Why would companies manufacture in an FTZ?

Why would companies manufacture in an FTZ?

• A. To avoid tariffs on all imported materials
• B. If the product they are manufacturing has a lower duty rate
• C. To exclusively sell products domestically
• D. To access local labor with lower wages

Answer: (B)

Manufacturing in a Foreign Trade Zone (FTZ) offers companies the strategic advantage of lower duty rates on products they are producing. This is significant because companies can import raw materials or components duty-free or at reduced rates, depending on the specific tariff treatment available. If a product's final classification has a lower duty rate than the imported components or materials used in its production, the company saves money when those finished goods are moved from the FTZ for sale. Using an FTZ not only promotes cost savings but also provides flexibility in inventory management and distribution strategies, making it an attractive option for businesses looking to improve their competitive edge. By utilizing the benefits associated with reduced tariff exposure, companies can enhance their overall profitability and market position.

Manufacturing in a Foreign Trade Zone (FTZ) offers companies the strategic advantage of lower duty rates on products they are producing. This is significant because companies can import raw materials or components duty-free or at reduced rates, depending on the specific tariff treatment available. If a product's final classification has a lower duty rate than the imported components or materials used in its production, the company saves money when those finished goods are moved from the FTZ for sale.

Using an FTZ not only promotes cost savings but also provides flexibility in inventory management and distribution strategies, making it an attractive option for businesses looking to improve their competitive edge. By utilizing the benefits associated with reduced tariff exposure, companies can enhance their overall profitability and market position.