NAFTZ recently participated in two Office of the United States Trade Representative Section 301 proceedings focused on unfair foreign trade practices: one examining forced labor practices and weak forced-labor import prohibitions, and another examining structural excess capacity and production in manufacturing sectors.

Across both proceedings, NAFTZ delivered a consistent message: U.S. Foreign-Trade Zones are part of the solution to these trade challenges, and any resulting remedies should be designed to strengthen, not unintentionally harm, U.S.-based manufacturing.

NAFTZ filed written comments in both investigations, which can be found here and here,  and provided oral testimony for the record. NAFTZ also submitted post-hearing written comments to expand on a question asked during the excess capacity hearing by USTR’s Section 301 Inter-Agency Committee.

NAFTZ did not focus its comments on the conduct of any one country. Instead, the association addressed a broader issue that applies across both investigations: if USTR adopts tariffs or other trade remedies, those remedies should not require goods admitted into U.S. FTZs to enter in Privileged Foreign, or PF, status.

PF status is significant because it eliminates one of the core manufacturing benefits of the U.S. FTZ program: tariff inversion. Under traditional U.S. FTZ treatment, when an imported component has a higher duty rate than the finished good, a manufacturer may be able to pay duty at the lower finished-good rate when the finished product enters U.S. commerce. PF status instead locks in the component duty rate at admission to the zone, preventing use of the finished-good rate.

In its forced labor comments, NAFTZ emphasized that foreign producers benefiting from forced labor can gain an artificial cost advantage over U.S. businesses operating under stronger labor, compliance, and supply chain standards. U.S. FTZ operators are subject to federal review, including approval by the U.S. FTZ Board and activation by U.S. Customs and Border Protection. Once activated, U.S. FTZs remain under CBP supervision, including inventory controls and compliance monitoring.

NAFTZ made a similar point in the excess capacity proceeding. Foreign excess capacity and state-supported overproduction can depress prices and put pressure on U.S. manufacturers. U.S. FTZs were created to support domestic manufacturing, distribution, and exports, including in sectors directly implicated by this investigation, such as automotive, electronics, machinery, pharmaceuticals, and energy-related manufacturing. In oral testimony, NAFTZ noted that the U.S. FTZ program supports substantial economic activity, including 543,000 American jobs, 381 active production operations, and $134 billion in exports, according to the FTZ Board’s 2024 annual report.

During the excess capacity hearing, NAFTZ explained that remedy design matters. USTR can respond to unfair practices abroad without creating collateral damage for domestic manufacturers operating in U.S. FTZs. Preserving tariff inversion where available helps support U.S.-based production decisions, strengthens supply chains, and reinforces a more stable policy environment for investment.

USTR also asked whether allowing U.S. FTZ manufacturers to avoid PF status would let companies avoid duties or create an unfair advantage over U.S. producers outside the zone. NAFTZ responded verbally and in written post-hearing comments that U.S. FTZs do not allow companies to avoid duties. NAFTZ further explained that the U.S. FTZ program is available to any company that applies, is approved by the U.S. FTZ Board, and is activated by CBP. The real competitive question is not U.S. FTZ versus non-U.S. FTZ production inside the United States. The real question is whether production happens in the United States or moves offshore.

As USTR considers next steps in both investigations, NAFTZ will continue advocating for remedies that protect U.S. manufacturers without undermining the U.S. FTZ program’s role in supporting American jobs, production, exports, and compliance.