Textile FTZ Approved with Quantitative and Time Limitations

On June 1, 2020, the Foreign-Trade Zone Board published in the Federal Register (85 FR 33087) Approval for Production Authority; Foreign-Trade Zone 158, MTD Consumer Group Inc. (Textile Grass-Catcher Bags), Verona, Mississippi. The MTD facility is used for the production of lawn and garden equipment. MTD uses imported components to manufacturer the equipment and pays import duty as high as 9%. Imported lawn and garden equipment has import duty ranging from zero to 2.4%. This situation, where the imported components have higher duty that the finished product, is known as a "tariff inversion" and can work as an incentive to import the finished product rather than manufacturing it in the U.S. In such a case the manufacturer can seek tariff relieve through the use of Foreign-Trade Zone procedures. This would allow them to import the components with no duty, manufacture the equipment in the U.S., and then, when the equipment enters U.S. commerce, pay duty on the value of the foreign components, but at the lower rate applicable to the finished product.

MTD first applied for authorization to use FTZ procedures in 2016. The list of imported components was extensive and included textile fabric grass catchers. The domestic U.S. textile industry has consistently, and almost always successfully, opposed FTZ procedures for imported textile components if there is any domestic production of the component. In January 2017, the FTZ Board authorized FTZ procedures for all but the textile input, which would continue to be subject to 3.8% import duty.

Since then MTD has continued to press to get the textile component authorized for FTZ procedures, with additional filings in 2018 and 2019. The U.S. textile industry continued to oppose, as in this letter from the National Council of Textile Organizations. MTD responded with this letter.

As noted above, the domestic textile industry has been successful in most cases in blocking FTZ filings they consider adverse to their interest. And in the cases where they not been able to stop the petition entirely, they have typically been able to get a cap on the imported quantity that does not exceed the petitioner's historic trade, and a time limitation to allow for a revisiting of the question. In this case The annual quantitative volume of textile grass-catcher bags that MTD may admit into FTZ 158 and avoid the tariff inversion is limited to no more than 2.3 million bags and the authority (with quantitative restriction) shall remain in effect for a period of five years.