Report Title:

Hawaii as Free Trade Zone; DBEDT Study



Requires DBEDT to study economic feasibility of making entire state of Hawaii a free trade zone.


S.B. NO.









relating to hawaii as a free trade zone TO ENHANCE ECONOMIC DEVELOPMENT.



SECTION 1. The legislature finds that, in his address at the annual meeting of the Council of State Governments, the governor expressed his vision of Hawaii playing a greater role in the global economy where the State would not only serve as the gateway to the Asia-Pacific region, but would also be a living laboratory for trade liberalization. In particular, the governor suggested that Hawaii consider designation as a statewide, free trade port. This innovative idea has major economic implications for the State.

Few would disagree that duty-free status would be positive for Hawaii's economy. We would enhance our reputation as a major shopping destination, featuring lower prices for visitors and residents. This would make Hawaii like Hong Kong and Singapore, both of which thrived as free trade ports in the early years of their economic development. By not assessing import duties, the State would also lower the cost of business by reducing the cost of dutiable raw materials, components, and other intermediate goods. Hawaii would become more attractive to shippers, perhaps increasing the number of ships that stop here.

The United States participates in the Asia-Pacific Economic Cooperation (APEC) forum, which adopted the vision of free trade and investment in the region by the year 2010 for developed countries and 2020 for developing countries. Enabling Hawaii and other designated locations in the United States to operate as a free trade port is one way that the United States can begin its efforts to meet its APEC agreement. Hawaii is a natural choice because we are closest to Asia. Moreover, our location in the middle of the Pacific means we are geographically isolated, which makes monitoring of goods coming in from and going to foreign countries less complex. In creating a free trade port in Hawaii, the United States would be sending a clear signal of our nation's commitment to APEC's free trade agreement.

Hawaii already has elements of this idea in place with the establishment of foreign-trade zones in the State. In these zones, no duties are paid for foreign goods imported into the zone under certain circumstances. However, the benefits are limited by federal regulation and Hawaii is not a manufacturing center. Moreover, the zones are restricted to relatively small designated areas that are not conducive to retail sales. The foreign trade zone concept can be expanded to include the entire State, and to include imports of almost all goods, resulting in the concept of Hawaii as a free trade zone. As a free trade zone, for example, all foreign goods must be directly unloaded in Hawaii as its first port of call in the United States and they must be sold at the retail level or used in producing other goods. Goods not meeting these criteria would be assessed import duties as in the current system. For example, products that are simply repackaged for sale on the mainland would not qualify. Hawaii, as a special free trade area, would need to be granted special tariff treatment by the federal government.

The purpose of this Act is to explore the economic feasibility of making Hawaii a statewide free trade zone.

SECTION 2. (a) The department of business, economic development, and tourism shall conduct a study of the economic feasibility of making the entire State of Hawaii a free trade zone. The department shall specifically examine the economic advantages and disadvantages of such a concept and the technical and legal barriers to implementing the concept. The department shall recommend possible solutions to overcome any barriers. The department shall also consider the possible impact on other states and on Hawaii's foreign trading partners, especially those in the Asia-Pacific region.

(b) The director of business, economic development, and tourism shall report to the governor and the legislature no later than December 1, 2002 regarding findings and recommendations, including any necessary proposed legislation to implement the concept of Hawaii as a free trade zone.

SECTION 3. This Act shall take effect upon its approval.