By Yannis Gatsiounis
As competition tightens globally, foreign-trade zones have informed the decision of many businesses to maintain manufacturing and distribution operations in the U.S.
“FTZ’s have been crucial in facilitating commerce, export, and development,” said Angelos Angelou, principal executive officer of Angelou Economics, an Austin-based consulting firm.
FTZ’s allow U.S. companies to delay or reduce duty payments on foreign merchandise and provide other competitive advantages.
FTZ’s were authorized by Congress in 1934, but policy changes in recent years have made them more accessible and competitive.
A key revision by the US Foreign-Trade Zones Board, coming in 2012, has been to cut processing time for production authority, which now typically is granted within 120 days, whereas previously it could take 8-12 months. Shorter applications, advances in technology, and more specific designations have informed this trend.
Clearer designations can be found in the Board’s decision to split up the procedure for land designation and obtaining production authority, as not every company utilizing an FTZ is going to be involved in production. This means land designation can now take up to as little as 30 days, in contrast to six months to a year previously.
Another change has been to grant manufacturers temporary/interim manufacturing (T/IM) authority. This has benefited SME’s in particular, who make up 70 percent of businesses using FTZ’s, as it allows them to adapt their existing projects to changes in the marketplace or embark on new ones while they wait for permanent authority.
Another revision increasing the attractiveness of FTZ’s was the introduction of the Alternative Site Framework (ASF) in 2009. This extends the advantages of an FTZ beyond the existing zone. Traditional FTZ’s are site specific; ASFs by contrast covers a larger area, say an entire county, meaning a company doesn’t have to move its operations to appreciate FTZ benefits. They simply have to modify their facilities to match FTZ requirements. Polk County, Florida, has made good use the ASF. Sitting between three traditional FTZ’s (in Hillsborough, Orange and Manatee Counties), Polk County’s chances of obtaining a new FTZ license were deemed minimal, but Hillsborough County agreed to amend its FTZ charter to include Polk County, and in 2012 the application to reorganize under the ASF was approved by the Department of Commerce. Star Distribution Systems, Inc., a third party logistics provider, was an immediate beneficiary, as its 300,000-square-foot warehouse in Polk County now fell into the extended FTZ.
“These changes have asserted a lot of flexibility and speed in terms of companies being able to access the program,” said Rebecca Williams, managing director of the Rockefeller Group Foreign Trade Zone Services.
There are 174 FTZ’s in the U.S. catering to a wide array of industries, including electronics, auto parts hi-tech products, agricultural equipment, appliances, and medical devices. Petroleum refining is the largest industry making use of FTZ’s.
Generally merchandise in a zone can be “assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed, and destroyed,” according to the Foreign-Trade Zone Corporation’s website.
In 2012 the value of freight passing through FTZ’s hit $732 billion – a 14 percent increase year on year.
Manufacturers are the primary users of FTZ’s and have undergone a surge of usage as U.S. manufacturing has picked back up. Chris Kamacho of the Greater Phoenix Economic Council says new projects in the metro Phoenix area have shifted away from office projects towards the industrial amid greater consumer confidence and better supply chain optimization of which FTZ’s play a crucial part. Arizona is the only state offering an 80 percent reduction in real and personal property taxes for companies in FTZ’s and subzones.
Large retail shippers, including the Coleman Group and Kawasaki Motor Manufacturing, are increasingly using FTZ’s to reduce costs, according to the Journal of Commerce Magazine. So are aerospace and defense manufacturers as they diversify their portfolios; Phoenix’s FT Zone #75 has added Honeywell and Orbital Sciences to its list of grantees, as the two companies have ventured into more commercial applications, which do not qualify them for the special custom privileges granted to their defense systems.
Another growth area has been general purpose FTZ’s, driven by imports from Asia. General purpose zones do not cater to a specific company but operate like mini-manufacturing or industrial parks and may be owned or developed by private sector developers. Houston, Atlanta, central PA, Chicago, Dallas and New York-New Jersey have all seen substantial growth in GPFTZ operations, incentivized by reductions in logistics and import-processing costs, according to IMS Worldwide, Inc., an international trade advisory firm.
An additional benefit to domestic manufacturers is that they can better prevent intellectual property infringement by the improved oversight and physical security that comes from manufacturing at home. Foreign-Trade Zones are different than Free Trade Zones in other countries in that in many cases the latter only eliminates internal custom duties on products re-exported from the zone, while FTZs provide duty exemption on re-exports and duty deferral on imports for domestic consumption.
The recent shift has been to link companies to FTZs as efficiently as possible, and its paying dividends for the U.S. economy.
AngelouEconomics is a leading Corporate Site Location and Economic Development Consultancy. The firm has provided site location services to clients with over $5 billion worth of data center projects and developed over 400 economic development strategic plans for U.S. and international clients. To learn more, visit www.AngelouEconomics.com or email: Angelos@AngelouEconomics.com, (512-658-8400 cell).