Success Elusive for Free Trade Zones : Santa Ana Officials Stress the Differences in Their Plan

Although Santa Ana officials say they envision nothing but economic benefits from a proposed foreign trade zone in the city, a federal official said Wednesday that more than half of the existing 100 zones in the country are financially unsuccessful.

The official also hinted that the Long Beach Foreign Trade Zone, Southern California’s only existing duty-free trade zone and an opponent of Santa Ana’s bid, is among the financially troubled operations.

A foreign trade zone in Los Angeles failed several years ago, said Commerce Department international trade specialist Koichi Beckwith, largely because it operated as a passive warehousing center for imported goods rather than as a more active manufacturing center. The Long Beach zone also operates as a warehousing facility, while Santa Ana officials envision a manufacturing center in their city.

The comments came during a press conference at which Mayor Daniel E. Griset and City Manager Robert C. Bobb outlined details of the application that Santa Ana has submitted to the U.S. Commerce Department for a 43-acre, duty-free import-export zone. Santa Ana officials say the zone could house enough foreign and domestic companies to provide 1,500 local jobs and would also lure businesses and new jobs to other areas of the city.

But Long Beach officials have said they will oppose creation of the zone in testimony during a Commerce Department hearing Tuesday morning in the Santa Ana City Council chambers. Any Santa Ana trade zone, they say, should be administered by the Long Beach Foreign Trade Zone, which also operates a subzone in San Diego and has a sprawling 1,350-acre site under development in Ontario.

The Santa Ana zone, if approved, would be geared toward manufacturing, Griset said, “an operation that is not practiced in the Long Beach zone.” The Santa Ana site is supported by two railroad lines and is close to the Santa Ana Freeway.

Because such a zone is a duty-free area, imported goods delivered, stored, displayed or manufactured within its boundaries are not considered imports and are only taxed when they leave the zone. Thus, advantages for businesses locating in the duty-free zone, Griset said, could include:

- The ability to exhibit imported goods without paying U.S. Customs duties.

- A reduction of eventual import duties through manufacturing, processing or assembly processes. Often, duties on completed goods differ markedly from the levies on their individual components.

- Elimination of quota restrictions on merchandise brought into the zone.

- A greater control over cash flow, because import duties would not be levied until a company’s merchandise was “imported” into the United States from the zone and because there would be no duties on merchandise that was re-exported from the zone to foreign markets.

In addition, products could be repackaged, relabeled, tested, modified or repaired at facilities within the zone, creating jobs while allowing domestic companies to maintain a level of quality control they might not get with facilities in overseas locations.

Beckwith, representing the Commerce Department at Wednesday’s meeting, said he favors creation of the independent Santa Ana zone but also supports the Long Beach zone. He hinted, however, that the financial health of the Long Beach operation might not be all that it could be.

“Of the 100 or so free trade zones in the United States, more than half are not financially successful,” Beckwith said. He refused to comment specifically on the Long Beach operation but said that “Foreign Trade Zone 4 in Los Angeles folded after six years because it turned out to be a warehousing operation.”

Beckwith said an argument against free trade zones is that benefits to importers outweigh advantages to exporters, a situation that could add to the record trade deficit. Because of the trade deficit, especially with Japan, there is a “growing protectionist sentiment” in Congress, he said. However, that sentiment will not influence the final decision on Santa Ana’s application. Congress doesn’t act on the matter.

One eventual outgrowth of the Santa Ana Free Trade Zone could be the development of a world trade center, according to Donald Miller, chairman of the World Trade Center Assn. of Orange County and president of Marine National Bank of Santa Ana.

The association, comprising 400 companies and individuals, is affiliated with more than 50 similar groups around the world, including New York’s World Trade Center, Miller said. The association is “considering several sites for a true world trade center,” he said. While no site decisions have been reached, Miller said Santa Ana “has taken the lead” in bringing a free trade zone to Orange County.

He said the proposed trade zone would be “a tremendous plus to the development of international trade” because an estimated 20% to 25% of Orange County businesses are engaged in some sort of foreign trade.

Additionally, about 100 Japanese companies now have substantial investments in Orange County, Miller said, and the number is expected to increase as trade among the Pacific Rim nations prospers.

Griset said the primary benefits to the city and county will be the creation of new jobs. If approved, 300 to 400 temporary construction jobs are expected, along with 1,500 permanent industrial positions.

Plans call for two phases of development, each consisting of a 100,000-square-foot building and two 50,000-square-foot buildings, all built by the city, plus space for private construction. Businesses locating within the zone would either be able to lease space in the city-owned buildings or construct their own facilities, Griset said.

He said he is optimistic the Commerce Department will approve the city’s application. “We think the case we have to make will be persuasive,” he said.

City Manager Bobb said the independent zone is supported by local political officials as well as U.S. Sens. Alan Cranston and Pete Wilson. He said the only opposition comes from Long Beach. Santa Ana officials, he said, have tried to assure their counterparts in Long Beach that “we would seek a cooperative relationship with each of the foreign trade zones operating in Southern California.”