The textile industry is increasingly competitive, and few companies in the industry can maintain their U.S. operations due to costs. Many textile companies have moved operations offshore, taking with them jobs and investment. Fortunately, Andy Honkamp, President & CEO of Cellusuede is always seeking ways to reduce costs and improve his competitive position with his customers.
To reduce costs and reinforce the competitive position of Cellusuede’s Rockford, Illinois operation, Andy partnered with FTZ #176 to make his facility a Foreign Trade Zone. The FTZ allows Andy to import his largest volume raw material duty-free, and then he manufactures the raw material into a new product that has a different product classification that is duty-free, thus eliminating the duty entirely. This is called the “inverted-tariff benefit,” one of the many benefits of using a foreign trade zone.
The foreign trade zone allows companies to pay the duty on what they sell to the U.S. market, rather than the duty on what they imported. In some cases, this means a change to the duty rate allowed by the inverted tariff benefit, in other cases duties are eliminated when imports are re-exported, and sometimes it is simply a deferral of the duty since it is paid upon sale to the U.S. market rather than upon import.
Using the inverted-tariff benefit, Cellusuede saves more than $120,000 annually which allows the company to keep prices low and gain more market share. For a company with 32 employees, this is a significant impact.