For example, the Board may decide to, among other  things, (1) authorize the exemption of duty payments on some, but not all,  components named in the notification for the proposed production activity;  (2) authorize the activity for a limited time period; or (3) authorize the  activity for a specified quantity of the component to be brought into the  FTZ. Notification process. According to Board staff, if a notification is  approved with restrictions or denied, the company may file a more  detailed production application to continue seeking authority for the  activity that was restricted or denied. For example, 15 evaluations  discussed the proposed activity’s potential impact on related domestic  industries. Reasons for recommending denial of  authorization included new or complex policy issues that required further  review. FTZ Board Followed Procedures Generally Aligned with Regulations in Evaluating Applications We Reviewed, but It Did Not Consistently Document Consideration of All Required Criteria Board’s Procedures Generally Align with Regulations for Evaluating Production Applications

Our review of Board documents and interviews with Board staff showed  that the Board has established procedures for evaluating production  applications that generally align with its regulations. All three companies  requested authority to import textiles from foreign suppliers into an FTZ  for use in manufacturing products that would be later imported from the  FTZ into the U.S. market for consumption. The Board staff did not request that other agencies  review the three applications. The procedures do not  require Board staff to document consideration of the required criteria. Lack of Consistent Documentation Made It Difficult to Verify the Board Considered All Required Criteria for Applications We Reviewed

While the Board’s procedures and regulations do not call for staff to  document their consideration of all criteria required by section 400.27 of  the regulations, the absence of such documentation for two of the three  applications we reviewed made it difficult to verify that the Board had  considered all of these criteria when evaluating the applications. If management determines that a criterion is not relevant,  management should support that determination with documentation that  includes its rationale. Without such documentation in the examiner’s  reports, Board members lack readily available written assurance that the  recommendations reflect consideration of all of the required criteria and  that its decisions comply with U.S. trade and tariff laws and policy that  has been formally adopted by the executive branch. Appendix I: Objectives, Scope and Methodology

This report examines (1) the extent to which the Foreign-Trade Zones  Board (the Board) has established and followed procedures aligned with  its regulations for evaluating production notifications and (2) the extent to  which the Board has established and followed procedures aligned with its  regulations for evaluating production applications. We interviewed Board staff, industry  specialists in the Department of Commerce (Commerce), and officials  from the Department of the Treasury (Treasury) and the Department of  Homeland Security’s Customs and Border Protection (CBP) to identify  their roles in the evaluation of notifications and applications and to clarify  the regulations’ requirements and the Board’s internal procedures. These three applications  were the only applications that the Board reviewed and rendered final  decisions on from April 2012 through September 2017. Further, we  collected and analyzed data for these cases on the types of Board  decisions (approved, approved with restrictions, and not approved); the  extent of public comments received for both notifications and applications;  the extent of industry specialists’ and CBP’s comments; the types and  amount of notification restrictions; and whether the duration of the Board’s  evaluations was within the time frames detailed in the Board’s regulations  and procedures. Nine of the companies whose notifications were approved with  restrictions or not approved continued to seek production authority by  submitting production applications. Appendix III: Rationales for Foreign-Trade Zones Board Decisions for Selected Production Notifications Submitted April 2012–September 2017

We selected and analyzed Foreign-Trade Zones (FTZ) Board (the Board)  case records for a nongeneralizable sample of 59 notifications to identify  the rationales for the Board’s decisions and the types of restrictions, if  any, included in the decisions. No duty savings would be realized for the finished product of the  proposed activity (1 notification).
Why GAO Did This Study

FTZs allow companies to reduce, eliminate, or defer duty payments on foreign goods imported into FTZs for distribution or as components of other products before transferring the finished goods into U.S. commerce or exporting them overseas. The value of foreign and domestic goods admitted to FTZs in 2016 exceeded $610 billion. Responsibilities of the Board, consisting of officials from the Departments of Commerce (Commerce) and the Treasury, include evaluating production notifications and applications on the basis of factors such as the proposed activity's net effect on the U.S. economy. Federal regulations set forth requirements, pursuant to the Foreign-Trade Zones Act of 1934, for these evaluations.
GAO was asked to review the Board's evaluation processes. This report examines the extent to which the Board has established and followed procedures aligned with regulations for evaluating (1) notifications and (2) applications. GAO analyzed the Board's regulations and procedures and interviewed Commerce, Treasury, and U.S. Customs and Border Protection officials. GAO also analyzed a nongeneralizable sample of 59 of 293 notifications the Board evaluated from April 2012 through September 2017, which GAO selected to include a range of Board decisions and exclude pending decisions. GAO also analyzed all three applications the Board issued decisions on during that period.

What GAO Found

The U.S. Foreign-Trade Zones Board (the Board) has procedures that generally align with its regulations for evaluating production notifications and followed these procedures for all 59 notifications GAO reviewed. Notifications are filed by companies proposing to bring foreign components into a foreign-trade zone (FTZ) for use in manufacturing finished products, among other purposes. GAO found, for example, that, following Board procedures, Board staff evaluating the notifications collected and considered comments from the general public, industry specialists, and U.S. Customs and Border Protection and recommended to the Board whether to authorize companies' proposed activities. Of the 59 notifications GAO reviewed for seven industry categories, 49 notifications either were approved or were approved with restrictions—for example, the proposed activity was authorized for a limited time period or certain duty benefits were denied for one or more foreign components. Ten notifications were denied for reasons such as new or complex policy issues that required further review.
The Board also has procedures that generally align with its regulations for evaluating production applications and followed these procedures for the three applications GAO reviewed. The applications were submitted by three of the companies whose notifications were denied. According to Board staff, if a notification is not approved or is approved with restrictions, a company may submit an application with additional details. Following Board procedures, Board staff, for example, collected and considered comments and recommended to the Board whether to authorize the proposed activities. Two of the applications were approved with restrictions, and the third was not approved. While the regulations require consideration of a number of criteria—for example, consistency with U.S. trade and tariff law—Board staff did not document consideration of all required criteria for two of the three applications, and the procedures do not require such documentation. Board staff said they document only the most relevant criteria in their reports. Standards for Internal Control in the Federal Government states that management should document its rationale for determining a criterion is not relevant and make this documentation readily available for examination. Without such documentation, the Board lacks an institutional record that all required criteria were considered and also lacks assurance that its decisions comply with U.S. trade and tariff law and public policy.

What GAO Recommends

Commerce should require Board staff to document consideration of all criteria required in the regulations when evaluating production applications. Commerce concurred with this recommendation.