How to Minimize the Impact of Tariffs Blog Image
24 September 19  |  Warehousing

How to Minimize the Impact of Tariffs on Your Goods with Foreign Trade Zones and Bonded Warehouses

Importers, exporters, manufacturers, and international businesses should all be cognizant of ways to keep their products free from protectionist trade policies. Ongoing trade tensions with China due to Section 301 tariffs makes it pertinent for business to know all of their options. Listed below are 2 proven, legitimate options for duty-saving opportunities.

These 2 methods apply to almost every country that is subjected to tariffs, including:

  • Section 201 tariffs – solar systems
  • Section 232 tariffs – aluminum and steel
  • Section 301 tariffs – Chinese originating goods

Consider one of these tactics in the future when moving your goods.

Foreign Trade Zones (FTZ)

Foreign Trade Zones are located in the United States but serve a similar function to Free Trade Zones. Foreign Trade Zones (FTZ) are located in secured areas outside of U.S. Customs and Border Protection’s (CBP) jurisdiction but that are in or around CBP ports of entry. The FTZ Board has the authority to establish the facilities and set regulations with the CBP.

FTZ facilities allow importers and exporters to move merchandise into zones of operations, like storage, exhibition, assembly, manufacturing, and processing, making them beneficial to both parties. Foreign Trade Zones have restrictions and requirements from the FTZ Board and are subject to Federal Laws, State, or local laws due to their U.S. location.

Common questions related to FTZ facilities, and their answer, are below.

  • What can go in the Foreign Trade Zones? 

All foreign or domestic merchandise, whether dutiable or not, can enter an FTZ unless prohibited by law or other exceptions listed by CBP. Prohibited merchandise is also prohibited by FTZs but because of a disconnect with the CBP, merchandise that is subjected to quota can still be placed in an FTZ until the quota is opened up or is removed.

  • Why use a Foreign Trade Zone?

The typical CBP entry process, like payment of duties, does not apply to foreign merchandise when using an FTZ. The entry process does apply once the foreign merchandise leaves the CBP and enters CBP territory for domestic consumption. As stated, even though the Foreign Trade Zone is located inside the U.S., the zone is not under U.S. Custom and Border Protection’s jurisdiction.

  • How does a Foreign Trade Zone avoid Section 301 Tariffs?

The United States Trade Register (USTR) published the Federal Register Notice of Modification of Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation on August 20, 2019, which states:

“Any product listed in Annex A [or C], except any product that is eligible for admission under `domestic status’ as defined in 19 CFR 146.43, which is subject to the additional duty imposed by this determination, and that is admitted into a U.S. foreign trade zone on or after 12:01 a.m. eastern daylight time on September 1, 2019, only may be admitted as `privileged foreign status’ as defined in 19 CFR 146.41. Such products will be subject upon entry for consumption to any ad valorem rates of duty or quantitative limitations related to the classification under the applicable HTSUS subheading.”

Bonded Warehouses

Foreign Trade Zones and bonded warehouses have been in use for over 150 years and allow goods that are subjected to duties the ability to be stored, changed, or manufactured without paying those given duties. Bonded warehouses are subjected to different rules and regulations upon merchandise entry into the U.S., making them similar in function to a Foreign Trade Zone.

The difference between the two is that bonded warehouses are secured and supervised by the U.S. government and allow companies to avoid duties until the products leave the warehouse for consumption. Bonded warehouses enable importers to hold and store their goods in the warehouse until they want to distribute the goods to consumers.

All items that are in the facility are exempt from duties. This lets importers transfer their goods from warehouse to warehouse, where they are held, manufactured, or manipulated without paying any duty obligations.

Bonded warehouses are also able to avoid 301 tariffs. According to the CBP, importers could store section 232 or 301 merchandise in a bonded warehouse and then export those goods to another country without the need to pay tariffs on the merchandise. Section 232 or 301 goods have no special status when they are entered into a bonded warehouse and therefore serve as a means of mitigating the impact of those tariffs.

Either tactic, a Foreign Trade Zone or Bonded Warehouse, can benefit an importer, exporter, manufacturer, or international businesses as trade tensions continue with China. Weigh your options and look at new possibilities in order to save on duty obligations.

R+L Global Logistics has a team of experienced professionals that can assist with your international shipping needs. Our international team can provide information about moving your goods into a Foreign Trade Zone and facilitate finding a bonded warehouse at a port that is convenient for you. Contact one of our customer service representatives today at 877-510-9133 or use the chat feature to learn more about how our services can benefit your business.