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What is a Foreign Trade Zone?
Foreign Trade Zones (FTZs) were created in the United States to provide special customs procedures to U.S. plants engaged in international trade-related activities. Duty-free treatment is accorded items that are processed in FTZs and then reexported, and duty payment is deferred on items until they are brought out of the FTZ for sale in the U.S. market. This helps to offset customs advantages available to overseas producers who compete with domestic industry. The Foreign-Trade Zones (FTZ) Board (composed of representatives from the U.S. Departments of Commerce and Treasury) has its operational staff in the International Trade Administration's Import Administration.
Today, the trade policy of the United States is based on a free trade model. This theoretical model recognizes only the economic beneficiaries of free trade; it acknowledges that the costs (or losers) resulting from free trade are negligible. In reality, however, free trade has benefits and costs. No doubt, the benefits far outweigh the costs; however, the costs are very real. The Foreign-Trade Zones program offers a way to mitigate the costs of free trade. In doing so, the program allows the United States economy to enjoy relatively greater benefits from its free trade initiatives. The various benefits offered by the Foreign-Trade Zones program make it an effective response to the problems that arise when the $8.5 trillion dollar U.S. economy operates within the rapidly changing international trade environment.
The U.S. Foreign-Trade Zones program was created by the Foreign-Trade Zones Act of 1934. The Foreign-Trade Zones Act was one of two key pieces of legislation passed in 1934 in an attempt to mitigate some of the destructive effects of the Smoot-Hawley Tariffs, which had been imposed in 1930. The Foreign-Trade Zones Act was created to "expedite and encourage foreign commerce" in the United States. This is accomplished through the designation of geographical areas, in or adjacent to Customs Ports of Entry, where commercial merchandise receives the same Customs treatment it would if it were outside the commerce of the United States.
Merchandise of every description may be held in the Zone without being subject to Customs duties and other ad valorem taxes . This tariff and tax relief is designed to lower the costs of U.S.-based operations engaged in international trade and thereby create and retain the employment and capital investment opportunities that result from those operations. These special geographic areas – Foreign-Trade Zones – are established "in or adjacent to" U.S. Ports of Entry and are under the supervision of the U.S. Customs Service. Since 1986, U.S. Customs' oversight of FTZ operations has been conducted on an audit-inspection basis, whereby compliance is assured through audits and spot checks under a surety bond, rather than through on-site supervision by Customs personnel.