Cargo ships carrying components for Block Island Wind Farm’s enormous wind turbines arrived regularly at Providence’s port in 2015 and 2016, when the wind farm was under construction.
Imported mainly from France and Spain, the parts were received in ProvPort Inc.’s foreign trade zone, allowing wind farm developer Deepwater Wind LLC (now part of Orsted U.S. Offshore Wind) and GE Renewable Energy to put off paying import tariffs until the components were transported to the waters off Rhode Island.
Since then, however, use of the foreign trade zone has mostly stopped, according to the managers of ProvPort.
Several miles south, at North Atlantic Distribution Inc., a massive automotive importer based at the Port of Davisville in North Kingstown’s Quonset Business Park, no customers are taking advantage of a recently expanded foreign trade zone there. NORAD has been attempting to attract automakers to offload cars in Rhode Island for eventual export into Canada. So far, though, its zone hasn’t been used since 2015.
Rhode Island leaders had high hopes when they sought to expand the state’s foreign trade zone. The designation, which earned federal approval in 2018, effectively turned all of Rhode Island into one big zone, which officials said could benefit importing and exporting companies by eliminating duties and tariffs or allowing more flexibility in how they would be paid.
[caption id="attachment_312052" align="aligncenter" width="696"]
SLOW ZONE: Foreign trade zone benefits at ProvPort in Providence have not been used much since 2016, when overseas deliveries for the Block Island Wind Farm stopped. Chris Waterson, general manager of Waterson Terminal Services, which manages the port, expects activity to ramp up again as interest and investment in wind energy grows. / PBN PHOTO/MIKE SKORSKI[/caption]
But in the year since that expansion, only a few Rhode Island companies have taken steps to capitalize on it. Some business leaders say that’s because the benefits haven’t been made clear, while others point out that foreign trade zones aren’t one-size-fits-all. Only businesses that import and export regularly stand to gain.
That doesn’t mean R.I. companies are being shut out of foreign trade.
With R.I. Commerce Corp. and the John H. Chafee Center for International Business at Bryant University acting as arteries for overseas relationships, international business ties are relatively common in the Ocean State. But business leaders and trade specialists say awareness within the broader business community about existing opportunities and services needs to increase.
‘PEOPLE DON’T KNOW’
Rick Grundy, president and chief operating officer of AVTECH Software Inc. in Warren, says he has spoken with numerous business owners who aren’t aware of trade missions, graduate student projects and other programs spearheaded by Commerce RI and the Chafee Center that help businesses make headway into foreign markets.
“The resources are there, it’s just that people may not know where to start,” Grundy said.
“I’ve talked to a number of businesses about how we do trade missions, how we explore foreign trade, and they’re just flabbergasted, they have no idea that these services exist.”
Foreign trade zones are among the opportunities that aren’t yet widely recognized, says Avi Nevel, CEO and president of the Rhode Island-Israel Collaborative.
“They’re not used because people don’t know about them,” said Nevel, who recently accompanied Gov. Gina M. Raimondo on a trip to Israel. “You can put the best flower in the store, and if people don’t know about the flower, then nothing happens.”
The group works to connect companies here with opportunities in Israel. It’s one of two independent business groups in the state focused on promoting foreign trade – the other is Rhode Island International Trade Center.
Efforts to spread the word on the benefits of foreign trade zones are ongoing, said John Riendeau, director of business development at Commerce RI.
“It continues to be a challenge, getting people informed,” he said. Determining whether use of a zone makes sense is a vital first step, Riendeau added.
“Not everybody sees value once they do the math for themselves [by comparing] the cost- benefit analysis against the duties and the tariffs that they’re assessed,” he said. “If the math doesn’t work, then don’t do it, but if the math is there, then that clearly gives them a leg up over their competition.”
Manufacturers and wholesale distribution companies are among those best-suited to benefit from a foreign trade zone because they often import large volumes of materials and incorporate them into a finished product before exporting them, Riendeau said.
Imported materials that are kept inside a foreign trade zone are not subject to import duties and tariffs until they leave the zone. The fees are not tacked on to exported products, and companies that import goods for use in a product that sells domestically have the option of deferring payment of fees until they decide to move their product out of the zone.
Rhode Island joins Delaware and Indiana as states that have achieved “alternative site” status in their entirety. The title allows companies or sites within the area to apply for approval as a federal trade zone. Delaware earned the status about eight years ago. Since then, use of federal trade zones has fluctuated, according to Patty Cannon, grantee administrator for Delaware’s foreign trade zone.
“It’s constantly in flux; we have about five at any given time,” she said.
Use of the designation in Rhode Island is in line with what’s happening in Delaware, Cannon said.
“It does not sound like underutilization, because [using a trade zone is] not the right fit for everyone. It really is based on, as your industries ebb and flow,” Cannon said, adding that Delaware’s foreign trade zones were heavily used by two automotive plants decades ago, then fell off as business at the plants dwindled.
[caption id="attachment_312054" align="aligncenter" width="696"]
FUNDING OPPORTUNITIES: Avi Nevel, CEO and president of the Rhode Island Israel-Collaborative, speaks at the Nelson Center for Entrepreneurship in Providence during a workshop to learn about funding opportunities from the BIRD Foundation for companies interested in doing business in Israel. / PBN PHOTO/MIKE SKORSKI[/caption]
MATCHMAKERS
More than 250 Rhode Island companies worked with Commerce RI and the Chafee Center in 2018 on international trade missions, trade shows, grants and other programs designed to introduce businesses to foreign connections. Katherine Therieau, director of the international trade program at Commerce RI, expects final 2019 data, which has not been tabulated, to reflect the same level of participation.
Raimondo has a hand in promoting foreign opportunities as well. Raimondo’s office described her November trip to Israel along with a group of Democratic governors as an economic-development mission. During her stay, the governor signed an agreement meant to foster relationships between Ben-Gurion University’s Advanced Technologies Park and RIHub, a new startup incubator in Providence.
Nevel was part of the delegation.
The trip’s value, he said, was in the face-to-face meetings. “There definitely needs to be more done, if we decide we want to attract foreigners,” he said. “You cannot just send an email; you have to be there, and I think the governor and [R.I. Commerce Secretary] Stefan Pryor did that.”
Formed in 2017, the Rhode Island-Israel Collaborative has a roster of 30 businesses that are active members. The Providence-based nonprofit is designed to function as a conduit, helping to build relationships between companies in Rhode Island and Israel. So far, Nevel said, its success has outpaced his expectations.
By contrast, the Rhode Island International Trade Center extends most of its energy outward, bringing foreign businesses to the Ocean State. Successful connections often forge partnerships here, but the group’s main goal is to market Rhode Island as a desirable location for U.S. subsidiaries of foreign companies.
“We exclusively focus on bringing foreign companies into the United States via Rhode Island,” said Richard W. Pinto Jr., the trade center’s founder and executive director. “We are inbound.”
The Providence-based group got its start in 2015 as the Ireland West International Trade Centre.
Since then, the trade center has expanded its international outreach to include other European countries, as well as North America and the Middle East. It partners with Rhode Island businesses, state agencies, universities and other entities.
The group is working with about a dozen foreign companies in Ireland, Italy, Canada, Spain, Lithuania and the United Kingdom, said Pinto, who worked closely with former Commerce RI Chief of Staff John “J.R.” Pagliarini to establish the center.
Through Rhode Island International Trade Center, Graphene Composites, a British manufacturer that sells a durable lightweight material used in defense and aviation, has established a U.S. subsidiary in Providence, as has Big Red Barn, an Irish maker of predesigned and fabricated homes. Ezewarm, an Irish company, has also put down roots in Rhode Island with the help of the center.
“The appetite and the ability to support inbound foreign investments is really limitless in Rhode Island,” Pinto said, adding that he sees municipalities and state officials and agencies who are eager to support new companies and jobs. “That’s what sustains a good quality of life; good-paying jobs, a growing tax base and people having the money to support local businesses.”
Artisans List, a curated online resource for home décor and preservation-based services that’s based in Portsmouth, formed a connection with the Rhode Island-Israel Collaborative after the company began considering a tie to an Israeli company.
Co-founder Mary Gervais and her business partner were introduced to Croosing, a company in Israel that specializes in artificial intelligence, through a mentor with MassChallenge Rhode Island.
If the two sides decide to work together, Croosing will test its technology for automated browsing, a process that can help streamline customers’ use of Artisans List’s website.
Such opportunities can be “phenomenal” for Rhode Island’s economy by boosting companies’ capabilities through collaborations, Gervais predicts.
The Rhode Island-Israel Collaborative’s efforts are coming at a time when both Rhode Island and Israel are primed for overseas partnerships, she added.
“There is a lot of technology in Israel, their entrepreneurial eco-center is very strong, and because Rhode Island is a small state, I think we can share a lot of resources here dedicated to entrepreneurship,” she said.
Ireland’s small size and reputation for innovation is part of what drew AVTECH to explore options there, Grundy said.
The company traveled to Israel on a state-organized trade mission three years ago but found a better match in the Emerald Isle. The company has since created a subsidiary in County Clare, Ireland, and operates a distribution center there that saves European customers high shipping charges and other fees.
AVTECH is still an avid participant in trade missions, but Grundy notices few new faces during the trips. He estimates that 80% of businesses that travel overseas with state business liaisons are the same ones, time after time.
“There’s a larger majority of businesses that could benefit from these [that aren’t aware of the trips],” he said.
Although he and other business owners are happy with the flow of resources, Grundy pointed out that a disconnect has developed because businesses and state agencies are so preoccupied with daily operations. In addition, the wealth of new opportunities offered by Commerce RI can threaten to overwhelm.
[caption id="attachment_312055" align="aligncenter" width="696"]
DELAYED TARIFFS: Chris Waterson is the general manager of Waterson Terminal Services, which manages ProvPort in Providence. Block Island Wind Farm developers were allowed to delay paying import tariffs on turbine components that were imported from France and Spain and received in the port’s foreign trade zone in 2015 and 2016 when the wind farm was under construction. / PBN PHOTO/MIKE SKORSKI[/caption]
IN THE ZONE
Rhode Island’s designation as a foreign trade zone was approved in September 2018 by the U.S. Foreign Trade Zones Board. The statewide status is possible thanks to a rule that allows foreign trade zones to encompass a 60-mile stretch outside of a customs hub. In Rhode Island’s case, that’s T.F. Green Airport in Warwick.
The label allows any business to apply for its own designation as a subzone. Newly created zones would add to the state’s longtime foreign trade zones at ProvPort, the Quonset/Davisville area and the Airport Business Park near T.F. Green.
The process requires subzone approval from the U.S. Foreign Trade Zones Board, which typically takes about 60 days, Riendeau said. The second phase, an application to U.S. Customs and Border Protection to become an authorized zone user to receive and store imported goods, can take as long as six months.
Only J.F. Moran Co. in Smithfield has taken advantage of the statewide designation to earn its own credentials as a foreign trade zone.
The Smithfield-based customs broker, freight forwarder and trucking company handles both imports and exports. It officially opened its foreign trade zone earlier this month. Now, customers can “assemble, further manufacture or process the goods, and the duty will be based on the most favorable rate when the goods are withdrawn,” said Betty Robson, J.F. Moran’s owner and president.
The new service was generating questions from companies months before the final paperwork was in place, she said.
“From our clients, there’s a lot of interest,” Robson said, although she did not name companies that had inquired about the zone.
“If they’re warehousing or storing goods here, it makes sense,” she said.
Several other companies are in various stages of the foreign trade zone application process, Riendeau said. One applicant is a large retailer and another is a small business in Jamestown that works on defense projects, he said, declining to identify companies by name.
Dean Warehouse Services Inc., of Cumberland, which had expressed interest in obtaining foreign trade zone designation before the statewide status was approved, has not yet applied, said the company’s president, Joe Iovini. The company is waiting while some of its clients determine whether use of a foreign trade zone would be beneficial.
‘IT'S AN EDUCATION’
Officials acknowledge use of foreign trade zones is low, but that’s not because there isn’t significant potential for more local companies to benefit from the statewide designation, many say.
At ProvPort, the trade zone’s benefits have gone largely unused since 2016, when overseas deliveries for the Block Island Wind Farm stopped. But Chris Waterson, general manager of Waterson Terminal Services LLC, which manages ProvPort, said he expects activity to ramp up again as interest and investment in wind energy increases.
“I feel confident that it will be used in some fashion,” Waterson said.
Matthew Martyn, NORAD’s director of business development, also sees future opportunity.
Upgrades such as installing navigation systems or towing attachments to automobiles shipped into NORAD’s foreign trade zone can be completed without incurring higher duties. In addition, the lower duties won’t be charged until a car leaves the zone. If it is exported to Canada or Mexico, no duties apply, although cars shipped to NORAD are almost exclusively sold domestically.
“I remain optimistic that I will be able to bring in customers to supply Canada through the federal trade zone,” Martyn said.
“It’s just a matter of getting the customer ready to do that,” he said. “It’s an education. … Every automaker that imports into Canada on the East Coast would do well to use Davisville because they would not have to go as far north as the Canadian port and they would save time on their vessels.”
(Updates 6th paragraph to clarify companies taking steps to capitalize.)
Elizabeth Graham is a PBN staff writer. Contact her at Graham@PBN.com.
I would like to clarify that AVTECH has been very thankful for the wealth of resources available in RI for businesses. This includes new and expanded programs at Commerce RI, the SBA, the Chafee Center at Bryant University, Polaris MEP, USEAC and many others. Many of the programs available through these organizations have been transformational for AVTECH, including Trade Missions, STEP assistance, export training at Bryant, SBA sponsored training, Gold Key Trade Assistance, Lean Training and much more.
While my comments in the referenced article may indicate a negative perception regarding general awareness of these programs, the intent was instead to shout the benefits of these programs from the rooftop so that other businesses in RI realize how much is available to them within the state. There’s never been a better time to be a company in RI who exports products around the world. The resources are here and the people leading these programs are top notch. I welcome any business in RI to reach out to me directly and I am happy to share what we’ve learned. You’ll also find a very helpful team at each of the organizations listed above.