A Foreign Trade Zone (FTZ) is an economic development tool created through federal legislation to help businesses in the Customs phase of their operations (e.g., tariff deferral). The FTZ program is targeted to businesses engaged in import/export.

OAKLAND FOREIGN TRADE ZONE
The Oakland Foreign Trade Zone, FTZ, allows local businesses in Northern California a business environment that can allow substantial dollar savings in imports duties, entry fees, merchandise processing fees, faster delivery, and higher security. Whirlpool, Target Stores, Petsmart, Chevron Texaco, IBM, along with many other importers are all taking advantage of the benefits of a FTZ.

FTZ’s are special zones that are considered to be located “in foreign commerce”, that is they are considered legally outside the customs territory of the United States. The U.S. government established these special areas as a way to compete with manufacturing overseas.

Essentially, FTZ’s let companies combine cheaper imported components and raw materials, through manufacturing or assembly operations, with U.S. labor and distribution services. Operating in a foreign trade zone can save money because goods within an FTZ are not subject to import duties until they leave the zone and enter domestic commerce. If they are exported directly from the zone and never enter domestic commerce, they are not subject to import duties at all. In addition, importers that use FTZ’s can choose to pay duties on either imported parts and materials or on the finished product that leaves the zone, whichever is less. Finally, zone users are exempt from paying duties on labor, overhead and profits for foreign merchandise that leaves the FTZ.

Clearly, FTZ’s offer many cost advantages for importers. Yet they have not been as popular as you might expect. “That’s largely because many companies are unaware of their benefits”, says Linda Hothem, a board member of the National Association of Foreign Trade Zones and CEO of Pacific American Services, PACAM, operator of the Oakland Foreign Trade Zone #56. To remedy that Ms. Hothem is working with the trade community, customs brokers, freight forwarders, and associations of exporters and importers to educate businesses, large and small, on the benefits of using a FTZ.

"Many companies are not willing to wade through the additional customs regulations that govern FTZ operations assuming (often wrongly) with falling duties over the past few years that the savings just are not there”, says Curtis Spencer, president of IMS Worldwide, a foreign trade zone consultant firm in Houston. “But on the contrary interest in foreign trade zones has been increasing with the number of companies applying for new or expanded FTZ authority, such as sub-zones, which operate on the importer’s premises, on the rise. With the recent regulatory changes, the current economic climate and the need to improve cargo security more and more importers are taking a fresh look at the FTZ program”.

One factor that’s making foreign trade zones more attractive to importers is a policy change that was included in the Trade Development Act of 2000. That legislation authorized FTZ users to file weekly entry summaries with U.S. Customs for goods that leave the zone and enter into domestic commerce. That reduces the amount of paperwork because the importer no longer needs to file a separate entry for each shipment. The cost saving can be significant for a large-scale importer. One of Curtis’s clients was able to go from thirty-five entries a week to just one. Not only did that reduce the amount of time required to prepare documentation but it sharply reduced customs brokerage fees and slashed the importer’s Merchandise Processing Fee (MPF’s).

The MPF is payable to U.S. Customs at a rate of 0.21 percent of the value of the merchandise on each entry, with a maximum of $485 per entry. “Instead of paying many of thousands of dollars on 35 entries per week, the importer now pays just $485 for a single weekly entry”, he explained. “For some companies”, adds Linda Hothem, “the switch to weekly entries has saved $100,000 or more annually”.

Weekly entry and another program called direct delivery also cut costs by reducing processing time for inbound shipments. Direct delivery, which requires prior approval by customs authorities, allows importers of repetitive, low-risk shipments to deliver merchandise immediately to a foreign trade zone. Because the importer can take delivery of the goods without waiting for formal customs clearance, it can receive and process materials more quickly.

Today’s increased emphasis on cargo security is another factor leading importers to take a second look at foreign trade zones. U.S. Customs imposes tight restrictions on access to the duty-free merchandise in the zones. As a result, foreign trade zones already have in place the kind of security measures many shippers are looking for to belong to Customs-Trade Partnership Against Terrorism, C-TPAT.

“The Oakland FTZ is in a good competitive position within the global trade market to work closely with local businesses to take advantage of these cost savings” says Bill Whelan, director of business development for PACAM, “Imports through the Port of Oakland are reaching all time highs and it is up to us to make companies aware of the benefits of utilizing the FTZ”.

Pacific American Services, PACAM, operates almost a million square feet of warehouse and manufacturing space within Oakland and the San Francisco Bay Area. offering a wide array of logistics services such as warehousing, inventory management; value added packaging, small manufacturing, transloading, trucking, and container drayage.

“You have to be able to offer many services to businesses these days because their customers are requesting more and more from them all the time”, says Bill “Each large retailer has a unique package configured to a special requirement, and needs to be delivered within a very narrow time window. With the foreign trade zone and value added packaging department along with an international quality program, ISO 9001-2000, to insure accuracy and timeliness of shipment, PACAM has met the challenge successfully”.

To learn more about foreign trade zones and PACAM you can call Linda Hothem or Bill Whelan at 877-304-4003.

7/30/2003
Bill Whelan
Pacific American Services
Operator: Oakland FTZ

The Oakland FTZ is located at 9401 San Leandro St., occupying over 500,000 sq. feet of space including warehouse, offices, and manufacturing facilities. The FTZ falls under the jurisdiction of the City of Oakland.

FTZ 56 currently serves 45 businesses in the General Purpose Zone, and has experienced a 27% growth in merchandise flowing through the zone during the most recent fiscal year with a total dollar value of $45,735,831. Main products handled in the zone include liquor (due to high tariffs on luxury goods) and some computer equipment.