1. 1
Opening New Markets for
Your Products
Mark Hardison, CPIM, CSCP
April 11, 2007 1

2. Presentation Agenda
 Tariffs and why they are used
 What is a Foreign-Trade Zone (FTZ)?
 The Banner Pharmacaps FTZ Story
 Questions

3. Tariffs and why they are used
 What is a tariff?
• A tax that adds to the cost of imported goods
• A form of international trade policy
 Why are tariffs used?
• To protect . . .
 Domestic employment
 Consumers
 Infant industries
 Certain industries of strategic importance
• To retaliate against an unfair trading partner

4. How do tariffs affect prices?
 Domestic price is found at DP
 World price is found at WP
 At the lower WP price:
• Domestic consumers will
consume more (WQ)
• Domestic manufacturers
will produce less (DQ)
 Imports make up difference
(WQ-DQ)
Price without the influence of a tariff

5. How do tariffs affect prices?
 A tariff increases WP to DPT
 Under the price increase:
• Domestic consumers will
consume less (WQ)
• Domestic manufacturers
will produce more (DQ)
 Overall effect is:
• Reduction in imports
• Increased domestic
production
• Higher consumer prices
Price under the influence of a tariff

6. WHAT IS A
FOREIGN-TRADE ZONE?

7. The following slides courtesy of . . .
Craig M. Pool
President
Foreign-Trade Zone
Corporation

8. What is a Foreign Trade Zone?
 A specially designated area, in or adjacent to a U.S.
Port of Entry, which is considered to be outside the
Customs territory of the United States
 Established by Congress under the Foreign-Trade
Zones Act of 1934
 Purpose is to
 Expedite and encourage foreign commerce
 Create jobs and capital investment in the United States

9. What May Be Done in an FTZ?
Assembly Storage Manufacturing
Relabeling Mixing Repairing
Repackaging Cleaning Destroy
Processing Display Sampling
Testing Manipulation Salvaging

10. WHERE DO THE
FTZ SAVINGS COME FROM?

11. Financial Benefits
 Relief from Inverted Tariffs
 Duty Deferral
 No Duty on Re-exports
 Duty reduction or elimination on scrap
 Duty elimination on waste and yield loss
 Reduction in Customs Fees
Duty Reduction / Elimination

12. Calculating Inverted Tariff Relief
 Motor admitted to zone
– HTSUS 8501.10
– Duty rate = 5.3%
 Motor manufactured into vacuum cleaner
– Cleaner HTSUS 8479.89
– Duty rate = FREE
 Duty rate applied to motor would be FREE
 Duty reduction = 5.3%

13. Inverted Tariff Relief Benefit
MOTOR IMPORTED
FROM CHINA
DUTY RATE
5.3%
NEW AGE VACUUMS
SUBZONE FACILITY
5.3% REDUCTIONIN DUTY ON DOMESTICALLY SOLD PRODUCT
VACUUM SOLD
IN DOMESTIC
U.S. MARKET
DUTY PAID AT
FREE VACUUM RATE

14. Inverted Tariff Relief Benefit –
Vendor Managed Inventory
MOTOR IMPORTED
FROM CHINA
DUTY RATE
5.3%
NEW AGE VACUUMS
SUBZONE FACILITY
VACUUM SOLD
IN DOMESTIC
U.S. MARKET
DUTY PAID AT
FREE VACUUM RATE
G.P. ZONE
WAREHOUSE
5.3% REDUCTIONIN DUTY ON DOMESTICALLY SOLD PRODUCT

15. Financial Benefits
 Relief from Inverted Tariffs
 Duty Deferral
 No Duty on Re-exports
 Duty reduction or elimination on scrap
 Duty elimination on waste and yield loss
 Reduction in Customs Fees
No duty is paid until the merchandise enters
the commerce of the US

16. Duty Deferral Benefit
MOTOR IMPORTED
FROM CHINA IN
JANUARY, 2011
DUTY RATE
5.3%
NEW AGE VACUUMS
SUBZONE FACILITY
MOTOR SOLD AS SERVICE
PART IN DOMESTIC U.S.
MARKET ON AUGUST, 2011
DUTY PAID AT 5.3%,
BUT ONLY AFTER SOLD
THE DUTY ON THE MOTOR IS DEFERRED FOR 7 MONTHS

17. Financial Benefits
 Relief from Inverted Tariffs
 Duty Deferral
 No Duty on Re-exports
 Duty reduction or elimination on scrap
 Duty elimination on waste and yield loss
 Reduction in Customs Fees
U.S. Duty is not paid on merchandise
exported from the distribution zone

18. Re-export Benefit
MOTOR IMPORTED
FROM CHINA IN
DUTY RATE
5.3%
NEW AGE VACUUMS
SUBZONE FACILITY
MOTOR SOLD AS SERVICE
PART AND SHIPPED TO
EUROPE
NO DUTY IS EVER PAID
5.3% SAVINGS
THE DUTY IS NEVER PAID ON EXPORTED MERCHANDISE

19. Financial Benefits
 Relief from Inverted Tariffs
 Duty Deferral
 No Duty on Re-exports
 Duty reduction or elimination on scrap
 Duty elimination on waste and yield loss
 Reduction in Customs Fees
US Duty is not paid on merchandise
destroyed or lost in production in the zone

20. TANK OF CHROMOZINE
10% DUTY RATE
VALUE OF $300,000
$30,000 DUTY PAID
GREENCHEM INC.
BEFORE BECOMING SUBZONE
TANK OF TRIGOLFERINE
SOLD IN DOMESTIC U.S.
VALUE OF CHROMOZINE LEFT
AFTER PRODUCTION $210,000
30% OF CHROMOZINE
LOST DURING PRODUCTION
DUTY IS PAID AT THE TIME THE MATERIAL COMES INTO THE U.S.
Duty on Waste and Yield Loss (No FTZ)

21. Elimination of Duty on Waste and Yield Loss
TANK OF CHROMOZINE
10% DUTY RATE
VALUE OF $300,000
$30,000 DUTY NOT
PAID WHEN ADMITTED
TO THE ZONE
30% OF CHROMOZINE
LOST DURING PRODUCTION
GREENCHEM INC.
SUBZONE FACILITY
TANK OF TRIGOLFERINE
SOLD IN DOMESTIC U.S.
$ ONLY 21,000 DUTY PAID ON
REMAINING CHROMOZINE IN
FINISHED PRODUCT
NO DUTY PAID ON
PRODUCTION LOSS
FOREIGN-TRADE ZONE SAVINGS= $9,000

22. Financial Benefits
 Relief from Inverted Tariffs
 Duty Deferral
 No Duty on Re-exports
 Duty reduction or elimination on scrap
 Duty elimination on waste and yield loss
 Reduction in Customs Fees
A process called “weekly entry” can reduce
the merchandise processing fee

23. Reduction in Customs Fees
 Customs entries made on per shipment basis
 Every entry is charged a fee based on 0.21% times
the value of the merchandise
 There is a cap on the fee of ($485) per entry
 Zone admissions are not Customs entries, therefore
not subject to Customs fees

24. MPF with No Zone
OLD AGE VACUUMS
FACILITY
Mon
MPF=$485
Tue
MPF=$485
Wed
MPF=$485
Thu
MPF=$485
Fri
MPF=$485
TOTAL MPF WITH NO WEEKLY ENTRY = $2,425

25. MPF with FTZ (Weekly Entry)
NEW AGE VACUUMS
SUBZONE FACILITY
ONLY ONE ENTRY IS
MADE FOR ALL THE
WEEKS SHIPMENTS
TOTALMPF = $485
Mon
Tue
Wed
Thu
Fri
SHIPPED TO
DOMESTIC U.S.Mon
MPF=$0
Tue
MPF=$0
Wed
MPF=$0
Thu
MPF=$0
Fri
MPF=$0

26. SAMPLE COST/BENEFIT
ANALYSIS

27. Acme Corporation’s:
Net Savings at a Glance
YEAR 1 YEAR 2 YEAR 3
Total FTZ Savings $1,050,666 $1,050,666 $1,050,666
Total FTZ Costs $195,000 $100,000 $100,000
Net FTZ Savings $855,666 $950,666 $950,666

28. Customs Duty and Fee Savings
YEAR 1 YEAR 2 YEAR 3
Cash flow $62,619 $62,619 $62,619
International returns,
obsolescence, waste,
scrap
$109,584 $109,584 $109,584
Re-exports $226,766 $226,766 $226,766
Merchandise Processing
Fee savings
$389,596 $389,596 $389,596
Brokerage fee savings $262,100 $262,100 $262,100
Customs Duty & Fee
Savings
$1,050,666 $1,050,666 $1,050,666

29. FTZ Sample Implementation & Operation Costs
TYPICAL COSTS YEAR 1 YEAR 2 YEAR 3
Fees Charged by FTZ Board  N/A N/A
Fees Charged by FTZ Grantee   
Consulting Fees include:
• Obtain FTZ Authority
• Activate with CBP
• Training
 N/A N/A
FTZ Administration Software
• Software Implementation  N/A N/A
SaaS Annual Fee   
In House FTZ Personnel   
Estimated Total Cost $195,000 $100,000 $100,000
NET SAVINGS FROM FTZ
OPERATIONS
$855,666 $950,666 $950,666

30. STEPS TO REALIZING
FTZ BENEFITS

31. 1. Obtain Foreign Trade Zone Status
 For Distribution Firms
– You must be located in an existing FTZ or
– You must apply for Foreign-Trade Zone status by
• Expanding or Modifying a General Purpose Zone
• Apply for Subzone Status
 For Manufacturing Firms
– Even if you are located in an existing FTZ
• Apply for Foreign-Trade Zone Manufacturing Status
• Apply for Subzone Status
 All applications and requests for FTZ status are
made to the Foreign-Trade Zones Board in
Washington, D.C.

32. 2. Activate Your Facility
 Set up compliant procedures, and observe strict
audit trails required by U.S. CBP
 Possibly the most important part of activation is
choosing an FTZ Inventory Control System
32

33. 3. Implementation of Software
 Your company will need a robust Foreign-Trade
Zone inventory tracking and record keeping
system to manage the day-to-day FTZ operations
 The system will need to:
– Meet U.S. Customs and Border Protection (CBP)
regulatory requirements
– Print CBP reports, forms, and entry documentation
– Perform many other tasks and processes unique to the
Foreign-Trade Zones program

34. THE BANNER PHARMACAPS
FTZ STORY

35. Vision
Creating superior health care products to serve our global
community.
Mission
To become the world's most innovative and respected gelatin-
based drug delivery and specialty pharma company.
Who we are
Banner has done, and are currently doing, business with the
majority of the top 15 pharmaceutical companies in the world

36. Business & Manufacturing Locations
Around the Globe
Global Management
Center
Gelcaps de México
Banner Pharmacaps
(Canada) Ltd.
U.S. Corporate
Headquarters
Unites States
Manufacturing
Banner Pharmacaps
(Europe)

37. Drug Delivery Technologies

38. Banner’s Business Case for an FTZ
 Identified imported raw materials with substantial
duties in late 1990’s
 If raw materials were converted into “medicaments,”
would “substantially transform” the product to HTS
classification without duty
 Task to implement appeared too difficult
 Banner backed away

39. Banner’s Business Case for an FTZ
 Large customer came to Banner in 2007
 Wanted Banner to develop a softgel with their
imported active pharmaceutical ingredient (API)
 Projected annual duty > $4 million USD
 Award of business contingent on Banner
establishing an FTZ with permission
to manufacture

40. Banner’s Business Case for an FTZ
A substantial business opportunity
+ Banner’s own savings potential
= Banner pursuing a foreign-trade zone

41. Project Milestones
 Summer 2007 – Decided to pursue FTZ
 Fall 2007 – Evaluated of software and consulting service
providers
 January 2008 – Engaged FTZ Corporation
 February 2008 – FTZ Application out for public review
 April 2008 – Project funding approved
– FTZ Consulting Services
– FTZ Compliance Software
 September 2008 – Received approval
 November 2009 – Activated

42. External Expenses Prior to Activation
 FTZ application filing fee
 FTZ consulting services
 FTZ administration software
– License
– Implementation
 Grantee fees
– Activation (one-time)
– Annual service charge

43. Internal Expenses Prior to Activation
 Information Technology
– Interface file program development
– Dedicated server
– Communications equipment (CBP)
 Project Team
– Labor
 Signs
– All entry ways
– Property perimeter

44. Benefits Realized First Year
 Improved cash flow
 Obsolescence, waste, and scrap
 Re-export of raw material
 Merchandise processing fee savings
 Brokerage fee savings
 Return on Investment
 Cash positive

45. What We Did Fairly Well
 Identified that we needed professional help
 Our due diligence was thorough
 Chose single source for software and consulting
 Our partner anticipated everything we would encounter
 Example:
 Significant time to test interface files
 More surprises that we thought

46. What We Did Fairly Well
 Developed thorough understanding of difference in
inventory systems
 Built a relationship with the CBP Port Director and
Grantee
 Remained completely transparent with Port Director
at all times

47. If We Were to Do it Over Again We Would Have . . .
 Engaged consulting services before starting
 Used an FTZ expert to develop our FTZ application
 Included all of our products in initial application filing
 Networked with other FTZ operators early on
(NAFTZ and local)
 Not have underestimated ALL potential inventory
transactions
 Dedicated full-time resources to project

48. If You Are Considering Implementing an FTZ . . .
 Get professional help to get results sooner and do a
better job of implementing
 Use a single solution provider for both the software
and consulting
 Assign daily responsibility to a customs compliance
specialist
 Build a relationship and trust with your CBP Port
Director along the way
 Train and communicate effectively with your
– Leadership | Employees | Suppliers

49. Questions?
Info@ftzcorp.com
Tel: +1 (251) 471-6725
Fax: +1 (251) 471-6727
Foreign-Trade Zone Corporation
2062 Old Shell Road
Mobile, Alabama 36607