California-based electric vehicle and clean energy company Tesla is seeking to have its Giga Texas production facility recognized as a foreign trade zone in the United States, which, if approved by Travis County, Texas commissioners and the Federal Trade Zones Board, will save the company $270,000 USD per year.
The Travis County Commission supports the effort by Tesla, which bodes well for Tesla as part of the application process. The company plans to begin production at the new Texas facility later this year.
Tesla is trying to take advantage of the U.S. Foreign Trade Zones (FTZ), defined as a geographical area in, or adjacent to, a U.S. port of entry, where commercial merchandise, both domestic and foreign receives the same customs treatment it would if it were outside the commerce of the United States.
The purpose of such zones is to help American businesses to be competitive in the global economy by reducing tariff burdens on the importation of foreign inputs and on exported finished products. Merchandise of every description may be held in the zone without being subject to tariffs (customs duties) and other ad valorem taxes.
This tariff and tax relief is designed to lower the costs of U.S.-based operations engaged in international trade and thereby create and retain the employment and capital investment opportunities that result from those operations.
U.S. domestic companies and international firms tend to overlook the strength of the U.S. FTZ, and a FTZ is more a concept that international businesses see in China or United Arab Emirates.
Most FTZs are located in developing countries such as Brazil, Indonesia, the Philippines, Nigeria, Mexico, Guatemala or Kenya.
The aforementioned China and UAE are infamous in the establishment of free-trade and special economic zones to help benefit foreign firms looking to take geographical advantage of the jurisdiction without having to import goods into the country.
But FTZs have a long history in the U.S.
Congress passed the Foreign-Trade Zones Act of 1934, and created a Foreign-Trade Zones Board to review and approve applications to establish, operate, and maintain foreign-trade zones.
Since then, more than 230 FTZ projects have been approved across the U.S. alongside nearly 400 sub-zones.
U.S. FTZs pose multiple benefits other than duty deferred and inverted tariff, which companies can use to benefit their bottom line. Some of the benefits of operating a FTZ include:
Improved inventory management
Automated record-keeping and document storage
Increased visibility of the supply chain
Improved cash flow
Improved company compliance
Lessened U.S. regulatory agency requirements for re-export
AmChamUS always seeks negotiated trade and investment agreements that are fair and accountable, which create a level playing field, and puts American families and workers first.
By utilizing an FTZ in the U.S., companies are including the U.S. in a business’ global supply chain, create more employment opportunities within the U.S., and contribute to healthy and mutually beneficial commerce between the U.S. and other countries around the world.