Presentation discussing the basics of FTZs including the different types, the benefits, and the regulatory agencies supervising the FTZ program in the U.S.

1. Presented by:
Jim Chester
J.D., LL.M, CHB, CCS
"

2. About Jim Chester
Managing Attorney, CHESTER pllc
Of Counsel, Klemchuk Kubasta, LLP
Adjunct Professor, Baylor University School of Law
 I advise entrepreneurs, start-ups and privately-held companies of all sizes in a variety of industries regarding trademark, copyright, and
trade secret protection, licensing & enforcement in the US and abroad. In addition, I assist companies in international business
transactions and joint ventures. To date, I have advised clients on business deals involving almost 100 countries. I also coordinate with
foreign counsel on legal projects around the world on behalf of U.S. clients, and serve as legal advisor to foreign companies doing
business with or in the U.S. Of course, to be an effective international business attorney, I must also have significant experience and
expertise handling domestic business matters, including entity formations, transactions, acquisitions, contracts and other legal issues
commonly faced by my clients. MY international practice also involves advising clients regarding international trade regulations,
including compliance and enforcement issues involving Customs/import and export laws, ITAR, and the FCPA. I have represented
numerous clients before US Customs & Border Protection, US Department of Commerce, US Department of Defense Trade Controls,
the Office of Foreign Asset Controls, the US International Trade Administration, and other state, federal and foreign governing bodies
and agencies. In addition to being admitted to practice law in Texas and Washington, DC., I am a licensed US Customs Broker. In
addition to my work at the firm, I am an adjunct professor of law at Baylor University Law School, teaching courses on International
Trade Law and International Business Transactions. I also previously served as an adjunct professor of Business Law at the University
of Dallas.
HONORS
 “Super Lawyers - Rising Stars Edition,” Law & Politics Magazine published in Texas Monthly & Texas Rising Stars (2008, 2009, 2011)
 “AV® Preeminent” Peer Review Rating by Martindale Hubbell®
EDUCATION
 LL.M., International Economic Law, University of Houston School of Law, 2000
 J.D., South Texas College of Law (Law Journal, Varsity Mock trial), 1997
 B.S., Economics/Political Science (Double major), magna cum laude, Texas A&M University, Commerce, 1994
CREDENTIALS
 Licensed U.S. Customs Broker
 Certified Customs Specialist (NCBFAA)
 Admitted to practice in Texas & Washington, DC

3. Foreign-Trade Zones (FTZs)
Areas located in the United States,
but designated by the federal
government as lying outside the U.S.
Customs territory
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4. Foreign-Trade Zones (FTZs)
 Created by FTZ Act of 1934
 FTZs are in all 50 states, plus Puerto Rico
 FTZ received $180 billion in merchandise - 87% into Subzones
 Employment at zone sites is approx. 350,000
 Exports from FTZs = $18 billion
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5. Foreign-Trade Zones (FTZs)
 Currently about 250 general purpose
FTZs have been granted
 Plus over 500 special purpose
“Subzones”
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6. Types of Industries Using FTZs
 Automotive  Chemicals
 Oil Refining  Shipbuilding
 Pharmaceuticals  Apparel
 Computers  Aerospace
 Telecommunications  Medical
 Other High-Tech  Other Consumer Products
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7. General Purpose FTZs
 Granted to a public, non-profit entity
 Many possible users and uses
 Must be within 60 miles (or 90 minutes drive) of Customs
Port of Entry
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8. Dallas Area FTZs
 General Purpose FTZs
D/FW Airport (39)
Midlothian (113)
Dallas (168)
Alliance Airport (196)
Durant, OK (227)
Waco (246)
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9. FTZ Subzones
 Cannot be accommodated within existing General Purpose
FTZ
 Attached to General Purpose FTZ
 Typically designated for a single company’s operations
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10. Dallas Area FTZs
 Subzones
General Motors (Arlington)
Sanden International (Wylie)
Pier 1 Imports (Mansfield)
Fossil Partners (Richardson)
Zale Corp. (Irving)
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11. FTZ Benefits - Domestic Economy
 Job creation/preservation
 Economic Growth
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12. FTZ Benefits - Private Industry
 No duties are owed until goods are shipped from FTZ into
Customs territory
 No duties incurred for goods exported
 Duties reduced or eliminated on materials subject to defect,
damage, obsolescence, waste and scrap
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13.  Choice of paying duty on raw materials or on final products,
whichever is lower
 Can hold quota merchandise in FTZ until window opens
(limited)
 No hassle of Customs clearance and duty drawback
 Materials consumed in FTZs not subject to duties
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14. FTZ Benefits - Private Industry
 Most FTZ merchandise exempt from local and state ad
valorem taxes
 Can transfer goods to other zones without paying duty
 Ability to take advantage of special Customs programs (e.g.,
weekly entry procedure)
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15. FTZ Administration: FTZ
Board
 Agency within the Department of Commerce
 Comprised of the Secretary of Commerce and
Secretary of the Treasury.
 Day-to-day administration by Executive Secretary
 Issues and administers FTZ grants pursuant to its
regulations (15 CFR Part 400)
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16. FTZ Administration: Customs
 Customs & Border Protection (CBP/Customs)
 Part of Department of Homeland Security
 Local representative of FTZ Board
 Supervise FTZ operational activities pursuant to Customs’ FTZ
regulations (19 CFR Part 146)
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17. Establishing an FTZ
 Application to FTZ Board
 Must show “public benefit” from FTZ
 Approval often takes approximately 1 year
 “Grantee” receives the grant of authority to establish the FTZ
 Grant defines FTZ scope and activity
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18. Establishing an FTZ
 Activation by CBP
Operator” activates the zone by getting
 “
Customs approval of procedures
 Operator must post a special “FTZ Operating
Bond”
 in addition to the import bond, if applicable
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19. FTZ Operations: Terminology
 Entry
 Customs Entry
 Goods are imported and duties are assessed
vs.
 Admission
 Goods brought onto FTZ
 No Customs entry
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20. FTZ Operations: Admissions
 Customs Form 214
 Declare status of the goods
 Domestic
 Privileged Foreign
 Non-Privileged Foreign
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21. FTZ Operations:
Domestic Goods
 U.S. origin goods, or goods that have
already been entered into U.S. Customs
territory and duty (if any) has been paid.
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22. FTZ Operations:
Privileged Foreign (PF) Goods
 Locks-in the duty on the raw materials
on the date they are admitted into the
zone
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23. FTZ Operations:
PF Duty Savings Example
 ABC, Inc., admits three components into an FTZ
 If duties were assessed on the components, they would total $200
 Once the components are assembled into the final product, they are
imported into the U.S.
 Duties on the final product total $1,000
 ABC, Inc., pay only $200 in duties
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24. FTZ Operations: Non
Privileged Foreign (NPF) Goods
 Duty will be assessed on the finished products as a whole,
not on the raw materials
 A.k.a. “Inverted tariff ”
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25. FTZ Operations:
Inverted Tariff (NPF)
Example
 ABC, Inc., admits three components into an FTZ
 If duties were assessed on the components, they would total $1,000
 Once the components are assembled into the final product, they are
imported into the U.S.
 The final product qualifies for duty-free entry
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26. FTZ Operations:
Zone Restricted Goods
 Goods admitted onto the FTZ for
use only in the FTZ
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27. Activity in the FTZ
 Salvage
 Mixing
 Labeling
 Assembly
 Destruction
 Display
 Repackaging
 Storage
 Cleaning
 Testing
 Sampling
 Repairing
 Manufacturing (1949)
 Processing
 Refining
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28. Activities Prohibited in FTZs
 Retail Trade
 Living in the FTZ
 Any other activities prohibited by US law
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29.  General Purpose Zones
 Little Up-front cost
 Ongoing (mostly out-source)
 E.g., Document and storage costs of FTZ operator
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30.  Subzones
 Up-front cost (application, activation, software)
 $100k - $200k (some savings if more than one zone at a
time)
 Ongoing -- depends on in-house v. outsource
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31. Contact Us
Email info@chester-law.com
214.988.9248
Toll Free 877-34-WORLD
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