By John Freeman
Tariffs represent a hot topic in America’s business community, and many are wondering if Foreign-Trade Zone (FTZ) status can positively impact the national tariffs’ effects on business. It’s an issue that’s being closely watched.
In some cases, like tariffs on steel and aluminum, the final product is not subject to additional duties beyond those assessed on the imported materials. In other instances, such as the prospective tariffs on Chinese imports, additional tariffs could be assessed on items manufactured in an FTZ because of the way the trade action is written.
The National Association of Foreign-Trade Zones (NAFTZ) is advocating to manage tariffs in a way that would mitigate additional duties for FTZ stakeholders and keep U.S. companies globally competitive. A 2018 NAFTZ study concluded FTZs have a positive impact on employment growth, wage growth and value-added growth in the American communities in which they are located, compared to similar communities without FTZs.
Ironically, the creation of FTZs came in response to tariffs. In the 1930s, the Smoot-Hawley Act put large tariffs or taxes on imports to the United States. While the U.S. lawmakers, Sen. Reed Smoot and Rep. Willis Hawley, had good intentions and wanted to protect American manufacturers from a flood of foreign goods, most economists believe it made the Great Depression even worse.
For those involved in international trade, FTZs offer many economic benefits. They can save companies millions of dollars and strengthen their global competitiveness. As FTZs are essentially the U.S. version of free-trade zones, benefiting companies can bring imported merchandise into an FTZ-approved facility without paying duties and taxes since it is legally outside of U.S. Customs’ territory. These costs are not due until the product leaves the facility and enters the U.S. market, increasing cash flow and giving companies more flexibility.
If a product is exported directly from an FTZ, these goods may be re-exported without paying duties and with substantially lower customs fees. Companies within the FTZ may also benefit financially from the Merchandise Processing Fee savings weekly filings of customs entries, as opposed to being daily filings as required outside of the foreign trade zone.
In Jacksonville, Florida, FTZ No. 64 is an important part of the local economy. With the recent addition of Flagler County, FTZ No. 64 encompasses nine Northeast Florida counties including all seven counties within JAXUSA Partnership’s region. Of the 21 foreign trade zones in Florida, FTZ No. 64 is the largest in the state extending more than 5,000 square miles and more than 130 million square feet of distribution center and warehousing space within close proximity to JAXPORT.
JAXPORT serves as the administrating agency for all users within FTZ No.64, which operates under the alternative site framework, which can cut a lot of red tape and has less acreage restrictions.
Alternative site framework reduces the approval time, which can save a company money since they will be able to access the savings associated with an FTZ sooner. Storage and distribution sites can be approved as quickly as within 30 days; manufacturing and processing plants can be approved within 120 days or less.
Some of the best industrial land sites are available within FTZ No. 64. Importing and exporting companies that have benefitted from Jacksonville’s FTZ include APR Energy, Bacardi Bottling Corp. and Suddath, among others.
While an FTZ has the potential to save companies a lot of money on duties and fees, there are costs associated with applying for and running an FTZ. It’s not right for every business, therefore a cost/benefit analysis is needed to determine the return on investment.
The first step for companies interested in accessing FTZ No. 64 is to reach out to JAXPORT. As administrator of FTZ No. 64, JAXPORT has a dedicated FTZ administrator and a team with more than 15 years of experience working with FTZ processes. The port’s team provides the advantage of working with an experienced consultant who is available to answer questions and advise companies on whether an FTZ is a good fit.
International trade is a powerful driver of economic growth in Northeast Florida and businesses can enjoy immense benefits in an FTZ. Some have reduced their expenses by hundreds of thousands of dollars. Companies also can move goods more easily, generating additional revenue and profit, adding to their competitive advantage.
John Freeman is Director, Business Development and Global Cities Initiative for JAXUSA Partnership, the Jacksonville regional economic development agency for the seven counties of Northeast Florida.