A Foreign Trade Zone is a federally designated, physically secured area inside the United States that, for customs purposes, sits outside US customs territory. Goods can land in an FTZ, be stored, repackaged, kitted, manufactured, or re-exported without ever paying duty. Duty is only owed when goods leave the FTZ for US commerce. Named FTZs we work with or near include FTZ #84 Houston, FTZ #80 San Antonio, FTZ #75 Phoenix, FTZ #5 Seattle, and FTZ #49 Newark/NY-NJ.
How it works in practice
A typical FTZ use case looks like this: a brand imports 40 containers of finished goods from China. Instead of clearing customs at the port and paying the full duty plus Section 122 surcharge immediately, the containers move directly to an FTZ-designated warehouse. The goods sit in the zone, are picked into individual orders, and only the units that ship to US customers trigger duty payment, on the day they leave the zone. Units that get re-exported to Canada, Mexico, or destroyed because of defects never owe US duty at all.
The duty calculation in an FTZ uses one of two methods. The default applies the duty rate of the finished good as it enters US commerce. The “non-privileged foreign” status freezes the duty rate at the date of admission. Brands choose based on which method produces the lower rate, typically called inverted tariff savings.
Why it matters
FTZ structures save real money in three specific ways. First, duty deferral: brands hold cash that would have gone to CBP. Second, duty avoidance on re-exports: goods that leave the country never owe US duty. Third, inverted tariff savings: when component parts have a higher duty than the finished good, FTZ manufacturing pays the lower finished-good rate. With Section 122 at 15%, the cash-flow value of an FTZ has roughly doubled for non-USMCA goods.
Common misconceptions
- FTZs do not avoid duty permanently on goods sold in the US. The duty is deferred, then owed at the exit point.
- Setting up FTZ status takes 6-12 months of paperwork with the FTZ Board. It’s not a same-day decision.
- Not every warehouse is FTZ-eligible. The building has to be physically inside an existing FTZ or activated as a usage-driven site.