USTR Asks ITC to Evaluate USMCA Treatment of Goods Made in FTZs

The National Association of Foreign-Trade Zones has long argued that barring goods produced in FTZs from qualifying for USMCA tariff benefits makes no sense, if the goods would otherwise meet rules of origin, and that the restriction puts FTZ production at a disadvantage compared to Mexican and Canadian production.

For a few months, it seemed NAFTZ had won the argument (see 2006110058), but then the office of the U.S. Trade Representative argued that the treatment of FTZ production should remain as it had been under NAFTA, and inserted language in a technical corrections bill that restored the restriction. According to the Congressional Budget Office, allowing goods manufactured in FTZs to get the tariff benefit if they met rules of origin would have saved producers $2 billion over 10 years. Sen. John Cornyn, R-Texas, was one of the senators who fought against restoring the restriction, and he introduced a bill in June that would require a study to be done as to whether the restriction is harming U.S. companies operating in FTZs (see [Ref:2106290024). Now, such a study will be undertaken at the International Trade Commission, at the request of U.S. Trade Representative Katherine Tai.

Her letter to the ITC, dated Dec. 14, notes that drawback limitations continued from NAFTA to USMCA, and that the technical corrections bill meant the treatment of goods made in FTZs also continued as it was under NAFTA.

NAFTZ wrote Tai on Dec. 27, thanking her for requesting the investigation, and noting that the group feels that both the drawback limitations and the treatment of goods made in FTZs are contrary to the intent of the FTZ program.

In a press release reacting to the new investigation, the trade group noted that the ITC study will be "markedly similar" to the one that Cornyn was seeking. “We cannot express our thanks strongly enough to Senator Cornyn and his colleagues for keeping the focus on this important issue and advocating for a fact-based resolution,” Melissa Irmen, NAFTZ board chair, said.

Tai said she would like an investigation and report on how the policies on FTZs "impact employment and the competitiveness of goods produced in FTZs in the United States," and that the report should also examine similar programs in Mexico and Canada, and those countries' policies on the goods produced in those special trade zones. She asked the ITC to lay out data on FTZ firms, employment, and shipments into FTZs and exports from FTZs, going back five years. She said the analysis should include the effects of all three countries' policies on the cost-competitiveness of products produced in FTZs, and the effects of those policies on U.S. employment.

Tariffs under Section 301 and Section 232 are outside the scope of the review, Tai specified. The report is due within 16 months, and will be publicly released.