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What is a Foreign Trade Zone?

The Foreign Trade Zone (FTZ) program was created in 1934 to provide a means to retain jobs in the United States. An FTZ is a place (a building, a room, a land site, or an industrial park) which is designated by the Department of Commerce and U.S. Customs and Border Protection agencies as a location where goods are admitted and are considered outside the stream of international commerce or trade. This means that payment of duties and excise taxes on foreign merchandise admitted to a zone will be deferred until the goods are transferred from the zone to U.S. commerce for consumption.

Companies that benefit by becoming a zone user or operator include manufacturing, distribution, and retail industries along with research and development firms. The common thread is that many of these are involved in international trade, receive imported products, manufacture, assemble, or test and scrap products before they are sold to consumers in the U.S. or exported to global consumers. Examples include:

Automotive parts manufacturers and many of their suppliers
Distribution companies and many third party logistics companies
Electronics assemblers or electronics manufacturing companies
Public warehouse operators
Local companies who import, manufacture or export goods
Retail consumer goods industry operating their warehouse facilities

These benefits make an FTZ one of the most effective tools for a business to become more competitive or a community to expand and recruit businesses. These benefits include:

Duty deferral – delay payment of duty until goods enter U.S. market
Duty Exemption – no duties on imported goods that are re-exported, destroyed, or scrapped
Inverted Tariff – choose whether to pay tariff on components or on finished product
Reduced processing fees – file a single customs entry per week rather than multiple entries

A Catalyst for Economic Growth

Foreign Trade Zones (FTZ) are a federal economic incentive program to enhance the capability of local companies to compete successfully in international trade. Businesses located in the FTZ service area receive customs related benefits allowing them to compete on a more level playing field with offshore companies. The Southeast Tennessee Foreign Trade Zone is an 11 county service area. FTZ benefits are available to businesses located at the Chattanooga Metropolitan Airport or can be extended to a business’ fixed site anywhere in the 11 county region.

Southeast Tennessee Foreign Trade Zone

The 11 county Southeast Tennessee Foreign Trade Zone is more flexible than many other FTZs in the country. It is organized under the Alternative Site Framework program. This designation allows businesses to activate anywhere within the 11 county region.

Is the Southeast Tennessee Foreign Trade Zone Right for Your Business?

Contact the Chattanooga Area Chamber of Commerce to help you determine the return on investment you can achieve through this program if any of the following apply to you:

You need to store imported goods, or show them to prospective buyers.
Your merchandise may be processed, cleaned, tested, relabeled, repackaged, scrapped or otherwise manipulated before it is released into the U.S. or exported.
Your domestic goods will be sold abroad and carry a high excise tax burden.
Some of your imported goods are damaged or destroyed, or some of the raw material you import is destroyed in the finishing process. Only pay fees on products that enter U.S. commerce.
Your final product is taxed at a lower rate than the imported materials used in production.
Your finished product is subject to U.S. quota restrictions.
You have a fixed site within the 11 county service area.

Business Benefits of the Southeast Tennessee Foreign Trade Zone

Businesses located at any fixed site in the 11 counties can become part of the FTZ program.
Businesses can be approved by U.S. Customs and Border Protection and Department of Commerce in 30 - 45 days.
Businesses can benefit from increased cash flow and inventory control.
An FTZ designation will allow a business to operate warehouses as a means to reduce operating costs, improve supply chain velocity and manage security at distribution facilities.
Users can defer, delay or eliminate payment of some duties and taxes on goods manufactured or processed within the FTZ.

Facts and Fictions Regarding FTZs

There are many myths about FTZs. The realities of the FTZ Program are that it provides communities and local companies a way to increase cash flow, remain competitive and expand job creation within a region.

FTZs only work for manufacturing companies. FALSE.

Companies in FTZs receive imported products, manufacture, assemble, test and scrap products before they are sold to consumers in the U.S. or exported to global consumers. The retail consumer goods industry is now operating warehouse facilities within FTZs.
FTZs slow down commerce. FALSE.

FTZs allow businesses to keep production costs closer to the market while still receiving the reduced costs comparable to moving to a foreign market. The FTZ helps businesses reduce production, transaction, and logistics-related costs by lowering the effective duty rates and allowing special entry procedures. Goods that have a U.S. quota restriction may be stored onsite for quicker release into the stream of commerce.
FTZs take work away from America. FALSE.

By reducing costs, FTZs level the playing field and improve U.S. competitiveness. The benefits of the FTZ program may be the competitive advantage companies need to keep their manufacturing or distribution operations in the U.S. By helping local employers remain competitive, zones can contribute to maintaining or boosting employment opportunities. The lower FTZ-based production costs encourage increased investment in U.S. facilities.
FTZs have a negative impact on a company’s cash flow. FALSE.

FTZs allow businesses to manage cash flow by delaying, deferring, or eliminating duties and certain taxes on goods. Goods can be stored indefinitely at the FTZ site.

FTZs are expensive. FALSE.

Costs for activating a location within the FTZ vary depending on the security and inventory controls in place at the facility. The initial long-term duty deferral benefit to the business often exceeds the activation costs. The business also realizes ongoing benefits through delayed payment of duties and inverted tariffs. In addition, no duties are paid on re-exported products, waste, scrap, and rejected or defective products.
FTZs are complicated and require a lot of new paperwork. FALSE.

FTZ users are often able to file a single customs entry per week rather than making multiple entries during the course of the week.
FTZs are only for international companies. FALSE.

FTZs are for companies that either buy or receive imported products from foreign or domestic vendors or have merchandise that is processed, cleaned, tested, relabeled, repackaged, scrapped or otherwise manipulated before it is released into the U.S. or re-exported; or have domestic goods to be sold abroad that carry a high excise tax burden (such as beer, wine or spirits).
FTZs are only allowed at port locations. FALSE.

The Southeast Tennessee FTZ is organized under the Alternative Site Framework program. This means that companies can activate at any fixed site with the 11 county service area.