For U.S. companies seeking to penetrate global markets, the U.S. Foreign-Trade Zones program is proving to be a huge asset. In 2011, exports from companies operating in an FTZ surged by 56 percent compared to Fiscal Year 2010, according to a new report from the FTZ Board in Washington, D.C. That export growth compares to a 21 percent increase in total U.S. goods exports during the same period.

Although foreign-trade zones have been available since the 1930s, they are flourishing as a platform for global U.S. companies today because of more friendly regulations and the increasing globalization of the U.S. economy. According to the FTZ Board report, 2,800 U.S.-based companies operated in an FTZ in 2011, an increase of 300 from 2010. Those companies employed 340,000 U.S. workers in more than 170 active zones across all 50 states and Puerto Rico.

The concept behind the FTZ program is simple and effective. A foreign-trade zone is an area at or near a U.S. port of entry that is considered outside U.S. Customs territory. That means formal Customs entry procedures and payment of duties only apply when goods leave the zone for domestic consumption.

For companies that sell in the domestic market, locating in an FTZ offers the benefit of duty reduction and deferral. For example, global automakers who locate in a zone can elect to pay the lower duty of 2.5 percent on a finished automobile rather than higher duties imposed on certain imported auto parts.

Retailers that locate their distribution centers in an FTZ are saving on cash flow because they pay duties only when merchandise leaves the zone for the domestic market, not when it enters from abroad. Location in an FTZ also allows for a single weekly entry filing with Customs, reducing payments for the Merchandise Processing Fee. Those savings can be passed along to American families through lower prices for clothing, footwear, and household goods.

For exporters, locating in a zone can mean eliminating duties on foreign-sourced inputs in final products sold in foreign markets. Raw materials and components can be admitted to a zone and combined with domestic inputs by U.S. workers into a finished good that is then sold abroad, with no duties owed because the foreign inputs never entered U.S. commerce. The zone allows exporters to avoid the cumbersome and uncertain process of applying for a “duty drawback” refund from Customs.

As a result of these advantages, exports from FTZs are more than carrying their weight in meeting the Obama administration’s National Export Initiative goal of doubling U.S. exports by 2014. Since 2009, exports from FTZs have grown by more than 80 percent—far faster than total U.S. export growth during the same period. In turn, FTZ exports have rocketed ahead of the pace needed to meet the president’s goal, while total exports are lagging behind.

Export leaders among FTZ-using companies include global automakers such as BMW Manufacturing Co. in South Carolina, Mercedes-Benz U.S. International in Alabama, Toyota Motor Manufacturing in Kentucky, and Nissan North America in Tennessee and Mississippi.

Other U.S.-based manufacturers that enjoyed export success from an FTZ in 2011 include Bristol-Myers Squibb Co., GE Aviation, Hawker BeechCraft Corp. and the power-tool maker STIHL Inc. A number of major oil companies also use foreign-trade zones to deliver refined petroleum products to customers in the United States as well as abroad.

Expanding and enhancing the FTZ program should be an integral part of any strategy to promote U.S. economic growth and trade. More user friendly FTZ Board regulations implemented in 2012 have streamlined the application process and opened the program to more small and medium-sized manufacturers. One big piece of unfinished business is the lack of full automation by Customs for goods entering U.S. commerce from a foreign-trade zone, a shortcoming Congress can address in the upcoming Customs reauthorization bill.

In an increasingly competitive global economy, U.S. producers and workers have a dependable and effective friend in the U.S. Foreign-Trade Zones Program.

About The Author Daniel Griswold [Full Bio]

Daniel Griswold is senior research fellow and co-director of the Program on the American Economy and Globalization at the Mercatus Center.




www.mercatus.org