A foreign-trade zone in the United States is a geographical area, in (or adjacent to) United States Ports of Entry Ports of Entry

Port of entry

In general, a port of entry is a place where one may lawfully enter a country. It typically has a staff of people who check passports and visas and inspect luggage to assure that contraband is not imported. International airports are usually ports of entry, as are road and rail crossings on a...

, where commercial merchandise, both domestic and foreign receives the same Customs treatment it would if it were outside the commerce of the United States. Merchandise of every description may be held in the Zone without being subject to Customs duties

Duty (economics)

In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...

 and other ad valorem taxes

Ad valorem tax

An ad valorem tax is a tax based on the value of real estate or personal property. It is more common than a specific duty, a tax based on the quantity of an item, such as cents per kilogram, regardless of price....

 . This tariff and tax relief is designed to lower the costs of U.S.-based operations engaged in international trade

International trade

International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...

 and thereby create and retain the employment and capital investment

Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

opportunities that result from those operations. These special geographic areas – Foreign-Trade Zones – are established "in or adjacent to" U.S. Ports of Entry and are under the supervision of the U.S. Customs & Border Protection under the U.S. Homeland Security. Since 1986, U.S. Customs' oversight of FTZ operations has been conducted on an audit-inspection basis known as Compliance Reviews, whereby compliance is assured through audits and spot checks under a surety bond, rather than through on-site supervision by Customs personnel.

Today there are over 230 Foreign-Trade Zone projects and nearly 400 Subzones in the United States.

History

The U.S. Foreign-Trade Zones program was created by the Foreign-Trade Zones Act of 1934. The Foreign-Trade Zones Act was one of two key pieces of legislation passed in 1934 in an attempt to mitigate some of the destructive effects of the Smoot-Hawley Tariffs, which had been imposed in 1930. The Foreign-Trade Zones Act was created to "expedite and encourage foreign commerce" in the United States.

Through World War II, manufacturing activity was allowed only on a very limited basis. In 1950, the original act was amended to open up FTZs to manufacturing, but it had little impact until 1980. In that year, Congress again amended the act so that products manufactured in the zones would not be assessed on U.S. value-added. This ensured that the only tariffs a producer inside the zone selling to U.S. customers would pay, would be on the raw materials imported into the zone. This "integrated" model, which replaced the previous "island" model, spurred growth in the U.S. Foreign-Trade Zones program.