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Foreign-Trade Zone Distribution Operations: How the Times Have Changed

8/2/2002

By Greg Jones

 

Since its inception in 1934, the U.S. Foreign-Trade Zones program has been of very limited utility to distribution operations; that is, until the year 2000.

 

Before that time, Zone procedures were impractical for all large-scale distribution operations, especially Just-In-Time distribution operations. Why? Because two essential ingredients, both of which are required to successfully conduct large-scale distribution operations in a Zone environment, were missing. What are these essential ingredients? FTZ Weekly Entry procedures and FTZ information management systems with the power, speed, flexibility, and accuracy to reconcile the needs of supply chain management and FTZ/Customs compliance. Not until the year 2000 did both exist.

 

Because merchandise in Foreign-Trade Zones is treated as if it is outside the commerce of the U.S., the Customs Entry process does not occur until product leaves the Zone for domestic consumption. FTZ Weekly Entry procedures expedite the flow of merchandise from FTZ’s. Weekly Entry procedures allow the FTZ user to file a single Customs Entry per week, rather than an Entry for each shipment or each day’s shipments. This procedure often provides significant Merchandise Processing Fee[1] savings, while allowing the Customs inspectors to clear a week’s worth of entries in only minutes. Weekly Entry procedures have been available for FTZ manufacturing operations since 1986. Efforts to expand FTZ Weekly Entry procedures led to a Weekly Entry pilot program that commenced in 1994, and which was evaluated by Customs as a success in proposed regulations in 1997. (While Customs evaluated the pilot as a regulatory success, a number of pilot participants did not. This was due to the inability of a number of in-house information systems to handle the management requirements of large-scale distribution operations conducted in a Zone environment.)  Subsequently, Customs refused to finalize the proposed regulations, citing concern over a potential loss of Merchandise Processing Fee revenue. As part of its work for Zone projects in the state of Mississippi, the Foreign-Trade Zone Corporation, working with Senator Trent Lott (then Senate Majority Leader and member of the Senate Finance Committee), his Senate Majority staff and the Senate Finance Committee staff, to promulgate legislation that made FTZ Weekly Entry procedures available to all types of FTZ users, including distribution operations. The FTZ Weekly Entry provision, as part of the Trade Development Act of 2000, was signed into law by President Clinton on May 18, 2000.

 

There are now robust FTZ inventory control systems that handle the complexities of administering Foreign-Trade Zone and Weekly Entry procedures.  These systems allow distribution facilities to handle literally hundreds of thousands of transactions per day in a Foreign-Trade Zone distribution environment.

 

The true test of these developments came during the last quarter of 2000, when real FTZ systems and real people were involved in major FTZ distribution operations for the final Christmas season before the onset of Y2K. Happily for all concerned, Santa delivered right on time.

 

For large-scale distribution operations that can reduce their costs through the FTZ program, events and developments that occurred between 1997 and 2000 have seen times dramatically change for the better. Today, thanks to the all-inclusive availability of FTZ Weekly Entry procedures and the development of FTZ management systems that take advantage of today’s generation of relational database systems, the U.S. Foreign-Trade Zones program is finally able to meet all of the purposes stated in the first sentence of the Foreign-Trade Zones Act of 1934; that is, to “expedite” as well as “encourage” the “foreign commerce” conducted by all kinds of U.S.-based operations, including large-scale distribution operations.

 

 



[1] The Merchandise Processing Fee (MPF) is a fee collected by Customs on each formal Customs Entry (CF 7501). The MPF was instituted in 1986 as a means of offsetting the costs of  Customs processing . The MPF is based on an ad valorem rate of .21% of the value of merchandise entered. The minimum MPF per formal Customs Entry is $25 and the maximum per formal Entry is $485. By making a single Customs Entry per week when goods leave the Zone (rather than multiple Entries on in-bound shipments at various Ports of Entry), FTZ users often significantly reduce their total MPF costs.

 

    

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