The Foreign-Trade Zones Program is a valuable tool that may help with the challenges small and midsize manufacturers face.
With the influx of low-cost imported goods, U.S. based small and medium size manufacturing firms must focus more than ever on face three basic challenges:
3) Delivery Demand
While many large firms face similar international competition, their upstream suppliers are often small and medium size manufacturers that import raw materials for production. These companies now face increasing pressure to reduce their operating costs. To reduce costs and to avoid global outsourcing, companies achieve tariff cost management through the Foreign-Trade Zones Program.
While some small and midsize manufacturers already participate in the Foreign-Trade Zones Program, a primary obstacle to increased use by these firms is education. Given today’s global “Free Trade” environment many companies assume that there is no avenue for operating cost reductions by means of tariff cost management, especially because their products are often bound for the United States. This is often not the case, however, as these manufacturers often use duty-bearing imported raw materials to make their products.
With FTZ Board approval, parts and materials may be imported into a Zone, manufactured into an end item with a lower duty rate, and duty paid on the end item, not on the components. For example, a small aerospace manufacturer uses a proprietary material, with a 7% duty rate, available from a single foreign source. The finished product, however, carries a 0% duty rate, lowering the effective duty rate on the finished product.
Greg Jones is a founder, Vice President, and Senior Consultant of the Foreign-Trade Zone Corporation, which offers its clients Turnkey Foreign-Trade Zone services including obtaining FTZ status, implementation of FTZ procedures with the local Customs and Border Protection (CBP) office, as well as integration of Zone procedures with existing company inventory systems using SmartZone® FTZ inventory control system and training and ongoing FTZ management support.