Global SCM Disruption Mitigated by Foreign Trade Zones

The Foreign-Trade Zones (NAFTZ), Exposition at The Palmer House Hilton in Chicago proved to be another great success, report attendees. And little wonder. With trade policy currently a hot political topic, the U.S. Foreign-Trade Zones program plays an even more important role in promoting trade, investment, and job creation. Indeed, industry leaders say it's a “show stealer” this year.

Erik Autor, president of NAFTZ, says large-scale distribution operations – particularly in consumer products – is showing the most growth these days.

“The biggest users of the FTZ program continue to be in the automotive, pharmaceuticals, aerospace, consumer products, and petroleum industries,” he says. “And while we have not seen any noticeable increase in the number of zone operators, we have seen a significant increase in the number of zone projects approved by the Foreign Trade Zones Board. This suggests current operators in the program are increasing their zone activities.”

A big reason for this surge in activity, adds Autor, is to mitigate risk at a time of global trade uncertainty.

“The benefits under the FTZ program provide participating companies cash-flow and supply-management predictability in admitting imported goods into a zone free of duty, paying duty only when the goods leave the zone into U.S. customs territory, and paying no duty when exporting from a zone,” he says.

This situation is significantly different than for companies operating in the U.S. outside a zone. According to Autor, this is especially important given that the average U.S. duty rate was approximately 2 percent prior to the additional duties imposed under the various trade actions. The additional duties now range from 15-30 percent on a significant portion of U.S. trade.

“Clearly managing the trade actions by the Administration will continue to be a major challenge,” says Autor. “This includes the threat of Sec. 232 duties on vehicles and parts, 301 duties on the EU and France, and further escalation of the tit-for-tat trade war with China.”

In a political environment where it is unclear what, if anything, might get through Congress prior to next year's election, another challenge is advancing the NAFTZ's legislative agenda as part of a USMCA implementation.

Autor explains that this bill will clarify the tariff treatment of FTZ merchandise and address three unfair restrictions on FTZ manufacturers and distributors that companies in Canada and Mexico do not face.

Another hurdle is to advance their regulatory agenda, including major revisions to update the FTZ rules and integrating the compliance data for all agencies regulating imports onto Customs' Automated Commercial Environment (ACE) software platform.

“More generally,” concludes Autor, “our continuing challenge during a period of major changes in global commerce and technology is to ensure that the FTZ program is recognized and structured in a way that will allow it to continue its primary mission — creation and enhancement of business operations and jobs in the United States, attracting investment into American communities, and promoting exports.”

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