A recent article over on Inbound Logistics did a good job of dispelling Three Top Myths About Foreign Trade Zones. In short, despite some opinions, free / foreign trade zones (FTZs) are not risky, hard to use, or costly. (Although they are well-regulated with their own intricacies and do involve a setup cost like everything else. But the future benefits surpass the set-up costs quite quickly!) This is because:

FTZs are no more risky than regular imports.

Customs always has the right to inspect your imports, and import process, at any time whether or not you are using a FTZ. And whether or not you are using an FTZ, you still have to deal with a slew of reporting and transparency regulations, such as 10+2 and advance notifications, so there really isn’t more reporting or record keeping involved (as much of the information required already needs to be maintained for customs and inventory control). Plus, FTZs can allow duties to be deferred — which can improve company cash flow. In fact, properly utilized, FTZs can be less risky than regular imports.

FTZs are easy to use — with the right process.

Basically, instead of landing your goods to your warehouse, you land them to a Free Trade Zone where they stay until they are manufactured/reconfigured, extracted for consumption, or re-exported. In the first two cases, the goods become subject to duties at this time. In the third case, the goods, destined for manufacturing or consumption in another country, are sent on their way to their final destination duty free.

And if there is a Government run multi-purpose FTZ set up at or near the port of import, utilization of an FTZ is as simple as an application. (If, however, the importer wants to set up a special FTZ at its warehouse or manufacturing location, the process is considerably more complex and the company will have to bring in an expert and will definitely need to acquire best-of-breed global trade management software.)

FTZs improve Working Capital Management.

As mentioned above, FTZs allow a company to defer duties until such time as the goods are consumed and avoid paying duties on goods that are destined for re-export as-is. This can be an incredible cost saving for a company that does a lot of importing and exporting.

In addition, as noted by the author of the article on Three Top Myths About Foreign Trade Zones Dispelled, FTZs can also eliminate duties on waste, scrap, and rejected or defective parts as such parts are never consumed! In other words, a properly configured and utilized FTZ insures that you only pay duties on goods that you use or sell, when you use or sell them! This is a much better way to improve your working capital situation than extending DPO to your cash-strapped suppliers!