By SCVEDC

Serving qualified sites within the Santa Clarita Valley (SCV), the extension of the U.S. Foreign-Trade Zone (FTZ) program offers international traders and importers and exporters outstanding opportunities to take advantage of special customs privileges. These incentives can lower barriers to trade, improve cash flow and enhance your company’s profits while giving you a competitive edge in the global marketplace.

Earlier this year, the service area of the FTZ was expanded to include all of the SCV called the Alternative Site Framework (ASF). The SCV ASF opens up 3 new options for companies to access FTZ benefits:

Use AMS Fulfillment as the active operator and process inventory through AMS facilities (available now)
Become a FTZ sub-operator: AMS Fulfillment operates the FTZ in a company’s facility (30 day set up process) *AMS Fulfillment management oversight required
Become a FTZ operator: independent operation by company in its own facilities (60+ day set up process)
As supply chains globalize, Foreign Trade Zones (FTZs) can provide major benefits for a company that manufactures and imports their product into the Port of Los Angeles, or for any company near a port operation. Among those benefits are:

Duty Deferral on Product: Inventory is brought into the FTZ and held without duties and taxes being assessed until the product leaves the FTZ, presumably to be fulfilled as a paid order to a customer
Port Fees Reduction: For importers that are bringing in more than one (1) container per week, there can be significant reductions in the port fees by utilizing a FTZ
Duty Elimination on Product: Inventory re-exported or destroyed without ever leaving the FTZ is never taxed as a US import
Speed to Market: Product destined for the FTZ bypasses customs delays in the port because it will clear customs in the FTZ, thereby making product available to sell sooner
As an example of the benefits of the duty elimination on product available by utilizing a Foreign Trade Zone, let’s explore a typical situation. Company XYZ* offers high quality gloves for all different types of weather conditions, professions and sports, both under their own branding, as well as the OEM for many other companies. The company designs and produces a superior product and is dedicated to innovation, holding over 70 patents and trademarks worldwide.

In summer of 2016, a 40-foot container, full of XYZ Company’s product was in route to the US from Indonesia. While in route, they discovered over 50% of the merchandise might be defective due to sizing discrepancies. Typically, once a container berths at the port it would go through a customs clearance process and be charged for the appropriate tax and duties, which is based on the total value of all the merchandise. In this case the client wanted to defer and avoid paying the upfront taxes, especially since over 50% could be defective product. Otherwise, they would have to file for the duty drawback on the defective product after it had already been paid out.

Instead, the company utilized the Foreign Trade Zone operated by AMS Fulfillment in the Santa Clarita Valley. The product was admitted to the AMS FTZ. While merchandise resides in a FTZ, taxes and duties can be deferred for as long as needed; the product remains in foreign status.

Once the merchandise arrived in the AMS Warehouse, the product could be sorted between acceptable merchandise and defective product. XYZ Company then only paid the taxes and duties for the acceptable merchandise, and paid those taxes and duties at the time the merchandise was cleared for US consumption. The defective product, which remained in foreign status, was transported, in bond and with proper customs documentation, to a destruction facility. Once a certificate of destruction was submitted to Customs, it eliminates all the liability for those taxes. In this case the outlay of cash was a savings of tens of thousands for the upfront dollars that would have otherwise been paid out.

If you have questions, contact the SCVEDC – their business services team provides information such the Foreign Trade Zones available and research supporting businesses in the Santa Clarita Valley, along with those seeking to relocate here.

The Santa Clarita Valley Economic Development Corporation (SCVEDC) is a unique private / public partnership representing the united effort of regional industry and government leaders. The SCVEDC utilizes an integrated approach to attracting, retaining and expanding a diversity of businesses in the Santa Clarita Valley, especially those in key industry clusters, by offering competitive business services and other resources.

*Because this example references a defective product, the company name has been withheld.