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FTZ for Textile/Apparel/Footwear Distribution:
Fear of the Unknown?
Lesley Couch, AZS, LCB, CCS
Focus of Seminar
• Background
• Evaluating FTZ Savings Potential
• The Application Process
• The Activation Process
• Operations in FTZs
© STTAS 2012 2
BACKGROUND
© STTAS 2012 3
What is an FTZ?
• A foreign-trade zone is an area where
foreign and domestic merchandise or
commodities are considered to be in an
international commerce zone and not
within a U.S. Customs territory.
• It is a restricted-access site authorized by
the Foreign-Trade Zones Board. Upon
activation under regulations of the U.S.
Customs Service, FTZs are secure areas
under U.S. Customs supervision. These
zones are at or near U.S. Customs
ports of entry. Formal customs entry
procedures do not apply in these zones,
although FTZs are within the territory and
jurisdiction of the United States.
Establishment of FTZs
Foreign-Trade Zones were established:
To encourage and expedite U.S. participation in
international trade
To increase global competitiveness of U.S. based
companies
To expedite exportation of domestic goods with
foreign and domestic content
To defer payment of duties until goods enter into the
commerce of the U.S.
© STTAS 2012 5
What can you do with Goods in an FTZ?
Receive
Store
Manipulate
Exhibit
Relabel
Test
Destroy Sample
Export
Repack
Assemble
Mix with Domestic Goods
Manufacture*
*with approval from FTZ Board
© STTAS 2012
What is Prohibited in FTZs?
© STTAS 2012 7
•Retail Sales
•Activity Outside Grant of Authority
FTZ Regulatory Sources
Foreign-Trade Zones Act of 1934
•19 U.S.C. 81a-81u
•15 CFR Part 400 - FTZ Regulations
•19 CFR 146, Customs Regulations
FTZ Manual Operator’s Procedures
Manual
Administrative decisions
CATAIR: Customs and
Trade Automated Interface
Requirements
© STTAS 2012 8
FINANCIAL BENEFITS
© STTAS 2012 9
Zone Benefits
Zone Benefits
State Inventory/ Property
Taxes
Consolidated Entries into
US Commerce
Re-exporting Duty Deferral
Scrap
10 © STTAS 2012
11
Consolidated Entries
• Only one entry per week for zones
• Maximum MPF per entry is $485
• Maximum MPF payable from an FTZ annually:
– $485 x 52 = $25,220
• Substantial savings for high volume importers
• How does that work?
© STTAS 2012 11
Reduced MPF
Case Study
Assumptions:
• Number of entries per year: 2,400
• Average MPF per entry: $350
Calculation:
(average MPF per entry X entries per year) - (52
weeks X $485 maximum MPF per entry)
(350*2400)-(52*485) = $814,780
© STTAS 2012 12
Export Savings
© STTAS 2012 13
FTZ
#1 Imports from Asia at 2.6%
Export to 3 locations in Canada
Export to UAE FTZ
#2
FTZ
#3
Major U.S. Retailer
Export Savings Calculator
Case Study Assumptions:
• $90,000,000 annual import volume
• 5% re-exported
• Weighted Average Duty Rate = 12%
Calculation:
(annual cost, dutiable imports) X (% re-exported) X (weighted
average duty rate)
(90,000,000 * .05 * .12) = $540,000
© STTAS 2012 14
On-Going Duty Deferral
Received in June
Shipped in October
© STTAS 2012 15
Duty Deferral Calculator
Duty is paid only when (and if) products are shipped
into US territory from a zone.
• Assumptions:
• 4 Inventory Turns per year
• 4% opportunity cost of capital
• 12% weighted average duty rate
• Calculations:
• [(annual cost, dutiable imports) ÷ inventory turns per
year] X (weighted average duty rate) X (opportunity cost
of capital)
• [(90,000,000)/4 *.12 *.04 = $108,000
© STTAS 2012 16
© STTAS 2012 17
Scrap Calculator
Scrap
Product destroyed in a zone is non-dutiable
Must have no salvageable value
Assumptions:
3% of inventory is scrapped
Calculation:
(annual cost, dutiable imports) X (% reject or
scrap) X (weighted average duty rate)
(90,000,000 * .03 * .12) = $324,000
© STTAS 2012 18
Returns from Stores
How are Store Returns Processed?
• If returned to overseas vendor
• If scrapped
• Then DRAWBACK!
© STTAS 2012 19
Returns from Stores
Assumptions:
• 5% of total US inventory is returned to DCs annually from stores
• Of that inventory, 75% is foreign-sourced.
Calculation:
• [Annual cost, dutiable imports X Returned Inventory X Drawback
eligible] X Weighted Average Duty Rate X .99
• 90,000,000 * .05 * .75 * .12 * .99
• $400,950
© STTAS 2012 20
Savings Summary
© STTAS 2012 21
$814,780 MPF $540,000 Export $108,000 Duty Deferral $324,000 Scrap $400,950 Drawback
$2,187,730 Total Savings
APPLICATION & ACTIVATION
© STTAS 2012 22
Types of Zones
General Purpose Zones (GPZ)
• FTZ open to multiple zone users
• Typically located near ports of entry or in industrial parks
Subzones
• Special purpose zones
• Approved for a specific use or for a specific company
© STTAS 2012 23
Alternative Site Framework (ASF)
A listing of current zone projects re-organized
under Alternative Site Framework (ASF) can be
found on the FTZ Board’s website at
http://ia.ita.doc.gov/ftzpage/letters/asflist.html
© STTAS 2012 24
From FTZB website
List of Zones Under the Alternative Site Framework (ASF)
(April 10, 2012)
© STTAS 2012 25
State Zone Number Location Service Area
Arizona 75 Phoenix Maricopa County and portions of Pinal and Yavapai Counties
174 Tucson Pima County
277 Western Maricopa County Western Maricopa County
Arkansas 14 Little Rock
Clark, Conway, Dallas, Faulkner, Garland, Grant, Hot Spring,
Jefferson, Lonoke, Montgomery, Nevada, Pike, Pulaski, Pope,
Saline, Yell and White Counties
California 3 San Francisco City and County of San Francisco and San Mateo County
50 Long Beach Orange County and portions of Los Angeles and San Bernardino
Counties
153 San Diego City and County of San Diego and the western portion of
Riverside County
205 Port Hueneme Ventura County
244 Riverside Western Riverside County
Florida 64 Jacksonville Baker, Clay, Columbia, Duval and Nassau Counties
General Purpose Zones
© STTAS 2012 26 Courtesy: Google Maps
General Purpose Zones
© STTAS 2012 27
Courtesy: Google Maps
Subzones
© STTAS 2012 28 Courtesy: Google Maps
Adjacency Requirements
GPZ
Within 60 statute miles or 90 minutes driving time
Subzone
Within 60 statute miles or 90 minutes driving
-OR-
CBP can properly oversee zone activity
electronically; and
Subzone agrees to CBP examination upon request © STTAS 2012 29
Timelines
Application Type Quoted Approval Time
Manufacturing Application “Production
Notification” (GPZ or Subzone)
12 months 120 days, unless a
controversy arises, then reverts
to full “application” process
GPZ Expansion and Non-Manufacturing
Subzone
10 months 3 to 5 months
Temporary/Interim Manufacturing Interim
Approval
75 days Applicant can request
interim approval until Board
takes action on notification.
Minor Boundary Modification 30 days
© STTAS 2012 30
Activation
© STTAS 2012 31
Security Review
• Fencing
• Guard Shack
• Employee Card Readers
• CC Video
• Signage
Systems Implementation
• Interface with ERP
• User Training
• Electronic Submission to CBP
Written Request
• Operator’s Procedures Manual
• Blueprint
• Grantee Letter of Concurrence
• Background Checks
FTZ Operator’s Bond
FIRMS Code Creation
OPERATIONS
© STTAS 2012 32
Inventory Discrepancies
© STTAS 2012 33
Shortages/Overages are a normal course of business in all industries
Shortages: Report on Weekly 7501
Overages: Report on Daily 214
An Annual Physical Inventory is Required, unless a Cycle Count
Program is in place
SKUS: Fungible Merchandise
© STTAS 2012 34
‘‘Fungible merchandise’’ means merchandise which
for commercial purposes is identical and interchangeable in all situations. 19 CFR
146.1(b)(12)
SKUS: Size/Color Grid
© STTAS 2012 35
Import Style Number: 12345 Sizes: Small, Med, Large Colors: Red, Blue, Black Country of Origin: China
Becomes:
12345SMLREDCN 12345MEDREDCN 12345LRGREDCN
ETC
Classification Issues: 2:1
1 SKU for socks
2 possible classifications
Of cotton: 6115.95.9000 @ 13.5%
Of Synthetic Fibers: 6115.96.9020 @ 14.6%
Fungible
© STTAS 2012 36
Courtesy: Talbots.com
Classification Issues: Sets
Pants Suit includes Slacks, Jacket, and Belt
3 lines on CBPF214 for admission – Value
– HTS
– Quantity
– Country of Origin
– MID
© STTAS 2012 37
Courtesy: Talbots.com
Classification Issues: Hangers
© STTAS 2012 38
Special Entry Considerations
Special Program Declarations or “SPI Codes”
Cotton Fees
Textile Categories
AntiDumping/Countervailing Duties
PGA reporting
© STTAS 2012 39
Sampling of FTZs
• The Apparel Group
• VF Corporation
• Gymboree Corporation
• Clark’s Shoes
• Kravet
• Abercrombie & Fitch
• Wolverine Worldwide
• Reebok
• Adidas
• Florsheim Shoes
• Nine West
• Academy Sports
• Lane Furniture
• Columbia Sportswear
• Urban Outfitters
• Hugo Boss
• Helly Hansen
© STTAS 2012 40
Contact Information
© STTAS 2012 41
Sandler & Travis Trade Advisory Services, Inc. 505 Sansome Street, Ste 1475
San Francisco, CA 94111
Lesley Couch, Director of FTZ Services (415) 490-1408 (Direct Line)
lcouch@strtrade.com
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