Logistics Management Group News Editor Jeff Berman spoke with Jeff Tafel, president of the Washington, D.C.-based National Association of Foreign-Trade Zones. Topics covered included: the impact of the recent removal of the de minimis exemption on Foreign Trade-Zone activity, the mission of the NAFTZ, and the impact of tariffs, among others. Their conversation follows below.
Logistics Management (LM): Can you please provide an overview of the National Association of Foreign-Trade Zones (NAFTZ)?
Jeff Tafel: What NAFTZ is all about, and what we’ve been about for the last 52 years now is representing all of the member organizations that are using the FTZ program. So, we’ve got users and operators alike, and also the grantees. Grantees tend to be economic development or similar offices within a geography that been given federal government permission to establish zone activities within a certain geography. We have the grantees as members, and then there are plenty of service providers as well. Most people that are using an FTZ have a software platform that’s going to connect their inventory management system with ACE (Custom Border and Protection’s Automated Commercial Environment system) and be that bridge between the two, serving as consultants for folks that are interested in either getting into the FTZ program or maybe expanding operations. There’s a lot of devils in the details-kind of thing about Foreign Trade Zones. So, having a consultant is something that we often recommend, and they are members of the association as well. As a professional association, we are their voice for education and advocacy. At the present time, we are at, by far, an all-time high in membership, which has a lot to do with how much things have been in the news lately. More people are just discovering the FTZ program, because the government does not actively promote it. A lot of the grantees obviously promote the program, but they can’t reach everyone either.
LM: Regarding the expiration of de minimis, how do you view in terms of the overall implications and ramifications, as well as what it means for the different types of industry stakeholders that comprise NAFTZ membership? [Editor’s note: This interview was conducted shortly before the late August expiration of the de minimis exemption]
Tafel: FTZ has been advocating for parity, for Foreign Trade Zones under de minimis. As previously, FTZ’s were not allowed to use the de minimis program to bring materials into the U.S. stream of commerce. One of the things that we had put out there that would bring parity is just elimination of de minimis altogether. What we had seen before this change was announced was the exodus of tens, if not hundreds of thousands of jobs and warehousing to Mexico, and especially Canada. You could not find warehouse space in Canada to do e-commerce in the last couple of years, to save your life. So many jobs have been moved across the border, and companies were just staging the e-commerce activity across the border and then shipping all those orders in under de minimis. With this change, we certainly think that it makes FTZs a much more viable option for a lot of organizations, especially for the duty deferral benefit, since you can bring anything into the zone, not pay the taxes and duties until it actually leaves for the U.S. stream of commerce. It makes a whole lot of sense, especially without the de minimis in place, as a great tool. Before this, foreign sellers had a significant advantage over U.S. operations in being able to bring those items into the country via de minimis and e-commerce individually, and do that with no tariffs. And I know we had some members that were really challenged, and a couple that ended up filing for bankruptcy, primarily because of e-commerce and de minimis. It was a real threat to a number of American operations, and we’re happy to see that that playing field has been leveled.
LM: How do you see things progressing, as people kind of get their footing in this new environment?
Tafel: In the short term, companies are going to have to look at what this means to their supply chains, and how they handle distribution and all of that. We really think over the longer term, and maybe not too far away, really, companies looking at the FTZ program more as they see what all of their options are. And like I said, we really believe that the FTZ’s duty deferral provision is a very attractive opportunity for warehousing and hopefully brings some of those jobs back and or keeps them from continuing to go overseas, now that we’ve got that level trading field to play on.
LM: In communicating with your members, what’s sort of been the overarching message as it relates to key takeaways you’re trying to drive home?
Tafel: For us, it was just the fact that we finally have a significant win in this area, where, as I mentioned, we were just for many years, long before I came to the organization, where the association has really been pushing for this parity for Foreign Trade Zone-using companies. That’s really what we’re celebrating. It’s not exactly what we were asking for. We were just asking for parity originally, where just give us an even playing field with whatever the program details are. But now that this basically eliminates the program, that creates parity as well—so that’s a big win for us and for FTZs to really help to be an option to keep that warehousing up and those jobs here in the U.S., which is really what we are after in the first place, especially as we saw after Covid, the with the explosion of e-commerce, just how many warehousing jobs left the country
LM: Given all the tariff pauses, delays, and changes, has this year been like unlike any other in the FTZ world, as far as you can tell?
Tafel: That would be an understatement. I mean, bust out every superlative you can find to describe what the year has been. A lot of the systems, ACE included, are not built for this kind of rapidly changing tariff environment. There’s been some challenges in systems, both from the government and just having to make changes that systems weren’t originally designed to support. We’re seeing a lot of that kind of finally settling down. The system problems seem to have [been] eliminated or just been resolved for the most part. So, that’s been better, but just trying to keep up with what stays at the tariff rate and then what are the rules around certain things, like what if it was on the water when it was on way here, and all of those kinds of details, with the extra layer of regulations that FTZ users have, in addition to what every other importer has to do. That did add some level of complexity through all of this, because there were a lot of other detailed questions that kind of your standard importers don’t have to deal with.
LM: How do you think things may look, say, six-to-nine months from now, as your members get their footing in this new normal, if you will?
Tafel: Well, they can tell you, in some very real situations with a number of members they had plans ready to execute to move some warehouse operations outside of the U.S. because of de minimis. And now that this is being eliminated, I think they can finally act on those plans. We will see some expansion of warehousing here in the U.S. as a result, too. And we are hoping that folks will take a look at the FTZ program in the meantime, so that they can further invest in jobs and investments here in the U.S. I think we’ll see that pretty quickly, once everybody feels like this is good to go, and I think we’ll see a lot of those jobs start staying here. That would be the biggest benefit that I see coming out of this in probably in pretty short order. And then down the road, there’s been so much controversy on the Hill about what to do with de minimis, I highly doubt that we’ll see many changes anytime soon in terms of bringing de minimis back in any way, shape or form as it was being used because of the real issues it was causing, and really, with all the different options that were being thrown around on the Hill for the last couple of years of what to do with it. I think just its elimination is probably the best course of action.
