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November 8, 2004

COMMENTARY: In the zone | What Auburn's new Foreign Trade Zone means for business in central Maine and beyond

By Paul Badeau
Marketing director, Lewiston-Auburn Economic Growth Council

In the business of economic development, we often measure success in terms of square feet, number of new jobs or local tax revenues generated.

Take the recent Wal-Mart Distribution Center project in Lewiston, for example: When both phases of that 850,000-square-foot project are complete, it will generate 450 jobs and an average $500,000 in net new property taxes each year.

But in early October, we measured success in terms of a single phone call. It was a call from Sen. Olympia Snowe's local representative, Diane Jackson, who congratulated us on having received approval from the U.S. Department of Commerce to establish Foreign Trade Zone #263 in Auburn.

Specifically, the zone encompasses a 760-acre parcel of land including St. Lawrence & Atlantic Railroad's bustling rail lines, the Auburn Intermodal Transfer Facility and the Auburn-Lewiston Municipal Airport.

The concept of a Foreign Trade Zone was established by the feds in the 1930s to increase U.S. companies' ability to compete globally. FTZs are considered outside the territory of U.S. Customs, so raw materials or merchandise can be imported into a zone either without imposition of import duties (in the best-case scenario) or with deferred payment of duties. Duty deferral helps a company's cash flow, particularly if the firm has plenty of merchandise in its inventory.

Here's how an FTZ works. Say your company makes radios. If you import parts from Hong Kong to make those radios and you enter an FTZ, you don't pay tariffs on those parts when they arrive. You can keep as many as you want in a warehouse duty-free until you need them. When you manufacture the radios and sell them domestically, you then have to pay duties. If you sell them internationally, however, you pay zip. Furthermore, you don't have to pay duty on damaged materials, and if the product is easily damaged or defected, duties are reduced or eliminated.

There are other valuable features. FTZ users can pay the duty rate on component material or merchandise produced from component material, whichever is less. If it's cheaper to pay for imported transistors than it is for component parts that make up those transistors, then enjoy the savings and have a nice day.

How can a company enjoy FTZ benefits? First, it must be located within a 60-mile radius or a 90-minute drive of the Auburn site. Then, the company must pay annual administrative fees to the grantee (in this case, the Lewiston-Auburn Economic Growth Council) to become a user (a "sub-zone," in Commerce Department parlance). The Growth Council and its board of directors will oversee and manage the FTZ along the premises of a public utility.

What does this mean for Lewiston-Auburn? Potentially, it means a whole lot. The 60-mile radius requirement for companies to use the zone embraces participation by Portland, Bath-Brunswick, Augusta and western Maine companies. Plenty of firms, along with local transportation resources, stand to benefit. (One of L-A's most valuable marketing tools is its central location: Nearly 50% of Maine's population is located within 30 miles of L-A.)

Consider that Auburn is the largest inland port in the northeastern United States. An FTZ further enhances L-A's status as a transportation and logistics hub. The intermodal facility (a truck-to-train cargo transfer operation) offers Maine's only double-stack train service, and has doubled in size over the past few years. St. Lawrence & Atlantic Railroad (part of the larger Genesee & Wyoming network) through its link with Canadian National offers clients and their international cargo European connections via the ports of Vancouver and Halifax.

L-A is also home to value-added service providers such as Safe Handling, Maine's largest rail trans-shipment facility for chemicals and food-grade products. Safe Handling, an ISO 9002-certified company, has built its reputation on solving difficult logistics problems and creating cost-saving solutions for its clients.

Add to the mix a U.S. Customs port, Pine Tree Zone status and plenty of warehousing space, and you have a very valuable industry and a virtual business magnet for central Maine.

The Auburn Business Development Corporation and the growth council also are collaborating on plans to build a 160-acre industrial park in the FTZ on the south side of the Auburn-Lewiston Municipal Airport. Partners such as St. Lawrence & Atlantic and others already are excited about the opportunities this will provide.

Unlike a development project involving bulldozers and cranes, a Foreign Trade Zone designation doesn't involve an easy count of jobs created or tax dollars generated. It does, however, provide a critical advantage in an increasingly global landscape: a cost-effective lifeline to worldwide markets.

A single certificate signed by the Secretary of Commerce and displayed near our office entrance may have changed our definition of economic success forever.

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