Bangor foreign trade zone offers businesses opportunity to reduce tariff impacts

BANGOR, Maine — To offer regional businesses another tool for tariff relief, the City of Bangor is promoting its foreign trade zone as a possible solution.

FTZs have been around since the 1930s and offer a way to defer, minimize, or avoid tariffs altogether.

By importing a good into an FTZ, a business can defer paying tariffs until the good enters the U.S. marketplace. This strategy can give a business more control over cash flow by paying tariffs incrementally rather than all at once, Biguita Hernandez-Smith, Bangor’s economic development director, says.

“You can take that money and organize your business in a way that can contribute to other facets of your business,” Hernandez-Smith said.

Importing and exporting from an FTZ can also allow a company to avoid tariffs completely.

For instance, the wood, glass, and hardware that make a cabinet door could move between the U.S. and Canada multiple times before the final product is made. So long as the materials only move between Canada and an FTZ, no import tax would be due until the final cabinet door enters the U.S. market.

This can cut down on the price considerably, says Kristin Vekasi, an associate professor of political science at the University of Maine.

“Instead of having an 80-percent price increase, they might be able to keep it to say, 10,” said Vekasi.

How useful an FTZ is hard to measure, Vekasi says.

“Even when you have a free trade zone, utilization rates of that zone might be really low,” Vekasi said, which is true for Maine.

Maine has five FTZs, but only those in Bangor and Waterville are active, Wade Meritt, president of the Maine International Trade Center, says.

To date, no businesses in Maine are signed up for either of the active programs.

“You need to be big enough that you’re willing to take on the risk and the investment that it requires,” Merrit said.

Bangor’s FTZ spans Hancock, Penobscot, Piscataquis, Waldo, and Washington Counties, and businesses that join the program can operate the FTZ on their own property. However, to comply with U.S. Customs and Border Protection regulations, a business must invest in security and logistics, which can be a barrier.

Still, Merritt says that interest in FTZs is ramping up.

“I have taken a lot more questions around foreign trade zones over the past couple of months than I have in the almost 30 years that I’ve been doing this job,” Merritt said.

Hernandez-Smith says that there are several businesses in the Bangor area considering the FTZ due to tariff concerns. To join the program, businesses will need to pay a nominal fee that covers administrative costs, she says.

While Bangor’s FTZ has been around for years, the concept is new to many in the region and is not a perfect solution for all businesses.

Tariffs on aluminum and malt were the top concerns for Abe Furth, co-founder of Orono Brewing Company, but months later, those concerns are minimal.

“So far, we have found that it hasn’t affected our pricing, which has been a huge relief,” Furth said.

Furth says his imported malt is exempt from the tariffs, and his company bought more than a dozen truckloads of aluminum cans to avoid a price hike. Given the stability of his business, Furth says the FTZ isn’t an advantageous tool yet.

“There’s potential, but it’s not anything I have looked into for ourselves at the moment,” Furth said. “But I do applaud Bangor for exploring as a city how they can help the suppliers.”

Instead, Furth and his co-owners are more concerned that consumers will cut back on their craft brew consumption to save money.

“When you read national reports, there’s definitely a flattening out of the craft beverage industry,” Furth said, but he feels Mainers will stay loyal.

“Ninety percent of our sales are right here in the state that we love and call home,” Furth said. “We appreciate all that loyalty from people in Maine.”

To learn more about Bangor’s FTZ, business owners are encouraged to contact Hernandez-Smith directly.

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