South Carolina makes gains in FTZ exports

Newly published federal figures, released late last month, indicate South Carolina has one of the most powerful exporting economies in the country. Charleston and its surrounding areas are being viewed with a greater sense of importance, given the impact the port has on both local and federal economies.

According to the latest published federal statistics the state of South Carolina, led in large part by the port of Charleston, has the 12th largest foreign trade zone employment figures and the second largest exporting foreign trade zone in the country. The state actually has three foreign trade zones—one in Dorchester County, one in Spartanburg County and one in West Columbia.

“Foreign trade zones offer companies the flexibility to bring manufacturing to a region that might otherwise be priced out,” says Grant Aldonas, undersecretary of commerce for international trade with the U.S. Commerce Department. “The zones provide a reduced transactional cost so that American companies can compete in a developing world market.”

According to the National Association of Foreign Trade Zones, the three zones in South Carolina do nearly $5 billion in volume business per year and account for nearly $3 billion in exports. The Spartanburg County zone accounts for the lion’s share of that number, as the BMW Manufacturing Corp. employs more than 6,000 people and exports about $2.9 billion annually, most of which exits the country via the port of Charleston.

A new study on the impact of foreign trade zones on the American economy released in mid October documents the positive effects that the zones have on stimulating trade, supporting jobs, enhancing exports and engaging local firms in international trade. Foreign trade zones were established in 1934 as a mean of expediting and encouraging foreign commerce in the United States. The zones are usually set up adjacent to a customs port of entry and are designed as areas were commercial merchandise receives customs treatment as if it was outside the borders of the United States.

In other words, merchandise may be stored, displayed or used for manufacturing within the zone and then re-exported. Duties are only paid if the merchandise crosses from a foreign trade zone into the country. The foreign trade zone acts as an “island,” and the goods shipped and stored there aren’t levied with tariffs until they enter the U.S. economy.

“FTZs pack a big economic punch to the U.S. economy,” says Willard Berry, executive director of the National Association of Foreign Trade Zones. “They provide exporters and global manufacturers with cost efficiencies that translate into lower consumer prices. Their activities, likewise, contribute to employment and border security.”

While Texas leads the nation in the number of people employed by companies that reside in foreign trade zones with 71,000 employees in 2003, South Carolina ranks at No. 12, with more than 6,500.

Foreign trade zone No. 21, located in Dorchester County, maintains 14 active businesses that employ approximately 425 people, producing home furnishings and accessories, ammunition, mass transit bellows and plastic molded parts.

Byron Miller, spokesman for the South Carolina State Ports Authority, which markets and manages foreign trade zones in Charleston and Greenville-Spartanburg, says BMW has largely driven the upsurge in the zones in the Palmetto State over the past 10 years.

“The automotive industry is a key user of foreign trade zones in the U.S. and, before about 10 years ago, South Carolina didn’t actively market them,” Miller says. “The Ports Authority and BMW started doing promotional tours of the zones and, obviously, we’ve had some success.”

Miller says even he was surprised to learn the South Carolina foreign trade zones have the second-highest dollar value of exported goods, especially considering the state has only three zones, compared to 31 in Texas, 19 in Florida and 18 in California.

What makes foreign trade zones so attractive to manufacturers, Miller says, is that they can choose how they want to do business and aren’t penalized for importing foreign components.

“The tariff system in the U.S. is almost set up to discourage U.S. manufacturing,” he says. “With a foreign trade zone, a company can import components duty-free, assemble a product and re-export it, all without having to pay duties. They only have to pay duties if the goods or finished products enter U.S. commerce.”

An added benefit, he says, is that the company can choose how it wants to pay the import duties when the product does enter the domestic economy. If, for example, BMW imports components to build a car and then sends the car to an American dealership, BMW can choose whether it wants to pay duties on the components it imported or the car as a whole, depending on which option is more beneficial to the company.

While it may seem that companies are bypassing import tariffs to operate in a foreign trade zone, in reality, the money saved is often reinvested into the local economy, either through capital improvements or manpower enhancements, Miller says.

Even with South Carolina’s improved foreign trade status over the past 10 years, there are foreign trade zones that aren’t being utilized, even in the Lowcountry.

The Charleston Area Convention Center, for example, is located in a foreign trade zone, but the center has not activated the foreign trade zone status. In order to do so, a company or facility must pay an annual licensing fee and closely monitor the developments in the FTZ market, says Ed Riggs, director of sales for the convention center.

“We almost activated the status a couple of years ago for the National Hosiery Convention because the hosiery looms were all made in Italy,” Riggs says. “But we went a different route.”

He says the center hasn’t had the need to activate the status yet, but if he is approached by a company or organization that would benefit by it, he would be willing to do so.

“It’s not unusual for a convention center to be located in a foreign trade zone,” he says. “I keep up with regulations, but we don’t want to spend the money to activate it if we’re not going to take advantage of it. If someone wants to come to the center for a convention or trade show and wants the FTZ status, that would be a beautiful thing. But we’re not spending an inordinate amount of time pursuing it.”