As the debate over the Trans-Pacific Partnership trade agreement continues, many Americans are unaware that hundreds of foreign trade zones are already entrenched within the US, and most likely in their own part of the country.
“US-based FTZs are off everyone’s radar,” says Wayne State University professor Richard J. Smith, who was commissioned by the University of California Labor Center several years ago to write a report on American FTZs.
During a time when communities are urging residents to “buy local”, the regional foreign trade zone is the antithesis that could derail this movement as it marginalizes locally-owned small businesses. Critics also point out that FTZs benefit only select corporations, and are set up to link cheap logistical and warehouse labor in the US to exploitative jobs overseas.
Foreign trade zones, or FTZs, annually process billions-of-dollars of mostly imported goods, and are authorized and regulated by the federal government. According to the National Association of Foreign Trade Zones, foreign-made goods imported into American FTZs totaled $288 billion in 2014, compared to $99 billion exported from these trade zones. The $99 billion is actually 25 percent higher than the previous year, as the spike was fueled by President’s Obama’s National Export Initiative in 2009, which sought to double US exports over five years.
The number of FTZs in the US over the previous three decades has quadrupled. In 1983 there were 87 general purpose FTZs and 30 FTZ subzones. As of this year there are 179 general purpose FTZs and 311 FTZ subzones.
The huge spike in subzones has added a new dimension to the issue because subzones are typically granted to the existing factories or facilities of private corporations. On the other hand, general purpose FTZs are operated by a municipality. Many are based at an inland airport or major US harbor and can be utilized by any approved company headquartered within a 60-mile radius.
Congress passed the Foreign Trade Zones act in 1934 ostensibly to support the public by spurring economic growth through exports and thus have a positive effect on employment. More specifically, FTZs were intended for US companies that “re-exported” their goods, meaning they imported parts from around the world to assemble the final product in the US. Their only requirement was to pay a duty on the final product.
Since 1934, however, manipulation by both public and private interests has transformed the FTZ’s original purpose.
Now critics say FTZs have created an unfair competitive advantage for certain corporations, specifically those that rely heavily on importing goods into the US. And as for creating more jobs, there’s no hard evidence or any government-sponsored research, but anecdotally there’s plenty to show that American FTZs have moved more jobs overseas instead of creating more at home.
These critics, mostly labor activists, say that how US-based FTZs are governed is a complex issue that many Americans are in the dark about. Essentially, the goods imported into US-based FTZs, by either domestic or foreign companies, are considered outside US Customs territory and not subjected to tariffs, or these payments are delayed.
Behind the wall of FTZ complexity – and promises by local politicians that an FTZ means more jobs – labor activist critics believe American FTZs are serving up a triple dose of exploitation. They say FTZs connect super-cheap labor overseas to cheap logistics labor in the US. On top of this, multinationals are enticed to use a general purpose FTZ with tax breaks offered by local politicians who lease space there. They can do this because the municipality is the FTZs federal grantee.
“The city and state are always complaining about having no money, so why give so many tax breaks at the Foreign Trade Zone?” says Cathi Steele, a labor activist and a manager for the Mid-Ohio Worker Association from Columbus, Ohio, who’s been keeping a close-eye on her region’s FTZ. “It’s duty free for corporations. It’s a 15-year property tax abatement at 100 percent. There’s importing, inventorying, warehousing tax breaks. And anecdotally, every worker we’ve met who works there works in a low-wage temporary job.”
No doubt today’s FTZ marginalizes the domestic economy, says Steele. For instance, if a domestic car manufacturer obtains FTZ status and obtains foreign-made parts because they are cheaper, the car manufacturer will no longer need domestic-made components, which would ultimately reduce domestic employment.
On the flip side, proponents of American FTZs say these trade hubs are not the issue when it comes to global trade gutting American manufacturing by outsourcing jobs overseas. In fact, many US-based general purpose FTZs have manufacturing on site.
Walmart, for instance, manufactures eye glasses at the FTZ in Columbus, Ohio. The glasses are sold in the US and also exported to foreign markets. Parts to build the glasses are imported into the FTZ, duty free of course.
“Foreign trade zones encourages economic activity in the United States that for customs reasons would have occurred abroad,” says Daniel Griswold, president of the National Association of Foreign Trade-Zones, a privately funded non-profit. “Our tariffs have the effect of encouraging production overseas. Better to have that here in the US.”
The FTZ that serves Columbus, Ohio – officially known as FTZ #138 – caters to The Gap, Victoria Secrets, Abercrombie and Fitch, and Walmart. The Gap and others like it don’t import parts to manufacture anything – as the 1934 FTZ statute intended.
In 2013, over $6 billion in merchandise was imported into FTZ #138, ranking it in the top-ten of the nation’s foreign trade zones, this according to the Columbus Regional Airport Authority, the zone’s operator and federal grantee. The growth of foreign-made goods brought into FTZ #138 has been staggering over the last decade. In 2006, just $250 million was processed.
Even if President Obama and others are pushing for more US exports, the effort to promote foreign imports quietly continues, and is probably far-more extensive and wide-ranging than the American public is aware of. The federal office behind the administration and promotion of American FTZs is the National Foreign Trade Zones Board, not to be mistaken with the private non-profit National Association of Foreign Trade Zones.
Known as “the Board”, its ultimate responsibility is to approve or deny a company from using an FTZ.
“On the national level, the National Foreign Trade Zones Board changed their requirements so that it made it much easier, much quicker, and much more efficient for a company to become activated within a zone,” says Angie Tabor of the Columbus Regional Airport Authority and an FTZ #138 spokesperson. “And with that, we have seen the number of companies taking advantage of a foreign trade zone on the rise.”
In an era when free market capitalism and an interconnected global economy are heralded as the only way to go, of the few studies critical of American FTZs, most critique goes against the FTZ Board.
One such study was published 20 years ago in the Northwestern Journal of International Law and Business and titled, “Reining in the Foreign Trade Zones Board: Making Foreign Trade Zone Decisions Reflect the Legislative Intent of the Foreign Trade Zones Act of 1934.” Article author William G. Kanellis focused on whether the Board was remaining true to Congress’s legislative intent when it created FTZs, which was to have a positive effect on domestic employment and enhance the nation’s economic vitality.
Kanellis argues that over time the Board exceeded the “parameters” of the 1934 law’s approval scheme. He wrote the Board’s “approval process seems more directed by political pressure” from corporate lobbyists than by “independent consideration of what economically benefits the public.”
The Board’s wide discretion when factoring the “public benefit” for FTZ access, stated Kanellis, is a federal policy that has actually taken American jobs away instead of creating them. He wrote if a deluge of foreign goods has “decreased American employment levels […] then there is something wrong with their decision-making process.”
In Columbus, Ohio, local politicians are pushing for the community to buy local. Yet this reporter has found these same politicians are quietly and secretively persuading local businesses to utilize the regional FTZ and thus sell-out their production or manufacturing to cheap labor overseas.
As Cathi Steele, the labor activist from Columbus put it, “It’s a global race to the bottom.”
Originally from Buffalo, NY, John Lasker is a journalist residing in Ohio. Lasker has been producing investigative reports for TowardFreedom.com for over seven years, breaking stories on topics such as US corporate ties to resource conflicts in Africa and the race to militarize space. His reporting on sexual violence against women in the military won a 2013 Project Censored Award.