U.S. FTZ Manufacturers Pay Duties Mexico and Canada Avoid Under USMCA

Why do U.S. manufacturers in foreign-trade zones pay duties their Mexican and Canadian competitors avoid?

U.S. manufacturers operating in foreign-trade zones can be required to pay duties on imported components used in finished goods subsequently exported to Mexico or Canada, even when those products qualify for preferential treatment under USMCA. Competing manufacturers in Mexico and Canada have access to duty-relief programs that eliminate comparable costs, according to Jeff Tafel, president of the National Association of Foreign-Trade Zones.

The disparity affects manufacturers across industries that rely on imported components for assembly or production within FTZs, then ship finished goods across the border. A U.S. manufacturer faces costs its North American competitors avoid simply because it chose to manufacture in the United States, Tafel told FreightWaves.

What legislation would fix the duty gap?

NAFTZ is backing two companion bills: the Foreign-Trade Zone Export Enhancement Act of 2025 (H.R. 6792), introduced by Rep. Lance Gooden, and the Foreign-Trade Zone Export Enhancement Act of 2026 (S. 4793), introduced by Sen. Tim Scott. Both measures would provide duty relief for qualifying merchandise manufactured or altered within U.S. foreign-trade zones and subsequently exported to Mexico or Canada.

Tafel said Congress should address the issue without waiting for the USMCA review to conclude. American manufacturers should not have to wait for that process before this longstanding competitive disadvantage is addressed, he said.

How much merchandise moves through U.S. foreign-trade zones?

FTZ operations nationwide received $963.8 billion in merchandise during 2024, up 1.6% from $948.8 billion in 2023, according to the U.S. Foreign-Trade Zones Board's 2024 Annual Report to Congress, released in November 2025. Exports from FTZ operations totaled $133.5 billion, down 10.3% from $148.8 billion the previous year.

The program supported nearly 543,000 jobs across approximately 1,300 active operations, including 381 production operations. Production operations accounted for approximately 61% of merchandise received by FTZs nationwide in 2024, with automotive manufacturing, oil refining, machinery, and pharmaceuticals among the largest industries.

Which border zones handle the most exports?

Texas ranked first nationally in both merchandise received and exports from FTZ operations in 2024. El Paso's FTZ Nos. 68 and 150 ranked third and fourth nationally, respectively, among warehouse and distribution zones for exports. McAllen's FTZ No. 12 ranked seventh and Brownsville's FTZ No. 62 ranked eighth. Laredo's FTZ No. 94 ranked 14th in the same category.

The state's FTZ network includes major trade gateways such as Houston, Laredo, El Paso, McAllen, and Brownsville. The concentration of high-ranking export zones along the Texas-Mexico border underscores the importance of foreign-trade zones to cross-border distribution networks.

How do recent tariff actions limit FTZ advantages?

Some recent tariff actions require imported merchandise to enter FTZs under "privileged foreign" status, which can limit traditional duty advantages, Tafel said. Despite those restrictions, FTZs continue to provide benefits through duty deferral, streamlined customs procedures, and inventory management efficiencies.

Foreign-trade zones are designated areas under U.S. Customs and Border Protection supervision where companies can store, assemble, manufacture, and distribute merchandise under special customs procedures. The program allows businesses to defer duties on imported goods until they enter U.S. commerce, while certain goods exported from FTZs can qualify for duty exemptions.

What are companies evaluating in response to tariff uncertainty?

FTZ grantees along the border report that companies continue to struggle with how to plan for uncertainty, Tafel said. They are evaluating a range of considerations, including sourcing decisions, freight volumes, warehousing needs, inventory management, transportation patterns, and even whether to relocate manufacturing or distribution operations across the border.

Tafel cautioned that those discussions do not necessarily mean companies have already changed their operations. However, uncertainty is becoming a significant factor in decisions involving major capital investments. Relocating an existing manufacturing facility or establishing a new distribution center can require substantial financial commitments, making those decisions difficult to reverse even if trade policies subsequently change.

What does duty disadvantage mean for equipment sourcing?

The concern is not simply whether companies relocate existing operations, but how today's uncertainty influences where they choose to make their next major investment, Tafel said. Those decisions can have lasting consequences for American manufacturing, investment, and jobs well beyond the current trade cycle.

For manufacturers of truck components, trailers, or equipment assemblies that rely on imported steel, aluminum, electronics, or other inputs, the duty gap creates a direct cost disadvantage against Mexican and Canadian competitors serving the same North American market. A U.S.-based trailer manufacturer using imported axle components, for example, pays duties on those parts when the finished trailer ships to a Canadian fleet, while a competing Mexican manufacturer using the same components under a duty-relief program does not.

The proposed legislation would level that cost structure for qualifying FTZ operations, but until Congress acts, the gap remains. Fleets sourcing equipment from U.S. manufacturers may see those duty costs reflected in purchase price or lead time, while manufacturers weigh whether to shift production or assembly across the border to access the same duty relief their competitors already use.

What this means for cross-border equipment supply chains

The duty disadvantage adds another variable to equipment sourcing decisions already complicated by shifting tariffs and customs rules. Manufacturers evaluating where to build the next assembly line or expand capacity must now factor in not only labor costs, logistics, and proximity to customers, but also whether the U.S. tax code puts them at a structural disadvantage against plants 50 miles south.

For small fleets and owner-operators, the immediate impact is indirect but real. If U.S. manufacturers face higher costs or relocate production to Mexico or Canada to avoid the duty gap, the result is fewer domestic suppliers, longer lead times for parts, and potentially higher prices for equipment built in the U.S. The proposed legislation would remove one barrier to keeping that production stateside, but the outcome depends on whether Congress moves before manufacturers make capital decisions that lock in the next decade of supply-chain geography.