U.S. FOREIGN-TRADE ZONES: CURRENT ISSUES
CRS Report for Congress
U.S. Foreign-Trade Zones: Current Issues
July 28, 1999
Mary Jane Bolle
Specialist in International Trade
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
This report provides an overview of the U.S. foreign-trade zone system which has evolved
under the U.S. Foreign-Trade Zones Act of 1934 [P.L. 73-397, 19 U.S.C. 81(a)-81(u)]. The
report covers what zones are and how they function, the history of the U.S. zone system, how
the zone system has evolved from its original intent, and policy issues and legislative issues
relating to zones. Twelve tables and figures provide a list of zones and subzones by state, and
information on zone or subzone application, cost savings available to zone users, winners andthth
losers from zone use, and major zone legislation in the 105 and 106 Congresses. While this
report mentions specific bills, it is not intended as a bill-tracking device. It will be updated
periodically, as needed.
U.S. Foreign-Trade Zones: Current Issues
Foreign-trade zones are the U.S. version of free trade zones scattered around
the world. Free trade zones are geographic areas which primarily facilitate economic
development, and co-production — the joint production of a single good through the
efforts of workers in two or more countries. All zones are geographic areas which
are physically located inside the boundaries of the country, but treated as if they were
located outside the country for customs purposes. Thus, for goods or materials which
are imported, processed, and later re-exported, no tariffs are payable and customs
procedures are streamlined.
The 235 U.S. zones are among nearly 850 zones world-wide, but differ from
them in two major ways. First, two-thirds of the world’s zones are in developing
countries, producing primarily for export, while U.S. zones produce primarily for
import. Second, whereas many foreign zones are exempt from customs oversight,
taxes, and regulations, U.S. zones are subject to customs control as well as most other
federal, state and local laws and taxes.
Most goods enter the United States through customs at the port of entry, and
then travel to their ultimate destination. Imports which are not yet complete, needed,
or allowed to enter the United States (for quota reasons, for example) after being
unloaded at ports of entry, may be taken to a nearby foreign-trade general purpose
zone (for warehousing or further processing) or to a special purpose subzone (a
manufacturing site which is separate from but linked to a zone.)
The system of U.S. foreign-trade zones has evolved greatly over its 65-year
history since it was set up by the U.S. Foreign-Trade Zones (FTZ) Act in 1934 [P.L.
it has become largely a system for avoiding inverted tariff structures on imports
(higher duties on components than on finished products.)
Policy questions relating to zones today are similar to those of a decade ago;
however, the answers are different, largely because of the evolution of the U.S. and
world economies. Issues today are: Is the Act fulfilling its original intent? (No. The
intent has evolved.) Have U.S. foreign-trade zones helped or hurt U.S. workers?
(The question has been eclipsed by the perceived effects of NAFTA and other trade
influences). Do U.S. foreign-trade zones set U.S. trade policy by circumventing
Congress and U.S. trade negotiators?” (Perhaps, but the issue has dimmed as tariffs
and trade barriers decline, and since new regulations went into effect in 1991.)
Legislative issues pertaining to zones have moved from the macro to the micro
level. P.L. 106-36 (S. Report 106-2), approved June 25, 1999, provides that
commercial importation data for foreign-trade zones shall be included under the
National Customs Automation Program under construction. In addition, H.R. 975
(H.Report 106-52), which passed the House on March 17, 1999, provides for a
reduction in the volume of steel imports, and requires a steel notification certificate
for any steel entering through a foreign-trade zone. Other bills, instead of being
focused on how zones affect the U.S. economy, are now focused more on whether
zone policy should be used to help specific industries and specific localities.
U.S. Zones in a World Context.....................................1
Characteristics of U.S. Zones.......................................2
What Is An Inverted Tariff Structure?............................3
How To Achieve Zone Status......................................5
How Did the U.S. FTZ Program Begin?..............................6
Changes to the Foreign-Trade Zones Act..............................7
1980s: The Zone System Began Expanding Rapidly......................7
Congressional Oversight of Zone Growth.........................8
The Zone System Today.........................................10
Zones Today are Functionally Import Rather Than Export Zones.......12
Zones Today are Primarily “Domestic-Trade” Rather than
Industry Concentrations in Zones Have Changed...................13
The Future of Zones........................................14
Policy Issues Relating to Zones....................................14
Is the Congressional Intent of the Foreign-Trade Zones Program
Have Foreign-Trade Zones Helped or Hurt U.S. Businesses and
Workers? ............................................. 16
Does the Zone System Set U.S. Trade Policy by Circumventing
Congress and U.S. Trade Negotiators?.......................18
Legislation Relating to Zones......................................19
Technical Corrections Relating to Zones.........................19
Legislation to Achieve Trade Objectives for Specific Industries........19
Legislation to Assist Zone Expansion or Promote Economic
Development .......................................... 20
Appendix ..................................................... 22
List of Figures
Figure 1. Growth in Number of and Employment in Zones, 1978-1997......8
Figure 2. Concentrations of U.S. Foreign-Trade Zones and Subzones
Figure 3. Extent to Which Imports Entering Zones are Subsequently
Exported 1978-1997 ................................12
Figure 4. Extent to Which Zone Exports are Consumed Domestically,
or Exported 1978-1997..............................12
Figure 5. Source of Zone Inputs (Domestic or Foreign)
1978-1997 ........................................ 13
Figure 6. Industry Concentrations of Imports into Zones,
1984 and 1997.....................................13
Table 1. Possible Cost Savings Available to U.S. Foreign-Trade Zone Users..4
Table 2. Potential Winners and Losers from Zone Use..................17
Table 3.Major Zone Legislation in the 105 and 106 Congresses.........21thth
Appendix Table 4. Information Pertaining to Zone or Subzone Application .22
Appendix Table 5. Data Supporting Figures 3,4, and 5.................23
Appendix Table 6. List of Zones and Subzones by State................24
U.S. Foreign-Trade Zones: Current Issues
Foreign-trade zones are the U.S. version of free trade zones scattered around
the world. Free trade zones are geographic areas which primarily facilitate economic
development, and co-production — the joint production of a single good through the
efforts of workers in two or more countries. In the United States, this means that1
zones are places where some foreign components are typically mixed with U.S.
components in the manufacturing process.
Current policy issues reflect the impact of U.S. zones relative to other influences
on the U.S. economy. Many current legislative proposals tend to focus on fine-
tuning the workings of the zone system or reflect the difference that zone status can
make in promoting economic development for a community and improving
competitiveness of a company in a specific industry.
First, however, this report examines what the U.S. zone system is, how it relates
to zones abroad, and how the U.S. foreign-trade zone program has changed from its
original intent. Tables detail trade zone legislation in the 105 and 106 Congresses,thth
provide information on application methods and requirements for zone status, and list2
zones and subzones, by state.
U.S. Zones in a World Context
Zones all over the world have an important characteristic in common: They are
geographic areas which are physically inside the boundaries of a country, but which
are treated as if they were located outside the country for customs purposes — that
is, zones are declared to be outside the customs territory of a country.
This separation from the country for customs purposes links world zones
together into a type of international “no-man’s-land,” which has two important traits.
First, no tariffs (taxes on imported goods), and in many cases, (including the United
States) no other taxes (sales, excise, or other) are payable on goods so long as they
remain in the zone system. Only when they leave the system and enter a country are
The difference between free trade zones and free trade areas is this: Free trade areas1
involve agreement to reduce or eliminate certain trade barriers to all members of the group,
while each country is free to negotiate its own barriers with countries outside the group. Free
trade zones, on the other hand, do not affect a country’s trade barriers. Rather, they set up
secure locations (often fenced) which are inside the boundaries of the country but which are
considered to be outside the country for tariff purposes. Hence, the trade barriers do not apply
as long as the good is within the zone. When the good exits the zone, only if it then enters the
country in which the zone is located, do normal trade barriers apply.
While this report mentions a number of specific bills, it is not intended as a bill- tracking2
device. It will be updated periodically as needed.
tariffs payable on the imported value of the product and are sales taxes payable on
imported goods sold. If the goods are re-exported, no duties are payable.
Second, customs procedures are streamlined for all goods entering and leaving
the zone system. As a result, if buttons from Indonesia and fabric from India are sent
to a trade zone in the Philippines for assembly into a shirt, which is then exported to
the United States, no tariffs are payable in the Philippines, and all customs procedures
are streamlined until the completed shirt enters the United States for consumption.
At that time, tariffs are payable on the import value, and the shirt goes through normal
The 235 U.S. zones are part of the world system of 850 zones. Two thirds of3
these zones are in developing countries, which produce primarily for export. In these
countries, zones are often used as an economic development tool. Production takes
place in export processing zones which are typically islands of modernization, located
at ports, in countries which lack extensive infrastructure. Supplies which are
unloaded from container ships travel a short distance to be manufactured into
components or completed goods, which are then reloaded on ships for export.
Multinational corporations in developed countries may view these zones as low-cost
offshore production sites.
Characteristics of U.S. Zones
U.S. zones, in contrast with the export emphasis of zones in developing
countries, are primarily for warehousing or processing of imports prior to going
through customs at the port of entry.
U.S. zones differ from other zones around the world in other ways as well. U.S.
imports which are not complete, not yet needed, or not allowed to enter the United
States (for quota reasons, for example) after being unloaded at ports of entry, prior
to facing full customs procedures, may be taken to a nearby foreign-trade general
purpose zone for warehousing or further processing, or to a subzone — a unique
U.S. invention. The 235 zones include seaports, airports, and fenced industrial parks
with warehousing and processing facilities, which are run by public corporations as
if they were utilities — with published rates. Subzones, of which there are about 427,
are manufacturing operations which are administratively linked to a zone, but
physically separated from it. They are typically pre-existing operations which have
Zones around the world are called by at least 19 different names, depending on the country3
in which they are located or the author or organization referring to them. Among these are the
following: Generically they are often called free trade zones. Those in the United States are
called foreign- trade zones. Those in developing countries producing specifically for export
are typically called export processing zones. They are also called maquiladoras in Mexico,
special economic zones in China, industrial free zones or export free zones in Ireland, free
zones in the United Arab Emirates, and duty free export processing zones in the Republic of
Korea. In addition they are called tax free zones or tax free trade zones by Walter H. and
Dorothy B. Diamond, authors of Tax-Free Trade Zones of the World. They have been called
free export processing zones by the Organization for Economic Cooperation and
Development. Source: International Labor Organisation. Economic and Social Effects of
Multinational Enterprises in Export Processing Zones. Geneva, 1988, p.5.
applied for and been granted subzone status. However, businesses may also apply for
zone status before beginning construction on a new manufacturing operation. 4
U.S. zones and subzones, like other zones around the world, are viewed, in part,
as an economic development tool. They allow businesses to save money on imports
through duty (tariff) deferral, duty exemption, elimination of the need for duty
drawback, and tax avoidance. They also allow U.S. businesses to save small amounts
through quota storage, zone-to-zone transfer, and customs and inventory efficiencies.
(See table 1 for details.) Most importantly, however, subzones in particular, allow
businesses to save money, in part because they are places where inverted tariff
structures can be changed to uniform rate structures (explained below). The Foreign-
Trade Zones Board estimates that slightly less than 50% of all foreign merchandise
entering through trade zones is being used in the inverted tariff situation.
What is an Inverted Tariff Structure?
An inverted tariff structure means that the tariff rate on a product used as a
component of a finished product is higher than the tariff rate on the finished good
containing the component. When imported components are combined with domestic
supplies in subzones, importers can effectively reduce the tariff rate on components
to the same level as those levied on a completed good. 5
Thus, if a zone manufacturer applies for and is granted subzone status, he can
use his zone status to eliminate the adverse cost effect of the inverted tariff in the
industry in which he produces. This is because customs provisions allow zone users
to choose (when the component enters the zone) between paying, (when the
component leaves the zone system as part of a completed good) the tariff on the
component itself or the tariff on the component as if it were incorporated into the
completed good. Industries where there may be inverted tariffs include oil refining,6
auto manufacturing, electronics, chemicals, food products, pharmaceuticals, apparel
Another difference is that many foreign zones allow companies to operate under special or4
relaxed rules with respect to taxes and customs oversight. Certain foreign zones require
neither customs documentation or supervision of merchandise while materials are admitted,
stored, or processed in the zone. Some allow significant tax exemptions, including income and
property taxes. U.S. foreign-trade zones, on the other hand, are fully subject to all federal,
state and local laws and taxes, except for federal excise taxes and local inventory taxes. They
are also subject to full customs supervision throughout while materials are admitted,
processed, and shipped, and to customs penalties for failure to adhere to requirements, and to
customs penalties for failure to adhere to requirements. In addition, prohibited goods
(including illegal products) are not allowed into U.S. zones.
World Wide Shipping. Economic Impact Analysis, by Dennis Puccinelli, August, 1985, p.5
The procedure the zone manufacturer follows to change the tariff rate is as follows: When6
the duty rate on the imported component is lower than that on the end product into which the
component is to be incorporated, the zone manufacturer must file a formal application for the
component to receive “privileged foreign status.” It such status is approved, the component,
when it leaves the zone, is dutied at its own rate -- typically that applicable to the product of
which it will make an integral part.
and textiles, steel, and machinery. Not all zone applicants in these industries have
been granted zone status. The granting of zone status by the Foreign- Trade Zones
Board means that zone status has been deemed in the “public interest.” The
determination is based, in part, on the cause of the inverted tariff structure.
Inverted tariffs have arisen in the very extensive Harmonized Tariff Schedule in
two ways: inadvertently, and by design. When an industry has an inverted tariff by
design, it is generally to protect the component industry from import competition. In
such cases, application for zone status may be denied or limitation may be placed on
zone status. Inverted tariff structures are the major reason for zone application in the
United States, and the greatest source of benefit to users (with duty deferral second).
In recent years, tariff levels generally have been negotiated to very low levels, and
typically the differences between tariffs on components and tariffs on finished
products have become smaller and smaller.
Table 1. Possible Cost Savings Available to
U.S. Foreign-Trade Zone Users
BenefitHow Costs Can Be Saved
Duty ReductionZone users may choose the lower duty rate when a product is entered
(on Inverted Tariffinto customs territory (for importation) in inverted tariff situations
Situations)(when the rate of the foreign inputs is higher than the rate applied to
the finished product produced in the zone. Zone status, however, is
granted by the FTZ Board when it determines that such status will
result in a public benefit (typically a net positive effect for U.S.
businesses and workers).
Duty DeferralCash flow savings can result because customs duties are paid only
when and if the goods are transferred from the zone to a U.S. customs
territory for import.
Duty ExemptionNo duty is payable on goods which are exported from a zone, or
which are consumed, scrapped, or destroyed in a zone.
DrawbackZones eliminate the need for duty drawback. That is, the refunding of
Elimination duties previously paid on imported and then re-exported merchandise.
Tax SavingsGoods stored in zones and goods exported are not subject to state and
local ad valorem taxes, such as personal property and sales taxes.
Quota StorageCash flow savings and savings from buying in bulk can be made
because U.S. quota restrictions do not apply to merchandise admitted
to a zone until is entered into customs territory. When the quota
opens, the goods may be immediately entered into U.S. customs
territory for importation.
BenefitHow Costs Can Be Saved
Zone to ZoneZones can transfer merchandise “in-bond” from one zone to another.
TransferCustoms duties may be deferred until the product’s eventual entry into
U.S. customs territory.
Customs andCost savings (especially cash-flow savings) can occur from zone
Inventoryefficiencies affecting inventory control. These efficiencies include
Efficienciescustoms procedures such as direct delivery and weekly entries.
Source of table data: U.S. Foreign-Trade Zones Board.
How to Achieve Zone Status
The primary constituent interest relating to zones is how to achieve zone status,
as quickly as possible. Appendix table 4, p 20, includes information on how to apply
for zone or subzone status and requirements for applications, together with telephone7
and website contacts. While new zones are approved when the Board finds that
existing or authorized zones do not adequately serve the “convenience of8
commerce,” subzones can be approved only when a “public benefit” —(i.e.,
increased employment without detrimental effects on other competitors) can be9
Zone or subzone status is achieved by applying to the U.S. Foreign-Trade Zones
Board in the Import Administration of the U.S. Department of Commerce in
Washington, D.C. (202) 482-2862. The Board is a committee of two, made up of
the Secretaries of Commerce and the Treasury, whose agencies each play a role in the10
approval and oversight of foreign-trade zones.
The U.S. Foreign-Trade Zones Board is supported by a professional staff of 11,
under the leadership of an executive director. It is responsible for reviewing
applications for zone approval and making recommendations to the Board.
Regulations covering zone application may be found at 15 CFR Part 400. The general
purpose zone applications process takes about 18 months, and the subzone
application process takes about 12 months. Zones are operated by public or public-
Most successful zone applicants use general purpose zones for storage, manipulation,7
and manufacturing, and special purpose subzones for specific larger scale manufacturing.
However, some creative uses of zones are also emerging. The International Wildlife
Recovery Center has set up an operation in the Medford-Southern Oregon FTZ. The Center
specializes in the decontamination and rehabilitation of wildlife affected by oil and other
hazardous material spills around the world. By locating the center in a foreign-trade zone, in
a pollution event involving 250 birds, for example, the IWRC can save $500,000 in customs
duties associated with food imports for the animals.
Foreign-Trade Zones Act, P.L. 73-397, sec. 2(b).8
Da Ponte, John J., Jr. United States Foreign-Trade Zones: Adapting to Time and Space.9
The Maritime Lawyer, Fall, 1980, p. 211.
Authority is typically delegated to the Assistant Secretary of Commerce for Import10
Administration, and the Deputy Assistant Secretary of the Treasury for Enforcement.
type corporations, which may contract out operations. Zones are operated like
utilities, with published rates.
Day-to-day supervision of goods into and out of zones is the responsibility of the
U.S. Customs Service in the Treasury Department. Customs Service regulations
relating to zones are included at 19 CFR Part 146. Overhead costs for zones include
reimbursement to Customs for services rendered.
How Did the U.S. Foreign-Trade Zones Program Begin?
The Foreign-Trade Zones Board was created by the U.S. Foreign-Trade Zones
Act in 1934 [P.L. 73-397, 19 U.S.C. 81(a)-81(u)]. It was given the power to11
approve applications by public corporations for zone status. The act itself was fairly
short — less than six pages in length. It entitled each U.S. port of entry to at least
one zone, and prescribed physical conditions and standards for each zone,
requirements for operation, recordkeeping, and goods being moved into and out of
zones, activities permissible in zones, and the applicability of all U.S. laws to zones
When the U.S. foreign-trade zones program began in 1934, it was a program
designed to help accelerate U.S. trade in the wake of the restrictive impact of the
Smoot-Hawley Tariff bill of 1930, which raised U.S. tariffs on imported goods as high
as 53%. Some have argued that zones were designed originally to be way stations12
where goods coming in from one foreign port could be transshipped (reloaded for
export to another foreign port) or re-exported (processed for subsequent export).13
The foreign-trade zones legislation was controversial, however, because there
was some fear that it would promote imports of cheaper components used in the
manufacturing process, and thereby put domestic components manufacturers at risk.
To make sure this would not happen, the Act prohibited manufacturing in zones.
Regulations issued by the U.S. Foreign-Trade Zones Board for establishing and maintaining11
a foreign-trade zone can be found at 15 CFR 400.
Yarbrough, Beth V., and Robert M. The World Economy: Trade and Finance. Harcourt12
Brace, 1991, p. 368.
U.S. General Accounting Office. Foreign-Trade Zone Growth Primarily Benefits Users13
who Import For Domestic Commerce. GAO/GGD 84-52, March 2, 1984, p. 3, 5.
Changes to the FTZ Act14
After the Foreign-Trade Zone Act was passed, it proved restrictive enough to
be very little used. It did not encourage U.S. exports, as some had expected. Even
sixteen years after the Act was passed, in 1950, there were still fewer than ten15
zones. Intense lobbying by manufacturing trade groups to make the zone concept
more useful led Congress to permit manufacturing in zones. Many reasoned that
zones were too small for much manufacturing to occur there.
The Foreign-Trade Zones Board took the amendment one step further. This one
step led the zone system on a course which eventually made it successful in a way
that was very different from what some originally intended the program to be. Two
years after Congress passed the amendment permitting manufacturing in zones, the
Foreign-Trade Zones Board issued regulations creating the concept of subzones.
Those regulations declared that when a zone was of insufficient size to accommodate
manufacturing, an employer could apply for subzone status, and thereby have access
to full zone benefits without having to relocate.
Two administrative decisions by the U.S. Treasury Department served to make
zone status even more attractive for manufacturing operations. These decisions —
one in 1980 (U.S. Treasury decision 80-87) and another in 1982, modifying the first
decision, clarified that manufacturers need not pay duty either on value added or on
brokerage or transportation fees connected with imported goods.16
1980s: The Zone System Began Expanding Rapidly
Once the second Treasury decision was handed down in 1982, the zone
program began growing very rapidly and changing in nature, for a number of reasons.
Among these were that the world-wide technological support system
(communications, transportation, merchandise tracking, etc.) was at last ready to
handle the huge demands of expanded international trade. Second, increased
international price competition led U.S. businesses to seek new ways of shaving costs.
Historical material in this and the following two sections is taken from: U.S. General14
Accounting Office. Foreign-Trade Zone Growth Primarily Benefits Users Who Import For
Domestic Commerce. GAO/GGD 84-52. March 2, 1984, and Foreign-Trade Zones
Program Needs Clarified Criteria. GAO/NSIAD 89-85; U.S. International Trade
Commission. The Implications of Foreign-Trade Zones for U.S. Industries and for
Competitive Conditions Between U.S. and Foreign Firms. USITC Publication 1496,
February, 1984, and The Implications of Foreign-Trade Zones for U.S. Industries and for
Competitive Conditions Between U.S. and Foreign Firms. USITC Publication 2059,
In fact, even as recently as 1970, there were still fewer than ten cities with zones. All of15
these were ocean or Great Lakes ports. Source: Da Ponte, John J., Jr. United States Foreign-
Trade Zones: Adapting to Time and Space. The Maritime Lawyer, Fall, 1980, p. 202.
GAO Report, 1984, op. cit., p. 12.16
In addition, the value of the
Figure 1. Growth in Number of anddollar was quite high in the 1980s,
Employment in Zones, 1978-1997making cheaper imports even more
attractive. On top of this, the Tariff17
Schedule of the United States (TSUS,
replaced by the Harmonized Tariff
Schedule in 1989) contained a number
400700of inverted tariffs. Many inverted
600tariffs were later reduced or eliminatedby the Uruguay Round of negotiations
300500under the General Agreement on
Employment inTariffs and Trade (GATT) in 1994.
300Soon businesses figured out that,
100200Number of Zones if they could achieve zone status, they
100and Subzonescould import components in industries
with inverted tariff structures,
1978197919801981198219831984198519861987198819891990199119921993199419951996199700assemble them together with domestic
inputs in zones, and import from U.S.
Source of data: U.S. Foreign Trade Zones Boardzones products that were less
expensive to produce by the amount
saved in customs costs on each item
times the number of items. Word of how to take advantage of the inverted tariff
structure and other cost-saving means afforded by zones (reported in table 1) spread
through trade organizations. Zone use and zone employment accelerated
dramatically. (see figure 1.)
Congressional Oversight of Zone Growth
The House Ways and Means Committee, concerned about the potential impact
that zone status was having on U.S. industries (especially domestic components
industries), employment, communities, tariff and tax revenues, competitiveness
abroad, and the U.S. economy in general, asked both the General Accounting Office
(GAO) and the International Trade Commission (ITC) to examine the economic
impact of U.S. foreign-trade zones, in 1983 and again in 1987. Primary findings of
these agencies were that the zone program, while growing rapidly, was having only
a small (but difficult to measure) effect on U.S. revenue collection, employment, and
the economy in general, and a somewhat larger effect on the U.S. components
industry, particularly in the auto sector. Not only did the auto sector have an inverted
tariff, but application for zone status there was reportedly met with relatively little
objection from components manufacturers. 18
U.S. Congress. House. Committee on Government Operations. Foreign-Trade Zones17
(FTZ) Program Needs Restructuring. House Report 101-363. November 16, 1989, p. 11.
Quantitative findings included the following: 18
Effect of Zones on Tariff Revenues: International Trade Commission (ITC) reports
(referred to in footnote 13) found that the net effect of zone operations on customs revenue
was small — 0.04% of total customs duties collected in 1982 and 0.3% of the total customs
One of the most important ITC findings, however, was that the U.S. foreign-
trade zones program was doing the opposite of what it was originally intended to do:
The International Trade Commission found that “While a stated intention of the 1934
Act was to increase the competitiveness of U.S. products in foreign markets, zone
status (particularly subzone status) is being used to maintain or improve the
competitive posture of firms in domestic markets (emphasis added).” The U.S.19
Foreign-Trade Zones Board points out, however, that this statement is not entirely
correct. In fact, the Act itself stated as its purpose “to expedite and encourage20
foreign commerce,” favoring neither exports nor imports over the other.
In 1989, subsequent to the GAO and ITC studies, subcommittees of the House
Ways and Means Committee and the House Government Operations Committee held21
hearings on foreign-trade zones. In addition, the House Government Operations
Committee issued an independent report on the Foreign-Trade Zones Program. Its
findings were compatible with those reported by GAO and ITC, but went a step
further. It found that the Foreign-Trade Zones Act and program were in need of
extensive revision for failing to carry out what it referred to as “the original intent of
the Act.” The committee report, like the GAO and ITC reports, criticized the
program for promoting instead of exports, domestic competitiveness and imports for
The House Government Operations Committee report also criticized the
Foreign-Trade Zones Board, among other things, for poorly conceived and
inefficiently administered processes, for overly general regulations, which failed to list
and use a single set of criteria for granting zone or subzone status, for maintaining
regulations no longer consistent with Board practice, for relying on improperly
conducted economic analyses, for failing to set time limits for stages in the application
process, for failing to certify that operations continue to function in the public interest,
duties collected in 1986. (ITC Report 1984, p. xi) and (ITC Report 1988, p. xix-xx).
Per-auto savings by manufacturing in zones: In addition, in 1986, autos accounted
for 87% of all shipments from subzones, seven zones accounting for 76% of total zone
employment. (ITC Report 1988, p. xiv) and (ITC Report 1988, p. 5-2). For auto plants, the
average duty savings per car in 1986-87 was small — about $8.67, down from $9.91 in 1983
and up from $5.54 in 1985 (ITC Report 1988, p. xix).
Employment effect from zones, in the auto industry: Overall, the ITC found a 3.5%
decline in employment in the auto parts sector for new vehicles, and a 1.6% increase in
employment in the auto assembly industry, between 1983 and 1987. (ITC Report 1988, p. 8-
U.S. International Trade Commission. The Implications of Foreign-Trade Zones for U.S.19
Industries and for Competitive Conditions Between U.S. and Foreign Firms. USITC
Publication 1496, February, 1984, p. viii.
Notes received from Dennis Puccinelli, Executive Director of the U.S. Foreign-Trade20
Zones Board, July 16, 1999.
U.S. House. Committee on Ways and Means. Subcommittee on Trade. October 24, 1989.21
Operation of the Foreign-Trade Zones Program of the United States and its Implications
for the U.S. Economy and U.S. International Trade. Serial 101-56. 442 p. and U.S. House.
Committee on Government Operations. Subcommittee on Commerce, Consumer, and
Monetary Affairs. March 7, 1989. Foreign-Trade Zones. 343 p.
and for failing to operate in a manner consistent with trade policy. The Committee22
made a number of recommendations to address these perceived weaknesses.
Ultimately, in October 1991, in consultation with congressional committees, the
Board issued new regulations aimed at codifying its existing practice and meeting
In addition to congressional requests to the GAO and the ITC, hearings, and the
report mentioned above, continuing periodic congressional interest in foreign-trade
zones has been part of a broader focus on trade issues. Zone issues have been
addressed by minor amendments to the Foreign-Trade Zones Act and been included
in a number of more inclusive hearings and trade laws over the years. Some of the
amendments have increased the benefits of zone imports and exports.
The Zone System Today
Today, as during the 1980s, zones are predominantly instruments for changing
inverted tariff structures into uniform rate structures. This is the case even though
subzone users may save money in a variety of other ways (listed in table 1) and even
though tariffs overall have declined considerably in the past 15 years, from an average
rate of 5.5% in 1984 to an average rate of 2.0% in 1998. Today, instead of being23
places where relatively large tariff savings — (i.e., $5-10 per car, for example) can be
made on a few major components, zones are now more typically places where small
savings (i.e., $1-3 per car, using the same industry example, according to the Foreign-
Trade-Zones Board) can be made on a larger volume of components. While the24
auto industry is still a prime beneficiary of zone status, the petroleum industry is the
primary user now, accounting for 64% of the value of all goods entering zones (see
figure 6), with motor vehicles accounting for another 23%. Some of the auto
production operations have moved offshore, and large numbers of petroleum
operations are still applying for zone status.
The importance of trade zones today is evidenced by the following statistics:
Since 1970, the total number of trade zones and subzones combined has grown from
10 to 662, and employment in them has increased from 7,000 to 367,000, as was
shown in figure 1. Nevertheless, zones (including subzones) represent only a small
part of the U.S. economy. The total zone employment accounts for only 0.2% of
total U.S. employment. In addition, all zone inputs (both domestic and foreign — a
total of $178 billion in 1997) represent only a small part — 2% of U.S. gross
domestic product ($8,111 billion in 1997). While the world-wide zone system plays
a large role in international trade, it should be noted that very few imported zone
inputs in these industries enter the U.S. zone system from other zones around the
Foreign-Trade Zones (FTZ) Program Needs Restructuring, p. 19-24.22
Data for 1984 from U.S. Department of Commerce, Bureau of the Census. Highlights of23
U.S. Export and Import Trade, FT990/December, 1984, Table 9, p. C-31. Data for 1998
Savings on a particular item may result from the rationalization of inverted tariffs together24
with other savings of the types detailed in figure 1.
world. In addition, only a small part of all U.S. imports (6%) enter the United States
through zones in other countries. 25
The map in figure 2 shows the states in which zone and subzone use is
concentrated (darker shading). Zone and subzone use is concentrated primarily in
traditionally heavy industrialized states where there is considerable auto
manufacturing and in coastal states where there is considerable oil importing.
Figure 2. Concentrations of U.S. Foreign-Trade
Zones and Subzones Among States
1-10 zones and subzones
10-20 zones and subzonesSource of data: U.S. Foreign-Trade Zones Board.
20-90 zones and subzonesSee appendix table 6 for listing of zones by state.
Zone data are taken from U.S. Department of commerce. Foreign-Trade Zones Board. The25th
59 Annual Report of the Foreign-Trade Zones Board. Employment data are taken from
U.S. Department of Labor. Employment and Earnings (any issue), table B-1. U.S. GDP data
are taken from Economic Report of the President, 1999, p. 342.
Zones Today are Functionally Import Rather Than Export Zones
Figure 3. Extent to Which Imports Zones today are primarily
Entering Zones are Subsequently import zones, rather than
Re-Exported, 1978-1997export zones as some observers
believe Congress originally
anticipated. They are import
Exports/Imports%zones in terms of both zone
100inputs and zone outputs, even
U.S. Zones as Export Zonesthough both the Act itself and
80the Foreign-Trade Zones Board
60are currently neutral on this
50issue. In addition, the fact that
40most U.S. zones are
20U.S. Zones as Import Zonesfunctionally import zones
reflects both the economic
197819791980198119821983198419851986198719881989199019911992199319941995199619970maturity (in comparison to
developing countries) and the
Source of data: U.S. Foreign Trade Zones Board, Annual Reports, various years.relative strength of the U.S.
In terms of zone inputs, today’s zones have lately become “import” zones in
that, in recent years, more goods entering the zones have been subsequently imported
into the United States than exported. In figure 3, export years (1981-95) are those
in which the thick black line remains above the 50% line. Import years (1978-91 and
1996-97) are represented where the line dips below the 50% line. (See appendix table
Figure 4. Extent to Which Total Zone OutputIn terms of zone outputs,
is Consumed Domestically today’s zones are import zones
or Exported 1978-1997rather than export zones in that
the majority of zone output is
imported into the United States,
Exports/total zone inputs%and very little is exported.
100Figure 2 shows that since 1984,
80the proportion of total zoneoutput that is exported has
Zone output that is consumed domestically
60averaged about 10-15%.
Figures 3 and 4 both show
20that 1982 is the year when zones
197819791980198119821983198419851986198719881989199019911992199319941995199619970Zone output that is exportedreached their pinnacle as export
Source of data: U.S. Foreign Trade Zones Board, Annual Reports, various years.
Zones Today are Primarily “Domestic-Trade” Rather Than
Figure 5. Source of Zone Inputs (DomesticZones can also beclassified today as being
or Foreign) 1978-1997functionally “domestic-trade”
zones rather than “foreign-
Domestic Inputs/Total Inputstrade” zones. This is because
most of the inputs into the
100%zones are of domestic origin,
Inputs are Primarily Domesticeven though the gains to be
80made from zone status stem
60from imports. (See table 1 for alisting of the type of gains to be
40made from zone status.) Since1983, zone inputs sourced
20Inputs are Primarily domestically have accounted for
Foreignmore than half, and since 1985they have accounted for about
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 19970
75-80% of all zone inputs. (See
Source of data: U.S. Foreign Trade Zones Board,figure 5). The fact that the
Annual Reports, various years.percentage of domestically
sourced zone inputs has
declined somewhat in the last few years reflects a greater presence in zones of oil
refining, which uses primarily imported crude, compared to auto assembly, which uses
mostly domestic components.
Calling zones “import” zones rather than “export” zones, and “domestic” zones
rather than “foreign” zones is another way of reiterating what the ITC found in the
zone status is still being used
(with the support of the Act) to
Figure 6. Industry Concentrations of Imports maintain or improve the
in Zones, 1984 and 1997competitive posture of firms in
Percent of all zone inputaccounted for by named industrydomestic markets.
70 64% 60%
40199723%25%in Zones Have Changed
205%1%2%1%0.4%5%5%Industry concentrations in
Motor VehiclesElectronicsChemicalsFood ProductsOther0Petroleum Refining& Storagezones have changed since the
mid-1980s, as mentioned
previously. Figure 6 shows
that in 1984, motor vehicle
assembly plants accounted for
Source of data: 46th and 59th Annual Reports of the Foreign Trade Zones Board. and electronics companies were
the second greatest users of zones. By 1997, many electronics and auto assembly
plants had relocated abroad, and petroleum refining had become the dominant zone
user. Today, the two industries account for 87 % of all zone inputs.
The Future of Zones
Overall, most tariffs have continued to be reduced to very low levels in the
United States, through numerous trade agreements or establishment of free-trade
areas. This would arguably point to an accompanying reduction in the use of trade
zones. Inverted tariffs will lose their significance when all duties are near the same
level. In addition, the nominal cost savings of duty deferral in a country with low
tariff rates, like the United States, would make zone status an unnecessary
administrative burden in addition to its reduced effect as a protectionist device.26
Similarly, the gradual phasing out of quotas will also diminish demand for zone use.
However, at the same time, computers are facilitating zone use by making it
easier for corporations to search through tariffs on all imported parts that potentially
go into making a certain item, in order to identify those that represent an inverted
tariff structure. Computers also make it easier to keep track of quota fulfillment and
to calculate final tariffs owed on a large and diverse array of small imported
components. Thus, smaller savings from zone use, including logistical and
administrative savings, may be relatively more important than they once were.
Applications for zone or subzone status are still being approved. In 1997, the
U.S. Foreign-Trade Zones Board approved 8 new general-purpose zones and 37 new
subzones — consistent with the rate over the past several years — increasing the total
number of zones by 3.5% and subzones by 9.5%
Thus, even though businesses may be reaping smaller savings per imported item
used in zones, they may be able, in some cases to expand the number of items on
which they save money. In addition, international competition has become sufficiently
great in recent years that even very small savings from zone status, through duty
reduction, deferred duty payment, duty exemption, tax savings, quota storage, or
other means outlined in table 1 can make important contributions to U.S.
Policy Issues Relating to Zones
Many of the zone-related policy issues that were prominent ten years ago are
less important today, because the circumstances that surround them have changed:27
Kanellis, William G. Reining in the Foreign-Trade Zones Board: Making Foreign-26
Trade Zone Decisions Reflect the Legislative Intent of the Foreign-Trade Zones Act of 1934.
Northwestern Journal of International Law and Business, Spring, 1995, p. 635.
The major issues of the late 1980s were documented in the GAO and ITC reports27
In the 10 years since the GAO, ITC, and congressional studies were conducted,
foreign-trade zones have become much less an issue of congressional focus than they
were. This has occurred, in part because congressional interest has shifted from the
employment and competitive effects of zone status to increased importation of
manufactured goods and the effect this is having on U.S. jobs and the U.S. economy
in the long run. Economists argue that with increased trade, everybody wins;
however, dislocation of workers in various sectors has become an important
Is the Congressional Intent of the Foreign-Trade Zones Program
The answer to a question on whether the congressional intent on zones is being
met depends on whether one judges congressional intent at the time of passage of the
U.S. Foreign-Trade Zones Act, or as it has evolved over the past 65 years.
Some of the pre-passage debate suggested hope that the zones would boost
exports rather than imports. In addition, while the preamble of the act emphasized the
promotion of trade without reference to either exports or imports, section 3 of the
Act did strictly prohibit manufacturing in zones (sec. 3). This language is consistent
with arguments that manufacturing was prohibited in order to discourage the
importation of cheaper components which would compete with domestically
Amendments to the Act over the years, however, have reflected a gradual shift
in congressional intent toward greater acceptance of zones for handling imports. The
1950 amendment permitted manufacturing in zones, thus reversing the original
exclusion. In addition, certain other amendments, including a 1990s amendment
providing for evaluation of products upon importation from a zone, make specific
reference to imports (sec. 81c, of title 19 of the U.S. Code). 28
Therefore, one could conclude that the congressional intent as it has evolved
over the years is being met. In addition, the shifting of congressional focus on the
zone issue from major oversight and evaluation to minor tinkering reflects an apparent
acceptance of the U.S. zone system as it stands today.
previously mentioned, and also in U.S. Library of Congress. Foreign-Trade Zones and the
U.S. Automobile Industry, by Gwenell L. Bass, and Lenore Sek. CRS Report 88-659E,
October 14, 1988.
Any program that specifically promoted exports to the detriment of imports could violate28
WTO rules against export subsidies.
Have Foreign-Trade Zones Helped or Hurt U.S. Workers and
The question about whether zones have helped or hurt U.S. workers is seen
differently in the 1990s than in the 1980s. Some employment effects from trade with
Mexico and Canada since the North American Free Trade Agreement (NAFTA) went
into effect and from trade with developing countries generally and under the General
System of Preferences (GSP), have shifted the perspective on the effects of trade29
zones on U.S. jobs.
By way of comparison, in the 1980s, there was some alarm that increased use
of U.S. foreign-trade zones was leading to the loss of U.S. jobs. The International
Trade Commission estimated that for the four-year period 1983-1987, trade zones
reduced overall employment in the auto industry by a net 1.9%. This represents a
gain in the auto assembly sector and a loss in the auto parts sector. Concern over30
the effect of zones on employment, however, has been eclipsed in recent years by
concern over the effect of trade agreements [especially the North American Free
Trade Agreement (NAFTA)] on employment. A difference in the order of magnitude
on a particular industry is shown in the following example: In the 1990s, over a five
and one-half year time period after NAFTA went into effect, increased trade with
Mexico and Canada led to a 5.3% job loss in the apparel sector. 31
Thus, small benefits from avoiding the higher tariff rates in industries with
inverted tariffs (differentials which are continually shrinking) may seem less important
today than they did a decade ago. In addition, in the 1980s, trade zones were viewed
as a way of encouraging U.S. manufacturing plants to remain in the United States
rather than relocate abroad. Today, the potential cost savings from using zone status
to avoid the penalties of an inverted tariff (which may be only a percent or two) seem
small compared to the potential cost savings which some businesses can obtain by
relocating a labor-intensive plant to Mexico or some other country with a preferential
system (i.e., GSP, CBERA, or Andean), and thus saving large amounts from wage
The General System of Preferences provides duty-free treatment under specific conditions29
for 142 developing countries.
A FTZ Board letter to the file documenting a March 3, 1988 meeting with the ITC30
economist who developed the economic model which was the basis for the ITC findings
indicates that the model was meant to provide estimates rather than definitive numbers on jobs
gained or lost as a result of zone procedures.
For 1983-87 data for the motor vehicle transportation sector (SIC 37), see ITC Report,31
Hours, and Earnings United States 1981-93, bulletin 2429. For data on the apparel sector
(SIC 23), see NAFTA: Estimates of Job Effects and Industry Trade Trends After 4 ½ Years,
by Mary Jane Bolle. CRS Report 98-783E, p. 8, and Employment, Hours, and Earnings
United States 1990-95, Bulletin 2465.
The Caribbean Basin Economic Recovery Act (CBERA), applying to 27 Caribbean32
nations, and the Andean Initiative (applicable to imports from Bolivia, Ecuador, Colombia,
and Peru) are similar to the GSP in that they offer duty-free treatment under specific
Table 2. Potential Winners and Losers From Zone Use33
Potential WinnersPotential Losers
ManufacturersFinal assemblers could win to the extentComponents manufacturers could lose to
that righting an inverted tariff lets them getthe extent that the product becomes less
components at a lower cost.competitive with imported components.
Components manufacturers could win to
the extent that they can automate, become
more competitive with imports, and
thereby save on production costs.
WorkersWorkers in assembly operations could winEither automation, or plant closings, in
to the extent that FTZ status results incomponents industries from losing sales to
greater profits which may be passed alongimporters operating in zones, could put
to workers.workers out of jobs.
Workers in “losing” industries could win to
the extent that job loss encourages them to
upgrade skills, which could them lead to
higher paying jobs.
CommunityAny zone effects could have ripple effectsCommunities with component
on the community. Communities with newmanufacturing operations that close may
zones may benefit because zones cansuffer.
attract new business into the area.
ConsumersTo the extent that FTZs help manufacturersConsumers may suffer from reduced
reduce prices and those prices are passedchoices or reduction in quality to the extent
along to consumers, consumers couldthat foreign-trade zones encourage the
benefit.substitution of cheaper imported
components or goods for domestically
Tariff RevenuesTotal U.S. tariff revenues increase to theTariff revenues decline by the difference
extent that increased zone use results in anbetween the tariff on the component and
increased demand for the importedthe tariff on the finished product for each
components. item imported into a zone, times thea
number of items.
Tax RevenuesTotal U.S. tax revenues increase to the
extent that increased zone use results in an
increased demand for the product and in
greater earnings for each worker producing
goods in zones. Increased tax revenues
would come from increases in U.S. income
tax collections brought about by increased
profits and wages, federal excise taxes, and
state and local taxes of the types affected by
These arguments were largely drawn from GAO and ITC reports.33
An example showing the potential magnitude of such tariff revenue loss is an ITC finding that zone use reduceda
overall tariff revenues by 3% for 1986. Overall customs duties of $1,216 million represented an overall duty savings
of nearly $39 million on the U.S. economy from foreign-trade zone use in 1986. This represents a total loss of about
3% of tariff revenues for 1986. Source of duty savings: 1988 ITC report, op. cit. Source of overall duties: Highlights
of U.S. Export and Import Trade, op. Cit., 1986.
In addition, the question of whether zones have helped or hurt U.S. businesses
invites a mixed response. Table 2 shows typical winners and losers from zone use.
Certainly businesses that have applied for and achieved zone status have benefitted. On
the other hand, once one business in an industry achieves zone status, others are forced
to follow suit to remain competitive. As a result, once auto assembly plants
started getting zone status, virtually all others in the industry followed suit. Today,34
this is occurring in the oil refining industry.
On the other hand,zone regulations require that U.S. zone activity have a net
positive effect for U.S. businesses and workers. In addition, the 1991 regulations
applicable to the Foreign-Trade Zones Board specifically require that the Board
disallow any actions that would circumvent U.S. trade policy or programs developed
by the administration and Congress. In keeping with this policy, the Board has
disapproved applications that proposed to use the Foreign-Trade Zones program to
circumvent sugar, milk, textile and apparel quota programs in an attempt to prevent
situations where there are “losers” (businesses or workers).
Does the Zone System Set U.S. Trade Policy by Circumventing
Congress and U.S. Trade Negotiators?
It can be argued that the U.S. zone system sets trade policy by circumventing
Congress and U.S. trade negotiators. The decision to lower tariffs is thus shifted from
the traditional method involving Congress and U.S. negotiators to an alternative
method involving the U.S. Foreign-Trade Zones Board and its approval of the use of
zones by representatives of various industries. However, as mentioned, the gradual
decline of tariffs from an average rate of 5.5% to 2.0% between 1984 and 1998 has
somewhat diminished the influence of the Foreign-Trade Zones Board on U.S.
effective tariff rates. In addition, the Foreign-Trade Zones Board is adamant that if it
perceives that zone status in an industry (usually the assembly sector) will harm the
components sector, it will deny or limit zone status. Industries where zone status has
been denied or limited for this reason include textiles, steel, pigments, TV tubes, ink,
ethanol, chain saws, lawn mowers and agricultural products (e.g. dairy and sugar, and
Bass and Sek, op. cit., p. 11.34
From a telephone conversation with Dennis Puccinelli, Executive Director of the U.S.35
Foreign-Trade Zones Board on May 21, 1999.
Legislation Relating to Zones
In the last ten years, legislative issues relating to zones have shifted from the
macro to the micro level. Instead of being focused on how zones affect the U.S.
economy, they are now more focused on whether zone policy should be used to help
Nor does foreign-trade zone legislation in the 105 and 106 Congresses attemptthth
to reverse the evolutionary changes which have affected U.S. foreign-trade zones. The
current legislative proposals are much more narrowly focused on changing trade policy
for various industries and promoting economic development. Bills relating to the
foreign-trade zone system fall into four categories: technical corrections relating to
zones; bills to help achieve trade objectives through zones (i.e. legislation relating to
steel, peanut butter, or tobacco products); legislation to assist zone expansion or
promote economic development; and legislation to support specific programs (i.e.,
space exploration). (See table 3 on major zone legislation).
P.L. 105-303, enacted in the 105 Congress, included a foreign-trade zoneth
provision to further encourage the development of the commercial space industry. It
clarifies that payloads launched from trade zones shall be considered exports (not
imports) with regards to customs entry.
Technical Corrections Relating to Zones
In the 106 Congress, Sec. 2405 of P.L. 36, signed by the President on June 25,th
1999 (S. Report 106-2) makes technical corrections to various trade laws. It
provides, among other things, that the Secretary of the Treasury shall include
commercial importation data for foreign-trade zones in the new program automating
customs procedures (the National Customs Automation Program) — which is
currently undergoing both construction and funding difficulties.
Legislation to Achieve Trade Objectives For Specific Industries
A number of bills relating to U.S. foreign-trade zones in the 106 Congress,th
would accomplish trade objectives by affecting the way certain imports are treated.
H.R. 975, passed by the House on March 17, 1999, (H. Report 106-52) provides for
a reduction in steel imports. It requires a steel notification certificate before steel is
entered into the U.S. customs territory of the United States.
Other legislation in the 105 Congress would have related to the tobacco industryth
by providing for an increase in taxes on tobacco products which enter the United
States through a foreign-trade zone (H.R. 1229), and prohibiting the manufacturing
of tobacco products in or forwarding them through foreign-trade zones, or selling them
in or to duty-free shops (H.R. 3738.)
Also in the 105 Congress H.R. 1875 would have allowed the entry of peanutth
butter and paste from Mexican peanuts through foreign-trade zones without being
subject to the tariff rate quota.
Legislation to Assist Zone Expansion or Promote Economic
Other bills would aim to promote economic development by directing the U.S.
Foreign-Trade Zones Board to grant approval for new or expanded zones. In the 106th
Congress, H.R. 465 would direct the Board on behalf of the municipal airport of
Chico, California. H.R. 5401 would make this direction for zones on Indian territory.
Table 3. Some Major Zone Legislation of the 106 and 105 Congressesthth
P.L 106-36: H.R. 435/S. 262 (S.Report 106 -2) made technical changes to various trade laws. It also
included a provision (Sec. 2405) which stated that not later than Jan. 1, 2000, the Secretary of the
Treasury shall provide for the inclusion of commercial importation data for foreign-trade zones under
the National Customs Automation Program. On June 7, 1999, the House agreed to Senate amendment,
roll call #168.
Passed the House March 17, 1999: H.R. 975 (Visclosky). H.Report 106-52 provides for a
reduction in the volume of steel imports. For steel brought into the United States through a foreign-
trade zone, requires a steel notification certificate before the merchandise is entered into the customs
territory of the United States.
H.R. 465 (Herger) directs the Foreign-Trade Zones Board to expand Foreign-Trade Zone No. 143 to
include an area of the municipal airport of Chico, California.
S. 401 (Campbell, Nighthorse), Sec. 205 provides for business development and trade promotion for
Native Americans. Directs the U.S. Foreign-Trade Zones Board to consider on a priority basis and
expedite processing of any application aiming to establish a foreign-trade zone on Indian territory,
including any designated an empowerment zone or enterprise community.
Enacted: H.R. 1702 (Sensenbrenner, P.L. 105-303, Oct. 28, 1998: To encourage the development of a
commercial space industry in the United States, and for other purposes. Sec.102: Clarifies that a
launch vehicle is not, because of launch or reentry, an export or import. However, payloads launched
pursuant to foreign-trade zone procedures shall be considered exports with regard to customs entry.
This means that if any part of the launch vehicle or its payload is imported (for example part of the
fuel), no tariffs are payable.
H.R. 1875 (Crane) would amend the U.S. Harmonized Tariff Schedule to allow entry of peanut butter
and paste from Mexican peanuts in foreign-trade zones without being subject to the tariff rate quota.
H.R. 1319 (Royce), Sec. 204 would abolish the Department of Commerce and transfer the U.S.
Foreign-Trade Zones Board to the Department of the Treasury. The U.S. Trade Representative would
replace the Secretary of Commerce on the Foreign-Trade Zones Board.
H.R. 1229 (Ackerman), Sec. 301 provides for an increase in taxes on tobacco products, cigarette
papers, or cigarette tubes entered into a customs territory from a foreign-trade zone.
H.R. 3738 (Doggett), Sec. 407: prohibits against the sale of tobacco products in or to duty-free shops
or forwarding through or manufacturing in foreign-trade zones.
S. 1415 (McCain): Section 1147 is similar to the provision in H.R. 3738.
The appendix includes information on how to apply for zone status, data supporting
figures 3, 4, and 5, and lists, zones and subzones, by state.
Appendix Table 4. Information Pertaining to Zone or Subzone Application
How To Apply for Zone or Subzone Status
CApply to the U.S. Foreign-Trade Zones Board, Import Administration, U.S. Department of
Commerce, Washington, D.C. 20230 (202) 482-2862.
CBasic requirements for foreign-trade zone applications are found in 15 CFR Part 400, available at
the U.S. Foreign-Trade Zones Board website:
CApplications are rather involved, and the approval process is somewhat lengthy. General Purpose
Zone applications take about 18 and Subzone applications about 12 months.
CAfter application approval is granted by the Foreign-Trade Zones Board, before operations can
take place, approval to activate the zone must be obtained from the Customs Port Director.
CZone status is typically granted to state or local agencies or public type corporations (i.e., port
authorities or economic development agencies), which may contract out operations.
CZone sites must be in or near U.S. Customs ports of entry (listed at 19 CFR Part 101).
CZones are operated under the day-to-day supervision of the U.S. Customs Service. Overhead costs
include reimbursement to Customs for services. See regulations at 19 CFR Part 146.
COperations are conducted as public utilities, with published rates.
CZone projects should be coordinated at the state level for consistency with economic development
CApplicants must have a suitable plan including provisions for facilities and financing.
CNeed for the proposed zone must be shown in terms of the local economy and overall economic
CZone manufacturing is reviewed under “public interest” criteria for consistency with trade policy
and net positive economic effects.
CZones should help create, not just divert employment from region to another.
CThere must be convincing evidence of a need for zone services. Letters of intent from firms
expecting to be the first zone users should be included in the application.
CSubzones are normally private plant sites that usually cannot be accommodated within an existing
CSubzones can be approved only when a “public benefit” resulting in a “positive economic effect” is
CSubzone applications include: company background, product description, industry background,
zone benefits to the company and public, impact on the domestic industry and environment.
Source of the above information: websites of the U.S. Foreign-Trade Zones Board (listed above), the
U.S. Customs Service: http://www.customs.ustreas.gov/imp-exp2/comm-imp/ftz/ftstart.htm, and the
National Association of Foreign-Trade Zones: http://www.imex.com/naftz.html.
Appendix Table 5. Data Supporting Figures 3, 4, and 5
(In $billions, and percent)
Data forData for
Figure 4Figure 3Data for
— —Figure 5
Exports asExports —
Mdse% of Mdse.from Zones/Domestic
Received inDomesticForeignReceived inImports IntoInputs/Total
Zone Inputs Inputs Exports Zones Zones Inputs
($billions) ($billions) ($billions) ($billions) (%) (%) (%)
1978 0.81 0.17 0.63 0.24 30 38 21
1979 1.52 0.43 1.09 0.35 23 32 28
1980 2.60 0.89 1.71 0.69 27 40 34
1981 3.02 1.03 1.99 0.93 31 47 34
1982 3.40 1.32 2.08 1.54 45 74 39
1983 6.51 3.61 2.90 1.67 26 58 55
1984 15.00 10.50 4.50 2.65 18 59 70
1985 24.75 19.01 5.74 3.89 16 68 77
1986 40.19 31.07 9.12 4.87 12 53 77
1987 48.95 38.42 10.52 5.40 11 51 78
1988 58.65 44.56 14.10 7.22 12 51 76
1989 76.27 57.51 18.76 10.75 14 57 75
1990 90.06 70.64 19.42 11.59 13 60 78
1991 84.44 66.42 18.02 10.48 12 58 79
1992 98.69 78.39 20.30 11.65 12 57 79
1993 103.97 80.16 23.81 11.65 11 49 77
1994 119.57 93.61 25.96 17.37 15 67 78
1995 143.51 114.37 29.14 16.94 12 58 80
1996 168.62 125.68 42.94 17.09 10 40 75
Appendix Table 6. List of Zones and Subzones, by State
116 Mobile ADDSCO shipbuilding 88
159 Mobile Degussa methhionine 89
351Mobile .Zenecaag. chemicals96
382Mobile Cnty.Coastaloil refining97
392TuscaloosaJVC Americavideotape prds.97
250 Buckeye Wal-Mart distribution 93
269 Chandler Intel semiconductors 94
323 Phoenix SGS-Thompson semiconductors 96
353CasaAbbott Mfg.infant formula96
354 Phoenix PETsMART warehouse/distrib 96
420 Chandler/Te Microchip semiconductors 98
16Forrest CitySanyomicrowave ovens82
350West HelenaCedar Chemicalag. chemicals96
376El DoradoMid States Pipesteel pipe fab.97
25Long BeachToyotatruck beds83
30San JoseOlympusmed. equip.83
54San DiegoNational Steel &shipyard84
56 Fremont NUMMI auto 84
147 Benecia Mazda auto 89
178PerrisNational RVmotor home/RV90
276GardenAlps Mfg.computer etc.94
332AuburnC. Ceronixvideo monitors98
385 Sacramento Hewlett-Packar computer-related 97
398 Dixon Gymboree apparel/toys 98
400El SegundoChecronoil refining9898
412FremontCirrus Logicintegrated circuit98
419San JoseHewlett-Packarcomputer etc.98
226FountainAppledata proc. equip92
42 Newark Chrysler auto 84
286 Newark Zeneca pharmaceuticals 94
340NewastleStar Enterpriseoil refinery96
198Volusia & Flagler Counties
209Palm Beach County
218St. Lucie County
204 Cocoa Flite machinery 91
231 Melbourne American telecom./compute 92
277TampaReilly Dairydairy prds.94
281 Tampa Group electronics 94
355Ft.Federal-Mogulvehicle parts dist.97
407MianiHewlett-Packarcomputer etc. 98
24 Atlanta GM auto 83
46La GrangeGoetze Gasketauto gaskets84Lapsed
296 Dougherty Merck pharmaceuticals 95
299 Bulloch Wal-Mart distribution 95
72 Honolulu Dole food 85
364OahuGascooil refining 97
22ChicagoUNR-Leavittsteel pipe fab.8383Lapsed
60 Peoria Caterpillar tractor 85
89 Chicago Ford auto 86
98Du PagePowerpackaging87expired 91
99Du PagePowerpackaging87expired 91
112FloraN. Am. Lightingauto components88
113SalemN. Am. Lightingauto components88
154 Galesburg Maytag appliances 89 lapsed
155 Herrin Maytag appliances 89
224Loves ParkClintoncathode ray tubes92
306ManhattanAmoco crude storage95
312Will CountyUNO-VENoil refining95
386 Marengo Nissan engines 97
401Will CountyMobil Oiloil refining98
403obile CountyShelloil refining98989
90 Indianapolis Chrysler auto 86 lapsed
127LafayetteCaterpillar tractor engines88
148 Lafayette Subaru-Isuzu auto 89
180South BendEWIauto parts90
239 Midlebury Coachmen vehicles 92
244 Greenwood Endress& instruments 92
249 Elkhart Fairmont manufactured 93
252BartholomePOnkyoaccoustical prods. 93
305WhitingAmoco oil refining 95
333 Indianapolis Thompson electronics 96
55 Forest CityWinnebagoauto84
156 Newton Maytag appliances 89 lapsed
84 Kansas auto 85
356ButlerEquilonoil refining 97
43 Louisville Ford auto 84
111 Scott Toyota auto 87
359BoydMarathanoil refining 97
365 Campton Ascent elec./electronic 97
120GramercyTrans-Americanoil refining 8888
134LakeConocooil refining 8888
150LakeCitgooil refining 89
193 Avondale Avondale shipbuilding 91
194 Westwego Avondale shipbuilding 91
195 Harvey Avondale shipbuilding 91
210 Lafourche N.Am.Shipbuild shipbuilding 91
212 Shreveport AT&T telecommunicatio 91
223New OrleansEquitable shipbuilding93
261ConventStar Enterpriseoil refining94
310GaryvilleMarathon oil refining 95
318St. BernardChalmetteoil refining 95
337PlaquemineBPoil refining 96
343St. CharlesShell Oiloil refining96
348BatonExxonoil refining 96
373St. BernardMurphy Oiloil refining 97
418 Lockport Bollinger shipbuilding 98
202 Madawaska Northern cosmetics 91
63Prince Geoge's County
307 Walkersville Rotorex rotary 95
7Fall RiverSterlingwaleapparel80terminated 89
31 Quincy General shipyard 89
32 Lawrencevill Lawrence textiles 84
105 Framingham GM auto 87
183 Norwood Polaroid camera 91
184 Needham Polaroid camera 91
185 New Polaroid camera 91
186 Waltham Polaroid camera 91
187 Freetown Polaroid camera 91
188 Boston Polaroid camera 91
189 Cambridge Polaroid camera 91 lapsed
16Sault Ste. Marie
10 Romeo Ford tractor 81
13 Detroit Chrysler auto 82
19 Wayne Ford auto 83
28 Wixom Ford auto 83
29 Dearborn Ford auto 83
36SpringfieldClarklift trucks84terminated 91
48 Ypsilanti GM auto 84
49 Pontiac GM auto 84
67 Sterling Chrysler auto 85
101 Flint GM auto 87
103 Trenton Chrysler auto 87
123 Midland Dow chemical 88 lapsed
129 Detroit GM auto 88
130 Orion GM auto 88
131 Lansing GM auto 88
161 Detroit Chrysler auto 89
163 Detroit Chrysler auto 89
164 Detroit Chrysler auto 89
165 Detroit Chrysler auto 89
303 Wyandotte BASF vitamins/plastics 95
362DetroitMarathon oil refining 97
248St. PeterDaviscodairy prds.93
255HowardAm. Feeds &animal feeds93
190 Pascagoula Ingalis shipbuilding 91
271CorinthCortelo USAphone & computer94
300PascagoulaChevronoil refining 95
20 St.Louis Chrysler auto 83
23 Claycomo Ford auto 83
40 Hazelwood Ford auto 84
64 Kansas -- auto 93
132 Wentzville GM auto 88
152Kansas CityBayerag. chemicals89
160Kansas CityKawasakiengine parts89
278 Jefferson Florsheim shoes 94
33 Colebrook Manchester apparel 84
232 Newington ABB industrial/nuclear 92
35 Edison Ford auto 84
153 N. Squibb pharmaceuticals 89
298 Rahway Merck pharmaceuticals 95
319LindenBaywayoil refining 95
321GloucesterMobil Oiloil refining 95
331GloucesterCITGOoil refining 96
372GloucesterCoastal EagleOil refining97
383 East Conair warehouse/distrib 97
416 Bridgewater Hewlett-Packar computer-related 98
58 Albuquerqu SP pharmaceuticals 84
111JFK Intl. Airport
59 Waltertown NYAirbrake -- 84 lapsed
63 Cortland Smith-Carona electronics 85
66 N. GM auto 85
93NY CityJack Young--86lapsed
96ChatauquaCPS Corp.--86expired 96
106 Onodaga Chrysler auto 87 lapsed
213RochesterITT auto electronics91lapsed
258 New Bally shoes 93
273 Rensselaer Sanophi pharmaceuticals 94
292RochesterGleason Corp.gear production95
322 Rensselaer BASF chem. 95
230Fuilford, Forsuth,, etc.
173 Alamance Honda lawnmowers 90
219 Kernersville Deere-Hitachi hydraulic 92
230 Wake Mallinckrodt pharmaceuticals 92
283 Wilson Merck pharmaceuticals 94
328GoldsboroR.G. Barryfootwear &96
335 Whitsett Lucent telecommunicatio 96
102 Norwood GM auto 87
110 Shelby Honda car/motorcycle 87
121FindlayCooper Tire &tires88
169Van WertChryslerauto parts89
170ToledoGiant Productsindustrial pumps90
203RichwoodWascator Mfg.washing machines91
254Avon LakeFordmotor vehicles93
257Euclid/MentLincoln Electricarc welding equip.93
259 McComb Consolidated food 93
268BedfordMr. Coffeesmall appliance94
325Grove CityPier 1distribution96
326Bedford Ben Venuepharmaceuticals96
338ToledoBP Oiloil refining 96
344 Euclid Motch machinery 96
358Stark/AllenMarathon oil refining 97
417 Beverly Globe ferroalloys 98
424 Columbus Lucent telecommunicatio 98
425LimaClark USAoil refining98
51 Oklahome GM auto 84
240OklahomeTed Davis Mfg.voice aoil motors92
394LincolnARCO Pipecrude oil98
9MultnomahBeall Pipe80deactivated 83
171 Portland AIM 90 lapsed
221 Pendleton Continental food 92
247TualatinTofle USAstainless steal92
3 Westmorela VW auto 77
21 Landsdale Ford auto 83
142AlleghenyVerosol USAwindow shade89
285 Riverside Merck pharmaceuticals 94
342Philadelphia Sun Companyoil refining96
217 Humacao Bristol-Myers pharmaceuticals 92
218 Barceloneta Bristol-Myers pharmaceuticals 82
245 Caguas Searle pharmaceuticals 92
266 Barceloneta Searle pharmaceuticals 94
294 Arecibo Merck pharmaceuticals 95
295 Barceloneta Merck pharmaceuticals 95
316 Guayama IPR pharmaceuticals 95
317 Carolina IPR pharmaceuticals 95
360San JuanBaxter Caribepharmaceuticals97
371Skagit Cnty.PR Sun oiloil refining97
384 Cidra PepsiCo concentrate 97
53 Charleston Porsche auto 84
272 Spartanburg BMW auto 94
14 Symnra Nissan truck/auto 82
175Maury Cnty.Saturnauto 90
289 Bristol SmithKline pharmaceuticals 95
311 Columbia Columbia room 95
413RipleyKomatsuequip. parts dist.98
97Val Verde County
155Victoria & CalhounCounties
62 Jefferson Bethlehem 85
76Corpus Ch.Coastal St.oil refining
77Corpus Ch.Koch Refiningoil refining95
78Corpus Ch.Trifineryoil refining85
79Corpus Ch.Gulf Marineoil refininh85
81Corpus Ch.CC Distributing--85expired 91
82Corpus Ch.Compressors --85expired 91
124VictoriaSafety Railwayfreight car repair88lapsed
125VictoriaSafety Steelfreight car repair88lapsed
140WeslacoFGulf De Bruynfood processing88
144HoustonHughes Tooldrilling tools89
145HoustonTexas Steelheat-treat oil89
198HoustonUnited Generalhand tools91
199San AntonioBausch & Lombsunglasses91lapsed
200San AntonioColin Medicalmedical equip,91
201San AntonioFriedrich A/C &air conditioners91
205 Calhoun Alcoa alumina/aluminum 91
206HoustonGulf Coastoil refining91
209NuecesKoch Refiningoil refining91
211 Arlington GM auto 91
214HoustonCalero Refiningoil refining91
225HarrisShafferoil drilling equip.92
242HarrisTuboscopesteel tube prds.92
260HarrisShell Oiloil refining93
262Port ArthurStar Enterpriseoil refining93
265HoustonDril-Quipoil field equip94
287HoustonHydriloil field equip95
290Tx CityAmoco oil refining95
291 Freeport BASF chemicals 95
313Jefferson/LiMobil Oiloil refining95
315 Freeport JHoffnam-LaRo pharmaceuticals 95
320HarrisCrown Centraloil refining95
324 Mansfield Pier1 distribution 96
327San AngeloR.G. Barryfootwear &96
339Texas CityMarathon oil refining96
357Texas CityValerooil refining97
374JeffersonUSDOE Oilcrude oil shortage97
388RichardsonFossil Partnerswatches, etc.97
389DallasB&F Systemconsumer prds.97
396Texas CitySeawaycrude oil98
409 Harris Equistar petrochemicals 98
421LewisvilleUltrakclosed circuit TV98
172 Georgia Wyeth 90
137Wash. Dulles Intl. Airport
146Va. BeachStihlchain saw/power89lapsed
228CulpeperITT Tevesauto brake comp.92
229 Culpeper Rochester cable 92
253 Newport NN shipbuilding 93
284ElktonMerck & Copharmaceuticals94
305WhitingAmoco oil refining95
367 Altavista Abbott formula/nutritional 97
406 Richmond Hewlett-Packar computer-related 98
191 Hoquiam Lamb-Grays -- 91
370Skagit Cnty.Equilonoil refining97
11 Kenosha Chrysler auto 81
68 Janesville GM auto 85
69Oak CreekGMauto electronics85lapsed
71 Sturgeon Bay shipbuilding 85
352HudsonRobin Mfg.small engines96
393Plymouth Sargento Foodscheese prcessing98