October 22, 2013
As a part of the ongoing discussions surrounding the Trans-Pacific Partnership (TPP), 78 members of the U.S. House of Representatives recently signed a letter to President Obama outlining the positive economic impact of Japanese investment in the U.S. automotive sector.
In the letter, which received signatures from members of both parties representing 27 different states, it was estimated that Japanese firms have invested more than $47 billion in U.S. automotive plants and other major facilities over the past 50 years. These investments have, according to the letter, resulted in the direct creation of more than 76,000 U.S. jobs.
The letter correctly suggests that the direct participation of Japanese companies in the U.S. auto manufacturing sector has been a remarkable success. It is also worth noting, however, that a great deal of their success can be attributed to their participation in the U.S. Foreign-Trade Zones Program.
For years, recognizable Japanese companies such as Toyota, Nissan, Subaru, and Honda have been utilizing Foreign-Trade Zones to give a competitive edge to their U.S.-based auto manufacturing operations. By eliminating duties on foreign-sourced components that are admitted to a Zone and subsequently exported in finished automobiles, FTZ status has enabled these companies to lower costs and increase competitiveness in overseas markets. These incentives have proven to be effective – in 2012 alone, exports from the FTZ operations of these four companies exceeded $2.3 billion in value.
Participation in the FTZ program has also provided these companies with relief from inverted tariffs, putting their U.S. manufacturing operations on equal footing with foreign competitors who export finished automobiles directly to the U.S. market. These incentives help to create and maintain well-paying manufacturing jobs on U.S. soil.
Given this highly successful track record, it is likely that the FTZ program will continue to attract Foreign Direct Investment from Japan and other global automakers for years to come.