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What are free zones, export processing zones, enterprise zones, duty free shops, and U.S foreign-trade zones?

Free zones - Allow merchandise to enter an area for storage and be exported or entered into the host country.

Export processing zone  - EPZs are duty-free zones dedicated to manufacturing for export. No customs duties are charged for entry of raw materials, components, machinery, equipment, and supplies used to produce manufactured goods provided these are then exported.

Enterprise zones - Encourage new industrial and commercial activity in economically depressed areas by removing most zoning, taxation, and federal and local business regulations from carefully defined districts.

Duty free shops - Retail shops, usually at airport or border locations, where an importer has brought in certain items for resale to travelers, who then take these goods out of the country, without either being required by the host country to pay taxes and duties, or paying less tax and duty than importers selling the merchandise domestically.

U.S. foreign-trade zones - Are treated, for the purposes of the tariff laws and Customs entry procedures, as being outside the Customs Territory of the United States. Under FTZ procedures, foreign and domestic merchandise may be admitted into zones for operations such as storage, exhibition, assembly, manufacture and processing, without being subject to formal Customs entry procedures, the payment of Customs duties or the payment of federal excise taxes. When merchandise is removed from a foreign-trade zone, Customs duties may be eliminated if the goods are then exported from the United States. If the merchandise is formally entered into U.S. commerce, Customs duties and excise taxes are due at the time of transfer from the foreign-trade zone.

Why do companies use foreign-trade zones?

To maintain the cost competitiveness of their U.S.-based operations vis-à-vis their foreign-based competitors. For a company, zone status provides an opportunity to reduce certain operating costs associated with a U.S. location that are avoided when operating from a foreign site.

Is zone status more beneficial to foreign-owned companies than it is to American-owned companies?

The benefit of zone use is determined by the location of company's operations in the United States, not by its ownership. If an American-owned company and a foreign-owned company have identical trade operations, the potential benefit of the U.S. Foreign-Trade Zones program for each of them will be identical. The U.S.FTZ program encourages investment and production in the United States that might otherwise take place in another country.

How do zones "expedite and encourage" direct foreign investment in the U.S?

The United States welcomes foreign investment but does nothing to overtly attract or discourage it. Through the policy of "National Treatment," foreign investors are offered the same conditions, rights and benefits associated with investing in the United States as an American investor can expect to receive. In keeping with this policy, zones encourage foreign and domestic investment by removing a tariff bias that unintentionally discourages investment in the U.S. and encourages supplying the U.S. market from off-shore.

Is the maintenance of the FTZ program costly to the U.S?

The establishment and maintenance of FTZs require a minimal expenditure of federal tax dollars. The cost of processing applications by the Foreign-Trade Zones Board is offset by application fees and the cost of processing FTZ merchandise by the U.S. Customs Service is offset by merchandise processing fees. Therefore, foreign-trade zones are a self-sustaining tool of international commerce offering significant benefits to U.S. industry and aiding the U.S. balance of trade.

For more information, contact:
Henry McKay, FTZ Manager
Port of Stockton
voice: (209) 946-0246
e-mail to: hmckay@stocktonport.com