Honolulu Star-Bulletin from Honolulu, Hawaii • 13

Saturday, Feb. 15, 1964 Honolulu Star-Bulletin 13 I 1 1 Sane Island I BEFORE 1840, Sand Island consisted of a few mud and sand islets set on the Kaholaloa fringing reef. The I largest islet, Kamokuakulikuli, was about 10 acres at low tide and about five acres at high tide. On April 17, 1840, Kamehameha III granted William Summer rights to Kamokuakulikuli Island and konohiki (fishing) rights to the surrounding reefs to the east (Ka- I holaloa Fishery). The western portion of the reefs sur- i rounding Kamokuakulikuli islet was later placed under another fishery area, Mokauea.

In 1848 Kamehameha III, under the Great Mahele I (land distribution decree), confirmed William Sumner's rights to the use of the Kaholaloa Fishery. Later, Ka-; mehameha designated Kamokuakulikuli Islet as the Quarantine Station and from then on the islet was 1 known as Quarantine Island. In 1902 after annexation I title to the Kaholaloa Fishery passed to the United I States under the U.S. Treasury Department, Division of i I Public Health. The Quarantine Island was 28 acres at i this time.

FILLED LAND CONTINUED to be added to the reefs east of Quarantine Island toward the channel to Hono- i lulu harbor. With World War II, control of the island passed to the War Department. The Navy filled the area west of Quarantine Island to build Sand Island to i iits present size of 516 acres. A total of 123 acres at the western ena of the island i never was claimed by the Federal Government and was i 1 returned to Hawaii after World War II. I Another section of 202 acres in the center of the is- I land was returned to the State by Presidential pro- CDI I () A r- 3i i ftvgf VPtfSSSS i 1 i clamation on August 20, 1959.

The remainder of the is-i land was in Federal hands. In 1960, the ownership pat-ff tern was as follows HAWAII AERONAUTICS Commission, 123 acres, of which 56 acres is under title dispute; this represents If 24 per cent of the island. U.S. Anay, 110 acres, or 21 per cent. Coast Guard, 62 acres or 21 per cent.

U.S. Navy, seven acres or 1.5 per cent. If City-County, 12 acres or 2.5 per cent. 1 State of Hawaii, 202 acres or 39 per cent. This was the ownership breakdown before passage of I the so-called Sand Island bill which restored Federally I held portions of the island to the State, with the ex-I ception of 46 acres fronting the Kalihi channel which is; is being retained by the Coast Guard.

R. M. Towiil Corporation photo negotiated with the Army for the return of Pier 39 (arrow on air view above) as a temporary site for the zone. Pier 39 is a terminal cargo handling pier designed to handle four ships simultaneously and has 2,000 feet of berthing space, with a depth of 35 feet, and 178,000 square feet of shed area. The material on this page is from the winter issue of Hawaii Economic Review, issued by the State Department of Planning and Economic Development, and brings together for the first time a comprehensive presentation of the foreign trade zone plan.

On December 27, President Johnson signed a bill returning control of all Fed-erally-held lands on Sand Island (pictured above) and surrounding reefs to the State, with the exception of 46 acres retained for the Coast Guard. This action paved the way for the development by the State of 516 acres of prime industrial land in the center of Honolulu harbor, and specifically for an international trade complex. The first step would be the establishment of a foreign trade zone on the island. Until formal transfer of the land and improvements are completed, the State has sandalwood, but native demands for imports exceeded Hawaii's ability to export or render services to shippers. A deficit appeared; exports paid for less than half of the imports.

Had not whalers discovered the advantages of the Islands, Hawaiian economic development at this point would have been seriously retarded. In addition to the fortuitous appearance of the whalers, internal changes were instituted by King Kamehameha establishing a new and more stable commercial policy. It was in the 1820's that Hawaii signed its so-called "Articles of Arrangement" with the United States. ON AN INTERNAL level, several Hawaiian chiefs outfitted vessels and traded directly with the outside world, though most transactions were conducted by the foreign community. In fact, it was in these years that the nucleus of the commercial community that was to substantially affect future development made its appearance.

The events of this initial period, two external and one internal, set the stage for the balanced and- sustained commercial activity of the years 1845 to 1867. Agricultural products primarily sugar, coffee and hides and commercial services joined forces, in a sense, and enabled Hawaii to balance her external accounts. These commercial services were of two kinds. One related to the whaling industry for 10 years in the middle of the century whalers averaged 419 arrivals a year. The second "service," of far more significance, was Hawaii's development as a re-export and international distribution center.

In fact, for a few years re-exports of foreign goods were greater than domestic exports. Also, this re-export trade was large enough to pay for a third of Hawaii's imports. This period of commercial development was a prosperous one and sponsored a thriving commercial community. A balance was struck with the outside world by means of services to the whaling trade, distribution of foreign cargoes, and increasing exportation of Hawaiian primary agricultural products. By the end of the period, the whaling fleets were disappearing from the Pacific and the economy of the Islands was shifting from trans-shipment and re-export of foreign cargo to increasing emphasis upon the products of internal agriculturefirst sugar and later pineapple.

the Governor to file an application for the establishment of the zone, an action which had to await the return of title to Sand Island's waterfront area by the Federal Government to the State Government. Legislation to accomplish this passed Congress in December, but the formal transfer of title still is pending. IT IS THE position of the State Administration that Hawaii's participation in Pacific trade will transcend the dollar volume of the State's foreign exports and imports. The role of the Islands is seen as one of assistance and facilitation in trade expansion. Hawaii is strategically located at the center of major Pacific trade routes.

It has trade contacts with many nations around the Pacific rim. Therefore, the State can play a major role in bringing together buyers and sellers from East and West, in assisting their trading and financial arrangements and in providing them with display and exhibitive facilities. It can also afford a test market for new products from Asia or destined to Asia. By establishing a foreign trade zone as part of a trade complex, the State will be declaring its intention to participate in the future expansion of Pacific trade. This, then, is the background of Hawaii's application for a trade zone license as a bid to re-establish itself as a center of transpacific trade and commerce.

To appreciate how Hawaii first met the challenge of world trade and why it later withdrew from this trade, a brief description of the Islands' historic highlights is necessary. IN THE LATE 18th century, when the Islands were discovered by Captain Cook, Hawaii had a primitive economy. A trade deficit with the outside world existed in the 1840's. Commercial activity revolved around a complex trade triangle in which New England shipmasters stopped at Hawaii for refreshment and provisions before sailing to the Pacific Northwest fur trading outposts. The furs were then shipped through Hawaii to Canton and the Far East.

After filling their holds with goods and spices of the Orient, these ships would stop at Hawaii again to outfit and prepare for the arduous voyage around Cape Horn to New England. This trade gave rise to Hawaii's first natural export, Questions and Answers of the State's Congressional delegation on sugar legislation. AN ATTEMPT TO gain the trading volume that befits its geographic position would not be an entirely novel proposition for Hawaii. A century ago, Hawaii had balanced commercial development. The Islands were a re-export and international distribution center as well as a base for the whaling trade during a period from 1845 to 1867.

In fact, Honolulu was described as the hub of the Pacific with trade radiating out like spokes to serve countries on the rim of the Pacific basin. The establishment of a foreign trade zone would be an important step towards regaining this standing. Besides its tangible benefits, the establishment of such a zone would signal a shift in Hawaii's commercial attitude and emphasis already apparent. Hawaii's citizens are acutely conscious of their cosmopolitan heritage and their role as "a bridge between East and West." Thus, it is only natural that Island businessmen are orienting their thinking to the day when trade between the Far East and Australasia and the Western Hemisphere is many times its present volume. A foreign trade zone can assist in "setting the stage" for this period.

Such a zone is an area where merchandise can be brought without being subject to U.S. customs laws; it is secured by fences and guards to prevent smuggling. The merchandise includes all categories of foreign and domestic goods, other than items prohibited by law. IN THE zone, this merchandise may be stored, handled, displayed, used for processing or manufacture, and subsequently, imported into the country or shipped abroad. Foreign merchandise transferred from a zone into the customs territory of the United States is subject to the laws and regulations affecting imported merchandise.

Foreign merchandise may be brought into a zone without customs entry and without the payment of duties or the furnishing of bond. This makes it unnecessary to tie up operating capital in these items. If a product manufactured, assembled or processed within the zone is brought out for domestic consumption, duties are paid only on its foreign component. (And the duty is based on the value of the foreign component at the time it entered the zone, not at the time it left.) If merchandise is re-exported, no "drawback" (refunding of previously paid duty) is necessary. Zones may be used for display and exhibition of foreign merchandise so that a Honolulu trade zone could lead to a merchandise mart facility both within and outside the zone.

The zone, then, could be the first step toward a foreign trade "complex" in Hawaii, embracing a zone, a mart and an International House providing accommodations, conference facilities, offices and business services all catering to Pacific trade. THE CONCEPT of a trade zone for Honolulu goes back at least to 1848, when a newspaper, The Polynesian, reported that abandonment of. import tariffs and the establishment of a free port would lead to the city becoming "a great emporium for the growing commerce of the Pacific." Later after Hawaii's role as a transpacific trading center had waned, the idea was proposed again. On December 22, 1893, the Honolulu Advertiser carried a two-column article advocating the benefits of a free port. It has been discussed periodically since then.

With annexation and Statehood, the idea had to be modified to the dimensions of a specifically designated area, as envisioned in the 1934 Foreign Trade Zone Act. Governor John A. Burns, when he was Delegate to Congress in 1958, proposed using Sand Island as a Foreign Trade Zone. A study of the idea was undertaken for the 1959 Legislature. The 1962 Legislature authorized WITHIN THE past 120 years the economy of Hawaii has experienced its share of cyclical swings and structural changes.

An historian with a taste for economics probably could make a good case for Arnold Toynbee's "withdrawal and return" tenet of historical philosophy by reciting the State's economic history. In the 1850's the Islands achieved prominence as a center of transpacific trade. Later its role shifted to that of an agrarian community. Although today Hawaii's participation in this trade is relatively minor, it has been increasing significantly in recent years. In the eight year period from 1954 to 1962, Hawaii's total foreign trade advanced in dollar volume from $27.6 million in 1954 to $96.3 million in 1962 (up from $80.5 million in 1961).

Hawaii's exports to foreign countries increased from $8.2 million in 1954 to $28.1 million In 1962, while imports rose from $19.4 million to $68.2 million. It is estimated that foreign imports for 1963 will approach $80 million; foreign imports have been rising at roughly $10 million annually. HAWAII, THEN, may be on the verge of a "return" as a strategic center of world trade in the mid-Pacific at a time when that trade is expanding. A review of Pacific trade patterns of the last decade reveals sustained and sizable growth both in volume and to a lesser extent in value of commodities traded. Tonnage crossing the Pacific more than tripled from 1950 to 1960, while value swelled from $5.5 billion to $8.8 billion.

Given the capacity and vigor of Japan's present-day economy and the impact of Europe's Common Market ion the Pacific (especially on Australia and New Zealand should Great Britain eventually join the Market), it is reasonable to believe that the future holds promise for even greater growth in Pacific trade. The economy of the 50th State is, of course, tied in closely with that of the Mainland states. Hawaii is small in area 6,400 square miles; it lacks an industrial raw materials base (although bauxite and titanium deposits exist) and it is isolated. Its citizens are dependent on outside sources of supplies. Indeed, 80 per cent of all physical goods used in Hawaii are imported primarily from the American Mainland.

In 1962 Hawaii's imports exceeded exports $548 million to $294 million, a trade deficit of $254 million. This deficit was offset by Federal spending, tourist expenditures and other services provided to outside agencies by the State; thus it is estimated that the State experienced an actual deficit in its external accounts for 1962 of around $4 million. IT WOULD BE PRUDENT, then, for Hawaii to strive for a balance of trade, both in foreign and domestic commerce; it is almost self-evident that Hawaii must find ways to increase exports and services to pay for the imports which are necessary for the maintenance of the living standards enjoyed by its people. The Hawaiian economy is heavily dependent for income to pay for its imports, upon Federal spending and tourism, both of which are susceptible to fluctuations and largely influenced by external forces beyond its control. Any substantial reduction in Federal spending as a result of shifts in national defense strategies or in tourist spending as the result of a domestic recession or even a foreign recession as the foreign market sector of the industry grows in importance-would have a most serious effect.

The agricultural pillars of the State's economy sugar and pineapple are characterized by stable production. Their prices are determined largely by external considerations, such as national quota legislation and world market prices in the case of sugar; foreign competition and prices of similar fruits in the case of pine. Again, these external considerations are subject to only partial internal influence, such as the influence THE STATE OF HAWAII is applying to the Federal Government for permission to establish a foreign trade zone in Honolulu harbor. The following is an attempt to clarify some of the terms that are most often used. What Is a Foreign Trade Zone? It is a controlled area where merchandise can be brought without being subject to the customs laws of the United States.

This includes all categories of foreign and domestic goods, other than items prohibited by law. In the zone, this merchandise may be stored, handled, displayed, used for processing or manufacture, and subsequently, imported into the United States or shipped abroad. Foreign merchandise transferred from a foreign trade zone into the customs territory of the United States is subject to and regulations affecting imported merchandise. Why Not a Free Port? In contrast, a free port of entry is exempt from collecting customs duty. The basic concept underlying the free port and the trade zone is the same: a device to by-pass cumbersome customs regulations and restrictive import duties or quotas.

The difference is one of degree. A free port encompasses an entire area, usually isolated, such as the island of Hong Kong, wherein no customs duties are collected: A foreign trade zone is a small segregated and secured area of a port where foreign goods may be brought free of duties and regulations; here the customs duties and regulations of the nation would apply only if and when the goods are transferred from the zone to the nation's customs territory. The United States Constitution prohibits any State from enjoying any commercial advantage over any other State; a free port would definitely give Hawaii a commercial advantage over other States. In recent years the term "free port laws" has been used to describe stage legislation exempting personal property and inventory taxes on merchandise warehoused within a state and destined for sale outside the state. Hawaii has no manufacturing inventory tax or any other personal property -tax other than on real property.

What Is Trans-Shipment? Trans-shipment is best thought of a concept in logistics. It means to transfer cargo for the purpose of further transportation from one ship, or other conveyance, to another. It may be practiced within a trade zone or without one. Trans-shipment means to use transportation and warehousing facilities as efficiently as possible by grouping merchandise for the best use of available shipping service. For example, when you collect cargoes destined for a certain port and ship them on a single vessel, rather than on several vessels, you are practicing "trans-shipment." You are reducing shipping distances and time in port, as well as saving on ocean freight rates.

But thus far the Cabotage Law (only U. S. ships can carry cargo between U. S. ports) and other practices in shipping have prevented the trans-shipment concept from taking hold.

What Is Drawback? It is a repayment of previously collected duty when merchandise is exported. This device is designed to give domestic producers an edge over their foreign rivals. The drawback system has proven to be an important factor in stimulating imports into the United States for manufacture and re-export. But drawback procedures are often considered too complicated and time-consuming to justify their use by those who import materials for domestic consumption. The foreign trade zone is designed to accomplish the same task without the cumbersome customs regulations.

What Are Bonded Warehouses? i Bonded warehouses relieve importers, who post bonds, from payment of duty on foreign merchandize destined for use at a later time. They also permit the importer to delay paying duty on goods destined for domestic markets until the goods have been sold. In a sense, they perform a credit function; the government extends the time for payment of duties or taxes upon the goods while retaining possession of them for security. In practice, the many regulations governing bonded warehouses have limited their usefulness. The foreign trade zone, for example, does not require the payment of a bond.

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