By Scott S. Taylor - appearing in the JOC September 2, 2019 issue

The more things change the more they stay the same. The Foreign-Trade Zone (FTZ) program was enacted in 1934, at a time when tariffs on imported products were high, as a way to increase jobs and facilitate investment in the United States through expanded global trade. Since the beginning of 2018, domestic customs duties have risen on a wide range of imported materials used in US manufacturing and distribution operations supply domestic and international markets. Increased customs duties are threatened on a wide range of additional products, including all motor vehicles and parts and European-Union -and French-origin products. Year to date, more than $30 billion in additional Harmonized Tariff Schedule of the United States (HTSUS) Chapter 99 duties have been collected. Some of the new total customs duty rates are reminiscent of 1934 levels. 

The FTZ program provides flexibility for companies creating or maintaining jobs and investment in the United States. Foreign Trade Zone status fosters competition in the global economy by lowering the cost of products imported and exported from the United States. Reforms in the program, such as the Alternative Site Framework (ASF) have streamlined the Department of Commerce application process, resulting in significant increased program use by smaller and medium-size US companies located in the United States.

In these turbulent times for US trade, the FTZ program provides a level of management control as well as more flexibility for American-based operations. Many companies that, in the past, imported duty-free or low-duty-rate items had no need to defer or avoid customs duty payments. Recent HTSUS Chapter 99 duties have added rates of 10 to 25 percent on a significant number of imported items. However, these duties are not assessed on exports by companies utilizing an FTZ established for a US-based facility with American workers. This is particularly relevant for additional duties imposed on aluminum and steel imports under Section 232, where refund of duties paid through duty drawback is not available. 

Event for those companies distributing products in the United States from and FTZ, customs duties can be delayed while the product is stored in a zone. Lowering the cost of doing business in the US as much as possible is a fundamental element of remaining competitive with overseas companies. This is a key aspect of the program, which has always been dedicated to supporting American jobs as US-based facilities. 

According to the latest US Foreign-Trade Zone Board Annual report, published in October 2018, more than 450,000 American workers were employed in domestic zones within 3,200 companies in the United States. The value of shipments into US zones totaled $669 billion, which is a 9.1 percent ($59 billion) increase from the previous year’s total of $610 billion. Program use has also increased over the last year, as more companies are structuring zones to mitigate the impact of increased duty rates imposed by the Trump administration. As of August 12, there were 292 zones and 829 subzones approved, an increase of nearly 24 percent over last year for subzones. This year between January 1 and April 23, the FTZ Board authorized 69 new zone facilities under ASF. As of August 12, the number of ASF applications approved for FTZ grantees was 177, marking a seven percent increase over last year and representing more than 90 percent of all zone projects. It is expected that 2019 annual totals will also reflect an overall increase in zone applications and activity. 

The FTZ program continues its original mission, established during the inception during the Great Depression, to support US companies and create jobs and warehouse and manufacturing facility investments in the United States. 

To learn more about Foreign Trade Zones in the Kansas City area, visit gckftz.com.