U.S. Foreign-Trade Zones have emerged as a valuable platform for U.S. exports and an attractive home for the re-shoring of manufacturing activity, according to the most recent report from the U.S. FTZ Board. In its Annual Report to Congress released in August, the FTZ Board reported that FTZ activity in 2013 reached new highs for merchandise received in zones, exports and employment.

For the year, the 177 active zones in the United States and Puerto Rico received $835 billion in merchandise, almost two-thirds of it domestically sourced. The more than 3,000 companies operating in zones employed a record 390,000 workers in zone activities in 2013, combining foreign and domestic inputs to produce such high-value goods as motor vehicles, pharmaceuticals, machinery and equipment, appliances, and refined petroleum products.

Imports to foreign-trade zones now account for more than 12 percent of total U.S. imports. The top categories of foreign-sourced inputs were oil/petroleum, vehicles and vehicle parts, consumer and other electronics, textiles and footwear, machinery/equipment, and pharmaceuticals.

Exported merchandize from FTZs reached a record $79.5 billion in 2013. Total FTZ exports were almost triple the total in 2009, far outpacing the growth of overall U.S. goods exports during that same period. FTZs have proven to be a competitive export platform in large part because of the elimination of duties on imported components that are then re-exported as part of final products manufactured in FTZs.

The FTZ program is a success story that continues to set new milestones.

The top exporting companies from FTZs in 2013, along with the major petroleum refiners, were BMW Manufacturing in FTZ No. 38 in South Carolina, Bristol-Myers Squibb in FTZ No. 177 in Indiana, Nissan North America in FTZ No. 78 in Tennessee, Mercedes-Benz in FTZ No. 98 in Alabama, and Toyota Motor Manufacturing in FTZ No. 29 in Kentucky.

Along with its export success, the program has proven effective in attracting new investment in the U.S. manufacturing sector from abroad and the “re-shoring” of U.S. investment. British-owned Rolls-Royce Energy Systems has applied for zone status for a facility in Mount Vernon, Ohio, that produces industrial gas turbines, power generation turbines and generator sets. Imported components include AC generators, industrial gas turbines, turbine bases, and gearboxes.

General Electric Appliances and Whirlpool have each recently opened major manufacturing enterprises in foreign-trade zones in the United States. GE has invested $800 million in a huge appliance manufacturing facility with FTZ status near Louisville, Kentucky, where GE opened a brand-new, cutting edge assembly line in 2012 for low-energy water heaters.

In Clyde, Ohio, Whirlpool has opened a 2.4-million-square-foot facility that it calls the largest washing-machine plant in the world. FTZ-status allows the company to reduce or eliminate duties on such imported components as circuit boards, pumps, and motors, which would otherwise face duties as high as 9 percent. With the added attraction of FTZ status, Whirlpool is shifting production of washing machines back to the United States from Monterrey, Mexico.

Foreign-trade zones have proven equally appealing to high-tech manufacturers. Apple Inc. has opened an FTZ facility in Mesa, Arizona, to manufacture scratch-resistant synthetic sapphire glass for iPhones. When fully operational in 2015, the 1.3-million-square-foot plant will employ 700 workers, continuing a trend within Apple to ramp up its production activities in the United States.

In The Spotlight

In Silicon Valley in California, Tesla Motors is now producing its state-of-the-art electric sports cars in a foreign-trade zone plant in Fremont. Tesla imports battery cells, battery pack components, and electric motor components, which it combines in the plant with U.S. supplies to make completed battery packs and transmission assemblies.

Just down the road, Lam Research, an equipment supplier and service provider to the semiconductor industry, utilizes its foreign-trade zone status to reduce tariffs on components that it uses to manufacture production equipment, more than 95 percent of which it then exports. According to a report in the Silicon Valley Business Journal, the company estimates it saves $1.4 million a year from operating in a foreign-trade zone.

Gaining authority to operate in a zone is more user-friendly than ever, because of new regulations enacted in 2012 and a more streamlined approach to zone administration called the Alternative Site Framework launched in 2008. As a result, the number of companies applying annually for zone status has doubled since 2007.

For U.S. trade policy, the U.S. economy, and U.S. workers, the FTZ program is a success story that continues to set new milestones.

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Daniel Griswold
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


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  • Guest (WT "Bill" McKibben)

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    Great piece, Thanks!

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