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U.S. foreign-trade zones (FTZs) are geographic areas declared to be outside the normal customs territory of the United States. This means that, for foreign merchandise entering FTZs and reexported as different products, customs procedures are streamlined and tariffs do not apply. For products intended for U.S. consumption, full customs procedures are applied and duties are payable when they exit the FTZ.

In 1934, in the midst of the Great Depression, Congress passed the U.S. Foreign-Trade Zones Act. It was designed to expedite and encourage international trade while promoting domestic activity and investment. The U.S. FTZ program offers a variety of customs benefits to businesses which combine foreign and domestic merchandise in FTZs. Similar types of “zones” exist in 135 countries, employing about 66 million workers worldwide…

Zone activity represents a significant share of U.S. trade. In 2011, over 12% of foreign goods entered the United States through FTZs—75% of them as crude oil. Most shipments arriving through FTZs were consumed in the United States; the rest were exported. Crude oil byproducts such as gasoline, diesel, jet fuel, kerosene, and petrochemicals dominate FTZ output. Other key products include autos, consumer electronics, and machinery. U.S. zone activity occurs primarily in FTZ manufacturing “subzones.”…

FTZs are the U.S. version of free trade zones scattered around the world… Free trade zones have become a substantial part of the structure underpinning the global supply chain. Together, these roughly 3,500 zones in 135 countries, including the United States, form a web that frees producers from most customs procedures and offer duty savings, thus facilitating intricate international co-production operations.

Excerpted from: U.S. Foreign‐Trade Zones: Background and Issues for Congress