real test of a Foreign-Trade Zone project's effectiveness is
the extent to which it satisfies the goals and expectations
of the community it serves. A General Purpose Zone is of little
value unless businesses use it. For businesses to use the Zone,
save money, and expand or keep their operations in the community,
the Zone must be fully operational.
Upon a grant of authority, the Grantee must address the processes
of administration and operation of the Zone. The Grantee must
decide who will run the Zone and what services the Zone project
will offer. One of the questions the Grantee must answer is,
"Who will be the Zone Operator ?" There are many different
notions as to what constitutes a Zone Operator. These range
from warehouseman to real estate developer to administrator.
However, as far as the U.S. Customs Service is concerned, the
Zone Operator is that party which accepts direct Customs liability
for Zone operations under its Foreign-Trade Zone Operator's
Some Foreign-Trade Zone Grantees elect to operate their General
Purpose Zone themselves. In doing so, the Grantee maintains
the greatest direct control over Zone operations, yet also directly
bears responsibility and Customs liability for the Zone's operation.
Many Foreign-Trade Zone Grantees subcontract the responsibility
to operate the General Purpose Zone to a separate company in
an attempt to distance themselves from substantial liability.
It is important to note however, that if this choice is made,
it will not totally absolve the Grantee from liability. In fact,
it has been stated by Customs and acknowledged by the Foreign-Trade
Zones Board that the Grantee does not completely shed its liability.
However, a number of Grantees have positioned themselves to
reduce the risk of liability by hiring independent companies
to be the Operators for their Foreign-Trade Zones.
Too often, when a Grantee hires a Foreign-Trade Zone Operator,
its selection process is motivated by the desire to reduce Customs
liability instead of the desire to fully develop its Zone's
trade and economic potential. In selecting an Operator, Zone
development should be a major consideration in addition to reduction
of potential liability.
As previously indicated, each Grantee has choices to make about
the Zone's Operator. It can decide to operate the zone itself,
or hire an outside firm. If it chooses not to operate the Zone
itself, it can hire a single firm on an exclusive basis or it
can hire multiple firms. It can hire warehousing firms, real
estate developers, or administration firms. To make the right
choice, for its Zone project, the Grantee must ask itself several
What are the goals of our Foreign-Trade Zone project?
Which of the following do they encompass?
Enhancement of cargo related activities
B. Development of industrial and commercial real estate
C. Enhancement of area trade and economic development
(1) Enhancing competitiveness of area businesses
(2) Attraction of new industry
Based on the answers to Question #1, what are the responsibilities
which have to be met within the scope of the total Zone project,
and who will be responsible for meeting each of those responsibilities?
In reference to item "A" in Question #1, responsibilities
Providing physical facilities for storage and handling of
ii. Activating the site with U.S. Customs
iii. Development and implementation of operating procedures
iv. Development and maintenance of records and reports that
are necessary for the U.S. Customs Service and the Foreign-Trade
v. Developing and implementing a marketing plan
reference to item "B" in Question #1, responsibilities
Providing site infrastructure and physical plant facilities
ii. Obtaining, or assisting in obtaining project financing
iii. Activating or assisting in the activation of sites with
iv. Development and implementation of operating procedures
v. Monitoring the day-to-day operations within the zone
vi. Development and implementation of operating procedures
vii. Development and maintenance of records and reports that
are necessary for the U.S. Customs Service and the Foreign-Trade
viii. Developing and implementing a marketing plan
reference to item "C" in Question #1, responsibilities
Providing services to Zone users (for both existing industry
and new industry). These services, will include assistance
in activation, development of operating systems and procedures,
monitoring the day-to-day operations, and recordkeeping. This
will require a working knowledge of the following subjects:
Foreign-Trade Zone procedures and regulations
(1) Activation Procedures
(2) Operational Procedures
Internal compliance reviews
B. Customs Matters
(1) Classification and valuation
(2) Harmonized Tariff Schedules
(3) NAFTA, other trade programs/Customs procedures
C. Production, Logistics and Distribution
(1) Sourcing patterns
(2) Production methods, practices and philosophies
(3) Distribution methods, practices and philosophies
(4) Transportation systems and services
D. International Trade Environment
(1) U.S. Foreign Trade Policy
(2) Trade Agreements and how they work
(3) Mechanics of international trade
(4) Political and economic justification of FTZ program
in relation to U.S. policy
(5) Reporting and data collection as policy making tools
Marketing the Zone: This will involve the development and
continual use of several marketing tools:
B. Business Contacts
C. Direct Marketing Seminars
D. Marketing through customer relations
E. Training Customs officials and Customs brokers
What are the capabilities and resources of the Grantee and
the potential Operator?
Can both parties meet their respective responsibilities based
on considerations identified in Question #2?
How will Zone users pay for services? Will/can either the
Grantee or Operator sustain financial losses in the early stages
#5, the BIG QUESTION:
How will the way in which we address Questions 1 through
4 affect our Zone's Long term development? How can we correct
Let's identify some facts and factors to consider in finding
the best answer for your Zone project.
Obviously, the goals of the Zone project and the scope of services
offered by potential Operators will determine the allocation
of responsibilities among the Grantee and Operator (or Operators).
These goals will also affect decisions about who will operate
the zone and/or how many Zone Operators there will be.
Many Zone Operators are often owners of public or contract warehouse
facilities and/or a developers of real estate which have other
business interests in addition to operating zones. If a Grantee
elects to consider such a firm, it should develop a set of criteria
that will assist it in selecting an Operator that will ensure
the best possible development of the Foreign-Trade Zone. Too
often grantees have entered long-term exclusive contracts with
warehousemen or developers only to find themselves at cross-purposes
with their Operators. In many of these cases, overall Zone development
has been stifled in the interest of selling land, leasing warehouse
space, or handling and storing merchandise.
Does this mean that a Grantee should not hire a real estate
developer or warehouseman as an Operator? No, not at all. It
simply means that the Grantee and the prospective Operator must
sit down before an Operator's Agreement is developed and reach
a clear understanding of the goals, objectives and interests
of each party. Obviously, common interests must be present.
These should be easy to deal with. Other interests may be parallel
between the parties and still other interests will be divergent.
It is the handling of parallel or divergent interests that will
spell success or frustration for the Grantee, the Operator and
the community which they serve. Each party must respect and
accommodate the interests of the other. At the same time, the
Grantee must maintain its own flexibility for the future development
of the Zone and its other businesses without hindrance or interference
from the Operator. Ideally, of course, the Grantee and Operator
should work hand-in-hand toward the same or parallel goals.
The worst mistake some Grantees make is that of entering into
an exclusive Operator's Agreement with a firm that is not equipped
or not in the business of providing the kinds of services needed
to maximize the Zone's total overall development. Often, this
mistake is made because the Grantee is not clear enough or patient
enough to develop its own goals and interests and sit down and
thoroughly discuss these with its prospective Operator.
If a particular firm cannot provide services to fulfill the
full range of goals for the Zone project, the Grantee should
make sure that the Operator's Agreement provides it the means
to fully develop the Zone project. This could involve a non-exclusive
Operator's Agreement or simply a clear delineation of the scope,
responsibilities and financial considerations of the Operator's
Agreement. If the Operator is not equipped to provide certain
services or bear certain responsibilities, the manner in which
those services will be provided or those responsibilities will
be borne must be addressed. Ignoring or ducking such issues
ultimately proves costly to a Zone project's success.
The Operator's Agreement will take into account whether the
Grantee will accept multiple Operators. It will address the
supervision of Subzones (which commonly act as their own Operators).
It may address whether or not the Grantee may act as Operator
at certain sites. The Agreement should be a comprehensive document,
allowing the Operator a degree of flexibility as well as protecting
the Grantee from acts of negligence. It should be prepared with
the objective in mind of maximizing the Zone project's trade
and economic opportunities, as well as that of protecting the
Grantee from direct Customs liability.
The Operator's Agreement defines the responsibilities and liabilities
of the parties. It typically specifies exclusivity or non-exclusivity.
The Operator's Agreements often provide terms covering the following
of Contract Responsibilities of Operator
and termination Assignability
responsibilities Utilization of sub-contractors
Right of entry, inspection, and audit
Relationship between Grantee and Operator
requirements Recordkeeping and Reporting responsibilities
of Trade Name Withdrawal of Grant
selecting an Operator the Grantee must, in addition to its goals,
consider its own capabilities. It must also consider the capabilities
of the prospective Operator. The newly established Grantee must
always keep in mind that its goals and capabilities may change.
It may be that the new Grantee wants to stimulate cargo movement
at its facilities, but doesn't have the equipment, infrastructure,
-- perhaps, the desire -- to really get into the handling and
warehousing business. Yet, a particular warehousing and logistics
firm may already be set to handle the extra business that the
Zone could stimulate. Hiring the firm as an Operator may be
the quick easy answer to getting Zone activity started. In doing
this, however, both Grantee and warehousing business must jointly
ask themselves a number of questions, such as:
What happens when a new company wants to set up its own distribution
operations in the Zone? Will there be assistance from the existing
Operator? Will there be conflict? Will there be no relationship
between the two; that is, will the Zone have multiple Operators?
If that is the case, who will provide expertise and oversight
services to ensure compliance?
If the Grantee desires a real estate development firm to operate
and develop its Zone project, the questions the Grantee and
developer must jointly ask themselves may include:
kinds of businesses and activities are desired for the Zone?
Who finances construction within the Zone? Will the Operator
build certain facilities on a speculative basis? If so, how
many? How much office space is too much? What kinds of industry
are acceptable or desirable? What kinds are not? Who can build
facilities in the Zone? Can other developers own facilities?
Who will help companies that cannot be accommodated in the
General Purpose Zone and need Subzone status? What about existing
businesses in the community that need Subzone status?
the Grantee desires an administrative firm to operate the Zone,
the Grantee and administrator must ask themselves:
the user base develop quickly and broadly enough to economically
support the Zone operation? If not, who subsidizes the Zone
operation? When, and how much on-site staffing will be required
to efficiently run the Zone as it develops? Can the administrator
designate certain users as FTZ operators; that is, can it
require users to obtain their own Customs Bonds? What responsibilities
will the administrators have in developing and monitoring
any case, the Grantee must ask itself if and how it will recoup
its original investment in establishing its Zone project. Whether
funds will flow from Operators and/or users must be addressed.
Finally, the Grantee must address the terms under which it can
terminate or revise the Operator's Agreement in the event the
Zone project's goals are not met. Obviously, maximum flexibility
within the bounds of fairness should be the goal of the Grantee.
The Grantee should never be reticent about asking for and demanding
good service from its Operator(s). The Grantee should always
position itself to meet the Zone's goals as they develop or
change. Ideally, the Zone Operator will be the Grantee's closest
ally in making the Zone project a success.
Operator is that party responsible under the Customs FTZ Bond.
Operators (as well as different Grantees) often offer different
time to compare goals, interests, and potential conflicts
is before an outside Operator is hired.
you hire an outside Operator, make sure you maintain the flexibility
to pursue your Zone's goals as they may change or evolve.
Know what your Zone project is about.
Word to the Wise about the Foreign-Trade Zone Operator's Bond
To activate any Foreign-Trade Zone area, the Operator is required
to file a Foreign-Trade Zone Operator's Bond. This is filed
using Customs Form 301. The FTZ Operator's Bond is the subject
of much fear and trepidation, and no small amount of misunderstanding.
It should be noted, that a Foreign-Trade Zone Operator's Bond
is NOT a form of insurance coverage. If fines, penalties or
liquidated damages are assessed against an Operator's Bond,
the surety company underwriting that Bond will make every effort
to collect the entire settlement amount from the Operator. The
Bond simply provides assurance to the U.S. Customs Service that
assessments against the Bond will, indeed, be paid. The Surety
Company underwriting the Bond provides this assurance. However,
if assessments against the Bond are paid to Customs by the Surety
Company, the Surety Company will then take action against the
Operator. Normally, the face amount of the Bond is set by the
District Director (or Port Director) of Customs and is based
on that individual's judgment regarding the level of potential
liability. The minimum face amount is $50,000.