What can other countries learn from US foreign trade zones?

Back in January, as I sat in the “Fundamentals of U.S. Foreign Trade Zones” (FTZs) class in Austin, Texas, I was looking for answers to two questions.

• “What can I learn from the way the US runs its FTZ regime that I can bring to my government clients worldwide for their Special Eeconomic Zone regimes?” and
• “Are there actually things that other countries are doing that hold lessons for the U.S. FTZs?”

After several moments of epiphany during the event with regard to these two questions, I discussed some of my experiences and takeaways with various board members of the event organizer, the U.S. National Association of Foreign Trade Zones (NAFTZ), who then invited me to be the keynote luncheon speaker at their annual Legislative and Regulatory Seminar on February 10, in Washington.

Over beef stroganoff and fresh salad, I gave the 80 participants a whirlwind virtual tour of SEZs worldwide and lauded the best practices that I could use as U.S. models for my client countries, in particular investor-friendly and innovative aspects of the US FTZ regime from which other countries can learn:

• “Smart incentives,” including the ability for FTZ companies selling into the local U.S. market to choose either the value of the end product or the sum of some group of components as the basis for calculating the duties owed to Customs.
• The ability for FTZ companies to pay a single, weekly introduction fee for containers for FTZs – equivalent to a single container’s fee – instead of a fee for each container.
• The Alternative Site Framework (ASF) established in 2009, which allows a large tract of land, often associated with the boundaries of several counties, to be designated as an FTZ.  However, nothing in that area is actually “activated” (i.e., a bona fide FTZ company with all the associated benefits) until, one by one, companies apply for the automatic grant of FTZ benefits of either some or all of its buildings.

But what about the second question: about things that other countries are doing that might be useful ideas for U.S. FTZs? The NAFTZ Board had instructed me not to shy away from provocative ideas, and indeed I had found an area which I felt to be Achilles’ heels of the US FTZ regime.

The US FTZs are highly geared toward production, assembly or logistics.  Yet Business Insiderrecently published an article in which 11 out of the 14 industries projected to “boom in the next decade” are in the services industries. Are the US FTZs well-positioned for riding the crest of a great, upcoming services industry wave?  I doubt it, and I believe that several international zones, such as Hong Kong’s Cyberport and Dubai Media World, can show the way on how to improve the future competitiveness of the US FTZs.

My big takeaway from these two experiences was that South-to-South learning is vital for our client countries worldwide, without doubt.  However, we often forget that developed economies may have some interesting lessons to glean from at our own backyards in the developed world.  And yet, even a country like the United States can learn from some of the practices buried in the backyards of our client countries.

This article is published in collaboration with The World Bank’s Private Sector Development Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Martin Norman is a Senior Private Sector Development Specialist in the Competitive Industries practice of the World Bank Group

Image: A container ship is seen departing. REUTERS/Andy Clark.