Summary

Pursuant to a congressional request, GAO provided information on the Foreign Trade Zones (FTZ) program, focusing on: (1) program growth; (2) the economic effects of subzones; (3) industry concerns about subzones; (4) the FTZ Board's operations and standards for approving new subzones; and (5) the effectiveness of the U.S Customs Service's supervision over zone activities.

GAO found that the: (1) FTZ program experienced dramatic growth, particularly in the automobile manufacturing industry, after 1950 amendments to the FTZ Act and regulatory changes authorized subzones, single large manufacturing facilities, and increased duty savings on inverted tariffs; (2) FTZ Act and FTZ Board regulations included minimal guidance on criteria for evaluating and approving proposed zones; (3) FTZ Board informally predicated subzone grants upon proof of a significant public benefit, but did not strictly adhere to this standard; (4) Board generally approved subzone applications and attempted to identify compromise solutions when applications were opposed, but was hesitant to take negative actions and allowed applications to remain pending for lengthy periods; (5) Board's continued approval of automobile industry subzones resulted in reduced federal revenues and lowered parts duty rates for automobile manufacturers, without any evidence of significant public benefit or meaningful savings or competitive advantage to the domestic industry; and (6) Board's small staff could not keep pace with the rising number of zone applicants and the increasing need for monitoring activity.