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"Spokane Airports pushes foreign-trade zone benefits"
November 11, 1999
Spokane Airports pushes foreign-trade zone benefits
Journal of Business
Spokane Airports continues the search for companies that might want to take
advantage of the foreign-trade zone it was granted more than two years ago.
In the past year, Todd Woodard, Spokane Airports' marketing and public
relations manager, and Chris Koelfgen, a Sacramento, Calif.-based trade and
customs consultant with KPMG LLP who is helping implement the foreign-trade
zone here, have met with about a dozen companies to discuss the zone's
potential benefits. Those benefits include allowing businesses to defer,
reduce, or even eliminate duty paid on imported items.
Koelfgen says that educating businesses about foreign-trade zones is a slow
process. "It takes time for them to get used to the idea," he says.
A study conducted by the National Association of Foreign-Trade Zones last
year found that recruiting a new user to a zone takes an average of one
year, but can take as long as eight years. Woodard says the national average
for finding the first user to activate a zone is about two years'.
After the foreign-trade zone here was granted in August 1997, Woodard held
seminars to inform potential users of the zone, but that "shotgun approach,"
as he calls it, didn't generate strong interest. About a year ago, Spokane
Airports advertised for a consultant to help develop programs to operate the
zone and to market the zone to potential users.
Koelfgen, who has 25 years of experience working with foreign-trade zones as
the operator of two zones in California and as a consultant, was selected.
He has visited Spokane regularly to meet with companies that Woodard has
identified as potential users, and to share his experiences on how
foreign-trade zones work.
Foreign-trade zone benefits
Koelfgen promotes three main benefits to operating a business in a
* Taxes on imports are deferred while goods remain in a zone. Companies pay
duty only after goods leave a zone, rather than when they enter the country.
"You can narrow the time between when you pay the government and the end
user pays you," he says.
Koelfgen says a large retailer that imported artificial Christmas trees
during the summer of 1998 would have had to pay hundreds of thousands of
dollars in duties, but because the warehouse and distribution center where
it stored the trees were located in a foreign-trade zone, it didn't have to
pay the duties when the trees arrived. Instead, it paid them on small
shipments of trees it sent to its stores as the trees were ordered by the
outlets. Trees that didn't sell during the holidays last year have been
stored duty-free until shipment for this year's Christmas season.
* No customs duties are due on items imported to a foreign-trade zone and
then exported to other countries. Companies could bring items made offshore
into a foreign-trade zone to do quality assurance checks or to manufacture
an end product that combines foreign and American-made parts, then
distribute the finished goods around the world, Koelfgen says.
* Companies within foreign-trade zones can choose to pay the customs duty
rate on either imported components or the finished products that include
those parts, whichever rate is lower. Koelfgen says the U.S.'s inverted
tariff structure sometimes imposes a duty rate on raw materials and
components that is higher than the rate assessed on finished products.
For example, an engine made by Polaris Industries Inc., a Minneapolis-based
maker of snowmobiles, personal watercraft, all-terrain vehicles, and
motorcycles, includes a few imported parts, which had high duty rates,
Koelfgen says. No duty is imposed on the importation of a completed engine.
By using a foreign-trade zone location to manufacture the engines, Polaris
no longer had to pay duty on parts from foreign suppliers, and could keep
its factory and jobs in the U.S.
Koelfgen says companies he has seen benefit from using foreign-trade zones
range from major players, including automobile manufacturers, oil companies,
electronics makers, and multinational pharmaceutical companies, to much
smaller toy makers and "mom-and-pop garlic importers." However, not all
companies are a good fit for foreign-trade zones, he says, and part of his
job is to do feasibility studies and cost-benefit analyses to evaluate