For logistics providers and importers, paying tariffs and duties on huge shipments of goods and then subsequently storing them is financially prohibitive.
The U.S. Customs and Border Protection (CBP) monitors the importation and storage of goods, but importers do have some options. When faced with the choice of foreign trade zone (FTZ) vs. bonded warehouse, keep these important points top of mind.
Foreign Trade Zone (FTZ)
The CBP defines a foreign trade zone as; “Secure areas located in or near US ports of entry. Legally, FTZs are considered to be outside the customs territory of the US for duty assessment and entry purposes.” What that means is that the goods can be foreign or domestic, and there is unlimited access and control over the movement of the products within the zone. Regardless of the point of origin, there is no customs entry to file and goods can be moved and mixed freely.
The biggest benefit to importers and 3PLs is that these locations are exempt from paying duties when the shipment arrives. In addition, there are also no duties payable on re-exported goods. Manufacturing is also allowed within an FTZ with no immediate duties or taxes payable. Payment of duties is only due when the product enters into US territory. The rate can be either the amount in effect during withdrawal or initial admission. Another strong benefit is that there is an unlimited amount of time that the goods can be warehoused in a foreign trade zone.
In many ways, bonded warehouses are similar to FTZ warehouses; however, bonded warehouses are under the direct control and supervision of the US customs officials. As with a FTZ, duties aren’t collected until the goods are withdrawn for consumption and the exportation of items is also duty-free.
Two of the major differences are that bonded warehouses are only permitted to hold foreign goods and manufacturing is not allowed. Under this type of program, each good must have a customs entry filed and duties and tariffs are assessed upon entry. Furthermore, customs maintains primary control of all goods and determines where, when and how they can be moved. Unlike FTZ areas, there is a five-year limit on goods being stored in a bonded warehouse.
FTZ vs. Bonded: Which is Right For You?
Choosing between FTZ and bonded warehouses comes down to control over the process and geographic flexibility. For some organizations, it is best to enter into an FTZ while others will benefit from a bonded warehouse. There are multiple benefits of both programs including delayed duty and tariff obligations and the ability to re-export goods without penalty, but consideration usually boils down to whichever solution is closest to your business.