Boosting trade in the zone
Des Moines’ foreign-trade zone may be one of the metro area’s best-kept secrets.
Established 20 years ago as a tool to promote more international trade by Central Iowa companies, the Des Moines zone has remained largely unused. Trade officials blame a lack of promotion and say few companies know enough about the zone to make full use of it.
Now, a Grinnell warehousing company plans to establish a foreign-trade zone as part of a strategy to attract new business from some of its existing manufacturing clients. RC Industries, which specializes in just-in-time warehousing for Maytag Corp. and several other Central Iowa manufacturers, has set aside 15,000 square feet of space in its warehouse at 400 Highway 6 West in Grinnell.
“I don’t think we’ll have any problem getting it filled up,” said RC President Richard Ahrens.
The foreign-trade zone program was established as part of President Franklin Roosevelt’s New Deal in 1934 as a move to bolster exports by U.S. manufacturers during the Great Depression. Thirty-five years ago, there were just nine foreign trade zones in the entire country. Today, there are about 700, counting both zones and subzones that operate as satellites of a zone. In 2000, $238 billion in goods were imported through the zones, representing 12 percent of total of U.S. foreign trade.
In Central Iowa, the West Des Moines warehouse that has been designated for the Des Moines foreign-trade zone is not currently being used by any companies on a regular basis, said Merle Baumhover, president of Centennial Warehousing Corp., which owns the warehouse. Baumhover said the zone traditionally hasn’t appealed to companies outside the manufacturing industry and that past marketing efforts haven’t been successful.
“We don’t have a huge track record in promoting and using [Des Moines’] foreign trade zone,” said Tom Rial, director of the Greater Des Moines Partnership’s Export Assistance Center. “I don’t think people fully understand foreign-trade zones and how they can be used.”
Several recent changes could work in Ahrens’ favor. Some trade officials said the zone can be useful to companies in other industries and that increasing use of the zone is a marketing issue. Ahrens plans to begin marketing his Grinnell warehouse space soon.
The Greater Des Moines Partnership, which administers Des Moines’ foreign trade zone, has received approval from the U.S. Department of Commerce to transfer a portion of the space now authorized for Des Moines’ zone to establish the Grinnell subzone, Rial said.
The Partnership also is working with the Metropolitan Planning Organization to hold a transportation infrastructure summit early next year “to tell companies this can be part of [their] supply chain and save [them] some money,” Rial said. “We are going to have to show there is some interest (in the Grinnell subzone) if we are going to apply for a full foreign trade zone.”
Des Moines’ foreign-trade zone problems have not been repeated in Forest City, where Winnebago Industries is realizing “significant” savings from having its entire manufacturing complex designated as a foreign-trade zone. That zone, which was established as a subzone of Des Moines’, allows the motorhome manufacturer to defer payment of duties on imported parts, and in some cases pay lower duties.
“The savings can be significant when a firm opts to do a foreign-trade zone,” said Ron Berry, Winnebago’s warehousing and distribution manager, who declined to give specific figures on his company’s savings.
However, there are myriad rules and regulations to adhere to, Berry said.
“There’s a ton of paper trail on the front side and back side. And you’re subject to audit at any time,” he said. In the past three years the company’s zone has gone through two verification audits, one from the U.S. government, the other from the Canadian government.
Winnebago’s success with its subzone in Forest City has allowed Des Moines’ otherwise dormant trade zone to remain open, Rial said. “And we have to keep the general-purpose zone so Winnebago can have its subzone.”
From an economic development standpoint, Des Moines’ foreign-trade zone is still an important recruitment tool to keep available for companies that may find it valuable, he said.
“This is one way companies can save money and avoid having manufacturing jobs move overseas, because we want to keep those jobs in the United States,” Rial said. “That’s what this is about as much as anything.”
FOREIGN-TRADE ZONES DEFINED
The Des Moines Foreign-Trade Zone is one of two foreign-trade zones in Iowa, the other one being at the Eastern Iowa Airport in Cedar Rapids. The Quad-Cities also have a zone that is located in Rock Island, Ill., with subzones at Maytag Corp.’s plants in Newton, Iowa, and Galesburg and Herrin, Ill.
A foreign-trade zone is a site within the United States where foreign and domestic merchandise is considered to be in the stream of international commerce. Foreign and domestic merchandise may enter this zone without a formal customs entry, the payment of customs duties, or federal and state use/excise taxes and personal property taxes.
A foreign-trade zone allows companies to defer duty payments until the goods are ready for sale, and eliminates duty on damaged or unmarketable items. It may also mean lower insurance rates for items stored in the zone.
Maytag Corp., which already has foreign-trade subzones established at its Newton plant as well as its plants in Herrin and Galesburg, Ill., has used the Galesburg zone in the past but is not now actively using it, said company spokesman Kevin Waetke.
“Once (the Grinnell subzone) is in place, Maytag would assess whether it would fit into our manufacturing strategy,” he said. “We’re familiar with foreign-trade zones and we have used them periodically.”