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Tariffs Could Impact FTZ Business Benefits

By Christina Haley O'Neal, posted Aug 10, 2018
New Hanover County holds two FTZ magnet sites, including the Wilmington International Airport, which utilizes the zone as part of marketing for the airport’s business park shown above. (Rendering courtesy of Wilmington International Airport)
Local and national trade experts say that Foreign Trade Zones can be a tool for local companies to utilize in global business, but whether it can aid in the national tariff situation is a more complex issue.
 
Foreign Trade Zone (FTZ) No. 214 encompasses 22 counties in Eastern North Carolina including New Hanover, Pender and Brunswick counties. An FTZ is defined by the N.C. Department of Commerce as neutral secured areas that, for legal purposes, are considered outside U.S. Customs territory.
 
A company can obtain an FTZ status to operate anywhere within a zone.
 
There are four FTZs across the state with more than 20 businesses operating with an FTZ status in the zones. FTZ No. 214 has five businesses with an FTZ status; none of those, however, are in the tri-county area, according to officials with NCDOT, the zone’s administrator.
 
And as the nation’s trade war situation lingers, some companies have begun to inquire about the area’s FTZ, said John Hayes, executive director of the N.C. Foreign Trade Promotion Council.
 
The council aided in expanding the FTZ system in North Carolina several years ago and offers FTZ support among its services.
 
The international trade climate has driven those companies to contact the council about the tariffs’ impacts on business and to ask about what the FTZ status could do for their importing and exporting.
 
“I have been talking to various folks now inquiring about trade zones, and we were working very closely with some expert companies,” he said.
 
Erik Autor, president of the National Association of Foreign-Trade Zones, called recent tariffs’ effects on businesses in the zones a “double- edged sword.”
 
In some instances, like in the new tariffs on steel and aluminum, the presidential proclamation contains language that if a company utilizes the imported materials to manufacture a product in an FTZ, that final product is not subject to additional duties beyond those assessed on the imported materials because it is considered a product of the U.S., he said.
 
However, due to quirks in customs entry procedure for FTZs, the current  and prospective tariffs on Chinese imports and the tariffs on washing machines, solar cells and panels could result in additional tariffs being assessed on a good manufactured in an FTZ because these trade actions do not contain the same language as the steel and aluminum proclamations, Autor said.
 
The association is advocating for the administration to change this, he said. In these c ases, its “adding duties on products made in the U.S. that is both unwarranted and will only add to the cost of a company’s final product that their competitors do not have,” Autor said.
 
Payment of special duties may be delayed by using an FTZ, as long as the item subject to the duties remains in a zone, he said. Duties may be avoided altogether if the imported article or a final product incorporating that item is exported to a foreign country rather than entered into the U.S. for consumption, he added.
 
“The U.S. FTZ program was designed to promote manufacturing and distribution operations in the U.S., employing American workers. It’s a tool for attracting foreign direct investment in the communities, like Wilmington and the neighboring area … and to promote U.S. exports,” Autor said. “But if you have trade remedies actions that are basically undercutting the program and the benefits that it provides, you’re really only hurting U.S. manufacturers and undercutting the U.S. FTZ program.”
 
In the region’s 22-county zone, New Hanover County holds two of five magnet sites: the Wilmington International Airport and the Port of Wilmington.
 
The airport’s FTZ includes its business park; however, no businesses have obtained FTZ status on ILM property, according to Carol LeTellier, business development director for the airport. Among the marketed features of the business park is the fact that it has FTZ status, she said.
 
“A company that would be interested in attaining foreign trade zone status, it would get the benefits of federal excise taxes deferred and customs duties differed on imports,” she said.
 
Local officials still say these zones offer economic benefits.
 
“Most notably, customs duties and excise taxes are not applicable on many shipments. The reduction of these costs, in turn, saves money on cargo insurance. In practice, shipments through an FTZ are substantially faster and more predictable than those without FTZ control,” said Bethany Welch, spokeswoman for N.C. Ports.
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