The ABCs of Production in FTZs

What is a foreign-trade zone?

A foreign-trade zone (FTZ) is a defined physical area within the United States that, for customs entry purposes, is treated as if it is outside U.S. borders. Companies may use FTZs for both storage/distribution activities or, after specific authorization by the U.S. FTZ Board, for production.

In FTZs, "production" is considered to be anything that results in a substantial transformation of an article or that changes its HTSUS classification (6-digit) or eligibility for entry.

Glossary of FTZ Terms

Why would I want to consider operating in a FTZ?

When you operate under FTZ procedures, your company is treated (for purposes of customs duties) like it's located outside the United States. That can mean that U.S. import duties don't have to be paid on imported components coming to your factory. If your finished product is ultimately shipped to the U.S. market, you may have the option of paying the finished product duty rate rather than the component duty rate. (Many finished products have lower duty rates – or are duty-free – than their components.) And if you re-export the finished product, you don't ever pay duties on the component materials. There are other potential savings, too, like avoiding duties on imported materials that become scrap, and possible administrative savings and efficiencies.

What is production activity (how do I know if I need to apply for authorization)?

For any foreign status item, if your activity results in a change in HTSUS classification at the 6-digit level – or otherwise results in “substantial transformation” or a change in eligibility for entry – then you will need production authority from the FTZ Board to conduct the activity under zone procedures.

Production could include traditional manufacturing activities as well as kitting or assembly operations. When looking at your activity, be sure to consider any imported (foreign status) items, even packaging or other similar materials. If any materials would be used in the zone before a customs entry has been made, then they are considered to be foreign status components.

Advance approval is needed prior to any production activity in a zone, even if you are proposing that all foreign status inputs be admitted in privileged foreign status.

What is "scope of authority"?

When a company receives authority from the FTZ Board to conduct production activity, the authority is limited to the approved "scope of authority" for that production operation – which is the list of specific finished products and foreign-status components in the company’s request(s) approved by the FTZ Board.

  • The company's scope of authority is based on the written descriptions provided in the company's request for production authority that was approved by the FTZ Board.
  • Scope of authority generally is not based on HTSUS numbers. HTSUS numbers are provided only as a supplement to the written descriptions of componets and finished products. Therefore, changes in the HTSUS number applicable to a component or product have no impact on an approved scope of authority if the physical component or product is the same (that is, consistent with the written description in the scope approved by the FTZ Board).
  • Capacity (the level of activity) is not part of the scope of authority.
  • Additional production authority from the FTZ Board to expand a company’s scope of authority is required before the company can make new finished products or use new foreign-status components within an active FTZ operation.

What is involved in getting FTZ production authority?

To conduct production activity in a FTZ, you will first contact your local foreign trade zone to discuss the requests that will be submitted to the FTZ Board to designate your site as part of the FTZ and request production authority.

The U.S. FTZ Board has simplified its procedures to make the benefits of the FTZ program accessible to a broad range of companies. To request production authority, you will need to submit a "production notification". The production notification process takes 120 days and production authority is approved if no issues come up during that process.

What if I need authority sooner than 120 days?

The FTZ Board's regulations allow the Board's staff to authorize production activity on an interim basis during the 120-day period while the Board is reviewing a request for production authority. "Interim authority" can only be considered if the local U.S. Customs and Border Protection (CBP) office has confirmed that the activity could begin sooner than the 120-day standard production review period and if CBP has no objections to the proposal.

How do I request interim authority?

Interim authority can be requested by letter, either as part of the production notification or separately. In requesting interim authority, a company should explain why authority is needed quickly and should also attach comments from CBP stating the company could be activated sooner than 120 days and that CBP has no objections to the request.

What does the FTZ Board base its decisions on?

In reviewing production notifications, the FTZ Board authorizes activity unless an issue arises in the notification process. In the small percentage of cases where such an issue arises, the FTZ Board concludes that “further review” (through a longer, more detailed “application” process) would be needed before the Board could potentially approve the activity in question.

What is CBP's role?

CBP is responsible for the direct oversight of FTZ activity. With FTZ site designation and production authority from the FTZ Board, a company will still need to "activate" the facility with CBP to begin using FTZ procedures. A company should reach out to the local CBP port of entry early in the process to understand the security and inventory control requirements that will need to be met prior to activation.

When a production notification is submitted to the FTZ Board, a copy should also be provided to the local CBP port of entry. During its review, the FTZ Board will also reach out to CBP to request comments on whether CBP will be able to oversee the proposed activity or if CBP has any concerns regarding the proposed activity.

Do I already have to be located in a FTZ to use the program?

No. The FTZ Board has quick, straightforward procedures for you to work with your local FTZ to create a "subzone" or "usage-driven site" at your facility.

Is there a fee to apply?

There is no fee to apply for production authority.

If your local zone has reorganized under the FTZ Board's alternative site framework, there would be no fee to request a subzone within that zone's service area. For other zones, or if the subzone is outside of the service area, there is a one-time application fee (either $4,000 or $6,500, depending on the number of products).

How do I get in touch with my local FTZ?

The FTZ Board has contact information for the FTZ closest to you. The local organization that manages the zone is known as the "grantee".

What next?

There is a "Simplified Savings Estimator" available on the production center page. This will provide you with a basic estimate of potential duty savings from the use of FTZ procedures. You should also discuss with the local FTZ grantee any annual or application fees that they may charge. Other costs to consider include an employee to oversee the FTZ operations and potentially specialized software to manage the FTZ inventory control system.

We also have more frequently asked questions, or take a look at our application page. If there's anything we've missed – the FTZ Board's staff is also available to help guide you.