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Who Runs FTZ9?

In the State of Hawaii, Foreign-Trade Zone No. 9 was given a grant of authority by the Foreign-Trade Zones Board in Washington DC in 1966 to establish, operate, and maintain FTZs within the state for the purposes of encouraging international business and economic development. FTZ9 is a division of the Department of Business Economic Development and Tourism (DBEDT).

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What is a Foreign-Trade Zone (FTZ)?

The U.S. Foreign-Trade Zone program began in 1934 in reaction to the Smoot-Hawley Tariff Act of 1930 as a way to help American companies manage the high cost of imported goods and needed component parts for manufacturing. This federal program was part of President Roosevelt’s New Deal legislation and was an initiative to help increase international trade, support U.S. companies, grow U.S. jobs, and encourage investment in U.S. companies. The FTZ program is part of the U.S. Department of Commerce, with compliance oversight by U.S. Customs and Border Protection.

Foreign-Trade Zones are secure geographical areas established by the federal government, located in the U.S. near a port of entry, but are considered outside U.S. Customs territory for tariff and tax purposes.  The concept is to reduce the disincentives related to storing and manufacturing imported merchandise in the U.S. by allowing companies to defer, reduce, or eliminate Customs duties on products admitted into these Zones.  The idea is to create and retain employment and capital investment opportunities for these companies.

Foreign-Trade Zone No. 9 (FTZ9) is one of the oldest and most respected Foreign-Trade Zones in the nation.  Each Zone is numbered sequentially as it is granted its Zone status by the federal government and currently there are nearly 200 active Zone locations nationwide with at least one in each state and Puerto Rico. Hawaii’s Foreign-Trade Zone No. 9 means that it was the ninth Zone ever established in the United States.

Establishment of FTZ’S

In order for a Zone Project Area to receive the Grant of Authority, there first must be state enabling legislation which authorizes a state, city, county, port authority or not-for-profit corporation to manage the Zone on behalf of the federal government and this corporate Grantee must be assigned to the project area.  This Grantee works on behalf of the Department of Commerce to establish, manage, and maintain these zones and usage-driven sites within its designated Zone Project Area.

The corporate entity must undergo a lengthy application process to justify the economic benefit and need for the proposed Zone before one will be approved.  Support for the Zone must also be garnered from the business community, state, counties, and Congressional Delegation.  For Foreign-Trade Zone No. 9, the process began well before an application was drafted.

Establishment of Hawaii’s FTZ9

Prior to Hawaii drafting an application for Foreign-Trade Zone status, two studies were conducted.  One was a feasibility study completed in 1957, the other a study on the possibility of Hawaii becoming a transshipment hub for the Pacific Rim with the intent of a Foreign-Trade Zone playing a critical role in the structure.  The 1963 study, conducted by Dr. John Hazard of Michigan State University, in conjunction with the University of Hawaii, was essential to building the business case for Hawaii to become the “cross-roads” link in East-West shipping and distribution.  Dr. Hazard surmised that creating an FTZ in Hawaii would be difficult, but worthwhile in the end.

With these two studies in hand, Dr. Shelley Mark, then Director of Planning and Economic Development (which became today’s Hawaii Department of Business, Economic Development and Tourism) carefully weighed the benefits of Foreign-Trade Zones in the State and determined that the State was ready and well positioned to take advantage of a Zone program.

Federal Support for Hawaii’s FTZ9

With the support and blessing of Hawaii’s Governor, John A. Burns, Dr. Mark started the arduous task of developing an application to the U.S. Department of Commerce to institute FTZs in Hawaii.

On May 15, 1964, Hawaii officially submitted its application to establish, operate, and maintain Foreign-Trade Zones in the State.  Dr. Mark needed additional backing to ensure this initiative would move forward and he received it from Senator Daniel Inouye, and Representatives Patsy Mink and Spark Matsunaga.  Each recognized the enormous benefit the program would afford, the jobs, and the infrastructure investment it would bring to Hawaii and lobbied the federal government with their ardent support on behalf of the State.

On February 15, 1965, Hawaii received its Grant of Authority for Foreign-Trade Zone No. 9.  

With the grant in hand, the Foreign-Trade Zone program was established, and its stewardship was given to FTZ9’s first Administrator, Homer A. Maxey, Jr. Homer’s first task was to work with Governor John Burns and Dr. Shelly Mark to secure a space in Honolulu harbor which would become the home of the new Zone Program.

After many meetings and deal-making, a shed facility and marshalling yard at Pier 39 on Honolulu Harbor was secured from the U.S. Army and was refurbished to become Hawaii’s first active Foreign-Trade Zone site. The State appropriated three quarters of a million dollars to renovate the shed, adding offices and completing needed roof repairs to ensure stored cargo would remain safe and dry.

With the first international ship already on the water carrying cargo bound for the zone, the race was on to complete the renovations and obtain U.S. Customs site approval in order to begin operations under FTZ procedures. To intensify matters, FTZ9 was alerted that the ship, MS California, was scheduled to arrive earlier than expected on June 15th, 1966. Moving quickly, FTZ9 completed the necessary renovations and security updates and received its final review by Customs on June 14th. Approval was given and FTZ9 opened its doors for business the next day.

FTZ9 – A History of Firsts

Since opening its doors in 1966, Foreign-Trade Zone No. 9, under the stewardship of Homer A. Maxey, created a legacy of “firsts in the nation” as the Zone Project grew and extended its benefits in the State.

• FTZ9 was the first in the nation to begin producing garments in an FTZ for export markets.
• The first to authorize a synthetic natural gas plant to operate under FTZ procedures.
• In 1984, FTZ9 obtained zone status for the first flower mill operating under zone procedures which created blended bakery mixes for export markets.
• FTZ9 also had the first can-making and food caning manufacturing operation under zone procedure with Dole Foods and Maui Pineapple.

Foreign-Trade Zone No. 9’s crowning achievement, however, was attaining zone status for the first oil refinery in the nation to operate under FTZ procedures. Although the approval for a refinery to obtain Zone status had been tried by other Project Areas, they had all been unsuccessful. By creating the first Zone refinery, FTZ9 secured energy independence for Hawaii, and created an environment where the State could produce jet fuel, ship bunker fuel, automobile fuel, and diesel to run the electrical grid on demand, with the flexibility and resiliency it did not have when it had to purchase the distilled fuels on the open market. This also gave the State the ability to support the increasing tourism industry and the military’s growing fuel requirements due to its expanding presence in the islands.

In another first for FTZ9, Par Hawaii became the first refinery in the nation authorized to use renewable feedstock to produce renewable fuels under Foreign-Trade Zone procedures in 2023.

FTZ9’S Expansion and Location Move

FTZ9 underwent several expansions at the Pier 39 site.  Starting at just 41,000 square feet, the Zone had grown to over 235,000 square feet in just ten years.  With development plans to re-fashion Sand Island in Honolulu Harbor to include maritime, commercial, and recreational spaces, the concept was floated to carve out a significant portion of the island as a Foreign-Trade Zone.

After many discussions and negotiations surrounding the development of Sand Island as a Foreign-Trade Zone began to lag, it was evident that FTZ9 needed to do something quickly as its current location was no longer adequate and there was no room to expand.. The idea of moving FTZ9 to the Diamond Head terminal at Pier 2, Fort Armstrong, Honolulu Harbor, was discussed as it had a 340,000 square foot space for storage as well as the Container Freight Storage Building #1 and the Container Examination Station #3 near Pier 1 which could be used as additional storage and manufacturing space.

After much consideration, the decision was made to relocate FTZ9 headquarters and operations to the Pier 2 site.  In early 1982, renovations began at Pier 2 to prepare for the eventual move which would double the available office space and accommodate additional ground space for storage.  On September 1, 1982, after the Foreign-Trade Zones Board and U.S. Customs site approval, FTZ9 re-opened its operations at Pier 2.

Since then, FTZ9 has expanded its offices twice. After losing critical revenue from shed operations at the Container Freight Station #1 and Customs Examination Station #3 when the area in Kakaako was slated to be redeveloped and the sheds torn down, a renovation to extend the offices and create temperature-controlled warehouse space was completed in 2005. This renovation essentially doubled the facility’s available office space.

With the success of the first renovation and the call for additional office space, a second major renovation was planned which would repurpose 30,000 square feet of the existing warehouse and create two floors of office space, again doubling the number of available offices at the FTZ9 headquarters. Tthis was completed in 2014, and was named the Homer A. Maxey International Trade Resource Center in honor of FTZ9’s first Administrator. This new space was a significant upgrade to the facility, and it attracted some of Hawaii’s most prominent trade and maritime businesses. It also incorporated a state of the art conference center to hold major events and support the trade industry.

Misconceptions About U.S. Foreign-trade Zones

There are many misconceptions about U.S. Foreign-Trade Zones.  By definition, U.S. FTZs are considered outside U.S. Customs dutiable area.  That means that goods admitted into a Foreign-Trade Zone cannot be assessed duties or taxes as the goods are not part of U.S. commerce.  This is guaranteed by the U.S. Constitution, Commerce clause (Article 1, Section 8, Clause 3 – “Congress has the power to regulate commerce with foreign nations and among the states, and with Indian tribes.  Prohibits states against passing legislation that discriminates against or excessively burdens interstate commerce.”

States are welcome to offer Zones additional tax exemptions or provisions much like those offered to Enterprise Zones, or other economic development initiatives.  The purpose of a Foreign-Trade Zone is to stimulate international trade and economic development by providing the opportunity for jobs and infrastructure.  Economic studies show that FTZs increase the number of jobs as well as increase wages and capital investment wherever they are established.

There is also the misconception that “anything goes” in a Foreign-Trade Zone. That is also untrue. In the United States, Foreign-Trade Zones are designated and regulated by the U.S. Department of Commerce – Foreign-Trade Zones Board. These regulations are firmly enforced by U.S. Customs. Unlike the “Free Trade Zones” found throughout the world, U.S. Foreign-Trade Zones have strict rules which FTZs must abide, and any deviation could mean a removal of zone status or the assessment of federal penalties.

For example, say you are a U.S. manufacturer operating in a Foreign-Trade Zone and use imported brass screws to manufacture your product. However, you decide that a titanium screw would be more robust solution for your product., Since brass screws and the titanium screws have different harmonized tariff designations, you must first get approval from the Foreign-Trade Zones Board and U.S. Customs before you can use the titanium screws even though the products are identical except for its construction material. If the titanium screw is substituted for the brass screw and it is not authorized by the FTZ Board and Customs, that could be considered a violation of the manufacturer’s Grant of Authority and subject to a significant penalty.

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