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FTZ Exports and Activity Fall Again in 2016

Tuesday, November 28, 2017
Sandler, Travis & Rosenberg Trade Report

The Foreign-Trade Zones Board’s annual report on FTZ activities shows that in 2016 zone activity continued to decline despite an increase in the number of zones.

FTZs are secure areas under U.S. Customs and Border Protection supervision that are considered outside the U.S. customs territory for purposes of duty payment. Foreign and domestic goods may be moved into zones for operations not otherwise prohibited by law involving storage, exhibition, assembly, manufacturing, and processing. All zone activity is subject to public interest review and all production activity requires a case-by-case review.

Under zone procedures, the usual formal customs entry procedure and payment of duties are not required on the foreign goods unless and until they enter the U.S. customs territory for domestic consumption, in which case the importer may have a choice of paying duties on either 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.

Highlights of the findings of the 2016 report (with comparisons to 2015, where applicable) include the following.

- There were 263 approved FTZs (up from 262) and 195 active zones (up from 186), with a total of 324 active production operations (unchanged). More than 420,000 persons were employed at some 3,300 firms that used FTZs (up from 2,900).

- The FTZ Board approved the creation of two new FTZs (down from four), the reorganization or expansion of 16 zones under the alternative site framework (down from 22), and decisions on 53 applications and notifications for new or expanded manufacturing authority (down from 54). The Board also processed an additional 192 requests (up from 181) that included minor boundary modifications and scope determinations.

- Exports from facilities operating under FTZ procedures fell for the second straight year, down 10.5 percent to $75.7 billion. This figure does not include certain indirect exports involving FTZ merchandise that undergoes further processing in the U.S. at non-FTZ sites prior to export.

- The value of shipments into zones fell 7.4 percent to $610.4 billion, the lowest total since 2011. Of these shipments, 63 percent were used for production operations and 37 percent went to warehouse and distribution operations.

- About 63 percent of the shipments received in FTZs ($385.0 billion) involved domestic status goods, indicating that FTZ activity tends to involve domestic operations that combine foreign inputs with significant domestic inputs. This figure is unchanged from 2015 but is lower than the high of about 80 percent in the mid-1990s.

- The largest industries accounting for zone production activity included oil refining, automotive, electronics, pharmaceutical, and machinery and equipment.

- The main foreign-origin products received in FTZs for warehousing and distribution operations included vehicles ($27.2 billion, down 18.3 percent), consumer electronics ($14.4 billion, up 28.6 percent), consumer products ($14.3 billion, up 11.7 percent), electrical machinery ($8.1 billion, down 26.4 percent), and oil and petroleum ($6.7 billion, down 30.9 percent).  

- The main foreign-origin products received in FTZs for production operations included oil and petroleum ($54.5 billion, down 15.9 percent), vehicle parts ($14.6 billion, up 7.4 percent), consumer electronics ($13.5 billion, down 15.1 percent), pharmaceuticals ($8.7 billion, down 35.9 percent), and machinery and equipment ($6.9 billion, up 13.1 percent).

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