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The AZ FTZ Program The most lucrative in the USA

The AZ FTZ Program The most lucrative in the USA. Curtis Spencer, President IMS WORLDWIDE INC. Member of the 9 th and 10 th COAC committee. 1. What is an FTZ?. A Foreign-Trade Zone (or Free Trade Zone) is a Federal Program, started in 1934 and in use in all 50 states today.

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The AZ FTZ Program The most lucrative in the USA

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  1. The AZ FTZ ProgramThe most lucrative in the USA Curtis Spencer, President IMS WORLDWIDE INC. Member of the 9th and 10th COAC committee 1

  2. What is an FTZ? • A Foreign-Trade Zone (or Free Trade Zone) is a Federal Program, started in 1934 and in use in all 50 states today. • The FTZ allows Federal Taxes and Fees to be lowered, eliminated, or exempt from payment. • State taxes are lowered in TX and AZ. • Anyone – any business who qualifies can get it.

  3. What is the structure of an FTZ? • Federal Approvals (Commerce and DHS). • Local Approvals/Sponsorship (the Grantee and Customs). • Operators (In-house or 3rd Party Operators).

  4. FTZ Authority Structure Secretary Of Commerce Secretary of Homeland Defense U.S. Foreign-Trade Zones Board Advisory Board Local Grantee- Nogales EDF Local Customs Port Director Site 1 Grantee/Operator Agreement(s) Customs Regulations Zone Operator (Single or Multiple) Zone Operator Sub-Zone Operator Site 2 Zone User Zone User Zone User Customs Broker Customs Broker Customs Broker

  5. Approved FTZ Projects in Arizona

  6. FTZ No. 60 Nogales – Site Map Site 2 Industrial Park Rd. BD Site 3 Site 1 at Border

  7. So, What does an FTZ do? • The FTZ speeds up the supply chain. • The FTZ importing process costs less. • The FTZ security is better than other methods. • FTZs Create JOBS! FASTER - CHEAPER - BETTER

  8. Who Uses the FTZ? • FTZs are used by: • Manufacturers (oil, auto, solar, appliance, R&D, pharma, etc) • Importers (retail, consumer goods companies). • 3PLs (3rd Party Logistics Providers). • Developers (as a benefit to their customers).

  9. Retail Importers Using FTZ’s • Dell • HP • Onkyo • Winnebago • Skechers • Reebok • Adidas • IKEA (3) • Black and Decker (4) • Academy Sport Goods (2) • Laufen Tile (3 DC’s) • Arizona Tile

  10. Retail Importers Using FTZ’s(primarily for MPF savings) • Gymboree • Helen of Troy • Sharp Electronics • J C Penney’s • JVC Electronics • Pioneer Electronics • Thompson Consumer Electronics • Conair • JJ Baker • Oneida

  11. Retail Importers Using FTZ’s • Nine West • Coach Leather Goods • Mercury Marine • Sony (3) Adding 7 DC’s in LA • LA Gear • Lexmark Printers • Keds • Clarion • Abercrombie & Fitch • AMAZON.COM • SubZero

  12. Using the an FTZ to Cut Costs • MPF & Broker Savings • Manufacturing, Pick and Pack, Retail Packaging of Sets • Local Tax Benefits (ad valorem real property)

  13. How does an FTZ Cut Costs? The FTZ importing process costs less because: • Duty Deferral • Duty Elimination • Duty Reduction • State Tax Reduction (TX, AZ) • Merchandise Processing Fee Elimination • let me illustrate this Example of how this could work in Nogales….

  14. Nogales Business Case 2 • Maquilla Operations: US Side Warehouse feeds parts to the Maquilla • Parts come from Global Suppliers: No Duty to the Parts Depot, no duty going into Mexico, No duty coming back out! • No MPF Fees coming in, no MPF fees going out or coming back with Finished Goods to Nogales US.

  15. 20 receipts inbound per week. MPF $9,700 Shipments into Site Pre-Foreign-Trade Zone In a single week an FTZ importer can save $9,200/week in MPF Fees, or $479,180 per YEAR! NOW MPF IS HIGHER! $790,647 75 shipments out per week; one entry filed at End of week. MPF $485 Foreign-Trade Zone Shipments into commerce with weekly entry

  16. Using the an FTZ to Cut Costs • MPF & Broker Savings • Manufacturing, Pick and Pack, Retail Packaging of Sets • Local Tax Benefits (ad valorem real property)

  17. An FTZ allows me to alter Duty Rates! • If my parts (imported) carry ANY duty at all: • AND– my finished product which I manufacture or assemble can be imported by a competitor directly---at 0% Duty--- I CAN GET THE SAME BENEFIT! • Whether it’s crude oil, TVs, satellite dishes, solar panels, refrigerators, WHATEVER!! • Some Restrictions Apply!!

  18. An FTZ allows me to alter Duty Rates! • This “rule” works for Pick-&-Pack too! • Example: Speakers carry 4.9% duty. DVD players are 0%. Home Theater Systems (ie. Combined: speakers + DVD players) are dutiable at ZERO% • Therefore I claim 0%. • For every $10 Million in Speakers, I save $490,000!!

  19. Nogales Business Case 1 • Food Processing: Tomatoes, peppers onions coming into US Side Warehouse, (in FTZ), • Reefer Warehouses of Produce feeds US plant making Salsa, (New, here in Nogales) • No Duty or MPF for vegetables coming up from Mexico (No more Tomato Wars!) • Duty on the Salsa? 0% = FREE • Lowers Property Taxes by 75%

  20. Nogales Zone Example 1 - Assumptions • $22 Million in Imported Raw Food/Produce/year. • 15% Exports 85% sold into USA • Salsa Manufacturing using tomatoes, onions, peppers and spices – All from Mexico • Average duty rate on produce = 1.7% • Duty rate on Salsa = 0% • Inverted tariff benefits using an FTZ = EASY! • Tax benefits based on a 12.5 Million facility (bldg and equipment).

  21. Example 1-Small Food Processorin 65,000 Ft Building

  22. Using the an FTZ to Cut Costs • MPF & Broker Savings • Manufacturing, Pick and Pack, Retail Packaging of Sets • Local Tax Benefits (ad valorem real property)

  23. AZ Tax/Economic Implications • Assessed valuation of activated FTZ site reduces to 5% from 20% • Generates additional tax revenues when compared to agricultural-use sites ($300 per 10 acres) • Catalyst for other development not requiring FTZ tax benefits which results in full tax rate on those businesses • New development brings additional tax revenues sooner • Many FTZ companies bring higher paying jobs

  24. Why is there so much interest in the FTZ process? • ECONOMICS! FTZ’s PAY FOR THEMSELVES! • FTZ status (approved and activated) gives a huge Federal and Local incentive to the businesses that use it. • Qualifying is the issue. Federal regulations are strict, but not too strict. • The importing community has now embraced the FTZ process nationally!

  25. What is the process to get a new FTZ? • Call IMSW at 281-554-9099 • We will perform a FREE Cost Benefit Analysis. • The Nogales Economic Development Foundation is the Grantee, and wants to Expand and Grow the ZONE! • Activation is required to take advantage of the 75% Tax Break. • Normal processing time for all this used to be 12-18 mo. Now it can all be done in 6 months!

  26. Bottom Line? • FTZ process is now a “site requirement” 40-50% • FTZ pays for itself at 250-300% ROI in the first year of implementation---if you Qualify. • FTZ status is becoming a real factor in attracting FDI—Foreign Direct Investment! • Nogales in Top 10 Sites for FDI

  27. AZ FTZs Any Questions? 27

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