Is your business paying significant duty and excise tax on foreign imports? If you import raw materials to manufacture and sell the product in the United States or re-export the finished product, you might be able to benefit from a foreign trade zone (FTZ).
What is a Foreign Trade Zone?
The U.S. government first created foreign trade zones to attract and promote international business in 1934. Manufacturing activity in FTZs became broadly permitted starting in 1971. Today, there are 260+ FTZ projects and nearly 400 subzones nationwide, serving as critical hubs for manufacturers, distributors, and e-commerce companies.
The term “foreign trade zone” (FTZ) means a discrete area located in or adjacent to a port of entry that is authorized by Congress to receive preferential treatment under the customs laws of the United States. FTZs are not considered to be in the customs territory of the United States. This allows a business to import and store foreign merchandise without paying customs duties or Federal excise tax until the merchandise enters U.S. commerce.
2025 update: With the elimination of the de-minimis exemption in recent trade policy changes (which had previously allowed duty-free imports under $800), FTZs have become even more valuable, especially for e-commerce and consumer goods companies facing higher tariff exposure.
What will an FTZ do for me?
There are several benefits for a business to utilize an FTZ. A manufacturer that imports raw material into the United States is required to pay duty at the time the raw material enters the country. However, merchandise or goods brought into an FTZ are not assessed duty until the merchandise leaves the zone or enters U.S. commerce.
In addition, if the imported merchandise is brought into an FTZ and then exported back out of the country and does not enter into U.S. commerce, no duty is ever due. There are also no time limitations on how long goods can remain in an FTZ, regardless of whether the goods are subject to duty.
Why this matters now: In today’s volatile tariff environment, in which a universal 10% tariff began in April, and county-specific ‘reciprocal tariffs’ fully took effect in recent trade policy changes, companies are relying on FTZs to defer duty costs and preserve cash flow until the moment goods actually enter the U.S. market. Note that many of the reciprocal tariffs were paused, delayed, or modified as continued negotiations take place.
U.S. Import Duty Basics
U.S. duty or import duty is a tax on goods that arrive in the United States Customs port with the intent to unload the goods and enter them into U.S. commerce. There are several different types of import duties, which are calculated in a variety of ways. The import duty depends on the type of product imported, how much is being imported, its declared value, from which country the product was exported, and several other factors. The import duty can range from zero to 100% or more of the product’s declared value.
Tip: FTZs also provide “inverted tariff” benefits — where duty rates on finished products may be lower than on raw components. In those cases, companies can choose to apply the lower finished-goods rate, which can create significant savings.
Can I Manufacture or Assemble in an FTZ?
Generally, yes. Foreign and domestic merchandise brought into an FTZ can be manipulated or manufactured in the zone unless it is prohibited by law. The business can then store, sell, exhibit, separate, repack, assemble, distribute, sort, grade, clean, mix with foreign or domestic merchandise, or manipulate the merchandise within the FTZ.
Foreign production equipment, such as machinery or parts for specific equipment to manufacture merchandise, may be brought into an FTZ. No duty shall be assessed on imported production equipment until it is completely assembled, installed, tested, and used in the production for which it was intended.
A business that manufactures in an FTZ does not pay duty on waste, scrap, and yield loss. For example, a plastic facility manufacturing polysulfone (5% duty) imports and uses the raw material polypropylene (also 5% duty). During the production process, 10% of the raw material polypropylene is scrapped and considered obsolete. If this business operates outside an FTZ, it will pay $50,000 in duty on $1,000,000 of imported polypropylene. If the business utilizes the FTZ, no duty is owed on the polypropylene when it is brought into the zone. In addition, 10% or $100,000 of the polypropylene is lost during the production cycle. Assuming all of the end product is sold in the U.S., the 5% duty totals only $45,000. This is a savings of 10% in duty.
Modern twist: Increasingly, FTZ manufacturers are using automation, blockchain tracking, and real-time customs compliance software to streamline operations and reduce compliance risks. These tools make FTZ participation easier and more efficient than in years past.
Additional Benefits of FTZs
An additional benefit of an FTZ is protection against theft. After the merchandise has been manipulated or manufactured in an FTZ, the merchandise will be taken under the supervision of the Secretary of the Treasury. As long as the tariff classification has not changed since entry or during the manufacturing process, merchandise will be taken under supervision through electronic compliance systems, audits, and site inspections within the foreign trade zone. A declared value will be determined, and the duty or excise tax on the merchandise exempted while in the FTZ.
Bottom Line
There are several benefits to utilizing an FTZ. In 2025, FTZs are increasingly considered essential tools for tariff management and supply chain resilience. Whether you’re a manufacturer, distributor, or e-commerce retailer, the use of an FTZ can increase cash flow and profitability under the right circumstances.
Have questions about how an FTZ strategy could benefit your business?
Reach out to our manufacturing industry experts. As leaders of our Manufacturing Industry Team, Brant and John can help you evaluate opportunities, model potential savings, and navigate the application process.
This article provides general information and should not be considered specific tax or legal advice. Consult qualified professionals for your specific situation.
Find more information about FTZs from the International Trade Administration and U.S. Customs and Border Protection.