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Foreign Trade Zone (FTZ) – Frequently Asked Questions

What is a Foreign Trade Zone (FTZ)?

The FTZ is a designated area within the U.S. located in or near a CBP port of entry but legally considered to be outside of customs territory for the purpose of tariff laws and entry procedures. FTZs provide a form of duty-deferment and are utilized by warehouses to park merchandise without first having to pay duties and taxes.

According to its 2019 Annual Report to Congress, the Foreign-Trade Zones Board notes that there were 193 active FTZ programs across the United States, employing approximately 460,000 people at approximately 3,300 businesses, and importing over $767 billion in shipments. – NAFTZ https://www.naftz.org/ftz-resources/ftz-basics-benefits/

 

Who operates the FTZ?

There are three parties who operate the FTZ, the Grantee, the Operator, and the User.

A Grantee sets up, operates, or maintains a foreign trade zone project and may be either a public or private corporation that has been organized for the purpose of establishing a zone project. Grantees may charge fees for the services they provide to operators and users who do business within their foreign trade zone.

An Operator runs an FTZ operation under a contract with a Grantee. An Operator may be a corporation, partnership, or individual, and Grantee may be considered to act as an Operator if it operates its own foreign trade zone. An Operator is required to secure a bond to assure compliance with CBP regulations.

A User performs business activities inside the FTZ under a contract with a Grantee or Operator. A User may be a corporation, partnership, or individual. The business that a User conducts in the FTZ my include storage, handling, processing, or manufacturing of foreign or domestic goods. An Operator may function as a User, and it is the User who typically obtains a permit to admit, process, or remove goods from the FTZ.  The User may posts an Operator’s bond if it wants to be responsible for control of merchandise within an FTZ.

 

Insurance for FTZs

FTZ Operators and Users wear many different hats in their day-to-day operations, including maintaining a compliant zone, managing supply chain, and running a full spectrum of warehouse operations. They are legally responsible for loss or damage to cargo under their care, custody and control. Additionally, physical loss or damage to product while in storage, damage to products while being packed/crated and after packing due to insufficient packaging/crating, product liability, theft or pilferage by employees or agents, fines and penalties by the CBP, errors and omissions liability, and contractual liability, among other exposures may all fall within the legal responsibility of an FTZ Grantee, Operator, or User.

Without the proper insurance coverage designed to address the significant liability FTZ Operators face, gaps or duplication in insurance policies may arise, jeopardizing the continued success of the business.

The insurance solutions the FTZ Operators secure should respond to these and many other exposures involved in carrying out the services and activities you perform. At Roanoke, we accomplish this by providing a seamless approach that blends several policies into one program for customized protection against the risks that each specific FTZ business encounters. Our insurance program is compromised of the key coverages you require to safeguard against liability claims. Coverages include: Bailee’s, Warehouse Legal Liability, Packers Legal Liability, Motor Truck Cargo (Asset-Based Truckers), Bill of Lading Legal Liability, Errors and Omissions, Extended Coverage for Regulatory Defense/Fines or Duties, Contractual Liability, General Liability, Commercial Crime, and Hired Auto Liability, among other key solutions.

 

Foreign Trade Zone Operator Bond

In addition to a comprehensive insurance solutions, FTZ Operators, and Grantees and Users functioning as Operators, are required to obtain an FTZ Operators customs bond. The required bond form is the CF301 activity code 4.

This bond guarantees the operation of a Foreign Trade Zone (FTZ) and guarantees FTZ operator will comply with CBP regulations for maintaining the FTZ.  FTZs are part of a duty deferral program and are subject to CBP jurisdiction. The FTZ Operator’s bond must be properly executed in order for the FTZ to be activated, and its purpose is to secure the principal’s agreement to comply with CBP regulations and applicable laws.

The FTZ Operators customs bond protects the revenue of the U.S., guaranteeing payment of duties, taxes, and fees that are owed on imported goods as well as additional duties due to the government when false statements regarding imported goods deprive CBP of lawful duties that are due. Generally, payment of duties and excise taxes on foreign merchandise admitted to a zone will be deferred until the goods are transferred from the zone to the customs territory for consumption.

The minimum bond amount required by CBP is $50,000. However, the maximum amount is determined by each individual port director and therefore the limits may vary.

 

How does the bond respond to a CBP penalty?

The purpose of surety bonds is often misunderstood. They are not a form of insurance and do not cover the liability of the bond holder. Instead they are a financial guarantee that benefits a third party if the bond holder fails to perform its duties as expected. In the case of a FTZ Operator’s bond, Roanoke’s Richard Bridges, has a clear example of how the bond responds to an Operator’s failure to perform their duties.

“If you are involved in international trade where you purchase goods from one country, bring them to the U.S. to either sit or be modified only to be shipped back out of the USA, a FTZ enables you to do so without having to pay duties and taxes,” explained Bridges. “Duties and taxes on international goods are only paid when released in the U.S. supply chain. Should goods be released in the U.S. without duties and taxes being paid, the FTZ bond covers the exposure of the U.S. Government.”

Roanoke is a long-time supporter of the National Association of Foreign Trade Zones and offers preferential pricing for surety bonds and insurance to their members. For more information about our products, please contact one of our professionals at  1-800-ROANOKE (800-762-6653) or infospot@roanokegroup.com