BILL ANALYSIS Ó
AB 1444
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 1444
(Eduardo Garcia) - As Introduced February 27, 2015
SUBJECT: Foreign-trade zones
SUMMARY: Expands the type of applicants California law recognizes
under the federal Foreign Trade Zone Act of 1934 to include
applications submitted by a federally recognized tribal government.
EXISTING FEDERAL LAW, the Foreign-Trade Zones (FTZ) Act of 1934,
establishes a process for a public corporation and a private
corporation to become designated as a FTZ. The implementing federal
regulations require, among other things, that the eligibility of grant
applicants be supported by enabling legislation from the state in
which the FTZ is to be located, indicating that the applicant,
individually or as part of a class, is authorized to apply.
EXISTING STATE LAW authorizes public and private corporations to apply
for a FTZ designation. A public corporation is defined as the state,
any political subdivision thereof, any incorporated municipality
therein, or any corporate municipal instrumentality of the state, or
of this state and one or more other states. Private corporations must
be formed for the specific purpose of establishing, operating, and
maintaining a FTZ.
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FISCAL EFFECT: None
POLICY ISSUE FRAME:
This bill proposes to change state law to more clearly reflect the
sovereignty of tribal governments relative to their application for
FTZ designation. By practice, the FTZ Board has approved a number of
FTZ designations involving tribal government applicants by using the
public corporation category. Multiple models have been used,
including direct designation authority, as seen in Washington and
Oregon, and having the FTZ located on tribal lands with another entity
having the operational responsibility, as in Oklahoma.
While a tribal government is a public entity, a tribal government is a
separate public entity from the state or states in which their lands
are surrounded. Existing state law says that the public corporation
applicant must be the State of California, a political subdivision of
the state or a municipality. AB 1444 establishes a second public
entity category, which more accurately reflects tribal government
sovereignty.
The Comments section of the analysis includes the author's statement,
information on FTZ, the importance of foreign trade to the California
economy, and related legislation.
COMMENTS:
1)Author's Purpose: According to the author's statement, "By
practice, the FTZ Board has approved FTZ designations that have been
applied for by tribal governments using the public corporation
category. Multiple models have been approved by the FTZ Board,
including direct designation authority, as seen in Washington and
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Oregon, and having the FTZ being located on tribal lands with
another entity having the operational responsibility, as in
Oklahoma. Tribal governments are, however, not a political
subdivision of the state nor municipality. AB 1444 updates
California's law to reflect the sovereignty of tribal governments."
2)Background on FTZs: The FTZ program is a federal economic
development tool, which is used to attract manufacturing and product
assembly that may otherwise be undertaken in a foreign country. In
addition, FTZs strengthen the competitiveness of U.S. companies to
participate within global supply chains.
Businesses benefit from special FTZ custom procedures, which allow
domestic activity involving foreign items to take place prior to its
official entry into U.S. Customs. Among other advantages, duty-free
treatment is accorded items that are re-exported and duty payment is
deferred on items sold in the U.S. market. When merchandise is
manufactured in zones, users have the option of paying duties at the
finished product rate.
Another FTZ advantage is the exemption from state and local ad
valorem taxes. This applies to tangible personal property imported
from outside the U.S. and held in a zone for the purpose of storage,
sale, exhibition, repackaging, assembly, distribution, sorting,
grading, cleaning, mixing, display, manufacturing, or processing,
and tangible personal property produced in the U.S. and held in a
zone for exportation, either in its original form or as altered by
any of the above processes.
Taken together, the FTZ custom treatment and state and local tax
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provisions are designed to help offset advantages available to
overseas producers who compete with producers located in the U.S..
There are 250 FTZ in the U.S. with 16 located in California.
3)Application Procedures: Each zone is managed locally by the
"grantee" organization, which is generally a public or non-profit
organization focused on trade or economic development. Designation
authority is awarded by the Foreign-Trade Zone Board (Board), which
is comprised of the U.S. Secretary of the Treasury and the U.S.
Department of Commerce, who serves as chair.
Among other evaluation criteria, the Board is required to base its
evaluation on such factors as market conditions, price sensitivity,
degree and nature of foreign competition, intra-industry and
intra-firm trade, effect on exports and imports, ability to conduct
the proposed activity outside the U.S., and net effect on U.S.
employment and the U.S. economy.
Once the FTZ authority is granted by the Board, the grantee must
submit an application to the U.S. Customs and Border Protection
which is responsible for overseeing the local port of entry. This
second process is referred to the FTZ activation process and
generally includes steps such as background checks, a written
procedures manual, posting a bond with the U.S. Customs and Border
Protection, as well as a review of the security of the site(s) and
the proposed inventory control methods. On a day-to-day basis, the
U.S. Customs and Border Protection is responsible for overseeing
activities within the FTZ.
4)Magnet Sites and Subzones: As initially implemented, the boundaries
of most FTZs included seaports or airports, as well as some
industrial parks. The FTZ operated as a magnet site which could be
used by multiple businesses. Subzones were developed as unique
usage-driven sites, which are approved for a specific company.
Designations of a subzone may also include the use of an
"Alternative Site Framework," which is described by the Board as
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being a quicker and simpler process for designating a subzone at a
specific company's facility, usually a manufacturing or processing
plant.
In addition to the 250 FTZs, there are 500 subzones in the U.S. The
largest industry subsector currently using zone procedures is the
petroleum refining industry. Significant zone manufacturing also
occurs in the automotive, electronic, and pharmaceutical product
areas. California's 16 FTZs have 37 related subzones operated by
the following companies: Chevron, Hewlett-Packard, National RV,
Skechers USA, LLC, Sony Electronics, Inc., and Valero Refining
Company-California
5)Importance of Trade to the California Economy: A key driver of
California's $2.2 trillion economy is trade is the production and
delivery of goods and services within an expanding global
marketplace. California's 2013 GDP places it as the eighth largest
economy in the world. When the 2014 GDP numbers are formally
released by the California Department of Finance in June 2015, some
anticipate that California will rank seventh.
In 2014 California exported $174 billion in products as compared to
$168 billion in 2013 and $162 billion in 2012. Mexico remained
California's largest export market, where the value of exports
totaled $25.4 billion in 2014. After Mexico, California's top export
markets in 2014 were: Canada ($18.2 billion); China ($16.0 billion);
Japan ($12.3 billion); South Korea ($8.6 billion); Hong Kong ($8.5
billion); Taiwan ($7.5 billion); Germany ($5.4 billion); the
Netherlands ($5.4 billion); and India ($5.3 billion).
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California's top five exports in 2014 were: Computer & Electronic
Products ($42.7 billion); Transportation Equipment ($18.7 billion);
Machinery, Except Electrical ($14.9 billion); Miscellaneous
Manufactured Commodities ($14.6 billion); and Chemicals ($14
billion). It is important to note that significant portions of
these five export categories include parts and semi-assembled
products, which underlies both California's importance within and
dependence on global supply chains.
Another important component of global supply chains are the ability
of states to import products quickly and efficiently. China is the
largest source of imports into California. The 2014 value of
Chinese imports was $137.7 billion, followed by Mexico ($41.3
billion); Japan ($38.3 billion); and Canada ($27.9 billion).
6)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) AB 311 (V. Manuel Pérez) I-Bank California-Mexico Border
Assistance: This bill would have expanded the role of the I-Bank
to include facilitating infrastructure and economic development
financing activities within the California and Mexico border
region. Status: Died in the Assembly Committee on
Appropriations, 2014.
b) AB 337 (Allen) Economic Development: International Trade and
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Investment Strategy: This bill adds specificity to the
development and content of the state international trade and
investment strategy (ITI Strategy), which is an existing report
requirement of the Governor's Office of Business and Economic
Development (GO-Biz). This bill requires the ITI Strategy to be
based on current and emerging market conditions and the needs of
investors, businesses, and workers. Specific new content
requirements include the addition of a framework, which can be
used by GO-Biz to evaluate the changing needs of business during
the five-year term of the ITI Strategy. Status: Signed by the
Governor, Chapter 776, Statutes of 2014.
c) AB 886 (Allen and Ian Calderon) Importer-Exporter Tax Credit:
This bill would have authorized a five-year $500 million tax
credit program for importers and exporters that increase cargo
through in-state airports and seaports, hire additional staff, or
incur capital costs at a California cargo facility. Status:
Held on the Suspense File of the Assembly Committee on
Appropriations, 2013.
d) AB 1137 (V. Manuel Pérez) Small Business Assistance and
Attracting Private Investment: This bill would have facilitated
local economic development and job creation by assisting small
businesses to access new export markets for their goods and
services, updating the law relating to FTZs, and authorizing the
use of new federal funds under the Small Business Jobs Act of
2010. Status: Held in Senate Committee on Appropriations, 2012.
e) AB 1400 (Assembly Committee on Jobs, Economic Development, and
the Economy) Export Document Certificates: This bill modifies
the state's Export Document Program to accept requests
electronically, expedite approval of existing labels, and extend
the term of the export labels from 180 days to 365 days, in order
to alleviate backlog of exports of food, drugs, and medical
devices. Status: Signed by the Governor, Chapter 539, Statutes
of 2013.
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f) AB 2012 (John A. Pérez) Economic Development Reorganization:
This bill transfers the authority for undertaking international
trade and foreign investment activities from the Business,
Transportation and Housing Agency to the Governor's Office of
Business and Economic Development. Status: Signed by the
Governor, Chapter 294, Statutes of 2012.
REGISTERED SUPPORT / OPPOSITION:
Support
None received
Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090