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Foreign trade zones in the United States: A study with special emphasis on the proposal for trade agreement parity

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Author Info

  • Belay Seyoum
  • Juan Ramirez
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    Abstract

    Purpose – In 2008, a bill was introduced in the 110th Congress (HR6415) to address the “unintended consequences” of US free trade agreements (US FTA) on manufacturers operating in US foreign trade zones (FTZs). Presently, US manufacturers operating in FTZs that use imported components pay a tariff (on finished goods entering the US market), which is not paid by their competitors in countries that have free trade agreements (FTAs) with the USA. The purpose of this paper is to explore the implications of a legislative proposal to address this issue (the bill is still under consideration and not yet been passed by Congress) for domestic firms and the overall economy. Design/methodology/approach – The paper is largely based on the analysis of the legislative proposal (HR6415), and US trade data obtained from the United Nations. Findings – The paper shows that the trade agreement parity (TAP) proposal may have the undesirable effect of encouraging local firms (in US FTZs) to use foreign components and increasing the trade deficit. It also shows that the proposal, by facilitating the entry of more foreign imports undermines the original purpose for which FTZs were designed. Originality/value – There are no papers examining the implications of this Congressional bill on domestic competition and the overall US economy. This paper and its recommendations will help US policymakers to re-evaluate the existing proposal and also revisit the role of FTZs in the US economy.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 39 (2012)
    Issue (Month): 1 (January)
    Pages: 13-30

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    Handle: RePEc:eme:jespps:v:39:y:2012:i:1:p:13-30

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Related research

    Keywords: Foreign trade; Foreign trade zones; Free trade; International trade; Legislation; Trade agreement parity; United States of America;

    References

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    1. Edward Nissan & Farhang Niroomand, 2009. "Geographic and income anatomy of international exports," Journal of Economic Studies, Emerald Group Publishing, vol. 36(1), pages 5-16, January.
    2. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
    3. Abdol S. Soofi, 2009. "China's exchange rate policy and the United States' trade deficits," Journal of Economic Studies, Emerald Group Publishing, vol. 36(1), pages 36-65, January.
    4. Patriya S Tansuhaj & James W Gentry, 1987. "Firm Differences in Perceptions of the Facilitating Role of Foreign Trade Zones in Global Marketing and Logistics," Journal of International Business Studies, Palgrave Macmillan, vol. 18(1), pages 19-33, March.
    5. Jorge M. Andraz & Paulo M.M. Rodrigues, 2010. "What causes economic growth in Portugal: exports or inward FDI?," Journal of Economic Studies, Emerald Group Publishing, vol. 37(3), pages 267-287, September.
    6. Ananda Jayawickrama & Shandre M. Thangavelu, 2010. "Trade linkages between China, India and Singapore: Changing comparative advantage of industrial products," Journal of Economic Studies, Emerald Group Publishing, vol. 37(3), pages 248-266, September.
    7. Young, Leslie, 1987. "Intermediate goods and the formation of duty-free zones," Journal of Development Economics, Elsevier, vol. 25(2), pages 369-384, April.
    8. Chien-Hsun Chen, 1996. "Regional determinants of foreign direct investment in mainland China," Journal of Economic Studies, Emerald Group Publishing, vol. 23(2), pages 18-30, May.
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