Many business owners wonder whether the benefits of a foreign trade zone (FTZ) can be equally realized by using a bonded warehouse. Both an FTZ and a bonded warehouse are beneficial in any kind of international trade situation. However, there are quite a few differences between them. The U.S. Customs and Border Protection (CBP) monitors the importation and storage of goods, but importers do have some options.
While different businesses have different needs, an FTZ often provides greater advantages. For logistics providers and importers, paying tariffs and duties on huge goods shipments and storing them is financially prohibitive.
Keep the following comparison points top of mind when choosing between an FTZ and a bonded warehouse.
What Are FTZs?
Foreign trade zones, or free trade zones (FTZs), have been around since the 1930s and are intended to increase the trade and competitiveness of US companies. They are areas within the US that the government considers outside US customs territory but still under US governance. 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.”
FTZ Advantages
There are many benefits of an FTZ, including but not limited to the following.
- Trade benefits for businesses. Any business with products admitted into the FTZ will find itself at a competitive edge over those who aren’t.
- Tax benefits. Businesses will only have to pay taxes on the merchandise if the merchandise is transferred into a territory under the governance of the US Customs and Border Control. In addition, there will be some cases where the taxes that the business will have to pay on the merchandise is significantly reduced.
- No quota requirements. In an FTZ, there are no quotas to meet or exceed. This is especially beneficial for smaller businesses whose output may not be great enough to meet any quotas set forth.
- Better for the United States economy. Finally, but certainly no less importantly, FTZs were specifically designed to stimulate the US economy by encouraging American manufacturing and free trade with other countries.
No Immediate Duties
Unlike bonded warehouses, an FTZ is considered outside of U.S. customs territory. While customs entry is typically made when goods enter a bonded warehouse, this is not the case in an FTZ. This means duty payment in a bonded warehouse cannot be delayed, reduced, or eliminated. With an FTZ, there are no duties payable on re-exported goods. Manufacturing is also allowed within an FTZ with no immediate duties or taxes payable, and duty payment is only required when the product enters US territory. The rate can be either the amount in effect during withdrawal or initial admission.
Foreign or Domestic Goods
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 origin, there is no customs entry to file, and goods can be moved and mixed freely. Because of this, certain merchandise types can move through an FTZ without first having to travel through formal customs entry procedures, including import duties or taxes — neither foreign merchandise nor domestic merchandise set for export is subject to tax.
Merchandise Flexibility
Additionally, many activities are restricted in bonded warehouses. For instance, manipulation of a product is only permitted in a Class 8 bonded warehouse, and manufacturing may only occur in a Class 6 — and only for export. The bonded warehouse option also includes the cost of a bond when merchandise is admitted to the warehouse. Furthermore, only dutiable products are permitted in a bonded warehouse, unlike FTZs, where all non-prohibited merchandise may be admitted.
No Time Limits
Another strong benefit is that there is an unlimited amount of time that the goods can be warehoused in a foreign trade zone.
What is a Customs Bonded Warehouse?
Bonded warehouses have been around since the 1800s and are subject to the rules and regulations set forth by Title 19, United States Code, and section 1555. In many ways, bonded warehouses are similar to FTZ warehouses. However, bonded warehouses are under US customs officials’ direct control and supervision — Customs maintains primary control of all goods and determines where, when, and how they can be moved. They provide secure storage for dutiable goods to be stored, manipulated, or manufactured without duty payment.
The purpose of bonded warehouse facilities is to provide government supervision and security for goods before payment of duty. As with an FTZ, duties aren’t collected until the goods are withdrawn for consumption, and the exportation of items is also duty-free. The duty is then due upon transferring the goods from the warehouse for consumption.
Bonded warehouses are only permitted to hold foreign goods, and manufacturing is not allowed. Under this program, each good must have a customs entry filed, and duties and tariffs are assessed upon entry. Further, goods in bonded warehouses can only move to an FTZ to export, destroy, or permanently store the product.
Advantages of a Customs Bonded Warehouse
A bonded warehouse also has its benefits.
- No import tax payment is required. Importers and company owners don’t have to pay taxes on products stored in a bonded warehouse. Exporters, however, are subject to duty.
- Generous storage time. While some countries don’t have a storage time limit for your goods, the average American bonded warehouse allows you to store your goods for no more than 5 years, which is still quite sufficient for many non-perishable goods.
- Safe Haven for Restricted Goods. Finally, but certainly, no less important, if you’re in a business where you have access to or use so-called “restricted goods,” a bonded warehouse is a great place to store and keep these goods without fear of repercussion or penalty.
Delayed Duty Payments
Delayed payment of duties is why a business or company may utilize a bonded warehouse. Payments are not due until the product is moved for distribution or consumption. Therefore, the importer has complete control over their money until the duty is paid upon withdrawal of the items. If no domestic buyer comes forward for the imported articles, the importer can then sell the merchandise for exportation. This way, the importer does not have to pay any duties.
Geographic Flexibility
However, perhaps the most significant advantage is the greater geographic flexibility of locating the bonded warehouses. Additionally, the application process is somewhat less rigorous than the FTZ. Businesses not located within a designated FTZ or 60 miles from the nearest zone might find a bonded warehouse to be an excellent option.
FTZ vs. Bonded: Which Is Right For You?
Choosing between FTZ and bonded warehouses mostly 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.
Trust CWI Logistics For All Your FTZ or Bonded Warehouse Needs
No 2 clients are going to want the same thing, for the same needs, so it’s important to know the benefits of each one so that each client’s needs can be fulfilled accordingly. At CWI Logistics, we have over 50 years of experience helping our partners find the warehouse solution that best fits their needs. Whether it’s a foreign trade zone or bonded warehouse, contact us today to learn more about how we can help you find the best-fitting warehouse solutions for your business.