What is a Foreign-Trade Zone?
Definition, Benefits and Opportunities Near You
As we look at the many advantages of residing in the Puget Sound region, and more specifically, the perks of living and doing business in Lakewood, one of the most significant benefits for business owners and affiliates is that the City of Lakewood lies directly within a Washington State Foreign-Trade Zone (FTZ).
What are Foreign-Trade Zones?
Basically, Foreign-Trade Zones offer importers, exporters, and those creating additional products from imported goods, the opportunity to realize dramatic savings. How? In FTZs, certain businesses can avoid or defer some of the duties and fees associated with international trade. FTZs also ease a lot of the usual complexity and time loss associated with Customs oversight.
If you are new to this opportunity, you may be asking, “What is a Foreign-Trade Zone,” “How can I benefit from Foreign-Trade Zones as a business owner,” and “Why is Lakewood the perfect location to benefit from an FTZ?” We’re going to answer these questions and many more as we look more closely at the unique opportunities available to us within Foreign-Trade Zones.
The Official Foreign-Trade Zone Definition
According to U.S. Customs and Border Protection, “Foreign-Trade Zones (FTZ) are activated, secure areas under U.S. Customs and Border Protection (CBP) supervision that are generally considered outside CBP territory. These zones are generally located in or near CBP ports of entry and are the United States' version of what are known internationally as free-trade zones.”
This means that activated FTZ businesses within a Foreign-Trade Zone can reduce or eliminate duty on imports along with receiving additional benefits that save money and streamline the usual Customs process.
Foreign-Trade Zones and their advantages encourage foreign commerce and economic growth within the United States. Created to meet the needs of American companies operating within the global economy, Foreign-Trade Zones were established by Congress in the Foreign-Trade Zones Act of 1934 to encourage U.S. options over foreign alternatives.
There are currently 262 approved and 193 active FTZs in the United States. At present, more than 3300 U.S. companies make use of America’s Foreign-Trade Zones, employing approximately 460,000 individuals, collectively importing nearly $770 billion in annual shipments.
So, is this an opportunity that your company can cash in on?
What Can be Done Within a Foreign-Trade Zone?
Many forms of merchandise not expressly prohibited by the Foreign-Trade Zones Board, may be admitted into a zone without going through formal Customs procedures or paying import duties. Forbidden items include anything deemed detrimental to public health, interest, or safety.
Goods may land, be repackaged, manipulated, mixed, tested, repaired, modified, relabeled, undergo additional manufacturing, and be re-exported without Customs authorities being part of the process. FTZs are especially useful for U.S. firms that import components to manufacture finished products that will be exported to other countries since they save on both incoming fees and those usually incurred when shipping their product into various domestic markets.
Foreign-Trade Zone Benefits
For many U.S. firms with big importing needs, Foreign-Trade Zones offer a considerable strategic advantage because they compete with manufacturers from outside the U.S. Here are some of the key benefits:
- Duty Exemption
- Duty Deferral
- Duty Reduction or Inverted Tariff
- Reduction of Merchandise Processing Fee (MPF)
- Tax Savings
- Labor, Overhead & Profit Savings
- Quota Avoidance
- Streamlined Logistics
Companies in Foreign-Trade Zones can also save on insurance costs because duty on FTZ merchandise doesn’t need to be included when calculating insurable value. Transportation costs tend to be lower as a result of more fluid logistics processes. Maintenance Fees are paid quarterly instead of when goods arrive, saving time and hassle when handling shipments.
Goods can also remain in FTZs indefinitely even if they are subject to duty or taxation. Exceptions to this rule may apply. Always consult with the Foreign-Trade Zones Board for details and approval. For complete details on benefits and limitations, see our FAQ section at the bottom.
Foreign-Trade Zone Locations
With over 193 active Foreign-Trade Zones within the United States, businesses throughout the country and across a range of industries have access to a variety of ports and cities. Here in Washington State, we are fortunate to live near one of the largest concentrations of designated FTZs in the nation. 12 of them, to be exact. For many of us, this means that access to the perks of operating a Foreign-Trade Zone business is in our own backyard. To access a complete list of U.S. Foreign-Trade Zones and obtain contact information for each site, visit https://ofis.trade.gov/Zones.
When we look closer at the Northwest’s FTZ sites, we find that Lakewood is perfectly positioned to host a range of companies looking for just the right city to expand their trade-related company or launch an import-and-manufacturing enterprise. The reasons for this are many, and with Lakewood’s continual economic and population growth, the list is getting longer.
Foreign-Trade Zones: Why Lakewood is Primed for Success
Lakewood, Washington resides within Foreign-Trade Zone #86. This means that Lakewood businesses that have been approved for specific FTZ activities can take full advantage of every benefit listed above. Not only that, but Lakewood has many additional positive factors that make it a stand-out location within the Northwest.
Lakewood is positioned ideally within the Puget Sound region, between Tacoma, with its deepwater port handling $70 billion a year in waterborne trade, and capital city Olympia, which houses its own port and significant political and economic connections.
Sitting on the doorstep of both Interstate 5 and Highway 512, Lakewood offers businesses rapid access to domestic shipping routes in every direction, as well as nearby maritime access for international trade at multiple FTZ port sites throughout the state.
Lakewood’s Military Connection
Lakewood is also home to JBLM, Joint Base Lewis-McChord, the 4th largest military base in the world by population, which handles some of the largest combat and humanitarian missions across the globe. Proximity to JBLM brings several added benefits to Lakewood’s FTZ businesses. Quality employees are easy to find thanks to JBLM, with service members looking for their next career opportunity. These employees are well trained, coachable, and disciplined.
Military contracts can often be quite advantageous, offering both high-dollar and long-term agreements. It could be textiles for U.S. military clothing or bedding, emergency gear, communications devices, mechanical components for strategic equipment, both perishable and non-perishable food, transportation solutions, cleaning supplies, metal and lumber products for building projects, or any number of vital materials needed to keep our military moving smoothly and efficiently.
Firms looking to partner with JBLM can realize additional profits and savings by going through the process of getting their operations (or a part of their operations) approved for Foreign-Trade Zone activity. These businesses can import raw materials, parts, and additional products, as well as alter, repackage, or manufacture final products and fulfill their military contracts while skipping much of the Customs hassle and many of its related fees. This is a win for everyone involved, and it provides our servicemen and servicewomen with the resources they need most while creating additional jobs for residents of Lakewood and beyond.
Lakewood is a thriving commercial and social center with a business-friendly climate, low business licensing fees, and multiple avenues for creative financing. On top of this, and especially attractive for FTZ users, over the past several years Lakewood has made significant investments in its industrial districts, with its already successful Lakewood Industrial Park and its more recent creation, the growing Woodbrook Business Park. When you combine these growth sectors with Lakewood’s manufacturing network and throw in access to multiple deepwater ports and prime ground-based transport, Lakewood quickly becomes one of the most accessible and strategic cities in the state for companies with FTZ interests.
FTZ users in the Lakewood area have a multitude of options at their disposal. With Lakewood’s ample warehousing and distribution network and dozens of buildings that would serve as ideal production facilities, FTZ #86 users can import materials through nearby ports, skip much of the Customs headache, produce finished products from these resources, and re-export to other nations without paying duties.
Lakewood warehouses and businesses may also hold duty-free or duty-deferred FTZ merchandise indefinitely and only pay a duty on the products if and when they enter the U.S. consumer marketplace. This allows greater control over your inventory, less fooling about with paperwork, and less time spent on external oversight.
Lakewood FTZ users can manipulate, refine, or manufacture items from these duty-free imported goods into end products that fall into a lower duty category. Consequently, when these items do finally enter the market, the manufacturer will pay less than they would otherwise have paid when the materials were in their original form.
Transporting entirely duty-free FTZ goods to port for re-export and entry into international commerce, or having the goods loaded and rolling out to the American public via truck and rail is incredibly simple for Lakewood businesses. Major highways are just around the corner and multiple access points for rail-based freight are located within Lakewood and throughout Pierce County.
Lakewood Living: Another Reason to Consider Lakewood’s FTZ
If you’re starting a new business or expanding, Lakewood can meet both your business and living needs. Lakewood has prime real estate around some of Pierce County’s most beautiful lakes. It also has affordable starter homes and reasonable rent, making it easier for employees to live close to the job. With great parks, lakes, golf, retail, medical, and entertainment options, Lakewood is the complete package.
Respected education opportunities are easy to find at Clover Park Tech, Pierce College, and nearby Pacific Lutheran University. Throughout local primary and secondary schools, faculty have dedicated themselves to increased standards and student safety, ethical, inclusive practices, and student preparedness for life beyond high school. Leading the charge for college preparedness is Harrison Prep, a public high school in the Clover Park School district that happens to be the #1 high school in Pierce County and #13 in the state according to US News and World Reports.
Starting, growing, or expanding a business can be tough. Becky Newton, Lakewood Chamber's 2020 Ambassador of the Year, is your guide to better business in Lakewood.
Lakewood’s Economic Development Incentives
Looking to continually grow the local economy and bring new opportunities to residents and investors, Lakewood offers many additional business incentives. While the list of benefits is too long to print here, you can access and download the entire updated list here, which includes Lakewood’s Economic Development Incentives, as well as several additional industry-specific tax incentives offered by both Pierce County and Washington State.
Foreign-Trade Zones offer United States citizens and businesses countless benefits and opportunities for gaining more economic ground within international markets while saving you a lot of time, money, and unnecessary oversight. The advantages of operating within an FTZ include bringing new jobs to local workers, creating wealth within struggling communities, and establishing a greater number of peripheral businesses associated with the primary producer.
FTZ's business activity drives research and development, technological innovation, and product creation that solves problems in both our professional and personal lives. It also establishes new lines of communication and important partnerships between members of different communities, different companies, and different nations. These alliances spark ideas and open doors for us to meet the needs of a greater number of people and grow our economies and our communities at the same time.
If you’ve been wondering about Foreign-Trade Zone business possibilities, now is the time to get serious, especially with a state like Washington and a city like Lakewood, both strategically aligned with your interests. To learn more about Foreign-Trade Zones and how you can apply for approval, visit the links below.
FAQ: Frequently Asked Questions
To make your research easier, check out our frequently asked questions and answers below.
What is a Foreign-Trade Zone?+
A Foreign-Trade Zone (FTZ) is a secured area, activated by U.S. Customs and Border Protection (CBP), generally considered outside CBP territory. FTZs are usually located in or near CBP ports of entry and are considered the United States’ version of free-trade zones.
What is Allowed in a Foreign-Trade Zone?+
Designated FTZ businesses can receive most merchandise that is not expressly prohibited by Customs. Goods may land, be repackaged, manipulated, mixed, tested, repaired, modified, relabeled, and undergo additional manufacturing, and be re-exported without Customs authorities being part of the process. FTZs are often quite useful for U.S. firms that import components to manufacture finished products that will be exported to other countries, since they save on both incoming fees and those usually incurred when entering their product into various markets.
What are the Benefits of Operating in a Foreign-Trade Zone?+
Primary FTZ benefits include duty exemption, duty reduction, duty deferral, reduction of Merchandise Processing Fee (MPF), tax savings, savings on labor, overhead and profit, quota avoidance, and a streamlined logistics process among others perks.
How Do I Set Up Foreign-Trade Zone Status?+
Within each of these steps there are additional considerations, paperwork, and preparations to be made. But the basic steps are as follows. - Apply Online: for more information and application documents visit trade.gov’s FTZ page here. - Designate the type of authority you wish to have for your business, for example, production, subzones, or general-purpose. - Pay a fee to enter a Foreign-Trade Zone - Activate your FTZ license through the U.S. Customs and Border Protection (CBP). Wait for your subzone or zone to be approved by the Foreign-Trade Zone Board. - Start operating only after your activation occurs
What are the current Foreign-Trade Zone benefits?+
Duty Exemption There are no duties or quota charges applied to re-exports (some exceptions apply for exports to Canada and Mexico under NAFTA requirements). Companies avoid lengthy and often cumbersome Customs procedures and the Duty Drawback process, which is the time-consuming series of steps required to recoup certain duties. Companies consequently get to skip these steps and avoid having to hire additional legal representation to spearhead the refund procedures. Another tremendous perk available is that duty is not paid on goods that get destroyed within the FTZ. This benefits companies who deal with fragile import materials prone to breakage or with manufacturing that results in large quantities of scrap. Duty Deferral Payment of duties and required excise taxes on imported, foreign merchandise will be deferred until these same goods are transferred from the FTZ to the Customs territory for consumption. This means duty can be avoided until goods are transferred into the United States for resale and consumer purchase. FTZ merchandise may move according to in-bond or Zone-to-Zone transfer without paying duty. In-bond items are those that are not intended for use or consumption within the United States. With Zone-to-Zone, goods can be moved from one Foreign-Trade Zone to another without incurring a duty charge by U.S. Customs. Additionally, there is no limit of time that merchandise may remain in the zone even if it is subject to duty. Duty Reduction (Inverted Tariff) In cases where manufacturing practices within the zone result in a finished product with a lower U.S. Harmonized Tariff Rate than rates of foreign inputs, the final product may enter the U.S. Customs territory for consumption at the reduced rate. Reduction of Merchandise Processing Fee (MPF) Within Foreign-Trade Zones, you only pay a Merchandise Processing Fee on goods entering the U.S. Customs territory. FTZ users are also able to file a single entry for all goods shipped from the zone within a consecutive seven-day period, instead of filing an entry for each shipment (excluding goods subject to Live Entry requirements). MPF fee rates are currently set at 0.3464% of the Total Estimated Value (TEV) of the shipment, requiring a minimum fee of $27.23 and a maximum fee of $528.33 per entry. With fewer entry requirements, companies can reduce their brokerage fees as well. Taxes By federal statute, tangible personal property that is imported from outside the United States of America and then held within an FTZ, as well as property produced in the United States and held within a zone for exportation, are not subject to either state or local ad valorem taxes. Labor, Overhead, and Profits When calculating the value on foreign merchandise removed from an FTZ, zone users may exclude costs generally associated with fabrication or processing, general expenses, and profit. Therefore, the zone user does not owe duties on labor, overhead, and profit attributed to merchandise produced within an FTZ. Quota Avoidance FTZ firms can hold Imports subject to quota within a Foreign-Trade Zone if the quota for that item has already been reached for the given year. This allows Zone users to admit merchandise once a new quota year begins. In some cases, FTZ users can also alter or manipulate the merchandise into a form that falls into a category not subject to the same quota requirements as the original product. Streamlined Logistics and Additional Benefits Upon Customs approval, imports can be delivered directly to the FTZ. Additionally, users may request permission to break and affix Customs seals. The streamlining of Customs paperwork and entry requirements, less direct oversight, less up-front payments and fees, and faster transfer of goods upon arrival, often translates into lower insurance and transportation costs, better control of inventory, heightened security, and improved compliance with Customs and Border Protection requirements.
What are Foreign-Trade Zone Regulations and Limitations?+
As with any commercial endeavor, especially those involving heightened government oversight, establishing a Foreign-Trade Zone, along with maintaining it and keeping up with all compliance procedures, requires considerable research, meticulous planning, and often good legal counsel to ensure you’ve dotted all the i’s, so to speak. Your continued success requires knowing your business inside and out and keeping a firm grasp of how your changing commercial needs or goals intersect with Foreign-Trade Zone policy. It takes a keen understanding of every feature, limitation, and requirement associated with operating your business within a Foreign-Trade Zone and staying aware of all FTZ rules. For a comprehensive breakdown of all Foreign-Trade Zone regulations by the U.S Department of Commerce, visit the International Trade Administration’s regulations page here. You can also access and download the official U.S. Foreign-Trade Zones Manual using this link. A few notable limitations of Foreign-Trade Zones include, but are not necessarily limited to the following: Denial of Entry & Further Limitations: Certain goods deemed to be detrimental by the Federal-Trade Zones Board, concerning public health, safety, or interest, may be denied entry. The Board also has the power to place restrictions on certain types of goods, the kinds of operations performed on goods within the FTZ, and the entry of these goods into the stream of U.S. commerce or similar transactions or activities. Merchandise Exclusions: All products subject to internal revenue tax may not be manufactured in a Foreign-Trade Zone. These include alcoholic beverages, products containing alcoholic beverages (with some exceptions), perfumes containing alcohol, tobacco products, firearms, and sugar. Additionally, the manufacture of watch and clock movements is not permitted within an FTZ. Retail Trade: Both domestic and foreign goods may be stored within a zone, but retail trade of foreign goods is prohibited. Local Jurisdiction: Even though FTZs fall outside of U.S. Customs territory from the standpoint of duty payment, they of course remain physically within the specific city, county, state, and federal regions where they reside. This means that operations, safety standards, conduct, professional ethics, law enforcement, and all current statutes and regulations for each of these jurisdictions still apply.
Are there Foreign-Trade Zones in Washington State?+
There are several FTZs in Washington State, including nearby #216 in Olympia, #5 in Seattle, and our local FTZ #86 which includes all of Lakewood and Tacoma.