U.S. Foreign Trade Zone (FTZ): Your key to resiliency

In recent years, the resilience of the U.S. supply chain has emerged as a pivotal concern for policymakers and industry leaders alike. As the U.S. Trade Representative (USTR) and other agencies seek to fortify domestic supply chains, the U.S. Foreign-Trade Zone (FTZ) program stands out as a key component in this strategy.

Currently employing an estimated 550,000 American workers across all 50 states and Puerto Rico, U.S. FTZs have been a cornerstone of trade for decades, driving international commerce and boosting economic growth.

These designated areas within the United States allow businesses to import, store, process, re-export, or bring goods into U.S. commerce with significant benefits, including deferred customs duties and simplified regulatory procedures.

U.S. FTZs are designed to promote global trade and strengthen economic competitiveness. Established by Congress in 1934, their role has continually adapted to meet evolving economic conditions.

An FTZ can be a manufacturing plant, a distribution warehouse, or even a lay down area. Within these secure locations, companies can perform value-added operations—such as manufacturing, warehousing and distribution, assembly, kitting, blending, and much more.

The U.S. FTZ program helps U.S.-based companies both contribute to the U.S. economy and create jobs in the U.S. It also helps companies procure high quality and competitively priced inputs, both domestic- and foreign-made, while leveraging U.S. labor to incorporate the inputs into its value- add operations.

While FTZs already support supply chain resilience, let’s consider some additional ways to leverage the program to further enhance U.S. economic security.

Promoting supply chain transparency

Supply chain transparency is critical for ensuring that companies can effectively manage their operations while safeguarding sensitive information.

The U.S. FTZ program is designed to strike a balance between transparency and confidentiality. It provides detailed reporting and data on import transactions and economic benefits while protecting proprietary information.

The process begins with a rigorous application to the U.S. FTZ Board, which includes detailed information about the goods to be utilized in the company’s operations and their sources. This application undergoes scrutiny from local economic development entities and is subject to public comment.

The U.S. FTZ Board, comprising members from the Department of Commerce and the Department of Treasury, reviews applications to ensure that they align with trade policies and that the proposed activity is in the economic good. U.S. Customs and Border Protection (CBP) further validates security and inventory tracking to ensure the U.S. importation and U.S. FTZ regulations will be met, appropriate duties will be paid, and unauthorized goods will not be allowed into U.S. commerce.

Once approved, U.S. FTZ operations involve stringent reporting requirements. Merchandise entering zones is tracked through an Inventory Control and Recordkeeping System (ICRS), which includes details on country of origin, manufacturer, and tariff. Regular compliance visits by CBP ensure ongoing adherence to regulations, providing a level of transparency that is unmatched by other importing regimes.

Encouraging supply chain diversity

The FTZ program exemplifies supply chain diversity, accommodating a wide range of industries and stakeholders. According to the U.S. FTZ Board’s 2023 report, just released in August 2024, the program supports 30 industry sectors for warehouse/distribution and 27 for production operations. This broad adoption underscores the program’s role in fostering investment and maintaining competitiveness across various sectors.

The program’s national reach, spanning all U.S. states and Puerto Rico, further highlights its versatility. It encompasses diverse entry points, including seaports, airports, and land crossings, and engages numerous stakeholders from local governments to importers and logistics providers. This extensive network supports both small- and medium-sized businesses, enhancing their global competitiveness.

Strengthening supply chain security

Security is a cornerstone of the U.S. FTZ program. As a recognized Customs Trade Partnership Against Terrorism (CTPAT) best practice, FTZs are among the most secure supply chain environments. Before activation, companies undergo rigorous inspections by CBP to ensure they meet security and inventory control standards.

U.S. FTZs provide a higher level of security compared to other importing regimes. All foreign merchandise is meticulously accounted for, and regular compliance reviews by CBP ensure that security measures are maintained. This comprehensive approach includes multi-layered bonding programs. And the ability to export or destroy inadmissible goods reinforces the program’s utility in safeguarding U.S. commerce.

Promoting supply chain sustainability

The U.S. FTZ program contributes to the sustainability of U.S. supply chains by enhancing global competitiveness and encouraging domestic operations.

By offering specialized customs procedures, U.S. FTZs help manage or reduce duty expenses, benefiting American consumers and manufacturers. The proximity of FTZs to U.S. markets mitigates risks associated with global disruptions such as port congestion or geopolitical instability.

This proximity, combined with adherence to high labor and environmental standards, aligns FTZ operations with sustainability goals.

The robust inventory control and recordkeeping required within U.S. FTZs further improve operational efficiency, reinforcing the program’s role in a sustainable supply chain ecosystem.

Opportunities for enhancing the program

While the FTZ program provides substantial benefits, several areas present opportunities for improvement.

De Minimis Parity. Currently, goods from U.S. FTZs are not eligible for de minimis entry, putting U.S. operations at a disadvantage compared to facilities outside U.S. borders. While many changes to the de minimis program are under consideration by Congress, allowing de minimis entry for U.S. FTZs equivalent to the privileges still leveraged by foreign distributors will incentivize companies to maintain U.S. operations and enhance their competitiveness.

Free Trade Agreement (FTA) Competitiveness. U.S. FTZs face disadvantages under agreements like the USMCA, which require duty payment for goods exported from U.S. FTZs under the agreements and restrict the use of rules-of-origin provisions. Addressing these restrictions could level the playing field for U.S. FTZ manufacturers, increase U.S. manufacturing employment, and promote U.S. exports.

FTZ Promotion Task Force. While other governments aggressively promote their free trade zones globally to attract foreign investment, the U.S. relies upon local entities to market the benefits of the U.S. program. Establishing a task force to globally market U.S. FTZs as an economic development tool could enhance visibility and support.

Production Authority Process. Streamlining the process for obtaining production authority within FTZs could reduce delays and improve accessibility. Prioritizing applications in key sectors such as aerospace, agriculture, and pharmaceuticals would bolster supply chain resilience.

Direct Delivery Expansion. Expanding direct delivery privileges to all FTZ operators and users could enhance operational efficiency and resilience. Currently, these privileges are limited, but broadening access would increase the program’s benefits.

FDA Weekly Entry Process. Revising the FDA’s Weekly Entry Filing (WEF) process to provide clearer guidelines and faster approvals for low-risk merchandise could improve efficiency and reduce delays.

Funding and Resources for CBP. Ensuring that CBP has adequate funding and resources to support the FTZ program is crucial. Addressing operational and funding challenges would improve program administration and facilitate modernization efforts.

Ensuring U.S. access to goods

Companies often face a complex dilemma when evaluating the cost-effectiveness of locating operations in the U.S. versus abroad, particularly in the context of tariff challenges.

U.S. Foreign-Trade Zones continue to thrive to meet the needs of American companies in the global economy. U.S. FTZs are meant to incentivize U.S. manufacturing and distribution specifically in cases where foreign entities maintain a tariff advantage.

U.S. FTZs’ economic benefits span throughout their surrounding communities and to other American companies supplying goods or services to FTZ operators. Products entering U.S. commerce from U.S. production FTZs contain 56% domestic content, 31% U.S. value-add, and a mere 13% foreign content, according to the U.S. International Trade Commission in their April 2023 report.

The U.S. FTZ program plays a vital role in enhancing supply chain resilience through transparency, diversity, security, and sustainability. By addressing the identified areas for improvement and leveraging the program’s strengths, policymakers can further bolster U.S. supply chains and support economic development.

Implementing these recommendations would unlock the full potential of the U.S. FTZ program, driving American innovation and competitiveness in a rapidly evolving global market.

Melissa Irmen is director of advocacy & strategic relations, NAFTZ. She can be reached at [email protected].