Rhode Island, which sometimes is at a disadvantage trying to lure or expand business because of its small size, now hopes to use that distinction to its advantage.
An effort by state and local officials to expand the state’s foreign trade zone could effectively turn all of the Ocean State into one, a potentially attractive advantage for companies that want to lower their duties on imports and exports, or have more flexibility in how they pay them.
Under an administrative rule, a foreign trade zone can be enlarged in a geographic area around a U.S. Customs port of entry, which in Rhode Island is in Warwick at T.F. Green Airport.
It allows the zone to encompass sites within 60 miles of the customs hub, or a 90-minute drive time, which includes all of the Ocean State, according to John Riendeau, director of business development for R.I. Commerce Corp.
An application made Dec. 20 by Commerce RI seeks to expand the existing foreign trade zone to include all of Bristol, Kent, Newport, Providence and Washington counties. (Commerce RI did not immediately release to Providence Business News the application it made to the U.S. Foreign-Trade Zones Board for the expanded status. A decision is expected this year.)
According to Riendeau, all five Rhode Island counties can be included under an “alternative site” designation that would allow companies or sites within them to apply to be activated as foreign trade zones.
This effectively would make Rhode Island a whole-state trade zone. Similar statewide eligibility for trade zones also is in effect in Delaware and Indiana, according to Patty Cannon, grantee administrator for the foreign trade zone that includes Delaware.
Rhode Island manufacturers and warehouse companies already have expressed interest in being activated as FTZ sites should the boundary be extended, Riendeau said, though he would not publicly identify them.
[caption id="attachment_192475" align="aligncenter" width="640"]
STORAGE SPACE: One of the catalysts for expanding Rhode Island’s existing foreign trade zone to include the entire state, was Warwick Mayor Scott Avedisian, second from left. He wanted to include Dean Warehouse Services Inc., at 745 Jefferson Blvd. in Warwick, with its 600,000 square feet of storage space for imports. Pictured, from left, with Avedisian at the warehouse are company officials Chairman Brad A. Dean, President Joseph R. Iovini and CEO Brad S. Dean. / PBN PHOTO/RUPERT WHITELEY[/caption]
One of them is Dean Warehouse Services Inc., which operates storage space in Warwick and other Rhode Island communities.
“It allows us to solicit more commerce,” said company President Joseph R. Iovini.
For the state, it would significantly boost competitiveness.
“Our little state has gotten a big advantage [because] we can meet this regulation,” said Riendeau. “I am cautiously optimistic.”
WHO BENEFITS?
The state has hired a consultant to help it prepare the application to expand the FTZ. Part of the assignment for the consultant will be to encourage companies to take advantage of the state’s zone, according to a request for proposal published last March.
Rhode Island’s single foreign trade zone is already promoted as an incentive for companies trying to expand or interested in locating in the state, according to the Commerce RI website. Even without the expansion, the cumulative tax benefit for companies in Rhode Island using the foreign trade zone has reached six figures, Riendeau said, not including the value of jobs created.
The greatest beneficiaries are companies that import large volumes of product or materials, and then refine or improve them before shipping them out for sale. Companies can also store goods in the zone indefinitely and defer a tariff, which frees that money for other purposes, or delays the payment until they are closer to receiving sale proceeds.
The state’s application will be heard by the Foreign-Trade Zones Board, a federal entity that annually reports to Congress. According to the board’s records, the country had 195 active foreign trade zones last year. The most valuable import products received into the zones that year included vehicles, consumer electronics and consumer products.
[caption id="attachment_192478" align="alignright" width="239"]
OCEAN STATE FTZ
: Rhode Island’s only foreign trade zone, created
in 1984 and expanded in 1997, has three locations:
the Port of Providence, the Airport Business Center near T.F. Green Airport in Warwick and the Quonset Business Park, including the Port of Davisville, in North Kingstown.[/caption]
New England has 16 zones, including three each in Massachusetts and Connecticut.
Rhode Island’s zone, created in 1984 and expanded in 1997, has three locations. It includes 32 acres at the Port of Providence, 43 acres at the Airport Business Center near T.F. Green and 880 acres at the Quonset Business Park, including the waterfront at Davisville, in North Kingstown.
In 2016, according to the last report made by the Foreign-Trade Zones Board to Congress about the nation’s trade zone activity, Rhode Island had one company that took advantage of the provisions.
Although not identified by name in the report, Riendeau said Deepwater Wind was the company.
It imported between $10 million and $25 million in merchandise in 2016, and employed about 80 people in manufacturing and assembling wind turbines for its offshore wind farm, Riendeau said. The operations were based at the Port of Providence.
When asked why only one company reported using the zone in 2016, Riendeau said companies will only use the zone if it’s beneficial, and that depends on the needs of its customers.
“Not every company needs to use the foreign trade zone within their business,” he said.
The report, which includes state-by-state summaries of activity, said 15 companies used foreign trade zones in Massachusetts that same year, all but one at the Boston Port Authority location.
The Boston report identified two companies by name: AstraZeneca and Claremont Flock. The New Bedford FTZ was used by Acushnet Co., which reported receiving between $75 million and $100 million in merchandise and exporting $500,000 in goods.
Within the foreign trade zone boundaries, interested companies must seek approval from the Foreign-Trade Zones Board to be a “zone user,” Riendeau said. It’s a process that several local companies have gone through, the most recent being North Atlantic Distribution Inc. in North Kingstown, in 2015.
[caption id="attachment_192474" align="alignleft" width="219"]
BUSY PORT: Ships unload cars being imported into the U.S. from overseas, at the NORAD facilities at the Port of Davisville in North Kingstown. Daniel Tofdoff, longshoreman, scans and tags vehicles / PBN PHOTO/MICHAEL SALERNO[/caption]
NORAD, one of the largest new-vehicle importers in the United States, last year received more than 275,000 vehicles from Mexico, Japan and northern Europe. The brands include Volkswagen, Porsche, Bentley and Audi.
NORAD also uses rail to ship in vehicles manufactured in U.S. plants, such as Subaru and Ford. The company uses rail to export vehicles to Canada, and also to markets in the U.S. It is looking to expand its export business, said Matthew Martyn, director of business development.
According to the National Association of Foreign Trade Zones, approved companies that make use of a zone do not have to go through Customs entry or pay import duties on certain merchandise. Duties and excise taxes are only paid when products move into the U.S. market for sale. If the items are then moved on to another country, the company pays no duties or taxes on those items.
Companies will often move product through an FTZ if they want to hold it before sale, because this allows them to delay the payment of their tariff, and frees that money for other purposes. They also do not have to pay any tariff on goods that are damaged or scrapped in the zone. And there is no time limit for how long something can be stored in the trade zone.
At NORAD, most of the activity that takes place in the Rhode Island zone includes additions and updates to vehicles, such as installation of new features, anything from mud flaps on trucks to tow hitches or entertainment packages for SUVs. The auto manufacturer is not charged an increased tariff for these improvements and they carry the same manufacturer warranty that would be included in the first sale of the vehicle, Martyn explained.
“My sales pitch is if you do it in the port you’re going to get manufacturer-grade standards,” he said. “You’re getting the same quality” and it results in a reduced tariff because it isn’t applied to the improvements.
For all these reasons, the foreign trade zone represents a marketing advantage, according to business-development officials.
Martyn said he is trying to encourage more use of the zone at Davisville. “I would love to get [cargo] going to Canada from plants in Mexico,” he said. In logistics, it can be a benefit for the cars to move by vessel rather than rail, which the Davisville port could accommodate. “There are a lot of rail-car shortages right now,” he explained.
[caption id="attachment_192472" align="alignright" width="210"]
OFFLOADING: The Elizabeth River, out of Hong Kong, offloads 60,000 tons of salt at the Port of Providence. Rhode Island’s only foreign trade zone includes a port and two other locations. Rhode Island has applied for a statewide foreign trade zone. / PBN PHOTO/MICHAEL SALERN[/caption]
A DIFFERENT GAME
In Warwick, Mayor Scott Avedisian is among those advocating for expansion of the existing zone. It now consists of the Airport Business Center, an office complex near the airport at 333 Strawberry Field Road, which is home to several tenants, including manufacturing companies.
Avedisian said the move to expand the designation came after he requested an expansion to include City Centre Warwick and Dean Warehouse Services, which owns and operates 600,000 square feet of storage space near the airport on Jefferson Boulevard.
Avedisian is among the community leaders in Rhode Island who submitted letters of support as part of the state’s application for the trade zone expansion.
The completion of the extended runway at Green and the introduction of international flights with cargo capacity put the city in a good position to expand its import and export business, he said.
In an interview, Avedisian said without the international flights, there was no real need for an expansion of the trade zone to include Dean Warehouse.
Now, it’s a different game.
Pinnacle, a private carrier of cargo, has entered the market. Rhode Island’s airport is now a conduit to Ireland, Scotland, the French Caribbean and, most recently, to Canada via Toronto.
Since the international flights began, Avedisian completed a foreign trade mission to Ireland. Among other outcomes of that, he has been negotiating with a whiskey manufacturer to have the product moved through Green.
“There is cargo capacity on every flight,” Avedisian said. “Let’s think of a logical way to take advantage of all of these things we have going.”
If the Foreign-Trade Zones Board authorizes a geographic expansion, in theory all locations within the state could house a company that could take advantage of the export and import opportunities.
Dean, which has several warehouse locations in the state, plans to seek a trade zone status for all of them if the geographic boundaries are expanded, according to company executives.
In addition to the 600,000 square feet on Jefferson Boulevard near the airport, the company has a 250,000-square-foot facility in Cranston, said Iovini.
“We don’t operate in a vacuum. We have Boston right down the street,” he said. “We have all of the [trade zone] communities in Connecticut. So why should that commerce flow to all of those states? Why can’t we take part in that and really fly under the radar, and solicit all these countries, solicit all these exporters and really have this business to grow Rhode Island commerce?”
[caption id="attachment_192473" align="alignleft" width="300"]
LARGE IMPORTER: Ships at the NORAD facilities in North Kingstown unload vehicles imported into the U.S. from overseas. NORAD is one of the largest new-vehicle importers in the U.S., and last year received more than 275,000 vehicles from Mexico, Japan and northern Europe. / PBN PHOTO/MICHAEL SALERNO[/caption]
International markets represent a growth area for many businesses already in Rhode Island, according to Raymond W. Fogarty, director of the John H. Chafee Center for International Business at Bryant University.
The expanded trade zone should help smaller companies that are not contiguous to the existing areas, he said. Already, Rhode Island exports about $2.5 billion in goods annually.
Fogarty, who helps companies that are interested in increasing their import-exports, said many used to tell him they’d like to have it become 5 percent of the business. Now, many are up in the 15-20 percent share, he said.
Of the statewide implications, it’s an effort that can only help, he said.
“We all want something better,” said Fogarty.
Chris Waterson, general manager of Waterson Terminal Services, which manages the Port of Providence, said the expansion will help the port if new tenants enter and want a site beyond the existing FTZ footprint.
The trade zone locations at the port cover 32 noncontiguous acres, he said, identifying them as two warehouses and a large paved area that receives bulk materials. One warehouse is exclusively used by McInnis Cement, a Canadian company that this year started exports into the Northeast through Providence.
Foreign trade zones are common enough in ports that it would be a disadvantage to Providence and Rhode Island to not have one, Waterson noted.
“Rather than trying to expand our specific zone at the port, it seems like it will be a much more streamlined process,” he said of the expansion request. “Say we have a new tenant coming in, and we want to acquire more land, and they want to use a foreign trade zone. It seems like it would be an administrative, simple process to get that done.”
An FTZ offers companies flexibility in multiple ways, beyond the issue of duties or fees.
In mid-January, a ship entered the port with 60,000 tons of road salt to unload. Given the intensity of the early January storm, the manufacturer’s customers wanted more salt and were desperate for the material. Instead of waiting for a clearance by customs, because the material came into a foreign trade zone, the longshoremen could get started.
“We were able to start unloading as soon as the vessel came into port,” Waterson said.
