Imports are special in the zone

Zone 74: Companies using the Baltimore enclave can avoid Customs' duties until imported goods are sold.

June 07, 2000|By Rona Kobell | Rona Kobell,SUN STAFF

As general manager of C. Steinweg Inc.'s Baltimore warehouse, Rupert Denney makes it his business to mind bundled metals worth billions of dollars.

There is the tin, imported from Brazil in 1-ton blocks. The Chilean copper, cut into pallet-size sheets. The green drums of Southern African cobalt, neatly stacked and labeled.

But one of Steinweg's most valuable assets at Canton's Highland Marine Terminal is the hardest to see. It is Foreign Trade Zone 74, one of 230 enclaves throughout the United States where foreign goods can come in and defer U.S. Customs' duties until they're actually sold.

Steinweg, a 150-year-old company that came to Baltimore in 1990, is one of four zone operators handling imports. In fact, Denney said, it would be hard to exist without the zone.

If Foreign Trade Zone 74 were as conspicuous as one of Steinweg's 400-pound drums of cobalt, it would be easy to market. Instead, the city's Baltimore Development Corp. is selling a 280-acre economic asset, parceled out around the port, where the benefits take some explaining.

Since 1934, the Foreign Trade Zone Board, through the U.S. Department of Commerce, has been granting cities the authority to operate foreign trade zones as a way of stimulating trade.

Zone 74 identifies 81 companies as zone users -- those that ship and store goods. They avoid paying U.S. import taxes while their products are labeled, packaged, stored and improved. They can also mingle products of different duty rates and pay the lower rate.

For example, if a company imports a motor with a 5.3 percent duty rate and puts it into a vacuum cleaner, which has a 1.4 percent rate, it pays 1.4 percent when the product is sold.

That makes zones especially popular with auto manufacturers, since duties are often less expensive on cars than on car components.

The user companies' goods pass through operators - companies located in the zone that store goods for users, lease space to them for manufacturing and handle Customs paperwork. Zone 74 has four: Steinweg, Titan Steel Corp., Diamond Group and Baltimore Freeport Centre.

In March, the BDC applied to the Foreign Trade Zone Board for permission to expand the zone to 1,360 acres over 11 sites, among them Locust Point and Pulaski Highway. It expects its applications to be approved in a year.

The BDC hopes that the 81 companies now using the zone will increase business, and that the four zone operators handling those goods - Steinweg, Titan Steel Corp., Diamond Group and Baltimore Freeport Centre - will expand. Zone 74 handled $188 million in commodities in 1999, nearly triple its $68 million in 1998, according to Suzanne B. Reil, BDC's director of foreign trade zone operations.

Now, when companies want to join the zone, Reil must ask the Foreign Trade Zone Board to modify the zone. It's a cumbersome process, and the BDC has run out of room.

"We have exhausted every zone acre," she said.

Nationwide, interest in foreign trade zones is growing as businesses become more global, said Randy Campbell, director of the 770-member National Association of Foreign Trade Zones. About half of the country's 230 zones are inactive, and many more are underused. Of the three zones in Maryland, one - in Prince George's County - is inactive, and the other, at Baltimore-Washington International Airport, is only 37 acres and handles $13.4 million in goods.

"I don't think there's any zone that's being used to its full potential," Campbell said.

Officials at the BDC admit that was true of Zone 74 for much of its 18-year existence.

In 1982, when the city established the foreign trade zone, it entered into an agreement with McCormick Properties to operate it at Holabird Industrial Park. By 1989, McCormick was no longer in control of the zone, which moved to the Point Breeze Business Center that year.

One of the tenants at Point Breeze, the Baltimore Freeport Centre, claimed that the city gave it exclusive rights to the zone, and assumed the role of zone operator.

"We were a very passive grantee," said BDC President M. J. "Jay" Brodie.

Officials at the Baltimore Freeport Centre wouldn't comment on the situation.

But Brodie said he considered the zone an essential element of economic development, and the BDC sued to quash Baltimore Freeport Centre's claim. As part of a Board of Estimates' settlement last August, BDC paid Freeport $150,000 to drop its claim as sole zone operator.

Now, the BDC charges each operator a one-time fee of $10,000 to use the zone. (Baltimore Freeport Centre was grandfathered in.) The application fees offset the BDC's expenses running the zone.

When Steinweg got wind of the expansion plans, it bought the old Fort McHenry Shipyard for taking cargo off ships, and the former Southern States property next door for a new warehouse. The Locust Point expansion has more than tripled Steinweg's staff, from 24 to 74, in 2 1/2 years.

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