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July 21, 2014

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GOVERNMENT WATCH 18 THE JOURNAL OF COMMERCE JULY 21.2014 By Mark Szakonyi FOREIGN TRADE ZONES in the U.S. are enjoy- ing a boom, and fueled by that success, FTZ proponents are lobbying Customs and Bor- der Protection to expand a key benefit to third-party logistics companies. Although manufacturing companies, especially automakers, have been the main users of FTZs, retailers are using the tool in greater numbers. Retail shippers, includ- ing Coleman Group and Kawasaki Motor Manufacturing, told JOC Inland attendees last October that they are embracing FTZs in Kansas City, for example. Shippers are increasingly using the zones for exports, and even for distribution of retail products without any domestic components. The value of freight moving through the nation's 174 FTZs jumped 14.4 percent to $732 billion in 2012 from the previous year. The amount of goods exported out of the zones rose 29 percent in the same period to $70 billion, accounting for about 4.5 percent of U.S. outbound shipments in 2012, accord- ing to Foreign-Trade Zones Board statistics. By comparison, total U.S. exports expanded about 4.8 percent in 2012 to $2.2 trillion, according to the Department of Commerce. The 2012 FTZ statistics are the most recent available numbers from the agency, which is under the supervision of Customs. There are many reasons for the growth in shippers using the zones and the amount of freight moving through them. The zones benefit companies importing goods into the U.S. and add value to them, whether that's a U.S. component or altering them for cus- tomer specifications, such as tinting vehicle windows. Companies that manufacture, assemble and package within FTZs have a choice of paying the duty of the final product or its foreign components, with the former often being cheaper. Shippers also can use the FTZs as export hubs because they don't have to pay U.S. duties on final products that are re-exported. FTZs also can help shippers increase cash flow. High-tech companies, for exam- ple, don't have to pay duties on imported production machinery until work begins on the assembly line, said Daniel Griswold, president of the National Association of For- eign-Trade Zones. Retailers also use FTZs even though they don't receive any duty savings on the importing of garments and clothing through the sites. That's because retailers consolidate their merchandise pro- cessing fees into a weekly payment instead of having to do it daily for each shipment as required when operating outside an FTZ. Changes to FTZ regulations also make it easier for companies to use the zones. New rules allow companies to receive FTZ des- ignation in 30 days or less, instead of eight months. Even more importantly, since 2008, companies can bring an FTZ designation to existing facilities instead of having to locate no more than 60 miles or a 90-minute drive from the port of entry. But more could be done to make the FTZs even more attractive, Griswold said. One way would be to allow third-party logistics com- panies to utilize direct delivery, or shippers' ability to import goods into the zone and notify the agency within 24 hours, instead of going through the process between the port and FTZ site. "Direct delivery can cut delivery one to two days," he said. "From a security angle, it's safer as Customs says, 'Goods at rest are at a higher risk.' " 3PLs that handle shippers' cargo in FTZs can't tap the benefit, nor can subsidiaries of FTZ users that are handling a shipment on behalf of their sister companies. JOC Contact Mark Szakonyi at and follow him on Twitter: @szakonyi_joc. FTZ USE ON THE RISE Foreign trade zones press Customs to ease regulations as retailers and exporters take more advantage of benefits allow non-resident importers with an affili- ated business unit in Canada and the U.S. to join the program. Importers and others still can join the C-TPAT program separately, but ISA as a stand-alone program will be phased out. Despite the industry's overall optimism regarding the program, a few concerns are lingering, Diaz said. It's not clear whether the FDA in validating importers' supply chains would "ding" an importer if they catch a mis- step while touring a distribution center or other link in the supply chain. That so-called ding could be a warning or even a recall, she said. The Food Safety Modernization Act, signed into law in 2011, orders the agency to work more closely with Customs, suggest- ing the FDA could take a more even-handed approach to Trusted Trader inspections. "I'm also curious to see how tangible the benefits are," Diaz said. Criticism that Customs doesn't do enough to quantify the benefits of its trusted partner programs has been a complaint dating back to the origins of the programs in the wake of the September 11 attacks. The agency says C-TPAT importers are 3 1/2 times less likely to have their shipments examined by the agency and seven times less likely to see their cargo go under an extensive examina- tion. But those are for all C-TPAT members, and some importers privately complain that after accounting for the cost and time to be a C-TPAT member, the benefits are difficult to track and may even be negligible. C-TPAT members "are making big changes to their supply chains, costing real big bucks, and then they can't show the data" to their bosses, Diaz said. Importers can use the Automated Com- mercial Environment to compare their average Customs hold time before and after they joined C-TPAT to measure the benefits of the trusted user program, Peterson said. One of her C-TPAT member clients was able to report back to his CEO that the company experienced 50 percent fewer inspections than it did before entering the program. JOC Contact Mark Szakonyi at and follow him on Twitter: @szakonyi_joc.

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