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Foreign Trade Zone Update: Two Developments You Must Watch Today

Shippers using Foreign Trade Zones (FTZs) should be aware of one delay and the potential for additional GAO oversight 

With 2,900 companies located in 186 different U.S. Foreign Trade Zones (FTZs), where 420,000 workers are employed and $85 billion in goods are exported annually from the U.S., use of these secure areas—considered by U.S. customs to be “outside” of the country for tariff purposes—is gaining momentum for both importers and exporters.

DB Schenker FTZ facility located in Carson, CA

DB Schenker FTZ facility located in Carson, CA. Photo: Frank Laird

FTZ users should be keeping an eye on two developments that could impact the movement and tracking of goods through these secure areas. The first was the transition to the Automated Commercial Environment (ACE) platform, which started September 16, 2017 and continues through this month, Febrary 24, 2018 where ACE began duty deferral forms and Importer Security Filings, and then statements, Manufacturer ID Creation and electronic FTZ admissions (e214) joined the ACE portal December 2017.   The second involves the General Accounting Office’s (GAO) recommendations to strengthen the U.S. Customs and Border Protection’s (CPB) ability to assess and respond to compliance risks across the FTZ program.

Here are the details on both developments and some advice for impacted shippers.

ACE Delays for FTZs

Last year the National Association of Foreign-Trade Zones (NAFTZ) asked CBP to delay the planned September 16, 2017 transition of the Application for Foreign-Trade Zone Admission and/or Status Designation from the agency’s legacy computer system to the new Automated Commercial Environment (ACE) platform, American Shipper reports.

The reasoning, according to NAFTZ, is that the “number of foreign trade zone operators have experienced a disturbing number of systemic problems and new issues that need to be addressed before the rollout of e214 in ACE,” the publication notes.

As the platform that enables the United States’ Single Window, ACE provides a single, centralized access point for the trade community to connect with CBP and its Partner Government Agencies (PGA). As such, ACE is the system of record by which electronic trade transactions are conducted and recorded by CBP.

FTZs had until December 9, 2017 to secure their transition to ACE. The transition to the ACE  continues through February 24, 2018. Beginning September 16, 2017, the ACE started duty deferral forms and Importer Security Filings, while statements, Manufacturer ID Creation, and then electronic FTZ admissions (e214) joined the portal in December 2017, according to Supply Chain Dive. “Digitization may be a buzzword in 2017, but delays in ACE-implementation show just how difficult the process can be in reality.”

Kim Taylor, Schenker, Inc.’s Director of FTZ Services, says that while the delay doesn’t affect day-to-day operations in the nation’s 186 existing FTZs, once the new system goes live it will allow participating government agencies to gather more data at the time admission (versus the time of shipment out of the FTZ itself).

“The other government agencies are very interested in the transition over to ACE,” Taylor points outs, “because they’d like to gain access to more data and information that wasn’t accessible via the old system.”

GAO Steps in

Another development that shippers should be aware of is the GAO’s new recommendations for “strengthening CBP’s ability to assess and respond to compliance risks across the FTZ program,” according to the GAO. CBP concurred with this recommendation and identified steps it intends to take in response to the recommendation. Specifically, CBP will conduct a risk analysis across the FTZ program.

“While FTZs were created to provide public benefits, little is known about FTZs’ economic impact. For example, few economic studies have focused on FTZs, and those that have do not quantify FTZs’ economic impacts,” the GAO study notes. “In addition, these studies do not address the question of what the economic activity, such as employment, would have been in the absence of companies having FTZ status.”

After completing its study, the GAO made these three recommendations to the CBP’s commissioner:

  1. Centrally compile information from FTZ compliance reviews and associated enforcement actions so that standardized data are available for assessing compliance and internal control risks across the FTZ program.
  2. Conduct a risk analysis of the FTZ program using data across FTZs, including an analysis of the likelihood and significance of compliance violations and enforcement actions.
  3. Utilize the results of the program-wide risk analysis to respond to identified risks, such as updating risk assessment tools and developing best practices for CBP’s FTZ compliance review and risk categorization system.

“What the GAO is basically saying is, ‘Hey CBP, you need to keep a closer eye on FTZs,’” Taylor explains. She says the increased oversight—if it happens—won’t impact DB Schenker customers because the logistics provider already has annual compliance reviews conducted across all of its locations. Those audits include physical, system, and documentation reviews. “We welcome CBP when they come to visit,” says Taylor, “and we enjoy walking them through our operations and showing them what we’re doing.”

Know Your Products

To shippers that are concerned about the delayed transition to ACE and/or the potential for increased GAO oversight for FTZs, Taylor says the best offense is to understand exactly what materials you’re bringing into the FTZ, how government agencies and CBP treat those materials, and what data they need to produce when those agencies review and assess that movement of goods.

“If you know your products and you know what the FTZ-related rules and regulations are for those products,” Taylor adds, “then using an FTZ is really not that much different than traditional methods, other than you’re able to consolidate your entries and reduce some of your fees.”

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