Foreign Trade Zones

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Greater Kansas City Foreign Trade Zone, Inc. ("GKCFTZ") is a not-for-profit corporation registered in the States of Missouri (since 7/30/71) and Kansas (since 4/13/1973). GKCFTZ applied and received a Grant of Authority from the U.S. Foreign Trade Zone's Board in Washington, D.C. to establish, and operate Foreign Trade Zone 15 (Missouri) and Foreign Trade Zone 17 (Kansas) on December 20, 1973 and March 23,
1973, respectively ("FTZ"). The GKCFTZ serves as "Grantee" for foreign trade zone status under the U.S Foreign Trade Zone Act of 1934, as amended (19 U.S.C. 81a-81u; hereafter the "Act").

BACKGROUND

Area Served: Under the Act, the service boundaries of GKCFTZ are 60 miles or 90 minutes from the boundary of USCBP's Port of Kansas City. GKCFTZ currently has FTZ projects as far north as St. Joseph and Chillicothe, MO, as far east as Kirksville, Missouri, as far south as Carthage, MO, and as far west as Topeka, KS. Within this general area, there are over 733 million square feet of designated FTZ space making it the largest FTZ area in the nation. The Grants of Authority to GKCFTZ were the first Grants awarded to not-for-profit organizations in the nation. Zones 15 and 17 process more goods and merchandise (measured by $$ value of goods received and forwarded) than FTZ's in St. Louis, Denver and other Ports of Entry in the Heartland of America.

In pre-NAFTA times, Zone 15 and 17 FTZ's space was used extensively by the auto and allied industries; the major production plants operated by Ford and General Motors in the Kansas City area accounted for a significant portion of activated FTZ space. With the elimination of duties and tariffs on automobile components from Mexico and Canada as a result of NAFTZ, there has been significant "deactivation" of this FTZ space once devoted to auto assembly. At the present time, approximately 5% of all designated FTZ space in GKCFTZ's service area is "activated" for FTZ use. Purpose of FTZ: The intent of the FTZ program is to stimulate economic growth in the United States. It was designed to promote American competitiveness by encouraging companies to maintain and expand their companies in the U.S. The program encourages U.S. based operations by removing disincentives associated with manufacturing in the U.S. The duty on a products manufactured abroad and imported into the US is assessed on the finished product rather than on its individual parts, materials and components. The US based manufacturer is at a disadvantage when compared with its foreign competitor when it must pay a higher rate on parts, materials and components imported for use in a manufacturing process. The FTZ program corrects this imbalance by treating products
made in a zone for the purpose of tariff assessment, as if they were manufactured abroad.

At the same time, the US economy benefits because the zone manufacturer uses U.S. labor, services, and other inputs in the manufacturing process. FTZ areas are designated by local communities and approved by GKCFTZ and the U.S. Foreign Trade Zone Board, Washington, D.C. ("USFTZ"). Goods and merchandise "admitted" to an FTZ, can be assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and destroyed. There are basically two types of FTZ's; General Purpose ("GP") FTZ and Subzones. Goods and merchandise admitted to the FTZ pay no U.S. Customs Duties or Federal Excise Taxes or state inventory taxes. There are also other import fees that are avoided or delayed. When goods leave an FTZ and are "entered" into the commerce of the United States, they become subject to Customs duties and fees and federal taxes. In the meantime, importers have saved the "time value" of the money they would otherwise pay in duties, taxes, and fees. If the tariff classification of goods and merchandise are changed in the FTZ (i.e., foreign parts are assembled or mixed into a different product), then, in recognition of the value-added work, the duties on the imported components that produce a final product are not be applied (unless they are lower than the duties on the finished product) and instead, duties are assessed on the classification of the final product (normally lower or "duty- free"). Goods and merchandise leaving an FTZ for export to another country pay no duties, taxes or fees (they never enter the commerce of the United States); imported goods destroyed in an FTZ (due to damage, or destroyed in processing) are not subject to duties, taxes, or fees.

FTZ Application and Activation Processes:

Application: In order for a company to secure designation as an FTZ –GP Zone or a Subzone, an application needs to be prepared by and/or with the concurrence of the GKCFTZ and submitted to the USFTZ. The USFTZ is composed of the Secretary of Commerce and the Secretary of the Treasury. In addition to the Act, application processes and FTZ operations are governed by U.S. Foreign Trade Zone Board Regulations (CFR, Title 15, Volume II, Part 400, Title 1 through 400.53) and U.S. Customs Regulations (19 CFR Chapter 1, Subsection 146.0 through 147.46). FTZ applications must contain a sufficient level of detail about the activities that will be conducted within the FTZ to permit evaluation of the application and its economic impact. Required information includes the location of the proposed FTZ; nature and estimated volume of goods and merchandise and their respective Tariff Classification (Harmonized Tariff Schedule of the United States or "HTSUS" classification) to be admitted to the FTZ; the nature of processing to take place (if any); HTSUS and quantity of products or merchandise that will leave the FTZ for import or export; and economic impact these activities will have for the community, the industry itself, other domestic industries that might be affected, and the justification of those impacts as they relate to
foreign competition.

Activation: If and when applications for FTZ designation are approved by the USFTZ, a separate process involving GKCFTZ and the Port Director for the Port of Kansas City is undertaken to "activate" use of the designated FTZ space. The GKCFTZ, as "Grantee" is authorized to operate the FTZ in accordance with the Act and applicable regulations. GKCFTZ issues a "licenses" of it's authority under the Act to the designated Zone Operator or User who is charged with day-to-day responsibilities of FTZ operation. The License is in the form of an Agreement between the GKCFTZ and Zone Operator/User (the Company owning or operating the ZONE or Subzone facilities in the FTZ) covering details unique to specific aspects of the FTZ designation. The
Operator/User prepares and submits an Operations Manual to CBP-Port of Kansas City for their approval. The Manual describes and depicts the space to be activated and prescribing procedures for safeguarding the revenue of the U.S. Government represented by the goods admitted to and leaving the FTZ (accounting for goods/merchandise; security; reporting requirements, etc).

Zone sites identified have active FTZ operations and/or are able to accept merchandise under FTZ procedures. Other Zone sites identified are designated but not currently active FTZ operations.

Timing: The process to secure FTZ designation can take as little as 4-6 months (for General Purpose Zone applications requiring only administrative approval by the USFTZ Board) or as long as 8-14 months depending on the nature and complications of the application. There have been recent changes in USFTZ rules (known as "Alternative Site Framework" or "ASF" procedures) for processing General Purpose Zone applications. Those procedures are in place in Zone 17 (Kansas) and GKCFTZ is preparing to make them available in Zone 15 (Missouri). These new procedures significantly reduce processing time (to approximately 45 days) and cost for securing FTZ designation Manufacturing/Subzone applications (particularly those in industry groups that are new to the FTZ program) generally take a longer amount of time due to requirements for analyzing and evaluating economic impact the FTZ designation may have on domestic industries, suppliers, etc. Generally, applications must result in a positive net economic benefit to the economy of the area and not negatively impact domestic industries. The FTZ "activation" process described above can take as little as 60 days and can be undertaken concurrently with FTZ application processing.