How an Inverted Tariff Benefit Can Reduce Production Costs
In addition to the baseline benefits of operating as an FTZ, some FTZ operators apply for and are granted a special authorization known as “Production Authority.” Production authority is granted by the National FTZ Board and allows companies to pay the tariff of their finished goods as they are appraised and classified when they enter U.S. commerce rather than at the time they are admitted into their FTZ. The concept is that a company pays for the product it sells into U.S. commerce rather than product that it imported into its FTZ, since it’s FTZ is considered outside of U.S. custom territory.
For Example: Let’s assume the final product you assemble in the United States is a tractor, and you import hydraulic subassemblies from Italy with an import tariff rate of 7%. Since tractors have a 0% tariff when imported into the U.S., if your FTZ is approved for production authority, you could theoretically eliminate the import tariff on the hydraulic subassemblies by converting the product into a non-dutiable tractor. Again, this requires special approval from the National FTZ Board that is awarded on a case-by-case basis.
It may make sense to apply for Production Authority if:
- The tariff cost of your imported components is higher than the potential tariff cost of the final product you sell to the U.S. market
- Your imported components are not subject to trade remedy tariffs such as Section 301 tariffs on imports from China or Section 232 tariffs on steel & aluminum
- Your imported components are not subject to other import limitations such as AD/CVD tariffs or quotas
How do I activate my facility as an FTZ?
If you are located in FTZ #176 service area, we can activate your facility as an FTZ through the grant of authority of the Greater Rockford Airport Authority. We can help walk you through the process. It takes some investment, but we will make it as easy as we can.
For next steps, Contact:
Carrie Zethmayr
FTZ #176 Administrator
312-221-1115
carrie@zethmayr.com