The National Foreign Trade Zone Board soon will publish new rules streamlining government rules for establishing and operating in the zones, the first major overhaul of the regulations governing FTZs since 1991.
A major change: Shippers no longer need board authorization to manufacture or export from foreign trade zones.
In many cases, zone manufacturers import components or raw materials to be turned in to finished product for export. Until now, those goods entered the zone duty-free, including items subject to antidumping or countervailing duties. Under the new rule, all imports would enter duty free, except AD/CVD materials, which will be considered “controversial,” and subject to existing Commerce Department procedures to determine the validity of the domestic manufacturers’ claims. The cases may take years to resolve.
Such cases are already handled by the International Trade Administration and other Commerce Department offices. Giving the foreign trade zone board the same authority could effectively open new front in the battle between free trade and protectionism. It’s an emotional and politically charged, complicated and technical subject.
Companies that feel threatened by foreign competition see FTZs as a way to undermine U.S. trade laws. Being able to present their case to the foreign trade zone board could stall an exporter’s application for years.
But FTZ exporters say without the existing treatment of anti-dumping goods, there would be no incentive for a company to manufacture in the United States. They are trying to rally the larger business community to their cause, saying thousands of jobs could be lost.
The FTZ board published its proposed rule in December 2010. The exporters believe a final rule will be out by this December. A department spokesman declined an interview request with officials of the International Trade Administration, citing the “sensitivity” of the case.
“You get the benefit of operating in the geographical U.S. You get U.S. jobs, and the manufacturing benefits. You export your product, but it’s like operating offshore. That is the way the export benefit has always been understood,” said Willard M. Berry, president of the National Association of Foreign Trade Zones.
Foreign trades zones’ footprint on the national economy is relatively small. The FTZ board’s annual report for 2009 says 168 zones handled goods valued at $430.6 billion. FTZs exported $28 billion worth of goods.
“There are people who think foreign trade zones are an ‘import’ program,” Berry said. “Sixty percent of the material or merchandise that comes into an FTZ is domestic.”
Some 2,500 companies operating in FTZs employ 330,000 workers. For FTZ exporters, the employment figure is crucial.
The compliance manager for a chemical company operating in a foreign trade zone believes the rule change will cost U.S. jobs. The company imports raw materials from China subject to anti-dumping orders. Keeping the cost of ingredients down means the company can sell competitively in the global market. U.S. manufacturers have had a dumping complaint against the product for more than two years. Because the case is still sensitive, the manager asked not to be quoted by name.
“You have this National Export Initiative that’s good on its face. We want to increase exports out of the United States because if we export more, that’s good for our economy,” the compliance manager said. “Now you get the same administration creating a political war against imports. It’s not that your right hand doesn’t know what your left hand is doing. Your left hand is cutting your right hand off.
“They’re codifying in the new regulations that any anti-dumping into a foreign trade zone must be considered ‘controversial,’ ” he said. “That automatically invokes comment periods and rebuttal periods, and typically there’s a hearing. The people who can speak out are suddenly waking up and realizing we’re shooting ourselves in the foot with the foreign trade zone rules.”
He said a government decision to change the rules on importing anti-dumping goods will have implications years into the future. A plant may scale back its production and lay off workers. A company may decide to sell its products only within the U.S., but it still has to compete with foreign goods that cost less. Eventually, there is no reason for staying in the zone.
“There’s no benefit of taking anything into a zone that you’re going to export, if it has any anti-dumping duties associated with it,” Berry said. If the manufacturing goes offshore, the U.S. could miss the exports and not even know it. “You wouldn’t know because the U.S. wouldn’t even be in the equation.”