The ins and outs of foreign trade zones
Dec. 22, 2012 at 6:22 a.m.
Updated Dec. 23, 2012 at 6:23 a.m.
Caterpillar's decision to locate a hydraulic excavator plant in Victoria meant hundreds of new jobs and a hefty financial investment in the Crossroads. Its effects didn't end there, however.
With the application process under way, the company recently became the first in Victoria to utilize a foreign trade zone, a move that delays duty payments or eliminates them completely, depending on the specifics.
Here is a closer look at what foreign trade zones are and how they work.
A foreign trade zone is an area physically located within the United States but considered outside the nation's customs territory. Victoria, Calhoun and Matagorda counties are part of Foreign Trade Zone 155.
Businesses in such zones can import products with customs duties postponed until the products are shipped out of the trade zone. Oftentimes, if the product - either in its original form or as part of a completed project manufactured in the zone - is exported to another foreign country, the items remain exempt from duties.
Although Foreign Trade Zone 155 once operated by designating specific areas as potential foreign trade zones, it recently transitioned to an "alternative site framework." This allows any area in the three counties that meets the criteria to be designated as such, and also makes for a quicker, less expensive application process.
Under the "alternative site framework" structure under which the foreign trade zone currently operates, the application process takes about three months and costs less than $10,000. The old method, which often meant relocating existing zones or establishing new ones, took between 12 and 18 months and cost about $20,000 to $25,000.
The option to utilize such zones in Victoria has been available for about 15 years but Caterpillar is the first company to take advantage of it. The company remains in the application process, with entities such as the city, county and Victoria school district writing letters of consent, so the move is not yet official.
In Calhoun County, Alcoa has been part of a foreign trade zone since approximately 1994, while several other businesses have utilized temporary foreign trade zone sites. Inergy, a Matagorda County energy company, has taken part in the foreign trade zone since about 2007.
Companies' work doesn't end once the application process is complete. They must keep detailed, in-depth records regarding the quantity of foreign goods both entering and leaving the zone.
Companies benefit from foreign trade zones because of the delayed customs payments, as well as the fact that they don't have to pay end-of-year ad valorem taxes on inventory brought in from foreign countries. Communities benefit because the trade zones mean added opportunities to attract businesses to the region and create jobs.
The Calhoun Port Authority oversees Foreign Trade Zone 155 but the board consists of four representatives from Calhoun County and four from Victoria County. Those include:
Jack Morrison Jr.
Sources: Dale Fowler, president of the Victoria Economic Development Corp., Charles R. Hausmann, director of the Calhoun Port Authority, "Customs and International Trade Practice" foreign trade zone handbook by Ernst & Young