Commentary: Turning the key on FTZs

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   In today’s uncertain trade, political and economic environment, Foreign Trade Zones (FTZ) provide stability by offering importers the ability to maintain inventory or manufacturing inputs in a bonded area, prior to the formal entry of merchandise with U.S. Customs and Border Protection (CBP) and payment of customs duties and fees.
   When the decision is made to enter an imported good, or their corresponding finished products produced in an FTZ from imported goods, into U.S. Customs territory, an FTZ operator may file one consolidated entry each week, rather than an entry per shipment at the port of arrival each day, thereby reducing customs fees and customs brokerage fees.
   Additionally, FTZs offer opportunities for increased inventory controls, cargo security and quicker transit times from the CBP port of entry to the manufacturing or distribution points within the FTZ. Because FTZs offer U.S. companies a potential consistent source of economic and operational benefits, FTZs have rapidly become a key strategic asset in today’s supply chains.
   In our recent experience, more than ever, companies are deciding to implement FTZs for specific supply chain lanes or for certain defined transactions.
   As an example, a company may set up an FTZ for the purpose of maintaining an export platform at a distinct area of their U.S. distribution center for imported products destined for customers in Latin America, thus eliminating the payment of customs duties on the imported items altogether.
   Another company might seek to establish an FTZ in the United States and a customs warehouse in the European Union to effectively manage their global parts replenishment business by perpetually keeping their parts outside the customs territories of both jurisdictions, until it is known that the parts will be purchased by a customer with duties paid.
   Another example could be a company implementing an FTZ to capture the duty reduction and weekly entry savings to offset potential costs that may result from the modification or elimination of the North American Free Trade Agreement (NAFTA).
   Make no mistake, implementing an FTZ is an investment, and calls for a cross-functional approach, IT systems integration, and the development of a clear roadmap. As such, companies seeking to implement an FTZ should consider a “turnkey” solution. FTZ implementation on a turnkey basis is an effective method of achieving a company’s objectives of setting up a zone in a timely manner, and with an effective use of resources.
   In a turnkey FTZ approach, a the service provider supports the company with:
     • Obtaining approvals from the U.S. Foreign Trade Zones Board for site designation (and production activity, if applicable);
     • Meeting CBP requirements for FTZ activation at the local port of entry;
     • Developing an approach for deployment of an FTZ Inventory Control and Recordkeeping System (ICRS) and zone administration for daily reporting and filing functions;
     • And delivering a ready-to-run FTZ when the company is ready to go “live” with the operation.
   Technology is a cornerstone of this approach to FTZ implementation. Specifically, today’s trade automation systems permit prospective FTZ operators to administer an FTZ either as part of their daily trade compliance function or with the assistance of a third-party provider of managed FTZ services.
   Enhancements to CBP’s Automated Commercial Environment (ACE) and the ever-improving capabilities of FTZ ICRSs mean that with accurate and timely manifest, product master, and other transactional import data, the FTZ administrative and CBP reporting functions may be streamlined to capture efficiencies in processes.
   With this in mind, companies can harness the skills of trade compliance professionals, who can perform traditional and FTZ customs compliance activities by taking advantage of new systems developments in ACE and the ICRS of record, the practical impact of new regulations, and the experience with ICRS processing steps and CBP reporting requirements.
   Thanks to turnkey FTZ implementations and FTZ managed services available on the market, FTZ implementation projects today require fewer dedicated company resources. Companies with FTZs can benefit from reduced customs fees and duties, improved inventory control, more secure cargo security and quicker transit times, with continued normal daily operations – all while the compliance tasks are assigned to the FTZ ICRS systems and business partners.
   For exporters, goods can be exported from the United States without first being entered or subject to duties, a particular boon for companies that export imported products.
   With an effective return on investment (ROI) calculation, companies can often realize cost recovery within the first year of FTZ operations. In today’s technology-enabled environment, companies seeking to implement an FTZ will find them to be more efficient to implement through a turnkey approach, with more FTZ management options, and a flexible strategic asset in their supply chain that can yield significant savings.

   Ahanchian and Given are members of the Trade & Customs practice of KPMG LLP. Ahanchian is a managing director based in Washington, D.C., and can be reached by email at [email protected]; Given is a senior manager based in Philadelphia and can be reached by email at [email protected]

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