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Foreign Trade Zones
Puerto Ricos Best-Kept Secrets
by MARIALBA MARTINEZ
October 12, 2000
Puerto Ricos trade with the world is taking off. In fiscal year (FY) 2000, the total value of trade exports and imports registered $64 billion, and the trade balance was a favorable $11.4 billion, Yet activity in the islands foreign trade zones (FTZs) dwindled by 15%.
Last fiscal year, according to figures submitted by FTZ operators to CARIBBEAN BUSINESS, they reported close to $9.3 billion in combined merchandise value, compared to $10.8 billion the year before. Now trumpeting what may be one of the islands best-kept secrets in external trade, both the government and the private sector have their sights set on promoting local FTZs.
Next week, for the first time, the National Association of Foreign-Trade Zones will hold its annual conference in P.R. Hosted by the Department of Economic Development and Commerce (DEDC), close to 1,000 people are expected from FTZs throughout the U.S.
The U.S. Department of Commerce designates an FTZ as a defined area where foreign merchandise enters, is warehoused and/or transformed through value-added manufacturing activities without taxes being levied. The zones federal regulations allow commercial and manufacturing activities to take place under strict guidelines, similar to those enforced by U.S. Customs in a foreign territory.
FTZ operations benefit corporations because they pay no tariffs or taxes when the merchandise enters or remains in the zone, nor are they restricted by quotas. When the merchandise enters P.R, or the U.S., low tariffs are typically only levied on raw materials, components, or finished goods.
Although the island is part of the U.S customs territory like the 50 states and the District of Columbiathe islands FTZs have a significant competitive advantage over stateside and foreign FTZs. One of the most fervent advocates marketing the islands FTZs is Edmundo Rodriguez, president of Nestor Reyes Inc., who espouses a vision of the island as a transshipment center for the Caribbean and Latin America.
"The U.S. is moving towards establishing a Free Trade Agreement for the entire hemisphere, meaning that manufacturing costs, transportation costs, and transit time will be keys to success in the global economy. FTZson the island have a number of advantages over others around the world. Foremost, P.R. charges a 7% flat tax, compared to Miamis 35%. Also, local FTZs pay no federal income tax, property or inventory tax ("CRIM"), municipal tax on exports ("patente"), P.R. excise tax ("arbitrios") or U.S. Custom duties.
"Add to this other local advantages: reduced transit times from the Caribbean to Central and South America; as much as 30% lower transportation costs; and fewer destination charges."
In 1960, P.R. was among the first U.S. jurisdictions granted an FTZ permit by the U.S. Department of Commerce. FTZ #7 is currently operated by the Puerto Rico Industrial Development Co. (Pridco), part of the DEDC. Zone #7 also includes five subzones in several island municipalities operated by private companies.
Subzones are granted by the U.S. Department of Commerces Board of FTZs, to operate within private companies. This usually occurs if a companys foreign trade activities cannot be transferred to an established FTZ because of the complexity of equipment or services involved in the manufacturing process.
In FY 2000, combined merchandise exports and imports in FTZ #7 totaled $8.7 billion, a 16% reduction compared to $10.3 billion a year earlier. In addition, FY 1999 registered $74 million in revenue from 21 lot sales, and the lease for 1,308 properties.
FTZ #7 manager Isabel Romero, said, "Last year, FTZ #7 expanded and reorganized into five regional sites. The zone now includes 136 industrial parks spread out over approximately 4,554 acres and in 667 different Pridco buildings around the island (19.5 million square feet). It is considered the largest noncontiguous FTZ within the U.S. and its territories.
"In one year, five clients have already been activated (operating) in the newly expanded zone. By the end of the year, we hope to activate an additional ten and, by 2001, add 20 to 25 companies."
Another FTZ on the island, TZ #61, operated by Promoexport (an agency under the DEDC umbrella that promotes exports and imports) is also expanding its area. With 650,000 square feet of space in Guaynabo, the zones five buildings form part of the International Distribution Center. TZ #61 is also responsible for 10 subzones in P.R. Of these, five subzones are activated in the municipalities of Arecibo, Barceloneta, and Carolina.
Cesar Santoni, auxiliary director of Promoexports FTZ #61, said, "Our Guaynabo site is 100% occupied, with 18 clients operating. By 2001, we hope to develop another one million square feet of space in 50 cuerdas (one "cuerda" equals 4,800 square meters) west of our current facilities
"We already have a waiting list of new clients who must undergo a rigorous inspection regarding their export capacity. Our sites clients are mostly in products, transshipment, warehousing, or service industries. To enter the FTZ, new clients should have a 25% domestic and foreign products export potential."
In FY 2000, the total value of merchandise entering FTZ #61 was close to $500 million, with a $20 million reduction from FY 1999 that Santoni attributed to market variations.
The last FTZ permit granted was #163, operated by the Corporation for the Development of the Ponce Free Trade Zone (CODEZOL, by its Spanish acronym) and host to subzone Peerless Oil and Chemicals Inc. According to Johnny Fernandez, executive director of FTZ #163, "Our zone was activated in 1996. We currently have 24,000 square feet of indoor warehouse and a two and a half "cuerdas" in an exterior storage area.
"FTZ #163 is 100% occupied but soon we will add a 22,000 square foot warehouse area next door where 15,000 square feet are already committed to one of our current clients.
"At the end of our FY 2000 (on September 30), the value of the merchandise which entered the FTZ was $67 million, a 139% increase over FY 1999s $28 million to $30,000. We managed this increase by adding new clients, from eight clients in FY 1999 to 14 clients currently."
The zone is administered by a board of members from the Chamber of Commerce in Ponce and the South of P.R., the Municipality of Ponce and two Mayoral appointees.
Ernst Frankels transshipment port economic viability study (CB Sept. 7) also supports the development of port-related, value-added activities with additional FTZs. Close to 1,000 acres of adjacent land have been identified by the government for FTZs. Hence, operators will be able to enhance the value of transshipped cargo and reduce costs.
Lourdes Rovira, president of the Government Development Bank, said the existence of such an area "will enhance the manufacturing and technological development sector on the island. We are not just talking about the capacity to move cargo, but to become the most important transshipment and logistics hub in the Caribbean."
Transshipment port-related FTZ industries will act as a job generator for the area, with close to 17,000 jobs out of an estimated 17,500 created during the first five years of construction belonging to port-related FTZ industries.
This Caribbean Business article appears courtesy of Casiano Communications.