Companies can register as a U.S. free trade zone by applying through the Foreign-Trade Zones Board, completing a public review process, and getting approval from U.S. Customs and Border Protection. Foreign trade zones (FTZs), sometimes referred to internationally as free trade zones, are designated areas where companies can defer customs duties; reduce merchandise processing fees; and store, test, assemble, manufacture, or re-export imported goods before they enter domestic commerce. Bonded warehouses, on the other hand, work similarly in that they are buildings where goods can be stored, manipulated, and manufactured without paying taxes or duties, but the warehouse owner takes on a bond covering the merchandise stored there.Major global free trade zones include Colon, Panama; Shanghai, China; and Mexico’s Zona Libre along the entire U.S.-Mexico border. If you prefer to register your own free trade zone instead of using someone else’s, however, for the U.S. it’s worth considering factors including how much you import and export internationally, whether you have staff to handle trade zone regulatory requirements, and whether you frequently re-export products after manufacturing.In this article, we’ll be covering:What is a Good Free Trade Zone Definition?What Is a Foreign Trade Zone?Free Trade Zones vs. Foreign Trade ZonesWhat Is a Bonded Warehouse?Major Global Free Trade ZonesShould My Company Register as a Foreign Trade Zone?How to Set Up a Foreign Trade ZoneTaking Advantage of Foreign Trade ZonesWhat is a Good Free Trade Zone Definition?A basic free trade zone definition: a designated area in any country that offers companies specific tax benefits, including the ability to reduce or defer customs duties on materials, components, goods, or products. Although they are geographically inside the boundaries of the country, free trade zones are considered to be outside of the country’s border for tax purposes. Free trade zones in America are referred to as foreign-trade zones. Both are commonly abbreviated as FTZs.What Is a Foreign Trade Zone? A foreign trade zone is simply a free trade zone in the United States. Goods inside a foreign trade zone are treated as outside U.S. customs territory for duty purposes, allowing companies to defer, reduce, or eliminate customs duties until products enter U.S. commerce.Tariff increases (now spanning 10x more per each commodity) have spurred many companies to explore ways to defer duties, offset import costs and better manage cashflow, spiking interest in foreign trade zones in the United States. Curtis D. Spencer, CEO of IMS Worldwide Inc., an FTZ consultancy spanning 50 years in the US, says: “Foreign trade zones make so much sense today because of this expanded tariff base line of approximately 20% duty on all imported products. The fact that you can now get an approval for a distribution foreign trade zone in less than 45 days and become active and operational within six months means that the use of foreign trade zones will increase dramatically as long as these tariff rates remain this high. We are seeing 300% growth rate in the use of foreign trade zones across the United States.”Once merchandise enters a foreign trade zone, operators may be manufacture, process, assemble, manipulate, store, display, test, or otherwise alter goods. They can also salvage or destroy merchandise inside the zone. However, the FTZ Board must specifically approve any manufacturing activity that changes the tariff classification of a product before processing begins. Rules specifically prohibit retail trade in all foreign trade zones1, although potential customers can still visit these zones to view or test machinery. As long as merchandise is legal under U.S. law, it is generally permitted inside a foreign trade zone. While there are no specific restrictions on the types of merchandise, materials, or parts allowed in foreign trade zones, the FTZ Board has the authority to exclude products considered harmful to public health, interest, or safety.2Free Trade Zones vs. Foreign Trade ZonesFree trade zones are located around the world, while in the United States they are referred to as foreign trade zones. Although the terminology differs, both are designed to help companies improve cash flow, manage inventory, and enhance shipping and logistics. Regulatory requirements, tax structures, and permitted activities can vary significantly depending on the country and specific zone.For more on what a foreign trade zone is and international commerce, members of AMT – The Association For Manufacturing Technology can tap into the expertise of AMT’s International Services.What Is the Foreign-Trade Zone Board?The Foreign-Trade Zone Board oversees the establishment, regulation, and administration of foreign trade zones in the U.S. Led by the Secretary of Commerce (chair) and the Secretary of the Treasury, the board sets rules and regulations for foreign trade zones, approves zones and subzones, authorizes manufacturing and processing activities, and reviews appeals related to FTZ decisions. Companies operating in foreign trade zones are required to submit annual reports to the Board, which also reports annually to Congress on FTZ activity.3,4While the Foreign-Trade Zone Board oversees foreign trade zones at the federal level, U.S. Customs and Border Protection (CBP) manages their day-to-day operation. Zones must generally be located within or adjacent to an official CBP port of entry (air, rail, shipping), although the board may also approve adjacent sites within a 90-minute drive. CBP enforces all import and export laws, oversees merchandise entering and leaving zones, conducts spot inspections, and monitors compliance with customs and tax requirements. CBP personnel are regularly present in foreign trade zones and may inspect inventory, paperwork, and finished products. Regulators may also give certain machinery additional scrutiny because some equipment can be used to manufacture restricted or dangerous items. Types of Foreign Trade ZonesThere are two main types of foreign trade zones: magnet sites and subzones. Magnet sites support multiple operators within shared FTZs, while subzones typically serve a single company or a specific use.Magnet sites are commonly located near ports of entry and are often found inside industrial parks. Multiple businesses may operate within the same magnet site, and companies can apply to use existing space within the zone. Subzones, and usage-driven sites are approved by CBP and the Foreign-Trade Zone Board for specific activities or operations. Subzones are often used by individual companies or businesses conducting similar manufacturing or distribution operations.4 Usage-driven sites, on the other hand, are tied to a single operator or user.15 Advantages and Disadvantages of Foreign Trade ZonesForeign trade zone advantages include duty exemption and deferral, inverted tariffs, and reduced merchandise processing fees, but they come with legal, administrative, and operational requirements. Table 1: Foreign Trade Zone AdvantagesDuty exemptionNo taxes or quota charges are imposed on re-exports6Duty deferral Delayed payment of customs duties until goods enter U.S. commerceStore inventoryGoods can remain in inventory inside a FTZ until needed, keeping them closer to point of sale or operations.Inverted tariffsCompanies pay duties on finished products rather than imported components. Requires advance approval from the FTZ Board.5Reduction of Merchandise Processing Fee (MPF)Companies can file a single entry for goods shipped during a seven-day consecutive period instead of separate entries for each shipment. MPFs are based on shipment value but capped at $528.33 per entry.1Avoid merchandise quotasImports subject to quotas can be stored in a foreign trade zone until a new quota year starts. Materials subject to quotas can also be manufactured in the zone without affecting quota limits.Logistical benefitsOn-site CBP oversight allows for streamlined customs procedures and weekly batch processing. Companies also have greater control over inventory and the timing of imports and exports.Local tax benefitsIn addition to federal tax advantages, some FTZ locations offer state and local tax benefits.Added securityCBP oversight and compliance requirements could help reduce theft and improve inventory security. Table 2: Foreign Trade Zone LimitationsAdministrative burden and associated costsCompanies operating in zones – known as Zone Operators – face an array of legal requirements, including those outlined in the Foreign-Trade Zones Act of 1934, FTZ Board regulations, and CBP laws and regulations.6 They also must meet strict record keeping and inventory requirements.Startup fees$3,200 fee to establish an additional zone at a port of entry$4,000 to establish a non-production subzone or a subzone with less than three products, $6,500 to create a production subzone or one with more than three products. $1,600 for Zone expansions7Brokerage firm feesBrokerage firms that specialize in importing and exporting can manage the administrative tasks for a fee.6Additional costsCompanies may have to establish infrastructure, hire staff, and enlist security to meet ongoing administrative requirements.5 Foreign Trade Zone Case StudiesExample 1: Medium-Sized U.S. ManufacturerCompany A needs 10 machine tools, all manufactured in Japan. Company A plans to install eight of the machines in a facility in Illinois and send the other two to a company-owned facility in Canada. Company A brings all 10 machines to North America through a foreign trade zone to save on shipping costs, but the two machines bound for Canada will be immediately re-exported. Company A avoids paying U.S. customs duties on the two machines re-exported to Canada. Example 2: A U.S.-Based Machine Tool BuilderCompany B requires gears for machines being assembled in the United States. It purchases 100 gears from Germany and imports them through a foreign trade zone. The company uses 50 gears immediately and pays duties on those imports. The remaining 50 gears can stay in storage at the FTZ until needed or sold as spare parts. No taxes will be paid on those gears until they leave the zone. Company B also builds machines inside the foreign trade zone using parts imported from various countries. Company B only pays duties on the final product sold in the United States rather than on the individual imported raw materials and parts. This is known as an inverted tariff. Example 3: A U.S. Tooling DistributorAs a large tool distributor, Company C imports a wide variety of products from various countries, bringing all its products in through a foreign trade zone. The FTZ allows Company C to only pay duties on products shipped to customers rather than on unsold inventory. Company C avoids paying taxes on parts and tools that have not been sold yet, maintaining a positive cash flow position. *These scenarios are fictional but based on potential real-world use cases.What Is a Bonded Warehouse? A bonded warehouse is a building where users can store, manipulate, and manufacture goods without paying taxes or duties for up to five years from the date of importation. Bonded warehouses operate under the supervision of CBP. There are 11 different classes of bonded warehouses, and a warehouse may qualify under more than one classification simultaneously.8When goods enter a bonded warehouse, the owner of the warehouse takes on a bond, or financial guarantee, covering the merchandise inside. The liability ends when the merchandise is exported, destroyed, supplied to a vessel or aircraft or withdrawn for consumption in the United States after a duty is paid.9Foreign Trade Zone vs. Bonded Warehouse An FTZ warehouse and a bonded warehouse offer tax benefits, particularly the ability to defer payment of duties. However, bonded warehouses have limitations including the five-year storage limit for imported goods. Bonded warehouses may also offer less frequent customs processing and may be less efficient for companies handling large shipment volumes. By comparison, foreign trade zones often allow for weekly or more frequent shipment processing. Another key consideration is location. With limited exceptions, an FTZ warehouse must be within 60 miles or a 90-minute drive of a CBP entry port. Bonded warehouses do not face location limitations.4Differences Between Global Free Trade ZonesFree trade zones vary significantly from country to country in terms of regulatory requirements, operational procedures, and tax and duty benefits. All free trade zones offer tax benefits, but they differ in their regulatory requirements and operational methods. Some free trade zones allow manufacturing and assembly while others only permit warehousing, logistics, and/or re-exporting activities. Some zones also target specific industries including automotive, electronics, or aerospace. Companies must carefully assess the specific rules and operational requirements of any free trade zone relevant to their business.While larger companies may have in-house experts, including tax advisors and attorneys, smaller businesses can benefit by partnering with a company that specializes in handling imports and exports – ensuring that companies are able to take full advantage of available tax benefits. These firms typically specialize in trade in certain regions and will be well versed in local laws, customs, and practices. In addition to working with international trading partners, companies or their consultants will need to work closely with local customs authorities to determine the specific requirements for manufacturing in the relevant free trade zone.Major Global Free Trade ZonesSome of the major free trade zones around the world commonly used by manufacturers and international exporters are highlighted below.Colon Free Trade Zone The Colon Free Trade Zone (CFZ) is the largest free trade zone in the Western Hemisphere, according to the U.S. Department of Commerce’s International Trade Administration. Companies operating in the Colon Free Trade Zone can import goods for storage, packaging, labeling, modification, and re-export without paying import taxes unless products enter the local market. Situated on the Atlantic side of Panama, the CFZ hosts more than 2,500 companies that use the location to access both Latin American and Caribbean markets. With access to seaports, rail stations, and an international airport, the Colon Free Trade Zone allows international companies to store and redistribute merchandise while avoiding taxes. Johor Free Trade ZonesThe Johor Free Trade Zone, established in early 2025 following an agreement between Singapore and Malaysia, is home to several manufacturing and business hubs. The region (Malaysia’s Johor state) offers direct geographic access to Singapore and other Asia Pacific (APAC) locales through established land, sea, air, and rail connections.Chinese FTZs Including the Shanghai Free Trade ZoneChina merged four areas with high levels of international trade to form the Shanghai Free Trade Zone. The trade zone includes areas in Waigaoqiao Free Trade Logistics Park, Waigaoqiao Free Trade Zone, Yangshan Free Trade Port Area, and Pudong International Airport. While the Shanghai Free Trade Zone was China’s first, the country now has 22 free trade zones. Free trade zones throughout China, as well as new policy initiatives, have helped drive growth in advanced manufacturing. In Shanghai in particular, there is a growing focus on AI, intelligent manufacturing, and robotics.10Lekki Free Trade ZoneThe largest free trade zone in West Africa, the Lekki Free Trade Zone in Lagos, Nigeria, allows goods of any classification to pass through. Customs duties can be delayed or deferred until items leave the free trade zone. Mexican Free Trade ZonesMexico has a unique – and distinctively large – free trade zone. Known as the Zona Libre or Free Zone, it spans the entire southern border with the United States, encompassing an area 12-to-16 miles from the international boundary for the entirety of the border. The free trade zone crosses all six Mexican border states and includes 44 municipalities.11 For customs purposes, this area is not considered a part of Mexico, and importers are not subject to customs or duties of any type.Many American manufacturing companies benefit from the Mexican Free Trade Zone. Some have even established “maquiladoras,” (sometimes called “twin plants”), where manufacturing operations in Mexico support a parent company in the United States. Companies can send equipment, supplies, machinery, and raw materials to plants in Mexico without incurring import duties, and export finished products around the world.12Thailand Free Trade ZonesThailand has many free trade zones including one in Bangkok. In addition to free trade zones, Thailand also operates Special Economic Zones, which operate similarly to free trade zones for import and export purposes. Both types of zones are strategically located near ports, airports, and major highways to allow for the easy transport of goods. The tax privileges in these zones are extended to raw materials, components, and finished goods. Most U.S.-based companies use an intermediary to facilitate trade in a free trade zone in Thailand because local regulations and customs requirements can be complex.Should My Company Register as a Foreign Trade Zone? Consider establishing or operating within a foreign trade zone if your company regularly imports, exports, manufactures, stores, or re-exports goods and could benefit from reduced or deferred customs duties. Foreign trade zones may benefit companies by allowing them to defer, reduce, or eliminate customs duties on imported components and manufactured goods. The National Association of Foreign-Trade Zones explains that different zones provide different benefits, but these may include duty exemption, duty deferral, duty reduction or inverted tariff, merchandise processing fee reduction, streamlined logistics, and quota avoidance. It may also be easier to comply with the requirements of CBP, as CPB personnel carefully monitor these zones.When deciding whether to establish or operate within a foreign trade zone, there are several important considerations. The chart below outlines important factors.Foreign Trade Zone Decision Checklist Framework Is a Foreign Trade Zone Right for Your Company? If you answer YES to most of the following questions, you may want to consider establishing or joining an FTZ.Do you have a high share of international exports?Do you have a high share of international imports?Do you need to improve your cash flow situation?Are upfront customs duties creating cash flow challenges?Do you have staff available to handle foreign trade zone compliance requirements?Do you have access to a customs broker or trade specialist familiar with FTZ requirements?Are your products frequently re-exported after manufacturing?Do your products rely heavily on imported components or materials?Do your long-term plans include international growth or high volumes of exports?Are the costs for establishing a foreign trade zone lower than the costs of paying individual customs duties on the items you need? Are you looking for a way to mitigate the impact of tariffs?Taking Advantage of Existing Foreign Trade Zones Companies can join an existing foreign trade zone by renting warehouse or operating space. The National Association of Foreign Trade Zones maintains a list of available FTZ storage facilities by state. Existing foreign trade zones may be right for companies looking to manage inventory and improve cash flow. By operating within an existing FTZ, companies can avoid some of the costs and administrative requirements involved in establishing their own zone. Spencer adds: “Because you can add a foreign trade zone distribution facility in such a short amount of time, with an ROI that exceeds 1200%, many large importers are putting their entire networks inside the FTZ program.” How to Set Up a Foreign Trade Zone To set up a foreign trade zone, manufacturers and distributors must apply through the Foreign-Trade Zone Board and complete a review and approval process involving public comment and the CBP. After the application is submitted and reviewed, the Board will authorize the official application and the payment of any required fees, which may differ according to the type of application (new zone, expansion, reorganization, subzone, etc.). The application then undergoes public scrutiny following publication in the Federal Register. This period allows the public and stakeholders to weigh in on the proposal, creating a transparent review process. After the public comment period ends, an examiner reviews the application and makes a recommendation to the Board. If the examiner does not recommend approval, the applicant has an opportunity to submit additional information. CBP and representatives from the U.S. Department of the Treasury then review the full application. CBP must approve the zone before any merchandise can be admitted.13Finally, the Board holds a final vote and publishes its decision in the Federal Register.2The International Trade Administration provides detailed information on applying for a foreign trade zone, including helpful guidelines and tips. How to Establish a Bonded Warehouse The bonded warehouse’s owner or lessee must submit a written application to the CBP port director for the relevant port of entry area. The application must include the location of the proposed warehouse, intended activities, and warehouse classification. The application must be accompanied by a blueprint showing precise measurements for bonding purposes and a fire safety certificate from approved fire underwriters.14The area port director will determine the bond required for the warehouse based on its purposes. Bonds must be at least $25,000 on each building or area. CBP has a comprehensive Bonded Warehouse Manual with essential information for potential proprietors. Taking Advantage of Foreign Trade ZonesForeign trade zones, and their international counterparts, free trade zones, offer significant potential benefits to manufacturers, including reducing, avoiding, or delaying taxes or duties on imports and re-exports. Foreign trade zones are located only in the United States and are designed to help U.S. companies boost competitiveness by addressing cash flow, storage, and tax concerns. Manufacturers in particular can use zones to assemble, create, and store products using imported components and materials. In some cases, duties on the final product can be lower than the duties applied to the individual imported components, resulting in a net benefit for manufacturers. AMT members can check out our International Services for essential advice and assistance with international expansion and global trade, including proxy-hire services, in-country technical support, and duty-free facilities for equipment demos. Further ReadingInternational News From the Field: Inside Thailand’s Investment SurgeInternational News From the Field: India Is Having a MomentInternational News From the Field: Mexico and Brazil Attract Diverse CapitalSources 1.National Association of Foreign Trade Zones. (2025). Basics and benefits of the U.S. foreign-trade zones program. Accessed December 9, 2025, from https://www.naftz.org/basics-benefits/ 2.International Trade Administration. (2025). FTZ Application Process. Accessed December 9, 2025, from https://www.trade.gov/application-process-summary 3.Homeland Security. (2011). Foreign-trade zones manual. https://www.cbp.gov/sites/default/files/documents/FTZmanual2011.pdf 4.International Trade Administration. (2025). U.S. foreign-trade zones. Accessed December 9, 2025, from https://www.trade.gov/about-ftzs 5.International Trade Administration. (n.d.). The U.S. foreign-trade zones program: Information for CBP. Accessed December 9, 2025, from https://www.trade.gov/sites/default/files/2020-08/FTZ_Info_for_CBP.pdf 6.Winkowski, Thomas S. Foreign-trade zones manual. U.S. Customs and Border Protection. (2011). Accessed December 9, 2025., from https://www.cbp.gov/sites/default/files/documents/FTZmanual2011.pdf 7.Conference on Trade and Development. Accessed December 9, 2025, from https://unctad.org/system/files/official-document/gds2023d5_en.pdf 8.U.S. Customs and Border Protection. (2012). Bonded warehouse manual for customs and border control officers and bonded warehouse proprietors. Accessed December 9, 2025, from https://www.cbp.gov/sites/default/files/documents/bonded_warehouse.pdf 9.U.S. Customs and Border Protection. (2010).U.S. customs and border protection bonded warehouse. Accessed December 9, 2025, from https://www.cbp.gov/sites/default/files/documents/bonded_20wh2_2.pdf 10.Kozul-Wright, Richard, et al. (2023).The role of China’s pilot free trade zones in promoting institutional innovation, industrial transformation and South-South cooperation United Nations, from https://unctad.org/system/files/official-document/gds2023d5_en.pdf 11.City of San Diego. (2025).Maquiladoras/Twin Plants. Accessed December 9, 2025, from https://www.sandiego.gov/economic-development/sandiego/trade/mexico/maquiladoras 12.San Diego Regional Chamber of Commerce. (2019). Mexico’s “free zone” program. Accessed December 9, 2025, from https://sdchamber.org/2019/01/mexicos-free-zone-program/ 13.U.S. Customs and Border Protection. (2024). About foreign-trade zones and contact info. Accessed December 9, 2025, from https://www.cbp.gov/border-security/ports-entry/cargo-security/cargo-control/foreign-trade-zones/about 14.U.S. Customs and Border Protection. (n.d.). How can I establish a customs bonded warehouse? Accessed December 9, 2025, from https://www.help.cbp.gov/s/article/Article-1140 15.International Trade Administration. (n.d.). FTZ Regulations. Accessed June 25, 2026, from https://www.trade.gov/faq/ftz-regulations
Check out how to create foreign or free trade zones in America. We cover what free and foreign trade zones are, benefits, decision factors, and regulations.
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