Foreign Trade Zones Program Needs Clarified Criteria

GAO discussed the recent rapid growth of foreign trade zones (FTZ) and the criteria that the Foreign Trade Zones Board uses to award zone grants. GAO found that: (1) the FTZ Act authorized FTZ at ports of entry within the United States that are legally outside U.S. customs territory; (2) FTZ allow companies to escape, postpone, or reduce tariffs on foreign goods that enter FTZ, and reexport FTZ products without incurring tariffs, or send products into U.S. markets after paying applicable duties; (3) FTZ grants grew from 10 in 1970 to 239 in 1987 due to legislative actions that increased the potential duty savings for FTZ manufacturing, encouraged foreign industries to locate in the United States, and reduced the duties on finished products; and (4) in 1987, 36 of the 101 subzones consisted of auto assembly plants and accounted for 85 percent of all goods received in FTZ. GAO also found that the: (1) act contained minimal guidance for evaluating grant applications; (2) Board did not consider the potential loss of tariff revenues, since FTZ companies reduced their tariffs in 1986 by about $38 million; (3) Board seldom denied applications and usually limited operations to export, limited grant periods, or did not allow FTZ users to reduce or avoid duties or import restrictions; (4) Board continued to approve subzones for the auto industry, even though there was little competitive advantage for imported cars; and (5) program's growth strained the Board's ability to process applications and to monitor FTZ activities. GAO believes that Congress should amend the act to provide guidance on the benefits that would justify a grant.