Foreign-Trade Zones: Creating Profit thru Savings Presented by: Jim Chester  J.D., LL.M, CHB, CCS Chair – International Bu...
Foreign-Trade Zones (FTZs) <ul><li>Areas located in the United States, but designated by the federal government as lying o...
Foreign-Trade Zones (FTZs) <ul><li>Created by FTZ Act of 1934 </li></ul><ul><li>FTZs are in all 50 states, plus Puerto Ric...
Foreign-Trade Zones (FTZs) <ul><li>Currently about 250 general purpose FTZs have been granted  </li></ul><ul><ul><li>Plus ...
Types of Industries Using FTZs <ul><li>Automotive </li></ul><ul><li>Oil Refining </li></ul><ul><li>Pharmaceuticals </li></...
General Purpose FTZs <ul><li>Granted to a public, non-profit entity </li></ul><ul><li>Many possible users and uses </li></...
Dallas Area FTZs <ul><li>General Purpose FTZs </li></ul><ul><li>D/FW Airport (39) </li></ul><ul><li>Midlothian (113) </li>...
FTZ Subzones <ul><li>Cannot be accommodated within existing General Purpose FTZ </li></ul><ul><li>Attached to General Purp...
Dallas Area FTZs <ul><li>Subzones </li></ul><ul><li>General Motors (Arlington) </li></ul><ul><li>Sanden International (Wyl...
FTZ Benefits - Domestic Economy <ul><li>Job creation/preservation </li></ul><ul><li>Economic Growth </li></ul>
FTZ Benefits - Private Industry <ul><li>No duties are owed until goods are shipped from FTZ into Customs territory </li></...
<ul><li>Choice of paying duty on raw materials or on final products, whichever is lower </li></ul><ul><li>Can hold quota m...
<ul><li>Most FTZ merchandise exempt from local and state  ad valorem  taxes </li></ul><ul><li>Can transfer goods to other ...
FTZ Administration: FTZ Board <ul><li>Agency within the Department of Commerce </li></ul><ul><li>Comprised of the Secretar...
FTZ Administration: Customs <ul><li>Customs & Border Protection (CBP/Customs)  </li></ul><ul><li>Part of Department of Hom...
Establishing an FTZ <ul><li>Application to FTZ Board </li></ul><ul><ul><li>Must show “public benefit” from FTZ </li></ul><...
Establishing an FTZ <ul><li>Activation by U.S. Customs </li></ul><ul><ul><li>“ Operator” activates the zone by getting  Cu...
FTZ Operations: Terminology <ul><li>Entry </li></ul><ul><ul><li>Customs Entry </li></ul></ul><ul><ul><li>Goods are importe...
FTZ Operations: Admissions <ul><li>Customs Form 214 </li></ul><ul><li>Declare status of the goods </li></ul><ul><ul><ul><u...
FTZ Operations: Domestic Goods <ul><li>U.S. origin goods, or goods that have already been entered into U.S. Customs territ...
FTZ Operations: Privileged Foreign (PF) Goods <ul><li>Locks-in the duty on the raw materials on the date they are admitted...
FTZ Operations: PF Duty Savings Example <ul><li>ABC, Inc., admits three components into an FTZ </li></ul><ul><li>If duties...
FTZ Operations: Non Privileged Foreign (NPF) Goods <ul><li>Duty will be assessed on the finished products as a whole, not ...
FTZ Operations: Inverted Tariff (NPF) Example <ul><li>ABC, Inc., admits three components into an FTZ  </li></ul><ul><li>If...
FTZ Operations: Zone Restricted Goods <ul><li>Goods admitted onto the FTZ for use only in the FTZ </li></ul>
Activity in the FTZ <ul><li>Mixing </li></ul><ul><li>Assembly </li></ul><ul><li>Display </li></ul><ul><li>Storage </li></u...
Activities Prohibited in FTZs <ul><li>Retail Trade </li></ul><ul><li>Living in the FTZ </li></ul><ul><li>Any other activit...
Cost of FTZs <ul><li>General Purpose Zones </li></ul><ul><ul><li>Little Up-front cost </li></ul></ul><ul><ul><li>Ongoing (...
Questions? February 13, 2006 Chester/Associates, PLLC 6060 NCX< Suite 560 Dallas, Texas 75206 www.tradelawfirm.com Jim Che...
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Legal Aspects of International Sales

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Overview of various legal considerations involved in international business and sales transactions.

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Legal Aspects of International Sales

  1. 1. Foreign-Trade Zones: Creating Profit thru Savings Presented by: Jim Chester J.D., LL.M, CHB, CCS Chair – International Business & Trade Practice
  2. 2. Foreign-Trade Zones (FTZs) <ul><li>Areas located in the United States, but designated by the federal government as lying outside the U.S. Customs territory </li></ul>
  3. 3. Foreign-Trade Zones (FTZs) <ul><li>Created by FTZ Act of 1934 </li></ul><ul><li>FTZs are in all 50 states, plus Puerto Rico </li></ul><ul><li>FTZ received $180 billion in merchandise - 87% into Subzones </li></ul><ul><li>Employment at zone sites is approx. 350,000 </li></ul><ul><li>Exports from FTZs = $18 billion </li></ul>
  4. 4. Foreign-Trade Zones (FTZs) <ul><li>Currently about 250 general purpose FTZs have been granted </li></ul><ul><ul><li>Plus over 400 special purpose “Subzones” </li></ul></ul>
  5. 5. Types of Industries Using FTZs <ul><li>Automotive </li></ul><ul><li>Oil Refining </li></ul><ul><li>Pharmaceuticals </li></ul><ul><li>Computers </li></ul><ul><li>Telecommunications </li></ul><ul><li>Other High-Tech </li></ul><ul><li>Chemicals </li></ul><ul><li>Shipbuilding </li></ul><ul><li>Apparel </li></ul><ul><li>Aerospace </li></ul><ul><li>Medical </li></ul><ul><li>Other Consumer Products </li></ul>
  6. 6. General Purpose FTZs <ul><li>Granted to a public, non-profit entity </li></ul><ul><li>Many possible users and uses </li></ul><ul><li>Must be within 60 miles (or 90 minutes drive) of Customs Port of Entry </li></ul>
  7. 7. Dallas Area FTZs <ul><li>General Purpose FTZs </li></ul><ul><li>D/FW Airport (39) </li></ul><ul><li>Midlothian (113) </li></ul><ul><li>Dallas (168) </li></ul><ul><li>Alliance Airport (196) </li></ul><ul><li>Durant, OK (227) </li></ul><ul><li>Waco (246) </li></ul>
  8. 8. FTZ Subzones <ul><li>Cannot be accommodated within existing General Purpose FTZ </li></ul><ul><li>Attached to General Purpose FTZ </li></ul><ul><li>Typically designated for a single company’s operations </li></ul>
  9. 9. Dallas Area FTZs <ul><li>Subzones </li></ul><ul><li>General Motors (Arlington) </li></ul><ul><li>Sanden International (Wylie) </li></ul><ul><li>Pier 1 Imports (Mansfield) </li></ul><ul><li>Fossil Partners (Richardson) </li></ul><ul><li>Zale Corp. (Irving) </li></ul>
  10. 10. FTZ Benefits - Domestic Economy <ul><li>Job creation/preservation </li></ul><ul><li>Economic Growth </li></ul>
  11. 11. FTZ Benefits - Private Industry <ul><li>No duties are owed until goods are shipped from FTZ into Customs territory </li></ul><ul><li>No duties incurred for goods exported </li></ul><ul><li>Duties reduced or eliminated on materials subject to defect, damage, obsolescence, waste and scrap </li></ul>
  12. 12. <ul><li>Choice of paying duty on raw materials or on final products, whichever is lower </li></ul><ul><li>Can hold quota merchandise in FTZ until window opens (limited) </li></ul><ul><li>No hassle of Customs clearance and duty drawback </li></ul><ul><li>Materials consumed in FTZs not subject to duties </li></ul>FTZ Benefits - Private Industry
  13. 13. <ul><li>Most FTZ merchandise exempt from local and state ad valorem taxes </li></ul><ul><li>Can transfer goods to other zones without paying duty </li></ul><ul><li>Ability to take advantage of special Customs programs (e.g., weekly entry procedure) </li></ul>FTZ Benefits - Private Industry
  14. 14. FTZ Administration: FTZ Board <ul><li>Agency within the Department of Commerce </li></ul><ul><li>Comprised of the Secretary of Commerce and Secretary of the Treasury. </li></ul><ul><li>Day-to-day administration by Executive Secretary </li></ul><ul><li>Issues and administers FTZ grants pursuant to its regulations (15 CFR Part 400) </li></ul>
  15. 15. FTZ Administration: Customs <ul><li>Customs & Border Protection (CBP/Customs) </li></ul><ul><li>Part of Department of Homeland Security </li></ul><ul><li>Local representative of FTZ Board </li></ul><ul><li>Supervise FTZ operational activities pursuant to Customs’ FTZ regulations (19 CFR Part 146) </li></ul>
  16. 16. Establishing an FTZ <ul><li>Application to FTZ Board </li></ul><ul><ul><li>Must show “public benefit” from FTZ </li></ul></ul><ul><ul><li>Approval takes approximately 1 year </li></ul></ul><ul><ul><li>“ Grantee” receives the grant of authority to establish the FTZ </li></ul></ul><ul><ul><li>Grant defines FTZ scope and activity </li></ul></ul>
  17. 17. Establishing an FTZ <ul><li>Activation by U.S. Customs </li></ul><ul><ul><li>“ Operator” activates the zone by getting Customs approval of procedures </li></ul></ul><ul><li>Operator must post a special “FTZ Operating Bond” </li></ul><ul><ul><li>in addition to the import bond, if applicable </li></ul></ul>
  18. 18. FTZ Operations: Terminology <ul><li>Entry </li></ul><ul><ul><li>Customs Entry </li></ul></ul><ul><ul><li>Goods are imported and duties are assessed </li></ul></ul><ul><li>Admission </li></ul><ul><ul><li>Goods brought onto FTZ </li></ul></ul><ul><ul><li>No Customs entry </li></ul></ul>
  19. 19. FTZ Operations: Admissions <ul><li>Customs Form 214 </li></ul><ul><li>Declare status of the goods </li></ul><ul><ul><ul><ul><li>Domestic </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Privileged Foreign </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Non-Privileged Foreign </li></ul></ul></ul></ul>
  20. 20. FTZ Operations: Domestic Goods <ul><li>U.S. origin goods, or goods that have already been entered into U.S. Customs territory and duty (if any) has been paid. </li></ul>
  21. 21. FTZ Operations: Privileged Foreign (PF) Goods <ul><li>Locks-in the duty on the raw materials on the date they are admitted into the zone </li></ul>
  22. 22. FTZ Operations: PF Duty Savings Example <ul><li>ABC, Inc., admits three components into an FTZ </li></ul><ul><li>If duties were assessed on the components, they would total $200 </li></ul><ul><li>Once the components are assembled into the final product, they are imported into the U.S. </li></ul><ul><li>Duties on the final product total $1,000 </li></ul><ul><li>ABC, Inc., pay only $200 in duties </li></ul>
  23. 23. FTZ Operations: Non Privileged Foreign (NPF) Goods <ul><li>Duty will be assessed on the finished products as a whole, not on the raw materials </li></ul><ul><ul><li>Inverted tariff </li></ul></ul>
  24. 24. FTZ Operations: Inverted Tariff (NPF) Example <ul><li>ABC, Inc., admits three components into an FTZ </li></ul><ul><li>If duties were assessed on the components, they would total $1,000 </li></ul><ul><li>Once the components are assembled into the final product, they are imported into the U.S. </li></ul><ul><li>The final product qualifies for duty-free entry </li></ul>
  25. 25. FTZ Operations: Zone Restricted Goods <ul><li>Goods admitted onto the FTZ for use only in the FTZ </li></ul>
  26. 26. Activity in the FTZ <ul><li>Mixing </li></ul><ul><li>Assembly </li></ul><ul><li>Display </li></ul><ul><li>Storage </li></ul><ul><li>Testing </li></ul><ul><li>Repairing </li></ul><ul><li>Processing </li></ul><ul><li>Salvage </li></ul><ul><li>Labeling </li></ul><ul><li>Destruction </li></ul><ul><li>Repackaging </li></ul><ul><li>Cleaning </li></ul><ul><li>Sampling </li></ul><ul><li>Manufacturing (1949) </li></ul><ul><li>Refining </li></ul>
  27. 27. Activities Prohibited in FTZs <ul><li>Retail Trade </li></ul><ul><li>Living in the FTZ </li></ul><ul><li>Any other activities prohibited by US law </li></ul>
  28. 28. Cost of FTZs <ul><li>General Purpose Zones </li></ul><ul><ul><li>Little Up-front cost </li></ul></ul><ul><ul><li>Ongoing (mostly out-source) </li></ul></ul><ul><ul><ul><li>E.g., Document and storage costs of FTZ operator </li></ul></ul></ul><ul><li>Subzones </li></ul><ul><ul><li>Up-front cost (application, activation, software) </li></ul></ul><ul><ul><ul><li>$100k - $200k (some savings if more than one zone at a time) </li></ul></ul></ul><ul><ul><li>Ongoing -- depends on in-house v. outsource </li></ul></ul>
  29. 29. Questions? February 13, 2006 Chester/Associates, PLLC 6060 NCX< Suite 560 Dallas, Texas 75206 www.tradelawfirm.com Jim Chester Email [email_address] 214.800.2845

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