FOREIGN-TRADE ZONES BOARD ANNUAL REPORT Excerpts 58th Annual Report of the Foreign-Trade Zones Board To the Congress of the United States for the fiscal year ended September 30, 1996 FOREIGN-TRADE ZONES BOARD Michael Kantor Secretary of Commerce Chairman FTZ logo U.S. FOREIGN-TRADE ZONES - BACKGROUND
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, D.C. 20230.

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).

Additional information on the FTZ program is available on the FTZ web site at www.enforcement.trade.gov/ftzpage.

* Agreements pursuant to Article XXIV of the GATT to reduce Customs tariffs and restrictions on trade between the member countries establish what are known as "free-trade areas" (e.g., the North American Free-Trade Area).

REPORT OF THE EXECUTIVE SECRETARY

During fiscal 1996, the Foreign-Trade Zones (FTZ) Board issued 71 formal orders. The decisions included approvals for 8 new general-purpose zones and 35 new subzones. Authority was also granted for the expansion of 15 existing general-purpose zones. Other actions in what was one of the Board's busiest years ever involved the granting of authority for revisions to zone plans, as well as approvals for new manufacturing activity. At the same time, applications were withdrawn by applicants in 6 cases based on issues or changed circumstances.

There were 134 FTZ projects fully active during the year, with subzones in operation in over 75 of them. The number of facilities using subzone status increased to 179, with 37 new ones initiating the use of FTZ procedures and 17 discontinuing.

The combined value of shipments into general-purpose zones and subzones totaled $168.6 billion compared to $143.5 billion last year (Figure 1). General-purpose sites recorded an increase of $1.4 billion, raising the total received at these facilities to $15.1 billion. On the other hand, subzones -- operating as adjuncts to general-purpose zones -- accounted for the greater part of the rise in shipments with an increase of $23.7 billion. Total shipments received at the subzone sites amounted to $153.5 billion. With 90 percent of zone activity once again taking place at the latter facilities, the comparative pattern of the past 15 years continues.

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Merchandise Received      FY l996($ bil)     FY l995($ bil)

General-purpose zones         15.1               13.7
Subzones                     153.5              129.8 
_____                        _____              _____
Total                        168.6              143.5

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Appendix A contains a list with a summary of each Board Order. Zone authority for manufacturing/processing activity was granted on a restricted basis in 27 cases. The main products covered by restrictions included crude oil, steel, and food products.

Appendices B and C contain figures on shipments into and out of general-purpose zones and subzones. Appendix D contains comparative statistics for the past 5 years. The figures represent the latest statistical data available from grantees. Some are still under review. Adjustments normally amount to less than one percent of aggregate shipments and would be reflected in next year's report.

Zones were used by over 3,550 firms during the year, an increase of 750 over last year. Over 370,600 persons (up 54,600) were employed at facilities operating under FTZ status.

Industry sectors that continued to account for most zone manufacturing activity were autos, office equipment, machinery, computers/telecommunications, pharmaceuticals, and oil refining. The most significant increases in activity were in the latter three sectors. The high level of domestic sourcing by these industries even while they use FTZ procedures indicates that such procedures do not interfere with the cost-factored economic considerations that are determinative in decisions concerning the sourcing of production inputs. In terms of value, some 75 percent of the shipments received at both types of zones for use in manufacturing activity was of domestic origin, continuing a 15-year pattern. The products included in the 25 percent foreign-origin shipments received at zones are listed in Appendix E.

The Board received and filed 92 formal applications during the fiscal year. These proposals requested authority for 5 new general-purpose zones and 45 subzones, as well as authorization for expansion and new manufacturing at existing zone projects (Appendix F). In addition, 55 cases were processed under the Board's less formal administrative procedures (Appendix G). The latter cases involve routine changes to zone projects such as boundary modifications and scope decisions. Some proposals were processed under the Board's "fast track" procedures, which is used when there are recent precedents for the contemplated activity or when only exports are involved.

Last year, exports from facilities operating under FTZ procedures amounted to $17.1 billion (Figure 2). This slight rise is consistent with a mid-term pattern that began in 1994 when the average level of exports increased by 50 percent above the previous five years. With U.S. exports rising faster than the GDP growth rate, there is potential for further growth in zone export activity.

While it is in support of export activity that free trade zones have historically found their chief purpose, the globalization of manufacturing in today's dynamic world economy has -- in regard to employment impact -- blurred the distinction between domestically-made products exported to other countries and those made for domestic sale in competition with products imported in finished form from plants abroad. This is reflected in the way FTZ procedures are being used as a means of rationalizing Customs treatment to help keep domestic producers internationally competitive in terms of both export markets and finished-product imports.



                                   ($ bil)


                              1992     1993     1994     1995     1996

      Merchandise Received

              GP Zones       10.70    11.77    13.12    13.67    15.11
              Subzones       87.99    92.21   106.45   129.85   153.51
              Total          98.69   103.97   119.57   143.51   168.62
              % Subzones       89%      89%      89%      90%      91%



      Domestic Status Inputs*

              GP Zones        1.74     1.61     3.06     4.14     5.28
              Subzones       76.66    78.55    90.55   110.23   120.40
              Total          78.39    80.16    93.61   114.37   125.68



      Domestic Inputs Ratio (%)

              GP Zones         16%      14%      23%      30%      35%
              Subzones         87%      85%      85%      85%      78%
              Average          79%      77%      78%      80%      75%



      Foreign Status Inputs

              GP Zones        8.97    10.16    10.06     9.53     9.82
              Subzones       11.33    13.65    15.90    19.62    33.11
              Total          20.30    23.81    25.96    29.14    42.94



      Exports

              GP Zones        2.77     3.16     4.51     3.77     4.04
              Subzones        8.88     8.49    12.86    13.17    13.05
              Total          11.65    11.65    17.37    16.94    17.09



      Export/Import Ratio (%)

              GP Zones         31%      31%      45%      40%      41%
              Subzones         78%      62%      81%      67%      39%
              Average          57%      49%      67%      58%      40%



      Approved FTZ Projects    181      190      196      203      211  


      Active FTZ Projects**    113      122      124      134      134  
              GP Zones          92      103      103      107      110
              Subzones         108      121      136      159      179

* 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.