The Trump administration’s tariffs have caused a high degree of angst, chaos, disruption and uncertainty in global trade. Executive orders are coming at us at 90 MPH, are somewhat ambiguous and difficult to interpret clearly and precisely. Even the government agencies such as Customs & Border Protection (CBP) struggle to comprehensively understand what Trump is executing and if he is covering all the bases.

Read also: Foreign Trade Zones, Bonded Warehouses and Free Trade Agreements: Lowering Your “Landed Costs”

Any professional involved in trade compliance and global supply chain is finding it extremely difficult to keep up with all the new regulations and understanding how they apply.  And then there is the consistent back-peddling, possibly reversing decisions made.

Companies based in the USA can lower the cost of their manufacturing, distribution, and supply chain model when the Foreign Trade Zone (FTZ) is utilized.

FTZ’s are defined as:

Foreign-trade zones are designated sites licensed by the Foreign-Trade Zones (FTZ) Board (Commerce Secretary is Chairperson) at which special customs procedures may be used. These procedures allow domestic activity involving foreign items to take place prior to formal customs entry. Duty-free treatment is accorded items that are re-exported and duty payment is deferred on items sold in the U.S. market, thus offsetting customs advantages available to overseas producers who compete with producers located in the United States. Subzones/usage-driven sites are approved for a specific company/use. A site which has been granted zone status may not be used for zone activity until the site or a section thereof has been separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under the supervision of CBP. FTZ sites and facilities remain within the jurisdiction of local, state or federal governments or agencies

Many manufacturers in the United States are interested in the following:

– Reshoring

– Lowering Landed and Operational Costs

– Reducing risk in their supply chain

– Gaining better control over resiliency, sustainability and stability over their global footprint

For those primary reasons there is a growing trend for business models to add foreign-trade zones to their business models. 

Typically, companies believe that FTZ’s are unique to the coastline, ports and oceanside entry gateways.  But that is a misnomer, as there are numerous FTZ’s operating in various inland gateways in Columbus OH, Denver CO, Greer SC, and Albany NY … to name a few inland points of FTZ-activated sites.

CBP, which is involved in enforcement, has to be in a geographic position to support its efforts of site management and compliance with FTZ customs regulations.

Specifically, the FTZ guidelines dictate the following:

Zone sites must be within or adjacent to a U.S. Customs and Border Protection (CBP) port of entry. 

The adjacency requirement can be satisfied if one of the following factors is met:

1. The zone or subzone site is within the limits of a CBP port of entry.

2. The zone or subzone site is within 60 statute miles of the outer limits of a CBP port of entry.

3. The zone or subzone site is within 90 minutes’ driving time from the outer limits of a CBP port of entry as verified by the CBP Service Port Director.

4. For subzones only: subzone sites that are outside the 60 miles/90 minutes driving time from the outer limits of the CBP port of entry may alternatively qualify to be considered adjacent if they work with the CBP Port Director to ensure that proper oversight measures are in place.

Additionally, there is another misnomer that FTZ’s are complicated, expensive, and difficult supply chain initiatives.

Nothing can be further than the truth, as under a proper and organized FTZ implementation process they are viable options and more easily accomplished than one would think possible. 

For example, manufacturers, distributors and 3PL’s located in a land-locked state like Colorado can easily take advantage of Foreign Trade Zones, such as those in the Denver area.

FTZ’s can be operated in your own location or in a third-party facility. Manufacturers are more likely than not to have the FTZ in their own facility, but many companies will utilize a third party FTZ in distribution.

The FTZ Board, part of the Department of Commerce, is the lead agency for FTZ authorization. Compliance and oversight are delegated to local CBP Offices. 

Merchandise in a zone may be assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and destroyed.

Production activity must be specifically authorized by the FTZ Board. (Production activity is defined as activity involving the substantial transformation of a foreign article or activity involving a change in the condition of the article which results in a change in the customs classification of the article or in its eligibility for entry for consumption.)

Every supply chain executive has as a primary responsibility for the need to reduce risk and spend in the business models they operate.

Most governments around the world open the door to access what we here in the United States call Foreign-Trade Zones, known outside the US as Free Trade Zones.

FTZ’s provide an avenue to both lower risk and spend in the global supply chain and can also assist with business process and operational and administrative advantages for those responsible for international sales, customer service and logistics.

The FTZ sits outside the U.S. economy, though physically located within our geographic limits. Basically, it affords an importer the ability to move goods into a warehousing/manufacturing/distribution facility here in the USA, without creating a customs clearance and defer paying any duties and taxes.

Companies eligible for Foreign Trade Zone are:

• Manufacturers and Distributors
• Principal Importers and Exporters
• Service Providers
• 3PL’s
• Warehouseman, Carriers and alike servicing the international trade community 

The benefits of the FTZ are numerous and can be unique to certain supply chains:

• Duty Exemption. … 
• Duty Deferral. … 
• Duty Reduction (Inverted Tariff) … 
• Reduction of Customs Clearance Costs
• Merchandise Processing Fee (MPF) Reduction. … 
• Quota Avoidance. … 
• Streamlined Logistics. … 
• Other Cash Flow Benefits. …
• Potential access to state and local tax and grant considerations

The process to obtain a FTZ has both a commercial and a government interface.

Simply stated, the process is briefly outlined as follows:

The FTZ board part of the Department of Commerce has national oversight. Enforcement is outsourced to CBP (Customs Border & Protection).

Washington provides authorization to the various states who further work with chosen local agencies, such as but not limited to commercial parties, economic development agencies, world trade centers and other like organizations.

These agencies become local “grantees” and have local authority for FTZ Administration. The local CBP Office creates an activation process and manages all aspects of FTZ regulatory compliance. 

If the FTZ includes manufacturing or assembly, The FTZ Board in Washington becomes very much more involved in FTZ authorization process and enforcement. 

The specific terminology once again is as follows: 

Foreign-trade zones are designated sites licensed by the Foreign-Trade Zones (FTZ) Board (Commerce Secretary is Chairperson) at which special customs procedures may be used. These procedures allow domestic activity involving foreign items to take place prior to formal customs entry. Duty-free treatment is accorded items that are re-exported, and duty payment is deferred on items sold in the U.S. market, thus offsetting customs advantages available to overseas producers who compete with producers located in the United States. Subzones/usage-driven sites are approved for a specific company/use. A site which has been granted zone status may not be used for zone activity until the site or a section thereof has been separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under the supervision of CBP. FTZ sites and facilities remain within the jurisdiction of local, state or federal governments or agencies. 

Manufacturing and assembly as compared to flow-through inventory and distribution create additional challenges and government controls.

We recommend that companies with a global footprint consider FTZ’s as a means to lower landed costs and we further recommend evaluating outsourcing the responsibility to a 3PL who specializes in FTZ services.

Though the process can be daunting, if you utilize professional assistance the process can be more easily managed. As a specialized consulting company, Blue Tiger International (www.bluetigerintl.com) works nationally to assist companies in navigating the challenges of FTZ implementation and management.

We have the ability to assess the financial benefits and operating needs for your entry into the FTZ in addition to the experience and knowledgeable personnel to support you in any FTZ initiative.

We have developed a four-step process that assures companies of FTZ evaluation and implementation success.

This four-step process can take anywhere from 60-120 Days. The process includes:

• Extensive collection of import, export and if manufacturing, operational data
• Identifying financial gain and costing structure to create a “ROI”.
• Evaluate operational needs, modifications and technology to make the FTZ function
• Assure compliance with FTZ and local regulations are met

The FTZ Activation Process is as follows:

Additional consideration in the FTZ process:

• Training for management and operational personnel
• Creation of SOP’s
• Utilization of technology to track the product through the import, FTZ entry, manufacturing and/or distribution, inventory, WIP, import or export from the FTZ
• Local Fees to Grantee
• Approvals, when necessary, from local agencies, when required by state or local law
• Alignment of all the divisions and departments in your organization: Senior Management, Finance, Legal, Manufacturing, Operations, Demand Planning/Inventory, Sales, Customer Service, Supply Chain and HR.

Companies that utilize FTZ’s will work in three primary areas of control: Compliance, Security and Product Accountability. 

The three key pillars of success in obtaining FTZ status is in these areas:

These three pillars must be demonstrated to the Grantee and CBP in the application for FTZ activation. It is prudent to gain support from professional FTZ management companies that can guide you through the process utilizing their resources, experience, and skill sets.

April 2025 Update:

The Trump Administration has temporarily put Executive Orders in place that require inbound shipments to FTZ’s to be declared “privileged foreign” when entered, from China and potentially other reciprocal tariff impacted countries. The rate of duty would then be applicable to when the goods entered the FTZ and not when they exit.  Duty deferral is still available as a primary benefit. Other benefits include reduced customs clearance charges along with potential tariff inversion opportunities.