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How Foreign-Trade Zones work to help business

Hank Hayes • Jun 11, 2018 at 8:30 AM

BLOUNTVILLE – Could the Tri-Cities Airport’s Foreign-Trade Zone program be a solution to help local manufacturers work around President Trump’s tariffs on steel and aluminum imports from Canada, Mexico and the European Union?

No.

“For these particular tariffs, you are not allowed to use a Foreign-Trade Zone to bypass the (Trump) tariffs,” said Mark Canty, the airport’s director of Trade and Business Development.

What is a Foreign-Trade Zone?

Foreign-Trade Zones are secure areas under U.S. Customs and Border Protection (CBP) supervision that are generally considered outside CBP territory upon activation. Located in or near CBP ports of entry, they are the United States’ version of what are known internationally as free-trade zones.

How do they work?

Said Canty: “If you are entering goods into a Foreign-Trade Zone, they may come into a port of entry, like Charleston or Savannah. You bypass customs at the initial port of entry. You’re not paying that duty that would be typically assessed upon entry to the United States. If your facility is a Foreign-Trade Zone site, it can remain there indefinitely without any duties being assessed on it. You are then able to combine that imported merchandise into a finished product. If you ship that finished product out of the country, then technically that imported merchandise never enters the United States, so there’s never any customs duties assessed on it. If you enter that finished product into the domestic economy, you only pay customs duties at the point of entry into the domestic economy.”

Why are Foreign-Trade Zones (FTZ) important?

Foreign-Trade Zones are used by existing industry and are important for future economic development. “The FTZ program is a great tool for recruitment and for assisting existing industries,” said Clay Walker, CEO of the NETWORKS Sullivan Partnership. “The single most advantageous aspect of the program is that it costs the local entities nothing other than the cost of operating the zone. Foreign-Trade Zone is a federal program, so while it can mean millions – tens of millions, even – dollars annually to a company, it is an incentive that doesn’t take anything away from the local governments and taxpayers. While we don’t have an overwhelming amount of users at this time, it has been an advantage for us in recruitment even for companies that don’t immediately activate the zone and might never; still, they like the assurance of being located in an FTZ should their business model ever change in a way that would enable them to realize the benefits of the program.”

Who uses a Foreign-Trade Zone in our region?

The Tri-Cities Airport Authority, the grantee of Foreign-Trade Zones locally, activated an FTZ within Eastman so the global specialty chemicals company could work with an imported blend of acetic anhydride and acetic acid. “Auto manufacturers use Foreign-Trade Zones probably more so than any other industry,” Canty pointed out. “It’s cheaper for them to enter a finished automobile out of a Foreign-Trade Zone than it is for them to bring in imported components.” Volkswagen’s Chattanooga operation, said Canty, uses a Foreign-Trade Zone.

What are President Trump’s tariffs all about?

“Those tariffs are called Section 232 tariffs,” said Canty. “It’s an executive branch option where the Department of Commerce undertakes an investigation on specific products, in this case aluminum and steel, to determine whether there are any national security implications. The Department of Commerce determined the national industry was being impaired by that volume being imported. Under Section 232, the president can then place a tariff once that review concludes.”

So what does the future look like for Foreign-Trade Zones in our region?

“We’ve had a lot of interest from companies wanting to learn more about FTZs in case tariffs are increased on the particular products they bring in to manufacture their final products,” Canty concluded. “Medium to large companies are primarily interested … as tariffs are increased through the legislative process, there will be an increase in Foreign-Trade Zone usage.”

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