Free Trade Zone (FTZ)
Also known as: FTZ, Foreign Trade Zone, Free Zone
Definition
A free trade zone is a secure area within a country where imported goods are treated as if they’re outside customs territory. Duties are only paid when goods leave the FTZ for domestic consumption.
FTZ Benefits
| Benefit | Explanation |
|---|---|
| Duty deferral | Pay when goods sold, not imported |
| Duty elimination | Avoid duties if re-exported |
| Inverted tariff | Pay lower rate on finished goods |
| Quota avoidance | Hold goods until quota opens |
| Reduced fees | Lower merchandise processing fees |
FTZ vs. Bonded Warehouse
| FTZ | Bonded Warehouse |
|---|---|
| Manufacturing allowed | Storage only |
| Unlimited duration | Time limits apply |
| More activities permitted | Fewer allowed activities |
| Higher compliance requirements | Simpler operation |
FTZ Activities
- Storage and distribution
- Assembly and manufacturing
- Testing and quality control
- Labeling and packaging
- Repair and refurbishment
- Destruction of goods
Types of FTZ Sites
General purpose zone: Publicly available FTZ facility Subzone: Private site for single company’s operations
FTZ in Practice
- Over 250 FTZ projects in the US
- $900+ billion in shipments annually
- Common in auto, electronics, pharma industries
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