February 12, 2019
Study Documents Positive Impacts of U.S. Foreign-Trade Zones on Regional Economies as National Zone Activity Shows Strong Gains
Washington, DC – An economic study by a leading research firm concludes that U.S. Foreign-Trade Zones (FTZs) have a positive impact on employment growth, wage growth, and value-added growth in American communities in which they are located, compared to similar communities without FTZs.
The study, “The U.S. Foreign-Trade Zones Program: Economic Benefits to American Communities,” was conducted by the Trade Partnership, a Washington, DC-based trade research firm whose team of international economists has provided high-quality economic and trade policy analysis since 1991. The National Association of Foreign-Trade Zones (NAFTZ) commissioned the study in 2018 to inform policymakers and the public about the actual economic impacts of FTZs, and to provide an analytic tool for economic development institutions and policy makers. Previously published reports on the FTZ program by the Congressional Research Service and the Government Accountability Office pointed out that few economic studies of FTZs had been performed and that none had actually quantified the economic effects of the program.
The study was publicly released following a presentation of the findings by Trade Partnership president Laura M. Baughman at NAFTZ’s annual Legislative Summit in Washington on Feb. 12.
This study measures, both quantitatively and qualitatively, the economic effects of FTZs on the communities in which the zones operate, which the authors refer to as Zone Economic Communities (ZECs). The economic impacts of FTZs on ZECs were examined using an econometric approach that enabled the research team to attribute changes in community employment, wages, and “value added” to the operation of a zone. The latter term refers to the difference between gross output and intermediate inputs and represents the value of labor and capital used in producing gross output.
“The economic impacts of the U.S. FTZ program on communities in which FTZs are located are positive,” said Laura Baughman. “Many companies have the option to operate inside or outside the United States. They will make that decision based in part on the relative costs of doing business in the United States or abroad. To the extent the Foreign-Trade Zones program can 2 provide positive financial reasons for a U.S. location, it should merit the support of U.S. policymakers.”
The study examined the changes in these three economic measures in each of 251 ZECs, compared to an otherwise similar economic community in the same region that did not have an FTZ. The econometric analysis was supplemented by profiling a variety of firms that use FTZs and describing the specific ways in which the program’s benefits have positively affected company and community employment and other economic activity, including the efficient allocation of company resources, domestic production, and exports.
The study makes the following findings supported by the data collected for 251 ZECs:
• Employment, wages, and value-added increased in the broader zone community following the establishment of an FTZ. Those gains are the greatest in the early years for employment and wages, and throughout the period for value added. This increased economic activity is also evident once a decision is made to form an FTZ.
• The establishment of an FTZ causes a positive increase in employment growth in the surrounding ZEC (up 0.2 percentage points), wage growth (up 0.4 percentage points), and value-added growth (up 0.3 percentage points), typically eight years and later, after establishment of the FTZ. The impacts begin sooner, in years six and later, for wages and value added in small- and medium sized ZECs.
• Company access to FTZ benefits has a substantial ripple effects through the companies’ supply chains, which are typically located nearby. The study cites BMW Manufacturing in South Carolina, ExxonMobil Corporation in Louisiana, and Yamaha Motor Manufacturing Corporation in Georgia as important examples of this effect.
Citing the example of high-quality outdoor wear manufacturer Helly Hansen in Auburn, Washington, the study also concludes that FTZ benefits ensure that direct and indirect jobs remain in the United States despite considerable economic pressures to relocate elsewhere. The experience of Lam Research Corporation in San Jose, California, and Portland, Oregon, illustrates how FTZ benefits support high-value U.S. R&D.
The study also asserts that FTZ benefits have brought production jobs back to the United States, as evidenced by Prodeco Technologies in Oakland Park, Florida, and Piramal Critical Care in Bethlehem, Pennsylvania; and the experience of UniCarriers Americas in Rockford, Illinois, illustrates how FTZ savings have enabled companies to direct company resources to their most efficient uses, such as worker training.
“We are very pleased that The Trade Partnership’s analysis has concluded that the U.S. Foreign-Trade Zones program has demonstrable positive economic impacts on the communities in which FTZs are located,” said NAFTZ Board of Directors Chair Eva Tomlinson. “These real community impacts are in addition to the value that U.S. firms realize from using the FTZ program.” Ms. Tomlinson is Director of FTZ Solutions for UPS Trade Management Services, Inc.
The complete report can be downloaded at www.naftz.org.
U.S. Foreign-Trade Zones Board’s Annual Report to Congress
The economic impact study comes in the wake of across-the-board positive news on FTZ activity contained in the U.S. Foreign-Trade Zones Board’s Annual Report to Congress, which was released in December. After several years of decline in zone activity largely related to a downturn in the petroleum sector, the report documented strong increases in all major categories in 2017, the last year for which data are available.
The value of merchandise received at America’s FTZs increased by 9.6 percent in 2017, to $669.2 billion. Merchandise received at warehouse/distribution operations increased by 15.5 percent, to $259.1 billion, while that received at production operations increased by 6.2 percent, to $410.1 billion.
Foreign-status inputs to FTZs increased by 11.2 percent, to $250.6 billion. The value of FTZ imports accounted for 10.6 percent of all goods imported into the U.S. in 2017.
The majority of merchandise admitted to FTZs (63 percent) is of domestic origin. FTZ activity commonly involves domestic operations that combine foreign inputs with domestic U.S. components.
The value of exports from America’s FTZs increased by 15.1 percent in 2017, to $87.1 billion. This represents 5.6 percent of the value of all goods exported from the United States. Exports from FTZ production facilities accounted for two-thirds of all exports from FTZs.
Employment at America’s 191 active FTZs increased by approximately 7 percent in 2017, to a new record of 450,000 workers at 3,200 firms that used FTZs during the year.
“The FTZ Board’s latest report confirms that the program continues to be a vital component of America’s trade policy,” said Erik O. Autor, President of the National Association of Foreign-Trade Zones. “The competitive advantage for companies operating in an FTZ has enabled them to boost exports and employment, continuing their strong recovery from the recession.”
The complete report can be downloaded at: https://enforcement.trade.gov/ftzpage/annualreport/ar-2017.pdf
With more than 650 members, the National Association of Foreign-Trade Zones 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.
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