Bipartisan Bill Would Require Study of FTZ Treatment Under USMCA
Sen. John Cornyn, R-Texas, introduced a bill that would require a study of whether Canadian and Mexican manufacturers are able to get tariff breaks on non-North American inputs to their goods, and if so, does that affect the cost-competitiveness of products manufactured in the U.S. for domestic and export markets. Cornyn led an unsuccessful effort to convince the Office of the U.S. Trade Representative in 2020 that goods produced inside foreign-trade zones should be treated as products of the U.S. (see 2012020031).
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In the U.S., FTZs allow manufacturers to import inputs duty free, and then pay tariffs only on the foreign content at the finished product's tariff rate when the product comes out of the FTZ. Even if the good is being exported to Canada and Mexico, and would be a tariff-free shipment under the pact's rules of origin, those tariffs on the non-North American imported inputs still have to be paid.
Erik Autor, president of the National Association of Foreign-Trade Zones, says that there is a cost-competitiveness issue. He says that 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 (see 2007200021).
If the proposed study confirms that, the law would direct policymakers to evaluate how the U.S. FTZ program could address the inequity. Cornyn said in December that the Congressional Budget Office estimated that manufacturers in FTZs would pay $2 billion over 10 years in tariffs as a result of the rule, but the public summary from the CBO does not report that level of detail.
Autor said in a June 28 press release that the 200 FTZs, and the 3,300 companies that operate in them thank Cornyn and his co-sponsors Sens. Tom Carper, D-Del., Chris Coons, D-Del., Pat Toomey, R-Pa., Dianne Feinstein, D-Calif., and James Lankford, R-Okla., for the bill.