Incoterms & Delivery Terms
Free Trade Zone
Also known as: FTZ, Foreign Trade Zone
A Free Trade Zone — called a Foreign Trade Zone in the United States — is a designated area, legally treated as outside the customs territory of the host country, where imported goods may be stored, handled, assembled, or manufactured without immediate payment of duty. Duty is deferred until the goods leave the zone and enter domestic commerce, and if they are re-exported no duty is paid at all. Zones let companies improve cash flow, avoid duty on scrap and yield loss, and in some cases reduce the effective tariff by transforming components into a lower-duty finished product before formal entry.
An FTZ is useful for three things: deferring duty on inventory you have not sold yet, avoiding it entirely on goods you re-export, and, where the goods carry no trade remedy, paying the lower of two rates when manufacturing changes the classification. It is not useful for a company importing modest volumes with predictable sales — the overhead eats the benefit. The honest test is whether your annual duty deferral exceeds the cost of running zone inventory control, and for most importers it does not.
Where it matters for compliance
- Goods in a zone are outside the customs territory for duty purposes, but they are not outside U.S. law — admissibility, quota and PGA rules still apply.
- Zone status is a privilege with its own recordkeeping and inventory-control requirements.
- Goods subject to Section 232, Section 301 or AD/CVD must be admitted in privileged foreign status, which fixes the rate at admission and removes the inverted-tariff election entirely.
Related terms
Reviewed by a licensed customs broker. Definitions are general information, not legal or customs advice for a particular shipment. Duty rates, tariff programs and agency requirements change frequently.