September 8, 2010

FTZ Board Grantee Update

This e-mail update to grantees highlights a memo issued today by our office regarding the production equipment provision of the FTZ Act (section 81(c)(e)). The memo is available via the "What's New" box on our main web page - www.trade.gov/ftz - and is also in the "Memos and Letters to Grantees" section within our website's "Reading Room." The September 8, 2010, memo replaces an earlier version issued in May and includes a discussion of one additional point raised to us after the May version had been issued.

A key topic addressed in the memo issued today is the timing of a company's use of the production equipment provision relative to the timing of the company's application to the FTZ Board for manufacturing authority. The other key topic addressed is the definition of production equipment. The memo explains that the production equipment provision is available to all companies involved in manufacturing or processing operations under FTZ procedures, but not to companies only involved in warehouse and distribution activity. In developing the memo, we also considered the legal questions pertaining to whether a company needs to have obtained manufacturing authority from the FTZ Board before the company can begin to take advantage of the production equipment provision. The memo issued today clarifies that a company does not need to have manufacturing authority already approved by the FTZ Board in order to begin admitting production equipment under this provision.

The bottom line: A company that is setting up a plant or investing in its plant within a zone site can bring production equipment into the facility for assembly and testing while an application for manufacturing authority is under review by the FTZ Board or is in the process of being developed by the company. This use of the production equipment provision can be another tool that you, as the grantee, can use to attract investment and activity into your region. The production equipment provision allows a company to admit to a zone foreign- status parts and equipment that will later be used in FTZ manufacturing activity. While the equipment is being assembled and tested, it can remain in foreign status, allowing the company to defer duties. When the equipment is ready to be used for production, it must then be entered for consumption. The provision allows the company to benefit from any inverted tariffs that may exist (that is, if the duty rate on any of the parts is higher than on the assembled equipment, the company could pay the lower, finished-equipment duty rate).

While a company must be within an approved zone site before it can use the production equipment provision, other tools available - such as usage-driven site designation under the Alternative Site Framework (ASF) - allow for fast and predictable designation of zone sites. Under the ASF, a company anywhere in your service area could have FTZ designation within 30 days of your submitting the boundary modification request to our office. The company could then be activated by CBP and begin admitting production equipment. In the meantime, the company could be preparing its application for manufacturing authority to be submitted to the FTZ Board.

If you have any questions, do not hesitate to contact your regional representative on the FTZ Board staff. The list of staff contacts by region is in the "Contact Us" section of our web site - the direct link to that list is:

https://enforcement.trade.gov/ftzpage/grantee/staffbyregion.html

Andrew McGilvray
Executive Secretary and Staff Director
U.S. Foreign-Trade Zones Board
(202) 482-2862
www.trade.gov/ftz