Volkswagen's Chattanooga plant has won federal foreign trade zone status, which is expected to save it up to $1.9 million a year in tariffs and help it compete for potential expansion projects.
In its application for the duty-free zone in Chattanooga, VW said that 86 percent of the goods used to make the car are purchased in North America, and that it plans to export up to 20 percent of its Chattanooga-made vehicles.
Guenther Scherelis, VW's general manager of communications in Chattanooga, said approval of the foreign trade zone "provides us with a level playing field" with other foreign and domestic automakers which also have trade zone benefits.
J.Ed. Marston, the Chattanooga Area Chamber of Commerce's vice president of marketing, said the trade zone designation will make the plant more competitive.
"It allows VW in many cases to receive goods and manufacture them in a way that doesn't trigger additional duties," Marston said. The Chamber submitted the trade zone request to the U.S. Customs Service for VW.
Marston said approval also gives the company financial benefits if it makes components, such as engines, should the automaker decide to in Chattanooga in the future.
The U.S. Foreign Trade Zone Board in Washington, D.C., approved the Chattanooga application despite opposition by the United Auto Workers union. The UAW said that approval would provide VW with an unfair advantage versus U.S. auto producers.
The UAW also said U.S. manufacturers and suppliers were put at a disadvantage when local and state governments provided incentives to VW to locate the plant in Chattanooga.
On Friday, UAW officials declined comment on the new duty-free zone.
Marston said the UAW's opposition "wasn't a substantial cause of concern. We've overcome those objections."
In approving VW's status, the Foreign Trade Zone Board said the $1 billion plant will make vehicles that otherwise would have been imported from abroad. It also said the Chattanooga factory is in competition with VW's existing Mexican auto assembly plant for future production projects.
The board's report said the new zone "would likely support a more favorable outcome for the Tennessee facility at which time Volkswagen makes its decision on where to locate and expand vehicle production capacity."
Production of the first customer car at the Chattanooga plant, which will employ between 2,000 and 2,500 workers, is expected in April.
Concerning exports of Chattanooga-made cars to world markets, VW officials have talked about Mexico and Canada, Korea and the Middle East. The Foreign Trade Zone report said VW expects exports to reach up to 20 percent of vehicles made at the plant.
Additionally, the report said VW expected that 75 percent of materials used to make cars will come from domestic suppliers from the outset of production. Scherelis said that 86 percent of the goods used to make the car were purchased in North America.
The city and Hamilton County have pledged up to $196,000 in fee payments to maintain the trade zone over four years, said Marston.
The foreign trade zone includes all of Enterprise South industrial park and could be used by other businesses.
VW's interest in the trade zone was part of the memorandum of understanding the company signed with the local and state officials early in the project. That document spelled out specifics related to the plant that included government incentive spending to land the factory.