Foreign-Trade Zones PRESENTED BY AND

What is an FTZ? A foreign-trade zone is an area where foreign and domestic merchandise or commodities are considered to be in an international commerce zone and not within a U.S. Customs territory. It is a restricted-access site authorized by the Foreign-Trade Zones Board. Upon activation under regulations of the U.S. Customs Service, FTZs are secure areas under U.S. Customs supervision. These zones are at or near U.S. Customs ports of entry (the Port of Columbus). Formal customs entry procedures do not apply in these zones, although FTZs are within the territory and jurisdiction of the United States. 2016 All rights reserved. Indigo Trade Solutions, LLC

What can you do with goods in an FTZ? Manufacture* Receive Store Mix with Domestic Goods Manipulate Assemble Exhibit Repack Relabel Export Sample Destroy Test *with approval from FTZ Board 2016 All rights reserved. Indigo Trade Solutions, LLC

FTZ Oversight and Involvement Grantee FTZ Board Local organizations who hold keys to the Zone Project or Service Area. Applications for designation go through the Grantee The FTZ Board is comprised of the Secretary of Commerce (chair) & the Secretary of the Treasury. Homeland Security/CBP The Commissioner of U.S. Customs and Border Protection (CBP) also plays a key role. This is a division of the Department of Homeland Security. Operator or User The organization utilizing zone benefits, thus also demonstrating high inventory control and attention to regulations 2016 All rights reserved. Indigo Trade Solutions, LLC

So, WHY an FTZ? Inverted Tariff Benefit Weekly Entry Reduced MPF Export Savings Duty Deferral Savings Scrap Savings Not to mention.better inventory control 2016 All rights reserved. Indigo Trade Solutions, LLC 5

Summary of Inverted Tariff Benefit Duties on individual components Battery: $1,000,000 X 3.5% = $35,000 Tires: $5,000,000 X 4% = $200,000 Steering Wheel: $500,000 X 2.5% = $12,500 Bearings: $1,000,000 X 9% = $90,000 Total Duty on components: $337,500 Vs. Duty on finished cars: 7,500,000 X 2.5% = $187,500 For a Savings of $150,000 2016 All rights reserved. Indigo Trade Solutions, LLC 7

Reduced MPF Weekly Entry Case Study Assumptions: Number of entries per year: 2,400 Average MPF per entry: $350 Calculation: (average MPF per entry X entries per year) MINUS (52 weeks X $485 maximum MPF per entry) ($350 * 2400) - (52 * $485) = $814,780 2016 All rights reserved. Indigo Trade Solutions, LLC 8

Export Savings Calculator Case Study $90,000,000 annual import 5% re-exported Weighted avg duty = 12% Calculation: FTZ #3 FTZ #2 FTZ #1 (annual, dutiable imports) X (% reexports) X (weighted avg duty rate) (90M *.05 *.12) = $540,000 2016 All rights reserved. Indigo Trade Solutions, LLC 9

Duty Deferral Calculator Duty is paid only when (and if) products are shipped into US territory from a zone. Assumptions: 4 Inventory Turns per year 4% opportunity cost of capital 12% weighted average duty rate Calculations: [(annual cost, dutiable imports) inventory turns per year] X (weighted average duty rate) X (opportunity cost of capital) [(90,000,000)/4 *.12 *.04 = $108,000 2016 All rights reserved. Indigo Trade Solutions, LLC 10

Scrap Calculator Scrap Assumptions Calculation Product destroyed in a zone is nondutiable Must have no salvageable value 3% of inventory is scrapped (annual cost, dutiable imports) X (% reject or scrap) X (weighted average duty rate) (90,000,000 *.03 *.12) = $324,000 2016 All rights reserved. Indigo Trade Solutions, LLC 11

Savings Summary Savings Category $150,000 Tariff Inversion $814,780 MPF $540,000 Export $108,000 Duty Deferral $324,000 Scrap $1,936,780 Total Savings 2016 All rights reserved. Indigo Trade Solutions, LLC 12

FTZ Saves Money, But It s Not Free Company should conduct a Feasibility Analysis to Determine if the Benefits outweigh the Costs of Operation Costs include: Software expenses Grantee Fees Professional Fees FTZ Board Fees Operator s Bond Ongoing Management Fees (or employees) 2016 All rights reserved. Indigo Trade Solutions, LLC 13

Information on Ohio FTZs

Foreign-Trade Zone Stats All 50 states plus Puerto Rico have established FTZs Over 2,700 companies use FTZs Approximately 420,000 people are employed at facilities operating with FTZ status Over $798 billion of annual trade activity Exports from FTZs are over $99 billion FTZ Board 2014 Annual Report 15

Ohio FTZ Projects FTZ No. 8 Toledo FTZ No. 40 Cleveland FTZ No. 46 Cincinnati FTZ No. 100 Dayton FTZ No. 101 Clinton County FTZ No. 138 Columbus FTZ No. 151 Findlay FTZ No. 181 Akron FTZ No. 270 Lawrence County 16

Ohio FTZ Projects 17

Ohio Foreign-Trade Zone Stats There are 9 established FTZ projects 72 companies use FTZs Over 28,000 people are employed at facilities operating with FTZ status $10-25 billion of annual merchandise received Exports are between $250-500 million FTZ Board Annual Report to Congress 2014 18

Ohio Foreign-Trade Zone Stats Machinery/Equipment 41% Textiles/Footwear 25% Oil/Petroleum 20% Pharmaceuticals 9% Tobacco 2% Other 3% FTZ Board Annual Report to Congress 2014 19

FTZ #138 Total Admissions $9,000,000,000 $8,000,000,000 7.8 B $7,000,000,000 $6,000,000,000 6.3 B 5.7 B $5,000,000,000 $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 $0 783.5 M 2.76 B 2.27 B 1.27 B 1.16 B 255.6 M 479.2 M 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20

FTZ Designation

Types of FTZ Designation Magnet Site - A Magnet site is one selected by Grantee based on ability to attract multiple potential FTZ operators/users Designated only via FTZ Board action. Akin to traditional FTZ site designated in advance to attempt to draw FTZ operators/users. The sites must be general-purpose in nature be available to serve multiple businesses. Magnet sites are not the true focus of the ASF because the model of trying to draw companies to already designated FTZ sites has a poor overall record of success. Site 1 Rickenbacker International Airport 22

Types of FTZ Designation Subzone A Subzone places designation over an existing facility Designation for one company at a specific site Designation for a company who is not with in FTZ #138 s service area if Grantee is in the ASF Subzone 138G Abercrombie & Fitch 23

Types of FTZ Designation Usage-Driven Site Designation for a company ready to conduct FTZ activity if Grantee is in the Alternative Site Framework (ASF). Site 17 Drew Shoe Corporation Site 18 Boehringer Ingelheim Pharmaceuticals Inc. Site 20 The Gap, Inc. Site 22 Retail Brokerage Solutions Inc. Site 23 Rocky Brands Inc. Site 26 FitFlop USA Inc. Site 27 Exel/Nikon Site 28 Burton Corporation Site 29 Drew Shoe Corporation Site 30 Ascena Retail Group 24

Alternative Site Framework (ASF) FTZ #138 approved on November 26, 2010 Gives Grantees flexibility to use simplified minor boundary modifications (MBMs) without swapping of acreage to bring FTZ designation to companies with immediate need. Service Area defined up front is to eliminate need for full FTZ Board processes (Federal Register notices, public comment periods, etc.). FTZ can process application quickly. Must meet adjacency requirements (60 miles/90 minutes from CBP POE). 25

Alternative Site Framework (ASF) A Usage-Driven site is designated for a company ready to pursue conducting FTZ activity Must be within the Grantee s service area Usage-Driven sites can be designated via simplified boundary modification (with no swapping of acreage required) Designation tied to the specific company and limited to the space needed by the company Timing for FTZB approval is within 30 days. 26

Alternative Site Framework (ASF) Activation Limit is cap on amount of space that can simultaneously be in CBP activated status 2,000-acre activation limit for each zone has long been standard FTZ Board practice No zone has ever reached the limit of activating 2,000 acres Ongoing Sunset tests remove unused sites Five-year sunset period for Magnet sites and Subzones Three-year sunset period for all Usage-Driven sites 27

Activation Application begins with the Grantee and FTZ Board approval Activation is Port Director approval to operate in Zone status Written application and manuals Blueprint of activated areas Approved security of all areas included Background investigations on key personnel Written concurrence from the Grantee FTZ Operator s Bond 2016 All rights reserved. Indigo Trade Solutions, LLC 29

All those eyes.. With oversight requirements, always keep in mind that CBP can drop in unannounced anytime and put some extra eyes on your operations 2016 All rights reserved. Indigo Trade Solutions, LLC

Lesley Couch, Principal (415)578.5168 Stephanie Fields, Director Special Projects (615)538-0508

Angie Atwood FTZ Administrator 614-409-3622 aatwood@columbusairports.com 32