FOREIGN-TRADE ZONES BOARD
ANNUAL REPORT

Excerpts

56th Annual Report of the
Foreign-Trade Zones Board
To the Congress of the United States

for the fiscal year ended September 30, 1994



FTZ logo

U.S. FOREIGN-TRADE ZONES


Foreign-trade zones are secure areas under U.S. Customs supervision that are considered outside the Customs territory of the United States 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 be moved into zones for operations not otherwise prohibited by law involving storage, exhibition, assembly, manufacturing, and processing. All zone activity, especially manufacturing, is subject to public interest 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).

Note: When countries enter into agreements pursuant to Article XXIV of the GATT to reduce Customs tariffs and restrictions on trade between the member countries the result is a "free-trade area" (e.g. the North American Free-Trade Area).

REPORT OF THE EXECUTIVE SECRETARY

During fiscal 1994, the Foreign-Trade Zones (FTZ) Board issued 43 formal orders. The Board's decisions included approval for 6 new general-purpose zones and 21 new subzones. Approval was also granted for the expansion of 9 existing general-purpose zones. Other actions included authority for new manufacturing at existing zones.

There were 124 active FTZ projects compared to 122 last year. Subzones were in operation as part of 69 projects. Activation occurred at 19 new subzones and 4 were deactivated. This brought the number of active subzones up to 136.

The total value of merchandise received at general-purpose zones and subzones was $119.5 billion compared to $104 billion last year. A major part of zone activity (89%) continued to take place at facilities with subzone status. These adjuncts to general-purpose zones received shipments amounting to $106.4 billion ($92.2 billion last year). Shipments into general-purpose zones increased by $1.3 billion to $13.1 billion.

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Merchandise Received      FY l994($ bil)     FY l993($ bil)

General-purpose zones		  13.1		  11.8
Subzones			 106.4		  92.2
_____				 _____		 _____
Total				 119.5		 104.0

_________________________________________________________________

In terms of value, over 75 percent of the shipments received at zones and subzones came from domestic suppliers. This favorable level of domestic sourcing by zone users, particularly those involved in manufacturing activity, has remained high over the past decade and has become the norm. Products received at zones from foreign sources are listed in Appendix E.

The industry sectors most involved in FTZ manufacturing activity were autos, oil refineries, pharmaceuticals, office equipment, computers/ telecommunications and shipyards. Auto assembly continues to be the predominant sector. During the year, 37 auto assembly plants with subzone status operated under FTZ procedures (35 last year). The use of FTZ procedures by other industries such as pharmaceuticals, oil refineries, and computer/telecommunications also increased. Over 90 percent of the activity in subzones measured in terms of the value of shipments received continues to involve assembly and manufacturing.

The Board received and filed 44 formal applications during the year. The applications requested authority for 5 new general-purpose zones and 20 subzones, as well as authorization for expansion and new manufacturing involving existing zone projects (Appendix F). In addition to these applications, over 45 administrative cases were processed (listed in Appendix G). These actions involve routine changes to zone projects such as boundary modifications and scope decisions. Some administrative cases involve requests for manufacturing authority under circumstances where there is a recent precedent or proposed activity that is for export only. These proposals are ultimately assigned a formal docket number and are processed under a "fast track" procedure set forth in the FTZ regulations.

During the year, over 2,700 firms used zones, an increase of 100 over last year. Employment at facilities operating under FTZ status climbed to 292,000 persons, up 19,000 over last year.

Exports accounted for a significant part of this year's rise in total shipments out of general-purpose zones and subzones, which climbed to $119.8 billion from last year's $104.4 billion. Of the $15 billion increase in outgoing shipments, $6 billion (40%) represented shipments destined to foreign markets. From another perspective, total exports amounted to $17.4 billion, an increase of 50 percent over last year's export level of $11.6 billion. This higher than normal level of export growth reflects the role of zones in supporting the expansion of U.S. export activity. While zone procedures continue their longstanding role in helping U.S. plants compete against imports of finished products, the FTZ Board's decisions reflect a recognition of the importance of exports in the zone program.


                          SUMMARY FTZ STATISTICS (FY)
                                   ($ bil)


                         1990     1991     1992     1993      1994
Merchandise Received
      GP Zones           6.15     7.44   10.70     11.77     13.12
      Subzones          83.91    76.99   87.99     92.21    106.45
      Total             90.06    84.44   98.69    103.97    119.57

      % Subzones           93%      91%      89%      89%      89%


 Domestic Status Inputs*
      GP Zones           0.64     1.09     1.74     1.61      3.06
      Subzones          69.99    65.33    76.66    78.55     90.55
      Total             70.64    66.42    78.39    80.16     93.61


 Domestic Inputs Ratio (%)
      GP Zones             10%      15%      16%      14%      23%
      Subzones             83%      85%      87%      85%      85%
      Average              78%      79%      79%      77%      78%


 Foreign Status Inputs
      GP Zones           5.51     6.35     8.97    10.16     10.06
      Subzones          13.92    11.67    11.33    13.65     15.90
      Total             19.42    18.02    20.30    23.81     25.96


 Exports
      GP Zones           1.95     2.96     2.77      3.16     4.51
      Subzones           9.64     7.53     8.88      8.49    12.86
      Total             11.59    10.48    11.65     11.65    17.37


 Export/Import Ratio (%)
      GP Zones             35%      47%      31%       31%     45%
      Subzones             69%      65%      78%       62%     81%
      Average              60%      58%      57%       49%     67%


 Approved FTZ Projects    161     173      181      190       202  

 Active FTZ Projects**     96     104      113      122       124  
      GP Zones             81      89       92      103       103
      Subzones             86      90      108      121       136

* Domestic status merchandise is mainly merchandise of domestic origin but includes some foreign-origin goods on which Customs entry and duty payments have been made prior to their entering FTZs

** Active projects have at least one site (including subzones) in operation.