Background

Despite weeks of speculation that action to revise or lower the Section 301 tariffs on imports from China was imminent, the Biden administration has yet to announce any such steps. In the meantime, companies are continuing to utilize a number of proven and legitimate ways to effectively escape or limit the impact of these tariffs, including foreign-trade zones.

Goods imported into an FTZ and subject to specific operations (e.g., assembly, manufacture, processing, repackaging, repair, storage, and destruction) are not subject to duty unless they leave the zone for domestic consumption, and even then users can choose the lower duty rate between the component materials and the finished product. In addition, some U.S. states offer additional tax benefits for using FTZs.

However, FTZs aren’t feasible for every business model, and different types of FTZ arrangements may be suitable for different circumstances. Scott Taylor, head of ST&R’s FTZ practice, noted that the firm’s experience in this area allows it to review a company’s operations, determine the best FTZ-related options, and then guide the company through all the necessary steps.

“There’s actually a lot that goes into getting zone operations up and running effectively and maximizing benefits,” said Taylor, who has developed and structured hundreds of FTZ projects and worked extensively with the federal agencies involved. “It starts with determining what works best for the client – they may only need to update production authority at an existing site, or it may be necessary to establish a brand-new zone. Then the process can include everything from accurately preparing and submitting the required filings to securing FTZ operator bonds to choosing third-party software providers. There are a lot of moving parts, but our experience helps us make things as easy as possible.”

Getting zone operations up and running is only half the battle, Taylor added. “Ensuring compliance with ongoing legal and reporting requirements and conducting on-site audits and spot checks of zone projects are just some of the things companies need to do to make sure they’re getting all the FTZ benefits they can,” he said. Though close attention is required, the cost savings can be significant.

Not only can ST&R’s experience and expertise be a valuable help to companies utilizing FTZs, but the firm also keeps a close eye on developments that can affect zone operations. For example, the International Trade Commission is currently investigating the effects of FTZ policies and practices, including on the cost competitiveness of products of firms operating in FTZs, and the Office of the U.S. Trade Representative has said it intends to use the results of that investigation in its pursuit of “a trade policy that invests in American workers, supports domestic manufacturing, and strengthens U.S. supply chain resilience.” That could mean changes to FTZ rules and regulations that affect the way companies do business in those zones.

For more information on how FTZs can benefit your business, please contact attorney Scott Taylor at (212) 549-0153 or via email.

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