Another FTZ Denied When U.S. Textile Industry Offers to Supply the Articles

On August 22, 2018, the Foreign Trade Zone Board published in the Federal Register (83 FR 42461) Additional Production Authority Not Approved; The Coleman Company, Inc.; Subzone 119I (Textile-Based Personal Flotation Devices); Sauk Rapids, Minnesota

The Board adopts the findings and recommendations of the examiner's report, and finds that the requirements of the FTZ Act and the Board's regulations have not been satisfied.

EXAMINER'S REPORT EXECUTIVE SUMMARY

• Currently pending before the Foreign-Trade Zones (FTZ) Board (the Board) is an application requesting authority for The Coleman Company, Inc. (Coleman) to produce personal flotation devices (PFDs) at Coleman’s plant in Sauk Rapids, Minnesota. Under the Board’s regulations, the Board may only approve an application requesting production authority if the activity is not inconsistent with the "threshold" (trade policy) evaluation factors and if approval would result in a net positive economic effect and a significant public benefit(s) – with the burden of proof on the applicant.
• The primary FTZ benefit that Coleman seeks through the pending application pertains to imported textile fabrics used to produce PFDs for the U.S. market. For such production, Coleman seeks to pay the finished PFD duty rate (4.5% to 7.0%) on the value of the imported fabrics (otherwise dutiable at up to 17.2%). Coleman’s application is supported by certain U.S. suppliers, the Outdoor Industry Association and certain elected officials, and is opposed by certain U.S. textile producers and textile industry associations and certain elected officials. Coleman and supporters of the application express that approval would improve the competitiveness of its Minnesota plant relative to offshore alternatives. The parties opposing the application express that approval would result in negative effects on U.S. textile producers that are capable of producing the types of fabrics for which Coleman seeks FTZ benefits on imports.
• The case record indicates that Coleman's requested FTZ authority would reduce the cost to produce PFDs at its Sauk Rapids plant, but that production of PFDs at the plant fundamentally depends on other factors unrelated to FTZ authority. As such, there does not appear to be a significant potential positive impact on activity or related employment at the plant attributable to FTZ authority (and therefore no significant resulting secondary effects on domestic suppliers attributable to FTZ authority). Further, the record contains evidence of a potential negative impact from FTZ authority on U.S. textile producers (which would extend to potential negative secondary effects on those textile producers' suppliers). Overall, analysis of the case record does not indicate that Coleman has met the burden of proof to demonstrate that approval would result in a net positive economic effect (i.e., that potential positive effects attributable to FTZ approval would outweigh potential negative effects). Without the regulatory standards for approval being met, the examiner is unable to recommend approval.
• Recent presidential actions stress the importance of supporting the U.S. manufacturing base – which would include domestic producers of the types of textile materials which Coleman seeks to import under its requested FTZ authority. For example, Presidential Proclamation (PP) 9627 (July 17, 2017) states, in part, that '[m]y Administration recognizes the critical connection between a strong manufacturing base and a thriving economy,' and Executive Order (EO) 13806 (July 21, 2017) states, in part, that "the ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains." The recommendation not to approve the Coleman application is consistent with these policies.

The Board adopts the findings and recommendations of the examiner's report, and finds that the requirements of the FTZ Act and the Board's regulations have not been satisfied.

EXAMINER'S REPORT EXECUTIVE SUMMARY

• Currently pending before the Foreign-Trade Zones (FTZ) Board (the Board) is an application requesting authority for The Coleman Company, Inc. (Coleman) to produce personal flotation devices (PFDs) at Coleman’s plant in Sauk Rapids, Minnesota. Under the Board’s regulations, the Board may only approve an application requesting production authority if the activity is not inconsistent with the "threshold" (trade policy) evaluation factors and if approval would result in a net positive economic effect and a significant public benefit(s) – with the burden of proof on the applicant.

• The primary FTZ benefit that Coleman seeks through the pending application pertains to imported textile fabrics used to produce PFDs for the U.S. market. For such production, Coleman seeks to pay the finished PFD duty rate (4.5% to 7.0%) on the value of the imported fabrics (otherwise dutiable at up to 17.2%). Coleman’s application is supported by certain U.S. suppliers, the Outdoor Industry Association and certain elected officials, and is opposed by certain U.S. textile producers and textile industry associations and certain elected officials. Coleman and supporters of the application express that approval would improve the competitiveness of its Minnesota plant relative to offshore alternatives. The parties opposing the application express that approval would result in negative effects on U.S. textile producers that are capable of producing the types of fabrics for which Coleman seeks FTZ benefits on imports.

• The case record indicates that Coleman's requested FTZ authority would reduce the cost to produce PFDs at its Sauk Rapids plant, but that production of PFDs at the plant fundamentally depends on other factors unrelated to FTZ authority. As such, there does not appear to be a significant potential positive impact on activity or related employment at the plant attributable to FTZ authority (and therefore no significant resulting secondary effects on domestic suppliers attributable to FTZ authority). Further, the record contains evidence of a potential negative impact from FTZ authority on U.S. textile producers (which would extend to potential negative secondary effects on those textile producers' suppliers). Overall, analysis of the case record does not indicate that Coleman has met the burden of proof to demonstrate that approval would result in a net positive economic effect (i.e., that potential positive effects attributable to FTZ approval would outweigh potential negative effects). Without the regulatory standards for approval being met, the examiner is unable to recommend approval.

• Recent presidential actions stress the importance of supporting the U.S. manufacturing base – which would include domestic producers of the types of textile materials which Coleman seeks to import under its requested FTZ authority. For example, Presidential Proclamation (PP) 9627 (July 17, 2017) states, in part, that '[m]y Administration recognizes the critical connection between a strong manufacturing base and a thriving economy,' and Executive Order (EO) 13806 (July 21, 2017) states, in part, that "the ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains." The recommendation not to approve the Coleman application is consistent with these policies.

SELECTED POINTS FROM THE EXAMINERE'S REPORT

• The record of this proceeding indicates the potential for approval of expanded FTZ production authority to play a positive, contributory role for Coleman’s Sauk Rapids plant. However, the record does not demonstrate that such a potential positive effect on Coleman’s activity/employment attributable to FTZ authority – as opposed to resulting from other factors cited above – would outweigh potential negative effects for U.S. fabric suppliers or other U.S. PFD producers. Taking into account the final recommendation of OTEXA – as well as all other information, evidence and argument on the record of this proceeding – the examiner’s finding is that the applicant has not met its burden of proof to demonstrate that approval would result in a net positive economic effect and significant public benefit(s).

• [T]he types of textile materials that Coleman seeks to import under its requested FTZ authority are also produced by one or more remaining domestic manufacturers. Such U.S. manufacturers have been the focus of a range of recent presidential actions explaining the Administration’s trade policy. One example is PP 9627, which states in part:

  My Administration recognizes the critical connection between a strong manufacturing base and a thriving economy. I am committed to promoting American manufacturing, opening markets around the world for our producers, and protecting our businesses from unfair trade practices.

• Another example is EO Order 13806, which states in part:

  A healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States. The ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains. Modern supply chains, however, are often long and the ability of the United States to manufacture or obtain goods critical to national security could be hampered by an inability to obtain various essential components, which themselves may not be directly related to national security. Thus, the United States must maintain a manufacturing and defense industrial base and supply chains capable of manufacturing or supplying those items.

• The recommendation not to approve the Coleman application is consistent with the policy set out in PP 9627 and EO 13806, and with other recent presidential actions intended to support the U.S. manufacturing base.