FOREIGN-TRADE ZONES BOARD

ANNUAL REPORT

Excerpts

60th Annual Report of the
Foreign-Trade Zones Board
To the Congress of the United States

for the fiscal year ended
September 30, 1998

FOREIGN-TRADE ZONES BOARD
William M. Daley
Secretary of Commerce
Chairman

Robert E. Rubin
Secretary of the Treasury




U.S. FOREIGN-TRADE ZONES - BACKGROUND

Foreign-trade zones are secure areas under U.S. Customs supervision that are considered outside the Customs territory of the United States for the purposes of Customs duty payment upon activation under the regulations of the U.S. Customs Service. Located in or near U.S. Customs ports of entry, they are the U.S. version of what are known internationally as free trade zones. Authority for establishing these facilities is granted by the Foreign-Trade Zones Board under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u), and the Board's regulations (15 C.F.R. Part 400). The Executive Secretariat of the Board is located within the Import Administration of the U.S. Department of Commerce, Washington, D.C. 20230.

Foreign and domestic merchandise may, subject to FTZ Board and Customs regulations, 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 manufacturing and processing activity requires a case-by-case review. Under zone procedures the usual formal Customs entry procedure and payment of duties is not required on the foreign merchandise unless and until it enters Customs territory for domestic consumption, in which case the importer normally has a choice of paying duties either on 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.

Zones are sponsored by qualified public or public-type corporations, which may themselves operate the facilities or contract for their operations with public or private firms. The operations are conducted on a public utility basis, with published rates. A typical general-purpose zone provides leasable storage/distribution space to users in general warehouse type buildings with access to all modes of transportation. Most zone projects include an industrial park site with lots on which zone users can construct their own facilities. Subzones are usually private plant sites authorized by the Board through zone grantees for operations that cannot be accommodated within an existing general-purpose zone.

The regulations of the Foreign-Trade Zones Board are published in the Code of Federal Regulations at Title 15, Part 400 (15 C.F.R. Part 400), and the regulations of the U.S. Customs Service concerning zones at Title 19, Part 146 (19 C.F.R. Part 146). Information on Foreign-Trade Zones is available on the FTZ web site.

* Agreements pursuant to Article XXIV of the GATT to reduce Customs tariffs and restrictions on trade between the member countries establish what are known as "free-trade areas" (e.g., the North American Free-Trade Area).

REPORT OF THE EXECUTIVE SECRETARY

During fiscal 1998, the Foreign-Trade Zones (FTZ) Board issued 78 formal orders. The decisions included approvals for 8 new general-purpose zones and 40 new subzones. Authority was also granted for the expansion of 17 existing general-purpose zones and 2 subzones. Other actions involved the granting of authority for revisions to zone plans, as well as approvals for new manufacturing activity.1 At the same time, applications were withdrawn by applicants in 3 cases based on issues or changed circumstances.

There were 145 FTZ projects fully active during the year, with subzones in operation in over 88 of them. The number of facilities using subzone status increased to 204, with 21 new ones initiating the use of FTZ procedures and 17 discontinuing.

The combined value of shipments into general-purpose zones and subzones totaled $157 billion compared to $177.8 billion last year and an average of 142.7 billion for the previous five years (Figure 1 and Appendix D). General-purpose sites received $20.6 billion in merchandise. Total shipments received at subzone sites amounted to $136.4 billion. Some 87 percent of zone activity took place at subzone facilities, which is consistent with the pattern of the past 15 years.2

	____________________________________________________________
	Merchandise Received      FY l998($ bil)     FY l997($ bil)


	General-purpose zones	   20.6		        16.9
	Subzones		  136.4	 	       160.9	
	_____			  _____	               _____
	Total			  157.0	               177.8

	____________________________________________________________

1. back Appendix A contains a list with a summary of each Board Order. Zone authority for manufacturing/processing activity was granted on a restricted basis in 18 cases, and activation limits were adopted in another 9. The main products covered by restrictions included crude oil, steel, and food products.

2. back Appendices B and C contain figures on shipments into and out of general-purpose zones and subzones. Appendix D contains comparative statistics for the past 5 years. The figures represent the latest statistical data available from grantees. Some are still under review. Adjustments normally amount to less than one percent of aggregate shipments and would be reflected in next year’s report.

Over 350,000 persons were employed at facilities operating under FTZ status during the year compared with 367,000 persons last year and an average of 325,000 persons over the previous five years. Zones were used by over 2,820 firms during the year compared with 2,900 last year and an average of 2,940 over the previous five years. The main foreign-origin products received at zones are listed in Appendix E.

Industry sectors that continued to account for most zone manufacturing activity were oil refining, autos, pharmaceuticals, computers/office equipment, electronic products, shipbuilding, and chemicals. The most significant increases in activity were in the latter three sectors. An estimated 67 percent of the shipments received at zones for use in manufacturing activity involved domestic status merchandise. The level of domestic status inputs used by such FTZ operations indicates that FTZ activity tends to involve domestic operations that combine foreign inputs with significant domestic inputs. This reflects the fact that FTZ procedures serve as a means of rationalizing Customs treatment to assist domestic plants in their efforts to be internationally competitive.

The Board received and filed 58 formal applications during the fiscal year. These proposals requested authority for 6 new general-purpose zones and 19 subzones, as well as authorization for expansion and new manufacturing at existing zone projects (Appendix F). In addition, over 65 cases were processed under the Board’s less formal administrative procedures (Appendix G). The latter cases involved routine, non-controversial changes to zone projects such as boundary modifications and scope decisions. Some proposals were processed under the Board’s "fast track" procedure, which is used when there are recent precedents for the contemplated activity or when only exports are involved.

Last year, exports (shipments to foreign countries) from facilities operating under FTZ procedures amounted to $16.9 billion (Figure 2). This figure continues a level volume of exports since 1994 when the average volume of exports increased by 50 percent above the previous five years. These figures do not include indirect exports involving FTZ merchandise which undergoes further processing in the U.S. at non-FTZ sites prior to export.

                             1994     1995     1996     1997     1998
     Merchandise Received
             GP Zones       13.12    13.67    15.11    16.92    20.62
             Subzones      106.45   129.85   153.51   160.92   136.47
             Total         119.57   143.51   168.62   177.85   157.09

             % Subzones       89%      90%      91%      90%      87%


     Domestic Status Inputs*
             GP Zones        3.06     4.14     5.28     6.32     8.54
             Subzones       90.55   110.23   120.40   114.83    96.30
             Total          93.61   114.37   125.68   121.16   104.84


      Domestic Status Inputs Ratio (%)
              GP Zones         23%      30%      35%      37%      41%
              Subzones         85%      85%      78%      71%      71%
              Average          78%      80%      75%      68%      67%


      Foreign Status Inputs
              GP Zones       10.06     9.53     9.82    10.60    12.08
              Subzones       15.90    19.62    33.11    46.09    40.17
              Total          25.96    29.14    42.94    56.69    52.25


      Exports**
              GP Zones        4.51     3.77     4.04     4.23     6.64
              Subzones       12.86    13.17    13.05    12.70    10.33
              Total          17.37    16.94    17.09    16.93    16.97


      Exports/Foreign Status Inputs Ratio (%)
              GP Zones         45%      40%      41%      40%      55%
              Subzones         81%      67%      39%      28%      26%
              Average          67%      58%      40%      30%      32%


      Approved FTZ Projects    196      203      211      219      226  

      Active FTZ Projects***   124      134      134      141      145  
              GP Zones         103      107      110      118      123
              Subzones         136      159      179      201      204