Gateway City/Trend: Putting a spotlight on free trade zones

Eighty-two years ago, with the United States’ throat in the vise grip of the Great Depression and Congress wanting to encourage commerce, the foreign trade zone was born.

More specifically, the federal government wanted to encourage manufacturing jobs to stay in the United States. Before you ask, rich with sarcasm, “How’d that work out?” let’s clear up a frequent misconception: The United States, long No. 1 in the world for manufacturing, still ranks second in the world for these jobs, behind only China.

Today, about $250 billion, or slightly less than 11 percent of all U.S. imports, enter the United States in an FTZ, according to the U.S. Census Bureau data. That’s down from slightly more than 13.5 percent in 2011 — why will become clear in a moment — but relatively consistent with the total over the course of the past decade.

Unless you know a fair amount about FTZs, you might be surprised at the countries whose imports into the United States most often find their ways into an FTZ, and where. (Hint: China’s imports into the U.S. are below the average of foreign nations’.)

FTZs aren’t necessarily simple — an entire industry has grown up around them, including a national association, software, attorneys, developers and consultants of every stripe — but the basic concept is straightforward: Under the law governing foreign trade zones, anything that enters into one of these designated areas is not officially entering the commerce of the United States and is, thus, free from having to pay duties until it does.

One of the benefits, then, is to allow U.S. workers to complete assembly of goods from component parts, for example, then release the finished goods into the United States, when those taxes are paid. And if those products are exported, no duty is paid. Simple, right?

South Florida, with its strength in exporting to Latin America and the Caribbean might seem like a natural place for these imports to enter. In fact, certain Customs districts, certain countries and certain import products have proved better suited than others to the benefits offered by foreign trade zone status.

While the national average for imports entering FTZs is just shy of 11 percent, four of the nation’s leading Customs districts have a percentage at least double that: New Orleans, at 30.04 percent; Dallas-Fort Worth, at 29.44 percent; Philadelphia, at 28.37 percent; and Houston, at 23.39 percent.

Three of four of these are connected by one import. That import is oil, and the three are New Orleans, Philadelphia and Houston. All three are getting hammered right now — in dollar terms — given the massive decline in the price of oil.

The outlier is Dallas-Fort Worth, with about $10 billion in cellphones and related equipment — more than 49 percent of its nation-leading total — entering FTZs as well as 98.67 percent of all motor vehicles (largely from South Korea and actually shipped into Los Angeles-area seaports before making their way to the Dallas area) — and 96.92 percent of certain types of watches.

But the prime beneficiary of FTZ status is oil. Last year, about 58 percent of all U.S. oil imports entered into an FTZ, either delaying duties until the “finished product,” generally gasoline, entered U.S. commerce or eliminating them altogether if the gasoline were exported. That is the greatest percentage among leading imports and, at more than $125 billion, exceeding three times the value of any other import.

Consequently, when you look at the nations that are big users of the FTZ regulations put in place in 1934, the top two are Saudi Arabia, at 87.42 percent, and Venezuela, at 87.58 percent. Within the hemisphere, Colombia’s percentage is the greatest, at 43.29 percent. The United States, of course, imports oil from Colombia. Two other leading importing nations benefiting from FTZs are Germany and South Korea.

China’s percentage, by the way, is 10.78 percent of all its imports, slightly less than the U.S. average of 10.95 percent. But that percentage is growing rapidly. In 2011, the U.S. average was 13.65 percent; China’s was 4.65 percent.

Cellphones and computer imports often find their ways into FTZs, but they rank behind unmounted diamonds, which rank No. 2 to oil.

Of the roughly $23 billion in unmounted diamonds entering the United States, 41.50 percent went into a foreign trade zone. Most of the unmounted diamonds, and most of those entering FTZs, enter in New York City, with Israel accounting for the largest percentage of three big suppliers but the lowest percentage entering FTZs, at just 6.91 percent.

The average for diamonds entering into an FTZ in New York City is 50.66 percent. For India, the percentage is 82 percent and for Belgium, it is 80.59 percent. Another large importer, Hong Kong, sends 96.80 percent of its unmounted diamonds into an FTZ.

Here in South Florida, the percentage of imports entering the United States through a foreign trade zone is below the national average at 7.29 percent. Ranked by value of those duty-free imports, South Florida is No. 15, although for overall trade — all exports and all imports — it ranks No. 12.

That might change in the coming years, as an increasing number of flights from China and, presumably, South Korea, fly directly to Miami International Airport. South Florida leads the nation in exports of cellphones, printers and computer parts — all of which would seemingly be benefiting from entering into an FTZ. The larger Asian ships that PortMiami hopes to see with the completed expansion of the Panama Canal could also bring more FTZ trade to the region.

At the end of last year, only 5.86 percent of all cellphones and related equipment entered into FTZs in South Florida; the national average was four times that.

South Florida’s top import receiving FTZ status is refined petroleum at 60.62 percent of its total. In fact, more than 40 percent of the value of all imports entering into South Florida in an FTZ is refined petroleum. Part of the effort is to just delay duties until the fuel finds its way to gas stations throughout the southern half of Florida, but an important piece is aviation fuel, a great deal of which is used for foreign flights — MIA is one of the world’s busiest international airports by percentage of flights.

Another key import that enters into FTZs is one that also finds itself leaving the United States quite often, this one for international waters aboard cruise ships. Umbrella drink anyone? Scotch on the rocks? Almost 37 percent of all imports in the spirits category come ashore this way.

This story was originally published February 7, 2016 at 2:00 PM with the headline "Gateway City/Trend: Putting a spotlight on free trade zones."