As the domestic solar manufacturing market gets more saturated with new companies setting up operations, solar brands are trying to find any competitive edge they can. Most are banking on local incentives and tax breaks to outfit their new factories, but there’s another opportunity that a few manufacturers are going after: working within a Foreign Trade Zone (FTZ).
What is an FTZ?
Clean Energy Associates shared an excellent FTZ explainer exclusively with Solar Power World that can be read here. Generally, an FTZ is a specific geographical area where special customs procedures are used. A manufacturer within an FTZ can import goods for manufacture duty-free and not have to pay any import duties if the final product is then exported out of the United States. FTZs encourage domestic production of goods and increase our country’s exports.
The Foreign-Trade Zones Board (FTZB), led by the Secs. of Commerce and the Treasury, approves zones, and zone operators activate companies within the FTZ along with Customs and Border Protection. For example, the first FTZ in the country, designated in 1934, is the city of New York, which is operated by the New York City Economic Development Corp. (NYCEDC). NYCEDC has approved and activated sites like JFK International Airport and FedEx to operate within the New York FTZ. There are currently 261 FTZs in the United States with hundreds of companies benefitting from the trade rules within their borders.
What do FTZs have to do with solar?
Credit: Trina Solar
More solar manufacturers are setting up in the United States because the domestic demand for solar products is so strong (and incentives in the Inflation Reduction Act help). With the main requirement of an FTZ being to export American-made products, it seems counterintuitive for U.S. solar manufacturers to enter one of the zones. But there are other benefits available to companies working in an FTZ when their products are sold to Americans.
For companies not operating in an FTZ, they have to pay duties on inventory as soon as it hits the shore. If a company is in an FTZ, the inventory sits duty-free until it’s ready to be sold. If manufacturing for the domestic market, the company would pay the duty with the profits of the sale vs. before goods are manufactured. This would allow manufacturers to invest more money in their operations initially.
For a very specific example, a solar panel manufacturer in an FTZ could import solar cells without duties, assemble the panels with an American workforce and then export those panels to India without paying any tariffs on the cells. The company could instead sell those panels to the U.S. market and would pay the tariffs on the cells at the point of sale. Working in an FTZ does not grant a company exclusion from paying duties; it just delays that payment when selling product into the United States.
There are other tax benefits to working within an FTZ. Some states like Arizona determine property tax based on your geographic zone. Companies working within an FTZ often have the lowest property tax. Reduced property taxes can aid a manufacturer’s operations too.
Which solar companies are in FTZs?
Approved and/or activated sites within the 261 FTZs are listed by the International Trade Administration. There are a few companies involved with solar and storage manufacturing that have approved sites, but none are currently active.
JA Solar is building a 2-GW solar panel assembly facility in Phoenix. Although not yet operating, JA Solar already has approval to work within the Phoenix FTZ. Similarly, under-construction battery manufacturer KORE Power has been approved in the Maricopa FTZ in Arizona, but it is not yet active. REC Silicon also has inactivated approval within the Moses Lake FTZ, and Wacker Polysilicon has inactivated approval within the Chattanooga FTZ. Wacker’s chemical division is active in the Detroit FTZ, but its polysilicon business is not.
Trina Solar is trying to get its under-construction 5-GW solar panel assembly plant approved as an FTZ site in Dallas. The Dallas/Fort Worth Airport FTZ is currently reviewing Trina’s application. Trina stated that it would import foreign components like aluminum frames, EVA, junction boxes, solar cells and glass, and that many of those products are under Sec. 201, Sec. 301 and AD/CVD orders. The FTZ Board is accepting comments on the matter through the end of April 2024.
Trina stated in its documents that it intends to sell its finished solar panels to the U.S. market. Operating within the FTZ would provide for faster customs clearance and reduced customs processing fees. “Such benefits provide tax stability and help ensure Trina Solar’s long-term viability at this location,” the company said.
