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MOONBEAM Electronics

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Pippitatdai Trang

on 8 October 2014

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Transcript of MOONBEAM Electronics

1. Research foreign trade zones and determine if Jim is correct in his assertions concerning the potential benefits.

2. Specifically, how might Moonbeam benefit from the establishment of an FTZ? Are there any disadvantages?

3. Would you recommend that Moonbeam establish a subzone? Explain
1. Is Jim's assertions concerning the potential benefits correct?
2. How Moonbeam benefit from the establishment of an FTZ?
general information about Moonbeam Electronics
- A manufacturer of small electrical appliances which located in southwest Missouri.

- Moonbeam assembles its products in Springfield, Missouri and using a number of foreign suppliers for component parts.

- Moonbeam exports about 25% of its production output to Latin America, Europe & Asia

--> hope to increase its export potential with some product design changes and increased international marketing efforts.
MOONBEAM Electronics
Profiting from a foreign trade zone

Group 4:
Nguyen Thuy Trang 77
Nguyen Le Huong Giang
Nguyen Huong Lan
Truong Thi Hong Van

WHAT IS ftz ???
A duty-free, quota-free, secured area
in a designated customs "port of entry," considered outside U.S. Customs territory.

Within a zone, foreign goods can be brought into the United States without formal customs entry for warehousing, assembly, manufacture, display, destruction or other processing.
--> US’ version known internationally as free trade zones

FTZ was created by the Federal Government in the 1930's to:
negative U.S. tariff impact on products used by manufactures operating in the United States and to keep U.S. businesses competitive with businesses operating offshore or overseas
economic growth and development in the United States

Permitted activities
2 types of FTZ
general-purpose trade zone
an area near or at an entry point to a country like an airport, seaport, train station, or a highway. It includes warehousing, distribution, assembly, and with special permission, manufacturing.
entities located anywhere and operated by a specific manufacture enjoying duty free importation of foreign inputs. Sub zones exist only in the U.S. and account for most of the economic activities of FTZs.
Delay of payment of custom duties
Customs duties are paid only when and if merchandise is transferred into U.S. CBP territory.
--> no time limit on the length of time that merchandise can remain in a zone.

Possible elimination of duties
No duties are paid on merchandise exported from a FTZ. Therefore, duty is eliminated on foreign merchandise admitted to the zone but eventually exported from the FTZ

The bypassing of US Custom regulations:

FTZ is considered to be international territory
--> US customs duties do not apply to any company which enter to the zone.

Deferral / Reduction / Elimination of Duties
1. Imports may be admitted and held in a foreign-trade zone without paying U.S. Customs duties.

2. FTZ users may pay the duty rate on component material or merchandise produced from component material, whichever is lower.

3. Customs duties are never paid on merchandise exported from a zone.

4. Duties are eliminated on materials subject to defect, damage, obsolescence, waste or scrap.

5. Merchandise may be exported and returned to an FTZ without duty payment.

Elimination of Drawbacks
In some instances, duties previously paid on exported merchandise may be refunded through a process called drawback. The drawback law has become increasingly complex and expensive to administer. Through the use of a FTZ,
the need for drawback may be eliminated allowing these funds to remain in the operating capital of the company
Labor, Overhead and Profit
In calculating the dutiable value on foreign merchandise removed from a zone, zone users are authorized to exclude zone costs of processing or fabrication, general expenses and profit. Therefore,
duties are not owed on labor, overhead and profit attributed to production in a FTZ.
By federal statute, tangible personal property imported from outside the U.S. and held in a zone, as well as that produced in the U.S. and held in a zone for exportation, are not subject to State and local ad valorem taxes.
U.S. quota restrictions do not apply to merchandise admitted to zones, although quotas will apply if and when the merchandise is subsequently entered into U.S. commerce
. Merchandise subject to quota, with the permission of the Foreign-Trade Zones Board, may be substantially transformed in a FTZ to a non-quota article that may then be entered into U.S. CBP territory, free of quota restrictions
Zone-to-zone Transfers
An increasing number of firms are making use of the ability to transfer merchandise from one zone to another. Because
the merchandise is transported in-bond, duty may be deferred until the product is removed from the final zone for entry into the U.S. Customs and Border Protection territory.
2. (cont)
Money laundering
custom fraud
a relaxed oversight by the domestic authorities and a lack of adequate coordination between the customs officials
when trade officials change trade certificates to indicate that the products originated from regions that suit their personal needs.
3. Should Moonbeam establish a subzone?
Zone restricted status
Merchandise transferred to a zone from CBP territory for storage or for the purpose of satisfying a legal requirement for exportation or destruction is considered exported and cannot be returned to CBP territory for consumption
Moonbeam should have a subzone because:

Logistical Benefits—
reductions in merchandise processing fees because zone users may be able to file a single customs “entry” (and pay a single fee) per week rather than making multiple entries during the course of a week.

Tax Benefits—
foreign goods and domestic goods held for export are exempt from state and local inventory taxes.

Foreign-Trade Subzone companies enjoy all the same benefits as Foreign-Trade Zone companies
Subzones allow companies that import and/or re-export products to take advantage of Foreign-Trade Zone benefits without having to physically relocate within the Foreign-Trade Zone general purpose sites.
Single-purpose sites for operations that cannot be feasibly moved to, or accommodated in, a general-purpose zone

--> Ex, oil refining and automobile manufacturing
--> benefit for Moonbeam Electronics as a manufacturer of small electrical applicances
Full transcript