USITC Findings on Foreign Trade Zones

For the first time since 1988, the US Trade Representative (“USTR”) requested that the US International Trade Commission (“USITC”) evaluate the foreign Trade zone (“FTZ”) program, specifically evaluating the program’s impact on employment and competitiveness of goods produced in FTZs.[1] Thus, the USITC instituted the “Foreign Trade Zones (FTZs): Effects of FTZ Policies and Practices on U.S. Firms Operating in U.S. FTZs and Under Similar Programs in Canada and Mexico” investigation.

Following a review of questionnaire responses from FTZ Operators and other data collected about US FTZ use, the USITC released their final report on May 15, 2023. This extensive report includes the following highlights:

1. U.S. FTZ Operators regularly see increased cost competitiveness. Firms utilizing the FTZ program, specifically for manufacturing activity, experienced duty cost savings of $1.2 billion in 2021. These savings are primarily achieved through duty deferral on shipments that make customs entry in the United States and duty exemption on direct export shipments.  

• The FTZ Program drives U.S. employment and investment. This study found that FTZ activity creates opportunities for employment and investment beyond just FTZ operators. For example, the USITC found a trend of “supplier firms cluster[ing] around [FTZ] facilities.” Thus, regions with FTZ activity generally see additional employment and development.

• FTZ Operators are regularly missing an opportunity for duty savings on “indirect export shipments”. This investigation reported about 77 percent of export shipments being “indirectly exported,” meaning the shipment was previously entered into U.S. commerce before being exported. This is a significant opportunity for duty savings by FTZ Operators that is not being utilized.

• FTZ Operators continue to be disadvantaged by U.S. De Minimis provisions. U.S. FTZ provisions require FTZ Operators of warehousing and distribution zones to pay duty on shipments valued at less than $800 even though those shipments would normally be below the de minimis threshold and duty free for U.S. Importers. These provisions regularly push companies to set up warehouse or distribution facilities in Canada or Mexico rather than keeping that activity in the U.S.

Overall, this report highlights the many economic benefits of the FTZ program, but it also highlights the work still to be done in leveling playing field between U.S. FTZ operators and their foreign competitors. This is only a report of facts and findings, but it may be crucial to future policy development for the FTZ program. 

[1] This factfinding investigation by the USITC is conducted under section 332(g) of the Tariff Act of 1930.