Foreign Trade Zones
Foreign Trade Zones (FTZs) are designated areas within the United States where goods may be imported, stored, handled, manufactured, and re-exported without being subject to customs duties and certain excise taxes. Authorized by the Foreign Trade Zones Act of 1934, there are approximately 195 general-purpose zones and over 500 subzones operating in all 50 states and Puerto Rico. FTZs serve as a trade facilitation tool that helps U.S. businesses compete internationally by deferring, reducing, or eliminating customs duties on imported components. Companies can combine FTZ benefits with broader manufacturing incentives like the CHIPS Act and IRA production credits, and with the Export-Import Bank for export financing.
Current Law (2026)
| Parameter | Value |
|---|---|
| Administering body | Foreign-Trade Zones Board (Secretary of Commerce, Chair) |
| Customs enforcement | U.S. Customs and Border Protection |
| Zones | ~195 general-purpose zones + 500+ subzones |
| Location requirement | Must be in or adjacent to a port of entry |
| Grantee | Typically a public entity (port authority, city, state) |
| Duty treatment | Duties deferred until goods enter U.S. commerce; eliminated if re-exported |
| Manufacturing | Permitted — finished goods may qualify for lower duty rates than components |
| Quota goods | May not be admitted for manufacturing if subject to quantitative quotas |
Legal Authority
- 19 U.S.C. § 81a — Definitions (defines "zone" as a segregated area at or adjacent to a port of entry, operated as a public utility)
- 19 U.S.C. § 81b — Foreign-Trade Zones Board (establishes the Board: Secretary of Commerce as Chair, Secretary of the Treasury, Secretary of the Army; Board grants zone privileges)
- 19 U.S.C. § 81c — Exemption from customs laws (merchandise in zones is exempt from customs laws except as provided; goods may be stored, sold, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed, or otherwise manipulated)
- 19 U.S.C. § 81d — Customs territory (zone is not considered customs territory; goods enter U.S. customs territory only when formally entered for consumption)
- 19 U.S.C. § 81e — Zone operations (zones established and operated as public utilities under Board regulation)
- 19 U.S.C. § 81o — Manufacturing (manufacturing, exhibition, destruction, and use of imported merchandise in zones is permitted subject to Board regulations)
- 19 U.S.C. § 81r — Revocation of grants (the Board may revoke zone grants for violation of the Act or Board orders)
How It Works
Foreign Trade Zones create a legal fiction: designated areas within the United States are treated as outside U.S. customs territory for duty purposes. Goods imported into an FTZ are not considered "entered" into U.S. commerce until they physically leave the zone and are formally entered through U.S. customs import procedures with CBP. This creates three major benefits:
Duty deferral: Companies can import goods into an FTZ and store them indefinitely without paying duties. Duties are only assessed when goods leave the zone and enter U.S. commerce. This improves cash flow by delaying duty payments and eliminates duties entirely on goods that are re-exported.
Duty reduction through manufacturing: When imported components are manufactured into finished products within an FTZ, the company may choose to pay duties at the rate that applies to the finished product rather than the component rates. If the finished product carries a lower duty rate than the components (which is common in manufacturing), the company saves money. This is the inverted tariff benefit.
Duty elimination on re-exports: Goods that enter an FTZ and are subsequently exported — whether in their original form or after manufacturing — pay no U.S. customs duties at all. This makes FTZs valuable for distribution operations that serve both domestic and international markets.
The Foreign-Trade Zones Board — composed of the Secretaries of Commerce, Treasury, and the Army — grants zone privileges to applicants, typically public entities like port authorities or economic development agencies. These grantees then allow private companies to operate within the zone under operator status. Companies may also apply for subzone status for specific manufacturing or distribution facilities that aren't physically within a general-purpose zone.
FTZ operations are supervised by CBP, which ensures that goods are properly accounted for and that duties are correctly assessed when goods enter U.S. commerce. Zone operators must maintain detailed inventory records and submit to CBP oversight.
How It Affects You
If you're a U.S. manufacturer who imports components or raw materials: Foreign Trade Zones can significantly reduce your customs duty costs through the inverted tariff benefit — when finished goods carry a lower duty rate than their component parts (common in electronics, automotive, aerospace, and apparel), you can manufacture within an FTZ and pay duty at the finished product rate rather than the component rate. For example, an automotive manufacturer importing engines at a 2.5% duty rate might assemble finished vehicles (also 2.5%) — no benefit. But a manufacturer importing steel components (25% Section 232 tariff) to produce finished goods at a lower rate saves the difference. Beyond inverted tariffs: duty deferral improves cash flow (you pay duty only when goods leave the FTZ, not at import), and goods re-exported to foreign customers pay no U.S. duties at all. To access FTZ benefits, apply for subzone status at your facility (through the applicable general-purpose zone grantee) or apply to the Foreign-Trade Zones Board directly. The Alternative Site Framework (ASF) has streamlined subzone applications. CBP supervises FTZ operations and requires detailed inventory control and recordkeeping systems.
If you're an importer, wholesaler, or distributor serving both U.S. and international customers: FTZ storage allows you to defer duty payment until goods are actually sold into the U.S. market — goods destined for re-export never pay duties. This is particularly valuable for large inventory operations where goods may sit in storage for weeks or months before sale. If your customer mix is 70% U.S. / 30% international, the 30% exported from FTZ pays zero duty — a real cost reduction. FTZ operations also allow you to manipulate merchandise (repacking, sorting, grading, cleaning, mixing) without triggering duty liability. The grantee for the nearest general-purpose zone (typically a port authority or economic development agency) can walk you through the process of becoming an authorized FTZ operator or user.
If you're a port authority, economic development agency, or state official: FTZ designation is an economic development tool that attracts manufacturers and distributors to your jurisdiction. The United States has approximately 195 general-purpose zones and 500+ subzones — typically clustered around major ports, airports, and industrial corridors. Grantees (the public entities that hold zone grants) do not operate the zones themselves — they grant privileges to private operators and users and oversee compliance. Promote FTZ benefits to prospective businesses as part of your site selection toolkit, alongside federal export promotion programs and other trade facilitation tools. Tariff increases under Section 301 (Chinese goods) and Section 232 (steel, aluminum) have made FTZ benefits more valuable, increasing demand for subzone status from manufacturers seeking to manage their tariff exposure.
If you're a customs broker, trade compliance professional, or supply chain manager: FTZ operations create specialized compliance requirements: operators must maintain an FTZ inventory control and recordkeeping system approved by CBP, file weekly entry summaries for goods entering U.S. commerce, and maintain precise records of zone activity for CBP audit. The CBP's CTPAT (Customs-Trade Partnership Against Terrorism) program interacts with FTZ operations for security purposes. With elevated tariff levels on goods from China, Mexico, and other trading partners, many companies are reassessing their supply chains and FTZ strategies — the Board's March 2026 authorizations for sustainable aviation fuel, EV transmissions, and avionics reflect the range of production activities now seeking FTZ benefits.
State Variations
FTZs are exclusively federal, but state and local entities play key roles:
- Zone grantees are typically public entities (port authorities, municipalities, state agencies)
- State and local governments may offer additional tax incentives within FTZ areas
- Property taxes, income taxes, and state sales taxes are generally still applicable within FTZs
- State economic development agencies promote FTZ benefits to attract businesses
Implementing Regulations
- 15 CFR Part 400 — Regulations of the Foreign-Trade Zones Board (46 sections): the FTZB's full operational rulebook for zone establishment, operation, production authority, and compliance. Key provisions:
- § 400.11 — Zone entitlement: each port of entry is entitled to at least one general-purpose zone; there is no statutory cap on the number of zones; additional zones beyond the first require a showing of need
- § 400.12 — Eligible applicants: public or private corporations may apply; the Board gives preference to public entities (port authorities, state agencies, municipalities) over private corporations; a grantee is typically the zone authority that manages the general-purpose zone and grants admission to operators
- § 400.14 & 400.22 — Production authority: manufacturing, processing, or assembly in an FTZ requires prior authorization; two tracks: (1) notification procedure (faster, for activities within standard parameters — Board has 30 days to object); (2) formal application (required when the notification track is unavailable or the Board has concerns); without production authority, an FTZ may only store, handle, exhibit, clean, sort, grade, mix, or otherwise manipulate merchandise
- § 400.15 — Production equipment: equipment admitted into a zone solely for use in production is treated as zone-admitted merchandise — no customs duty is assessed on the equipment itself while it remains in the zone
- § 400.16 — State/local tax exemption: tangible personal property (foreign merchandise) held in the activated area of an FTZ is exempt from state and local ad valorem taxation — this is a benefit beyond customs duty deferral; domestic goods are not exempted
- § 400.26 — Evaluation criteria for zone applications: the Board considers (1) the number of jobs and economic activity the zone would generate; (2) whether the zone is compatible with the public interest; (3) whether facilities exist to service expected trade; (4) local government support; (5) the effect on existing facilities in the area
- § 400.27 — Production authority criteria: production applications must show a "neutral or positive net effect on U.S. manufacturing in the relevant industry" — the Board can deny production authority if it would primarily be used to circumvent trade remedies (Section 301 tariffs, antidumping/countervailing duties) with minimal domestic manufacturing value added
- § 400.42 — Public utility requirement: each zone must be operated as a public utility — rates and charges for all services or privileges within the zone must be fair and reasonable; the FTZ Board can investigate and require adjustments to rates that discriminate against zone users
- § 400.43 — Uniform treatment: grantees must offer uniform access to all qualified applicants on equal terms; a grantee cannot favor affiliated companies or exclude competitors; complaints of non-uniform treatment are reviewed by the FTZB Executive Secretary
- § 400.47 — Retail trade prohibited: retail trade is prohibited in activated FTZ areas (zones are not duty-free shopping areas for consumers); sales of merchandise must be wholesale or export-directed
- § 400.49 — Monitoring: the Board may conduct reviews of zone operations at any time to determine whether continued operations are in the public interest; zones can be placed on suspension if violations are found
- § 400.61 — Revocation: the Board may revoke zone authority in whole or in part if the grantee has repeatedly and willfully violated the FTZ Act or regulations — revocation is a last resort; the Board typically uses compliance orders and corrective action requirements before revocation
- 19 CFR Part 146 — Foreign trade zones (CBP procedures for FTZ admission, manipulation, manufacturing, exhibition, and removal of merchandise)
- 19 CFR Part 113 — CBP bonds (bonding requirements for FTZ operators and users)
Pending Legislation
- HR 6792 — Allow duty-free FTZ-made exports to USMCA partners. Status: Introduced.
- S 1291 (Sen. Kennedy, R-LA) — Public ranking of foreign free trade zones to target illicit trade, enable sanctions. Status: Introduced.
Recent Developments
FTZ utilization has grown as tariffs have increased, particularly following the Section 301 tariffs on Chinese goods and Section 232 tariffs on steel and aluminum. Companies have increasingly used FTZs to manage tariff exposure, with subzone applications rising significantly. The Foreign-Trade Zones Board has streamlined the application process for alternative site framework (ASF) subzones, making it easier for individual companies to obtain FTZ benefits without being physically located within a general-purpose zone.
The Foreign-Trade Zones Board authorized multiple new production activities in March 2026, including sustainable aviation fuel production in Port Arthur, TX (FTZ 116), electric and automatic vehicle transmissions in South Carolina (FTZ 38), avionics/GPS products in Olathe, KS (FTZ 17), and medical dressings in Maine (FTZ 186), reflecting continued use of FTZs for domestic manufacturing.