3 History of FTZ ProgramNew Deal Legislation (maintain and create jobs and investment in the US)Manufacturing Authorized (Public Law 566 of the 81st Congress)First FTZ Subzone created (Board Order No 29)
4 History of FTZ ProgramValue Amendment to Customs Regulations (19 C.F.R (e))1984 –- Pilot Program for Weekly Entry for ManufacturingGlobal Economy/Customs Duty PlanningWeekly Entry For Distribution2009 –- Alternative Site Framework
5 Growth of FTZ Program 1970 2010 10 General-Purpose Zones 3 Subzones 1,401 Jobs$104 Million Volume(received)11% Domestic Material274 GP Zones Approved 257 currently authorized660 Subzones Approved515 currently authorized330,000 Jobs (FY 2008)$693 Billion Volume (received) (FY 2008)57% Domestic Material (FY 2008)
6 Ohio FTZ Projects FTZ No. 8 Toledo FTZ No. 40 Cleveland FTZ No CincinnatiFTZ No DaytonFTZ No Clinton CountyFTZ No RickenbackerFTZ No FindlayFTZ No AkronFTZ No Washington CountyFTZ No Lawrence County3 of 10 Ohio FTZ Projects are operating under Alternative Site Framework
8 Who Are The PlayersForeign-Trade Zones Board -- Secretary of Commerce and the Secretary of Treasury. These officials or their designee are empowered to issue to appropriate applicants the Grant of Authority to establish, maintain and operate FTZ projectsForeign-Trade Zones Board staff -- Officials in the Department of Commerce, International Trade Administration responsible for overseeing the administration of Foreign Trade Zones. The Executive Secretary heads up this officePort Director of Customs and Border Protection (CBP) -- Customs official with responsibility for overseeing the activation and operations of zone projects within his customs port of entry.
9 Who Are The PlayersGrantee – Entity to whom the privilege of establishing, operating, and maintaining a foreign-trade zone has been grantedOperator – Entity that operates a zone or subzone under the terms of an Agreement with the Grantee. A Grantee can function as an OperatorUser – Entity using a zone or subzone for storage, handling, or processing of merchandiseProperty Owner – Entity that owns the property on which FTZ designation is bestowed
10 FTZ TerminologyFTZ Eligibility -- Issuance of a Grant of Authority by the FTZ Board results in the designated area obtaining FTZ eligibilityMagnet Site – Is synonymous with the traditional concept of a general-purpose site. It is a location to which the Grantee tries to attract multiple operators/usersUsage Driven Site – A site that serves the needs for an entity not located at a Magnet site. A Usage-Driven site is limited to space needed for the usage that was the basis for the request. Similar in many respects to a subzoneActivation -- Filing of an application with CBP by the Operator, with the Grantee's concurrence, results in the actual utilization of an FTZ eligible site as an FTZ
11 FTZ TerminologyNon-Privileged Foreign Status – Imported merchandise which has not been cleared by CBP and for which the User does not wish said merchandise to retain its identity, from a customs classification standpoint. As a result, if the merchandise is altered from a customs classification standpoint, it will become classifiable in its condition when it ultimately enters the customs territory of the United StatesPrivileged Foreign Status – Imported merchandise which has not been cleared by CBP and for which the User wishes said merchandise to retain its identity, from a customs classification standpoint, regardless of its condition when it ultimately enters the customs territory of the United States
12 FTZ TerminologyDomestic Status – Merchandise produced in the United States or imported merchandise for which customs duties have already been paidZone Restricted Status - Merchandise which can not re-enter the U.S. customs territory – it must be wither exported or destroyed
14 FTZ Benefits for Storage of Merchandise Cash Flow Benefit -- Customs duties and excise taxes are not payable until merchandise is actually released from FTZ and enters U.S. customs territoryDuty Elimination -- Re-exported merchandise is not subject to payment of regular customs duties, countervailing and dumping duties nor excise taxesDuty Elimination -- Non-conforming merchandise can be returned to foreign supplier or destroyed under Customs' supervision without being subjected to payment of customs duties and/or excise taxes
15 FTZ Benefits for Storage of Merchandise Direct Delivery is available if the FTZ Operator is the owner or purchaser of the imported merchandiseWeekly Estimated Entry is available at the option of the Operator or UserTighter Inventory Record Keeping -- Zone Users must adopt inventory control procedures in compliance with the Customs Regulations, which enables Users to maintain tighter inventory control over merchandise located within FTZ
16 FTZ Benefits for Storage of Merchandise Re-marking or Re-labeling of Merchandise -- Merchandise may be remarked or relabeled in to conform to U.S. Customs requirementsZone Restricted Status -- Merchandise placed in a zone in "zone restricted" status is considered, for customs purposes, to have been exported from United States and, if applicable, duty drawback can be claimed
17 FTZ Benefits for Manufacturing of Merchandise Inverted tariff -- Components with higher duty rate, utilized in production of articles with lower duty rate, can have their duty rate reduced to duty rate applicable to finished articleLower Valuation -- The expense of labor, overhead and profit incurred in operations performed in FTZ is not subject to customs dutiesEliminate Duties on Exports -- Articles produced in FTZ that are re-exported without entering the customs territory of the U.S. are never subject to payment of U.S. customs duties, dumping and countervailing duties nor excise taxes
18 FTZ Benefits for Manufacturing of Merchandise Eliminate Duty on Waste -- Any waste or scrap generated in manufacturing performed in FTZ is not subject to customs dutiesZone to Zone Transfer -- Articles can, in various stages of manufacture, be transferred from zone to zoneMade in USA -- Articles produced in an FTZ are considered products of the U.S.
19 Direct Delivery Regulatory Procedure Merchandise can be delivered to FTZ without prior application and approval on C.F. 214Port Director shall approve application if three criteria are satisfiedMerchandise is not restricted or of a type which requires CBP examination or documentation review before arrival at zoneMerchandise to be admitted and operations to be conducted within zone are known well in advance, or predicable and stable over the long termOperator is the owner or purchaser of merchandise
24 Weekly Estimated Entry Example NON-FTZ SCENARIOAll 50 shipments are entered into Customs territory at Port of Unloading so that the Broker will file 50 separate entriesEach of the 50 shipments is subject to MPF payment (50 X 485 = $24,250)Each Shipment is subject to HMT payment (.125% of value)
25 Weekly Estimated Entry Example FTZ SCENARIONo separate consumption entries at Port of Unlading -- Merchandise moves in bond on ITNo MPF payment per shipment (1 entry per week = $485); weekly savings of $23,765 ($24,250 - $485); annual savings of $1,235,780)HMT payments deferred for average of 60 days
27 Article Description PLASMA TV MONITORS HTSUS Classification FTZ Duty Savings Analysis For Merchandise Stored In A Foreign Trade ZoneArticle DescriptionPLASMA TV MONITORSHTSUS ClassificationAnnual Dollar Volume60,000 $1,000 each$60,000,000Duty Rate5%Annual Duty Liability$3,000,000
28 FTZ Duty Deferral Benefit Annual Duty Liability$3,000,000X Cost of Money5%= Yearly Savings if Un-entered$150,000Divided by 365365Daily Savings if Un-entered$411Avg. # of Inventory Days120FTZ Savings / Duty Deferral$49,320
29 FTZ Duty Elimination Benefit Annual $ Value /Exports$6,000,000 (10%)Annual $ Value /Defects$1,200,000 (2%)Annual $ Value Not Entered$7,200,000Duty Rate5%Annual FTZ Duty Elimination$360,000
30 FTZ Annual SavingsTOTAL ANNUAL SAVINGS ON ARTICLE THROUGH FTZ USE:$409,320
31 FTZ SAVINGS FOR VEHICLE IMPORTER Duty Deferral Savings is based on average number of days vehicles remain in inventory and number of vehicles imported annually:Average FOB for Vehicle – $20,000Duty Rate for Vehicle – 2.5%Average Duty on Vehicle - $500.00ROI – 7.5%Yearly ROI Savings on Vehicle - $37.50Daily ROI Savings on Vehicle -- $0.10Average Days Vehicle Remains in Inventory – 30Average Savings Per Vehicle - $3.00
33 The Ostheimer Concoction Company The Ostheimer Concoction consists of the following IngredientsDoughTomatoesHamOnionsSwiss CheeseBlack OlivesLettuceSecret SauceThese ingredients are combined in specified amounts, baked in laser reactors, frozen at -100F and vacuum packed at the production facilities of OCC in New Jersey.
34 The Ostheimer Concoction Company The Ostheimer Concoction, if imported, would be dutiable as an “edible preparation” at 3%OCC imports 5 of the ingredients utilized in the Ostheimer Concoction – the Dough, Ham, Swiss Cheese, Onions and Black Olives. The lettuce comes from California, the Tomatoes from New Jersey and the Secret Sauce from Parts Unknown, USA
35 The Ostheimer Concoction Company Dough is dutiable at a 2% duty rateHam is dutiable at a 10% duty rateSwiss Cheese is subject to a 20% duty rateOnions are duty freeBlack Olives are dutiable at a 8% duty rate
36 The Ostheimer Concoction Company The value of the respective ingredients used in one Ostheimer Concoction are as follows:U.S. tomatoes – 11 centsForeign onions – 6 centsForeign black olives – 16 centsU.S. secret sauce – 11 centsForeign dough – 12 centsForeign ham – 27 centsForeign swiss cheese – 20 centsU.S. lettuce – 8 centsOverhead, labor and profit is 19 centsTotal Cost (exclusive of Customs Duties) of one Ostheimer Concoction is $1.30
37 The Ostheimer Concoction Company If the imported ingredients were entered directly into the customs territory of the United States, the following duties would be owed for the ingredients necessary for one Concoction:Dough .24 cents (12 cents x 2%)Ham 2.7 cents (27 cents x 10%)Swiss Cheese 4.0 cents (20 cents x 20%)Onions 0 centsBlack Olives 1.28 cents (16 cents x 8%)TOTAL DUTIES FOR ONE OSTHEIMER CONCOCTION is 8.22 cents.
38 The Ostheimer Concoction Company Since the duty rates for dough (2%) and onions (0%) are less than the duty rate for the Ostheimer Concoction (3%) they would be admitted in PFS. Since the duty rates for the ham (10%), swiss cheese (20%) and black olives (8%) are higher than the duty rate for the Ostheimer Concoction, they would be admitted in NPFSThe lettuce, tomatoes and secret sauce would all be admitted into the zone as domestic status merchandise
39 The Ostheimer Concoction Company In producing an Ostheimer Concoction, some ingredients result in waste. The ham and swiss cheese are both trimmed with a waste factor of 10% for the ham and 15% for the swiss cheese. The duties owed on one Ostheimer Concoction would therefore be:NPF (Duty Rate = 3%):Ham 27 cents x 90% = centsSwiss Cheese 20 cents x 85% = 17 centsBlack Olives 16 cents x 100% =16 centsTotal NPF = cents at 3%= 1.72 centsPF:Dough 12 cents x 2% = centsOnions 6 cents x 0% = centsTotal PF = centsTotal Duties = cents cents = 1.96 cents
40 The Ostheimer Concoction Company Savings Realized by OCC through the Inverted Tariff Principle is 6.26 cents/Concoction (8.22 cents cents)Assuming OCC produces 10 million Ostheimer Concoctions per month, Zone Utilization results in a monthly savings of $626,000 and an annual savings of $7,512,000
41 FTZ Users in Solar and Energy Efficient Industries Company engaged in converting silicon metal into polysilicon and silane gasCompanies engaged in production of wind turbines including nacelles, blades and towersCompanies engaged in joining gas turbine and electric generator to make up electric generator setCompany engaged in converting PAN precusor into carbon fiber
43 Top 15 Foreign-Status Products Received in U. S Top 15 Foreign-Status Products Received in U.S. General Purpose FTZs During FY 2009Consumer Electronics$ BOther Electrical Products/Parts$1.335 BBeverages/Spirits$406 MOther Metals/Minerals$9.242 BVehicle Parts$1.048 BPharmaceutical Products$396MVehicles$7.039 BMachinery/Equipment$740 MElectrical Machinery & Equipment$307 MPetroleum Products$4.502 BShips/Boats$736 MChemical Products$244 MTextiles/Footwear/Leather$1.368 BOther Consumer Products$650 MIron/Steel$237 M
44 Top 15 Foreign-Status Products Received in U. S Top 15 Foreign-Status Products Received in U.S. Subzones During FY 2009Crude Oil$ BVehicles$1.130 BTextiles/Footwear/Leather$505 MPetroleum Products$ BOther Consumer Products$896 MOther Metals/Minerals$487 MPharmaceutical Products$6.998 BOther Electronics Products/Parts$792 MElectrical Machinery & Equipment$377 MVehicle Parts$4.807 BChemical Products$765 MPlastic/Rubber Products$365 MMachinery /Equipment$2.860 BConsumer Electronics$707 MPetrochemical Products$269 M