Loading...
HomeMy WebLinkAbout1987-03-10 Economic Development Commission SummaryECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 - 7-00 PM Kenai City Hall - Council Chambers Vince O' Reilly, Chairman AGENDA 1. ROLL CALL 2. APPROVAL OF AGENDA 3. APPROVAL OF MINUTES of February 18, 1987 4. REVIEW OF PROGRESS TO DATE 5. PRESENTATION OF NEW MATERIAL 6. PRESENTATION OF TESTIFIERS AND/OR SPECIALISTS a. Mr. Dick Lenahan of U.S. Department of Commerce b. Mr. Jim Weederman of State Department of Commerce 6. PUBLIC TESTIMONY 7. COMMITTEE DISCUSSION 8. PREPARE NEXT AGENDA 9. ADJOURNMENT (9' 30 PM) ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987, Tuesday, 7:00 p.m. Held, Kenai City Council Chambers Minutes, Regular Meeting Presiding: Vince O'Reilly, Chairman 1. ROLL CALL Present , Absent Vince O'Reilly Jim Carter Jim Elson Mike Meeks Roseanna Shelden Barry Thompson George Miller Bob Scott (out of State) Darren Bond (sick) 2. APPROVAL OF AGENDA Chairman O'Reilly indicated that Mr. Jim Weederman from the State Department of Commerce was in Juneau when contacted. Apparently there was some confusion on the date, however, he will join the committee at the next meeting. Mr. Weederman is looking into what other communities have done in the way of economic development analysis of their communities, and economic development efforts in their communities. The agenda was approved as presented. 3. A.PPROVAL 0.F MINUTES -...February !...8..,. 1987 The minutes were approved as presented. 4. REVIEW OF PROGRESS TO DATE Chairman O'Reilly reported the committee is getting down to the final stages, with the this presentation and Mr. Weederman's; subject to what the committee wants to do in the way of any further presenters. 5. PRESENTATION OF NEW MATERIAL None. ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -2- · PRESE.NTATION OF TESTI.F.I. ERS AND../OR SPEC!.ALIST. S b. Mr. Dick Lenahan of U.S. Chairman O'Reilly introduced Mr. members. Department of Commerce. Lenahan to the 6ommittee Mr. Lenahan: I'd like to talk about three things tonight. Number one; I'd like to talk about foreign trade and how it effects Alaska, and how it effects Kenai. Number two; I'd like to talk about foreign trade zones, a subject that has been of some interest around the State and of particular interest down in this neck of the woods. And number three; I'd like to talk about some of the State initiatives that I see taking place in Juneau under the Cowper ~dministrati~ now to encourage foreign trade. And, hopefully, some of the things that we'll see happening in the next few months. Mr. Lenahan passed each 6ommittee ~ember a explained as follows. (Handout #1 - Largest Deficit Bilateral U.S. Trade Balances, 1985) handout and Surplus and Mr. Lenahan: The first chart will show you the position that the United States is in, as far as its surplus and deficit bilateral trade balances, during 1985. Now, the year end figures for 1986 are just being compiled and they should be even greater than the figures you see on this chart. Notice that Japan with the $49.7 billion deficit far out weights Canada, which is our number two deficit partner. You'll notice that~all the countries we in Alaska have talked about in newspapers articles, testimonies around the State, and places we have sent product to from Kenai and from the Peninsula and from the rest of the State, are on this list. We have Japan, Canada, Taiwan; number 1,2, and 3. South Korea is up there with~4.8 billig~n~,~ and there's some European countries up there too. We'~Iess to do with European countries here than the lower ~48, but never~,the_. less they are important. Germany and France are of increasing importance to us. ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -3- So you see that the trading deficit in the United States is real. It is severe and it's getting somewhat worse in 1986. Going to the next chart, (Largest Changes in U.S. Bilateral Trade Balances, 1984 - 1985) you'll see the difference between '84 and f85 and how the deficits grew between those two years. You see that Japan was~13 billion~ higher in ~5 than it was in ~84. And I think you'll see that in '86 the deficit would be even 4 or 5 billion:, higher than it was in '85. You'll see that Taiwan was number 3 as far as that was concerned. We don't do much with Taiwan, but we would like to do more. Perhaps with the coal, possibilities from use of our mine, we will do more. And West Germany grew because of their merchandize exports to the United States and the strength of the dollar in relationship to the market. So, there are some areas that are improving. You'll notice that Indonesia, we had a half a billion dollars in 85 over 84, so it was a little bit of improvement there. And then I think you'll see in the next page, (Alaskan Exports by Country Total) the relationship that Alaska plays to some of those countries. The column on the right, are twelve figures for 1985. The column in the middle are only those figures through October 1986, for which I have complete figures now. You'll see that Japan is far and away our largest trading partner. You'll see that in the ten months, that are in the first column~10/86" , that it almost equals the twelve month figure of ~85. There's only about a $19 million difference there. You'll also notice that number 2 ranked, Korea, is increased significantly in its trading relationships with our State. Basically, a large· part of that money is with coal, through the Port of Seward. It's about $25 million there that goes through Seward from coal. But, there are other significant things too. We were '8 shipping coal in 5. We shipped it in '86, so we just shipped a little more. And you'll see that some of the other nations along here, like India, number 4; Singapore, number ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 Page -4- 5; Hong Kong, number 8; Trinidad, number 10; all of these countries and some of the others on this list, get their products right here from the Port of Kenai. Urea, Ammonia. We shipped, number 19, Chili, $5.6 million in'86, first ten months, versus $2.9 for the total year t85. Some of these products to these countries are also~ pulp from the Ketchikan Mill, some forest products, but mostly it's Kenai that plays an important role here in ammonia and urea. Now, I know that in 1986 the urea plant was shut down and it didn't ship for a full year. But, I think it has reopened and it's starting to ship and produce again for export. So part of the year is urea year. Part of it's pulp from Ketchikan. I want to show you graphically what our relationship is with Japan. (Handout #2 - Alaska Exports) Here's another chart that just puts in some different form that allows you to see how Japan plays an important part to us over the past several years. This chart is Alaskan exports in billions of dollars to Japan, Korea, Peoples Republic of China and Taiwan from 1982 to 1986, again only ten months figured in ~86. The column on the left with the squiggly lines going from lower to upper horizontal, is Japan exports. Notice how those exports tower over country number 2, squiggly lines going from lower right to upper left, and that's Korea. Peoples Republic of China is the third little column there, and Taiwan, you can barely see in 1982's column. So, Japan is overwhelmingly our number one trading partner for product from all of Alaska. What are those products and what is the relationship that we have? I brought another graph, (Handout #3 Alaska Exports: Worldwide Totals - Major Products). Look at the products in this chart. Major products, Alaska exports, worldwide totals, these dollars in the columns from 0 to 600 are in millions of dollars. 1981, we have the tallest little column there, was fish. LNG from Kenai, approached the~300 million mark in 1981. Look at 1986, the same column, it's just about~150 million, just about half of that. Fish, of ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -5- course, is number one in all years, although the total numbers change. It is the largest export. Again, mostly to Japan. Urea, look at the column in which urea occurs, which is the fourth column on the right hand side, squiggly lines going from lower right to upper left. A product produced in your plant down the road. In~120 million, more or less, in 1981, down to way less than that for 1986. As a matter of fact, in 1986, urea was 32.8 million, again figures in ten months only. Look at the fish column and over~500 million in exports. that towers over the others, Committee Member Carter: The decreases like there a cause for that, is the competition ..... the urea, is Mr. Lenahan: Yes. It's basically competition. New plants coming on-line in competing countries. Urea and ammonia are worldwide commodities that have to be priced on the world market. Our product might be higher priced. Or, our shipping costs might be higher, or any number of things. Maybe, the production schedules were not meeting those of the buyer. There are a total number of reasons why the decrease in exports here. I don't know what they are. I haven't talked to the company people. So, there export it exported, in a nutshell is Alaskan exports and to. In 1986 we had forest products about 173 million. where we that were I have one last hand out so you can see the numbers for 1986, ten months only. (Handout #4 Alaska Exports: Worldwide Totals - Major Products) Forest products, $173 million; Seafood products, $514, for round numbers; Natural Gas-LNG, $161; Urea, $32 million; Ammonia, $39 thousand in exports in 1986; Coal, $25 million; and Fuel Oil which is a refined fuel product, $124 million. This would be mostly from your refiners out here on the Kenai I believe, Tesoro basically. ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -6- Committee Member Thomson: This fuel oil figure is capped because of maximum amount pending export due to congress. Is there more of a market than that? Mr. Lenahan: I don't know there's more of a market than that. I think what the cap is, not due to congress, but due to the export licensing controls put upon the industry by the Department of Commerce and Department of Defense and Department of Energy. The export licenses are issued for both a time period and an absolute amount of barrels allowed to be exported. Once they approach the, either limitation, the company can go back and renew the license and get more exported authority. And as a matter of fact, they did recently, when they shipped the first crude oil out to Korea this January. But yes, there is a licensing restriction there on fuel oil. Whether they would ship more if they didn't have a licensing requirement, I don't know. It depends on the market conditions. I'm certainly not an expert in that market. So, Alaska ships all these natural resources products out. We don't have any real idea of what we ship out as far as services are concerned. We can never get a handle on that because that's individuals going, their companies going out to a foreign country and selling whatever they have to sell and taking money for that, hopefully, so there's no real handle on it. They don't file shippers export declarations when they go, like they do at the ship at customs. That's where we get these figures. Every time that there is a shipment sent out of the country, either by air, by truck, or by ship or barge, a shippers export declaration form is filed with customs in order to get the foreign clearance for that particular mode of transportation. The customs folks send them to our computer center and they compile it through the Bureau of Census, and they come out eventually on these types of formats, of which we adapt to our own use. Committee Member Carter: Do you get the information monthly or quarterly or .... ? ECONOMIC March 10, DEVELOPMENT COMMITTEE 1987 page -7- Mr. Lenahan: Monthly. We'll be sending out what's going on. And there's about a three month lag. press releases to let people know I see a couple of things significant. Number one: increasing, as we saw fish. fisheries in the 200 mile zone fish made available for export, United States too. We're eating the United States. That's good people overseas and that's good the fact that we quotas for foreign happening in trade that are The natural resources are The Americanization of the has increase the amount of and for consumption in the more fish than we use to in for the fisheries and so are for the fisheries too. And are controlling the quotas, and reducing direct catching is better for us. The coal trade is increasing with three development Number one: Taiwan has agreed to take two test shipments use ability coal in July and August from the Port of Sewar T t t r g t between year. S · of d. hat'll be about 130 thousand tons of coal and if they agree o the use of that coal in their burners after the test, hen they have said that they will purchase coal at same ate that the Koreans are buying it now. They don't uarantee that they will buy it from the municipality, but hey will buy Alaskan coal at that same rate, which is 500 thousand and 800 thousand tons, metric tons per A couple of market developments in Japan. Recently, I just saw in the newspaper that Rocky Mountain Energy Corporation, in a joint venture with a Japanese company has agreed to do some exploration in the north of Palmer, Sutton area, to do an exploration for high BTU coal exports. Admittedly, there's not much quantity there, not like the lower BTU coal, but the value is higher, and it would diversify the export. And then there is the development at Chulitna across the Cook Inlet from here. Those folks are still marketing the coal. I don't really know what their progress is. I think they were sort of disappointed that the Taiwanese said that ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -8- they would buy at the rate of the Koreans. Because that limited the exports to less than a million tons. I don't know how much they need to have to open up that mine, but I'm sure it's more than a million, cause there's a great deal of cost involved there. And if they were talking about not building a port there at the beginning, for this lower level of exports, and putting it on a barge and shipping it around to Seward and loading it on ships there. So, I don't know what that situation is. So far as relationships with other countries are concerned, you've seen on the chart that we are far away depending upon Japan for our exports. That's certainly an unhealthy situation. Look at the graph and the numbers, and you'll see that way, especially in fishery, at the fresh product, Our markets are farm bred fish. and in their fish market in Carrs, there Norwegian salmon, at high prices, but never is Alaska, this is where salmon originated States and we can buy fresh Norwegian salmon time. We can't buy fresh Alaska salmon. way out of balance. We do need to look, the fisheries, especially in the salmon possibility of sending specialized product, or fresh frozen product to other markets. being eroded drastically by Norwegian fresh You can go to Anchorage right now, today, selling fresh the less, this in the United in the winter Committee Member Thomson: You cannot legally farm raise salmon here. Mr. Lenahan: Yes, that's true, for to take a look at that and I think that in Juneau, to change the laws market. profit. I think we have that they are looking at to allow some sort of a Chairman O'Reilly: I think there was raised salmon and disease spreading to And then also, there is the economic fisherman. concern about farm the natural runs. upset of the local Committee Member Meeks: They think that commercially raised ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -9- s.almon would infringe like on the local fisherman. Plus, they said that other places where it's been mostly the large, large companies that come in and make all the money and the little guy gets left out in the cold. That's what their argument is. They said that most of the people that farm raise salmon are large companies and the profits go else where and don't go to the local people. Mr. Lenahan: That may well be what the Norwegians are doing. U.S. market. the case, but take a look at They're taking 25% of the Committee Member Meeks: A real high quality of their product, it's much higher. I went to fish processing classes and they it's one thing that Alaskan fishermen are going to have to do, is to start taking a lot better care of their product. Because right now the quality of, say pink salmon from Prince William Sound, is real poor quality by the time it gets to the processor. And the people just don't want that type quality when they can go .... to people that are real high quality, they really go for the quality. They really stress that more than American fishermen have ever done. The Canadians are doing it on the East Coast right now too, where the Canadian government sets certain standards for how you can process fish, and it's just a higher standard than the U.S. standard. They' re taking a lot of the East Coast market from the fishermen on the East Coast just because they don't take care of their product like they should. Committee Member Thomson: So, this is a fairly big market. It sounds like there's a good opportunity for that here. I just like to comment about this list here, of the twenty catagories, there's thirteen of them this year, dropped more than 50% of the value that we had in 1985, and that indicates very fragmented market. It's essentially very unstable, which to reiterate what you mention there, Mexico, for instance, (inaudible), and the growth that we see because the numbers are going to be slightly higher for the year, taking up just one and two countries, Japan and Korea, predominately are going to (inaudible) and that is pretty much it. ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -10- Mr. Lenahan: But you see, also, with Japan, the problem is that with our increasing trade imbalance and the protectionist measures that the Congress and various industries in the United States are urging for us to act and retaliatory measures by Japanese industry by Japanese government reacting to their own industry could adversely effect this trade relationship. Suppose for example, there was a bill in the last Congress, and I don't know if it's been reintroduced, but suppose for example that we embargoed, or placed a very high duty on Syrian imports into the United States from Japan, and suppose again, and this is not to far from the truth, that in retaliation for that imbargo or high duty rate, Japan, at their insistence of their own industry decided to place high duties or imbargo, or quota fish imports into that country. Where would we be then? With $500 million of the $800 million total in fish imports, into Japan directly from Alaska, we are at great risk there. So the secret here is to diversify, not only our product lines, as far as the type of fish that we can process, going into perhaps a fresh product, using the ten airlines that go through Anchorage. Perhaps, say, a specialized product for some market, we'd have to do market research on. Perhaps a finely smoked or kippered salmon for European markets and diversify our markets. We're doing great as far as exporting is concerned, but we're only exporting it to Japan. Committee Member Thomson: Conversely Japan is looking for ways to reduce its deficit precisely to offset retaliatory measures, and probably we're selling a lot more to Japan than we might to a free market. Mr. Lenahan: Well, I'm not so sure, I understand what your saying, and I agree whole heartedly with you, but it's been my experience that we don't sell so much as they buy. They come here and go to the plants around Kenai with their little processors and do the egg processing with their technicians, and they buy the product. Has there ever been a trade mission from Kenai to go to the fish market in Tokyo to sell product? When was the last one? ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -11- Chairman O'Reilly: I know that there's been processors that make individual efforts, but I whether there's been ..... individual don ' t know Mr. Lenahan: I don't know that I fully on board as far as the liability of trade missions are concer'ned because there's a lot of hype in trade missions and it doesn't always produce immediate results. You do have to consider that the Norwegians are in Japan and Korea and Singapore and the Philippines, they're all over the world. The Australians, the go on trade missions. They go individually, they go in groups, they have Australian Day in Tokyo. Recently they had Washington Day for Washington State in Tokyo. Seventy-five people from Washington State went over there on their own money, and did meetings, they had wine and apples, the whole thing, for Washington State products, promoting them around Japan. They had the Governor there, he made a proclamation. It was quite a deal for them. Whether it's successful or not, I don't know. But, I'm saying, other people are doing it and it's something that you may want to talk about doing. Perhaps, not so much on your own, as with another group or Kenai Peninsula or State of Alaska or something like that. What we do need do is diversify our markets and our products. And remember that you have a lot of services around here that are connected with the oil field industry that have very marketable commodities in the world markets. They have unique drilling technics. I don't all of what you have down here, but the oil industry is one which there's great opportunity for export of services and product, as far as gages and valves and other things are concerned. Those are two areas that I think that this part of the State can look at as far as immediate exports are concerned. I mean immediate, within the next year. Chairman O'Reilly: air I assume? Exports would also cover shipments by Mr. Lenahan: Yes, all modes of transportation. ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -12- Committee Member Elson: Looking at it from purely a local point of view, an export in volume that we've had in the past on urea or LNG, whatever, the greater amount of export doesn't add that much to local economy, because once the plants working twenty-four hours there's a certain labor force there to do it; and, if they make a sale, they can go in and produce more with the same labor force, but only when it declines to a certain point that they start laying off a shift or whatever like that. So, there's a point where increasing the export doesn't really help the local economy that much, because their national corporations and they're benefitting from greater sales. What I'm wondering is, rather than looking at these big projects, for us to enhance our own local economy, if we shouldn't be looking at smaller manufacturing products, trying some how to entice the foreign investor to come in and put in a small manufacturing plant of a dozen people or whatever in some specialized product utilizing the low energy that we have here. Are there restrictions from foreign investors doing that type of thing? Mr. Lenahan: No, there are no restrictions. In fact the United States is one of the best countries in the world for foreign investors to come to. And we encourage it. Committee Member Thomson: One thing that we do pick up here from the platforms in Cook Inlet is Borough sales tax from their product. It's quite substantial, so we do get some money, not indirectly to do with their product as such. Mr. Lenahan: Well, it sustains jobs, number one. There's room there for, certainly for foreign investment. And we do a number of missions around the world called Invest in U.S.A., trade missions. I really tell you much about my agency. We're called, we're part of the U.S. Department of Commerce, the International Trade Administration. We have seventy offices in the United States, plus in Washington D.C., and we have one hundred twenty-four offices in sixty-eight ECONOMIC DEVELOPMENT Mar ch 10, 1987 COMMITTEE page -13- countries. In those countries we're known as the commercial sections of the Embassies or Consulates, commercial officers that staff those positions, are part of our organization. We have a direct relationship with all of them. And direct communication with all of them from Anchorage. In Washington we have a series of offices. We have country desks that monitor economic conditions. Trade negotiations. Bilateral treaties of trade related types, in the Department of Commerce, and we work closely with the Department of State, who also have trade country desks. These are international economists, or trade specialists that keep up to date on conditions in the country. For example, recently in because of work with and we try community. Brazil there was a problem with default of loan payments, terest payments on a loan, that adversely affect imports exports to Brazil because buyers can't pay sellers government controls on currency. A lot of people (inaudible) which is another government agency, to get around these problems for the business We also have commodity desks that monitor industries from, I don't know, all the industries, that pays there people. All of them involved in the industry from the private sector at one time or another, and capable of professional views on that industry, from foreign products to fish, to major projects, to construction services, to you name it they do it. So we all work as a team to help business go on a one on one basis. What is some of things that we do? For example, we will go to a country for you, if you identify the country and your product and we will find you an agent or a distributor in the market place that you may not be familiar with, but have decided that you want to approach. We will, if you have a partner or a potential partner and you say you are going to sell him $50,000. worth of something, and you want to know that your $50,000. of product is going to go to a company that's capable of paying you. We'll do a back ground report on the company and tell you more or less what the company, or how long it's been in business, who are the principles. What type of organization ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -14- it is. If it's privately held. Who are the owners. Where are they physically located. Who their bankers are. What's their position. What's their general business know to be. And give you a recommendation on how you should approach that company. More or less an advisory type of report. Then we'll monitor you situation if you want and if you have a problem with a trade complaint, well, we have a commercial section there that can help you. If your in Kenai and you have a problem in Athens, how are you going to approach the subject? If you can't get them to communicate with you; we will not negotiate for you, but, we will enter into the fact that, and contact them and ask them to get back to you. Those are some of the things that we do. We also do trade missions. Trade fairs. We have trade promotion events around the world for all kinds of industries and all the time. Catalogue shows, just a whole bunch of things. Market research of all types is available by computer from Anchorage to us. So, we are there more or less to assist you as businesses in exporting goods and services abroad, to any country, wi th whom we have trading relations. And, I do that in Anchorage. I work with companies, to help them do their market research. Make contacts for them in foreign countries. I work with the State of Alaska. They do the same thing. So that's what we do and how we can help Alaskan businesses get exports. Now, I want to talk about foreign trade zones. Been a lot of talk about foreign trade zones recently. There is one in Valdez. It's been there since October of 84 or 85...or whenever the state chamber met last in Valdez, is when it was. Valdez is a customs port of entry, because of the oil pipeline. Tankers that were going in there were one type, supposed to be going, capable of going foreign, and so they made it a customs port of entry to service the tankers. Consequently they decided that they wanted a foreign trade zone there to open up opportunity for foreign investors. To come in and have the full availability of every break our system provides. So they organized a foreign trade zone and got it authorized and it's Foreign Trade Zone #108. The only one organized in Alaska. ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -15- The other communities have decided that they are also interested in foreign trade zones. And we can be your guide as far as what a foreign trade zone can do, but basically it's a territory owned by the non-profit entity of the municipality, or the city, or the borough, or county, or state, that is set aside outside the customs limits of the United States, legally, so that a warehouse for example in a foreign trade zone, could be a storage shed for products that are not allowed into the United States because of a quota, because a quota's been filled. To bring them into the foreign trade zone, store them there until the quota opens again and immediately move them into the United States, into the commerce of the United States, across that invisible line, by paying the duty. You can also recombine articles from various countries and make them into something else, for example, computer chips into a computer board, and bring it into the United States or ship out to the foreign country without paying duty. You can manufacture. You can store cars there, for example, it's a very popular thing to do with foreign trade zones. Put all of the amenities on the car that the buyers want and bring that unit into the United States as one automobile. Instead of paying duty on one automobile and all the various parts that go with it individually. For example a separate stereo system or separate fancy wheels, that kind of stuff. In Hawaii, they had an oil refinery in a foreign trade zone. It's a sub- zone and it brings into the foreign trade zone, foreign crude oil, refines it, and imports gasoline or whatever they need in Hawaii for that product and exports the residual product without duty payments. At one time they thought that was a good way to go and apparently it's worked for them. You all have heard of the Nisson Automobile plant in Tennessee. A great example of Japanese ingenuity in the United States auto market. That is also a foreign trade zone. Where they are importing parts from Japan and the United States, combining them and out the end of the line comes a unit made in America and they pay duty on only the parts that are included. In the mean time save money on the inventory storing it in the zone. ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -16- In New Jersey, there's a foreign trade zone that is a kind of unique operation. It brings in kind of a syrup from oranges or citrus fruits in a very concentrated form and apparently there's a savings on the duty in the way they measure it at the time of the importation, and they can choose to the type of duty that they want to pay at that time. And they bring the stuff in in tankers, specially built tankers. Off load it into large tanks and then they combine into the products that we see in the frozen shelf for orange juice. And by mixing it wi th water, it's concentrate thing when we see it, but it's even further concentrated when they bring it in. They save money in duty payments by bringing it in that way and they store it in the foreign trade zone until they actually combine it and bring it in re-combined and there's a rate of duty. There's all kinds of things going on around the United States on foreign trade zones. I brought a couple of lists along with me and I'll leave one with you. (attached to minutes for Economic Development file) It tells you where the foreign trade zones are. It doesn't say much about what they do because that changes to often, they change from year to year. In California they have one in Oakland, #56, and that place is a trade fair basically. They bring product, U.S. product and foreign product both, in to display. They bring foreign buyers in, American buyers in and they see what they want and they buy it right there and they ship it from the factory or where ever. But, the product is capable of being displayed in the Oakland foreign trade zone without the payment of duty or any customs quotas. There are custom's controls on it though, it cannot be imported. I also gave you a list of names and addresses (attached) of all the foreign trade zones in the United States, if you decide you want to do some research on it. I want to tell you what a sub-zone is. There's a list of companies in here (attached), that are sub-zones. This is private property that is particularly involved in some sort of a manufacturing operation, that is close to a foreign ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -17- trade zone and wants to borrow the status of that .zone for his own use. For example if you own a processing factory for some widget and you want to make it into a foreign trade zone, but you don't want to move your operation into a Kenai foreign trade zone, owned and operated by the City of Kenai, you could apply for a sub-zone for your particular enterprise and have it designated as such. Then you would get all of the privileges of the foreign trade zone for your manufacturing facility. And a lot of people have done that. You see what they have on that list, there's a few things... American Motors Company, Wisconsin, automobiles. Most of it is some sort of a manufacturing operation. There's several pages of these things. Then there are the regulations for foreign trade zones (attached), how to go about applying for foreign trade zone. Committee Member Meeks: How close would you have to be, to be annexed or whatever, to be a part of it? Do you have to be within a certain .... Mr. Lenahan: Yes, within 90 miles of a foreign trade zone. For Valdez, that's their marketing office, Portland. Foreign trade zones, the one in Valdez. Anchorage is preparing an application now. They'll be submitting it for a foreign trade zone sometime within the next 60 or 90 days. Committee Member Thomson: So the fish processing on the Kenai River just South of town, could very well drop under that category. Mr. Lenahan: Yes. If there's some particular reason that a fish processor wanted to be involved in a foreign trade zone, as a sub-zone, then that might be a possibility under Anchorages' grant. Committee Member Carter: Has the people down here been working with you on the trade zone, on the .... ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -18- Mr. Lenahan: I'm aware that this area is approaching the custom service, or has approached the custom service to become sort of a custom station with a roving inspector. It's a port of entry between Kenai, Homer, Soldotna and Seward. Last I heard, that was going to cost the borough $70,000. or $80,000. dollars, and they decided to go for it, but I don't know what the current of status. I've been away out of state for three weeks. There's been some talk in this area, from Seward and from .... particularly Seward, to be doing a foreign trade zone application. Frankly, I don't see the reasons why at this point in time. There is an application pending in Washington now for St. Paul Island, to be a foreign trade zone, well, the obviously don't have any customs wi thin 900 miles, the closest customs is in Anchorage. How are they going to be a foreign trade zone? They want to make the whole island a foreign trade zone. Well, that's impossible, the law prohibits that. You can't have residences in a foreign trade zone. The application is being put together by the City Anchorage through the port and it's also including land the airport on the State D.O.T.P.F., so that they cooperating to make it a complete package. of at are So much for foreign trade zones. They are useful. What they're specific application would be to Alaska, we haven't found out yet. But, we want to have them available for foreign investors if that's going to make a difference, then we should have it available for it. We don't have to activate it. If you designate land for foreign trade zone, it is not irrevocably designated, it can be used for other things. But, when you activate it, it is then activated for the foreign trade zone. You can de-activate it. So it's not a frozen asset. I think eventually, we may find a use for foreign trade zones, but at the moment, there is no use. I want to tell then about my recent trips to Juneau what's happening down there as far as exporting and and ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -19- international trade is concerned. You may read or heard Governor Cowper's state of the state speech. He made fifteen points on economic development in Alaska. Most of those points had something to do with international trade. He seems to think that international trade is very important to Alaska, as indeed it is. Compared to oil, no, but talk about numbers in jobs, yes. Oil revenues are higher. The state is doing a couple of things. Number one; there's a bill in the hopper in the Senate, called Senate Bill 64 and it's to reorganize AIDA (Alaska Industrial Development Authority). Apparently, AIDA had to be reorganized because of the change in tax laws. In addition there was some discussion and the bill last year in the House, House Bill 633, about making a new entity, called the Alaska Export Development Authority. Something like AIDA, but to give Alaska exporters financial assistance in export actions. Well, that 633 bill died when the legislature left Juneau, but it was reintroduced as SB 64 under the AIDA reorganization. What it will do is will add a little block over on the side of AIDA for export financing. It will not require them to increase their staff, I don't believe, what it will do is give them authorization for about 100 million dollars, since I last saw it, in bonding authority to finance exports from Alaska and it's going to direct them to work with the export/import bank of the United States to bring that program and other federal programs to Alaska, that have never been here before, for financing and insurance purposes. We have a whole program of financing and export insurance for political expropriation and for war and revolution and for commercial disputes. For exporters. None of which have every been activated here in the past, perhaps there's no need for them here and that's why they've never been used here, but, this gives them the opportunity to be used here. I think that everyone that I've talked to is for this of activity. At least they want to have it available the business community, whether, no one knows how people will be lined up at the door on the day of type for many ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -20- authorization to take out loans. But it does give the business community one more way to work through banks, just like AIDA has always worked, to take a 90% exposure and the bank would take 10% exposure. But that would allow them to have another export mechanism. It's in the finance committee now and everyone seems to think that it will pass the Senate soon, be introduced into the house. A couple of other things that are interesting is that I think the state is endowing the University of Alaska with five million dollars to set up or to further set up the Alaska Center for International Business at the University of Alaska/Anchorage under Dr. John Klm. The endowment will be used, the earnings of the endowment will be used to run the programs that will be taught in the university system, international studies, programs for our students. Programs that aren't regularly offered now. There's also been directed to set up a international curriculum of some sort for languages and international studies, cultural studies, for grade school, high school teachers, to at least introduce the subject to the students at those ages. Also, their doing a number of stUdies funded by the State at that center for, one effecting this area, Cook Inlet Transportation study. What is the, I don't exactly what is, I'm going to work shop on Thursday, but, what is the competitive position of resources in Cook Inlet in regard to our trading partners and competitors. How does Cook Inlet natural gas compare to Indonesia natural gas? How does the coal in Chili compare to Australia and South Africa and Canadian coals and what are the transportation advantages? Things that we haven't really studied before. We ought to know these things in order to sell the product we have to know all these facts. Diamond Shamrock may know what their product is and what their competitive advantage is. But, generally that proprietary, they did the study and of course their holding it close to them. Committee Member Thomson: Does the Jones Act still hold for most exportation with vessels? ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -21- Mr. Lenahan: No. The Jones Act doesn't effect exports. The Jones Act adversely effects coast wise transportation between Alaska and Seattle. Foreign flag ships come into here all the time, pick up product, and load and unload product, imports and exports. And that's not covered by the Jones Act. What the Jones Act says is that your not allowed to use a foreign flag ship or American flag, when built in a foreign ship yard to haul product from port to port in the United States in competition with U.S. flag vessels and that probably will never be changed. Another policy I see changing is the, I believe the State has been talking about a reorganization of commerce economic development again to, I presume, better the services to the business community. I don't know yet all the details of that, and I don't think anybody does, I think they' re finalizing and planning and changing everyday, but the Economic Advocacy Offices that your familiar with have been changed around. I don't know what form they will take, but I'll think they'll end up different from what they are. Some of the people that were there are gone. Some of the offices have been combined into something else, and hopefully they'll still functional when it's all finished. I think one of the other things that I'm trying to do that will make a difference, I hope, is to combine my office with what ever ends up being the State office. We wanted to co- locate the offices in one trade center, so we wouldn't have this disjointed approach; where I have 68 countries and the State of Alaska has two. That we can all work together, kind of a one stop shopping for exporters. That's the goal. We're also bringing in more people from outside the state to visit our state. On commercial attach~ from Seoul, Carol Mary Klm, is coming here on a orientation for several days this month to familiarize her with conditions in Alaska and how those conditions meet her interests in Korea. She's met a number of Alaskans over there in Korea for a long time and to have a better understanding of the situation here is to our advantage. ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -22- We're also promoting Alaska for trade missions to come here. And I think the Alaska center for international business will be bringing groups of business people in here for several weeks at a time for english learning/teaching at A.P.U. and kind of how to do business in Alaska and the United States. Paid for by major companies in those countries. There's a trade mission coming up with the Alaska/Korea business counsel to Korea, being proposed for October of this year. Last night we entertained a group from China, from our sister province of Hil Lon Jong (apologies- unknown spelling), who was here, five or six people to explore cultural and economic relations with China. Hil Lon Jong is the area in Northeast China formerly known as Manchuria and was a great Russian center before the revolution and great Korean center after that and now it's the great China center. Big in the oil industry, so there's a relationship with Kenai, for oil services. One of the largest oil fields in China, right next to the City of Harbin, the capitol of Hil Lon Jong, and their interested in technology. Oil field technology. Also, the great center for China's forest products industry. It has the largest standing forest in China. China, as you know, is pretty much de-forested, and they have a great need for forest products. But, }{il Lon Jong has large forests. They want to have Alaskan expertise in Northern forestry to show them how to better utilize their forest. Pretty much covers the subject of international trade. I think there's a lot of things that we can do and a lot of things that you can do as a city committee looking for things to do in international trade if you decide that international trade is indeed important to you. And I believe it is. You just look around and see what you have going here and where the product ends up, you'll see how important it is. What can this committee do? Well, I understand you're an ad hoc group appointed by the Mayor to find out, make recommendations to the Mayor what the City of Kenai can do as far as economic development issues are ECONOMIC DEVELOPMENT COMMITTEE March 10, 1987 page -23- concerned. Well, is so far as international trade is concerned, I would encourage you to contact me at any time if you have any questions. I'll be happy to provide you with information. I'll be happy to provide you with foreign contacts if you desire them. So will the State of Alaska office and you should work through either one of us or both of us to do that. Think about trade missions from your area. Perhaps organize a trade mission. As Valdez did recently to Taiwan, Korea and Japan. We can help you facilitate that, we can set appointments for you in the foreign countries and so can the State of Alaska. But, remember you have to have something to sell and be specific about in order for results to come. Think about entertaining or inviting foreign groups to come here. For foreign investment or for purchase of additional product. And think about product diversification from your processing plants. And think about services exports. China to other places. A lot can happen here, it just takes individuals to get involved in looking at the situation. Seeing how they can profit from it. Chairman O'Reilly: What I hear from Mr. Lenahan if you look way down the road for the City of Kenai, at that way down the road point, we are going to have to be much more sophisticated and much more good minded and longer ranged in our thinking, certainly in regards to our city than we are now. It will have to come from within the citizens' groups, because otherwise it will just be at the hands of what's decided and you do, what's decided in Seattle, Washington. That's my initial reaction and I think Dick (Lenahan) has pointed out some ways, some recommendations that we may wish to offer if we decide that there should be a commission. That this should certainly be a major segment of their operation, get a handle on the thing and get going. Committee Member Elson: Dick, do you have some examples of where your office aided a business to become an exporter in this region? ECONOMIC DEVELOPMENT COMMITTEE Mar ch 10, 1987 page -24- Mr. Lenahan: Yes I do. We were very much involved in the initial export of Alaskan coal. We helped Alaska negotiate with the government of Korea through our Ambassador in Seoul, through our relationships on Korea energy working group, which is a bi-lateral commission set up by the President of Korea and President Reagan, to study energy sources for Korean industry in the United States. Through negotiating, through prodding, through political pressure. We were not the only ones involved, there were a group of people involved. But we did assist them, substantially in that initial phase for the contract. I personally have been involved in a number of business counselling sessions with small businesses. How to do business in XYZ country. Find me an agent in Greece. Find me an agent in Iceland. Background checks. We helped a company get started in an operation in Peru for mining machinery. We helped a Kodiak company sell a van load of fish for the first time to Europe. We are helping a native corporation in Southeast do a feasibility study to find a market for counter trade, counter purchase operation in China for wood products. Discussion followed with comparisons and ideas forward between committee members and Mr. Lenahan. brought 7. NEXT MEETING The next meeting will be March 24th. ADJOURNMENT The meeting adjourned at 9:30 p.m. ~iva- A."' AbU'~to ................... dba/Niva's Clerical Services for the City of Kenai