A Foreign Trade Zone (FTZ), also known as a Free Trade Zone, is a federally sanctioned site where foreign and domestic goods are considered to be outside of the U.S. customs territory. Merchandise can be brought into an FTZ to be stored, exhibited, repackaged, assembled or used for manufacturing free of customs duty, quota and other import restrictions until the decision is made to enter the goods into the U.S. market. No duty is ever paid on foreign goods that are re-exported from the FTZ.

Located in the heartland of the United States, Sioux Falls, South Dakota, is served by three major modes of transportation - air, road and rail. Air service is provided through Joe Foss Field, road service through Interstates 90 and 29 and rail service through Burlington Northern Railroad. Sioux Falls is the largest urban area in South Dakota with a U.S. Customs Port of Entry.

While it is easier and less expensive for a company to receive FTZ benefits within Sioux Falls area sites, any company in South Dakota can apply to the U.S. Department of Commerce for subzone status. South Dakota International Business Institute and Sioux Falls Development Foundation will gladly assist you in securing FTZ space within the Sioux Falls area sites or with a subzone application.

1. Cash Flow - Customs duties are paid only when imported merchandise is shipped into the U.S. Customs territory. Merchandise may be held in inventory in the FTZ without Customs duty payment.

2. Merchandise Processing Fee - Fees are owed only when and if merchandise is transferred to the U.S. Customs territory.

3. Harbor Maintenance Fee - Fees are paid quarterly on merchandise received in the FTZ.

4. Exports - No customs duties are paid on merchandise exported from a FTZ. While drawback law allows the recovery of Customs duties previously paid after the merchandise is exported, payments may be delayed for a variety of reasons. In a FTZ, the duties are simply never paid.

5. Defects/Damage/Obsolescence/Waste/Scrap - Customs duties are significantly reduced or eliminated on merchandise subject to these accountable losses.

6. Inverted Customs Duty Savings - In a FTZ, uniquely, the FTZ user may elect to pay the duty rate applicable to either component materials or the finished merchandise produced from the component material, depending upon which is lower. Many articles have different duty rates for component materials and finished merchandise, offering substantial Customs duty savings.

7. Nondutiability of Labor, Overhead and Profit - Customs duties are not owed on labor, overhead and profit attributed to production operations in a FTZ. If the same production operations were done overseas, the value of the labor, overhead and profit would be subject to U.S. Customs duty. The substantial Customs duties savings may create additional incentives to undertake activity in the United States rather than in a foreign country.

8. International Returns - A number of firms that export have a percentage of the exports returned to the United States. Customs duties are owed each time merchandise of foreign origin that has not been registered with Customs is returned. This further avoids the problem of American Goods Returned that are not American. By being returned to a FTZ, no Customs duties are paid upon return.

9. Spare Parts - To service many products, spare parts must be on hand in the United States for prompt shipment. However, it is impossible for most firms to know the requirements for spare parts, especially in the start-up mode. Spare parts may be held in the FTZ without Customs duty payment, generating cash flow savings. If it is determined that the spare parts are not needed, they may either be returned to the foreign vendor free of duty or destroyed, avoiding Customs duties.

10. U.S. Quota - Most merchandise may be held in a FTZ, even if it is subject to U.S. quota restriction. When the quota opens, the merchandise may be immediately shipped into U.S. Customs territory. Voluntary restraint and orderly marketing agreements are not impacted by FTZ use.

11. Quota Avoidance - Quota merchandise may be substantially transformed in a FTZ into a non-quota article that may be entered into the U.S. Customs territory free of quota restrictions.

12. Simplification of Import/Export Procedures - Delays relating to Customs clearances and duty drawback procedures are eliminated. Cash flow savings accrue as well from simplification of these products.

13. Quality Control - The FTZ may be used for quality control inspections to insure that only merchandise that meets specifications is imported and duty paid. All other materials may be repaired, returned to the foreign vendor, or destroyed under Customs' supervision.

14. Country-of-Origin Marking/Labeling - No country-of-origin labels are required on merchandise admitted to the FTZ. Merchandise shipped into U.S. Customs territory must have appropriate labeling which will vary depending on the circumstances.

15. Security - The FTZ is subject to U.S. Customs Service supervision and security requirements. Unauthorized withdrawal of merchandise, such as employee pilferage or stealing, is a violation of 19 U.S.C. 549, carrying a penalty of two (2) years in a federal penitentiary and a $5,000 fine per offense. Many firms have found the security and federal penalty provisions to be of substantial benefit.

16. Inventory Control - Operations in a FTZ require careful accounting of receipt, processing and shipment of merchandise. Firms have found that the increased accountability cuts down on inaccurate inventory, receiving and shipping concerns, and waste and scrap.

17. Consumed Merchandise - Merchandise consumed in processing in a FTZ generally is not subject to U.S. Customs duties.

18. Production Equipment - Production equipment and components thereof may be admitted to a zone without depositing Customs duties until the time it is completely assembled, installed, tested and used in full-scale production.

19. Entireties Provision - An importer can choose whether or not the entireties provision is applicable to merchandise admitted to or withdrawn from a foreign trade zone.

20. Exhibition - Merchandise may be held for exhibition without Customs duty payment.

21. Reduced Insurance Costs - The insurable value of merchandise held in a FTZ need not include the Customs duty payable on the merchandise. Therefore, insurance costs will be less.

22. Cargo Insurance - Some users of FTZ's have negotiated up to a 40% reduction in cargo insurance rates because imported merchandise is shipped directly to a FTZ without the opportunity for potential pilferage at deepwater ports or major international airports.

23. Zone-to-Zone Transfer - An increasing number of firms are making use of the ability to transfer merchandise from one zone or subzone to another. If the transfer of the merchandise is in-bond, Customs duty is not owed until the product is finally shipped into the U.S. Customs territory. A number of suppliers of materials, components and subassemblies store or produce a product in one zone and ship it to their customer that incorporates the merchandise into a final product, in many instances having a lower duty rate than the duty rate of the materials, components or subassembly produced in the first FTZ. In this manner, the supplier totally avoids Customs duties.

For more information contact:

SDIBI - NSU
1200 South Jay Street
Aberdeen, SD 57401-7198
Phone: 605-626-3149
Fax: 605-626-3004
E-mail: sdibi@northern.edu

Mr. Rock Nelson - International Marketing Director
Sioux Falls Development Foundation
#1 West Weather Lane, Suite #400
Sioux Falls, SD 57104
Phone: 605-338-3424
Fax: 605-338-3423
Cell: 941-6696
E-mail: rock@siouxfalls.com
Website: www.interntionalportinfo.com