House Standing Committee on Economic Development & Technology

Welcome to the Committee on Economic Development and Technology. We are here for informational hearing. Today is Monday, 07/13/2026. The time is 01:04PM, and we are at Conference Room 423 at the State Capitol. I want to say thank you for being here.

We wanted a chance during the interim to really understand the different program IDs that this committee has. And this is a great opportunity to understand the current situation of where you are and how we can assist with resource and how we can help guide the direction of where you wanna go.

And just like how you are business support, we wanna also support you in your business. So we also have Foreign Trade Zone, and we will go through these different presentations. So first, we are gonna go through, I believe it's BED 100 or 101.

Both. BED 100 and 101.

And we will learn exactly what business development and support division under, DBEDT. And go ahead.

Thank you very much, Chair Ilagan and Representative Templo. Thank you very much for this opportunity to present, at this informational briefing. And we appreciate you asking us to, talk about our programs and projects and, some of the challenges that we face. But anyway, we are the Business Development and Support Division, BED 100 and BED 101. Next slide, JB.

And our team, we are 10 members strong, And it's all under BED 100. There is no staff in BED 101, the Office of International Relations. Next slide, Jamie.

Our mission statement is to build a resilient economy, locally strong and globally connected. Next slide.

Our division overview is that we strengthen Hawaii's economic future by supporting local industries, expanding global partnerships, opening new avenues for innovation and investment. And our work helps businesses to thrive, communities to grow, and Hawaii to connect with the world. As you see on the right hand side, there are the logos of our different programs. Next slide.

Our division objectives are sixfold. We help businesses attract investment and grow jobs, develop the workforce, support Hawaii made products, increase exports, and support international relations. I'll show you a short video to give you an idea, a perspective of us in action for to accomplish these six objectives. Go ahead, Jamie.

We help businesses, and this is at the Hawaii Small Business Fair, an annual fair that we have, which this year will be held at the UH Manoa. Office of Economic Revitalization is a partner, and we hope to test them out.

We also attract investments in growing jobs, helping companies like, Kauai Furniture, how they keep this building, Pacific Floral Exchange. We developed the workforce, like, as I feel like I'm just this workforce, helping chefs to upgrade their skills and also then help get workforce development.

We support Hawaii made products recently. This was at Hawaiian food as hotel and restaurant show where we had a Hawaiian food earlier. And our pizza, the Hawaiian Pig conference at the Sheraton where we brought together 20 agencies and private sector firms.

We also had a [inaudible] and to help promote the food and product innovation network. We also increased exports through our overseas shows at Tokyo International Gift Show, Nacho Products Expo in Anaheim, Winter Fancy Food Show in San Francisco, And we support international relations.

We recently had the Hawaii Japanese State Summit, where we had our the signing of the sister state agreement in Okoyama Perfecture and the Hawaii- Philipiines Business Tradeshow, Symposium and Reception. Let's try to put things in a nutshell as to some of us or 10 people in action.

So to take a deeper dive, we'll go over each one of our objectives to to help business. Our main state program in helping businesses is the Community Based Economic Development Program, also called CBED. And I'd like to introduce to you the Branch Chief of that program, as well as the business support division, Jason Ushijima.

Hi. Good afternoon. Thank you for having us. So as Dennis teed up, the CBED program is a program of loans, grants, and technical assistance that's designed to help Hawaii small businesses so so they can develop, sustainable ventures that serve local needs and are compatible with the vision, character, and cultural values of their community. So the biggest piece of the CBED program is our CBED Revolving Loan Program.

So with this, the CBED is able to give, excuse me, low interest loans to small businesses, in Hawaii. So these loans are expansion loans for companies expanding in the areas of manufacturing, agriculture, and wholesale.

And they range between 50,000 and 125,000. So we currently have 19 active loans with small businesses in Hawaii, and we have four more in the pipeline. Next slide, please. So recently signed was act 183, which establishes the Hawaii Microlending Credit Enhancement Program.

So this will be a brand new program for us. It is a brand new loan program, which establishes a microlending excuse me, to grow the microlending climate here in Hawaii. And it does so by providing a state funded loan loss reserve or a similar credit enhancement program that will absorb first losses for Microloans made by participating lenders in Hawaii.

So, 1,500,000 was appropriated to this program. So, we are in the process of developing this program now. So we will be working with a number of financial institutions as well as community partners to make sure we get this program right and get it off the ground, and much more to come as we work on this program.

Yeah. For this program, we need to get the private sector involved because DBEDT does not have loan officers in our division anyway, and we need that expertise from the private sector. Private organizations could also be a nonprofit organization. But I think we're looking at maybe more substantial institutional lending expertise to help leverage this $1,500,000.

Okay. That's all for me. Next slide.

We also help in the, the Kona Visits Loan Recovery Grant. It was an emergency proclamation that went out just this past spring when the colonels hit. And we are working with the different Offices of Economic Development on Honolulu County, Hawaii, and Maui Counties. Honolulu County will get 4,000,000 to give grants and to those affected non agricultural firms affected by the Kona Low Storm. And $500,000 each for the other counties.

Next slide. Once again, our Hawaii Small Business Fair is an annual event that we do, and we get between 300 to 400 people coming to this program. This year, it'll be held in September at the University of Hawaii Manoa. So that would be we think we'll get close to about 600 to 700 people because it's in Central Honolulu.

And you know in the past, we've had like, 32 exhibitors and 20 classes on how to, how to start a business, organize and strengthen finances, expand markets, and other areas.

Next slide. We also signed this past, last month, the Act 237, the Food and Product Innovation Network. So we help businesses through the Food and Product Innovation Network by promoting authentic Hawaii made products and the companies. We support the expansion of FPN aligned businesses, and we expand the export readiness of these FPIN companies. However, our services go beyond providing it to other companies besides those in the FPIN network.

So we're much broader but, you know, they will be an integral part of our program. Next slide. We also sometimes call the Division of Miscellaneous because there are projects that are sent to us because they have no home elsewhere. And you know, for instance, the Sea Salt Project, which was primarily previously with Department of Agriculture, It's now with us to get FDA approval for additives to the sea salt. And the Dementia Training Business Program, which was set past this session.

And, you know, we will work closely with the Office on Aging, who we think should have been the lead, but we will work with them to implement that. Thank you. Our second objective to attract investments and growth tracks.

Once again, our enterprise zone program is a major business incentive to attract investments into the state because it offers some great incentives, especially related to the general excise tax waiver. And,Jason, would you like to expound on that?

Sure.

As you guys are probably very familiar with the Enterprise Zone Program, the program was designed to increase business activity, job growth, and job retention in, challenged areas of the state. And it does so by offering business to establish there and create activity and jobs, with various tax and county benefits and incentives. Currently, the companies who can do that can join the program for up to seven years.

But as we kinda look forward, Act 182 was just passed, and it modernizes the program, in a number of different ways. So first off, it shows this is a list of the new different business activities that currently that will qualify for the program for companies who join the pro, who join enterprise zones after July 1 year.

So, the new business activities include, anybody who is doing value added agriculture, production of product, also research development sale of any type of medical products and medical and health care services. Also professional services related to health care is now included.

Aerospace technologies, IT technology and design, and then the biggest additive is all companies, whether they're doing research, development, testing, production, commercialization, everybody who's dedicated or involved in the FPIN, so the Food and Product Innovation Network, will now be welcomed into the Enterprise Zone Program.

Next slide, please. In addition to this, with the new changes to the Enterprise Zone Program or Enterprise Zone 2.0, just to highlight, the new program will allow manufacturers the same program benefits, but it will also allow them to take retail sales as a part of their GET tax waiver.

It authorizes DBEDT to declare up to two census tracts in addition to the original, tract designation. So DBEDT, with the Governor's approval, may nominate two, in the two additional census tracts, within the state to become an enterprise zone.

It requires DBEDT to create a comprehensive review of the program, and then it also will extend the eligibility of companies in this program from by 2 years. So currently, it's 7. So companies who now join can join up to 9 years.

That's it.

Thank you, Jason. You know, the Enterprise Zone Program Act 182 makes the program more robust and also enhances it and extends it and expands it. So we anticipate a lot more companies taking advantage of this. And we look forward to, marketing this incentive more widely to, companies to locate in areas that are primarily distressed.

But because now two additional zones could be added, it expands the reach. And also, you know, these other industries sectors that are eligible would also be, you know very, very beneficial to the overall attractiveness of the program. We also attract investments, trying to bring in new companies into Hawaii to increase capacity as well as to get investments into the state.

For instance, as an example, we assisted Kubota Corporation, a major Japanese Ag tech corporation, to locate in Hawaii as a start for perhaps bigger things to come. Right now, they're doing rice milling in Hawaii.

They are looking at perhaps expanding rice agriculture on the Island of Kauai, but also in relation to other activities in which is their core area is Ag equipment. We also met this morning with another company from Japan that would be, you know, the technology that they would implement into Hawaii would help our garment production manufacturing. And that would be a great boom to that industry.

And I don't know if you've ever tried this restaurant called Tokatsu Tamafuji in Kapo Hulu, where you have to get reservations for like, months in advance. DBEDT was instrumental in helping them establish in Hawaii. So that was, you know, something that we can get reservations if anybody needs. Thank you. Next slide.

We also work to develop the workforce. With the Kapiolani Community College, we have, we manage an agreement with the Culinary Institute of America to provide professional development program to enhance the skills of our chefs and also to help aspiring food service professionals.

Overall, there's been 272 students from 22 cohorts gone through this program, which has been in existence for two years and has one more year of life. On the workforce development side, we also target the healthcare workforce development area because that is a shortage category.

And the, there are two components, the public high school healthcare workforce certificate program in which, so far 68 students have completed the program and 59 of them have found local employment.

The other component is for engaged professionals already, those in the workforce, CNAs to LPN. So we transitioned them by upscaling them to a higher grade of medical health care. 56 students have taken advantage of this program. Next slide.

One of our major programs, we support the Hawaii made products. The brand of Hawaii made is very valuable, and we want to make sure that it stays valuable and that we utilize it to its fullest potential. For instance, we've had our last conference, our 4th conference this last month, in which we focused on food innovation.

And we have 20 state agencies and private organizations signed MOA, that demonstrates their cooperation and collaboration, as well as their willingness to purchase more Hawaii made products. We had 250 persons, from businesses mostly, signed up to participate as in the program, in the conference. Next slide.

Throughout since COVID, we have been supporting the Hawaii Made program. First, with the website promoting the marketplaces that sell Hawaii Made as well as individual products. Our first conference was in '23, in which we extolled the virtues and the value of the brand of Hawaii Made. The next year, we focused on e-commerce, and then we went on to go to market solutions. And this past session was on driving the future of food innovation, showcasing the FPIN. Next slide.

This is our logo, Hawaii Made.

If you all know that that's a canoe that's symbolic of Hawaii, as well as it's taking our products out of state overseas to new lands. And you know, this sells in Hawaii but we also wanna make it saleable overseas too. And we have an agreement to they have an agreement to harmonize our brand, Hawaii Made with the programs and the locals. Thank you, and aloha, Rep.

We also support Hawaii Made through local shows. For instance, this past June, we had our Hawaii pavilion with the Hawaii hotel and restaurant show. And next month, we will be at the Daniel K. Akaka ALA food show, which is targeting the commissaries as well as the different exchanges to purchase more Hawaii made products.

Our pavilions are set up there with 15 companies at ALA, and at the Hawaii Hotel, we had 20 companies. We will also be participating next month at the grand daddy of the ball, the Made in Hawaii Festival.

We are the official government sponsor. We will have 26 small businesses represented. Last year, we had total pavilion sales of close to a $170,000. But more so than sales, because these companies that participate with us are entrepreneurs that are not operating out of their own kitchen, but ready to get into the marketplace or on the are already there but at the very beginning.

And the intelligence that they can get from participating in the show, packaging, taste, it's like a sensory lab for them to participate in this. So that is the value of us participating in these local trade shows.

And we will also participate in the Made in Maui County Festival trade show in November also with the Hawaii pavilion. We also want to increase exports. We do have had for 14 years, I believe it is, SBA grants or 13 years SBA grants. And I'd like to introduce to you our other Branch Chief, Jamie Lum, who is with the Business Development Division.

And she will talk about our exports program, especially the high step.

Hello, Chair, and mahalo. Rep. Tam, Rep. Templo. So our High Step, program is made possible through a grant that we received from the Small Business Administration, and it it is an export development program designed to help our companies sell their Hawaii made products and services overseas. So as, Dennis already mentioned, we've received a grant. We've been successful in receiving a grant for the state over the last 13 years. And just some highlights, in those 13 years, we have received $7,400,000 over those 13 years.

As a result of these funds, there have been an average of $13,000,000 in new exports per year in that time frame.

Also cumulatively, the economic impact has been $286,000,000 as well as $12,000,000 in state taxes generated and over 1,500 jobs, supported or retained. We've also helped in that time 1,800 of our small businesses in Hawaii to participate in this program, be it through training or trader consumer shows or financial assistance.

And let me talk well and during that time, we have participated in 83 trade and consumer shows. We've done a 100 over a 100 actually, seminars and webinars in the last few years, to help with export readiness for our companies. And then we have awarded over $1,700,000 in financial assistance to 229 companies.

Just to just briefly, there are three components. So there's an export readiness component where we do these webinars to help educate companies about export topics or market opportunities. Another component is what we call our Go Global, and I'll go into a little bit more specifics.

Those are our trade shows and our consumer shows that we participate in. And then the last component is our financial assistance to the company. So I'll talk about those.

So some of the main shows that we've done are domestic shows which although they take place in the US, these are international trade shows and that they are attended by international buyers. So we've done the fancy food show. We did it for the first time this year, and we'll do it again next year in 2027. We had eight companies that participated this year, and we expect 9 companies for next year.

And just in this year, there were $600,000 that the companies reported as actual and projected sales. Another show that we do is the natural product show in Anaheim. We've done this show since 2022, and we've had over 35 companies that have participated in these in these last few years, and there are over 60,000 buyers that attend the show over the three days.

And there again, the companies reported $26,000,000 in actual and projected sales. That's a cumulative number in those five years that we've participated.

As far as overseas shows, we've done a consumer show the Hankyu Hawaii Fair. That's in Osaka, Japan which we just completed. It used to be a one week fair that we partnered with the Hankyu Department Store. Three years ago, they extended it to two weeks. So we've actually increased the number of Hawaii companies that have that are now able to participate, because they they go for one week at a time.

So this year, we had 68 companies, that were there to help promote and sell their brands directly to Japanese consumers. And it gives the company a chance to get direct feedback from consumers as they are interacting with them and also share the story of their particular company and their brands.

Last year, just to give you an idea in 2025, these are just the apparel and food companies. They made $1,300,000 in sales. There's also an art component, and I don't have that figure, but that is also very popular amongst the Japanese consumers.

We also as far as other trade shows, the Tokyo International Gift Show, which is coming up in September, this will be our 15th year of participation. Last year, we had over 30 companies that attended. And during the duration of our participation in TIGS, as we call it companies have reported $86,000,000 in actual projected sales during that time.

Finally, we also have our the FoodEx show in Tokyo. That's in March of every year. So we had 23 companies that participated this year, including we are now working closely with the Waihwa Value Added product development center and the companies that go through the Aina Tumakeke.

So companies that are part of the FPIN, helping them to those that are ready for exporting, helping them to become ready to be part of these shows.

And so since 2023 when we first, DBEDT first started organizing this show, there have been $9,000,000 in actual and projected sales. And then, I mentioned our company assistance. So this is where companies can apply directly for financial assistance to help them implement their export plans.

And so funds can be used to for things like developing online e-commerce for international sales. They can translate their website, and other marketing materials. They can create an international, media campaign. They can also do things like if their product needs to be certified in order to be sold in a particular market, they can use the funds to be able to pay for testing.

And there are a number of other types of expenses that can be covered. But again, over the life of our high step program, we have awarded over $1,700,000 to 229 Hawaii companies. Thank you.

Thank you, Jamie. The High Step program, it is funded by the Federal Government, and we've been fortunate that we have not been cut throughout the different administrations. So I think it's testament to the results that we have shown because it is a competitive grant, and we have to compete with other states to get this money. So our being an activist organization DBEDT, is in getting the exports out.

It's not just the company assistance program, which is giving them money, the company's money to participate in certain events, which we do a portion of it.

But the main thrust is to actually take companies to these countries, which have the best market prospects for us and engage with that company, countries to take our products, our Hawaii made products.

So, yes, we are very grateful for that support which, by the way, has to be matched by state money. So it's not entirely a federal funded program. The last objective that we have is Supporting International Relations.

One of the strong areas that we have in the past supported is the Student International, Student Attraction Program, which we continue to do with an organization that we started a while back via Study Hawaii group.

It consists of 20 public and private institutions who market to attract international students. And this is a very important economic sector, we feel of Hawaii, Hawaii's economy. It generates 15,600,000 in state tax revenues in the last year.

Now given the current state of our federal administration, There may be some difficulty in having students travel to Hawaii. But, you know, we are still plugging away because we think Hawaii has value for education. So, it is an initiative that we continue to promote.

Next slide. We also work closely with the East West Center. We are managing their CIP funds for their renovations. And we are also working with them to update our strategy for international engagement for the new century, our this 21st century, which is 26 years old on here. But we are working towards updating that strategy.

We also work very closely with our sister states, and we encourage the relationship between our sister states. In May, we had the Hawaii Philippines Sister State Symposium featuring Governor Green as well as Governor Cecilia Araneta Marcos of Ilocos Norte. And it we celebrated the 22 years of our Sister stater.

And you know, we, last month, had the Japan, Hawaii Japan Sister State of City Summit which the highlight was bringing in 7 Governors and Vice Governors of our sister prefectures.

And, you know, this is a calendar of our other international activities that we've done for this year.

The first two have already taken place. Next one coming up will be our sister state signing with Yamagata Prefecture. That would be our 20th sister state. We will have a Taiwan business mission in September '26, China business mission again in September also, Hawaii Business Roundtable at the US Japan Council Meeting in Tokyo in October, Korea Changing Business Mission, October and November. Changing will be celebrating our 30th anniversary or 40th anniversary of Sister Statehood and food and product innovation site visit sometime in November or December.

We also have two overseas offices, one in Beijing and one in Taipei. And you know, this is a very dynamic region, for our products and services. And they also serve as education resources centers to give information to students who may want to study in Hawaii.

Our offices both offices are sanctioned by the central government of China as well as the central government of Taiwan. As a matter of fact, they help pay part of our lease rent. Next slide.

And our new overseas office will be in The Philippines in Laoag, which is our most active sister state with in The Philippines with Hawaii. And we will use it as a springboard to help us in our efforts to attract support for teacher recruitment and health care workforce recruitment as well as other promotional activities for products and services as well as investment and also to maintain the relationship that we've already built goodwill that we've already built with.

The legislature, not last session, but the previous legislation, helped establish the, the new Sister Statement International Relations Commission, and it is a very active commission. They are looking at ways in which we can engage with international jurisdictions beyond subnational organizations, and perhaps looking at countries such as New Zealand for our relationship. Our next Sister State, as I mentioned, will be with Yamagata Prefecture. And again, forty years with change of issue.

Now, the challenge that we face, in closing, is that we've reached our staffing capacity as the number and complexity of programs and projects continue to grow. As noted, the Office of International Affairs has no dedicated personnel, even though the responsibilities expand across multiple initiatives. Although our project funding has remained steady, staffing has not increased in proportion to the workload, creating a structural imbalance that limits our ability to meet emerging demands and maintain prod—program quality.

However, despite these constraints, we remain committed to working collaboratively with the legislature to, as our mission states, build a resilient economy that is locally strong and globally connected. So, thank you very much.

Appreciate your attention and look forward to your questions.

Well, thank you for your presentation. Thank you. We're gonna open it up to committee members to start off. Do you have any questions? Okay.

I'll start it off. You know, that last slide kinda piqued my interest. You meant—well, before I even go into that, I wanna ask, you have six objectives, and these objectives are pretty clear on what you're trying to do.

These objectives, they move forward one mission of DBEDT, the business development and support. Just wanna ask because this has been the discussion of the state, whether where is DBEDT heading—I know you're not the director, but regarding your division, is it here to help diversify our economy? Or is it here to strengthen existing business? What is that general mission that these objectives, these six objectives, are pushing and trying to fulfill?

Primarily both. However, because we are a pretty much support and development, we are looking at assisting the businesses that are already here and helping those businesses grow and prosper. And that's why, to a large extent, our efforts are to assist those businesses that are already doing businesses and to help them grow.

On the other hand, we help to diversify the economy by looking at investments coming into the state, attracting new activities that would be within the realm of what is acceptable for Hawaii, building upon our strengths and assets. For instance, I mentioned a company that we are working towards getting established in Hawaii that would help the garment manufacturing industry and—with your state-of-the-art technology. But it's also they have product and capacity to help in the defense sector.

And that is the kind of diversification that we want to do of use type of activities in which we build upon our assets of having the defense industry very strong in Hawaii and present in Hawaii to help companies expand into that area also, so that we can diversify the economy.

So, your programs, like High Step or Enterprise Zone, they have their own metrics and standards of how they're measuring their success. I think it would be good for your agency or your branch to figure out what those standards look like for diversification. I, I don't know if you're going to take small business administration's percent—like, how do you determine what that percentage, is it with READ, who determines that the majority of the economic activity is tourism or military?

How do you link up your programs that says, oh, we grew the textile industry because of these programs that we have been successfully funding?

I think there needs to be some sort of way to link that general idea of where we are in diversification because we talk about it constantly, but there's nobody putting any sort of picture of where we are on our diversification and how these programs are aligning for that. I think you're—it's very clear that you wanna support export. Now, if we're just looking at export in its area, then we just need to find out how many dollars has export grown.

But if your bigger goal is diversifying the economy and strengthening the existing business, then we're looking at GDP. We're looking at those big numbers.

And you don't, you don't have that presented right off the bat. And I do appreciate all your successes in these programs, but what is it tying to at the end of the day on what you're trying to do?

Well, I think to answer the question regarding metrics on our export side, especially, we have to report metrics to the SBA, definitely India, to the extent in which we've increased exports out of state, which we've included companies that are new to export, and also, new markets that we're looking at. So, those are the three main metrics that we didn't present that, but we can do that report to, to you, the committee, and provide that to you because that's what they gauge our success on.

And to a large extent, we gauge our success based upon those metrics.

So, I, I do get that these programs are funded by the Federal Government, and the Federal Government has a set of requirements for you to report. If our goal for this agency is to keep an eye on what federal grants and federal programs that are available and to take advantage of that opportunity and bring those dollars to the state, then that's great.

But if our goal is to diversify our economy, then shouldn't we try to figure out what programs out there in the Federal Government that will help diversify our economy? The reason why I'm saying that is if we don't have a direction for our economic development, then where are we going?

Are we just looking at what opportunity is there and then be reactive, or are we trying to put state dollars into a direction of where we want our state economy to be? And I'm not sure if it's you, and you can say it's not you. It could be another department. Or is it the director himself who decides that? Or is it the governor?

Or is it the legislature? I think what I want to establish here is an understanding whose role is it going to be. Because if it's not your role, then let it be the legislature's role. If it's not the legislature's role, it's the Governor's role. But who's currently deciding the direction of our economy, and what programs are we doing to set—to successfully accomplish that goal?

Well, I think it's the it's the legislature, as well as our executive department. Oh, I'm sorry.

No. No. Go ahead.

It's both our executive branch and the, the legislative branch who sets the diversification road map. You know, there are—and speaking of my division, we are generalists. It is a very broad area that we cover. We do have within the—that specific areas of technology, of aerospace, of creative industries, which are more focused on specific industry sectors that help to diversify the economy, if you will, and they can do a real deep dive within those sectors, whereas we tend to be more on the broader category.

As I mentioned, you know, at times we are considered a branch where it other things don't fit or a division where other things don't fit. So, I think it's incumbent upon both the legislature, as well as the executive branch, to determine which areas of diversification, be it defense, which we do have a say, component that focuses on that, or energy, which we do have something on that.

But those are the ones that take the deep dive for diversification.

I have a question sticking with diversification. You know, one of the biggest struggles, I think, is a company that is out there in Hawaii doesn't really know what's available at the resources. So, does DBEDT do any kind of outreach to the public to solicit companies to utilize these services that are available to them? And if so, how do they do it? And how can the legislature help with those efforts?

Because it feels like that's something that's missing.

Yeah. I, I think investment attraction is a very important thing that we need to get involved in. Company relocation or company location in the state is something that we've taken it upon ourselves to, to do in certain areas that is not focused on by, as I mentioned, say, technology or aerospace or energy or creative. For instance, in health care, we've had programs where we would attract—hopefully attract—health care services to Hawaii.

We haven't had much activities in that area recently, but I think you're right in that sense that there should be an inventory of our strengths, the best prospects to attract companies to Hawaii, given our assets, existing assets, and build upon those assets so that we can attract companies to come into Hawaii in those areas that would help diversify our economy.

Yes, ma'am.

Okay. Are you also asking about how we met the businesses out there in the old, like...

Yeah. Because I feel like, you know like, let's take the office of aerospace, for example. Like, I didn't even know it existed until I got elected. And I cannot imagine a business out there who wants to go into this kind of business that is available for them not knowing.

So, my, my, my curiosity now is will DBEDT come in with a funding ask in the upcoming 2027 legislative session for funding to go towards, you know, outreach so that people know that these services are available for them so they can expand?

I ask this because I feel like many of our businesses do need help. There is that report over this weekend that says that Hawaii is the number one worst place to do business. And a lot of it is something we cannot help. It's our geographic location on scarce land.

But there are areas where we can improve on that, and I think that DBEDT is a, is a valuable resource for our—it's just a matter of how do we do an outreach to make sure that these businesses know.

So, I guess the question is funding ask.

Well, oh, right....so, actually, Jason and I do spend a good amount of time in the community, and we actually work—we try to work with other business resource organizations like the SBA. They've been doing a lot of workshops around, around the state, actually.

In fact, Jason is going to call tomorrow to talk about all the different programs that are, you know, not only, you know, the SBA has, the DBEDT has, it's kind of that, the plans program, the, the GEMS program. HTDC is also part of that. So, we try to reach as many audiences as we can whenever we have the—you know. But we actually have been talking about maybe the need for just DBEDT to get out there and what, what do you think programs are. But, yeah, we do try to work with other organizations to to get the word out.

And, and to the rep's question, I believe it's outside of the state. Outreach to companies or organizations outside of the state to come into the state to take advantage of the resource system, if I'm not mistaken. And I think, you know, in the past, DBEDT, I've been around for a while.

DBEDT has tried broad type marketing for Hawaii to be headquarters for organizations because of our central location and close to Asia Pacific and the Mainland US, that's time zone advantages, our transportation facilities, and all of the other assets that we have. But the broad marketing really doesn't get to the heart of who we want to attract.

I think if funding is available, we should contract a very good company—relocation firm—that is out there that knows about companies who may be who knows Hawaii's assets and strengths and what we can offer to companies who may want to take advantage of our location advantage, of our time zone advantage, and other—the military advantage—and attract those specific targeted companies and go after them specifically. But on a broad, general basis, you know, you cited the last in the CNBC ranking.

They take into account a whole formulaic type of approach, which we will never, you know, some of the—or location.

As much as it's an advantage sometimes to us, it's a great disadvantage. Right? So, it's, you know, that kind of metric, it's kind of very hard to, to be, you know, kicking against the thorns. But, yeah. I think if there's funding available, we should engage the service of someone who can hone in on specifics.

Rep. Templo, did you have anything?

Not right now.

Okay. So, when it comes to that goal, you mentioned general support for businesses. And, truly, your program ID is the general support. I, I think the diversification and understanding those economic outcome has to probably go under READ. I think READ should be looking and assessing what your programs are doing to support that diversification. I, I think I—what I understand your program ID is to provide that catch-all when things are available at the Federal Government, and you're there to take advantage of that opportunity.

So, with that said, I think what you're trying to do is provide that general support to businesses, whether they're importing or exporting or whatever they are doing here in Hawaii. I want to dive into one area, and I think—I think we have a strong potential in your area of support international relations. And you pointed out that—as well as export, increased export. And you pointed out that there's no dedicated staff for support international relations when you have offices in countries who have a dedicated staff.

So, how is that—I'm confused.

Where are those staff housed, if not in that department?

Yes. Our overseas offices, because we have a lot of exemptions provided to the establishment of the overseas offices, those employees are contract. As a matter of fact, they're all half-time also.

You don't count them as staff?

We count them as staff for that overseas office in particular, specific to Taiwan, specific to Beijing, and soon to be specific for the Philippines. But we don't count them as staff that is working to help the broader, general international relations, which we deal with the sister states, as well as different conferences in Hawaii or the export side. They do help us in Beijing or Taiwan or The Philippines.

Do you have a strategy on your approach for the support international relations? Because you mentioned you are working with East and West Center to create an international engagement strategy. So, do you have—what's the, what's the plan?

Well, we hope to have that study ready by this next legislative session so that we can determine where we're gonna be heading towards, in conjunction with relationship with the East West Center together, leveraging each other's strengths and building upon each other's contacts and to determine how best to engage and or strive. Be it, you know, perhaps we could be the...

So, there's really no plan right now?

There's no plan right now.

Okay. So, I think that plan is very important, one. Second, I strongly believe that foreign affairs might be our best solution for domestic affairs, and the reason why I'm saying that is the cost to import bringing in containers here is four times as much than it is to export. And we can export Hawaii-made goods if people are buying much cheaply out of our state. And so, there's a potential that we can really export.

But how to grow that, I think it has to deal with foreign affairs. We also have the military with now no longer into Paycom, now called Paycom. We have that as an opportunity and leverage to strengthen our foreign affairs strategy and figure out what we could do there. There's a lot of potential. We're in the middle of the Pacific Ocean, and we got Asian countries on our left side.

And we could be not only the entryway to those Asian countries, but also those Asian countries coming into America and having Hawaii as their entry point. There's so much potential in foreign affairs, and I—we need a plan to try to tackle that. If you're providing general support for international relations, there needs to be some sort of plan before we put in any sort of funding to make that happen. Are you able because we're planning to do these informational hearings every year.

And we wanna get to a point where you guys bring up a plan to us, and we look at the plan and say, "Hey, that is a great idea. Let's fund it. Let's actually make it happen." When can we get to a point when we, we have plans coming here, and we can see what you're planning to do and, and support it?

Well, I think, you know, going forward and given the situation right now, that strategy that we will be working with, the East West Center, we will give us a good road map as to how we can, you know, Hawaii as, you know, Geneva of the Pacific, Hawaii as the gateway to the US. So, Hawaii as the gateway to the Asia Pacific market to help us determine what needs to be done and what resources we need.

But not in a very peripheral or, you know, 10,000-foot level view, but getting into more specifics. Because the more specific we can get as to what needs to be done in order to get to this point and building upon our assets, as you've mentioned, the defense, Paycom, as, as well as, you know, other strengths that we have, is what we have to concentrate on.

You know, it could be working especially with the East West Center, a conference center, you know, perhaps to focus in on that, as bringing in people to Hawaii, utilizing the resource of the East West Center and the strength of the state of Hawaii in order to be a convening place for these, these types of activities, be it for military related activities, be it for technology, be it for oceanography, be it for, you know, the areas that we get strengths. But it's those kinds of things.

Hopefully, the strategy that we can develop come to you and then ask for funding for these specific projects. I think if we ask for funding for "We want to be the Geneva of the Pacific," you wouldn't give us any money for that.

If we come with something in which we will have a conference, in which we will bring in, for instance, bringing people from the East, people from the West together to talk about a strength that we have, be it in broadband, for instance, or oceanography, and bringing in these people, you probably would say, "Yeah, that's a great way to do it." At least we're bringing people who represent companies who could invest in Hawaii—into Hawaii. And, you know, we can grow the economy that way eventually.

Perhaps they could be investors.

What's the product of that conference? So, let's say you have that conference. What comes out of it?

I would think it's the, it's the networking that we can and the opportunity. We can get on that soapbox, a forum in which we can extol the virtues of Hawaii. Now, it wouldn't make sense for something, a conference that would be, you know, something that you just bring in people from the East with the West. But if you wanna use Hawaii as an entry point into the US or Hawaii as an entry point into Asia and having that kind of conference, yes, then it makes sense.

And what you want is establishment of organizations, companies, or foundations, or whatever you have, but you want presence in Hawaii of those groups.

I, I think we still need a plan.

Yeah. And hopefully, the strategy will come up with that instead of being something that...

So, do you guys have funding for this international engagement strategy?

Yes. We do.

And where are you getting that funding?

From the legislature.

Okay. So, when are you going to have that?

Hopefully, we have it—well, the funds have yet to be released. So, we are aiming for this legislative session, but we don't wanna rush it also. So, it may be next legislative...

So, when it, when it would be completed, it'd be 2027?

2027.

Okay. Can I ask my committee to be involved in coming up with some of the engagement strategy?

Sure.

Could you invite the committee to be part of that discussion?

As a matter of fact, in the contract that we would like to get into the—with the East West Center, it requires them to do briefings before the legislature.

I, I think we need to come up with some sort of plan. And this is just one area. This is not even—this is not even the diversification plan for the state. This is just one part to help diversify. But I think this area has a lot of potential.

I would love for this committee to be involved in creating that plan. And if you can keep us involved in that plan, the better. Now, I wanna touch in on one last thing, which is the enterprise zones. If you can come up—we definitely need to promote the enterprise zone. And could you tell me why an existing business should apply for the enterprise zone right now?

Give me three benefits that they would receive if they were to apply and enroll at this moment.

Well, if they qualify and they, they, qualify for the program...

Who qualifies for the program?

So, one, you have to be located in an enterprise zone. Two, you have to be one of the established business activities. So, it couldn't just be any company. And then also, it's, the third...

The location is pretty much most of the state.

It's most of the state, but it's not all of the state.

They can find out if they qualify, but it's mostly, like, 80% of the state—roughly.

Roughly.

And then, the businesses, it's agriculture, it's technology. Can you?

Manufacturing, now health care, IT, anybody involved in the FPIN network, Wind Energy.

So, if you fall into those businesses, you can apply?

You can apply.

Perfect. Now, what are the three benefits that they would receive? And I'm—they can receive more benefits, but what are the biggest things?

Three big: GET tax waiver, unemployment and tax credits, and—excuse me, unemployment insurance for your employee tax credits and income tax credits. Those are the three big ones.

Most businesses knows what the GET waiver is, but could you just expand on it a little bit more?

So, companies who are selling wholesale would be exempt from paying GET on those wholesale sales.

And then the unemployment?

Unemployment—so, both with unemployment and income tax credits, companies get an 80% tax credit on the first year that they're in the program. That tax credit diminishes by 10% every year they're in the program.

And the last thing?

Same one. Income tax and unemployment insurance. Two different taxes, but same, same structure.

So, overall, if you enroll into the enterprise zone, or enterprise—yeah, enterprise zone—you would pay less taxes as a business.

Correct. As a result of creating jobs or business activity.

Perfect. Yes. Thank you.

You're welcome.

Those are all the questions I have.

I have one question. So, one of the biggest concerns in in my community is affordability. And there's always talks about the diversification of our economy and our reliance on tourism. So, you're saying a little bit about the state's plan on focusing on military and energy. So, how can we, if you could give a message, how can we ensure that we're working towards making this place more affordable and what we're really concentrating on and our general plans in that matter?

Affordability takes into account a lot of components, from housing to food to clothing to, to medication, and everything in which Hawaii has, notoriously been very high on. As opposed to making things more affordable, I think our job is to make things—to, to help the economy in general so that the populace are able to afford some of these things in which we have no real control over the affordability components. So, yeah.

And so, by—to our enterprise zone, perhaps attracting in, you know, it's for, it's—it was established originally to help distressed areas get companies to locate in there so that they can provide jobs to that area so that they don't have to travel way far and everything, but to help these distressed communities to get jobs.

And hopefully, by doing so, they will get jobs and they will be able to afford, maybe not completely, but at least, you know, meet the growing expense of some of the, you know, in the affordability index.

Oh, I see. Well, thank you for the history on enterprise zones. Is that the same direction we're heading towards?

I think by getting more sectors eligible to participate in the enterprise zone, it tends to create more businesses that are coming into the area and creating more jobs in those areas. So, it's—now it's broadening. It's, it's, it's, it's becoming more inclusive of areas in which, you know, are high employers.

Just to help Dennis out a little bit. For example, agriculture. When we have more competition in ag, that means we'll have cheaper prices on produce, having their—them saving taxes on their business. They might be able to lower the cost of their produce to the consumers, lessening the affordability of that orange or papaya or lilikoi or whatever it is. So, that would help because we're providing us financial assistance to these business using the enterprise zone program.

Well put. Yes.

Okay. I think that will suffice. Thank you, Chair. Thank you, Dennis.

Alright. Thank you for your presentation.

Thank you.

We will look forward to next session, as well as your next presentation next year.

Oh, okay.

Let's go on to the Foreign Trade Zone Division under DBEDT.

Well, thank you, Chair Ilagan and Representative Templo for the opportunity to come speak to you today and talk to you a little bit about the Foreign Trade Zone, who we are, who we're not, and how we operate here and how we, you know, work to support the economy of the state of Hawaii. So, if we get the presentation up.

Please state your name.

Oh, sorry. My name is David Sikking. I'm the Administrator of the Hawaii Foreign Trade Zone. I've been with them for about eighteen years now.

I'm the administrator of the Hawaii Foreign Trade Zone. I've been with them for about eighteen years now. So sorry.

So, the Foreign Trade Zone is Bed 107.

107, correct.

K. So let's go over the first slide here. So for about 50,000 foot view, what a US Foreign Trade Zone is for a an FTC, it's a federal program that helps companies engage in international trade, operate more efficiently, manage costs more effectively, and compete globally. We call it the EEGs of FTZs.

Next slide. So, technically, a foreign trade zone is a physical geographical area that's on US soil. It's considered though outside US customs territory. So that means the goods can be brought into that area tax and duty free and treated as if they were still in a foreign country. Now these areas are, managed and maintained by the Federal Government, so they're the ones who actually do the authorization of those areas.

And that means that the merchandise of any description, as long as it's legal to be here in The United States, can be brought into the foreign trade zone without being subject to customs, duties, and other taxes. The whole idea really is to reduce the cost for those companies that are operating in a foreign trade zone, create employment as well as investment opportunities as well for that area that has that foreign trade zone. It's based on the simple idea. It's that business, idea. A dollar today is worth more than it is tomorrow.

So if me as a business owner can keep and retain my capital to pay for my employees or hire new employees, expand my operation, or repair, equipment that I have or buy new equipment, that's a benefit for me as opposed to paying that money to the Federal Government. I get to keep and retain my capital and then determine how that's going to be spent. So it's it's Oh, back, back a page here. So it's it's based really on the use of customs duties to do that.

So there are three things you could do with with those goods that are in the Foreign Trade Zone prior to it being entered into US commerce.

So we admit them into the foreign trade zone before it's entered into US commerce where we as consumers can buy them. You can do further duties. So that means holding that cap of not having to pay the duties upfront. You can invert them on an inverted tariff or reduce them per se in terms of, being able to, pay the tariff when it comes in and then eliminate them. So if you do have an export that you, have, you you create that as part of your product as a manufacturer.

You bring goods in. You repackage them and set them out as exports. You never have to pay the duties on them because they never entered US commerce. So not entering US commerce allows you not to pay the duties on those goods coming into The United States. Next slide.

So here's the foreign trade zone structure. You have a foreign trade zones board. Now the foreign trade zones board is part of the Department of Commerce. They're do we I'm sorry. Do we skip the screen?

It's almost seems like I might have skipped skipped the screen. There we go. There. A little bit of history about the Foreign Trade Zone. I thought, boy, that's kinda missing something here. A little bit of history about that. So you think all back to your history in the nineteen twenties, the economy of The United States was roaring. That wasn't true in parts of Europe.

They were coming out of World War one. There was a lot of disarray, a lot of economic strife in, in, parts of Europe, but The US economy was going very well. What happened in 1929, that was the stock market crash in 1929.

What happened was then that put The US economy into parallel as well, and so Congress decided to do a knee jerk reaction, which essentially passed the Smooth Hawley Act of 1930, which put up tariffs on goods coming into The United States, very similar to what we have today. Many of the tariffs, I think, were an average of 18%, way higher than some of them that we even have today.

So goods that were coming to The United States were essentially blockaded out. The whole idea was to protect US companies. They thought that cheap goods from Europe would just overrun and essentially destroy U. S. Companies at that time.

So they passed the Smoot Hawley Act. Problem was there were companies here in The United States that said, you know what, we need these goods here in The United States. Well, we don't have the raw materials to use in our manufacturing or for our processing. We don't have component parts that we use in our, manufacturing as well. How can we get them without having to pay these high duties?

Because all that is is just passing on the cost to those clients or consumers that we we make our prod excuse me, make our products for. So So in 1934, Congress passed the FTZ Act. It was part of the New Deal legislation.

The whole idea was to create a structure that would allow for companies to bring goods in, not pay the duties on them, be able to work with them, and then pay whatever applicable duties are on the way out or when it entered US commerce or not pay them if they went out to an export market. So they created the Foreign Trade Zones Board.

It is part of the Department of Commerce. It has two members of that board. It is the, Secretary of Commerce and the Secretary of Treasury, And they're the ones that actually make the determination as to where and when a foreign trade zone site can be authorized. So it's based on the approval of public interest. So that means that a foreign trade zone has to be within the economic interest of that particular location.

You can't just have a foreign trade zone, have a foreign trade zone. The Federal Government wants to see that there is some sort of a benefit to that before they'll actually give an authorization to that. And they said, by the way, we're not gonna have any federal resources to the local areas.

So that means if you're a state that you want a Foreign Trade Zone, you have to pass enabling legislation to be able to have them because essentially you're taking land that's part of your taxable property and pulling it out for this specific purpose of a Foreign Trade Zone. They want you to have skin in the game as as as well.

So they said, we want you to fir first of all, make that enabling legislation. And then second of all, you need to have a grantee. So that grantee is a corporate grant of authority. It's a public agency like us at DBED that essentially will manage, maintain, and promote that zone project area in that particular location. So that does require a state sanctioned grantee, and it also won't get any federal funding.

You want it in your location, that's up to you to be able to fund it. You figure out how to fund it yourself. It's gonna be a great economic benefit for those people there, but you need to figure out how to do that yourself. Excellent. So here's the Foreign Trade Zone structure.

You have the Foreign Trade Zone's Board that's actually part of the Department of Commerce. You have US Customs. Those are the guys with guns and the badges and make sure that we keep in line in terms of our, the way that we operate our foreign trade zone. They wanna make sure because their job really is to protect the, revenues of The United States.

And as part of that, they wanna make sure that nothing slips into, US commerce without the proper duties and taxes being paid or levied on those particular goods.

You have the Foreign Trade Zone grantee. That's like us here at Foreign Trade Zone Number 9. Our job is to work as liaison with the for Foreign Trade Zones board and US Customs and then look for companies in our project area that could take part in Foreign Trade Zone or applicable to the product or to the the program. There are actually two types of foreign trade zone operators. One is what's called the general purpose operator.

The other is what's called a sub zone or a usage driven site. I'll get more into that in just a little bit, but just kinda show you the structure as to how this all works. Let's go to the next slide. So again, you might have heard of the the term free trade zone or hey that FTZ or Free Trade Zone 9 down on Pier 2. We're not that.

We are not a free trade zone. We are what I call The US, and I'm trying to be very careful about this, a US foreign trade zone. It's a program specific to The United States. Free trade zones are what happens outside The United States. Now the problem with not problem, but the aspect to us is that we are under very, very strict compliance requirements under, federal gov government guidelines.

We have to follow very strict compliance, requirements. You go to a free trade zone. I've been to some, like the Kia doors in Mexico. I've been to the free trade zone in Dubai. You don't always know what's going on in there.

Are there labor issues that are going on in there? They're using forced labor or coerced labor. What about EPA regulations? Do they do they worry about the environment there? That's not so in US foreign trade zones.

We have to follow all the federal regulations that are available to us as well as state and local regulations too. So we can't just do something for the sake of doing it to create an economic stimulus for the area. We have to do it in compliance with federal and state and local regulations as well. So there's heavy, heavy compliance. Just the regulatory is the Foreign Trade Zone Board, and the enforcement is U.S. Customs.

But we go beyond that Foreign Trade Zone, Board or Customs could potentially, penalize us, financially penalize us, or potentially yank our Foreign Trade Zone designation. That means anything that's in that location that's that's not cleared customs yet automatically becomes dutiable, and that company has to pay that upfront. So that's why we work as a liaison with the Federal Government to be able to ensure that our zones in our operating area operate under that compliance, the strict compliance regimen.

Next slide. So a little bit about foreign trade zones nationwide. There is at least one foreign trade zone in every state in the union. There are three in Puerto Rico. Right now, there are 312 zones.

That means there are 312 grantees throughout The United States. Some are in several ports. Like, the Port Of Long Beach, I think, has three or four different foreign trade zone grantees. Firms using foreign trade zones nationally are about 3,400. Here in Hawaii, 289.

That is one of the highest in the nation, if not the highest in the nation. I haven't looked at the recent numbers, but that's one foreign trade zone grantee who oversees that many companies that are utilizing foreign trade zone practices for business. That's a huge benefit for us here in Hawaii. Jobs nationally, a little over half a million jobs are attributed to foreign trade zone. We have over 4,000 jobs that are connected to FDZ here in the state.

Activity nationally, this is huge. Almost a trillion dollars of goods flowed through US foreign trade zones last year, and about 10,600,000,000 was attributed to Hawaii. That's how much goods come through foreign trade zone, that we handle. Hawaii value add about 5,900,000,000. Total exports, 133,000,000,000 nationally.

We have 556,000,000 here in Hawaii. And foreign trade z1 number nine, that's us here, consistently remains the top 25 foreign trade z1s in the nation. That's, one of the big benefits of being part of this particular program and the the type of, work that we do here in Hawaii. Let's go to the next, slide. So we talked about the types of foreign trade zones.

So when the program began back in the nineteen thirties, there there really established two types of foreign trade zone operators, if you will. One of them is called a general purpose zone. And what we had to do is Foreign Trade Zone Number 9 was to look for, like, tech parks or, industrial parks and designate that area as a foreign trade zone. So the companies would then go to that what's called a magnet site and be able to operate out of that particular area.

So it was kind of an idea that a little outdated, but certainly worked for its time.

And that was, that was usually used by warehouses and distribution centers, and many companies went to that particular location to utilize that one trade zone or to take, advantage of that one trade zone benefit. The other is what's called a subzone or a usage driven site. Now that usage driven site is very specific to what that company does. So what that means is like a manufacturer or some sort of refining operation. Their job is specific to what they're making.

They're not gonna have a lot of people come and use their facilities. It's just what that company does. So it's very specific to that single company. Next slide. About, 2009, the Foreign Trade Zone's board realized that this really was not working really well.

They really wanted to expand the program. They thought there were a lot of companies could benefit from it, but there was a lot of restrictions to the way they utilized Foreign Trade Zone. So they came up with this idea of alternative site framework, and what that means is essentially you as a grantee can reorganize under this particular practice and essentially designate your entire service area as a potential foreign trade zone.

So that means you didn't have to go to industrial park or tech parks anymore to to activate foreign trade zone or go through that huge process to get a a company designated as a, a sub zone because it was a huge application process to do that. So what they did was streamline it, made it much quicker, made it much less complex to operate that way, and essentially, proposed the whole service area, for that grantee to be the foreign trade zone.

And then you could go to that company wherever they were located within that particular area. So a company like, say, Caterpillar didn't, operate in a, say, an industrial zone. They could go directly to that company, Caterpillar, within that service area and activate it or designate it and then activate it as a foreign trade zone. And this it was a much quicker process for the the general purpose zones. It used to be about a year, year and a half just to get designation and activation.

Now it could be as little as thirty days for designation and maybe thirty to sixty days for activation as a foreign trade. So I'll talk a little bit about how that's important in just a little bit. Let's go to the next slide. So here's all the things you can do while the goods are in the foreign trade zone prior to it being, brought in for US or entered into US commerce. You notice that manufacturing actually has a little asterisk behind that?

That's a very important thing. There's a reason why is that let's say I'm a guy that makes pensions. Okay? And I import the rubber for the the eraser, I have a little steel band here, a wood for the pencil, and some some graphite for the the writing part, maybe paint or a sticker for the outside of a particular pencil. When you import something into The United States, everything has what's called a harmonized tariff code to it.

That's something that customs use to designate or essentially outline what that particular item is. So the rubber would have a different harmonized tariff code. It's called a h t s u s. This metal band would have a different harmonized tariff code. The wood would have a different harmonized tariff code.

So when you take all of these various harmonized tariff codes and put them into something else that creates a separate harmonized tariff code, which would also be if you imported just strictly into The United States, that has a different code. So when you're doing that, the foreign trade zones board and US Customs wanna know about it because they wanna know what materials you're using and how you're going about your processes to create that item that you're doing that for a trade zone.

So that's why when you have a manufacturer, you have to have a special authorizations called production authority to be able to get all these various pieces and put them together into your final product that you make in that in that specific foreign trade. So and it's so specific that even like this metal band here, if you have like metal so you know what I'd like to do? Something cool like copper or maybe titanium.

In order to do that, you have to have authorization from the Foreign Trade Zones Board and from customs to be able to utilize that. That's how specific it is. So unless that's in your initial, application, you would have to go back and ask for that ability to do that in your, what's called, production authority. Let's go to the next slide. So here's all the various companies and industries that utilize foreign trade zone.

Top three really are pharma, automotive, and oil refining. That's nationwide alternative companies to utilize foreign trade zone. And you can look at, the various companies that do operate foreign trade zone. Automobile manufacturers, if you ever try to import an automobile part, it's very expensive. However, if you buy a full automobile, duties on that particular car could be anywhere from one and a half maybe to 3%.

So you take a high duty rate and you put it into an automobile that's manufactured here in The United States, and you bring it out at a lower duty rate. Very beneficial for those companies who are operating on trades on. Let's go to the next slide. So here's some of the reasons why you'd use a foreign trade zone. These there there's many reasons.

These are kind of the top four, so I'm gonna go through these fairly quickly. Let's go to the next slide. So first is duty to furlough and avoidance. So let's say I'm a Hawaii company, and I import a container that has a $100,000 worth of goods on it. Now on top of the shipping costs that I've had to get into Hawaii, the logistics costs, the supplier costs, I have to pay to my supplier, whatever foreign country I buy my particular good from.

If I have a 10% duty rate on that particular good, that means before I can even get it off the dock at Pier 1, I have to pay an additional $10,000 just to get it. And then I have to hopefully recoup that cost as I sell those sell those goods throughout my my product line, whatever I use it for. Alternatively, I could take that, move it from the dock, Tier 1, tell customs I'm gonna put it into a foreign trade zone. We send it to FTZ.

It's in there, and there are no duties and taxes that are collected on it because it's in there.

And once it's in there, I can do whatever I want to with it. So if I only wanna say declare a third of it, I only pay $3,300 as opposed to the full 10,000. Again, we back get back to that retaining and holding my own capital prior to, having to pay that out to the Federal Government. The other nice part is that exports are used in this. I never have to pay the dues and taxes because it came in.

I had it in the foreign trade zone. I might have repackaged it. I might have done some things, you know, who showed up on, the previous screen. But then I set it out as an export. It never entered US commerce, So those duties on this particular business are never never, taken from my my business.

So for me, in terms of exports, we talked about that in Dennis' group. That's a huge benefit for any company that's operating upon trade. So You have to manufacture something, you send it in a duty free state, and then set it out as an export and not have to do those high duties.

So you know most of the duties today with all the various trade, environment that we're in, we're talking anywhere from, say, you know, 10 to 25 to 50% duty on goods that are coming in to The United States. Let's go to the next slide.

So here's really the sweet spot before trade zones, just manufacturer. So let's say I'm a manufacturer. Let's say I manufacture ukuleles, and I get my strings from Italy. I get my mother of pearl relay from Japan. I get my rose book for the body from Brazil.

Okay? Then I get my tuning keys from Detroit, Michigan. Because in a foreign trade zone, you could actually mix foreign and domestic products, especially when it comes to manufacturing. You've got that ability. So let's say the imported parts have duty rates of anywhere from two to seven and a half percent.

However, if I were just to import ukuleles and bring them in, the duty rate on that's only one and a half percent. So this means that I can manufacture these ukeleles here in Hawaii using all these component parts and use that inverted tariff to then bring it into The United States at a much lower duty rate.

What that does for me as a company is allows me to compete on an international stage and allows me to take some of these high duty items and be able to bring it down to a price that that is beneficial for those people who wanna purchase my product that I made here in Hawaii. And it does allow you to get that lower duty rate. And again, with proper inventory control, you won't be any duties on those exports and scrap materials.

So like the rosewood body, all I'm paying for is the body that I actually cut out of that piece of wood that I bought from Brazil, not the scraps and the waste. So again, I'm reducing my duties, the cost of my duties on that particular item as well. So another benefit for those companies that are operating in the foreign trade zone. Next slide. So here's kind of the caveat to foreign trade zones.

Because you are bringing goods into The United States that have not cleared US customs, We talked about the guides with the guns and the badges customs. They got a little itchy about that. They wanna make sure that their revenue is protected that you bring them in. So as part of that, there are some, I said, burdens that are put on foreign trades on. It's a heightened security protocol that you have to have security cameras.

You have to have access control to get into those areas that are using Form Trade Zone, and you also have to have inventory control systems. So everything that comes in has to make sure it has something that shows where it went from the time it's either still in production or went out as the duties were paid as such.

But the issue with that is that, let's say, I'm, an insurance company and I look at a foreign trade zone and say, that's gonna be a much lower duty burden, much lower, insurance risk because it's not something that's gonna slip in a pocket at the end of the shift and walk out. You know where those goods are. And, again, those companies who are operating in foreign trade zone don't want that to happen, so they're very tight on security protocols.

But, again, that is also a benefit because your insurance rates are low as well, and your security risk as well. Next slide. So some of the other costs and benefits that you avoid using foreign trade and so on. So you can do something called duty drawback. That means I pay my duties upfront, and then I go to customs afterwards and say, well, you know what?

I shipped all these hours at export. I'd like to get the duty back on that because I shouldn't have had to pay that. Customers say, okay. That's fine. Here's some paperwork.

We have to fill this out. And you're not gonna get all of your money back, by the way, because we do have some processing fees, and there are some fees depending on what type of products you bring in that will charge your work. It could be anywhere from maybe 90 to 95% of the money you're gonna get back.

And, again, you've lost the use of that money during that time that it's been in production again through your sales process, so you haven't been able to utilize that money like you would if you were a foreign trade Bonded warehouse is very similar to foreign trade zones. They act very similar to that.

However, you cannot manufacture, but you can. It's only under very specific circumstances in a foreign trade zone. And you must, as the importer, must put up that bond. So instead of the foreign trades on offer here putting up that bond, me as the importer would have to put up that bond. Then I'd have to pay for get my goods into that bonded warehouse.

Or then also you only have about five years. So if you're a long lead item or you have something that sits in production for a long time, you have five years of the right you have to declare it, export it, or just and that's all in a bonded warehouse. Those in a foreign trade zone, they can stay in there differently. Like, we have a couple of clients that have some very long lead, very specialized products that they brought into our warehouse.

And I think that's been in there about 22 to 25 years. They're just waiting for the right client to come by to buy it, and then he sells it to him at a very premium price. So for him, that makes a lot of sense in terms of what he operates. Exempt from taxes. So because it's the, commerce clause of the United States constitution says you can't tax anything that hasn't entered US commerce, because it's uniform trade zone, it's exempt from federal or local and state taxes as well.

So, again, that's on our savings for the person who's operating the foreign trade zone. They do pay all the duties and taxes and anything that's applicable to that particular part once it comes into our US commerce. But while it's in the foreign trade zone exempt from taxes. You can also do weekly entry. So let's say I'm a I'm a distribution company, and I work Monday through Saturday.

Normally, what I would have to do is every single day of the week, I'd have to do an entry to get those goods into US Commerce as I'm shipping them out for my particular warehouse, my foreign trades on warehouse. You can do what's called a weekly entry. So you consolidate that all into just one entry. So for the week, you say customs, this is what I'm planning to to ship out during the week.

You consolidate that just to one entry so you save costs on all those entry costs that you'd have to normally pay over the course of a week if you were to do it on an ongoing basis.

You also have something called a merchandise processing fee. That's something customs charges for their services at the dock, and that is a low level amount. So wherever it comes in, they still charge you a base amount, But there's also a cap amount. And if you could consolidate this all into one payment, you can hit that cap amount in one one payment. So you're not paying a cap amount every single time that you enter across a week.

You're doing this one amount for all these goods that you buy in once for that week. Again, another benefit for that company operating foreign trade. Next slide. So who's foreign trade zone? What are we doing at Pier 9?

Well, back, in the, late forties, early fifties, the state was really coming out of that agricultural, economy that it had. Looking for ways to diversify the economy. We looking for ways to expand it. And they come up with this idea for a trade zone. This might be a way to not only support jobs, but then also infrastructure investment.

So they did two studies. One was in 1958. It was done by, University of Hawaii, and it said, wood foreign trades must be good for everybody. It was really inconclusive. They weren't sure.

It might work. It's kind of a big investment to put into a program that may or may not work. So let's hold off. So they didn't go ahead with it at that time. But in 1963, there's a transshipment study done by doctor John Hazzard of the University of Iowa in conjunction with, with, who talked about using Hawaii as a transshipment location for Pacific Rim.

That was it. That was the green light they were looking forward to doing. So 1963, next slide, they went ahead with it. They got the green light, and it was a huge support from Senator Danny Inouye in the federal line of things. Also Patsy Bink, huge supporter of it.

John Burns, the governor at the time, was on board with it. But it was really the brainchild of doctor Shelley Mark, who was at that time the head of the Office of Planning and Economic Development, which is the precursor to today's DBEDT. He had this idea that this was going to work and this was going to help diversify Hawaii's economy. So in 1964, we submitted a very lengthy application to Department of Commerce for unwrapped authority. We received approval of that in 1965.

And in 1966, we acquired Pier thirty nine, which is where Young Brothers is today, and invested about $300,000, which is about 3,100,000 in today's dollars, and opened our doors for Trade Zone Number 9 on 06/16/1966. So we just crossed sixty years of operation here in Hawaii. Next slide. So what does that 9 all about? Why do you wanna see Foreign Trade Zone Number 9?

Well, as the Department of Commerce authorizes grantees of foreign trade zones throughout The United States, They number them sequentially. So that means we were the ninth ever foreign trade zone to be established in The United States. Think about that. From 1934, when the program started, in 1966, there were only eight other foreign trade zones before we got our grant of authority in 1966. Today, there are 312, which means from 1966, the preceding sixty years, we now have 312 foreign trade zones.

That see shows how the program has really expanded expanded over the next sixty years. So we're the ninth ever established in The United States. We are the grantee for the entire state of Hawaii. So we oversee the program for the state of Hawaii. We're also a general purpose operator, so that means we gave ourselves the ability to operate a foreign trade zone.

That's what we do down at tier two. We have, as part of our services, warehouse operations for those companies that may not be able to do that on their own. So we offer that as a service to them. We are entirely self sufficient agency. That means we take general funds to operate.

All of the funds that we use or the revenues that we generate are from the services that we provide to our clients, our subsons, our subsons outside of our peer to peer. We're a service agency. So unlike, say, energy or land use or even, obviously, planning, we we can do no policy in the state. Policy is all done at the federal level. We do advocate for policy changes with our congressional delegation as well as other members of Congress.

We do that through our National Association of Foreign Members, which we are one of the founding members of the four trades on nine. We do that on an ongoing basis. So I talk very regularly with our congressional delegates to talk about the trade policy, especially in this today's environment. We talk very frequently about the trade policy and what we can do to help change some of that. We have 289 clients statewide.

We do that with just 16 employees. Next slide. So we are an alternative site framework for one trade zone. We reorganized back in 2017. What we wanna do is really give us more flexibility instead of having to go to those industrial parts and get companies to locate those industrial parts.

This means we can go anywhere in the state of Hawaii to authorize and designate and activate that foreign trade zone on location for any company that presides from the state. As long as the federal corporation's board will approve it, lawsuit will approve it, we'll go back to that to do the organization. We are using what's called a MITRE boundary modification process. So they gave us a cash that the a corporation's own board gave us a cash of 2,000 acres.

So we then can designate that throughout the state.

If you're ever close to the 2,000 acres, we ask for more and the more property authorized status time. It also does need a shorter application time, so it's every couple of years. It's down to, you know, a couple of months. And it does streamline the activity for those companies who would like to do manufacturing before it turns out. Next slide.

So there we are. We're located at Pier 2. Look at that. We're right around the corner from Pier 1. That's where all the international containers come in.

So it's a very quick trip to our location at Pier 2. We're right across the street from the Federal Building. That's where our partners in, customs and and the border protection are. And I said they're the overseers of what we do. So it's a very close relationship that we have with them, and literally right across the street.

So if they have a question, they can walk across the street and talk to us about that. We're also just outside the Downtown Federal or the Financial District. So that's very beneficial for those companies who located our facility to operate for a trade zone. That's a central location, so any distribution activity is very close to those companies that those distribution companies service themselves out of our location. Next slide.

So as part of what we do, we have complete warehousing services, and we offer that for companies that are just small. I mean, 289, that's a lot of mom and pop shops. I'll tell you that. The third company is just couldn't afford a warehouse. They can't afford a lease for a warehouse.

They can't afford employees to be able to pack and unpack container shipping containers and to be able to do the inventory management or even try to take on the burden of foreign trades on because there are costs associated with that. So we do that. We become the warehouse arm for them. That's a huge benefit for those companies to be able to operate not only before a trade zone, but then be able to have somebody take care of their warehouse and operations for them.

And that's what we do as part of our services.

We also have office space, about 75 offices for those companies that do import export and import export support. So those are the companies that help support those companies that do import export. We do import export training.

As Jamie was talking about the STEP grant, we help facilitate that in our location through, only a dentist group and DBEDT, but as well as the District Export Council who helped to, plan and show those particular webinars or do those presentations for those companies that are, interested in doing import export training. So we call ourselves, peer two, the hub of international trade.

The reason why we do that is because we do have those support services like customs brokers. So if you have, like, an IRS person that does your, taxes for you, a customs broker will do the import records for you. So they're the ones that do that that cruise ships categorization for you and then file those, paperwork file that paperwork with US Customs to be able to get those goods into The United States.

Out of the seven licensed customs brokerage houses that are here in Hawaii, we have four on-site. So you're not running around town trying to get this stuff done.

It's all done at one location. Same with shipping agents. You see the big pink one containers that go around town? That's the that's the shipping out of China. That's done by NYK Logistics that do the shipping agency for that particular organization as well as other ones.

We also have Daehan Shipping. They're the main shipper out of South Korea. They're located at our facility as well. We have, an office of the US Export Assistance Center. I don't know if you know about John Holman.

John Holman's a federal employee. He works for what's called USIAC, US Export Assistance Center. And his job is to find markets for your products. So I'm a Hawaii company. I have a great product.

I go, John John, how can I get this into foreign markets? He, first of all, will work with you, get you scaled up, get you connected with Dennis and his group, get you lifted up to the level where you can supply to that kind of level, and then he'll find the market for you. Say, hey, I wanna go to China. He says, you know what? That's gonna be really tough.

Let's first go to Australia. Let's get your product in there. So he'll work with a colleague there to do a buy for you. They have what's called a key a gold key services. So it's a paid service, but but it it and it and it it scales up depending on how much service you want from John and how much you're willing to do on your own.

But it is one of the most successful, if not the most successful US export assistance center of the nation. For every dollar that you spend with him, over $400 comes back in sales. That's a phenomenal return on investment, and they do a wonderful job. John works in conjunction with our US export assistance, our decks deck district export council who helps to find those export markets for those companies. We also have an office of US Customs, and we are the liaison for the EXIM Bank.

The EXIM Bank so if you can't get normal funding from a normal banking institution, there are federal organizations, the Department of Commerce, and they'll help to do those loan guarantees and upgrading your, trade relations as well. So it's a big benefit for this company. That's about it. We are foreign trades over nine. We really appreciate your time, and, we're here to answer any of your questions.

David, great presentation. I I have a bunch of questions, but we also only have ten minutes left. So

Go ahead, Chair.

Do you have do you have a question? Go ahead.

I do. I'll I'll skip my other questions. But are you able to provide a list of the raw materials and commodities and services and manufactured finished goods to our committee?

We okay. So this is kind of difficult for us as foreign trade soft grantee. We can do that to an extent. We can tell you which companies we work with. But beyond that, our our job or at least what we are cautioned to do from the federal end of things from the foreign trade zone board is not to get into that company's business.

So that's really up to that company. We just authorize them to make sure that they're in compliance and it's up to customs to be able to make sure they're doing what they're supposed to do. So we're really cautioned not to get too deep into that business.

The reason why is that could make us if they're doing something wrong, that could make us potentially liable on a federal level.

Okay.

I see.

I guess I'm trying to get a general understanding of what we can use and, what is out there. So how can we, know what's out there?

So we told not to do that.

In terms of the the goods that are coming in?

Yeah.

I can tell you exactly all the goods. In fact, we have several services. We work with, Reid in terms of the data that's provided for that. We provide some of it. They provide some of it, and we can pull essentially the commodities, the types, when they're coming and how often they're coming and who's getting them.

We have that data available. Okay. Reed would actually be more applicable to getting that for you, but certainly we could provide that as well.

Okay. That would be great if and

Yeah.

Of course. Share. Yep.

Well, this is great. I I are you guys near maxing that 2,000 acres?

We in terms of sites outside of our our location, no. In terms of our location to Pier 2, we have hit a 100%, for a majority of this year, and that's just a a company's trying to skirt the escirt, but leverage us to be able to manage the tariff environment that we're in.

Oh, yeah. I mean, with the tariff environment, you would think everybody's knocking on your door. You look

at places like Texas, they're they're maxed out, especially like in El Paso. Yeah. There's sometimes 20 to 30 applications within a six month period that go through. So just before that.

I think the first question I wanna ask you, even though I already asked you a question, we wanna do a site visit. We we need to go see Absolutely.

This is to have you there.

Yes. So we're gonna do a site visit, check out this FTZ nine, and see how it all runs. Now I the fact that you guys are self sufficient is amazing. I wanna understand what the formula is for that. I know it I know it doesn't just happen.

It really builds up. But how can we model that revenue generating, methods that you have put in place to other programs that we have in our state. Because we need to it'd be great if we could just seed fund a department, and then they become self sufficient. I I feel like that's a long discussion, but I I wanna understand that at some point. I my understanding of what you do is a geographical area you approve to ensure that it can bring foreign or domestic product.

And within that area, it has to fit it has to meet some standards of security, inventory management. And once it does, and you have to make sure the FTC board approves it, and you're pretty much the facilitator to make that happen. Right. That that's my understanding.

Right. Right. And then customs also has to approve as well.

And customs approval. But once that's approved, then the business, depending on how they want to leverage that new foreign trade zone, they can I mean, you already explained it? They can use some of that product and then pay the taxes for it, but at at they get to control the cost. Right? Right.

And I think what we need to do is we need to identify the business. I think DBEDT needs to figure out or you may already know what this is. But what is that business where they can now have the ability to export? Or not even export. They can even import and sell here.

Right. It's just that there's this there's a a business has to be big enough to be able to export or sell statewide. Right. And I don't I think with your help, we need to identify that business on, like, what does that sign of infancy from being a a baby to a toddler where now they can they can start running and walking and running and actually selling statewide or exporting? Do you have an idea of what that looks like?

That's that's a that's a pretty difficult question because it really is the whole new that company that is doing that type of work.

Yeah. It is.

And the hard part is because of the current trade environment in the world, I I I use this kind of broadly. We've made it over the last twenty years way more easier to import something than it is just to make it here in Hawaii or make it here in The United States. That's what the whole issue between The US and China is right now, specifically that. Yeah. You know, we've essentially given China all the ability to do our manufacturing here in The United States.

There's a lot of complications to that. So here in Hawaii, it has to be a product that might be like an import offset. Is there something I can do here in Hawaii that I would normally have to import, but I could make here and do it less expensive? One of our zone sites is Pacific Allied Products. They essentially make the recyclable water bottles that you see living so a lot of Costco or just about anyone that's down here in in Hawaii.

They also do the Coke and Dasani product fulfillment. So they get the the recipe Instead of shipping water over water, they create the product here and then ship it out to the stores. To them, that's a huge benefit because all they're really importing is resins that create those plastic bottles, create the the product that goes.

So do we have is it the accelerators that are then talking to you and they wanna leverage your like, what the what's currently happening right now that leads to you? We work with

a lot of different companies. ManaUp is one of them that we work with very, very, ongoing basis. SBA, the the business development center. We also work, you know, with Dennis' group as well. We work with HTDC, all of our our sister agencies.

A lot of applications then.

We don't have a lot of applications because companies never get to that level where they are established enough to be able to underwrite the cost of actually What are they missing? Is it capital? It's capital. I would say it's capital.

And the problem is because things are so expensive to to import here, it makes more sense so they get up to a certain level where we've accelerated up to that, and then they'll go off to San Jose and they'll go off somewhere on the Mainland, Las Vegas, and start the product because it's a much less expensive cost for them to be able to operate there.

It's very unfortunate.

On average, what is the companies that you you, Matt, you interact with? Like, are we talking about multimillion dollar companies? Companies. Yeah. Yeah.

I mean, first and foremost, I'll I'll say is our refineries, our refinery and our our depot. It's a it's a huge benefit. This you don't realize that they're actually a foreign trade zone, so they bring in the crude oil, they create all the products we need for energy here.

That's very very important for our energy position here, because we can't go to, like, California and say, hey, you know, like California can do to Oregon say, send over out of Oregon, send over some energy, we're getting low. We have to make it all here.

We have to be self sufficient here. So, they're the ones that can control all of what's made at the time we need it, when we need it to be able to ensure that we have energy supplies here. But with that, they also make the jet fuel. So as jet fuel, we have another company called Hawaii Fueling Facilities Corporation that has pipes that go from the refinery all the way down to the airport.

So they take that fuel, keep it in a duty dutiable state, so as it comes in, it's done under foreign trades and practices, goes down to the airport.

Let's say a jet comes in from Japan with tourists or business people. Okay? That jet, because that is now going out as an export, can be loaded up with fuel leaving Hawaii and not have to pay the duties on those particular, fuel that's going in there because that's considered an export.

It's a huge benefit and a cost reduction for those companies that operate and for the people who are buying tickets, from Japan or Australia or Canada to come to Hawaii and then go back to their, location. So you do have to be at a much higher level.

Yeah. There's a threshold. There is a threshold Yeah. And I will say that we have had several they they haven't been turned down by customs or by, the Foreign Trade Zones Board, but they certainly are looked at because they wanna make sure that that company can comply with whatever rules.

Who complies the application? Is it you or is it the applicant?

The applicant does, but they work with us. So You review? We review it. We make sure that they're they're in compliance, so they can be in compliance, and then we'll submit that on their behalf to the foreign trade sales support.

I like this insurance cost is low. I mean, I I get it why that would be is it I just forgot what the insurance. There's a different types of insurance. I forgot what it's called, but I I think at this point, your is there any I guess I'll end it with this. Is there anything next legislative session that you're aiming for that you need help with?

Because it sounds like most of the lobbying deals with Congress Right. And a lot of the things that maybe the area of streamline for manufacturing. What what does that look like on the

state level? State level is now, I think, with, HDDC, as well as Dennis Group. I believe they do some manufacturing as well. So I would say, you know, more more resources for them to be able to operate because if they can get up to the level where they can use foreign trade zone, we'll absolutely help them out and try to get them a foreign trade zone designation and activation.

Because it can be anywhere in the state. Right? Anywhere in

the state as long as customs can supply. There was one application that was for Kauai that was turned down because they don't have, representatives on the island that couldn't essentially oversee foreign trades on.

Oh.

So that was very unfortunate for us, but we're working with the Federal Government to hopefully get resources on Kauai to be able to manage that. Okay.

Okay. Interesting. Is there any others? Well, David, thank you for your presentation.

If you have any more questions, feel free. I'm I'm more than happy to answer them and entertain. If you guys, again, want to come for a second visit, absolutely. We'd love to have you out there.

We will. We'll take you up on that.

Thank you very much. Appreciate your time.

Information on hearing is now adjourned.