AUSTIN, Texas – The City of Pharr’s plan to establish a foreign trade zone at its international port of entry is making good progress at the state Capitol, with legislation already approved by intergovernmental committees in both the House and Senate.

Ultimately, the federal government will have to approve Pharr’s request but it helps to have the State of Texas’ backing, says Pharr’s director of external affairs, Sergio Contreras.

“The FTZ program helps American companies improve their competitive position versus their counterparts abroad,” Contreras told the Rio Grande Guardian. Asked to define a FTZ, Contreras said: “It is an isolated, policed, and enclosed area that is in or adjacent to a port of entry and is considered outside the customs territory of the United States.” Activities permitted inside a FTZ include storage, exhibition, assembly, manufacturing, and processing.

Guillermo Aguilar and Sergio Contreras.
Guillermo Aguilar and Sergio Contreras.

Contreras said in order to manufacture, a user must receive special approval from the FTZ Board. He said operating within a FTZ carries numerous benefits, including deferral, reduction and possible elimination of duties; tighter inventory control that may virtually eliminate year‐end inventory loss adjustments; and potential direct delivery benefit reduces long hold times at crowded ports of entry.

Pharr’s director of communications, Gary Rodriguez said Pharr’s push to secure a Foreign Trade Zone is timely because of increased growth at its international bridge. Rodriguez said imported televisions, monitors, circuit boards, switches, fruits and vegetables accounted for a total of $1.70 billion of $30.62 billion in trade with the world in 2014. Imported automotive parts were the second largest category during this period with $1.00 billion in trade, as the exportation of petroleum-based products totaled $1.18 billion.

“Together, this reflects a total increase of $2.17 billion over 2013 numbers; or a 7.63 percent surge of growth vaulting the Pharr Port of Entry to the rank of the 28th largest port in the nation and the 6th largest land port,” Rodriguez said.

“Current data indicates the increase in commercial truck traffic at the Pharr International Bridge points to industry confidence in the port’s safety, convenience and prompt adaptation to the needs and expectations of international commerce representatives.”

The FTZ legislation the City of Pharr is supporting at the state Capitol is House Bill 2515, authored by state Rep. Sergio Muñoz. When the legislation was heard by the House Committee on International Trade and Intergovernmental Affairs, it was championed by Juan Carlos Del Angel, director of Petro Operaciones in Reynosa, Mexico. The family-owned business manufactures and services oil and gas equipment for PEMEX, as well as Haliburton, Schlumberger, Weatherford, and other Fortune 500 energy service companies operating in Mexico.

“With the impending boom in oil and gas exploration in Mexico it is imperative that our borders have the infrastructure necessary to keep up with the movements of people, machinery, and petroleum products that will be moving across our border,” Del Angel testified.

“As a note, the Burgos formation is expected to be six to eight times larger than the development that we’ve seen in Eagle Ford. Just prior to the fall in oil prices employment in the Eagle Ford play was at 150,000 with an economic impact of over $85 billion.”

Del Angel said that as the Burgos formation parallels the border it is thought that many entities will “stage their teams” in Pharr and other parts of the Rio Grande Valley going in and out of Mexico on a daily basis.

“While this type of massive energy play will be a windfall for the regional economy it will add significant amounts of stress to international trade infrastructure and Customs & Border Protection personnel,” Del Angel predicted. “Sand, pipe, and chemicals, three of the primary components of the fracking process often come from foreign countries and using the FTZ process will greatly speed up the timely movement of these goods and cut transaction costs. “

Additionally, Del Angel said, with drilling currently being conducted in the US, Mexico, & South America, drilling rigs are “often moved between continents as market opportunities as well as supply and demand dictate.” He said Pharr and Reynosa are “currently a hub for energy exploration in northern Mexico and the proposed FTZ will add value to that supply chain.”

Del Angel said the Rio Grande Valley is a “national leader” in FTZ activity as well as the movement of petroleum based products. He said that largely due to the Eagle Ford play Brownsville’s FTZ 62 has been the country’s leading warehouse/distribution export FTZ over the last few years. He based this on information contained in the 2013 Annual Report of the Foreign-Trade Zone Board to the U.S. Congress.

“Most of those exports are petroleum products produced or refined in Texas and being shipped in to Mexico as diesel and gas. The majority of shipments are made by tanker truck crossing through the Pharr Bridge,” Del Angel said.

“As an example, in 2010 which was the formative part of the Eagle Ford boom the U.S. Census reported $279 million of natural gas was exported through the Pharr Bridge. As of the third quarter of 2014 $935 million worth of natural gas went in to Mexico through Pharr, easily on pace to do over a billion dollars in exports of that commodity alone. With the construction of the first pipeline into the upper Rio Grande Valley and more planned an FTZ would enable greatly reducing the logistical cost as well as the carbon footprint versus trucking the product from Brownsville, a round trip of just over 150 miles or three hours.”

Guillermo Aguilar, representing the Pharr International Bridge, also testified before the House Committee on International Trade and Intergovernmental Affairs. Aguilar said the Pharr International Bridge and its corresponding industrial cluster on both sides of the border have become “a vital international trade thoroughfare” during the 20 years of the bridge’s existence. “In that short period Pharr has become the nation’s primary port for agricultural products as well as a leader in the trade of electronics, petroleum products, and automotive parts,” Aguilar said.

Texas in particular has led the nation in attracting quality jobs and one of the unheralded tools which the State has used is the FTZ, Aguilar claimed. He said Texas leads the nation in FTZ activity which includes both imports and exports. “Additionally, Texas FTZs lead the nation in three of the four categories of FTZ activity which comprise imports and exports in both manufacturing and warehousing/distribution,” Aguilar said.

With respect to warehousing and distribution FTZ activities three of the top ten zones in the nation are located along the Texas-Mexico border, namely Brownsville, El Paso, and Laredo, Aguilar testified. “We look forward to seeing Pharr on that list with your blessing,” Aguilar told the House panel.

Aguilar also talked about Mexico becoming the “darling of worldwide automotive manufacturing” with approximately $20 billion in foreign direct investment slated this past year.

“There is currently a Kia factory being built in Mexico 150 miles from Pharr with current construction estimates of $5 billion for the primary facility as well as its Tier 1 suppliers. Korea’s Hyundai/Kia group prides itself upon speed as being its primary virtue, manifested in that the factory will be completed in less than two years—easily a world record for a factory of this size,” Aguilar said.

“While the majority of Mexico’s FDI is slated for the southern part of the country Kia decided to build close to the border in order to take advantage of Texas’ unparalleled stable, and more importantly, rapid logistical infrastructure; FTZs are a key component of this modern supply chain.”

Aguilar added that Mexico’s energy reforms present “an unprecedented opportunity” for Texas in which FTZs will continue to play a vital role.

“Our border FTZs are critical to parts flowing in and out of Texas and Mexico by eliminating inefficient, manual processes and paperwork under the bonded warehouse system which Customs & Border Protection (CBP) personnel must key in. In contrast, FTZs are characterized by a fast, efficient, paperless, electronic process,” Aguilar said.

Aguilar testified that Reynosa is a “booming metropolis with respect to manufacturing and international trade with over 200 maquiladoras and more being announced and built each quarter.”

In closing, Aguilar said, Pharr’s goal is to be the safest, fastest, and most efficient land port in Texas. He said a Foreign Trade Zone is an integral component of that strategy. “New FTZ sites are growing at exponential rates all across the country and with the vision of proactively improving and modernizing Texas’ international trade infrastructure we respectfully ask for your support.”

Editor’s Note: Rio Grande Guardian reporter Luis Montoya contributed to this story from Pharr, Texas.