Quirk in Customs-entry Process Has Resulted in Unwarranted Assessment of Duties on Some Finished Products, in Addition to Those Properly Applied to Certain Chinese-Origin Inputs
Washington, D.C. — National Association of Foreign-Trade Zones (NAFTZ) President Erik Autor today called for an exclusion from Section 301 duties for finished products manufactured and substantially transformed into new products in U.S. Foreign-Trade Zones.
A quirk in the Customs-entry process for zone-manufactured merchandise has resulted in the unwarranted assessment of Section 301 duties on some of these finished products – above and beyond the Section 301 duties applicable to certain inputs admitted into an FTZ in Privileged Foreign (PF) zone status, which ensures that applicable duties on subject foreign-origin inputs are paid upon Customs entry.
Mr. Autor testified on the first day of the Section 301 Committee’s public hearing on the proposed imposition of an additional 10 percent ad valorem duty on products of China with an annual trade value of approximately $200 billion. The hearings are being conducted through Thursday at the U.S. International Trade Commission.
“This exclusion is necessary,” said Mr. Autor, “because some finished products that are manufactured and substantially transformed into different products in U.S. foreign-trade zones, but which correspond to Chinese-origin products listed by HTS line on Section 301 target lists, are inappropriately being assessed additional Section 301 duties even though they are, and should be treated as, products of the United States.”
“This situation has arisen,” he explained, “because, for statistical purposes, existing guidance from U.S. Census and Customs and Border Protection directs FTZ manufacturers to identify on entry documentation the country of origin of their highest-value foreign-status components. This requirement, combined with the lack of clear guidance from USTR on the treatment of FTZ-produced goods under trade-remedies actions it administers, has inadvertently resulted in products manufactured and substantially transformed in U.S. FTZs being erroneously treated as imports from China if the highest-value component, even by a small margin, happens to be Chinese origin. As a result, some FTZ manufacturers are facing hundreds of thousands of dollars in additional and unexpected duty liability.”
In contrast, Mr. Autor explained, in imposing the Section 232 tariffs on steel and aluminum, the Department of Commerce avoided this unintended consequence by specifically including language in the Presidential Proclamation that specifically states “. . . articles shall not be subject upon entry for consumption to the duty established in [this] Proclamation . . . merely by reason of manufacture in a U.S. foreign trade zone.”
Mr. Autor went on to explain that collecting trade-remedies duties on U.S.-origin products from an FTZ would have the following unintended, adverse consequences:
-Penalize U.S.-made products these trade actions are designed to protect;
-Undermine FTZ-program goals by forcing U.S. companies to leave the program and possibly move production outside the United States, with a loss of American manufacturing jobs;
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.