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1 The AZ FTZ Program The most lucrative in the USA Curtis Spencer, President IMS WORLDWIDE INC. Member of the 9 th and 10 th COAC committee.

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Presentation on theme: "1 The AZ FTZ Program The most lucrative in the USA Curtis Spencer, President IMS WORLDWIDE INC. Member of the 9 th and 10 th COAC committee."— Presentation transcript:

1 1 The AZ FTZ Program The most lucrative in the USA Curtis Spencer, President IMS WORLDWIDE INC. Member of the 9 th and 10 th COAC committee

2 What is an FTZ? A Foreign-Trade Zone (or Free Trade Zone) is a Federal Program, started in 1934 and in use in all 50 states today. The FTZ allows Federal Taxes and Fees to be lowered, eliminated, or exempt from payment. State taxes are lowered in TX and AZ. Anyone – any business who qualifies can get it.

3 What is the structure of an FTZ? Federal Approvals (Commerce and DHS). Local Approvals/Sponsorship (the Grantee and Customs). Operators (In-house or 3 rd Party Operators).

4 U.S. Foreign-Trade Zones Board Local Grantee- Nogales EDF Secretary Of Commerce Secretary of Homeland Defense Local Customs Port Director Zone Operator (Single or Multiple) Zone User Customs Regulations Customs Broker FTZ Authority Structure Sub-Zone Operator Zone Operator Grantee/Operator Agreement(s) Site 1 Site 2 Advisory Board

5 Approved FTZ Projects in Arizona

6 FTZ No. 60 Nogales – Site Map BD Site 3 Site 1 at Border Site 2 Industrial Park Rd.

7 So, What does an FTZ do? The FTZ speeds up the supply chain. The FTZ importing process costs less. The FTZ security is better than other methods. FTZs Create JOBS! FASTER - CHEAPER - BETTER

8 Who Uses the FTZ? FTZs are used by: –Manufacturers (oil, auto, solar, appliance, R&D, pharma, etc) –Importers (retail, consumer goods companies). –3PLs (3 rd Party Logistics Providers). –Developers (as a benefit to their customers).

9 Retail Importers Using FTZ’s Dell HP Onkyo Winnebago Skechers Reebok Adidas IKEA (3) Black and Decker (4) Academy Sport Goods (2) Laufen Tile (3 DC’s) Arizona Tile

10 Retail Importers Using FTZ’s (primarily for MPF savings) Gymboree Helen of Troy Sharp Electronics J C Penney’s JVC Electronics Pioneer Electronics Thompson Consumer Electronics Conair JJ Baker Oneida

11 Retail Importers Using FTZ’s Nine West Coach Leather Goods Mercury Marine Sony (3) Adding 7 DC’s in LA LA Gear Lexmark Printers Keds Clarion Abercrombie & Fitch AMAZON.COM SubZero

12 Using the an FTZ to Cut Costs MPF & Broker Savings Manufacturing, Pick and Pack, Retail Packaging of Sets Local Tax Benefits (ad valorem real property)

13 How does an FTZ Cut Costs? The FTZ importing process costs less because:  Duty Deferral  Duty Elimination  Duty Reduction  State Tax Reduction (TX, AZ)  Merchandise Processing Fee Elimination  let me illustrate this Example of how this could work in Nogales….

14 Nogales Business Case 2 Maquilla Operations: US Side Warehouse feeds parts to the Maquilla Parts come from Global Suppliers: No Duty to the Parts Depot, no duty going into Mexico, No duty coming back out! No MPF Fees coming in, no MPF fees going out or coming back with Finished Goods to Nogales US.

15 Pre-Foreign-Trade Zone Foreign-Trade Zone Shipments into Site Shipments into commerce with weekly entry 20 receipts inbound per week. MPF $9, shipments out per week; one entry filed at End of week. MPF $485 In a single week an FTZ importer can save $9,200/week in MPF Fees, or $479,180 per YEAR! NOW MPF IS HIGHER! $790,647

16 Using the an FTZ to Cut Costs MPF & Broker Savings Manufacturing, Pick and Pack, Retail Packaging of Sets Local Tax Benefits (ad valorem real property)

17 An FTZ allows me to alter Duty Rates! If my parts (imported) carry ANY duty at all: AND– my finished product which I manufacture or assemble can be imported by a competitor directly---at 0% Duty--- I CAN GET THE SAME BENEFIT! Whether it’s crude oil, TVs, satellite dishes, solar panels, refrigerators, WHATEVER!! Some Restrictions Apply!!

18 An FTZ allows me to alter Duty Rates! This “rule” works for Pick-&-Pack too! Example: Speakers carry 4.9% duty. DVD players are 0%. Home Theater Systems (ie. Combined: speakers + DVD players) are dutiable at ZERO% Therefore I claim 0%. For every $10 Million in Speakers, I save $490,000!!

19 Nogales Business Case 1 Food Processing: Tomatoes, peppers onions coming into US Side Warehouse, (in FTZ), Reefer Warehouses of Produce feeds US plant making Salsa, (New, here in Nogales) No Duty or MPF for vegetables coming up from Mexico (No more Tomato Wars!) Duty on the Salsa? 0% = FREE Lowers Property Taxes by 75%

20 Nogales Zone Example 1 - Assumptions $22 Million in Imported Raw Food/Produce/year. 15% Exports 85% sold into USA Salsa Manufacturing using tomatoes, onions, peppers and spices – All from Mexico Average duty rate on produce = 1.7% Duty rate on Salsa = 0% Inverted tariff benefits using an FTZ = EASY! Tax benefits based on a 12.5 Million facility (bldg and equipment).

21 Small Food Processing Center Making Salsa, with $12.5 Million Bldg and Equipment FTZ Benefits & Expenses By Type Year 1Year 2Year 3Year 4Year 55-YEAR TOTAL FTZ Benefits Re-Exports 1 $57,750$63,525$69,878$76,865$84,552$352,570 Reject, scrap, & military sales7,7008,4709,31710,24911,27447,009 One-time benefit Ongoing duty deferral3,1963,5153,8674,2534,67919,509 Inverted Tariffs319,550351,505386,656425,321467,8531,950,885 Property Tax Benefits223,125229,819236,713243,815251,1291,184,601 Merchandise Processing Fee savings50,98856,08761,69567,86574,652311,287 Total FTZ Benefits$662,309$712,921$768,125$828,368$894,138$3,865,860 FTZ-RELATED EXPENSES Internal FTZ Operation Expenses$75,000$77,250$79,568$81,955$84,413$398,185 Grantee fees10,00010,30010,60910,92711,25553,091 TOTAL FTZ-RELATED EXPENSES$85,000$87,550$90,177$92,882$95,668$451,277 NET FOREIGN-TRADE ZONE BENEFITS$577,309$625,371$677,949$735,486$798,469$3,414,584 Example 1-Small Food Processor in 65,000 Ft Building

22 Using the an FTZ to Cut Costs MPF & Broker Savings Manufacturing, Pick and Pack, Retail Packaging of Sets Local Tax Benefits (ad valorem real property)

23 AZ Tax/Economic Implications Assessed valuation of activated FTZ site reduces to 5% from 20% Generates additional tax revenues when compared to agricultural-use sites ($300 per 10 acres) Catalyst for other development not requiring FTZ tax benefits which results in full tax rate on those businesses New development brings additional tax revenues sooner Many FTZ companies bring higher paying jobs

24 Why is there so much interest in the FTZ process? ECONOMICS! FTZ’s PAY FOR THEMSELVES! FTZ status (approved and activated) gives a huge Federal and Local incentive to the businesses that use it. Qualifying is the issue. Federal regulations are strict, but not too strict. The importing community has now embraced the FTZ process nationally!

25 What is the process to get a new FTZ? Call IMSW at We will perform a FREE Cost Benefit Analysis. The Nogales Economic Development Foundation is the Grantee, and wants to Expand and Grow the ZONE! Activation is required to take advantage of the 75% Tax Break. Normal processing time for all this used to be mo. Now it can all be done in 6 months!

26 Bottom Line? FTZ process is now a “site requirement” % FTZ pays for itself at % ROI in the first year of implementation---if you Qualify. FTZ status is becoming a real factor in attracting FDI—Foreign Direct Investment! Nogales in Top 10 Sites for FDI

27 27 AZ FTZs Any Questions?


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