By Kerry Wang, Senior Associate Attorney
Welcome to our new series, where we’ll share simple yet effective ways for savvy importers to save on import duties. In this series, we’ll break down different strategies, making them easy to understand, no matter your level of experience in international trade. Let’s delve into the world of bonded warehouses and Foreign Trade Zones, topics that recently arose in a client consultation and serve as excellent examples of duty-saving strategies.
Consider this scenario: a client faced the challenge of deferring duty payments while managing a significant volume of imports destined for re-exportation from the U.S. Initially considering duty drawbacks, which proved unsuitable for their specific needs, we turned our attention to bonded warehouses and Foreign Trade Zones. This scenario is not uncommon in the trade world and highlights a critical decision point for many businesses: choosing between a bonded warehouse and a Foreign Trade Zone (FTZ).
Foreign-Trade Zones are secure areas authorized by the US Foreign-Trade Zones Board. Unique in that they are considered outside of the U.S. customs territory for entry and duty purposes, this means goods can be stored or processed in FTZs without immediate tariff payments. FTZs offer a broad range of activities, including storage, inspection, manufacturing, and processing, with the added advantage of indefinite storage. Duties are only paid if the goods enter the U.S. customs territory for consumption. If the goods are re-exported, no duties are due. Additionally, foreign and domestic goods in FTZs meant for export are exempt from state and local inventory taxes. FTZs also stand out for their ability to minimize Merchandise Processing Fees through consolidated weekly entries. However, businesses must consider initial setup costs, strict compliance requirements, and security measures when operating in an FTZ.
Bonded Warehouses, on the other hand, are facilities approved by U.S. Customs and Border Protection (CBP or Customs) and are located within the U.S. customs territory. These warehouses, typically situated not more than 35 miles from a port of entry, are ideal for storing imported merchandise with duties deferred until the goods are withdrawn for domestic consumption. Unlike FTZs, the range of activities permitted in bonded warehouses is more limited, primarily focusing on storage and manipulation, with some restrictions on manufacturing. Goods in a bonded warehouse can be stored for up to five years, with possible extensions. When goods are withdrawn from these warehouses for U.S. consumption, duties are then assessed based on their condition upon warehouse entry and the duty rate at the time of withdrawal. Similar to FTZs, if the goods are re-exported within five years, no duties are due. Unlike FTZs, goods in bonded warehouses are subject to state and local inventory taxes. Bonded warehouses are an excellent solution for importers seeking duty deferral from a cost-effective perspective. However, businesses should be aware of the five-year storage limit, limited manufacturing capabilities, storage costs, and restricted access to goods. Bonded warehouses are particularly suitable for businesses focusing on storage and re-exportation of goods without extensive processing or manufacturing needs.
In the client’s case, after evaluating both options, we recommended utilizing a bonded warehouse for their specific scenario. This recommendation resulted in significant duty deferral, improved cash flow, and streamlined operations for their international trade activities.
Deciding between an FTZ and a Bonded Warehouse hinges on specific business requirements such as storage duration, processing needs, location, cost considerations, and compliance capabilities. To navigate these options effectively, businesses are encouraged to engage with trade professionals.
Our group specializes in navigating the complexities of trade regulations and strategies to optimize your business operations. Our combined experience covers a broad spectrum of trade scenarios, ensuring that we can provide tailored solutions to meet your unique needs. Feel free to reach out to us today to discuss how we can unlock duty-saving opportunities and enhance the efficiency of your international trade activities.
