Association Warns of Adverse Consequences, Calls for New Language Clarifying Tariff Status
WASHINGTON, May 16, 2018 /PRNewswire/ — National Association of Foreign-Trade Zones (NAFTZ) President Erik Autor today called for establishment of an effective, ongoing product-exclusion-request procedure and other measures in testimony before a hearing convened by the U.S. Trade Representative (USTR) regarding proposed 25 percent tariffs on $50 billion worth of Chinese imports under Section 301 of the 1974 Trade Act.
While agreeing that China’s intellectual property rights violations, forced technology transfers, and state interventions warrant appropriate action, Autor warned that many internationally competitive companies and industries represented by NAFTZ rely on China and other countries to supply inputs necessary for their U.S. production and include China as a key export market. “Accordingly,” said Autor, “we share the serious concerns of many U.S. business organizations about the adverse consequences Sec. 301 tariffs pose for U.S. manufacturing, exporting, and consuming industries, including creating strong incentives to manufacture abroad as U.S. production costs increase and imported goods become more competitive in the U.S. market.”
Autor warned that the proposed Sec. 301 tariffs threaten to undercut important FTZ program goals, including: 1) sustaining U.S.-based manufacturing and jobs by equalizing duties on U.S.-made and foreign-made products; and 2) eliminating situations where U.S. manufacturers pay significantly more than foreign exporters in U.S. duties because duties on inputs are higher than on the final product.
To mitigate these problems, Autor stated, NAFTZ believes it is essential for the Sec. 301 process and other trade remedies actions to establish an effective, ongoing product-exclusion-request procedure, enabling companies to secure exclusions from duties for certain imported materials, including finished products manufactured in U.S. zones.
Mr. Autor also pointed out that another critical issue for FTZ manufacturers in trade remedies proceedings is that finished goods approved by the U.S. Foreign-Trade Zones Board for zone production must not be incorrectly considered foreign origin for U.S. Customs entry purposes, and must be explicitly exempted from additional tariffs in Presidential Proclamations. NAFTZ’s written comments submitted on May 11 provide an example that illustrates the potential problem and includes recommended Proclamation language to ensure goods finished in a U.S. zone are not inadvertently subject to additional duties.
Turning his attention to the problematic subject of “privileged foreign status” (PF) classification required by the proposed Sec. 301 action, Mr. Autor pointed out that the administration’s proposed action “would require FTZ manufacturers to admit any subject articles into a U.S. zone under ‘privileged foreign status’ and pay the additional duty when the finished product incorporating those articles is entered into U.S. commerce.” In laying out the PF process for FTZs, said Autor, it is essential for the final Sec. 301 proclamation to avoid including language similar to that used in the March 22 Presidential Proclamations on steel and aluminum. Those proclamations stated that any steel or aluminum article admitted into a U.S. foreign-trade zone under PF status prior to the effective date of the duties would be subject upon entry for consumption to any ad valorem rates of duty imposed by those proclamations.
Under U.S. Customs regulations, foreign-status merchandise categorized as having “privileged foreign status” maintains the status it enjoyed upon its admission to a Foreign-Trade Zone. When the merchandise is subsequently shipped from the zone to the U.S. market and entered for consumption by CBP, it is evaluated based on its time-of-admission condition, even though it may have undergone a transformation in the zone.
“NAFTZ is unaware of any past Proclamations containing such language imposing additional duties upon filing a customs entry on merchandise in an FTZ that was under PF status prior to the effective date of such duties,” said Erik Autor. “This condition penalizes FTZ users for manufacturing in the United States and contravenes language in the Foreign-Trade Zones Act and Customs regulations regarding the election of PF status on merchandise in zones.”
Mr. Autor also referred to other technical issues regarding treatment of foreign-trade zone merchandise in the pending Sec. 301 and other trade remedies actions, including additional recommendations for Presidential Proclamation language to provide better and clearer guidance to FTZ manufacturers. Those recommendations are fully detailed in NAFTZ’s May 11 submission of comments which can be downloaded here. Mr. Autor’s full May 16 testimony can be downloaded here.
The NAFTZ also recently joined with The National Retail Federation and more than 100 other associations in submitting comments to U.S. Trade Representative Robert Lighthizer outlining how the administration’s proposed tariffs would harm the U.S. economy. The groups urged the administration instead to develop a comprehensive strategy to effectively address China’s unfair trade practices. See nrf.com here.
NAFTZ is the voice of the U.S. Foreign-Trade Zones program, created by Congress in 1934 to help U.S.-based companies be more globally competitive; maintain U.S.-based activity and jobs; attract investment to American communities; and boost exports through special duty benefits and customs procedures. FTZs account for a significant portion of total U.S. trade – 5.2 percent ($76 billion) of U.S. goods exports and 10.2 percent ($225.3 billion) of U.S. goods imports in 2016. Over 420,000 American workers are employed at FTZs in all fifty states and Puerto Rico.
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