Merced County Regional Foreign-Trade Zone No. 226
Foreign-Trade Zone Basics Business Benefits of FTZ Operations California's Central Valley FTZ 226 Locations Free Cost-Benefit Analysis Contact

Foreign-Trade Zone Basics

A U.S. Foreign-Trade Zone (FTZ, or zone) is a designated area which, for customs purposes, is considered outside the United States.

Foreign or domestic merchandise may enter this enclave without a formal customs entry or the payment of customs duties or government excise taxes. If the final product is exported from the United States, no U.S. customs duty or tax is levied. If, however, the final product is imported into the U.S., customs duty and excise taxes are due only at the time of transfer from the FTZ and into the U.S. Thus, zones provide opportunities to realize customs-duty savings by zone users.

Why do firms use FTZs? To keep their U.S.-based operations competitive with their foreign-based competitors.

Why do communities organize trade zones? To contribute to the area's appeal as a place to do business. Using local business initiatives and existing facilities, a zone can be a relatively inexpensive feature of an area's overall economic development. A well-organized zone will provide immediate service to the area's current business-base, as well as help to attract new business.

American FTZs are made possible by the Foreign-Trade Zones Act of 1934, as amended. The act establishes the U.S. FTZ board as the agency responsible for the establishment and administration of zones through the board's regulations. The board does not handle day-to-day administration of any zones, but provides grants to establish, operate and maintain zones. Grantees are almost always public corporations or governmental agencies. A grantee will usually enter into an agreement with an operator or subzone for actual zone operations. Customs holds the operator responsible for compliance with the customs regulations relating to zones. A firm uses a zone for its benefits, and pays the grantee or operator for services such as rent on facilities, storage, handling, etc.

There are two types of zone sites: general purpose sites and subzones. A general purpose site is usually run by an operator with multiple users. A subzone is a special-purpose site for operations such as manufacturing, which cannot be accommodated within an existing zone. In a subzone, the operator and user are usually the same entity.

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