Q&A: Jeff Tafel, President of the National Association of Foreign Trade Zones

Logistics Management Group News Editor Jeff Berman spoke with Jeff Tafel, president of the Washington, D.C.-based National Association of Foreign-Trade Zones, or NAFTZ. Topics included: the impact of the recent removal of the de minimis exemption for lower-value good imports, the mission of the NAFTZ, and the impact of tariffs, among others. The conversation, which has been edited for clarity, follows below.

Logistics Management (LM): Can you please provide an overview of the National Association of Foreign-Trade Zones (NAFTZ)?

Jeff Tafel: For 50-plus years now, NAFTZ has been all about representing member organizations using the U.S. Foreign-Trade Zone, or FTZ, program. This includes users, operators, and grantees. The latter tend to be economic development offices, or similar entities, within a certain geographic region. These entities have been given permission by the federal government to operate zones that help businesses with cash-flow management, reduce logistical redundancies, and offer other longstanding economic perks.

Within NAFTZ, we count both grantees and service providers as members. The latter entails solution providers that allow FTZ users to sync their inventory management systems directly with the U.S. Customs and Border Protection’s (CBP) Automated Commercial Environment system, or ACE. Also among our membership: consultants who work with folks that are interested in either getting into the FTZ program or maybe expanding operations. With U.S. FTZs, the devil’s in the details. So, having a consultant is something that we often recommend, and again, these are members of the association who network and interact with our entire user base.

I’d add that as a professional association, we are simply a voice for the U.S. FTZ program – for both education and advocacy. Currently, we are at an all-time high in membership, by far; this of course has a lot to do with the current news cycle. More people are just discovering the U.S. FTZ program, as the government does not actively promote it. While a lot of FTZ grantees of course market the program, they’re not able to reach everyone. That’s where we come in.

LM: Regarding the expiration of de minimis, how do you view it – in terms of wider implications and ramifications? And, what does it mean for the different industry stakeholders that make up NAFTZ’s membership? [Editor’s note: This interview was conducted shortly before the late August expiration of the de minimis exemption]

Tafel: NAFTZ had long been advocating for parity for Foreign-Trade Zones under de minimis. Previously, FTZs were unable to use the de minimis provision to bring materials into U.S. commerce. So, one of the things we supported was the elimination of de minimis altogether, which would, of course, bring parity.

Before this change, what we’d seen was the exodus of tens, if not hundreds of thousands, of jobs and warehousing to Mexico and Canada. In fact, 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 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. However, this change makes FTZs a much more viable option for many organizations, especially through what’s called the duty deferral benefit, where firms can bring anything into the zone and delay paying the duties until it actually leaves for the U.S. stream of commerce.

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/e-commerce, and do so tariff-free. I know we had some members that were really challenged by this, and a couple that ended up filing for bankruptcy, primarily because of this provision. It was a real threat to a number of American operations, and we're happy to see the playing field leveled.

LM: How do you see things progressing, as people 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, over the longer term, we really think that companies will be looking at the U.S. FTZ program more as they evaluate all of their options. And like I said, we really believe that the FTZ’s duty deferral provision is a very attractive opportunity for warehousing – and hopefully it helps to bring some of those jobs back and/or keeps them from continuing to go overseas.

LM: In communicating with your members, what's been the overarching message that you're trying to drive home?

Tafel: In the case of de minimis, it’s a meaningful win in an area where the association has pushed for years to secure parity for U.S. Foreign-Trade Zone users. And while it’s not entirely what we were asking for – we just sought parity – it does give us an even playing field. Overall, this elimination is a big win for us and for U.S. FTZs – in really helping to keep warehousing up and more jobs in the U.S. It’s especially critical now, in a post-COVID, e-commerce-driven world, where a number of jobs had gone offshore.

LM: Given all the tariff pauses, delays, and changes, has this year been like unlike any other in the U.S. 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 system-wide challenges, both from the government and among users/operators having to make adjustments on the fly; and these are changes that the systems weren't designed to support. Luckily, we're seeing some of that finally settling down. For the most part, these system problems seem to have been eliminated or resolved, though it was hectic out the gate.

Another challenge has been trying to keep up with the tariff rates and seeing what “sticks,” and the associated rules. U.S. FTZs are already heavily regulated, so any policy shifts that add new layers or processes can be burdensome for importers, exporters, manufacturers, and others.  So really, what we’ve seen is the level of complexity change rapidly.

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, I can tell you that in some very real situations, we previously had members consider plans to move warehouse operations outside of the U.S. because of de minimis. And now that it is being eliminated, I think they can scrap those plans. As a result, we’ll also see some expansion of warehousing here in the U.S.

Moving forward, we’re hoping that folks will take a close look at the U.S. FTZ program, so that they can further invest in jobs and investments here in the U.S. In addition, I think we’ll see the results of this elimination pretty quickly, and as such, see a lot of jobs remain on U.S. soil. That would be the biggest benefit I foresee – and probably in short order.  

Over the longer term, I highly doubt that we’ll see many changes to, or a reintroduction of, the de minimis policy. There's just been too much controversy surrounding it on the Hill. The simplest and frankly the most reasonable solution here was its outright elimination.