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Foreign-Trade Zones. Bruce Frallic – Moderator Greg Jones – FTZ Corporation Pam Berry – Marisol International Russ Clark – Austal USA. The Global Trade Environment. Today’s Global Trade Environment is characterized by: Cheap and efficient transportation and telecommunications
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Foreign-Trade Zones Bruce Frallic – Moderator Greg Jones – FTZ Corporation Pam Berry – Marisol International Russ Clark – Austal USA
The Global Trade Environment Today’s Global Trade Environment is characterized by: • Cheap and efficient transportation and telecommunications • Multilateral, bilateral and regional tariff reduction initiatives
The Global Trade Environment Environment drives: • Outsourcing manufacturing operations to low-cost countries; or, • Streamlining (reducing costs of) global supply chain • One solution: U.S. FTZ program
Types of Zones • General-Purpose • May be multiple sites • May be non-contiguous sites • Must be in or adjacent to a port of entry • Subzone • Special purpose conditional site • Limited purpose • Generally a single firm site
Structure of the Zones Program • FTZ Board • Secretaries of Commerce and Treasury • Staff • Reviews applications, issues grants of authority • Regulates certain types of Zone activity • Reports to Congress • Grantee • Establishes and operates Zone project • Delivers FTZ program to the community • Operator • Uses Zone procedures • Realizes Zone-related savings and efficiencies • CBP/other government agencies • Responsible for oversight of day-to-day operations • Uses Audit-inspection methodology
Zone Benefits: Duty Deferral • No duty is paid until the merchandise enters the commerce of the U.S.
Zone Benefit: No duty on Re-exports • Goods stored in Zones are exempt from duties if they are subsequently re-exported without being entered into U.S. commerce. • Goods manufactured/produced in Zones are exempt from duties if they are subsequently re-exported to non-NAFTA countries without being entered into U.S. commerce.
Zone Benefit: Relief From Inverted Tariff Rates • Duty rate reduction on manufactured or produced merchandise that subsequently enters U.S. commerce.
Zone Benefit: Reduction in Customs Fees • FTZ “Weekly Entry” process may result in lower Merchandise Processing Fees (MPF) • MPF is assessed on a “per Entry” basis • MPF = .3464% of Entry Value (with $25 minimum and $485 cap) • Zone admissions are not Customs Entries • Subzone • Zone Operator can consolidate all shipments during a calendar week into 1 Customs Entry • Pays 1 MPF • Cap remains at $485
MPF With Weekly Entry Mon MPF=$0 Mon SHIPPED TO DOMESTIC U.S. Tue Tue MPF=$0 FTZ FACILITY Wed Thu Wed MPF=$0 Thu MPF=$0 Fri MPF=$0 No MPF on Admissions Fri Only one EntryPer Week MPF =$485 MPF Savings of $1,940
How are FTZ Benefits Obtained? • What are overall processes for implementation? • What are operational requirements?
Implementation: FTZ Application Required for: • Manufacturing/Production within the General-Purpose Zone • Establishment of a Subzone • Alteration of boundaries or scope of manufacturing activity
FTZ Application Generally, the application must demonstrate a positive economic effect for the U.S. economy. Evaluation criteria include: • Overall employment impact • Enhancement of U.S. value-added activity • Overall effect on imports • Impact on domestic and foreign competitors
FTZ Application Recent FTZ Board regulations provide opportunities for faster approval of site designation and FTZ Production authority: • “Subzone” site designation can take as little as 3 months in FTZ Board processing time • Alternative Site-Management Framework can further shorten site designation timeframe • Non-controversial Production activity can be approved in as little as 120 FTZ Board processing time
Activation Actual use of Zone procedures requires prior “activation” of Zone site. Activation involves the approval of: • Zone Grantee (Operator Agreement) • Bureau of Customs and Border Protection
Zones Program in Mississippi and Alabama: a 2012 Snapshot Zone-related activity = 25% of Mississippi economic output and 12% of Alabama economic output. Major industries: • Shipbuilding and Maritime Energy Exploration • Chemical Production and Oil Refining • Automotive Manufacturing • Furniture Manufacturing • Textile and Apparel Distribution
Zone Users by Industry Shipbuilding and Maritime Energy Exploration: • Aker Subsea • Austal USA • BAE Systems • Huntington Ingalls • Signal International • Technip • VT Halter
Zone Users by Industry Chemical Production and Oil refining: • Chevron • DuPont • Shell
Zone Users by Industry Automotive Manufacturing: • Hyundai • Mercedes-Benz • Nissan
Zone Users by Industry Furniture Manufacturing: • Bauhaus USA • Lane Furniture • Max Home • H.M. Richards
Zone Users by Industry Textile and Apparel Distribution: • Channel Control Merchants • Gum Tree fabrics • Morgan Fabrics • Levi Strauss & Company
To and From the Zone: • Success of Zone operation requires management of movements to and from the Zone. • The objects of this management are: • Avoid duty payments • Proper permitting of all admissions and transfers of Zone status merchandise
Admission and Transfer Permits: Necessity • Regulations: 19 CFR Part 146 • All foreign status merchandise that is admitted to or transferred from a Foreign-Trade Zone requires an executed Customs permit • No exceptions!!! • Domestic status merchandise requires no Customs permit
Admission and Transfer Permits • Admission • Admission documents • Commercial documentation • In-bond documentation • CF214
Timeliness Requirements for Various Types of Movements/Transactions • Zone Admission • Standard admission sequence • Arrival at port of unlading • In-bond movement • Approval of CF214/PTT • Arrival at zone • Completion of CF214/Close-out of manifest Timeframe from arrival at port where zone is located: 15 days
Timeliness Requirements for Various Types of Movements/Transactions • Zone Admission • “Direct delivery” sequence • Arrival at port of unlading • In-bond movement • Arrival at zone • Completion of CF214/Close-out of manifest Timeframe from arrival at port where zone is located: 15 days
Types of Transfers and the Appropriate Permits for Each • Goods leaving the Zone must be: • Entered into U.S. commerce CF3461 followed by CF7501 • Exported CF7512: “IE” or “T&E” • Transferred to another zone CF7512: “IT”
Timeliness Requirements for Various Types of Movements/Transactions • Transfer to U.S. Customs territory • CF3461 is presented to Customs • Customs approves in writing • Goods leave zone (5 days) • CF7501 is presented to Customs (10 days from approval of CF3461)
Timeliness Requirements for Various Types of Movements/Transactions • Re-exports • CF7512 is presented to Customs • Customs approves in writing (or via QP/WP) • Goods leave zone (5 days) • In-bond movement is closed at port of exportation
Timeliness Requirements for Various Types of Movements/Transactions • Transfers to another zone • CF7512 is presented to Customs • Customs approves in writing (or via QP/WP) • Goods leave zone (5 days) • Zone-related data sent to destination zone (10 days)
FTZ From a User Perspective • Zone Operators use Zones because it is in their financial interest to do so • Benefits include Customs-related savings • Costs include the costs of compliance and the costs of Zone privileges
Austal USA Mobile, Alabama
Two Major US Navy Programs Austal LCS and JHSV make up over 20% of the US Navy fleet by 2030
JOINT HIGH SPEED VESSEL Length: 338 ft Beam: 94 ft Speed: 35 knots Range: 1200 nm Payload: 624 MT
LITTORAL COMBAT SHIP Length: 419 ft Beam: 104 ft Speed: 40+ knots Range: >3,500 nm Modular Mission Payload: 180 MT
Global Content Austal imports $100 million+ annually…24% of material spend
FTZ Benefits for Shipbuilders Relief from Inverted Tariffs • Duties on all foreign-status components admitted to the Zone are eliminated Avoid duties, while also avoiding: • Drawback filings on export jobs • DOD certification process for military vessels • Merchandise Processing Fees on foreign purchases • CBP “Rate advances” on entered foreign merchandise Speed • Reduces delays in clearance at port • Can get material to shop floor quicker
FTZ Benefits for Shipbuilders • Austal imports >$100 million annually • The majority of imports are incorporated into finished ships • Duty rate on finished ship = zero • Example • Extruded aluminum from Sweden • Value of shipment = $103K • Normal duty rate = 3% ($3,090) • Duty rate as a finished ship = 0% • Savings using FTZ = $3,090 • Total savings = $1.2 million annually
Once up and running, what’s required? • Compliance operational and recordkeeping requirements • Manage inbound and outbound logistics and permitting processes • Manage internal processes (e.g. inventory control) • Manage periodic reporting requirements (Quarterly HMF, Annual reporting) • Changes in contractual relationships with foreign vendors and customers • No DDP terms of purchase • Specify in-bond movement from port of unlading • Make FTZ available for customers’ foreign-sourced materials
FTZ Costs • Administration and Material Control • Must have good records of material used in finished product • Material leaving zone not as finished product must be reported (temporary or permanent entry) • Need tight control over material and shipments • Scrap Must be reported if material was imported • Security • FTZ facility must adhere to Customs requirements • Freight • Material travels in-bond from port to destination
Periodic Reporting • Prompt submission of reports: • Harbor Maintenance Fees • CF216s (Annual Activity Permit) • Annual Reconciliation/Systems Review • Annual FTZ Board reporting • Special Report: Monthly Scrap
FTZ Operations 1-2-3 Have foreign goods move in-bond to FTZ Use in the manufacturing process Use “Temporary Removal” procedure for material temporarily outside FTZ (example: sea trials) Account for foreign-status material in finished vessel Make Customs Entry and deliver finished product at finished product rate of duty