Logistics, Warehousing & Distribution

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Economic Downturn

31 Aug, 2009

By: Dr. Willard M. Berry
Outlook for NAFTZ and the FTZ Program

Background
At the National Association of Foreign-Trade Zones (NAFTZ), we connect global business with local communities through the U.S. Foreign –Trade Zones (FTZ) Program. Our membership – which comprises public entities, public and private companies, and individuals – works together to foster business growth, economic development and U.S. employment.

The FTZ program is not widely known, but has been successful through its 75-year history and continues to grow. In 2007, Foreign-Trade Zones did $530 billion in business and directly employed more than 350,000 U.S. workers. During the same period, exports from FTZs to foreign countries totaled $31 billion. There are zones in every state and Puerto Rico, and, in 2007, more than 2,600 were served by FTZs.

While the NAFTZ has been around for only 37 years, the organization’s growth and development has been critically linked to that of the FTZ program. The NAFTZ promotes FTZs and their use, advancing the competitive needs of zone users. We educate our members and the public on the proper use of the FTZ program and work so that the advantages and benefits of the program stay intact. This end is accomplished through good communications and clear understanding between U.S. regulators, policy-makers and the FTZ community.

FTZs are Faring Better than Much of the Economy
For some years, conventional wisdom within the zone community has been that FTZs can play an important counter-cyclical role in tough economic times. Experts in the FTZ community have said that FTZs fare better in a declining economy than many other enterprises. Many trade consultants within our membership are saying that the FTZ segment of their business is the most robust. The demand for our introductory educational offerings such as our FTZ Fundamentals seminar remains high. The FTZ Board (FTZB), which regulates the program and grants FTZ status to qualified applicants, is busier than ever. In 2008 the FTZB docketed more cases than they had seen in more than a decade. The level of applications remains high in 2009 and the zones program continues to grow.

Using FTZs to Maximize Duty Savings and Reduce Logistics Costs
Zone users and new zone program entrants are focused more than ever on the savings that zone status can bring to their operations. Many companies are choosing an FTZ location because of the advantages of operating in a flexible duty-free environment and of efficiencies and procedures that are aligned with modern production and distribution concepts.

The specific benefits of operating in a Foreign-Trade Zone include the deferral, reduction and possible elimination of duties; tighter inventory control that may virtually eliminate year-end inventory loss adjustments and enable manufacturers to operate “just-in-time” systems; and “weekly entry” and “direct delivery” procedures, which can greatly reduce fees and logistics costs. The electronic admission, simplified regulatory environment, and trade facilitation features unique to FTZs are given increasing importance. Particularly with the growth in fuel and transportation costs, international manufacturers realize that they have much greater scope to reduce logistical expenses than production costs.

Trade Agreement Parity: A New FTZ Benefit
The NAFTZ, along with the larger economic development community, is pressing for Trade Agreement Parity (TAP). At present, a number of Free Trade Agreements (FTAs) inadvertently disadvantage U.S. manufacturers operating in U.S. FTZs. Factories in FTA countries can receive better U.S. tariff treatment on their merchandise than companies operating in Foreign-Trade Zones located in the United States. TAP would level the playing field by giving manufacturers located in U.S. FTZs the same tariff benefits their overseas competitors receive under an FTA. TAP provides fundamental fairness and supports U.S. manufacturing, potentially adding 90,000 U.S. jobs.

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