Challenges and opportunities to CPSC import surveillance efforts from Foreign Trade Zones (FTZs) were the topic of a June 11 session between agency staff and the association that supports such zones. The word foreign comes from the 1930s law that allowed them in the United States, but FTZs are the same as areas known as free trade zones elsewhere: special sectors aimed at economic development from allowing goods to be moved in and out of a country as well as processed in various ways without officially entering that nation. The incentive is various breaks on duties.
Highlights from the agency staffers’ session with Daniel Griswold, president of the National Association of Foreign-Trade Zones, and Sean Murray, of Miller & Company and counsel to the association, include:
- Use of a zone is considered by CBP to be a C-TPAT best practice. This is because of the required security aimed at protecting against non-payment of duties. Unauthorized movement out of an FTZ is smuggling.
- Materials in FTZs do not need to be U.S.-compliant until they leave and enter U.S. commerce. This means they can be used for product safety work. For example, items packaged for compliance with other jurisdictions’ labeling requirements can be repackaged for U.S. mandates.
- CPSC likes use of FTZs for reconditioning and similar work because of the security controls.
- U.S. regulatory agencies have access to the zones even though goods have not entered commerce. This comes under their domestic authorities – the items may not have entered commerce, but they are in the country.
- Inventory controls must ensure that all items entering a zone are accounted for. Rules accommodate disposal, destruction, and exportation.
- Some companies opt to use weekly reporting of inventory movement via a combination of estimated pre-reporting and final reporting. This allows them to avoid paying up to hundreds of duty fees when their business practices involve regular, small shipments leaving zones. Goods on the final reports must not exceed the estimates for their line items or additional duties apply. Thus estimates typically are higher than actual and involve considerations of existing and expected inventory during the week as well as data like historical highest activity.
- Weekly estimates can include items that do not appear on the final reports. One example is companies leaving seasonal products on the estimates year-round because it is easier to do so rather than spend resources to accurately track when they appear. Another is expected shipment of items into the zone being delayed during shipment.
- The difference between estimated and final numbers can mean that companies occasionally need to educate regulators who demand access to products that were not in a zone, are not there yet, or occur in lower numbers.
- The seven days between the estimate and the final means that goods can be in commerce for days before regulators know about them. However, because estimated reporting is designed to accommodate the regular flow of items, regulators often can seek to review next batches.
- For certification purposes, it is not clear if CPSC will consider the estimated report or the final to be time of entry. Agency staffers need to better understand how CBP controls would affect related surveillance. Those can vary by region or even zone. A potential source for answers is the upcoming e-filing pilot (PSL, 6/8/15).
- ACE development might mean changes or elimination of weekly reporting because automation might facilitate flowing reporting rather than interval. This could give regulators better real-time access.
- There is no legal limit on the time that items can remain in a zone although practical issues like storage space matter. Some users have kept items there too long and had to figure out how to dispose of them. An example of a rare use of this freedom is in the metals market. The London Metals Exchange has kept materials in a U.S. zone for decades as it has been bought and sold by traders.
- An FTZ can be anything from a huge industrial park with multiple users to a single building. General purpose zones aim for multiple clients. Subzones are created by single companies for their exclusive use.
- Zone users need to anticipate practices. For example, if a company occupies two buildings next to each other, one in an FTZ and one not, goods cannot move between them without triggering entry. Thus if quality control work occurs in a non-zone building, simple sampling could be a problem. Another is use of non-zone space for overflow storage. Thus it is better to maximize zone size.
- Third-party testing – which would not occur in a zone – is possible via accommodations for temporary removal of items for tasks that cannot be done otherwise. However, inventory controls still apply. Everything that leaves must be shown to have returned.
- Destructive testing outside a zone is possible because there is no mandate that items return as the left. Indeed, another use of temporary removal is to make specialized changes. Thus return of the sample remnants is sufficient.
- Certain activity is not allowed in a zone such as making alcohol or firearms. On the other hand, non-manufacturing changes like kitting might be acceptable: sealed liquor bottles could be made part of gift sets. CPSC staff wondered about such limitations related to fireworks.
