Furthermore, according to CBP officials, the FTZ program  aims to encourage companies to maintain and expand their operations in  the United States. To encourage such expansion, FTZs provide benefits  to companies that import foreign goods for distribution or for incorporation  into manufactured products. Companies using FTZs include both warehouse distributors  and manufacturers (see fig. Leading industry sectors by value of  foreign and domestic goods admitted into FTZs include petroleum  refining, vehicles, and consumer electronics. 3. CBP resumes supervision when goods are removed from zones and  enter U.S. customs territory or are exported. The FTZ Program Provides a Range of Financial Benefits to FTZ Operators, and Duties Collected from FTZs Increased over the Past 10 Years

The FTZ program provides a range of financial benefits to FTZ operators  by allowing them, in certain circumstances, to reduce, eliminate, or defer  duty payments on goods manufactured or stored in FTZs. For example,  FTZ operators that admit foreign components to manufacture final  products for import can pay the duty rate of either the component part or  the final product, whichever is lower—resulting in reduced or eliminated  duty payments. Indefinite Storage of Goods in FTZs and Duty Deferral

Among FTZ operators we interviewed, those engaged in warehousing  and distribution discussed the importance of the ability to store goods in  the zone indefinitely and thereby defer duty payments until the goods  enter U.S. commerce. FTZs Were Created to Provide Public Benefits, but Little Is Known about Their Economic Impact

While FTZs were created to provide benefits to the American public, little  is known about their economic impact. For example, few economic  studies have focused on FTZs, and those that have do not quantify  economic impacts or address the question of what the economic activity,  such as employment, would have been in the absence of companies  having FTZ status. CBP’s Methods for Collecting Compliance and Enforcement Information Impair Its Ability to Assess and Respond to Compliance Risks across the FTZ Program

CBP has not assessed compliance risk across the FTZ program, and its  methods for collecting compliance and enforcement data impair its ability  to assess and respond to program-wide risks. According to federal internal control standards, management  should obtain relevant data and assess and respond to identified risks  associated with achieving agency goals. CBP Conducts Compliance Reviews of FTZ Operators to Identify Compliance Risks but Does Not Centrally Compile Compliance Reviews and FTZ Enforcement Data

			CBP Conducts Compliance Reviews of FTZ Operators to Identify Risks

CBP conducts compliance reviews of individual FTZ operators to ensure  compliance with U.S. customs laws, regulations, and CBP policies. Incorrect determinations about risk level  may impact program effectiveness and revenue collection for the FTZ  program, which accounted for 11 percent of U.S. imports in 2015. Without a program-wide assessment of  the frequency and significance of problems identified during compliance  reviews, risk levels determined, and enforcement actions taken, CBP  does not have reasonable assurance that the FTZ program is at low risk  of noncompliance. Centrally compile information from FTZ compliance reviews and  associated enforcement actions so that standardized data are  available for assessing compliance and internal control risks across  the FTZ program. In its comments, CBP concurred with our recommendations  and identified actions it intends to take in response to the  recommendations. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine (1) the benefits that the Foreign Trade  Zones (FTZ) program provides to companies operating FTZs and  revenues that U.S. Customs and Border Protection (CBP) has collected  from FTZs, (2) what is known about the economic impact of FTZs on the  U.S. and local economies, and (3) CBP’s ability to assess and respond to  compliance risks across the FTZ program. We selected five FTZs in Maryland, Texas, and  Virginia for site visits based on factors including trade volume, industry  sector, and FTZ activity.
Why GAO Did This Study

The FTZ program was established in 1934 to expedite and encourage international trade and commerce. FTZs provide benefits to companies that import foreign goods for distribution or for manufacturing in order to encourage them to maintain and expand their operations in the United States. The total value of foreign and domestic goods admitted to FTZs in 2015 was about $660 billion. CBP is responsible for oversight and enforcement in FTZs, including revenue collection and assessing risk of noncompliance with U.S. laws and regulations.
GAO was asked to review CBP's oversight of FTZs and FTZs' economic impact. This report examines (1) the benefits of the FTZ program to companies operating FTZs and revenues collected from FTZs, (2) what is known about FTZs' economic impact, and (3) CBP's ability to assess and respond to compliance risks across the FTZ program. GAO analyzed CBP documents and data, interviewed agency officials and FTZ operators, and visited five FTZs based on trade volume, industry sector, and FTZ activity.

What GAO Found

The Foreign Trade Zones (FTZ) program provides a range of financial benefits to companies operating FTZs by allowing them to reduce, eliminate, or defer duty payments on goods manufactured or stored in FTZs before they enter U.S. commerce or are exported. FTZs are secure areas located throughout the United States that are treated as outside U.S. customs territory for duty assessments and other customs entry procedures. Companies using FTZs may be warehouse distributors or manufacturers (see figure). A manufacturer, for example, that admits foreign components into the FTZ can pay the duty rate on either the foreign components or the final product, whichever is lower—resulting in reduced or eliminated duty payments. Distributors can also benefit by storing goods in FTZs indefinitely and thereby deferring duty payments until the goods enter U.S. commerce. In 2016, U.S. Customs and Border Protection (CBP) collected about $3 billion in duties from FTZs.
While FTZs were created to provide public benefits, little is known about FTZs' economic impact. For example, few economic studies have focused on FTZs, and those that have do not quantify FTZs' economic impacts. In addition, these studies do not address the question of what the economic activity, such as employment, would have been in the absence of companies having FTZ status.
CBP has not assessed compliance risks across the FTZ program, and its methods for collecting compliance and enforcement data impair its ability to assess and respond to program-wide risks. While CBP regularly conducts compliance reviews of individual FTZ operators to ensure compliance with U.S. customs laws and regulations, it does not centrally compile FTZ compliance and enforcement information to analyze and respond to compliance and internal control risks across the program. Federal internal control standards state that management should obtain relevant data and assess and respond to identified risks associated with achieving agency goals. Without a program-wide assessment of the frequency and significance of problems identified during compliance reviews, risk levels determined, and enforcement actions taken, CBP cannot verify its assertion that the FTZ program is at low risk of noncompliance. Incorrect determinations about program risk level may impact program effectiveness and revenue collection for the FTZ program, which accounted for approximately 11 percent of U.S. imports in 2015.

What GAO Recommends

GAO makes three recommendations to CBP to strengthen its ability to assess and respond to compliance risks across the FTZ program, including actions to centrally compile FTZ compliance and enforcement data, and to conduct a risk analysis of the FTZ program. CBP concurred with these recommendations and identified steps it will take to address them.