News Release 23-043
Inv. No(s). 332-588
Contact: Elizabeth Nesbitt, 202-205-1819
The U.S. International Commission (USITC) today released a report on the operation of the U.S. Foreign-Trade Zones (FTZ) program and similar programs (FTZ-type programs) in Canada and Mexico, as well as the impacts of these programs on employment and the cost-competitiveness of products of firms operating in U.S. FTZs.
The investigation, Foreign Trade Zones (FTZs): Effects of FTZ Policies and Practices on U.S. Firms Operating in U.S. FTZs and Under Similar Programs in Canada and Mexico, was requested by the U.S. Trade Representative in a letter received on December 14, 2021.
As requested, the USITC, an independent, nonpartisan, factfinding federal agency, reported on the operations of U.S. FTZs and FTZ-type programs, and the effects of relevant policies and practices on employment and the cost-competitiveness of goods produced in U.S. FTZs. As part of its investigation, the Commission conducted a survey of firms producing in U.S. FTZs and used the questionnaire results in its quantitative and qualitative analyses. Per the request, the report includes:
- An overview of economic activity in FTZs operating in the United States, Canada, and Mexico, including but not limited to employment, leading sectors, shipments, exports, and foreign direct investment in FTZs;
- An overview of current FTZ policies and practices in the United States, Canada, and Mexico;
- An analysis of the cost-competitiveness effects of current FTZ policies and practices in the United States, Canada, and Mexico, including effects on relative production costs and U.S. employment; and
- Case studies on the impact of U.S. FTZs and FTZ-type programs on the automotive, upholstered furniture manufacturing, petroleum refining, pharmaceutical manufacturing, and warehousing and distribution industries.
Detailed highlights of the Commission's findings can be found in the report's Executive Summary.
- Central features of the U.S. FTZ program and FTZ-type programs in Canada and Mexico are the special tariff treatments, principally duty deferral, duty exemption, duty reduction, and duty drawback.
- The cost-competitiveness effects of the U.S. FTZ program and FTZ-type programs in Canada and Mexico are impacted by multiple factors, including the design of the programs, national tariff regimes and applicable rates of duty, other trade policies, and material sourcing and destination markets for firms’ shipments.
- Canada and Mexico carried out substantial unilateral tariff reductions since the early 1990s (coinciding with the signature and implementation of NAFTA) which impact the attractiveness and usage of their respective FTZ-type programs. Other examples of policies that affect the programs are the restrictions in the North American Free Trade Agreement and the United States-Mexico-Canada Agreement (USMCA) on the use of drawback and duty exemption for goods produced in FTZs and exported to USMCA partner countries. Such restrictions limit duty benefits available under U.S. FTZs and FTZ-type programs in Canada and Mexico.
- Overall, U.S FTZs improve cost-competitiveness of U.S. firms primarily through duty reduction on shipments that make customs entry in the United States and duty exemption on direct export shipments from U.S. FTZs. Firms producing in FTZs experienced duty cost savings of $1.2 billion in 2021 using these two features of U.S. FTZs.
- Although most firms producing in U.S. FTZs experience net cost savings through use of the program, fewer firms consider their FTZ use to be a factor causing increases in investment, output, or employment in the United States.
- The reasons for and benefits of using the programs vary across sectors. In certain sectors, such as the automotive industry, firms cannot use the U.S. FTZ program to reduce their duty costs to zero due to the non-free normal trade relation (NTR) rates of duty applicable to automotive inputs and finished goods. This may put U.S. producers at a competitive disadvantage relative to firms operating in Canada and Mexico due to free rates of duty applicable to most inputs (in the case of Canada) or to the particular features of the FTZ-type programs (in the case of Mexico).
Foreign Trade Zones (FTZs): Effects of FTZ Policies and Practices on U.S. Firms Operating in U.S. FTZs and Under Similar Programs in Canada and Mexico (Investigation No. 332-588, USITC Publication 5423, April 2023) is available on the USITC’s website at https://usitc.gov/publications/332/pub5423.pdf.
About factfinding investigations: USITC general factfinding investigations, such as this one, cover matters related to tariffs, trade, and competitiveness and are generally conducted under section 332(g) of the Tariff Act of 1930 at the request of the U.S. Trade Representative, the House Committee on Ways and Means, or the Senate Committee on Finance. The resulting reports convey the Commission’s objective findings and independent analyses on the subjects investigated. The Commission makes no recommendations on policy or other matters in its general factfinding reports. Upon completion of each investigation, the USITC submits its findings and analyses to the requester. General factfinding investigation reports are subsequently released to the public unless they are classified by the requester for national security reasons.