APPLICATION FOR FOREIGN-TRADE ZONE TEMPORARY/INTERIM MANUFACTURING AUTHORITY AND MANUFACTURING/PROCESSING AUTHORITY FOR FOREIGN-TRADE ZONE NO. 134 IN CHATTANOOGA, TENNESSEE FOR VOLKSWAGEN GROUP OF AMERICA CHATTANOOGA OPERATIONS, LLC SUBMITTED BY CHATTANOOGA CHAMBER FOUNDATION GRANTEE OF FOREIGN-TRADE ZONE NO. 134 OMB No. 0625-0139 Exp. Date 5/31/2008 The Foreign-Trade Zones Board Application for FTZ Manufacturing Authority In addition to the basic information to provide on this page, the form for FTZ manufacturing authority has four possible sections to complete. Most companies do not need to complete all four sections – complete only the sections that apply to you. Our web site – http://www.trade.gov/ftz – explains the different types of manufacturing authority available and has sample completed applications. If you have questions, please contact the FTZ Board staff at (202) 482-2862. ' WHICH SECTIONS TO COMPLETE? For all applications: Section A All applicants must complete Section A (company/industry information). All applications will also use at least one of the three "Products and Components" sections (Sections B, C, and D). Those sections are used to list a scope of products to be manufactured and foreign components to be used for the different types of manufacturing applications: Section B Only used if you are requesting temporary/interim authority; Section C Only used to define the primary scope if requesting permanent authority; and Section D Only used to define an optional secondary scope (for permanent authority). We have completed Sections A, C and D. We are not requesting T/IM authority. Only fill out the sections that are relevant to the authority you are seeking, answering the questions completely using the boxes provided. There is a continuation page at the end of Section A, if needed. ' SITE INFORMATION/COMPANY NAME Zone/Subzone #: 134, Site Number 3 Site Address(es): Enterprise South Industrial Park 7351 Enterprise South Boulevard Chattanooga, Tennessee 37416 Company (Manufacturer) Name: Volkswagen Group of America Chattanooga Operations, LLC (VW) 1 SECTION A (PRODUCT, COMPANY, & INDUSTRY INFORMATION) For each section, please answer all questions completely within the appropriate box provided. (There is a continuation page provided at the end of this section, if needed.) Submission of incomplete or inaccurate information may delay the processing of your application. ' APPLICATION LETTER A1. Your application must include a letter identifying your company and summarizing the zone site(s) to be used, proposed FTZ manufacturing activity, and why approval of that activity would be beneficial for the United States overall. The letter must be currently dated and signed by an authorized officer of the grantee or operator. A letter of transmittal is attached. ' TYPE OF AUTHORITY BEING REQUESTED A2. At this time, are you submitting a request for temporary/interim manufacturing authority? Yes X No (If yes, also complete and submit Section B). A3. At this time, are you submitting a request for permanent authority for manufacturing? Yes X No ___ (If yes, also complete and submit Section C [and Section D, if applicable]). ' COMPANY, SOURCING, MARKET, AND INDUSTRY INFORMATION: Answer these questions completely based on the information available to you. (You may rely on your expert knowledge of the industry in addition to traditional, published resources.) A4. Explain in detail why approval of your proposed FTZ manufacturing authority would be beneficial overall to the United States: Foreign-trade zone operations will help create an environment for increased international trade and related investment in Chattanooga, Tennessee. Chattanooga has an estimated population of 170,000 people. Zone status and manufacturing authority for VW will compliment the region’s goal of promoting international business. Additional information regarding Chattanooga is attached as Exhibit A. VW has made a significant investment at the zone site. The investment is estimated at $1 billion. The facility is projected to have 2,000 employees working at the 2 facility with an annual payroll of approximately $511 million. The continued success of the zone could spur additional expansion and employment. The establishment, retention and support of the VW operations in Chattanooga is important to surrounding new businesses, such as vehicle parts suppliers. Indirect employment as a result of the new facility or elsewhere; could generate a total of 9,477 jobs according to the University of Tennessee’s Center for Business and Economic Research. The same organization projects indirect employment could increase by 9,500 people in the future with $12 billion in payroll over the lifetime of the project. New tax revenue for local and state entities could total $1.399 billion. A copy of the study is attached as Exhibit B. The benefits of establishing and retaining the VW facility are numerous in addition to the employment and payroll expenditures in the community. VW may export 20% of the motor vehicles assembled at the Chattanooga facility. These exports will be a significant addition to the level of international trade in the State of Tennessee. In 2008, Tennessee exports totaled $23.2 billion, representing an increase of 6.3% over 2007 totals. Tennessee ranked 17th in exports. A5. Describe problems, challenges or strengths facing your company and the U.S. industry. (For example, have production, employment, and operating profits been falling or rising? Have there been changes in the cost of raw materials? Address any other relevant factors.) The U.S. vehicle assembly industry faces increased challenges in maintaining competitiveness in the global economy. As the worst recession in the postwar era continues, consumer purchases have decreased. It is expected that consumers will continue to retain automobiles for a longer period of time. Increased costs for materials, components, labor, transportation, and production costs have made this challenge more difficult in recent years. Companies such as Volkswagen have multiple worldwide production facilities. Volkswagen has 3 manufacturing facilities in twenty-one (21) countries. Vehicles can be assembled in other countries with lower labor costs and imported into the United States; NAFTA-qualified motor vehicles assembled in Mexico and Canada are imported into the United States customs duty free. Imported vehicles account for 25% of the U.S. vehicle market. VW has begun construction of a vehicle assembly plant in Chattanooga, Tennessee. VW is establishing the Chattanooga facility in this difficult economic time when purchases of vehicles have declined by 33.3% versus sales at this time last year. VW and its domestic suppliers face increased costs and reduced consumer purchases in vehicles. Manufacturing authority under zone procedures will assist the Chattanooga operation to assemble vehicles in the United States and better compete globally by lowering the costs of operation. This number of units is expected to increase as the types of products to be assembled in the United States will create more interest in the Company’s vehicles due to their energy efficiency. The decision to build this new facility during these challenging economic times is a significant step forward in achieving the VW’s goal of selling 800,000 vehicles in the United States by 2018. Additional information regarding the Volkswagen Group is included in Exhibit C. A6. List total employment company-wide: 373,400 employees A7. List total employment at your proposed FTZ manufacturing plant: 2,000 employees A8. How has your company's and plant's employment changed in the last 5 years? The plant is under construction. It is expected to employ 2,000 people upon opening. The Volkswagen Group’s worldwide employment has increased over the last five years; decreases have occurred recently. The Volkswagen Group’s current worldwide employment totals 373,400 people. A9. Will FTZ-related savings likely lead to increased, stable, or decreased employment at your plant? Explain: 4 FTZ-related savings will lead to increased employment by the Company. The Chattanooga facility has sufficient land for future expansions based upon market conditions which would lead to increased employment as more vehicles are made in the United States. As VW suppliers locate to the Chattanooga area, new indirect employment in the area will occur. A10. Briefly describe the specific manufacturing activity which you are seeking to conduct under FTZ procedures. (You will provide more detailed information relating to your requested FTZ manufacturing authority in the "Products and Components" section below.) VW is manufacturing motor vehicles for shipment to the U.S. market and export destinations. Manufacturing will include finished vehicles as well as subassemblies and components of the vehicles. The proposed operations include activities such as body welding, painting, assembly, testing, processing, and warehousing. Body stamping will occur in Phase 2 to support increased production when market conditions warrant. Initial imported components will consist of the following: Input HTSUS Duty Rate Plastic 3917.31 3.1% tubes/pipes/hoses 3917.40 5.3% Plastic sheets/ 3919.90 5.8% - 6.5% strips/plates 3921.90 4.2% - 6.5% Rubber 4009.11 2.5% tubes/hoses Tires 4011.20 3.4% - 4.0% Gaskets/ 4016.93 2.5% washers/o-rings 4016.99 Free – 4.3% Safety glass 7007.11 5.5% 7007.21 4.9% Mirrors 7009.10 3.9% Tube fittings 7307.22 Free – 6.2% 7307.99 3.2% - 4.3% Fasteners 7318.14 6.2% - 8.6% Locks/keys 8301.20 5.7% 8301.40 3.1% - 5.7% Engines 8407.34 Free – 2.5% Engine parts 8409.91 Free – 2.5% Pumps 8413.30 2.5% 5 Valves 8481.80 2.0% - 5.6% Bumpers 8708.10 2.5% Initially mid-size sedans will be manufactured at the site. The HTSUS classifications include: Finished Product HTSUS Duty Rate light-duty 8703.23 2.5% passenger 8703.24 2.5% vehicles (sedans, sport utility vehicles, minivans) A11. Does your company have other plants in the U.S.