In an increasingly globalized economy, pharmaceutical manufacturing companies are constantly seeking new ways to enhance efficiency, reduce costs, and navigate complex regulatory landscapes worldwide. One strategic advantage that is sometimes overlooked is the utilization of Foreign Trade Zones (FTZs) and their subsequent subzones. These designated areas offer significant benefits that can streamline operations and provide substantial financial incentives to both the contract manufacturer and the pharmaceutical client. As Jubilant HollisterStier has recently been approved as a certified FTZ subzone, it’s important to highlight the advantages FTZ subzones offer pharmaceutical contract manufacturers and their clients, and the benefits they provide to both the manufacturer and the client. 

According to U.S. Customs and Border Protection (CBP), Foreign Trade Zones (FTZs) are secure areas under CBP supervision that are considered outside CBP territory upon activation and are U.S. versions of internationally free-trade zones. These areas are designated zones where businesses can enjoy various custom benefits, such as ¹:

• CBP duty and federal excise tax (if applicable) are paid when the merchandise is transferred from the zone for protection
• Merchandise isn’t subject to duty or excise tax while in the zone
• Goods and merchandise can be exported from the FTZ free of duty and excise tax
• CBP security requirements provide protection against potential theft
• Goods and merchandise can remain within the zone indefinitely
• The rate of duty and tax on merchandise added to a zone may change as a result of operations conducted within the zone
• Merchandise that is imported under bond may be admitted to a FTZ to satisfy a legal requirement of exporting that merchandise

The Foreign Trade Zones Act of 1934 created an FTZ board to review and approve applications to establish, operate, and maintain these zones.¹ This Act was designed to expedite and encourage international trade by offering a variety of customs benefits to business by declaring geographic areas to be outside then normal customs territory of the U.S.¹⁰

Companies can now operate within FTZs that have a defined area or companies can have zone status brought directly to their facilities. Zones can be used for manufacturing, warehousing, and/or other logistical activities. Every state within the U.S. has at least one zone that can be used by companies and businesses.¹⁰FTZs have evolved to become critical hubs for global trade, fostering economic growth and operational efficiencies.

Companies can now operate within FTZs that have a defined area or companies can have zone status brought directly to their facilities. Zones can be used for manufacturing, warehousing, and/or other logistical activities. Every state within the U.S. has at least one zone that can be used by companies and businesses.¹⁰ FTZs have evolved to become critical hubs for global trade, fostering economic growth and operational efficiencies.

FTZ subzones are usually the most beneficial for larger companies as companies become responsible for all costs that come with buildings, maintenance, and security once they have an approved subzone. However, any company no matter the size can apply to use their facility as a designated FTZ subzone.¹¹ Industries like pharmaceutical contract manufacturers have successfully leveraged subzones to optimize their operations. The FTZ application process is outlined by the International Trade Administration if you are interested in applying to or learning more about how to get a facility approved. 

• Cost savings: By deferring, reducing, or eliminating custom duties, manufacturers can significantly lower overall costs. These cost savings include no duties on imported goods that are later re-exported, delayed payments of duties on goods entering the U.S. market, and more efficient supply chains.
• Supply chain efficiency: FTZ subzones facilitate faster customs clearance and reduced paperwork, which creates smoother and more predictable supply chain operations.
• Inventory control: Enhanced control over inventory allows for on-time delivery and better management of supply and demand fluctuations, which is crucial in pharmaceutical manufacturing.
• Logistical flexibility: The ability to re-export goods from the FTZ subzone without incurring duties further adds to logistical flexibility and cost-efficiency

Operating within an FTZ subzone requires adherence to specific regulatory frameworks. Pharmaceutical contract manufacturers must comply with U.S. Customs and Border Protection regulations and the Food and Drug Administration guidelines. Key compliance requirements include accurate record keeping, reporting, and maintaining stringent security measures to prevent unauthorized access or diversion of goods. Implementing a compliance strategy to ensure that the manufacturer mitigates risks while using an FTZ subzone is also critical to compliance. The International Trade Administrations offers a comprehensive list of all specific regulations required for U.S. Foreign Trade Zones. 

While FTZ subzones offer advantages to manufacturers, there are also some challenges to consider when applying: 

• Initial set up costs can be hefty as there are costs for the application, infrastructure, and compliance measures. 
• There is regulatory complexity that requires meticulous attention to detail and ongoing compliance efforts. 
• There might be industry specific considerations that each industry might face, such as FDA regulations and the need for secure supply chains for manufacturing.

FTZ subzones present a compelling opportunity for pharmaceutical contract manufacturers such as Jubilant HollisterStier to enhance operational efficiency, reduce costs, and navigate complex regulatory environments. By understanding the benefits, addressing compliance requirements, and strategically implementing subzones, manufacturers can benefit from significant advantages in a competitive global market. JHS has been approved as a certified FTZ subzone to continue to ensure each project is successful for our clients. To learn more about how JHS utilizes our FTZ subzones to the benefit of our clients, contact our team today.