DEPARTMENT: Economic Development Department
DEPARTMENT HEAD: Rene Dominguez
COUNCIL DISTRICTS IMPACTED: City-wide
SUBJECT:
Foreign Trade Zone transition to the Alternative Site Framework model and authorization for the City Manager to execute future Foreign Trade Zone Operator Agreements.
SUMMARY:
In 1981 the Federal Foreign Trade Zones Board established Foreign Trade Zone (FTZ) #80 to promote San Antonio as a center for international trade. The FTZ program allows companies to reduce or defer their U.S. Customs duties on foreign-origin goods, which in turn lowers their cost of doing business and makes them more competitive internationally.
In 2009, the FTZ Board, a Federal body, created the Alternative Site Framework (ASF) as an administrative option to make the national program more efficient and responsive to business users. This change provides companies with the ability to apply for the FTZ designation as long as they are located within Zone #80. Previously, a company had to locate within one of several targeted areas within the Zone in order to qualify for the designation. In addition, the new site framework reduces the application process from 180 days to approximately 30 days.
Staff recommends City Council authorize the submission of an application to the U.S. Foreign Trade Zones Board to transition FTZ #80 to ASF to make the local program a more effective and efficient tool for economic development efforts.
As part of our update to this federal program, staff also recommends City Council grant the City Manager authority to execute FTZ Operator Agreements with prospective users of FTZ #80, which is administrative in nature. As grantee of the zone, the City enters into FTZ Operator Agreements with companies to permit them to take advantage of the FTZ program's benefits.
Both ordinances are designed to provide for a more effective and timely process.
BACKGROUND INFORMATION:
FTZ #80 was established by the U.S. Foreign Trade Zones Board and the City in November 1981 to promote the region as a center for manufacturing and international trade. Within FTZ #80, various designated sites are considered to be outside U.S. territory for U.S. Customs' purposes and for US tariff and other "duty" purposes. Therefore, within an FTZ, foreign-origin products may be unloaded and then transformed, assembled, tested, processed, repackaged, and re-exported to foreign markets without paying U.S. Customs duties. The reduced operating costs helps support local manufacturing operations by making them more cost-competitive. There are currently 11 sites with 2 active users.
In 2009, the U.S. Foreign Trade Zones Board identified a need to make the application process more efficient and responsive to businesses. To address this need, it created the ASF to better align the zones with actual usage by businesses and give grantees greater flexibility. The new framework reduces the application process from more than 180 days to as few as 30 days. More than 80% of all U.S. FTZs have transitioned to ASF. This action by City Council will allow a company to apply for the FTZ designation as long as they are located within Zone #80. Previously, a company had to locate within one of several specific areas within the Zone in order to qualify for the designation.
Staff also recommends an additional enhancement to the program that will increase speed and effectiveness. Before an FTZ site can be used, the company requesting activation must file a formal application with the zone's grantee (the City) and enter into an FTZ Operator Agreement with the City. The U.S. Foreign Trade Zones Board prescribes the requirements for operating FTZ designated sites and the terms of all FTZ Operator Agreements. Because of this, entering into FTZ Operator Agreements is an administrative function. In order to shorten lead times, staff recommends the City Manager, or her designee, be allowed to execute Operator Agreements.
ISSUE:
A. Interest in the FTZ program is anticipated to increase as the City continues to develop its international business program. A transition to ASF will make the City's FTZ program more efficient and a better economic development incentive.
B. Existing policy requires all FTZ Operator Agreements be approved by the City Council. To improve the process and shorten wait times for businesses significantly, staff recommends amending policy to give the City Manager, or her designee, authorization to execute FTZ Operator Agreements. This transfers an administrative function to the City Manager's Office.
ALTERNATIVES:
City Council may forgo approving the transition to ASF and the request to authorize the City Manager to execute future FTZ Operator Agreements. This would likely have a negative impact on the effectiveness of the FTZ program by maintaining the lengthy application process and reducing its effectiveness as an economic development incentive tool for new and existing businesses in the City.
FISCAL IMPACT:
There is no fiscal impact to the City.
RECOMMENDATION:
Staff recommends City Council adopt a Resolution authorizing the submission of an application to the U.S. Foreign Trade Zones Board for the transition of FTZ #80 to ASF. Staff also recommends approval of an Ordinance granting the City Manager authority to execute FTZ Operator Agreements on behalf of the City.