Foreign-Trade Zones Board Proposes Changes to FTZ Regulations

The Foreign-Trade Zones Board (FTZ Board), on December 30, 2010, issued a proposed rule in the Federal Register to amend the substantive and procedural rules for the authorization of Foreign-Trade Zones (FTZs) and the regulation of zone activity. These proposed changes would result in a major revision to the current regulations. Comments to the FTZ Board on the proposal are due April 8, 2011.

The revisions encompass changes related to manufacturing and value-added activities, as well as new rules designed to address compliance with the Foreign-Trade Zones Act's (FTZ Act) requirement for a grantee to provide uniform treatment for the users of a zone.

Elimination of Advance Approval for Most Export and U.S. Market Manufacturing

First, the proposed regulations would eliminate the general requirement for advance approval from the FTZ Board for most manufacturing (i.e., substantial transformation) activity. As proposed, advanced approval for production activity would only be required for exports in certain rare circumstances (e.g., when an imported component in the manufacturing process is subject to antidumping or countervailing duty). For manufacturing of goods destined for the U.S. market, general advance approval would be limited to specific types of FTZ benefits that could impact other domestic manufacturers (e.g., if a lower U.S. duty rate will be applied to the component through its incorporation into a downstream product in the FTZ; goods subject to antidumping/countervailing duties; or certain scrap resulting from production activity) (see Sec. 400.14(a)).

In circumstances where advance approval is required for specific production activity, the proposed rule would delegate authority to the Commerce Department's Assistant Secretary for Import Administration to approve the activity on an interim basis pending completion of the full FTZ Board's review of the request, which would significantly decrease the time a company must wait for approval (see Sec. 400.14(d)(3)). This new provision would replace -- and will be significantly more flexible than -- the temporary/interim manufacturing (T/IM) procedure, which had not yet been the subject of specific regulations. The T/ IM procedure was limited to activity similar to that approved by the FTZ Board in the preceding five years. The new provision for interim approvals contains no requirement for similarity to recently-approved activity.

The proposed provisions would also improve flexibility to...