Surprisingly, many “trade” resources and programs don’t require that a company be an exporter at all. A federal program available to any US company (including non-exporters) is Trade Adjustment Assistance which I’ll discuss later on. An indirect exporter, whose products end up in an OEM’s finished good that is later exported, can take advantage of Duty Drawbacks, Foreign Trade Zones and IC-DISC to name a few.
Duty Drawbacks work on the same principle as a Duty Free Shop at an international airport. It all comes down to where the product is consumed. So when you buy that bottle of wine at a store at Charles de Gaulle, you are not obligated to pay the duties and taxes of the EU because you will be consuming the product in another country. Technically you should declare the wine to U.S. customs upon arrival, however, people often “forget” to do so.
Duty Drawbacks allow a company to recoup most of the duties, taxes and fees paid when importing something that is later re-exported (as-is or as part of a new product) or scrapped. So an in-direct exporter that incorporates imported material or components into their goods, could supply the necessary documentation to the exporter of record to recoup this expense. Alternatively, the exporter of record could supply the documentation showing the good was exported, back to the supplier who would apply for the drawback.
Foreign Trade Zones (FTZ’s) are another tool that non-exporters can use to reduce or eliminate the import duties paid on foreign-made inputs. The concept of FTZ’s was originated by the US automakers who were paying, on average, $2,000 in import duties for the material, parts and components that went into a USA-made vehicle. Making matters worse, foreign-made vehicles could be imported into the US duty free which penalized the US automaker further.
FTZ’s were subsequently created to allow any US company to produce within a specific zone where imported material and components would enter in-bond. Once the finished good is produced and moved out of the zone, it is “imported” at that time (if sold domestically). Therefore, in the case of the automakers, the final product (a USA-made vehicle) is now able to “enter” the US duty free. If the car is exported, no duties are paid in the US and, therefore, there is no need to apply for a Duty Drawback.
A quick comparison of the import duties paid by a company vs. the duty rate of the finished good is all that is needed to determine if an FTZ may be of value. Also, the US allows companies within a 60-mile radius of a shipping port to convert their existing facility into an FTZ Subzone significantly reducing the setup costs. Several other benefits exist which, in total, can lead to hundreds of thousands of dollars in annual savings given the right circumstances.
An Interest Charged, Domestic International Sales Corporation (IC-DISC) is an IRS program that allows companies to lower their federal tax liability on export sales revenue, including indirect exports. This program is fairly complex and the corporate structure will dictate its overall impact. Like the Duty Drawbacks example above, if a product is sold to a domestic customer who incorporates that product into a finished good that is later exported, that would allow the original producer to qualify for the program.
Finally, Trade Adjustment Assistance is available to ANY company that has been negatively affected by foreign competition. This includes foreign-made product being sold by your US competitor or the decision by your US customer to move production overseas resulting in cancelled orders. To qualify, a company must have experienced a 5% decrease in revenue (of a specific product line only) and a 5% decrease in headcount (having resulted from layoffs, not filling open positions or by reducing temp workers). The federally funded program provides up to $75,000 in matching funds to offset the effects of the foreign competition and can be used for a variety of projects.
For more information on any of these programs or to take advantage of our complimentary Export Assessment, please contact me:
