Foreign Trade Zones: Customs Free Territories within a Country

For many, the Foreign Trade Zone (FTZ) might be a new word in their international vocabulary, but its origin is eight centuries old; although in the U.S. the term has only been used for fifty years or so. In 1934, the U.S. Congress passed the FTZ Act; by 1970 there were twelve FTZs in the U.S. Currently there are about one hundred in the U.S. and 300 in 80 countries around the world.

An FTZ is a custom-free area for business, just like a custom-free shop, The difference between these two is that an FTZ is for businesses with wholesale trade while custom-free shops are for consumers. The FTZ is a custom supervised area, Taxable goods from a foreign country can be brought into a zone without having custom duties paid on them.

Goods entering an FTZ may be assembled and manufactured by combining domestic items, or they may be stored, J.lhen goods are shipped into the country a custom duty is imposed only on the part which had foreign origin. Unfinished goods entering a country are usually taxed at a lower rate than finished goods. Thus, shipping the unfinished goods to the FTZ for assembling and subsequently into that country’s market will result in lower duties. If goods are re-exported from the zone to some other foreign location, no customs or excise tax is levied.

This paper presents some basic information about FTZs for those to whom this concept is new and Hho might benefit from utilizing FTZs at home or abroad to establish international operations.