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The AZ FTZ ProgramThe most lucrative in the

USACurtis Spencer, President

IMS WORLDWIDE INC. Member of the 9th and 10th

COAC committee

What is an FTZ?• A Foreign-Trade Zone (or Free Trade Zone) is a

Federal Program, started in 1934 and in use in all 50 states today.

• The FTZ allows Federal Taxes and Fees to be lowered, eliminated, or exempt from payment.

• State taxes are lowered in TX and AZ.

• Anyone – any business who qualifies can get it.

What is the structure of an FTZ?• Federal Approvals (Commerce and DHS).

• Local Approvals/Sponsorship (the Grantee and Customs).

• Operators (In-house or 3rd Party Operators).

U.S.Foreign-TradeZones Board

Local Grantee-Nogales EDF

SecretaryOf Commerce

Secretary ofHomeland Defense

Local CustomsPort Director

Zone Operator(Single or Multiple)

Zone User Zone User Zone User

CustomsRegulations

Customs Broker Customs Broker Customs Broker

FTZ Authority Structure

Sub-Zone Operator

Zone Operator

Grantee/OperatorAgreement(s)

Site 1

Site 2

Advisory Board

Approved FTZ Projects in Arizona

FTZ No. 60 Nogales – Site Map

BD Site 3

Site 1 at Border

Site 2 Industrial Park Rd.

So, What does an FTZ do?

• The FTZ speeds up the supply chain.

• The FTZ importing process costs less.

• The FTZ security is better than other methods.

• FTZs Create JOBS!

FASTER - CHEAPER - BETTER

Who Uses the FTZ?• FTZs are used by:

– Manufacturers (oil, auto, solar, appliance, R&D, pharma, etc)

– Importers (retail, consumer goods companies).

– 3PLs (3rd Party Logistics Providers).

– Developers (as a benefit to their customers).

Retail Importers Using FTZ’s• Dell• HP• Onkyo• Winnebago• Skechers• Reebok• Adidas• IKEA (3)• Black and Decker (4)• Academy Sport Goods (2)• Laufen Tile (3 DC’s)• Arizona Tile

Retail Importers Using FTZ’s(primarily for MPF savings)

• Gymboree• Helen of Troy• Sharp Electronics• J C Penney’s• JVC Electronics• Pioneer Electronics• Thompson Consumer Electronics• Conair• JJ Baker• Oneida

Retail Importers Using FTZ’s• Nine West• Coach Leather Goods• Mercury Marine• Sony (3) Adding 7 DC’s in LA• LA Gear• Lexmark Printers• Keds• Clarion• Abercrombie & Fitch• AMAZON.COM• SubZero

Using the an FTZ to Cut Costs• MPF & Broker Savings

• Manufacturing, Pick and Pack, Retail Packaging of Sets

• Local Tax Benefits (ad valorem real property)

How does an FTZ Cut Costs?The FTZ importing process costs less because:

Duty Deferral Duty Elimination Duty Reduction

State Tax Reduction (TX, AZ) Merchandise Processing Fee Elimination let me illustrate this Example of how this could

work in Nogales….

Nogales Business Case 2• Maquilla Operations: US Side Warehouse feeds parts

to the Maquilla

• Parts come from Global Suppliers: No Duty to the Parts Depot, no duty going into Mexico, No duty coming back out!

• No MPF Fees coming in, no MPF fees going out or coming back with Finished Goods to Nogales US.

Pre-Foreign-Trade Zone

Foreign-Trade Zone

Shipments into Site

Shipments into commercewith weekly entry

20 receipts inboundper week. MPF $9,700

75 shipments out per week; one entry filed at End of week. MPF $485

In a single week an FTZ importer can save $9,200/week in MPF Fees, or

$479,180 per YEAR!

NOW MPF IS HIGHER! $790,647

Using the an FTZ to Cut Costs• MPF & Broker Savings

• Manufacturing, Pick and Pack, Retail Packaging of Sets

• Local Tax Benefits (ad valorem real property)

An FTZ allows me to alter Duty Rates!

• If my parts (imported) carry ANY duty at all:

• AND– my finished product which I manufacture or assemble can be imported by a competitor directly---at 0% Duty--- I CAN GET THE SAME BENEFIT!

• Whether it’s crude oil, TVs, satellite dishes, solar panels, refrigerators, WHATEVER!!

• Some Restrictions Apply!!

An FTZ allows me to alter Duty Rates!

• This “rule” works for Pick-&-Pack too!

• Example: Speakers carry 4.9% duty. DVD players are 0%. Home Theater Systems (ie. Combined: speakers + DVD players) are dutiable at ZERO%

• Therefore I claim 0%.

• For every $10 Million in Speakers, I save $490,000!!

Nogales Business Case 1• Food Processing: Tomatoes, peppers onions coming into

US Side Warehouse, (in FTZ),

• Reefer Warehouses of Produce feeds US plant making Salsa, (New, here in Nogales)

• No Duty or MPF for vegetables coming up from Mexico (No more Tomato Wars!)

• Duty on the Salsa? 0% = FREE

• Lowers Property Taxes by 75%

Nogales Zone Example 1 - Assumptions

• $22 Million in Imported Raw Food/Produce/year.

• 15% Exports 85% sold into USA• Salsa Manufacturing using tomatoes, onions,

peppers and spices – All from Mexico• Average duty rate on produce = 1.7%• Duty rate on Salsa = 0%• Inverted tariff benefits using an FTZ = EASY!• Tax benefits based on a 12.5 Million facility

(bldg and equipment).

Small Food Processing Center Making Salsa, with $12.5 Million Bldg and Equipment

FTZ Benefits & Expenses By Type   Year 1 Year 2 Year 3 Year 4 Year 5 5-YEAR TOTAL

   

FTZ Benefits  

  Re-Exports1 $57,750 $63,525 $69,878 $76,865 $84,552 $352,570

  Reject, scrap, & military sales 7,700 8,470 9,317 10,249 11,274 47,009

  One-time benefit2 ---  

  Ongoing duty deferral 3,196 3,515 3,867 4,253 4,679 19,509

  Inverted Tariffs 319,550 351,505 386,656 425,321 467,853 1,950,885

  Property Tax Benefits 223,125 229,819 236,713 243,815 251,129 1,184,601

  Merchandise Processing Fee savings 50,988 56,087 61,695 67,865 74,652 311,287

Total FTZ Benefits $662,309 $712,921 $768,125 $828,368 $894,138 $3,865,860

   

FTZ-RELATED EXPENSES  

  Internal FTZ Operation Expenses $75,000 $77,250 $79,568 $81,955 $84,413 $398,185

  Grantee fees 10,000 10,300 10,609 10,927 11,255 53,091

TOTAL FTZ-RELATED EXPENSES $85,000 $87,550 $90,177 $92,882 $95,668 $451,277

   

NET FOREIGN-TRADE ZONE BENEFITS $577,309 $625,371 $677,949 $735,486 $798,469 $3,414,584

Example 1-Small Food Processorin 65,000 Ft Building

Using the an FTZ to Cut Costs• MPF & Broker Savings

• Manufacturing, Pick and Pack, Retail Packaging of Sets

• Local Tax Benefits (ad valorem real property)

AZ Tax/Economic Implications• Assessed valuation of activated FTZ site

reduces to 5% from 20%• Generates additional tax revenues when

compared to agricultural-use sites ($300 per 10 acres)

• Catalyst for other development not requiring FTZ tax benefits which results in full tax rate on those businesses

• New development brings additional tax revenues sooner

• Many FTZ companies bring higher paying jobs

Why is there so much interest in the FTZ process?

• ECONOMICS! FTZ’s PAY FOR THEMSELVES!

• FTZ status (approved and activated) gives a huge Federal and Local incentive to the businesses that use it.

• Qualifying is the issue. Federal regulations are strict, but not too strict.

• The importing community has now embraced the FTZ process nationally!

What is the process to get a new FTZ?

• Call IMSW at 281-554-9099

• We will perform a FREE Cost Benefit Analysis.

• The Nogales Economic Development Foundation is the Grantee, and wants to Expand and Grow the ZONE!

• Activation is required to take advantage of the 75% Tax Break.

• Normal processing time for all this used to be 12-18 mo.

Now it can all be done in 6 months!

Bottom Line?• FTZ process is now a “site requirement” 40-

50%

• FTZ pays for itself at 250-300% ROI in the first year of implementation---if you Qualify.

• FTZ status is becoming a real factor in attracting FDI—Foreign Direct Investment!

• Nogales in Top 10 Sites for FDI

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AZ FTZs

Any Questions?