good for U.S. businesses and communities, which is why so many companies use them. But FTZ use requires the adoption of very specific inventory control procedures. So what makes FTZ Inventory control so important?
- Companies use FTZ’s to save money
- Customs and Border Protection (CBP) has enacted stringent FTZ inventory control requirements
- Compliance with those requirements can be very labor intensive and expensive
- Failure to maintain compliant FTZ inventory control can result in fines, penalties, and liquidated damages that quickly exceed Zone savings.
In a distribution-only FTZ, the Zone user must have the capability to track the movements of merchandise with fixed HTS classifications and duty rates. In this scenario, under First In-First- Out (FIFO) recordkeeping, the inventory system tracks each layer of merchandise by date received and foreign or domestic status. It also links shipments to the original Zone admissions for accurate merchandise valuation, manufacturer, and country of origin data.
Inventory control in a manufacturing Zone becomes even more complicated, as Zone users must also track changing tariff classifications that occur as they obtain relief from “inverted tariffs.” This is one of the key benefits of the FTZ Program; manufacturers, with FTZ Board approval, may elect to pay a lower end item duty rate, and not on the higher duty rate of imported components.
While the cost of FTZ inventory control compliance can be expensive, the benefits very often outweigh the costs, as is demonstrated by the continued growth in the use of the U.S. Foreign-Trade Zones Program. Companies should view investments in solid FTZ inventory control procedures as operating costs as well as capital expenditures that will increase their future profitability. Companies with effective FTZ inventory control systems benefit not just from direct FTZ savings, but also from distribution and manufacturing operations that are leaner, more efficient, and more accurate all around.
How do companies put FTZ inventory control procedures into place? In all cases, the implementation of FTZ inventory control procedures requires planning, a detailed knowledge of FTZ laws and regulations, as well as industry practices. Sometimes a company’s FTZ activities appear simple enough to track on a spreadsheet, which is not often -- and seldom simple. A company may also elect to modify its existing inventory system, which is very expensive and generally does not print all necessary documentation. One of the most common, cost-effective, and compliant methods is to implement a third-party system with built-in functionality to meet FTZ inventory control requirements. These requirements include printing and transmitting all the necessary daily, weekly, and monthly reports to the FTZ Board, CBP, and the Census Bureau, as well as the flexibility to adapt to diverse distribution and manufacturing environments.
The Foreign-Trade Zone Corporation provides comprehensive FTZ consulting services including implementation of FTZ inventory control procedures and SmartZone® software.