	Introduction

Members of Congress have demonstrated their interest in the U.S. Foreign-Trade Zone (FTZ) system through hearings and legislation over the past seven decades. The program may enhance the competitiveness of U.S. businesses, support employment opportunities, and impact U.S. tariff revenues. The third section focuses on current issues for Congress relating to the U.S. FTZ program. Free trade zones have become a substantial part of the structure underpinning the global supply chain. Only then are tariffs payable, quotas honored, and full customs procedures applicable. Today, free trade zones employ at least 66 million workers worldwide, including 370,000 in the United States. The U.S. Foreign-Trade Zone Program

		History

The U.S. FTZ Program was created by the U.S. Foreign-Trade Zones Act in 1934 (P.L. 81[a]-81[u]), in the midst of the Great Depression. It was designed to accelerate U.S. trade in the wake of the restrictive impact of the Smoot-Hawley Tariff Act of 1930, which raised U.S. tariffs on imported goods as high as 53%. See Table A-1 for a summary of zone and subzone activity. The zone system accounts for 13% of all foreign goods entering the United States and employs roughly 370,000 workers, representing about 3% of U.S. manufacturing workers in 2012—most but not all FTZ employees are in manufacturing. Only a small share of it is exported (light blue bars). There are no inverted tariff benefits from the refining of gasoline, diesel, kerosene, and jet fuel, which account for most of the output from crude oil. Savings from tariff reduction, administrative efficiencies, tax benefits, and duty deferral may help U.S. corporations maintain operations in the United States, and may attract foreign producers to establish manufacturing facilities in the United States. Third, the tariff benefits companies enjoy by operating in FTZs can also result in some loss or deferral of tariff revenue for the United States, although U.S. tariffs are generally low and represent a very small share of government revenue. Most of the financial benefits come from three of the seven sources: duty reduction on inverted tariff situations, customs inventory control efficiencies, and duty exemption on exports. Customs and Inventory E fficiencies. Merchandise can be re-exported from a zone without the payment of duties, providing another significant source of savings to U.S. exporters. In addition, no duty is payable on goods that are imported into zones and ultimately consumed, scrapped, or destroyed in the zone. The FTZ Board consists of two members: the Secretary of Commerce and the Secretary of the Treasury. The Department of Homeland Security's Customs and Border Protection (CBP) acts as an advisor to the FTZ Board and is responsible for direct oversight of zone activity and ensuring compliance with the FTZ Act and all laws and regulations pertaining to zone use. CBP is responsible for activating FTZs, securing them, controlling dutiable merchandise moving into and out of them, and protecting and collecting the revenue. While the new regulations address a variety of issues, they were designed primarily to streamline the application process for manufacturers and distributors who want to operate in an FTZ or establish a subzone. Domestic issues include whether FTZs represent a misallocation of U.S. resources; whether data relating to zone use are sufficient; and the extent to which U.S. FTZ zone use affects U.S. employment and the competitiveness of U.S. firms. Internationally, congressional issues relate to the effectiveness of trade zones worldwide as a tool for economic development and global competitiveness and U.S. influence on worker rights issues in zones around the world through trade policy. Do U.S. FTZs Encourage a Misallocation of U.S. Resources? Such broad-based tariff reductions have typically occurred in the United States through multilateral trade liberalization negotiations in the World Trade Organization (WTO). FTZ users benefit from more streamlined customs procedures and lower merchandise processing fees, while those outside zones do not. The U.S. FTZ Board publishes data on both foreign and domestic products entered into zones, and final products leaving zones for U.S. consumption and for export, respectively. This represents less than 3% of total U.S. manufacturing employment. Outlook: Future of U.S. FTZs and Zones Worldwide?
U.S. foreign-trade zones (FTZs) are geographic areas declared to be outside the normal customs territory of the United States. This means that, for foreign merchandise entering FTZs and re-exported as different products, customs procedures are streamlined and tariffs do not apply. For products intended for U.S. consumption, full customs procedures are applied and duties are payable when they exit the FTZ.
In 1934, in the midst of the Great Depression, Congress passed the U.S. Foreign-Trade Zones Act. It was designed to expedite and encourage international trade while promoting domestic activity and investment. The U.S. FTZ program offers a variety of customs benefits to businesses which combine foreign and domestic merchandise in FTZs. Similar types of "zones" exist in 135 countries, employing about 66 million workers worldwide. Though some aspects differ, all have streamlined customs procedures and no duties applicable on components and raw materials combined in zones and then exported. Use of the zones can facilitate cooperative international production for a substantial share of the global supply chain.
U.S. FTZs can affect the competitiveness of U.S. companies by allowing savings through (1) duty reduction on "inverted tariff structures" (where tariffs are higher on imported components than on finished products); (2) customs and inventory efficiencies; and (3) duty exemption on goods exported from, or consumed, scrapped, or destroyed in, a zone. Though difficult to achieve, other possible alternatives, such as broad-based tariff reductions through multilateral negotiations, and overall customs reform might provide some of the same competitive advantages as zone use in a more efficient manner, while also ensuring that all importers have equal access.
Zone activity represents a significant share of U.S. trade. In 2012, over 13% of foreign goods entered the United States through FTZs or bonded warehouses—72% of them as crude oil. Most shipments arriving through FTZs were consumed in the United States; the rest were exported. Crude oil byproducts such as gasoline, diesel, jet fuel, kerosene, and petrochemicals dominate FTZ output. Other key products include autos, consumer electronics, and machinery. U.S. zone activity occurs primarily in FTZ manufacturing operations.
Administration of the U.S. FTZ system is overseen by the Secretaries of Commerce and the Treasury, who constitute the U.S. FTZ Board. The Board is responsible for the establishment of zones, the authorization of specific production activity, and the general oversight of zones. It also appoints an Executive Secretary, who oversees the Board's staff. Homeland Security's Customs and Border Protection (CBP) directly oversees FTZs. It activates the zones and secures and controls dutiable merchandise moving into and out of them. CBP oversight also includes both protection of U.S. tariff revenue and protection from illegal activity through screening, targeting, and inspections.
In 2012, the U.S. FTZ Board issued new regulations. They focused primarily on streamlining the application procedures and shortening, generally from a year to four months, the time for FTZ approval for manufacturing.
Congressional Interest
Congress has demonstrated a continuing interest in U.S. Foreign Trade Zones (FTZs), as they (1) may help to maintain U.S. employment opportunities and the competitiveness of U.S. producers; (2) encompass a portion of U.S. trade; and (3) affect U.S. tariff revenue. U.S. FTZs account for less than one-half of 1% of all world zone workers and a small share of the U.S. workforce. However, most of this employment is in manufacturing, which has lost a significant share of its workers over the past several decades. Today, every state has at least one FTZ, and many have numerous manufacturing operations.
Current issues for Congress relating to the U.S. FTZ program may include (1) whether U.S. FTZs encourage a misallocation of U.S. resources; (2) data availability issues; (3) security concerns; and (4) the U.S. employment and global competitiveness impact of FTZs. Broader considerations relating to the world zone network include (5) the effectiveness of trade zones worldwide as a tool for economic development; and (6) trade zones worldwide and worker rights.