By Shana Daley
From the September/October 2014 issue
Foreign-trade zones (FTZs)—the U.S. variation on the general “free trade zone” concept–are secure areas under the supervision of U.S. Customs and Border Protection (CBP) that are considered outside the customs territory of the United States for the purposes of duty payment. Authority for establishing these facilities is granted by the Foreign-Trade Zones Board under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u), and the Board’s regulations (15 C.F.R. Part 400). The Executive Secretariat of the Board is part of the Import Administration within the International Trade Administration of the U.S. Department of Commerce.
Foreign and domestic merchandise may, subject to FTZ Board and CBP regulations, be moved into zones for operations not otherwise prohibited by law, including storage, exhibition, manipulation and manufacturing. The Board’s regulations require a case-by-case review for all manufacturing activity to be conducted in FTZs. Under zone procedures, the formal customs entry procedure and payment of duties are not required on the foreign merchandise unless and until customs entry is made for domestic consumption.
For foreign merchandise that undergoes further processing in a zone before customs entry, the importer ordinarily has a choice of paying duties either on the original foreign materials or on the resulting finished product. Domestic goods moved into a zone for export can be considered exported upon entering the zone for purposes of excise tax rebates and drawback. All FTZ sites and activities remain within the jurisdiction of federal, state and local governments and agencies.
Each zone is managed locally by the “grantee” organization—generally a public or non-profit organization focused on trade and/or economic development. The FTZ Act requires each grantee to operate its zone as a public utility and to treat companies using the zone uniformly under like conditions.
Traditionally, many zones have included sites at seaports or airports as well as some industrial parks, with the intent of attracting companies to the zone. Increasing numbers of zones are now opting to use the “Alternative Site Framework” made available by the Board beginning in December 2008, which enables a much quicker, simpler on-demand process to designate “subzones” or “usage-driven sites” at specific companies’ facilities.
LAKEWOOD FTZ: MEGA-ZONE
The Lakewood Development Corporation, also known as the LDC, is the primary economic catalyst operating on behalf of the Township of Lakewood. In 1994, after an evaluation performed by the State of New Jersey, Lakewood was identified as an economically depressed community and thus eligible to receive designation and incentive benefits as a State of New Jersey Urban Enterprise Zone. The LDC was created to manage the Township of Lakewood’s Urban Enterprise Zone (UEZ) and its Foreign Trade Zone (FTZ) programs.
As the administrator of these programs, the Corporation is tasked with promoting, encouraging and assisting local businesses to increase commerce and trade as well as fulfilling its main goal…the cultivation of business growth and job creation and retention for residents of Lakewood, NJ and the region. We continue to strive to meet and exceed the present and future needs of businesses through our continued partnership with our business community.
The Lakewood Foreign Trade Zone #235 was established in 1998 with approximately 2000 acres of industrially zoned land in Lakewood assigned as the Zone area. Its authorized service boundaries have since been expanded to include Ocean, Monmouth, Middlesex, Burlington and Union counties which also includes the Lakewood Industrial Parks and industrial and commercial locations along other major NJ thoroughfares, (New Jersey Turnpike and Garden State Parkway), granting a greater number of manufacturing and industry the opportunity to utilize the benefits of this program. In early 2014, FTZ #235 was transitioned to the FTZ Board’s new and preferred organizational structure—known as Alternate Site Framework, or ASF. The ASF process makes it easier and faster for economic development agencies such as the LDC to offer support to prospective FTZ companies in their jurisdiction. “It allows us to be more effective with its shortened review time for applications and which provides reduction in the number of activities that need formal applications, and is generally more responsive to the needs of today’s companies,” stated Patricia Komsa, executive director of the LDC and the FTZ #235 administrator.
Businesses taking advantage of FTZ status notice the benefits immediately in cost savings and increased cash flow. The program allows companies to better manage their cash flow needed to efficiently conduct business partially due to a deferral of Duty/Tariff payment obligations at the time the product enters the U.S. This benefit of FTZ is especially important in today’s economy. Improved inventory control is another important benefit that companies will realize. Komsa shared the following example of a benefit of FTZ Tariff deferral, “We have a manufacturer in FTZ #235 that realizes a tremendous savings in the importing of the glass bottles that they use to package beauty products in. First, there is a delay in payment of Duty while the bottles are in the Zone. Second, when that same bottle is filled with product, it is no longer just a glass bottle, it is now homogenized into a completely different product, and as such, is subjected to a lower duty rate when it finally enters the U.S. market – thus creating an instant savings.”
The FTZ is designed to assist U.S., N.J. and local economic development efforts by encouraging international trade and exports and the retention of domestic activity, as well as creating employment opportunities in the United States. The corporation, through the FTZ program, performs as a regional player in business attraction to the state using Lakewood’s FTZ designation to advertise prospective business location specifically to Lakewood, which is home to the second largest industrial park in the state of New Jersey.
An added feature in Lakewood’s Foreign Trade Zone is that the Township of Lakewood is a designated Urban Enterprise Zone (UEZ), offering other economic development incentives— including state tax exemptions on
purchases for qualified business operations including equipment, furniture, retrofitting existing space, tax credits, reduced NJ sales tax, financial assistance and subsidized unemployment insurance, to name a few.
Through the use of two innovative economic development programs, the Lakewood Development Corporation strives to provide businesses with the expertise, incentives and ombudsmanship to be successful—locally, nationally and internationally.