The U.S. Foreign Trade Zones Board’s Annual Report to Congress is bullish on FTZs, finding that after several years of decline in zone activity largely related to a downturn in the petroleum sector, strong increases in all major categories were logged in 2017, the last year for which data are available.
Foreign trade zones provide economic incentives to companies importing or exporting international goods. Duty-free treatment is accorded to items that are re-exported, and duty payment is deferred on items sold in the U.S. market, thus offsetting customs advantages available to overseas producers who compete with producers on American soil.
Businesses can use FTZ space a variety of ways, including warehousing and distribution of non-ferrous metals for sale on the London Metal Exchange, warehousing spirits and alcohol and storing vehicles before they are sold in the domestic marketplace.
The value of merchandise received at America’s FTZs increased by 9.6 percent in 2017, to $669.2 billion, according to the report that was presented to Congress this past December. Merchandise received at warehouse/distribution operations increased by 15.5 percent, to $259.1 billion, while that received at production operations increased by 6.2 percent, to $410.1 billion.
Foreign-status inputs to FTZs increased by 11.2 percent, to $250.6 billion, and the value of FTZ imports accounted for 10.6 percent of all goods imported into the U.S. in 2017. The majority of merchandise admitted to FTZs (63 percent) is of domestic origin. The value of exports from America’s FTZs increased by 15.1 percent in 2017, to $87.1 billion, which represents 5.6 percent of the value of all goods exported from the U.S. Exports from FTZ production facilities accounted for two-thirds of all exports from FTZs. Employment at America’s 191 active FTZs increased by approximately 7 percent in 2017, to a new record of 450,000 workers at 3,200 firms that used FTZs during the year.
“The FTZ Board’s latest report confirms that the program continues to be a vital component of America’s trade policy,” says Erik O. Autor, president of the National Association of Foreign-Trade Zones (NAFTZ), which boasts 650+ members. “The competitive advantage for companies operating in an FTZ has enabled them to boost exports and employment, continuing their strong recovery from the recession.”
The Trade Partnership, a Washington, D.C.-based trade research firm, in February provided case studies on the success of FTZs as part of an NAFTZ-commissioned report. “This study measures, both quantitatively and qualitatively, the economic effects of FTZs on the communities in which the zones operate, which we refer to as Zone Economic Communities (ZECs),” states The Trade Partnership introduction to the research, which examined the economic impacts of FTZs in community employment, wages and value added.
The study concluded the economic impacts of the U.S. FTZ program on communities in which FTZs are located are positive,” The Trade Partnership President Laura M. Baughman said during NAFTZ’s annual Legislative Summit in Washington on Feb. 12. “Many companies have the option to operate inside or outside the United States,” she noted. “They will make that decision based in part on the relative costs of doing business in the United States or abroad. To the extent the Foreign-Trade Zones program can provide positive financial reasons for a U.S. location, it should merit the support of U.S. policymakers.”
“We are very pleased that The Trade Partnership’s analysis has concluded that the U.S. Foreign-Trade Zones program has demonstrable positive economic impacts on the communities in which FTZs are located,” says NAFTZ Board of Directors Chairwoman Eva Tomlinson, who is also director of FTZ Solutions for UPS Trade Management Services Inc. “These real community impacts are in addition to the value that U.S. firms realize from using the FTZ program.”
The survey included some individual success stories that follow:
(Spartanburg, South Carolina; Inland Port Greer; Port of Charleston)
BMW broke ground on its first American automobile factory in 1992 in Greer, South Carolina, and the first cars rolled off the line in 1994. Before the German automaker’s arrival, Spartanburg was a ghost town of former textile plants and roughly 60,000 lost manufacturing jobs. BMW’s investment in South Carolina changed all that. Today, BMW employs more than 10,000 workers and produces around 400,000 vehicles annually, more than 70 percent for export to 140 global markets (with China the largest foreign destination, followed by Germany). Inputs imported by BMW duty-free under the FTZ program supplement inputs from 235 U.S. suppliers, 40 of whom are in South Carolina.
“As a consequence of this investment, BMW directly and indirectly adds $6.3 billion annually to South Carolina’s economy and leads to the employment of 36,285 people there,” says the German automaker. “The overall footprint in the U.S. is even larger, with value added by BMW of $15.77 billion and employment of 120,855. In each case, this includes both the direct contribution of BMW and the contribution via purchases of BMW and its employees that would not exist if BMW were not established in the United States.”
Earlier this year, BMW Manufacturing, citing Commerce Department data, said it led the U.S. in automotive exports by value for the fifth consecutive year. More than $8.4 billion in cars and SUVs were assembled in Spartanburg before passing through the Port of Charleston in 2018.
(Baton Rouge, Louisiana; Greater Baton Rouge Port; Port of South Louisiana)
ExxonMobil is a leading example of a company making use of FTZs to import crude petroleum and process it into downstream products, mainly for domestic use in the U.S. but also for export. The oil company has three FTZ subzones in operation, two in Texas (Baytown and Beaumont) and one in Louisiana, where within FTZ-154, ExxonMobil operates a main refinery complex, a petrochemical plant, a tank farm storage facility and a plastics plant in East Baton Rouge Parish, a lubricants plant and a tank farm in West Baton Rouge Parish and the Sorrento Salt Dome in Ascension Parish. The company employs more than 6,600 employees and contractors in the Baton Rouge area, with payroll totaling $491 million.
Despite the exemptions from state and local ad valorem taxes made possible by the FTZ, ExxonMobil’s activities in the Baton Rouge generate millions in annual state and local tax revenue, from property taxes ($33.2 million in East Baton Rouge alone in 2015), to direct sales taxes ($26.3 million in East Baton Rouge), to other state and local taxes (more than $100 million, after credits and rebates). According to a 2017 study, one out of every eight jobs in the Baton Rouge area can be traced back to ExxonMobil.
(Newnan, Georgia; Georgia Ports Authority; Port of Savannah)
Yamaha Motor Manufacturing Corp. of America (YMMC), which has corporate offices in Cypress, California, and Kennesaw and Marietta, Georgia, decided in 2011 to take advantage of more efficient production that would result from a centralized location, including one that benefits from the efficiencies offered by the FTZ
program. Thus began the transfer of nearly all YMMC mid- and large-engine ATV production from overseas facilities to Newnan, Georgia. Yamaha directly employs about 3,400 workers in the U.S., but more than 2,000 of them are in Georgia alone, with approximately 1,600 within FTZ-26.
Newnan’s factories spend over $170 million annually at more than 100 U.S. parts suppliers, 30 percent of which are located in Georgia. By 2018, Yamaha had invested more than $354 million in its Newnan facility, with that spending rippling through the local community and beyond. Meanwhile, savings YMMC reaps within FTZ-26 have been fed back into the local community, including Yamaha-sponsored environmental projects for schools, youth character-building initiatives, scholarships for high school students and support for local teachers.
(Tacoma, Washington; Northwest Seaport Alliance; Port of Tacoma)
Helly Hansen imports from Asia specialty water-resistant cold weather apparel and footwear for professionals working in extreme environments. The Helly Hansen brand had a strong presence in Canada when its Norwegian owners looked to expand beyond the Great White North to all of North America. Savings afforded by the U.S. Foreign-Trade Zone program tipped the scales in favor of making Auburn, Washington, which is within the Port of Seattle’s FTZ-5, the location for Helly Hansen’s U.S. warehouse in 2011.
Four years later, growth spurred the need to open a bigger warehouse and a location was found within the Port of Tacoma’s FTZ-86, where all operations consolidated. About 55 percent of Helly Hansen’s imports into Tacoma are re-exported to Canada, and the company pays no duties on those products. It does pay U.S. import duties on products destined for the U.S. market, when they exit the FTZ for U.S. sale, but while products wait at the warehouse, the company saves money from deferred duty (the value of tighter cash flow and reduced interest costs) and reduced processing fees. The Canadian Tire Corp. purchased Helly Hansen in 2018, and the company now employs 103 people in Tacoma, up from about 50 in Auburn in 2011. Indirectly, the company supports jobs at the port processing 400-500 containers a year, containers that would otherwise go directly to Canada.
FTZ-18 and FTZ-45
(San Jose, California; Port of Oakland; Portland, Oregon; Port of Portland)
Fremont, California-based Lam Research Corp., a global supplier of innovative wafer fabrication equipment and services to semiconductor manufacturers around the world, creates, assembles, repairs and distributes equipment within San Jose’s FTZ-18 (since 2010) and Portland’s FTZ-45 (since 2016). Around 6,000 employees work in zone-based activities. Components and materials sourced from abroad are admitted free of duty under the FTZ program; those duties would otherwise range from zero to 10.7 percent. Lam estimates that program benefit alone saves the company a significant amount of its import costs. But the FTZ has also helped Lam manage fluctuations in supply chain and international trade. The company has poured zone savings into research and development throughout the U.S.
(Oakland Park, Florida; Port Everglades)
ProdecoTech, which makes electric bicycles that retail for $1,000 to $5,000 each, was founded in 2008. It would not now employ about 100 people in Oakland Park, Florida, were it not for the FTZ program. ProdecoTech bikes used to be finished abroad, but that changed in 2015, when the company began taking components imported from China, Japan, Taiwan, Korea, Vietnam and elsewhere in the U.S. to assemble the rides in Oakland Park.
Thank the benefits from being within FTZ-25, which allowed ProdecoTech to avoid paying import duties that can range up to 10 percent. Keeping final assembly stateside as opposed to overseas is now saving the company about 4 percent per bike. And that has allowed ProdecoTech to sell goods 30 percent below what its competition charges. Because American workers are doing the assembly, ProdecoTech has a tighter rein on quality control.
(Bethlehem, Pennsylvania; Port of Philadelphia)
Piramal Critical Care Inc. was a U.S. pharmaceutical manufacturer that could no longer compete paying tariffs on imported inputs while its foreign competitors shipped finished products here duty free. That put a target on the jobs of 95 employees in Bethlehem, Pennsylvania, where they manufactured and distributed inhalation anesthetics from chemicals and other materials sourced from abroad, primarily India.
After toying with eliminating 70 high-skilled positions and moving production abroad, Piramal launched a Hail Mary by applying for FTZ benefits in 2012. The application was approved, and it has saved Piramal hundreds of thousands of dollars annually in duties. Not only was the company able to stay in Bethlehem, it went on to add even more jobs, modernize its facility and increase capacity three-fold. Piramal today employs about 120 workers and exports to more than 100 countries.
(Rockford, Illinois; Port of Rockford)
UniCarriers Americas, which was previously known as Nissan Forklift Corp., sought approval to manufacture rider-type forklift trucks in Rockford, Illinois’ FTZ-176 in 2005. Imported components, which accounted for about 48 percent of the finished forklift truck’s value, were charged duties as high as 9 percent. After contending FTZ benefits would improve UniCarriers’ competitiveness in export markets, the company won approval in 2006. That has gone on to save UniCarriers about $2 million a year, according to the company, which adds employee time spent on handling and filing documents daily for U.S. Customs and Border Protection was eliminated. That’s a win-win when you consider a booming U.S. economy and e-commerce have created strong demand for forklift trucks.
Fortunately, UniCarriers has redirected some duty savings into adding space and employees as well as funding training for a workforce operating ever more sophisticated new equipment. Whereas many manufacturers are replacing workers with robots, UniCarriers is retraining and redeploying employees to work and train alongside automation, according to CEO and President James J. Radous III. He cites figures that show UniCarriers has increased its automation capabilities by 50 percent while doubling its number of employees from about 300 to 600 over the past five years.
The preceding were the success stories cited in The Trade Partnership report, but there are also other foreign trade zone success stories out there that include the following:
(Houston, Texas; Port Houston)
FTZ-84 was on a roll in 2017, adding 13 companies, which is no surprise when you consider the Houston region’s rapid growth. As a result, more large importers and exporters are taking the advantage of the financial benefits of using FTZ-84.
One company reaping such benefits is Houston-based Dixie Cullen Interests, which specializes in steel, machinery and other industrial materials. “We are excited about the opportunity that it has opened up for us,” says Dixie Cullen’s President Catherine James. “And we know that Port Houston is where we need to be.” That’s especially true when you consider Port Houston, which owns or operates eight terminals, has committed to invest $1 billion-plus during the next several years in expansion and improvement projects. About two-thirds of all containers in the U.S. Gulf move through Houston, whose port is one of the world’s largest.
(Lake Charles, Louisiana; Southwest Louisiana Economic Development Alliance; Port of Lake Charles)
The five parish area bordered by Southeast Texas and the Gulf of Mexico is anchored by Sulphur and Lake Charles, where companies from the U.S., Europe, Africa and Asia have staked claims in industrial growth expansion totaling $97 billion.
An extensive rail network makes its way through Southwest Louisiana with Union Pacific and Kansas City Southern servicing the area. Interstates 10 and 210 service a combined 100,000 motorists a day and complete routes between America’s Pacific and Atlantic Coast. And Lake Charles Regional Airport is served by United Airlines, whose hub is in Houston, and American Airlines with its Dallas/Fort Worth hub. But the region has more going for it than simply location, according to George Swift, CEO and president of the Southwest Louisiana Economic Development Alliance. “Our people and companies are making history,” he says. “Each day that passes, companies from across the globe are calling to learn about development and expansion possibilities while others call about the tens of thousands of temporary and permanent jobs that are going to be generated by industrial expansion.”
(Baltimore, Maryland; Baltimore Development Corp.; Port of Baltimore)
FTZ-74 is one of the most active and largest zones in the United States, which is fitting considering the Port of Baltimore is among America’s 10 busiest ports. With merchandise such as cars, paper and steel, total FTZ-74 international revenue rose from $44 million in 2016 to more than $396 million in 2017, a whopping 800 percent increase! The total value of shipments through Baltimore’s FTZ was more than $19.9 billion in ’17. That only figures to rise as Maryland recently approved a contract to complete the fill-in of a wet basin at the Helen Delich Bentley Port of Baltimore’s Fairfield Marine Terminal.
That project will create more land to help handle the port’s surging auto and roll on/roll off (farm and construction machinery) cargo. Among those as pleased as a Baltimore Bang cocktail over this development is Maryland Governor Larry Hogan. “The Port of Baltimore is the number one auto port in the nation and continues to break cargo records every month,” Hogan says. “Our administration is committed to furthering this growth and strongly supports our great port and its thousands of hardworking men and women handling the millions of tons of cargo coming in throughout the year.”
(Fort Worth, Texas; AllianceTexas; Dallas/Fort Worth International Airport)
Known as the Alliance Foreign-Trade Zone, FTZ-196 in North Fort Worth sees more action than any other general purpose FTZ in the country. AllianceTexas is a 17,000-acre, master-planned community anchored by the world’s first industrial airport. Also within its boundaries are the Alliance Global Logistics Hub, Circle T Ranch, Heritage, Alliance Town Center, Saratoga and Monterra Village projects. A total of 265 companies that have created more than 30,000 jobs. Among them are Cinram, Hyundai, LEGO, Motorola, GENCO ATC, Callaway Golf and Alliance Operating Services.
Since its inception, AllianceTexas has generated a $40.65 billion economic impact for the North Texas region. Steve Boecking, vice president of Hillwood Properties, the Perot company that developed the Alliance brand, says of the $4 billion in annual FTZ-196 imports: “Regional efforts to strengthen international relationships and to build new global trade partnerships have also resulted in an increased volume of foreign goods being shipped through North Texas.”
THE POWER OF POSITIVITY
The National Association of Foreign Trade Zones study found the following positive economic measures when examining each of 251 Zone Economic Communities (ZECs) to determine the impact of foreign trade zones:
-Employment, wages and value-added increased in the broader zone community following the establishment of an FTZ. Those gains are the greatest in the early years for employment and wages, and throughout the period for value added. This increased economic activity is also evident once a decision is made to form an FTZ.
-The establishment of an FTZ caused a positive increase in employment growth in the surrounding ZEC (up 0.2 percentage points), wage growth (up 0.4 percentage points), and value-added growth (up 0.3 percentage points), typically eight years and later, after establishment of the FTZ. The impacts begin sooner, in years six and later, for wages and value added in small- and medium sized ZECs.
-Company access to FTZ benefits had a substantial ripple effects through the companies’ supply chains, which are typically located nearby.
Downloaded the complete report at www.naftz.org.