Approaches to Value and Factors Considered in Bonded Warehouses and Foreign Trade Zones
There are strict laws which govern companies who use Bonded Warehouses and Foreign Trade Zones. Each utilized facility must adhere to specific rules set forth by US Customs and other federal regulatory bodies. When appraising companies who use either Bonded Warehouses and FTZs it is important to be familiar with any risks when lending on inventory in either a Bonded Warehouse or Foreign Trade Zone.
Unlike Bonded Warehouses, inventory can only stay in a FTZ for a period of five years before it must be destroyed under the supervision of US Customs. Similarly, inventory stored within an FTZ cannot be sold domestically.
Without the proper understanding of these nuances an inventory value or liquidation strategy may be conveyed to the lender which is unrealistic or unlawful if the appraiser does not take the current federal law into account.
Things to remember
- Understand the operations of the Company.
- Be familiar with regional and/or seasonal market fluctuations.
- Understand the nomenclature and unit of measure.
- Determine the best market for each type of asset.
Testimonials
You have gone way beyond what was asked or expected. This is a long time account with the bank and we appreciate the assistance you provided in guiding them through liquidating their excess inventory.
Bonded Warehouse vs Foreign Trade Zone
| FUNCTION | BONDED WAREHOUSE | FOREIGN TRADE ZONE |
|---|---|---|
| Customs Entry | A bonded warehouse is within the US Customs territory. Customs entry must be filed for goods to enter the warehouse. | A Foreign Trade Zone is not considered within customs territory. Customs entry is filed when goods are removed from the FTZ. |
| Customs Bond | Customs Bonds are required for all warehouse entries. | A Bond is not required for goods in a FTZ. Admissions to the zone are covered under the FTZ operators Customs Bond. |
| Permissible Cargo | Only foreign goods may be placed in a bonded warehouse | Foreign and domestic goods may be placed in a FTZ. |
| Payment of Duty | Duties are due prior to release from bonded warehouses. | Duties are due only upon entry for |
| State & Local Inventory Tax | All goods are taxed. | Foreign goods are not taxed as well as domestic goods that are to be exported are not taxed. |
| Manufacture of Goods | Manufacturing is not permitted in a bonded warehouse. | Manufacturing is permitted within the FTZ. Duty is payable on either the imported components or the finished product, whichever has the lower rate. There is no duty on waste material or on value added manufacturing such as labor, overhead and profit. |
| Appraisal and Classification | The tariff rate and the value of goods may be determined either at the time of admission into a FTZ or when goods leave at the user’s discretion. | The tariff rate and the value of goods may be determined either at the time of admission into a FTZ or when goods leave at the user’s discretion. |
| Storage Period | Not to exceed five years | Unlimited |
| Permitted Activity | Goods may only be cleaned, repackaged and sorted under customs supervision. Duty is owned on entire shipment entering a bonded warehouse including waste and damaged goods. | Goods may be: sorted, destroyed, cleaned, graded, mixed with foreign or domestic goods, labeled, assembled, manufactured, exhibited, sold and repacked. |
| Domestic Goods | May not be admitted. | May be admitted without customs permit and co-mingled with foreign goods. |
| Control of Goods | Customs has primary control of goods. The goods can only be inspected and transferred during regular working hours in a bonded warehouse. | FTZ has full control of goods 24 hours a day. |
| Movement of Goods | Movement of goods is limited in a bonded warehouse. Specific customs approval is required for each movement. | Movement of goods is relatively unrestricted in and out of an FTZ. |
Key Terms in the Foreign Trade Zone Industry
Once a zone or subzone site is approved by the FTZ Board, an application must be made to the local CBP office, with the concurrence of the FTZ grantee, to operate the zone/subzone site (or portion thereof) under FTZ procedures. This CBP process is known as activation generally includes steps such as background checks, a written procedures manual, posting a bond with CBP, as well as a review of the security of the site(s) and the inventory control methods.
The size of the physical area of a particular zone or subzone authorized by the Board to be simultaneously in activated status with CBP pursuant to 19 CFR 146.6. The activation limit for a particular zone/subzone is a figure explicitly specified by the Board in authorizing the zone (commonly 2,000 acres) or subzone or, in the absence of a specified figure, the total of the sizes of the approved sites of the zone/subzone.
According to Section 400.21 , general-purpose zone sites must be within 60 miles or 90 minutes driving time of a U.S. Customs and Border Protection Port of Entry.
The U.S. Customs and Border Protection terms describing the shipment of merchandise into U.S. foreign-trade zones under CBP supervision (19 CFR 146.1).
An optional approach to designation and management of zone sites allowing greater flexibility and responsiveness to serve single-operator/user locations. The ASF was adopted by the Board as a matter of practice in December 2008 (7 4 FR 1170, January 12, 2009; correction 7 4 FR 3987, January 22, 2009) and modified by the Board in November 2010 (75 FR 71069, November 22, 2010).
Interpretation of the FTZ Act holds that all materials to be consumed in manufacturing or processing operations within a zone must first be entered for consumption with duties paid.
See Foreign-Trade Zones Board
U.S. Customs and Border Protection of the Department of Homeland Security
A previously activated general purpose zone or subzone site which no longer has local CBP authorization for activity under FTZ procedures.
A site or portion of a site that once held zone status, but has been removed from the zone through an administrative minor modification by the FTZ Board staff or an FTZ Board application process.
Describes merchandise that is mainly of domestic origin but also includes foreign-origin merchandise on which customs entry and duty payments have been made prior to admission to the zone site.
Used synonymously with Domestic origin/duty paid (see above). Domestic status is the customs status (19 CFR 146.43) for domestic origin and duty paid foreign origin zone merchandise.
The term that describes the general customs process of filing the appropriate CBP documents (including duty evaluation) that allows merchandise to be brought into the commerce of the U.S. (19 CFR 141). With respect to foreign-trade zones, this process occurs when merchandise is shipped from the zone into U.S. commerce.
The category of merchandise that is forwarded from zone sites to destinations in foreign countries.
(FTZ or zone) includes one or more restricted-access sites, including subzones, in or adjacent (as defined by Sec. 400.11 (b)(2)) to a CBP port of entry, operated as a public utility (within the meaning of Sec. 400.42) under the sponsorship of a zone grantee authorized by the Board, with zone operations under the supervision of CBP.
Consists of the Secretary of Commerce (chairman) and the Secretary of Treasury, or their designated alternates.
Describes zone merchandise admitted to a zone. site under CBP supervision that is normally of foreign origin. Such merchandise is admitted to zone sites without being subject to formal customs entry procedures and payment of duties, unless and until the foreign merchandise enters customs territory for domestic consumption. Foreign status merchandise is further categorized by CBP as either Non Privileged Foreign or Privileged Foreign
The category of merchandise that is shipped from or forwarded from zone sites after release by CBP. This category includes merchandise that is forwarded to destinations in the U.S. market as well as merchandise that is exported–that is, forwarded to markets in foreign countries.
A document issued by the Board that authorizes a zone grantee to establish, operate and maintain a zone, subject to limitations and conditions specified in this part and in 19 CFR part 146. The authority to establish a zone includes the responsibility to manage it.
See Zone Grantee
A general-purpose zone or subzone site that has been approved by the FTZ Board, but is not “activated” with CBP. No activity under FTZ procedures is occurring at an inactive site.
A grant of authority for a zone or a subzone shall lapse unless the zone project, or subzone facility, is activated, pursuant to 19 CFR Part 146, and in operation not later than five years from the date of the Board order.
A site intended to serve or attract multiple operators or users under the ASF.
Involves merchandise received into activated FTZ space under FTZ procedures by foreign-trade zones and subzones. It includes foreign status merchandise and domestic status merchandise.
A major modification is a proposed change to a zone that requires action by the FTZ Board; a minor modification is a proposed change to a zone that may be authorized by the Executive Secretary.
One of the customs categories of foreign status merchandise (See 19 CFR 146.42). Such merchandise is evaluated based on its condition at the time it is shipped from the zone to the U.S. market and entered for consumption by CBP.
See Zone Operator
Includes any individual, corporation, or entity.
A port of entry in the United States, as defined by part 101 of the regulations of U.S. Customs and Border Protection (19 CFR part 101), or a user fee airport authorized under 19 U.S.C. 58b and listed in part 122 of the regulations of CBP (19 CFR part 122).
One of the customs categories of foreign status merchandise (See 19 CFR 146.41). Such merchandise maintains its status based on its condition when it was admitted to the zone. Thus, when the merchandise is shipped from the zone to the U.S. market and entered for consumption by CBP, it is evaluated based on the time-of-admission condition even though it may have undergone a transformation in the zone.
Activity involving the substantial transformation of a foreign article resulting in a new and different article having a different name, character, and use, or activity involving a change in the condition of the article which results in a change in the customs classification of the article or in its eligibility for entry for consumption.
The jurisdiction(s) within which a grantee proposes to be able to designate sites via minor boundary modifications under the ASF.
A site (or group of sites) established for a specific use.
If a general purpose zone or subzone is no longer needed, the grantee can request that the FTZ Board remove zone/subzone designation. Upon such action by the FTZ Board, the zone or subzone is then considered terminated.
A site tied to a single operator or user under the ASF.
See Zone User
A foreign-trade zone (see above) established under the provisions of the FTZ Act and regulations. The term also includes subzones, unless the context indicates otherwise.
The corporate recipient of a grant of authority for a zone project. The term “grantee” means “zone grantee” unless otherwise indicated.
A corporation, partnership, or person that operates a zone or subzone under the terms of an agreement with the zone grantee (or third party on behalf of the grantee) with the concurrence of the Port Director of CBP.
Merchandise in this status is to be exported or destroyed. Zone-restricted status merchandise can be entered into U.S. customs territory only if the FTZ Board finds that entry would be in the public interest.
To be kept by the zone grantee, the zone schedule includes the internal rules and regulations of the zone, as well as a statement of the rates and fees charged to zone users.
A physical location of a zone or subzone. A site is composed of one or more generally contiguous parcels of land organized and functioning as an integrated unit, such as all or part of an industrial park or airport facility.
Merchandise can enter the zone in either domestic or foreign status. Domestic status can include foreign status goods where the duty has been paid and the goods entered for consumption. Foreign status includes privileged foreign, nonprivileged foreign and zone-restricted status.
A party using a zone under agreement with a zone operator.