by Trey Boring
In the last installment of this three-part series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., responds to questions related to operating a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones.
Q: If you’re looking to just defer duty, what is the difference between an FTZ and a class 2 or 3 Customs-bonded warehouse?
A: I think the biggest difference is the restrictions that come along with class 2 and class 3 bonded warehouses. One must ask: Do those restrictions interfere with your commercial operation? Would it be difficult for you to live with those restrictions as a commercial operation? Straight up duty deferral can be accomplished with other programs, but it’s all based on what works easily with your internal commercial operations. And, with class 2 and class 3 you certainly don’t have the weekly entry option, which can certainly save some paperwork and processing.
Q: Is there a timeframe for recording the quantity of imported goods received in your FTZ?
A: There are a couple of answers to that question. The pertinent regulations discuss being able to report what goods you have upon receipt, but they don’t define a set timeframe. Many ports work under a 48-hour rule if you’re doing direct delivery. So, if a container arrives, is dropped at your door and you unload it, they’ll want a 214 within 48 hours.
The only true time limit applies to a general order (GO). So, if a shipment is shown as arrived at an FTZ facility, it closes the 7512, and the system shows that my firm is in possession of the merchandise. If I don’t cut a 214 within 15 days I run the risk of a GO request. So, that’s a hard-and-fast deadline. I generally tell my clients to prepare the report within 24-48 hours as a rule of thumb, as you want to be as fast as possible.
Q: Is there a time limit for how long you can keep items in an FTZ? Theoretically, could you leave them in the zone forever?
A: The answer is yes items can remain there forever. I worked with a zone that had a shipment that had been in its inventory for some 18 years. It was one of the first shipments to come into the zone.
Q: How accurate must the inventory be at any given point in time? With inventory moving all day long, an audit would not match 100 percent.
A: That problem would only come into play for you if Customs walked in and asked you to pull a 214. You pull the 214, and they might say, “You have item A on your 214. Tell me how many you have in the warehouse?” You might open up your warehouse management system, for example, and say, “I have a thousand, but I have a hundred of them in an active pick location. So, we should have a hundred there. If not, I can go into my system, show you what was picked and explain the difference.”
Again, it goes back to being knowledgeable regarding your inventory system and being able to prep Customs and explain it to them. At the end of the day, you will be able to prove with a report that the 214 minus what was shipped that day will yield the total of what’s in that zone.
Q: What is typically covered in the system review letter?
A: In the system review, what you’re looking for is: What did I do this year? What did I bring through my FTZ? Did I make any major changes? Many companies will just say, “We did our system review, we didn’t change anything and things are working well.” What you want to review is the software used in the zone, the operational procedures used in the zone and how they impact the functionality of FTZ operations. If you make a change to the software or procedures, identify those changes in the system review letter.
Q: How do you account for scrap when making positive and negative adjustments?
A: Scrap is something that you need to identify and work through as part of the processes performed in your FTZ. If scrap is generated through a manufacturing process, then you need to have that accounting defined within your operational procedures for that process. If scrap is warehouse damage or things of that nature, then there are myriad ways to handle it. Basically, it comes down to: How much money is it really worth to the company? If it’s a low-duty-rate item, some companies may just put it on their entry, pay duty and throw it away. Or, if companies deem it in their best interest and are willing to go through the process, they can put it on a 216.
Q: Do other agencies, such as the Food and Drug Administration, U.S. Fish and Wildlife Service, Environmental Protection Agency and Department of Transportation, allow non-conforming products to be imported into an FTZ for later distribution or export to other countries?
A: Yes, it can be done, but my response is not a blanket yes. There are some products that they would restrict you from bringing into the United States. However, you may be allowed to do so under certain circumstances. So, there are FDA non-conforming products that are allowed to be in an FTZ to be held for export. But, depending on the nature of that product, it’s not a blanket approval, if that makes sense.
Q: Can you talk about documentation being scanned and sorted electronically versus physical files?
A: If you’re going to get approval for electronic filing – and you have to get approval from Customs to not have filing cabinets of documents – most CBP officers, in my experience, want it to appear just like a filing cabinet. They want you to go to a file folder that you can open up that has every scanned document, just as if you had gone to a cabinet and opened up a drawer. They want to have that ability and that level of traceability with the electronic files. They want to be able to review them, and clearly see that you’re keeping track of records in the same manner you would with a physical file.