Background:

Over NAFTZ opposition, two unfair and punitive restrictions on FTZs in the North American Free Trade Agreement (NAFTA) were carried over into the USMCA and its implementing legislation.  Following significant NAFTZ advocacy efforts with Congress, the U.S. International Trade Commission (USITC) was tasked by the U.S. Trade Representative (USTR) to conduct a comprehensive study on the effects of these and other tariff policies resulting from free trade agreements.  The USITC started this investigation in early 2022 with the full report expected to be released in April, 2023.

Issues:

Export Restrictions – NAFTA included a restriction that required FTZ manufacturers to pay U.S. duties on any non-originating (i.e., non-North American) components in products being exported to Canada and Mexico. This restriction is contrary to one of the main intended benefits of the FTZ program – promoting U.S. exports by not imposing any domestic duties on components of products manufactured in an FTZ that are subsequently exported. Unfortunately, the USMCA text also incorporated the NAFTA export restriction on FTZs.

Rules of Origin – NAFTA’s implementing legislation included a restriction that prevented FTZ manufacturers from using the agreement’s rules-of-origin provisions to make their products more cost-competitive with Canadian and Mexican products in NAFTA markets. Despite strong opposition by NAFTZ and a bipartisan Senate group of FTZ supporters, this restriction was eventually inserted in the 2020 USMCA Implementation Act through a “technical correction” following intense pressure by the Trump Administration’s U.S. Trade Representative.

By limiting the ability of FTZ manufacturers to export products duty-free to Canada and Mexico and denying them the benefits of the of the USMCA’s rules-of-origin provisions to make those products more cost-competitive with Canadian and Mexican products in the North American market, these restrictions will continue to hinder the ability of U.S. FTZs to achieve their full potential to advance the program’s goals and enhance U.S. manufacturing. 

These issues are germane to the USITC FTZ Competitiveness investigation, but the investigation will only document the current state.

Advocacy effort:

Legislative fix. NAFTZ anticipates Congress will begin work on a large-scale Customs reform/ modernization/ reauthorization package over the course of this year. NAFTZ’s in-person congressional visits on the hill following the Legislative Summit resulted in several offices soliciting proposed legislative language from NAFTZ on a number of FTZ issues.