Origins and basic concept of U.S. Foreign-Trade Zones

U.S. Foreign-Trade Zones (FTZs) have been part of the nation’s trade toolkit since 1934. An FTZ is a secure area supervised by U.S. Customs and Border Protection (CBP) that is treated as outside the customs territory for tariff purposes.

Within an FTZ companies can admit both foreign and domestic inputs, perform staging or manufacturing, and defer the decision about if, when, and how goods will enter U.S. commerce or be exported.

How FTZ operations give businesses timing flexibility

The ability to delay customs events is central to the FTZ value proposition: firms can bring materials into the zone, process or assemble them, and only trigger duties when merchandise leaves the zone for U.S. consumption. Inventory that remains in the zone, is destroyed there, or is exported does not immediately create duty outlays.

Primary advantages of FTZ participation

Companies use FTZs for several concrete commercial and operational benefits. Key advantages include

1. Cash-flow relief via duty deferral

   Duties are due only when goods exit the FTZ for U.S. consumption. For large importers or manufacturers with long production lead times, deferring duty until sale can materially improve working capital.

2. Duty exemption on exports

   Goods exported directly from an FTZ are not subject to U.S. customs duties. This is a strong advantage for exporters: components can be imported, assembled or manufactured in an FTZ and then exported—often to countries other than Canada or Mexico—without paying U.S. duties.

3. Management of start-up costs

   New production sites that import costly machinery and equipment can delay duty payments until the equipment is placed into use, easing upfront capital strain during critical launch phases.

4. Operational efficiencies

   CBP-authorized procedures such as weekly entry filing and direct delivery to zones reduce administrative friction and fees, producing recurring savings.

5. Inverted tariff benefit

   In normal circumstances a manufacturer could elect to pay the duty rate applicable to the finished article when it is lower than component rates. That statutory option remains, although recent policy changes have narrowed its practical availability for some imports.

6. Scale and impact

   FTZs are widely used across industries and at scale, supporting manufacturing and distribution operations.

Recent scale statistics and industry reach

FTZs are not niche: in 2023 more than 550,000 U.S. workers were employed in over 1,300 active FTZ operations. That same year zones handled nearly $949 billion in combined foreign and domestic merchandise and exported roughly $149 billion, representing 7.3% of total U.S. goods exports in 2023.

Users of the program span energy, pharmaceuticals, autos, electronics, machinery, chemicals, and metals, illustrating the program’s cross-sector footprint.

Policy developments of the last eight months

The prior eight months brought several overlapping trade actions that directly affect FTZ strategy. Three of the most consequential are:

• reciprocal/global tariff frameworks;
• increases in Section 232 steel and aluminum measures;
• the end of duty-free de minimis treatment for most low-value shipments.

Reciprocal tariffs and privileged foreign status

In April 2025 the White House issued an executive order that established a 10% global “reciprocal” tariff plus additional country-specific duties. The order requires that articles covered by the action and admitted into FTZs on or after April 9, 2025, be placed in privileged foreign (PF) status.

PF status locks in the tariff classification and rate that applied at admission, so subsequent manufacturing in the zone or later tariff changes do not alter the rate for those goods. The practical result is that the ability to achieve a lower finished‑good tariff through production inside an FTZ is largely curtailed for items covered by the reciprocal framework.

Section 232 steel and aluminum changes

In June 2025 the administration raised and broadened Section 232 tariffs on steel, aluminum and many derivative articles, citing national security reasons. Guidance and logistics advisories have clarified the expanded scope and rate application.

For FTZ users, Section 232 duties are assessed when goods enter U.S. consumption, but at the rate that was in effect when the merchandise was brought into the FTZ. PF status can eliminate the option to mitigate these liabilities by reclassifying merchandise as a finished article, though the zone still provides duty deferral, weekly entry and other compliance advantages. Most goods exported directly from FTZs remain outside U.S. duty obligations, including Section 232 tariffs.

End of de minimis and the shift in e-commerce routing

Effective Aug. 29, 2025, duty-free de minimis treatment for most small-value commercial shipments—previously allowed up to $800—ended. Carriers, retailers and CBP have adjusted enforcement and operational procedures in response.

While not an FTZ policy itself, the removal of de minimis relief has driven more cross-border e-commerce import flows toward FTZs so merchants can defer duties until a sale, consolidate filings through weekly entries, and centralize compliance. De minimis once let many brands avoid traditional customs entries; with that option mostly gone, FTZs offer a scalable path to handle the resulting duty and processing burden.

Why FTZ economics still matter

Despite these new constraints, the fundamental financial drivers for FTZ use remain compelling in many situations. Duty deferral still improves liquidity for importers with long dwell times, seasonal inventory builds, or volatile demand.

Direct exports from zones generally escape duties, and return flows or warranty repairs can be managed inside a zone without immediate duty triggers—important for reverse logistics and remanufacturing programs.

Zones operate under CBP supervision with strict inventory controls and recordkeeping, which helps centralize compliance if companies face layered trade remedies, forced-labor holds, or sanctions screening.

How businesses join the FTZ program and practical choices

Companies can apply to the U.S. Foreign-Trade Zone Board to have a private facility designated and then activated with CBP approval, or they can operate inside an already-activated public zone run by a third-party operator.

Activating a private site gives firms direct control over zone procedures and inventory—often preferable for large manufacturers or high-volume distributors. Smaller and mid-sized businesses frequently use public warehouses or third-party FTZ operators to access duty deferral and operational benefits without managing their own activation.

Compliance posture and recommended next steps for operators

FTZs are a compliance-heavy framework designed by Congress to support U.S. jobs and investment while preserving customs control. The 2025 policy wave—reciprocal duties, higher Section 232 rates, and the end of de minimis—has altered the importing landscape, but core FTZ pillars remain: duty deferral, export duty exemption, and operational efficiency.

Operators already using FTZs should update their economic models to reflect PF status rules and trade-remedy assumptions, tighten inventory and accounting controls, and pursue savings through process improvements such as weekly entry filing and brokerage consolidation rather than expecting lower duty rates.

Firms considering FTZ participation—particularly high-volume, low-margin e-commerce businesses or exporters—should evaluate the program as a durable option in a policy environment where alternatives have narrowed. Use the FTZ flexibility with sharper discipline to maximize benefits.

Final perspective on FTZs and U.S. manufacturing policy

The U.S. FTZ program was created with U.S. jobs in mind and has adapted as rules have changed. Today’s environment requires refreshed control measures and a focus on procedural savings, but zones continue to offer practical tools that can support U.S.-based trade, production, and export activity.