Over the past several months, we have experienced a steady stream of new tariffs, trade-pact reviews and refund mechanisms for a wide swath of U.S. businesses and manufacturers. That turbulence has renewed attention on a cost disparity that has shaped investment decisions since the early days of the North American Free Trade Agreement (NAFTA). For companies producing goods in U.S. Foreign-Trade Zones, which are federally designated areas where businesses can store, assemble, process or manufacture goods before formal customs entry, this uncertainty has contributed to a precarious environment for business planning.
Unlike the United States, Mexico and Canada have built mechanisms into their trade programs that allow manufacturers to use foreign inputs in export production without paying duties on goods destined for North American trading partners. Mexico does this through its Sectorial Promotion Program (PROSEC) program, and Canada through its Duty-free Manufacturing Tariff Regime, implemented as part of their initiative to become an attractive location for industrial manufacturers.
However, an operator manufacturing goods in a U.S. FTZ for export to Canada or Mexico is still required to pay U.S. duties on the imported components that go into that finished product, even when the finished good would otherwise qualify for preferential United States-Mexico-Canada Agreement (USMCA) treatment.
A new bill that may level the playing field?
The Foreign-Trade Zone Export Enhancement Act is the first step to closing this gap. The House version, introduced by Rep. Lance Gooden (R-Texas) with bipartisan cosponsors including Rep. Vicente Gonzalez (D-Texas), was referred to the House Ways and Means Committee in December 2025 and remains pending there. Just a few months later, Sens. Tim Scott (R-S.C.) and Katie Britt (R-Ala.) introduced a Senate companion, which is now before the chamber’s Finance Committee. This proposal would allow goods produced in United States. FTZs to be entered duty-free prior to exporting to Canada or Mexico, bringing the United States in line with the treatment already afforded to operators in those markets that sell into the United States.
What happened to USMCA?
The timing of this introduction and congressional debate is notable. That’s thanks, in part, to a July 1 deadline in which USMCA reached its first mandatory joint review, six years after taking effect. The United States declined to confirm renewal in the agreement's current form, so now the United States, Canada and Mexico move into a cycle of annual reviews rather than a sure 16-year extension.
This does not mean that USMCA has expired in totality because the agreement automatically runs through 2036 (unless one of the three governments exits entirely, which remains unlikely). What has changed, however, is that instead of a settled agreement with a distant renewal date, the parties will now revisit the question of extension annually, and that ambiguity will trigger more uneasiness for longer-term business planning.
According to recent reporting from Reuters, Mexico's new ambassador to the United States, Roberto Lazzeri, remains confident that the three countries will land on a new arrangement before year's end. In fact, bilateral talks between the United States and Mexico resumed in Mexico City in late July. Whether that timeline holds remains unclear, but it does signal loosely that the expectation is that the nations seek a resolution.
It is also worth noting, then, that with little belief that a major power will walk away from the pact, new legislation, such as Sen. Scott’s recent proposal, could have a positive net effect for U.S. exporters for years to come.
How Section 301 & 308 tariffs and CAPE Refunds factor in
In addition to these USMCA deliberations, the United States has now instituted new Section 338 tariffs of 50% on a defined set of Canadian goods (with roughly $20 billion in Canadian imports affected). Notably, these tariffs apply even to goods that qualify as USMCA-originating. What’s more, this development landed just before a slew of new tariffs were imposed on 60 trading partners worldwide, leaving many supply chain logistic managers scrambling to plan ahead.
Meanwhile, U.S. Customs and Border Protection continues working through its CAPE tariff refund process for duties collected under the now-nullified IEEPA tariffs. This program is still progressing.
These dynamics create a complex and perpetually shifting environment for business planners, particularly those already navigating compliance within U.S. FTZs.
Of course, this is the backdrop for the proposed U.S. FTZ legislation. Despite the nearly $1.8 trillion in annual trade among the United States, Canada and Mexico, current cost disparities have influenced production decisions and supply-chain strategies across the continent.
True, the trade environment will forever be fluid. But, because of the more recent, USMCA-influenced ambiguity, the current tariff regime and other global factors, Congress may be faced with a steep rebalancing challenge. Yet, it has an opportunity to help clear a path forward for many U.S. exporters. The U.S. FTZ Export Enhancement Act is not a panacea by any stretch, but it does correct a structural gap that has put American manufacturers at a disadvantage.
