Milwaukee Free Trade Zone Is Expanding

Called "Foreign Trade Zones," they're a little like having your own duty free shop, a special designation granted by the U.S. Department of Commerce that allows companies to defer, reduce or even avoid tariffs on imported goods, all in the interest of giving American companies a leg up against foreign competitors.

First authorized by the Foreign Trade Zones Act of 1934, Milwaukee's long-standing zone - the country's 41st - is expanding. The new overseer, the Port of Milwaukee, took over the role last fall from a private firm, Foreign Trade Zone of Wisconsin, Ltd. 

Eric Reinelt, director of the port, says the port will serve as an intermediary between the private sector and federal government, and advocate for the benefits of establishing a "sub-zone" within the Milwaukee FTZ.

"There have been many companies in Southeastern Wisconsin that have been active sub-zones for many years, but it's our premise that the advantages of being in a foreign trade zone have not been marketed well in recent years," he says.

More Companies Eligible
Also last fall, the Foreign Trade Zone Board approved an "Alternative Site Framework" for the FTZ that enlarges the eligibility requirements for companies interested in joining the Milwaukee program. Now, any business within 60 miles or a 90-minute drive of the city can apply to become a sub-zone, a common choice for manufacturers, or a "general-purpose zone," a designation sometimes chosen by warehousing and logistics companies.

Two Milwaukee-area companies with the general-purpose designation are Transpak and ACE World Wide. A third company with headquarters in Milwaukee, Bentley World Packaging, has applied to join their ranks and hopes to win FTZ approval in February. Kurt Prange, the company's FTZ liaison, says Bentley hopes to expand its warehousing, importing and exporting services, all under FTZ rules, which allow only limited changes to imports unless the company wins approval for a sub-zone.

Once approved, Bentley could import goods for a customer, hold them in a warehouse and export them without paying any duties at all, according to Prange. This is one of the many perks of an FTZ. Prange says the company has a list of about 20 ways an FTZ can save businesses money. "If we can import goods that are value-added, that helps jobs to stay in Wisconsin," he says.

Duty Deferral a Perk
Another perk is "duty deferral," according to William Braun, who oversees Wisconsin's ports for the U.S. Customs and Border Protection Service. If, as in the previous example, the goods are sent on to a domestic destination, the owner still has to pay duties, but only when they leave the FTZ, which serves as a tariff shelter. "Foreign Trade Zones are generally considered outside the commerce of the U.S.," he says. Deferrals can provide welcome relief to a company's cash flow.

Two manufacturers in southeastern Wisconsin, including Mercury Marine of Fond Du Lac and the Illinois-based farm and construction equipment maker CNH, have established sub-zones. Braun says FTZs can mean millions of dollars in savings for heavy users.

Manufacturers like Mercury Marine often use an FTZ benefit called "inverted tariffs" to reduce duty payments. Under it, a company can choose between paying the tariffs on imported components used to construct a product or the finished product itself, once it leaves the zone. The latter is often significantly lower.

Crunch the Numbers
Since August, Braun says a few more companies have filed applications for new zones, both sub-zones and general purpose ones. He advises, "You really have to do the research and crunch the numbers to figure out what you would be saving. There would be some initial outlay for accounting software and for inventory and control methods."

Those companies with FTZ zones can also apply for "direct delivery" of imported goods. Normally, such imports must be held in a warehouse, examination station or bonded facility until U.S. Customs officials approve their entry into the country, but FTZs may get approval to bypass this requirement.

The Port of Milwaukee now oversees the largest FTZ in the state, but it's not the only one - Brown and Dane counties have their own, both run by their respective county governments.