INTRODUCTION

Foreign-Trade Zones (FTZs) are longstanding federal economic de­velopment tools designed to encourage international commerce by allowing businesses to defer, reduce, or eliminate certain customs du­ties on imported goods. Although FTZs have been widely utilized by ports, municipalities, manufacturers, and logistics companies through­out the United States, they remain relatively underutilized in Indian Country. For tribal nations, FTZs present a potentially significant but often overlooked opportunity that they are well suited for. While tribes participate in sophisticated economic activities, many are understand­ably hesitant to dive into the unfamiliar operation of FTZs.

Recent developments in federal trade policy, including the in­creased use of tariffs, have renewed interest in FTZs as businesses seek lawful mechanisms to manage customs costs, improve cash flow, and strengthen supply chain flexibility. However, for tribes, the potential benefits of FTZ designation extend beyond customs savings. FTZ programs in Indian Country can promote continued sovereignty through the encouragement of intertribal commerce in a network that produces independent profit. These considerations make FTZs particularly relevant to attorneys advising tribal govern­ments, tribal enterprises, and other non-tribal affiliates seeking to do business in Indian Country.

FOREIGN TRADE ZONES OVERVIEW

An FTZ is an area of land designated as being “outside the customs territory of the United States,” which effectively exempts merchan­dise from United States tariff laws and customs procedures until the merchandise physically leaves the zone and enters customs territory for domestic consumption or use.¹ FTZ administration is governed by two site framework models: the Alternative Site Frame­work (ASF), which is modern and flexible, and the Traditional Site Framework (TSF), which relies on fixed site boundaries and individ­ualized approvals.²

FTZ sites are established through a federally approved “grantee,” typically a public or quasi-public entity such as a port authority or development agency.³ The grantee operates the FTZ through a Gen­eral Purpose Zone (GPZ) that must be located in or “adjacent to” a U.S. port of entry. This requirement is typically satisfied by locations within approximately 60 miles or 90 minutes of driving distance from such a port.⁴ GPZs generally function as magnet sites that are multiuser facilities where multiple businesses operate under the sin­gular designated zone for storage, distribution, or processing activ­ities.⁵ Existing FTZ grantees may sponsor a usage-driven Subzone designation for a single-user to host specialized facilities subject to the FTZ Board’s approval.⁶ These Subzones can be established out­side of the adjacency requirement only if the U.S. Customs and Bor­der Protection (CBP) Port Director agrees that proper CBP oversight can be accomplished, and the operator of the Subzone agrees to present merchandise and documents for examination at a CBP site when requested.⁷ This allows for some businesses to obtain FTZ benefits without relocating operations to an existing GPZ.

GENERAL BENEFITS OF FTZS

The creation of FTZs was authorized in 1934 with the purpose of encouraging and expediting foreign commerce.⁸ FTZs provide participating entities with a range of customs and tax advantages designed to reduce costs and improve cash flow in international trade and manufacturing operations through duty exemptions, duty deferrals, inverted tariff relief, ad valorem tax advantages, situa­tional duty eliminations, and reduced Customs filing and Merchan­dise Processing Fee (MPF) obligations.⁹

Duty exemption, deferral, and elimination

Duty exemptions and eliminations are among the most significant of the FTZ benefits. As a general rule, there are no customs duties owed on foreign merchandise admitted into an FTZ unless and until it en­ters U.S. commerce.¹⁰ This duty exemption encapsulates reexported merchandise and merchandise transferred between FTZs. This al­lows manufacturers to strategically import components, assemble or process goods, and export finished products without incurring U.S. customs duties. In addition, FTZs may generate savings through duty eliminations on scrap, waste, or yield loss. Operators may reprocess, recycle, or reexport such materials within the zone to keep it outside of U.S. commerce and reduce or eliminate duty exposure.

FTZs can also defer duty payments on defective or damaged mer­chandise while it is being tested, repaired, or stored within the FTZ.¹¹ This allows entities within the FTZ to alter, repackage, or relabel defective or damaged merchandise to make those prod­ucts more suitable for resale in the U.S. stream of commerce, or to reexport those products to foreign markets. Import duties can also be deferred strategically by postponing the merchandise’s exit into domestic consumption, which improves liquidity by freeing work­ing capital that would otherwise be tied up in immediate customs payments and may allow operators to deploy those funds for oper­ational or investment purposes during the deferral period.

Inverted tariffs

Entities within an FTZ can import raw materials, or other compo­nents, and produce a final product that is subject to lower duty rates.¹² This benefit, while highly industry dependent and directly affected by the Harmonized Tariff Schedule of the United States, is one of the most widely known advantages of FTZs and creates an immediate financial benefit compared to traditional production operations taking place in U.S. Customs territory. However, it is important to note that recent federal tariff actions have prompted increased scrutiny of FTZ-related tariff optimization strategies, in­cluding efforts to limit certain inverted tariff advantages.¹³

Ad valorem tax relief

FTZs further provide ad valorem tax relief, as most merchandise held within a zone is exempt from state and local inventory taxes while under FTZ status.¹⁴ This can significantly reduce carrying costs for businesses holding large inventories.

Weekly entry savings

Finally, FTZ users benefit from reduced Customs administration burden, including simplified “weekly-entry” procedures.¹⁵ Typically, CBP procedures require importers to file a Customs entry form and pay a Merchandise Processing Fee for every single shipment they release into the U.S. stream of commerce. FTZ users, on the other hand, are only obligated to file one Customs entry and pay the MPF “during any 7-day period” for all shipments released from the zone during that period.¹⁶ For high-volume withdrawals from an FTZ, a zone user would realize significant savings compared to their counterparts who do not operate within an FTZ.

BENEFITS AND CONSIDERATIONS FOR TRIBAL FTZS

While the Customs benefits of FTZs apply regardless of location, zones that are situated on tribal lands may present additional economic development opportunities because they operate within the broader framework of tribal sovereignty. Accordingly, tribes considering FTZ development should carefully evaluate jurisdictional and tax implications as part of the project planning process to maximize sovereignty and economic advancements for tribal and third-party entities.

Strategic site location

For tribal nations establishing an FTZ, the location may be as im­portant as the customs benefits. Tribes with fee land located ad­jacent to or near tribal trust land may be able to integrate FTZ operations with existing economic development projects like manu­facturing facilities, warehousing operations, retail enterprises, and transportation infrastructure. Strategic placement of FTZ facilities can create opportunities to attract third-party investment, support tribally owned businesses, and expand commercial activity within the tribe’s jurisdictional footprint without interference by the state.

The extent to which state taxes and regulations apply to activities occurring within a tribal FTZ depends on a variety of factors, includ­ing the status of the land involved, the identity of the parties, and the nature of the activity at issue. A tribe choosing to develop FTZ operations on tribally owned fee land while coordinating related commercial activities on adjacent trust land can potentially maintain a significant role in the overall development strategy while also pro­viding flexibility for financing, leasing, and business partnerships.

Leveraging federal contracting opportunities

For some tribes, the greatest value of an FTZ may arise when combined with existing federal procurement advantages. Tribally owned businesses participating in the U.S. Small Business Admin­istration’s 8(a) Business Development Program may receive access to sole-source contracting opportunities that are unavailable to most non-tribal businesses.¹⁷ In addition, tribal enterprises may benefit from federal procurement preferences under programs such as the Buy Indian Act and the Buy American requirements.¹⁸ When combined with the customs and inventory advantages associated with FTZ operations, these federal contracting programs can cre­ate a powerful economic development platform. A tribally owned manufacturer operating within an FTZ, for example, may be able to reduce customs costs on imported inputs while simultaneously accessing federal procurement opportunities for domestically man­ufactured products. This combination of trade and procurement advantages may make FTZs a particularly attractive tool for tribal economic diversification and industrial development.

Considerations specifically for michigan tribes

Michigan tribes may be particularly well positioned to explore FTZ opportunities because of their proximity to Canada, extensive rail and highway networks, and the Great Lakes shipping infrastruc­ture. Several tribes are located near transportation corridors, inter­national border crossings, and manufacturing supply chains that may be compatible with FTZ development. Michigan’s longstand­ing trade relationship with Canada may create unique opportuni­ties for tribal enterprises engaged in cross-border commerce. FTZs may warrant consideration as part of a broader tribal economic development strategy.

TRIBES IN THE FTZ SPACE

The combination of heightening interest in FTZs and the designation preferences for public entities has allowed for an increasing num­ber of tribally owned and operated FTZs. Even so, since the initial authorization of FTZs in 1934, fewer than 10 tribes are publicly known to have applied to create an FTZ, a significantly low number compared to the over 250 sites in the U.S. today.¹⁹ The underuti­lization of this opportunity could be rooted in negative historical practices that created tribal skepticism of federal offers, or it could stem from practical limitations, including some tribal nations being secluded away from functional infrastructure. However, active tribal FTZs are examples of success and variety.

An example of an initial FTZ tribal grantee is Lummi Indian Business Council in Washington. The Lummi Nation applied and became the initial grantee for an FTZ established on their reservation lands.²⁰ In 2023, they reorganized under the ASF and defined a service area covering all Lummi-owned properties and designated their existing site as a magnet site. It is important to note that the Lummi Nation was originally approved to create an FTZ in 1986, but there was no record of activity until 2015.²¹ Tribes can create FTZs without the need to rush into operations, but they must be careful because most FTZ designations sunset after five years.

Tribes who are not in the position to apply for their own FTZ due to location or financial considerations may utilize preestablished sites. In 2014, the Port Authority of Greater Oklahoma City designated Iron Horse Industrial Park as a magnet site of the existing FTZ.²² This designation was on 700 acres of traditional trust land owned by the Citizen Potawatomi Nation (CPN).²³ This site is strategically placed close to several highways and railroads which connect the FTZ to international ports and foreign markets. The CPN have been able to designate portions of their FTZ for renewable energy development to promote their environmental sustainability values and have also been able to partner with universities to promote higher education.²⁴

These examples illustrate that tribes need not follow a single model when pursuing FTZ designation and can adapt their zone to their location, infrastructure, and economic objectives and needs.

CONCLUSION

Stated simply, an FTZ is a designated geographical area where foreign and domestic goods are treated, for tariff and state tax purposes, as if they had never entered the United States Customs territory. As more tribes establish tribal FTZs, an intertribal network of commerce is created that bolsters tribal sovereignty and indi­vidual financial gain. Much as historic trade routes facilitated the exchange of goods, resources, and ideas among Native Nations, a modern network of tribally owned FTZs could create new avenues for collaboration between tribes and private industry, expanding commercial opportunities across Indian Country and beyond while further establishing tribes as influential participants in the national and global economy.