Foreign Trade Zone vs. Duty Drawback: Which Is Right for You?

A foreign trade zone and duty drawback both keep importers from carrying U.S. duty on goods that leave the country, but they work at opposite ends. In an FTZ, duty is not paid until goods enter U.S. commerce, so goods re-exported from the zone never pay it. With drawback, duty is paid at import and up to 99% comes back after the goods are exported or destroyed. FTZs suit high-volume, predictable flows. Drawback suits almost everyone else, and it can reach back five years.

How a foreign trade zone works

An FTZ is a secured area treated as outside U.S. customs territory for duty purposes. Goods can be stored, assembled or manufactured in the zone. Duty is paid only on goods that leave the zone for the U.S. market, and zones can also let manufacturers pay the duty rate on the finished product when it is lower than the rate on the components.

How drawback works

Duty is paid at import as normal. When the goods, or products made from them, are exported or destroyed, the claimant files for drawback and recovers up to 99% of the duty. See the duty drawback guide.

How they compare

• Cash flow: An FTZ never pays the duty on re-exports. Drawback pays it and gets it back later, quickly with accelerated payment.
• Setup: An FTZ needs zone or subzone approval, activation, an operator and ongoing zone procedures. Drawback needs CBP privileges and good records.
• Fixed cost: FTZs carry ongoing operating costs. Drawback is usually priced as a share of the refund.
• Look-back: Drawback reaches five years of past imports. An FTZ only helps goods admitted after it is running.
• Flexibility: Drawback works across many warehouses and channels, including e-commerce parcels.

When to use which

• FTZ: Large, steady import volumes, a single site, a high re-export share, or an inverted tariff on manufactured goods.
• Drawback: Variable or growing exports, multiple warehouses, e-commerce, or the need to recover past duty now.
• Both: Some companies run an FTZ at one site and claim drawback on flows outside it.

Frequently asked questions

Can I claim drawback on goods that went through an FTZ? It depends on how the goods were admitted and entered. The details matter.

Which is faster to start? Drawback, usually by months.

How Caspian helps

Caspian models both options from your ACE data and runs the drawback side end to end. See our duty drawback services.

Works Cited:

• 19 U.S.C. 81c, Foreign-trade zones
• 19 U.S.C. 1313, Drawback and refunds