Foreign Trade Zones Explained: Benefits, Setup, and Strategy

Foreign Trade Zones Explained: Benefits, Setup, and Strategy

What Is a Foreign Trade Zone (FTZ)?

A U.S. Foreign Trade Zone (FTZ) is a secure, U.S. Customs and Border Protection (CBP)-approved area where imported goods can be stored, assembled, or even manufactured- without immediately paying customs duties or taxes. 

Goods in an FTZ can be:

  • Stored indefinitely, as long as they remain compliant

  • Manipulated or manufactured without triggering duties

  • Withdrawn for U.S. consumption, at which point duties are assessed

  • Re-exported or destroyed, avoiding duties entirely

This setup gives businesses unprecedented control over timing, cash flow, and tariff exposure.

How FTZs Work in Practice

FTZs offer two options for how imported goods are treated:

1. Privileged Foreign Status

  • Duty is locked in based on the item’s condition when it enters the zone

  • Typically used when the raw materials or parts have a lower duty rate than the finished product

  • Required for goods subject to anti-dumping or countervailing duties (ADD/CVD)

2. Non-Privileged Foreign Status

  • Duty is assessed based on the condition of the goods at withdrawal

  • Allows businesses to take advantage of inverted tariffs, paying the lower of:

    • The rate on the imported material

    • Or the rate on the finished good

Bonus: If you export, no duties are paid at all. Waste and scrap can also be exempt.

FTZ vs. Bonded Warehouse: How to Choose the Right Duty Strategy

Both FTZs and bonded warehouses can reduce or defer duties, but they’re not interchangeable.

Feature FTZ Bonded Warehouse
Storage Time Limit Indefinite 5 years
Manufacturing Allowed Yes No
Duties on Re-Exports Exempt May still apply
Duty Payment Timing Upon withdrawal for U.S. consumption Same
Entry Filings Weekly consolidation allowed Filed per shipment
Setup Complexity Higher Lower

Choose an FTZ if:

  • You manufacture, kit, or assemble goods using imports

  • You’re seeking inverted tariff benefits

  • You want to consolidate customs filings (weekly entries)

  • You need long-term storage and operational flexibility

Choose a bonded warehouse if:

  • You only need short-term storage for re-export

  • You’re not adding value to goods (no processing)

  • You want faster setup with fewer regulatory hurdles

Many companies use both: bonded warehouses for overflow and FTZs for core operations.

Why FTZs Are Taking Off in 2025 (Especially for CPG & DTC Brands)

With today’s freight volatility, tighter margins, and global fulfillment demands, fast-moving brands are using FTZs to stay competitive.

1. Tariff Volatility Is Real

FTZs let you defer duties or avoid them entirely if goods are re-exported. That flexibility matters when global trade policies shift on a dime.

2. Better Cash Flow

No upfront duties means more working capital for marketing, talent, and growth—crucial for scaling brands.

3. Ideal for Assembly, Bundling, and Kitting

CPG and DTC companies often assemble kits or bundles from imported components. FTZs allow that without triggering immediate duties.

4. Supports International Growth

Shipments re-exported from an FTZ aren’t taxed by the U.S., reducing landed costs for global fulfillment operations.

5. You Don’t Have to Go It Alone

You can work with 3PLs or FTZ operators already certified under the Alternative Site Framework (ASF) to avoid long setup times. Some sites can be activated in as little as 30 days.

What It Takes to Set Up an FTZ (At a Glance)

The process takes planning, but the benefits are worth it. Here's a simplified overview:

  1. Pick the Right FTZ Type

    • Magnet site: Pre-approved industrial zone for multiple users

    • Usage-driven/subzone: Single-operator, often faster approval (30–60 days under ASF)

  2. Analyze Benefits

    • Estimate duty deferral or elimination (e.g., 67% duty on some brass products)

    • Factor in inverted tariffs and reduced filing costs

  3. Apply to the FTZ Board

    • Submit a Letter of Transmittal, executive summary, and supporting exhibits

    • Coordinate with your local CBP port

  4. Secure CBP Activation

    • File CBP Form 214

    • Implement inventory controls, fencing, security

    • Pass audits and maintain compliance

  5. Operate and Report

    • Store, manufacture, and ship as approved

    • Submit annual activity reports to the FTZ Board

Tip: You can often partner with a grantee (such as a port authority or 3PL) instead of applying from scratch.

Let's Map Out Your Strategy

Whether you're a manufacturer, importer, or fast-growing CPG brand, FTZs offer a powerful way to reduce costs, increase flexibility, and future-proof your global supply chain.

They’re not just for enterprise giants anymore—brands of all sizes are using FTZs to gain a competitive edge in 2025.

Need help evaluating FTZs or exploring bonded options? We help importers and manufacturers navigate FTZ setup, customs compliance, and third-party partnerships every day. Reach out to learn how we can support your duty-saving strategy.

 

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