The utilisation of foreign trade zones in the global supply chain: an exploratory study

Abstract

Foreign Trade Zones (FTZs) are considered duty-free areas and, thus, not governed by the usual customs and tariff controls. In other words, the merchandise permitted in the FTZ may be stored, sold, exhibited, labelled, repacked, assembled, distributed and mixed with other merchandise without paying customs duty until merchandise is released from the zone. Deferred customs duties in the FTZs can contribute significantly to the profitability of the Multinational Firms (MNFs) that get involved in global supply chain activities. Thus, the utilisation of FTZs is believed to have a positive impact on export/import operations and the location decisions of MNFs. Despite such benefits, many MNFs still have not fully explored the possibility of utilising FTZs. Through an exploratory study, this paper identifies the factors that facilitate or hinder the usage of FTZs in the USA. Also, this paper examines the impact that FTZs have on the selected manufacturing and logistics industry and determines how significantly FTZs affect the MNFs' decisions on locating their facilities.