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.
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