TO: COMMUNITY & ECONOMIC FROM: Nanci Klein
DEVELOPMENT COMMITTEE
SUBJECT: FOREIGN TRADE ZONE AND DATE: June 13, 2023
SISTER CITIES PROGRAM
Approved Date
RECOMMENDATION
Accept staff’s report on the City’s Foreign Trade Zone and Sister Cities program.
BACKGROUND
International trade and investment are critical to San José’s economy. The City’s profile has grown internationally as a result of engagement with cities and regions across the globe, international air service which helps to facilitate commerce and tourism, and being a welcoming community for companies seeking to invest and grow their business. International affairs have been part of the Office of Economic Development and Cultural Affairs work plan for several years, and includes the Foreign Trade Zone and Sister Cities programs. San José was among the earliest cities to establish a Foreign Trade Zone and engage with the Sister Cities program. The Foreign Trade Zone is an important federal economic development program that the City administers for San José and the region. The national Sister Cities program is a network of U.S. cities that work to build community engagement with partner cities across the globe.
ANALYSIS
Foreign Trade Zone Program
The federal Foreign Trade Zone program is one of the nation’s earliest economic development initiatives. Next year will mark 90 years since the U.S. Congress passed the Foreign Trade Zones Act to foster the nation’s trade and commerce. In 1974, City Council approved the City Administration’s efforts to seek Foreign Trade Zone status for San José, and next year in 2024 the City will mark 50 years as the grantee of Foreign Trade Zone 18. San José Foreign Trade Zone 18 was approved in 1974 by the U.S. Department of Commerce Foreign Trade Zones Board and has helped to facilitate commerce, trade, manufacturing, and employment in San José and the region. The San José Foreign Trade Zone was initially located at a site in north San José and the City established a street Trade Zone Boulevard to highlight the City’s Foreign Trade CED AGENDA: 6/26/23
FILE: CC 23-149
ITEM: (d)2
6/16/23
COMMUNITY & ECONOMIC DEVELOPMENT COMMITTEE
June 13, 2023
Subject: Foreign Trade Zone and Sister Cities Program
Zone. The street name remains but today all of San Josè and the region are Foreign Trade Zone eligible. Today there are nearly 200 active Foreign Trade Zones nationwide and 17 in California.
A Foreign Trade Zone is a site in the United States that is outside of a U.S. Customs area (Customs). Thus, a Foreign Trade Zone is in international commerce for Customs purposes.
This allows foreign merchandise to be admitted into a Foreign Trade Zone duty-free. Duties are paid only when foreign merchandise enters U.S. territory. Many foreign components have a higher U.S. duty rate than the finished product of the component. The Foreign Trade Zone allows the user to pay an inverted tariff, paying the lower duty when the finished product enters the U.S. Finally, there are no duties on foreign merchandise admitted into the Foreign Trade and exported, as the foreign merchandise has not entered Customs.
Activities in a Foreign Trade Zone often include storage, assembly, manipulation, testing, repair, production/manufacturing, and destruction is permitted of damaged or defective merchandise.
The Foreign Trade Zone streamlines Customs procedures, resulting in cost savings and improved efficiencies for a business.
The City is a grantee of Foreign Trade Zone 18 and manages the Foreign Trade Zone in San José and the region. A grantee is typically a state, county, or city government, airport, or seaport authority committed to operating the Foreign Trade Zone as a public benefit and economic development tool for their area. The Foreign Trade Zone 18 service area is San José, Santa Clara County, Santa Cruz, Scotts Valley, Fremont, Hayward, Newark, and Union City. Applications submitted by the City for Foreign Trade Zone projects within this service area receive expedited application review by the federal Foreign Trade Zones Board.
Currently, there are 10 companies that have Foreign Trade Zone designation under the City’s grant of authority, including Maxar Space, Lam Research, Tesla, RK Logistics Group, Bloom Energy, Enovix, Roambee, Epoch International Enterprises, Innovusion, and Prism Team Services. By operating as a Foreign Trade Zone, these companies are able to realize cost efficiencies by delaying, reducing, or eliminating federal duties and improving logistical operations. Importantly, the Foreign Trade Zone enhances U.S. employment, manufacturing, and trade.
As a grantee, the City is the applicant to the Foreign Trade Zones Board on behalf of the company for a new Foreign Trade Zone project or when a company seeks to alter their Foreign Trade Zone. Most of the Foreign Trade Zone 18 companies have production/manufacturing authority for their Foreign Trade Zone. Other Foreign Trade Zone operations are limited to warehousing and distribution. Throughout the year, staff interacts regularly with companies operating as Foreign Trade Zones under the City’s grant of authority, adding new Foreign Trade Zone sites to a company’s portfolio, activating sites, and in some cases removing sites that are part of a company’s Foreign Trade Zone.
The number of Foreign Trade Zone 18 operators and the level of activity has steadily increased in recent years. For 2021, the year of the most recent Foreign Trade Zone data, San José Foreign
COMMUNITY & ECONOMIC DEVELOPMENT COMMITTEE
June 13, 2023
Subject: Foreign Trade Zone and Sister Cities Program
Trade Zone 18 activity ranged from $10 billion to $25 billion in merchandise received, $5 billion to $10 billion in exports, and employment of over 26,000 workers within the Foreign Trade Zone. While Foreign Trade Zone 18 sites encompass the wider region, a large number of San José residents are employed by companies operating under the City’s Foreign Trade Zone.
Based on data provided by individual companies, over 5,000 San José residents are employed by Foreign Trade Zone 18 companies operating under the City’s Foreign Trade Zone.
Nationally, Foreign Trade Zone activity exceeded $835 billion, with exports of $123 billion, and over 480,000 workers are employed within Foreign Trade Zone sites. Of California’s 17 Foreign Trade Zones, San José ranks first in Foreign Trade Zone exports and employment, and third after Los Angeles and Long Beach in the value of Foreign Trade Zone merchandise received.
Companies operating as a Foreign Trade Zone under the City’s Foreign Trade Zone grant of authority enhance their business operations. One company shared that the main benefit of operating as a Foreign Trade Zone is the cost savings from the reduction of import taxes or customs duties on exports, scrap, and returns. The company also cited cost savings from the benefits of the inverted tariff and fees paid to customhouse brokers. This also brings benefits through an improved cash flow as duties are paid only at the time of importing goods to U.S. commerce. Another company that provides third-party logistics, shared that the Foreign Trade Zone delivers significant value to their clients, unlocking substantial cost efficiencies, streamlined Customs processes, and a distinct competitive advantage in the dynamic global marketplace.
In managing the Foreign Trade Zone program, the Office of Economic Development and Cultural Affairs works closely with two key federal partners, the U.S. Department of Commerce Foreign Trade Zones Board and U.S. Customs and Border Protection. The Foreign Trade Zones Board reviews and approves applications for new Foreign Trade Zone projects and administers the program across the 50 states and Puerto Rico. U.S. Customs and Border Protection activate a Foreign Trade Zone site and will ensure federal compliance with Foreign Trade Zone operations.
Staff is engaged with local companies, key partner organizations, and agencies throughout the region to promote the benefits a company can achieve through the Foreign Trade Zone. The Foreign Trade Zone brings economic benefits to companies, provides flexibility in their operations, and enhances the global competitiveness of operating in the U.S. The Foreign Trade zone is but one example of the City’s long history of leading the greater region’s economy and supporting employment, manufacturing, and trade for businesses and residents.
Sister Cities Program
The City of San José is a charter member of Sister Cities International, the national non-profit organization that recognizes Sister City affiliations established by U.S. cities. The Sister Cities program was established in 1956 following a White House Conference on Citizen Diplomacy that was organized by President Dwight Eisenhower. President Eisenhower envisioned a world where Americans and people from across the globe would build friendship and understanding and work on collaborative efforts to enrich their communities. The Sister Cities mission is to
COMMUNITY & ECONOMIC DEVELOPMENT COMMITTEE
June 13, 2023
Subject: Foreign Trade Zone and Sister Cities Program
promote peace through mutual respect, understanding, and cooperation – one individual and one community at a time. According to Sister Cities International, 471 U.S. communities engage in 1,800 Sister City partnerships with cities and counties in 138 nations.
A Sister City affiliation is a broad-based formal city-to-city relationship that involves city and community engagement in economic development, education, the arts, business, sports, civic affairs, faith-based organizations, humanitarian work, government, and other programs.
San José was among the first cities in the U.S. to establish a Sister City affiliation. The 1957 Sister City linkage with Okayama, Japan was the third Sister City relationship established in the U.S. and remains very strong after eight decades. Additional Sister City affiliations were established by the City with San José, Costa Rica (1961); Veracruz, Mexico (1975); Tainan, Taiwan (1977); Dublin, Ireland (1986); Pune, India (1992); Ekaterinburg, Russia (1992); and Guadalajara, Mexico (2014).
Sister City affiliations are meant to be permanent formal city-to-city relationships that require ongoing city government participation and some financial support. The City reviews, evaluates, and approves Sister City affiliations. Following an extensive review process, City Council votes on a proposed Sister City affiliation.
Each Sister City affiliation is led in the community by a non-profit Sister City committee or association that is recognized by the City to plan and implement Sister City programs in San José. The Office of Economic Development and Cultural Affairs manages the City agreements with each Sister City program committee or association and provides up to $3,000 annually to support Sister City programs in the community. The Okayama, Tainan, Dublin, Pune, and Guadalajara Sister City programs are active, with a registered non-profit organization and sister city programs planned in the community. The Sister City committees or associations are comprised of San José residents (and residents of other communities interested in supporting the City’s Sister City program) that volunteer their time to plan diverse programs in the community to advance the City’s Sister City relationships. San José State University and community organizations are often engaged in Sister City programs.
Sister City organizations remained engaged during the pandemic, but public activities and programs were largely curtailed. The past year has brought a return of sister city programs in the community, including an official visit to San José in March 2023 by the Lord Mayor of Dublin and a six-member delegation representing the Dublin City Council. It was the first sister city delegation visit since 2019.
During the five-day visit, the delegation had extensive interaction with the Mayor, City Council, City Manager, City departments, and community. Housing, environment, economic development, and city management were key areas of interest for the Dublin sister city delegation. On March 12, 2023, downtown streets were full of runners and walkers, some in costumes, to participate in the San José Dublin Sister City Program’s annual Shamrock Run.
This was the first time for Dublin Sister City delegation members to participate in San José’s leading St. Patrick’s Day event.
COMMUNITY & ECONOMIC DEVELOPMENT COMMITTEE
June 13, 2023
Subject: Foreign Trade Zone and Sister Cities Program
In May 2023, the San José Tainan Sister City Association partnered with the Taiwanese American Center of Northern California to sponsor a community performance at the California Theater of the National Taiwan College of Performing Arts Taiwan Troupe of Acrobatics. In August 2022, the San José Tainan Sister City Association helped to organize youth baseball games in San José between San José youth teams and a team from Taiwan.
To celebrate the 65th year of the San José Okayama Sister City affiliation, in December 2022, San José Okayama Sister Cities hosted a cultural program at the Japanese Friendship Garden Tea House. San José Okayama Sister Cities in July 2022 organized a virtual exchange of San José and Okayama high school students. A virtual exchange is also planned for October, with tentative plans for an in-person 2024 exchange in Okayama or San José.
The San José Guadalajara Sister City Committee hosted visits by two delegations of Guadalajara and Jalisco businesses and entrepreneurs, which included meetings with the City and business community. The committee is also sponsoring and supporting a San José youth soccer team.
The San José Pune Sister City Organization expanded their engagement with Pune and is sponsoring students at Pune’s Mahatma Gandhi School to uplift underprivileged children by providing books, bags, shoes, and uniforms.
There are several sites in San José that celebrate the City’s Sister City heritage. The Japanese Friendship Garden in Kelley Park opened in 1966 and was modeled after Okayama’s Korakuen Garden, one of Japan’s famous gardens. In the 1990s a Sister City seating area was included in the design of the Guadalupe River Park and Gardens. The Sister City seating area includes a monument or statue donated by an individual Sister City and a flagpole where the city or national flag of each Sister City is raised. In January 2023 one of the City’s valued cultural pieces donated by a Sister City suffered extensive damage due to a theft. The Shivaji Maharaj statue donated to the City by the Pune Municipal Corporation was sawed from a concrete base and removed from the park. The Shivaji Maharaj statue has cultural and historical importance, and many people would visit the park to see the statue, including many visitors from India. The theft of the statue was widely reported by the local media. Through the efforts of Gabriel Greschler, a journalist for the San José Mercury News, the statue was found 10 days after the theft in the lobby of a San José business. Mr. Greschler notified staff that he located the statue, and the Police Department was dispatched to the business to take possession of the statue. After the statue was turned over to the Department of Parks, Recreation, and Neighborhood Services, the City’s Public Art staff contacted local conservators to seek an assessment of the damage and cost estimates if the statue could be repaired. Due to the damage to the statue from the theft as well as pre-existing damage from vandalism, it was determined that the statue could not be repaired.
One conservator provided an estimate of $33,173 to produce a new statue but it was noted by Public Art staff that the overall cost to replace the statue would be significantly higher, as Public Art and Public Works are cost recovery and the estimate does not include costs such as engineering, shipping and installation. No City department is funded to replace the statue. Staff will be engaged with the San José Pune Sister City Organization to discuss options to replace the Shivaji Maharaj statue with a new statue or another cultural piece that celebrates San José’s Sister City with Pune and possible sites for the piece.
COMMUNITY & ECONOMIC DEVELOPMENT COMMITTEE
June 13, 2023
Subject: Foreign Trade Zone and Sister Cities Program
CONCLUSION
Staff will continue efforts with businesses, partner organizations, and the community to strengthen and expand the Foreign Trade Zone program to enhance the global competitiveness of companies operating in the U.S., California, and the San José region. While many internal and external factors often enter into a company’s decision to operate their business as a Foreign Trade Zone, staff has a goal of adding two companies each year to the Foreign Trade Zone program. Staff is currently engaged with two companies interested in working with the City on Foreign Trade Zone projects and is working with another company on the activation of their Foreign Trade Zone which was approved in 2021.
Few programs have such longevity, but the Sister Cities program in San José, now in its 65th year, continues to provide opportunities for San José residents to build friendships, and understanding and engage in collaborative community programs with citizens across San José’s sister cities. Through the Sister Cities relationships established through past decades, the City has regularly engaged with cities across the globe in the arts, education, sport, economic development, the environment, tourism, transportation, and other initiatives. It has also provided opportunities for residents and staff alike to participate in the international citizen diplomacy envisioned by President Eisenhower eight decades ago.
COORDINATION
This memorandum has been coordinated with the City Attorney’s Office and the City Manager’s Budget Office.
PUBLIC OUTREACH
This memorandum will be posted on the City’s website for the June 26, 2023 Community and Economic Development Committee meeting and shared with San José Okayama Sister Cities, San José Tainan Sister City Association, San José Dublin Sister City Program, San José Pune Sister City Organization, San José Guadalajara Sister City Committee, and companies operating as a Foreign Trade Zone under the City’s Foreign Trade Zone grant of authority.
/s/
Nanci Klein
Director of Economic Development
and Cultural Affairs
For general questions, please contact Joseph Hedges, International Affairs Manager, at [email protected] or (408) 535-8186.