ONSCENT INSIGHTS
Inside Foreign Trade Zones
May 2025
An exclusive interview with Rebecca Williams, Managing Director at Rockefeller Group FTZ Services
Interviewed by OnScent CMO, Chris Fuentes | May 28, 2024
What is a Foreign Trade Zone (FTZ)?
Rebecca, thank you for joining us. To start, for those in the fragrance industry who may be unfamiliar, can you explain—what is a Foreign Trade Zone?
A Foreign Trade Zone (FTZ) is a designated physical area in the United States, typically near a Customs port of entry. The idea is to let importers bring goods into the U.S. and delay the customs entry and duty payment until the goods are either sold in the U.S. or exported. While the goods are in the FTZ, businesses can store them, process them, or even destroy them without paying duties—unless those goods enter U.S. commerce. The only activity prohibited by law is retail sales.
The History of FTZs
That delay sounds like a major operational advantage, especially for fragrance manufacturers importing raw materials. How long has this program been around?
It dates back to 1934, part of President Roosevelt’s New Deal. The program was developed in response to the Smoot-Hawley Tariff Act of 1930, which imposed high tariffs on imports and, many argue, worsened the Great Depression. FTZs were designed to promote U.S. participation in international trade, enabling companies to defer duty payments or eliminate them entirely for goods that are exported or destroyed.
The Size of FTZs in the U.S.
This is clearly a well-established program—but how significant are Foreign Trade Zones today?
Very. In 2023, $949 billion in merchandise moved through Foreign Trade Zones in the U.S. That includes both domestic and imported goods. Of that, $303 billion was imported merchandise—almost 10% of total U.S. imports. It’s a substantial driver of economic activity, employment, and investment, especially for industries with global supply chains like the fragrance sector.
The Benefits of Using FTZs
For fragrance companies considering building or partnering on an FTZ, what are the main benefits?
Since 2018, we’ve seen a range of “remedy tariffs” imposed—under Section 301 (Chinese goods) and Section 232 (steel and aluminum), for example. These are designed to encourage domestic production. Foreign Trade Zones allow companies to defer payment of these tariffs until the goods are sold in the U.S., improving cash flow. And if the goods are exported instead, companies can avoid the tariffs entirely.
The benefits of foreign trade zones typically fall into three categories.
- Customs duty and tariff mitigation – Most companies pursue Foreign Trade Zones to defer or even eliminate duties. For example, if goods are ultimately exported or deemed scrap and destroyed, duties never need to be paid.
- State and local tax savings – In some states, FTZs help businesses avoid inventory taxes.
- Logistics and supply chain efficiencies – FTZs streamline administrative processes and can reduce costs by consolidating customs entries.
How to Defer or Eliminate Tariffs
That cash flow flexibility could be vital for a fragrance company dealing with global sourcing. Are there still ways to eliminate tariffs outright?
Yes—especially when goods are exported or scrapped. If you import raw materials into an FTZ and later export the final product, you never pay U.S. tariffs. Similarly, if part of your inventory becomes obsolete, expired, or unsellable, you can destroy it within the FTZ under customs supervision and avoid duties on that scrap. And if the goods are sold domestically, the tariff can be deferred until they leave the FTZ for U.S. commerce—even if they move between multiple FTZs first. These benefits are especially valuable in today’s high-tariff environment.
Inverted Tariffs and Why They Matter
Let’s touch on inverted tariffs—a concept that’s come up in FTZ conversations. What are they, and why do they matter?
Inverted tariffs occur when imported components have higher duty rates than the finished product. That discourages U.S. manufacturing. FTZs used to offer a workaround: you could apply the finished good’s lower tariff rate to the components. However, recent changes now require many manufacturers to pay the original, higher component tariff—removing that benefit. It’s a big shift, especially for companies that were relying on that advantage.
For example, before April 9, 2025, a company could admit a $100 part into an FTZ under Non-Privileged Foreign (NPF) status and apply the finished car’s lower 2.5% duty—resulting in just $2.50 owed. After the rule change, that same part now carries its full 80% duty and tariff burden under Privileged Foreign (PF) status, increasing the duty owed to $80 and eliminating any inverted tariff savings.
Who Can Benefit From Foreign Trade Zones?
Given these changes, who do you see benefiting most from FTZs today?
It really depends on the company’s import volumes, duty rates, how quickly they turn inventory, and whether they export. If a fragrance company is importing essential oils, alcohol bases, or packaging from abroad—and especially if they export final products—then the FTZ cash flow and duty elimination benefits can be substantial.
This has been incredibly insightful. Thank you, Rebecca. For those in the fragrance industry looking to reduce costs and build more resilient supply chains, this conversation just opened a lot of doors.
Thank you, Chris. There’s a lot changing in global trade right now, and I’m glad to help businesses navigate it.
To learn more watch full episodes of Tariffs in Motion by OnScent Insights by registering here.