By Benny Lim.    Photo：Kelly   

Perhaps you already know, or maybe it's your first time hearing about it, but besides the well-known regular warehouses and bonded warehouses, the United States also has what is called an FTZ (Foreign Trade Zones) warehouse.

You might not be familiar with this type of warehouse, so let me explain. An FTZ warehouse is a secure area under the supervision of U.S. Customs and Border Protection (CBP) that is generally considered outside CBP territory upon activation. In simpler terms, FTZ warehouses are under CBP supervision but are treated as if they are outside CBP territory until they are activated.

So, what can be stored in an FTZ warehouse? Basically, any goods that are not prohibited by U.S. law from being imported and are not considered domestic goods can be stored in an FTZ warehouse, regardless of whether they are subject to duties. However, if a product is subject to quota restrictions, placing it in an FTZ warehouse does not exempt it from those restrictions.

Now, here's the most important information: Foreign goods that enter an FTZ warehouse do not need to go through the normal CBP entry procedure or pay duties until the goods are brought into the U.S. market for consumption. At that point, the importer can choose to pay duties based on either the imported raw material or the finished product (if processed within the FTZ warehouse). For U.S. goods that are exported, they can enjoy relevant export refunds or subsidies once they enter the FTZ warehouse.

What can be done in an FTZ warehouse? Goods that enter an FTZ warehouse can undergo various processes, including storage, assembly, display, cleaning, production, processing, relabeling, repackaging, repairs, waste handling, testing, and destruction. These activities are typical functions within a Free Trade Zone

Benefits of FTZ (Free Trade Zone) Warehouses:

1.   Goods entering FTZ warehouses are not subject to import duties, and taxes are only levied when the goods are transferred into the U.S. market for consumption.

2.   Goods exported from FTZ warehouses are exempt from taxation.

3.    In theory, goods can be stored indefinitely in FTZ warehouses.

4.    If goods are processed in FTZ warehouses, importers can choose to pay taxes based on either the tax rate of the imported raw materials or the finished products, selecting the lower rate.

FTZ warehouses are not a new concept, but in the current context of increased technological barriers and uncertainties in U.S.-China trade, they can play a crucial role in mitigating significant losses.

For instance, if a shipment of sensitive goods (such as those suspected of being produced using forced labor) is inspected by U.S. Customs, and additional documentation is required to prove compliance, there are several options for the importer. These inspections can be time-consuming, and while subsequent shipments are en route, the first shipment may not have been cleared yet. If the importer is unable to provide the required documentation to Customs and believes that the situation may not be resolved favorably, they may choose to have the subsequent shipments returned to their origin (retain onboard).

However, if the importer believes they are innocent and confident in providing the necessary compliance documentation, the best course of action is to move the subsequent shipments into an FTZ warehouse. Then, they can engage with U.S. Customs until the goods are cleared for entry. If, in the end, they are still unable to convince U.S. Customs and the goods are denied entry, it is convenient to re-export the goods from the FTZ warehouse since they have not yet entered the Customs clearance system. This "ability to enter and exit freely" flexibility is the key selling point of FTZ warehouses.

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.