Return to NAFTA Treatment of FTZs May Be in Technical Corrections Bill
House Ways and Means Committee ranking member Kevin Brady, R-Texas, one of the four players directing the shape of a USMCA technical corrections bill, said that the “language was a little different than the intent” when it came to the treatment of foreign-trade zones in USMCA's implementing bill. Brady and the leaders of the Ways and Means and Senate Finance committees see getting a technical corrections bill passed as “a high priority,” he said in a recent interview.
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Under NAFTA, the non-North American content of a good manufactured in an FTZ was taxed at the duty rate of the finished good when it entered U.S. commerce. Even exports to Canada and Mexico had to make an entry into U.S. commerce before crossing the border. That was true even if the good met the NAFTA rule of origin -- and therefore, could enter duty-free if imported from Canada or Mexico, or could be exported duty-free if made in the U.S. outside an FTZ.
The USMCA implementing bill did not include this rule, which the National Association of Foreign-Trade Zones welcomed (see 2006110058). Brady said that the U.S. trade representative now believes the agreement shouldn't have given FTZs “special treatment.”
NAFTZ President Erik Autor said his group pushed for three years for the change, because Mexican and Canadian manufacturers pay no tariffs on imported inputs that will be part of a finished good exported within the NAFTA region. So, he said, a car assembled in Canada would have a cost advantage over a car assembled in Michigan in an FTZ, even if the two cars had the exact same proportion of North American content, and the same parts from outside the region.
In June, Autor worried that a return to the NAFTA approach could be in a technical corrections bill. He now says NAFTZ is “hearing rumors” that the Office of the U.S. Trade Representative would try to do this. But when NAFTZ tells Ways and Means and Finance staffers that such a change does not belong in a technical corrections bill, they get no reassurances that Congress members agree that products produced in FTZs should qualify as U.S.-made if they meet the product's rule of origin.
Technical corrections bills are “intended to correct errors and omissions that are necessary to reflect the will of Congress,” Autor said in a July 20 interview. “This change, if it’s being proposed by USTR, is a substantive change. It’s not a technical correction.” He said that given the lobbying that NAFTZ did as NAFTA was renegotiated, that's evidence that Congress was aware of the issue, and so not repeating the restrictive language on FTZs from NAFTA was a choice, not forgetfulness. But Autor won't know whether Congress is swayed by USTR's views on FTZs until the end of this month, when the technical corrections draft is due.
Brady said, “We're working with [USTR] on new language” for FTZ treatment under USMCA, but he said the four leaders of Finance and Ways and Means “want to make sure we understand the impact” of the proposed change. He said they're still sorting through that impact. Autor said NAFTZ has not talked to Brady on this issue, adding that perhaps they should. “Brady is from Texas, which has more foreign=trade zones than any other state, and Houston has more foreign-trade zones than any other city.”
He said his group is fairly concerned that the change they thought they had won will not last. He said the U.S. market, among the three countries, is “the big enchilada ... and yet we have a situation here where American manufacturers are at a cost disadvantage here in our own market.”