More jobs for Sussex?

GEORGETOWN — Sussex County leaders have given the financial green light to apply to have the county-owned airport and its industrial and business parks designated a foreign trade zone, hoping duty and tariff incentives will increase lease clientele and spur economic development.

County Council at its Feb. 19 meeting voted 5-0 to authorize Sussex County Economic Development Director William Pfaff and Delaware Coastal Airport Manager Jim Hickin to work with the county’s legal partner to apply for foreign trade zone designation.

This investment is not to exceed $25,000, which is primarily legal costs. Funding will come from the county’s contingency, Sussex County Finance Director Gina Jennings said.

Council’s action followed a Nov. 13 presentation by Patty Cannon, a grantee administrator with the State of Delaware’s Division of Small Business, and attorney Scott Taylor of Miller & Company P.C., the customs and trades firm used by the state of Delaware for the application process.

In today’s global market, foreign trade zones assist companies in several ways, including reduction of costs, paperwork and delays while enhancing greater efficiency. Foreign trade zones can also help attract and retain manufacturing, processing and distribution.

“This is all about job creation: How can we create more jobs?” said Mr. Pfaff. “We’re trying to lease lots in our Delaware Coastal Business park. I think that is a tool in our toolbox that we can use as a marketing tool.”

Under federal trade zone (FTZ) designation and activation, foreign and domestic merchandise may be moved into zones for operations, not otherwise prohibited by law, including storage, exhibition, assembly, manufacturing, and processing.

Foreign trade zone sites are subject to the laws and regulations of the United States as well as those of the states and communities in which they are located.

Under zone procedures, the usual formal entry procedures and payments of duties are not required on the foreign merchandise unless and until it enters for domestic consumption. At that point the importer generally has the choice of paying duties at the rate of either the original foreign materials or the finished product.

Domestic goods moved into the zone for export may be considered exported upon admission to the zone for purposes of excise tax rebates and drawback.

Mr. Pfaff said the door opened when a foreign trade zone inspector was stationed at Dover Air Force Base.

“One reason why we haven’t been able to do it in the past is because of our proximity to an inspector. They have to be within a 45-minute drive of us,” Mr. Pfaff said. “And the fact that they have placed one at Dover Air Force Base, that sort of opened the window for us. So now, we are within driving distance of an inspector.”

Mr. Taylor and Ms. Cannon, who both toured the proposed designation site, recommend that the county designate the entire blueprint – the airport, industrial park and new business park – and activate just a warehouse that the county would set up to use.

Additionally, Mr. Pfaff said a few of existing owners of businesses at the airport complex were polled to see if there would be an advantage for their businesses to be designated a foreign trade zone.

“We had about four businesses show up at the meeting,” said Mr. Pfaff. “There was some interest.”

The Delaware Coastal Business Park, located on approximately 77 acres, has several tenants with other openings. “We have two and the third one ready to sign,” said Mr. Pfaff, adding the county has some vacant lots in its industrial park. Those, he said, are primarily wooded lots and would “take a little bit more to clear. We do have some potential there.”

The FTZ program is administered by two federal agencies.

“It needs two federal agencies to oversee it because it is such a big deal,” said Ms. Cannon. “Essentially, if we get approval from the U.S. Department of Commerce Foreign Trade Zone board to identify a parcel or building in Delaware as a foreign trade zone, then we go and get Customs and Border Protection under Homeland Security to actually approve and activate that and the state concurs that this is a good use at that location. So, essentially that little parcel, or that little building is considered for the purposes of importing and exporting as being outside U.S. territory.”

The first thing the federal government will do is ask the state to look at a proposal and say, ‘Is this a good use of that location?’ It’s almost always ‘yes.,’” said Ms. Cannon.

An example of rejection, Ms. Cannon said, would be “if we got a request from a North Korean company …. maybe the manufacture of explosives and they wanted to do it next to one of your hospitals or next to one of your elementary schools. We would say, ‘That is not a good use of that location.’ But other than some really profound reason why we would say ‘no’ it’s almost always going to be a ‘yes’ from the state perspective.”

The second step is to forward the matter to the U.S. Department of Customs Foreign Trade Zone Board.

Mr. Pfaff offered an example of how foreign trade zones can benefit companies.

“I always give the example if we were manufacturing bicycles, assembling bicycles out at the airport. Most parts are imported. So, let’s say the tires have a 10-percent tariff and the chain has a 5-percent traffic and the handlebars have a 3-percent tariff. If you are assembling that bicycle in a foreign trade zone you would not have to pay those tariffs on the product,” said Mr. Pfaff. “Once that product is assembled, you pay a tariff on the bicycle itself, and I use the example it could be 5 percent, so you end up saving money because you get a reduced rate on the finished product.”

As an entity that would have a warehouse for multi-users the county ‘s annual fee would be $5,000. “Your $5,000 a year is for that warehouse that we hope you would consider having,” said Ms. Cannon. “If one of your tenants wants to start being activated — you’ve already designated the area, but you want them to activate their warehouse because you don’t want to take responsibility — they would then have to pay $10,000 year.”

The county is working to identify the best warehouse option.

“That is something we’re working on now, to find one of our buildings out there that we can convert to a warehouse. Once we get the designation then activation is very easy,” said Mr. Pfaff. “Even all our businesses out there that are importing products to manufacture an end-product they can also set that up that as well for their individual businesses and not have to pay the import tax until the product leaves that foreign trade zone area – then they have to pay the tariff on it.”

“From the warehouse storage standpoint, we may potentially have manufacturers within the region that are importing foreign goods that they don’t want to have to pay the tariff up front. They want to have those goods in-house,” said Mr. Pfaff. “If we have a warehouse that we designate, a warehouse that we can lease in our foreign trade zone territory then they won’t have to pay the tax either, only once it leaves the foreign trade zone designation.”

Miller & Company PC is exclusively a customs and trade law firm that deals with import clients and sets up foreign trade zones in all 50 states and Puerto Rico. The FTZ program has been around since 1934 but “wasn’t used widely until about the 80s,” Mr. Taylor said.

More than 3,300 companies are in program in the U.S., including the likes of Astra Zeneca, with 600 billion dollars of imports received in all foreign trade zones collectively, according to Mr. Taylor.

“We have very stringent rules,” said Mr. Taylor. “The good news about these foreign trade zones is there is a higher level of security. U.S. Customs knows what goes in and out. It’s all done electronically so they have visibility. They know what is in the building at any given time and when it goes out and where it’s going.”

“What this does really is it supports communities by supporting U.S. manufacturing jobs, creating or retaining those jobs,” said Mr. Taylor during the November presentation.

“But for the warehousing, I can tell you the last six months has been pretty phenomenal to watch all of the new warehouses going in because of these new tariffs that the President has implemented across the board.

“It is a tool to defer the customs duty payment on those tariffs for small business, medium size businesses and larger businesses. But also, there is even a small portion of export activity, you can avoid the tariff.”

Mr. Taylor said the foreign trade zones program “is being used more than ever because of these new tariffs. And these tariffs are maybe another reason from the airport’s standpoint to get this in place.”

The county is hoping to land FTZ designation this summer.

“In terms of our paperwork we pretty much have our paperwork together because we gathered a lot of that during the shutdown,” said Mr. Pfaff. “My hope is that by June or July, if the government works the way I wish they would work, we would hope to hear something.”

Mr. Pfaff said the initial plan was to have had the foreign trade zone proposal “on the agenda in December but with schedules it was sort of hard to get it on in December. And then, we had a government shutdown.”

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