Free Trade Zone
Definition
A free trade zone is a designated area where imported goods can be stored, processed, or assembled without immediately paying customs duties, which become due only if and when the goods enter the domestic market. In the US these are called foreign-trade zones (FTZs).
In Practice
Goods admitted to a zone are legally outside the customs territory. Duty is deferred while they sit in the zone, avoided entirely if they are re-exported, and in some regimes reduced when manufacturing in the zone changes the product's classification to one with a lower rate, an effect known as an inverted tariff benefit.
For planners, zones are a cash flow and cost tool for import-heavy operations. Duty deferral turns a payment at vessel arrival into a payment at customer shipment, weeks or months later, which matters at scale. Zones also allow weekly consolidated entry filings instead of per-shipment entries, cutting brokerage and processing fees. The overhead is compliance: zone inventory must be tracked to customs standards.
For example, a distributor importing 300 million dollars of goods annually operates its DC as an FTZ, deferring duty until goods ship and paying none on the 15 percent it re-exports.
Related Calculators
Related Terms
Duties and tariffs are taxes governments levy on imported goods, usually calculated as a percentage of the goods' declared value based on their classification code and country of origin. They are a direct component of landed cost.
Customs ClearanceCustoms clearance is the process of getting goods approved by government authorities to enter or leave a country, including filing declarations, paying duties and taxes, and satisfying any inspections. Goods cannot be delivered until clearance is complete.
Distribution CenterA distribution center (DC) is a facility designed to receive goods in bulk and rapidly redistribute them to stores, customers, or other facilities. Unlike a long-term storage warehouse, a DC is optimized for throughput and order fulfillment.