Foreign-trade zones are secure areas under U.S. Customs
supervision that are considered outside the Customs territory of
the United States upon activation under the regulations of the
U.S. Customs Service. Located in or near U.S. Customs ports of
entry, they are the U.S. version of what are known
internationally as free trade zones. Authority for establishing
these facilities is granted by the Foreign-Trade Zones Board
under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C.
81a-81u), and the Board's regulations (15 C.F.R. Part 400). The
Executive Secretariat of the Board is located within the Import
Administration of the U.S. Department of Commerce, Washington,
Foreign and domestic merchandise may be moved into zones for
operations not otherwise prohibited by law involving storage,
exhibition, assembly, manufacturing, and processing. All zone
activity, especially manufacturing, is subject to public interest
review. Under zone procedures the usual formal Customs entry
procedure and payment of duties is not required on the foreign
merchandise unless and until it enters Customs territory for
domestic consumption, in which case the importer normally has a
choice of paying duties either on the original foreign materials
or the finished product. Domestic goods moved into a zone for
export are considered exported upon entering the zone for
purposes of excise tax rebates and drawback.
Zones are sponsored by qualified public or public-type
corporations, which may themselves operate the facilities or
contract for their operations with public or private firms. The
operations are conducted on a public utility basis, with
published rates. A typical general-purpose zone provides
leasable storage/distribution space to users in general warehouse
type buildings with access to all modes of transportation. Most
zone projects include an industrial park site with lots on which
zone users can construct their own facilities. Subzones are
usually private plant sites authorized by the Board through zone
grantees for operations that cannot be accommodated within an
existing general-purpose zone.
The regulations of the Foreign-Trade Zones Board are published in
the Code of Federal Regulations at Title 15, Part 400 (15 C.F.R.
Part 400), and the regulations of the U.S. Customs Service
concerning zones at Title 19, Part 146 (19 C.F.R. Part 146).
Note: When countries enter into agreements pursuant to Article
XXIV of the GATT to reduce Customs tariffs and restrictions on
trade between the member countries the result is a "free-trade
area" (e.g. the North American Free-Trade Area).
REPORT OF THE EXECUTIVE SECRETARY
During fiscal 1994, the Foreign-Trade Zones (FTZ) Board issued 43
formal orders. The Board's decisions included approval for 6 new
general-purpose zones and 21 new subzones. Approval was also
granted for the expansion of 9 existing general-purpose zones.
Other actions included authority for new manufacturing at existing
There were 124 active FTZ projects compared to 122 last year.
Subzones were in operation as part of 69 projects. Activation
occurred at 19 new subzones and 4 were deactivated. This brought
the number of active subzones up to 136.
The total value of merchandise received at general-purpose zones
and subzones was $119.5 billion compared to $104 billion last year.
A major part of zone activity (89%) continued to take place at
facilities with subzone status. These adjuncts to general-purpose
zones received shipments amounting to $106.4 billion ($92.2 billion
last year). Shipments into general-purpose zones increased by $1.3
billion to $13.1 billion.
Merchandise Received FY l994($ bil) FY l993($ bil)
General-purpose zones 13.1 11.8
Subzones 106.4 92.2
_____ _____ _____
Total 119.5 104.0
In terms of value, over 75 percent of the shipments received at zones
and subzones came from domestic suppliers. This favorable level of
domestic sourcing by zone users, particularly those involved in
manufacturing activity, has remained high over the past decade and
has become the norm. Products received at zones from foreign sources
are listed in Appendix E.
The industry sectors most involved in FTZ manufacturing activity were
autos, oil refineries, pharmaceuticals, office equipment, computers/
telecommunications and shipyards. Auto assembly continues to be the
predominant sector. During the year, 37 auto assembly plants with
subzone status operated under FTZ procedures (35 last year). The use
of FTZ procedures by other industries such as pharmaceuticals, oil
refineries, and computer/telecommunications also increased. Over
90 percent of the activity in subzones measured in terms of the value
of shipments received continues to involve assembly and manufacturing.
The Board received and filed 44 formal applications during the year.
The applications requested authority for 5 new general-purpose zones
and 20 subzones, as well as authorization for expansion and new
manufacturing involving existing zone projects (Appendix F). In
addition to these applications, over 45 administrative cases were
processed (listed in Appendix G). These actions involve routine
changes to zone projects such as boundary modifications and scope
decisions. Some administrative cases involve requests for manufacturing
authority under circumstances where there is a recent precedent or
proposed activity that is for export only. These proposals are
ultimately assigned a formal docket number and are processed under a
"fast track" procedure set forth in the FTZ regulations.
During the year, over 2,700 firms used zones, an increase of 100 over
last year. Employment at facilities operating under FTZ status
climbed to 292,000 persons, up 19,000 over last year.
Exports accounted for a significant part of this year's rise in total
shipments out of general-purpose zones and subzones, which climbed to
$119.8 billion from last year's $104.4 billion. Of the $15 billion
increase in outgoing shipments, $6 billion (40%) represented shipments
destined to foreign markets. From another perspective, total exports
amounted to $17.4 billion, an increase of 50 percent over last year's
export level of $11.6 billion. This higher than normal level of export
growth reflects the role of zones in supporting the expansion of U.S.
export activity. While zone procedures continue their longstanding
role in helping U.S. plants compete against imports of finished products,
the FTZ Board's decisions reflect a recognition of the importance of
exports in the zone program.
SUMMARY FTZ STATISTICS (FY)
1990 1991 1992 1993 1994
GP Zones 6.15 7.44 10.70 11.77 13.12
Subzones 83.91 76.99 87.99 92.21 106.45
Total 90.06 84.44 98.69 103.97 119.57
% Subzones 93% 91% 89% 89% 89%
Domestic Status Inputs*
GP Zones 0.64 1.09 1.74 1.61 3.06
Subzones 69.99 65.33 76.66 78.55 90.55
Total 70.64 66.42 78.39 80.16 93.61
Domestic Inputs Ratio (%)
GP Zones 10% 15% 16% 14% 23%
Subzones 83% 85% 87% 85% 85%
Average 78% 79% 79% 77% 78%
Foreign Status Inputs
GP Zones 5.51 6.35 8.97 10.16 10.06
Subzones 13.92 11.67 11.33 13.65 15.90
Total 19.42 18.02 20.30 23.81 25.96
GP Zones 1.95 2.96 2.77 3.16 4.51
Subzones 9.64 7.53 8.88 8.49 12.86
Total 11.59 10.48 11.65 11.65 17.37
Export/Import Ratio (%)
GP Zones 35% 47% 31% 31% 45%
Subzones 69% 65% 78% 62% 81%
Average 60% 58% 57% 49% 67%
Approved FTZ Projects 161 173 181 190 202
Active FTZ Projects** 96 104 113 122 124
GP Zones 81 89 92 103 103
Subzones 86 90 108 121 136
* Domestic status merchandise is mainly merchandise of domestic origin
but includes some foreign-origin goods on which Customs entry and duty
payments have been made prior to their entering FTZs
** Active projects have at least one site (including subzones) in operation.