Once you have decided to expand your business outside of the U.S. market, you will be dealing with tariffs that will inevitably raise the final price of your product.  There is a way to minimize those costs, through the strategic use of Free Trade Zones (aka Foreign Trade Zone).

Simply put, an FTZ is a specified plot of land within a country, generally near a port-of-entry that is a designated area in which taxes are not charged.  That is not to say added taxes will never be charged.  There may or may not be taxes, depending on the situation.  An FTZ allows you to properly classify and process those goods, freeing up your cash temporarily.  Using an FTZ can help with cash flow.  

Here are a few uses for FTZs:

Manufacturing Preparation

A place to import raw materials to be used for manufacturing a finished product.  The FTZ acts as a staging ground where the raw materials are imported, tax-free, in preparation to be turned into a finished product.  If you land the raw materials into an area that is not an FTZ, you could be paying taxes on the raw materials, and again on the finished product.  In some places, the tariff on raw goods is higher than finished goods.  In other places, it is the opposite.

Shipment Consolidation

If shipments are coming from different parts of the world, an FTZ is a place they can all “meet up” for consolidation and forwarding to their final destination, without being charged with import fees.

Goods Awaiting a Buyer or Payment

If you are shipping goods to a country in anticipation of finding a buyer, you can store them in a warehouse within an FTZ, and not pay taxes on them until the buyer is found and the goods are paid for.  This can also be used to stage goods awaiting payment from the buyer to clear before releasing them.   

Disposal of Goods

If you have a shipment that has been damaged, or have been accruing a collection of defective goods, sending them to an FTZ for disposal will eliminate any taxes that could be due.

For a business entering the international market through ecommerce for the first time, the FTZ is a new concept.   Depending on whether you are a manufacturer selling into a foreign market, or a reseller stocking a foreign warehouse, an FTZ can help reduce costs due to taxes, thus keeping the final purchase price of your products down. 

Perry Goldstein
Perry Goldstein

Perry Goldstein has spent over 40 years in the electronics industry, in both the Consumer and Pro A/V sides of the industry. He is a pioneer of the ecommerce industry, working with ecommerce platforms since the advent of the channel in the mid-1990s. He has extensive experience working with Amazon since their entry into the electronics industry, as well as many of the biggest online retailers.