Jefferson County and Grand Junction are seeking to become free-trade zones in an effort to attract more business, add jobs and help local companies offset some of the rising cost of international trade.
Their applications would provide the regions with a spot for companies to store imported goods and defer or bypass tariff-duty payments. There’s growing interest in these zones, also called Foreign Trade Zones, but the process is complicated, heavily regulated and, so far, little used in the only Colorado zones already approved along the Front Range.
The ongoing U.S. trade war with China has Colorado manufacturers searching for any sort of reprieve from tariffs.
“We’re serious about it, and we think it would really benefit our companies,” said C.J. Rhyne, director of business retention and expansion for the Grand Junction Chamber of Commerce. “… People don’t realize over here that there are a lot of companies that import and export out of the United States.”
A Foreign Trade Zone is a physical property that is treated as if it’s outside the U.S. It’s supervised by the U.S. Customs and Border Protection. Taxes are collected only when the product leaves the zone. But there are no U.S. import taxes if the product is exported directly to another country. Or there could be less tax if the imported product is made into a finished good, like a laptop, which so far has been exempt from tariffs (the Trump administration is now considering adding laptops to the China tariff list).
MORE: Why a computer maker moved manufacturing to Denver, despite ongoing trade war with China
Grand Junction has considered getting a Foreign Trade Zone for years and now, with support from neighboring communities, the idea could become reality within a year or two, Rhyne said. Public comment recently concluded, and now it’s up to the region to come up with a design plan and funding and get final FTZ approval.
“Initially five years ago, we looked at 22 companies that could benefit and that was just in Grand Junction,” Rhyne said. “Now with Delta County, Montrose, Glenwood Springs and others (participating), that number jumps up exponentially. It’s becoming really viable and that’s why we’re doing it collectively.”
Grand Junction’s zone would stretch into the counties of Delta, Garfield and Mesa plus portions of Montrose and Rio Blanco, according to its application. Jefferson County’s zone would also include Boulder, Clear Creek and Gilpin counties.
Denver and Colorado Springs already have zones, though there has been limited to no use. The Town of Limon is the state’s newest approved FTZ and its region includes all of Adams and Arapahoe counties.
Kristi Pollard, credited with helping start the Western Slope effort, has done the same for Jefferson County. Using the Rocky Mountain Metropolitan Airport as the base, her team reached out to communities within a 60-mile radius, which is allowed under regulations. She hopes for final federal approval this fall.
“As home to numerous manufacturing sites that are importing goods, we knew that having FTZ status was critical to us maintaining our ‘open for business’ status,” said Pollard, CEO of the Jefferson County Economic Development Corporation. “We live in a global economy and for Jeffco to continue to compete nationally and internationally, we felt that the FTZ was an important tool for us to secure.”
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FTZ history and future in Colorado
Foreign Trade Zones were a response to the Smoot-Hawley Tariff Act in 1930, which raised import taxes on products that already had tariffs. After retaliation from U.S. trade partners like Canada, Foreign Trade Zones were created four years later to offer some relief.
But this isn’t about avoiding tariffs, said Erik Autor, president of the National Association of Foreign-Trade Zones.
“The zone system has rules to prevent the avoidance of those duties,” Autor said. “The zones only create a very, very limited shield to the tariffs. … It’s a duty-reduction benefit.”
Still, there’s a financial benefit for manufacturers and distributors, he said. For example, if import taxes on a finished automobile are less than importing car parts and building in the U.S., then there’s a financial disincentive to build in America. By using an FTZ, the manufacturer could ship in car parts, build the car in the zone and then pay the lower import tax for finished models.
Likewise, garment distributors like The Gap could also save on import taxes. Instead of paying tariffs each time a new shipment arrived, the company could use an FTZ to consolidate all of the imported clothing before shipping the garments nationwide. That would let The Gap better manage costs by having one payment and fewer U.S. Customs user fees.
But it’s difficult to calculate an overall financial benefit to FTZs generally, he said.
“The zones program offers significant benefits in terms of the community and where it’s located, from jobs created to tax revenue,” Autor said. “But the return on investment (for companies) will differ tremendously depending on what business you’re doing in the zone.”
According to the Foreign-Trade Zone Board, which is part of the U.S. Department of Commerce, there are about 250 foreign trade zones nationwide. But only about 191 are active, according to the FTZ Board’s most recent annual report to Congress.
The report said there were more than 450,000 people employed by 3,200 firms that used FTZs in 2017. The value of shipments in the zones totaled $669 billion, compared with more than $610 billion the previous year. Zones are most used by industries in the oil refining, automotive, electronics, pharmaceutical, and machinery/equipment sectors.
Colorado was not among the top 25 states for exporting or importing within FTZs. Colorado Springs, which has had its zone since 1984, has four sites, but they have not been in use recently, according to city officials.
In fact, the only Colorado FTZ activity was in Denver, which has had its zone since 1985. Two of its four sites — one includes Denver International Airport — were active, according to the U.S. International Trade Administration. The bulk of the activity was by Vestas, the Danish wind-turbine manufacturer.
But the city of Denver is hoping to change that. It’s been ramping up its own program and plans to host an informational event on July 25 to help local companies understand how an FTZ can benefit their business.
“We just really want to raise awareness of the program and amp up participation,” said Vanessa Simsick, the city’s Global Business Development Specialist.
She doesn’t consider the new Western Slope activity as competition since zones are regional, though a feature called subzones means companies in any part of the state can join Denver’s. Vestas, for example, operates in subzones in Brighton, Windsor, Pueblo and Denver.
“We think it will be beneficial and it will help raise awareness as a tool,” she said.
There’s a growing interest in subzones, which let companies create a physical designation inside their existing building that is also inspected by U.S. Customs. Threadmaker Amann USA has one inside its Broomfield facility, where imported spools from Germany sit duty-free until they are exported to Mexico for clients who use the thread in seatbelts.
“When a company wants to use FTZ procedures, they will work with an existing zone, and the existing zone will sponsor subzone or site applications for companies,” said Vanessa Ambrosini, press secretary for the U.S. Department of Commerce International Trade Administration in an email. “…We have also seen an increase in the number of applications to have a company’s facility designated as a site or subzone of a FTZ.”
There’s value in having an on-site zone, said Tim Fry, founder of Mountain Racing Products in Grand Junction. He looked into it about three years ago but wasn’t sure if it would work for his bicycle-parts manufacturing business.
The company doesn’t rely heavily on Chinese imports and to make an FTZ work could be more of a hassle, requiring employees to track what amount of imported raw steel, for example, is used in bicycle parts sold in America versus parts exported to other countries.
“Being able to trace and track that would probably add to the cost and go beyond the benefit of savings,” he said.
But he’s interested and will take a closer look once the FTZ is operating.
“In general though, there are companies in the valley that will benefit from it,” he said. “It’s a good thing for economic development and attracting new businesses. Anything we can do to increase the base of manufacturing here helps us.”