FTZ Power Rankings: USITC Investigation & Top 25 States with Production Activity (Merchandise Received)

Welcome back to another edition of #FTZPR, the weekly article series breaking down a Top 25 list from the FTZ Board’s?83rd Annual Report to Congress, celebrating all things FTZs and football!

There was a smorgasbord of good games this past week, but one game left everyone stunned. It’s a rivalry as old as time; one team fighting for the pride of The Lone Star State. At one point, everyone watching said to themselves “oh, this game is a blowout.” Until, with the entire nation watching and 1:17 left on the clock, my University of Houston Cougars recovered an on-side kick to start the game winning comeback drive over the Memphis Tigers! What a game! Oh, the Texas vs OU game was this weekend?

Last week, I sent out a poll asking the fans to pick the topic for this week’s article and, unlike college football, there was a tie. Of course… So, I did what any red-blooded American does when faced with a (semi)work-related task on a weekend in October. I procrastinated and watched football. I mean, brainstormed an outline and researched football puns.

After much deliberation, we are talking about production activity this week. The internal debate was fierce. Oddly enough, it sounded like a sports debate radio show. Both sides had compelling arguments, albeit one side was a bit hyperbolic, a la Stephen A Smith. Here, I’ll just show you what I mean.

(If you don’t like the format change this week, maybe you should have made sure the poll went in your favor.)

Matt & Matt

Good morning and welcome to Matt & Matt! I’m your host, Matt’s Brain, here with our pundits, Matt (logical, rational, and believes in analytics) and Matthew A (passionate, emotional, and believes in his gut). Let’s jump right into our first segment of the day.

USITC Runs Zone Coverage

Last Thursday, October 6th, was the deadline for FTZ Operators with production activity from 2016-2021 to submit the U.S. International Trade Commission (USITC) questionnaire, as part of the USITC’s ongoing investigation into the “Effects of FTZ Policies and Practices on U.S. Firms Operating in U.S. FTZs and Under Similar Programs in Canada and Mexico,” specifically

• An overview of economic activity in FTZs operating in the United States, Canada, and Mexico since 2016.
• An overview of the current FTZ policies and practices in the United States, Canada, and Mexico.
• To the extent practicable, an analysis of the effects of current FTZ policies and practices in the United States, Canada, and Mexico on the cost-competitiveness of products of firms operating in these FTZs.

But before we ask our pundits about the future implications of this investigation on the FTZ program, let’s look at how we got here.

• Dec 14, 2021: The Office of the United States Trade Representative (USTR) issued a letter to the USITC requesting a fact-finding investigation on FTZ production and similar programs in Canada and Mexico.
• Jan 31, 2022: ?Notice of investigation was published in the Federal Register.
• May 17, 2022: The USITC holds public hearing in connection with the investigation.
• August 2022: USITC sends questionnaire to FTZ Operators with production authority.
• October 6, 2022: Deadline for FTZ Operators to submit questionnaire responses.
• April 14, 2023: USITC expects to submit its public report to the USTR.

This is essentially like the NCAA asking the NCAA Committee on Infractions to perform research with an intent to uphold the integrity of the game, which leads us to our first question of the day.

What Does This Investigation Mean for the Future of FTZs?

Matt, we’ll start with you.

Matt: The Investigation will take FTZs from the red zone to the end zone.

Thanks, Matt’s Brain.

This investigation has been a long time coming. Under the old NAFTA rules, goods produced in FTZs were excluded from receiving preferential-duty treatment, even if they met NAFTA rules of origin. These rules carried through to the United States-Mexico-Canada Agreement (USMCA), which entered into force on July 1, 2020. But we now live in a world where U.S. companies need to be more agile to remain competitive and this report will provide both USTR and Congress with the analytics to back that up.

There is already support and acknowledgement of this point in Congress. On December 1, 2020, Senator John Cornyn (R-TX) led a letter to the USTR emphasizing the need to revisit these rules. Additionally, on June 24, 2021, Senator Cornyn introduced a bi-partisan bill urging the USITC to investigate three things related to FTZs.

• policies, particularly differences in tariff treatment by the U.S. and Canada and Mexico, that create inequities between products manufactured FTZs and products manufactured in the equivalent of such zones in Canada and Mexico under the USMCA
• any effects those policies have on the cost-competitiveness of products manufactured in the U.S.
• how FTZs could be better employed to redress and mitigate those inequities

And, coincidently, here we are now. If the NCAA can change their system from BCS to football playoffs led by a committee, I think Congress could amend a law to align with the realities of trade.

Matthew A: This Investigation will be punted, like everything else in Congress.

Now look, I have the highest respect for Senator Cornyn and friends. I am sure they have everyone’s best interest at heart. However, I have been around for a long time, and this isn’t my first rodeo. BUT YOU MEAN TO TELL ME that this investigation will lead to a report that forces Congress to make a decision?! The BLASPHEMY! The UNMITIGATED GAUL!

I’m here to tell you right now, IT WON’T! *bursts into laughter* IT WON’T!

They say that this investigation is to produce a report that will examine the effects of FTZ policies and practices on U.S. Firms, but their questionnaire is FLAWED!

Did the questionnaire include FTZ Grantees, who are often economic development entities working directly with potential foreign direct investment companies?!

NO!

Did the questionnaire include FTZ warehouse and distribution activity that is used in U.S. production?!

NO!

Did the questionnaire include input from U.S. manufacturers that chose to not utilize an FTZ, to better understand the negative impacts of the USMCA rule?

NO!

The NAFTA rules were good enough back when trade was trade. These proposed USMCA rules are SOFT! And if you think this report will lead to any change, you have been hoodwinked, bamboozled, led astray, run amok, and flat-out DECEIVED!

Matt’s Brain:

Well now, there you go. Up next, we will look at the Top 25 list of States for merchandise received into FTZs with Production Activity. And, spoiler alert, there is a tie for the State with the biggest upward move. I will ask our pundits to give their game ball to who they think is most deserving. We’ll be right back, after this message.

Commercial Break

Are you an FTZ professional with a membership in the National Association of Foreign Trade Zones (NAFTZ)? If not, you should be and can become a member here!

But if you are, here is a reminder that your membership officially expires on Dec 31, 2022. You can renew after logging in here. I’m not only a member, but a co-chair on the Membership Committee. Whether your focus is networking, advocacy, or education, NAFTZ has opportunities for you to grow in your professional career!

For any questions about the renewal process, please contact Kristine Wells. Again, that is Kristine Wells.

NAFTZ. Partnership. Pride. Prosperity.

Top 25 List

Matt’s Brain: Aaaand we’re back.

This segment, we will be looking at the Top 25 list of States for merchandise received into FTZs with Production Activity. If you need a refresher on how the FTZ Board defines “merchandise received” or categorizes the values, check out Top 25 States for FTZ Activity (Merchandise Received). Let’s jump right in.

Nine states climbed the charts since 2020, but when it comes to climbing the most, we have a tie! Which makes me pose the question.

Who Gets Your Game Ball? Reno, NV or Wilmington, DE?

Matt: Wilmington may be small, but it has a motor that doesn’t quit.

The obvious answer, and winner of my game ball, is Wilmington, DE.

• While the number of production companies remained at two, the value of merchandise received grew from $1.075B - $5.1B to $1.1B - $5.25B.
• Delaware received $2B from the Bipartisan Infrastructure Law, signed by President Biden, to invest in transportation infrastructure enhancements.
• Wilmington cares about FTZ 99, which is evident by their promotional video.
• Manufacturing activity in Delaware supports roughly 6% of the workforce.
• Eight international airports are within 150 miles of FTZ 99.

Matthew A: Put it all on Reno, NV!

Analytics shmanalytics, I’m putting it all on Reno!

Here is a number for you. ZERO! That’s the percentage of individual and business state income tax.

Nevada also has two production companies in FTZ 126. You may have heard of one. Ever heard of TESLA?! They aren’t going away anytime soon, except maybe to MARS!

Nanotech Energy, the world’s leading manufacturer of graphene and only producer of non-flammable, graphene-based batteries announced construction of a 517-acre multiple building manufacturing facility in the Tahoe Reno Industrial Center. Now I don’t know what a non-flammable graphene-based battery is, but I know what it sounds like. And it sounds like JOBS AND MONEY!

59 companies relocated to the Greater Reno-Sparks-Tahoe area. 29 of those were corporate headquarters. This will lead to 5,600 jobs in the next five years. If you build it, they will come!

Someone call Reno 911, because FTZ 126 is about to be ON FIRE!

Matt’s Brain:

Wow! Strong arguments from both sides, but I’m going to have to cut our pundits off. Thanks for tuning in and here is one last take.

Last Take

As always, give a shoutout to anyone you know on any of the teams in this Top 25 list. And let me know your thoughts on the USITC Investigation in the comments.

Thanks for reading and hope you enjoyed the new format. If not, come back next week to see if it changes back.