Companies Seek Approval To Expand Manufacturing In U.S. Foreign Trade Zones by Joshua Snead

by King & Spalding

At least 15 applications have been submitted during 2013 for permission from the Foreign Trade Zones (“FTZ”) Board to commence or expand manufacturing activities in U.S. FTZs. Several such applications have been approved. The companies recently obtaining or applying for authorization to expand their manufacturing activities in existing FTZs include Mitsubishi Power Systems Americas Inc. (“Mitsubishi”) and General Electric Company (“GE”).

Mitsubishi recently obtained approval to add production of gas turbines and related parts for use in power generation applications in the FTZ in Savannah, Georgia, based on Mitsubishi’s January 2012 application. GE recently submitted a “production notification” to the FTZ Board, seeking permission (on an expedited basis) to add production of hybrid electric hot water heaters in the FTZ in Louisville, Kentucky. Both companies already manufacture other products in these FTZs.

FTZs are designated zones within the geographical area of the United States that are supervised by the FTZ Board and U.S. Customs and Border Protection (“CBP”). They are generally considered to be outside the customs territory of the United States. FTZs are intended to provide incentives for investment and employment in the United States that otherwise might take place in other countries. Benefits for manufacturers using FTZs can include “duty deferral” (paying duties when imported goods leave the FTZ and enter the U.S. Customs territory rather than when the goods enter the FTZ) and “inverted tariffs” (having the option to pay a lower duty on manufactured products rather than a higher duty on input products). Both GE and Mitsubishi indicated in their applications to the FTZ Board that such advantages were important in order to compete with imported products.

GE asserted in its notification to the FTZ Board that its additional production would displace imports. Mitsubishi asserted that its additional U.S. production would replace its own imports of products manufactured in Japan. GE anticipates selling all water heaters made in its FTZ facility in the U.S., with the potential for exports from the U.S. in the future, while Mitsubishi anticipates manufacturing gas turbines for sale to both domestic U.S. customers and export customers.

Both companies predicted in their applications to the FTZ Board that this additional manufacturing, if approved, would bring additional jobs to the United States. GE predicted that obtaining requested authorization for additional production would bring 400 additional jobs to its FTZ site, and Mitsubishi predicted that its requested additional manufacturing would bring over 300 additional jobs to its Savannah FTZ site.

The FTZ Board revised its regulations in April 2012, as reported here. One of the FTZ Board’s primary objectives with these revisions was to simplify and in some cases speed up the process of obtaining authorization for new or expanded production activity in an FTZ. Some manufacturers plainly are seeing benefits to expanding their operations in FTZs. The advantages of locating facilities in FTZs -- whether for production or warehousing activity -- are available to companies of all sizes in approximately 250 zones located throughout the United States.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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