TWO A.V. CITIES AT ODDS; LANCASTER WANTS OWN FOREIGN-TRADE-ZONE STATUS.

Byline: Jim Skeen Staff Writer

Going into 1999, the mayors of Lancaster and Palmdale were optimistic the two cities could reach an agreement to bring foreign trade zone benefits to the northern end of the Antelope Valley.

Nine months later, the cities still are at odds over Lancaster's application for a separate foreign trade zone and the chances the debate will be resolved anytime soon are remote.

``It's going to drag on for many more months,'' Lancaster Mayor Frank Roberts said last week.

Palmdale officials say they have a plan that can work for both cities, but that Lancaster refuses to cooperate.

``We put together a compromise we thought everyone could live with,'' said Palmdale Mayor Jim Ledford. ``It was basically rebuffed.''

Foreign trade zones are used as incentives to attract businesses by reducing or eliminating custom duties on imported parts the businesses can then assemble into a finished product.

The two cities have been at odds over Lancaster's application for a separate foreign trade zone designation, with Palmdale officials saying their northern neighbor should have gone through them to expand the existing zone.

The extent of the disagreement became apparent last August during a public hearing in which Lancaster officials said they had no confidence in Palmdale's handling of the foreign trade zone, comparing the situation to that of a parent abusing a child.

Lancaster applied to have 3,200 acres designated as a foreign trade zone, including 3,040 acres on and south of Edwards Air Force Base. Lancaster is pitching that area as the launch site for VentureStar, a reusable spaceship Lockheed Martin Skunk Works is developing.

About 160 acres cited in the Lancaster application is for the Lancaster Business Park.

Palmdale has 1,315 acres at nine sites designed as a foreign trade zone. Palmdale received its designation in 1992.

A major sticking point is the issue of confidentiality during negotiations with prospective businesses that might want to relocate into the foreign trade zone. Lancaster officials say they do not want a process that involves bringing in Palmdale representatives.

Palmdale officials have proposed using Marshall Miller, Palmdale's foreign trade zone counsel, as a third party to handle zone activation and expansion requests. An attorney would be bound by the principles of attorney-client privilege from disclosing confidential information to another city.

Lancaster officials disagree, saying Miller is too closely tied to Palmdale.

Officials with the U.S. Department of Commerce's Foreign Trade Zones Board told Lancaster they don't see confidentiality as a stumbling block for an agreement on a regional trade zone.

Businesses not planning to use foreign trade zone benefits even though they are planning to locate in an area designated as a zone do not need approval of their board or by Palmdale.

No application to the foreign trade zone board is needed for companies using zone procedures for warehousing and distribution operations. A one-time application to U.S. Customs would be required.

Manufacturing businesses wanting zone benefits would have to go through a zone application process, but that normally takes place after negotiations are substantially completed, Dennis Puccinelli, acting executive secretary of the U.S. Commerce Department's Foreign Trade Zone Board said in a letter to Lancaster City Manager Jim Gilley.

``To allay concerns between the cities of Palmdale and Lancaster regarding fair treatment of additional applications to the FTZ board, the FTZ staff is prepared to play a role in reviewing the applications in the draft stage and provide advice to either party as to the reasonableness of such applications,'' Puccinelli wrote.

Gilley said Lancaster would be interested in a process that included working with Foreign Trade Zone Board staff.

``We're getting closer,'' Gilley said of the zone discussions. ``We're going in the right direction.''