Foreign Trade Zones Program Needs Clarified Criteria

GAO discussed the rapid growth of trade zones activity and the criteria and processes that the Foreign Trade Zones Board used to award zone grants. GAO found that: (1) despite changes that allowed companies to manufacture products within zones, the zone program remained relatively small for 35 years; (2) key legislative and regulatory actions increased potential duty savings for manufacturing firms in zones and expanded the number of zones and subzones; (3) the most significant program change was the movement of virtually all of the U.S. auto industry into subzones; (4) the Board generally approved proposed subzones if the projected benefits justified zone construction and had few offsetting negative effects, but it did not require demonstration of significant public benefit or give consideration to the potential loss of tariff revenues; (5) by the end of September 1989, the Board had placed one or more conditions on manufacturing activity in 55 zones because of zone approval oppositions; (6) the Board continued to approve subzones for the auto industry even though the marginal savings provided neither meaningful competitive advantage against imported cars nor a significant incentive for locating production facilities in the United States, and resulted in unilateral lower tariffs on parts without obtaining compensating tariff reductions from other countries; (7) the Foreign Trade Zone Act permitted imposing zone restrictions in the public interest, but provided only minimal guidance on making zone grants; and (8) the Board's limited staff delayed zone application approvals and limited zone monitoring activities.