 Okay, we're back for the two o'clock block. I'm Jay Fidel. We're talking about leadership in Hawaii. We're talking more specifically about transportation and trade import-export for Hawaii with Russell Hanla. He is the U.S. senior official for APEC Hawaii. Welcome back to the show, Russell. Okay. Thank you, Jay, for welcoming today. I know that when I spoke last time it was on the Vietnam issue, Vietnam hosting an APEC conference in November. But today I would like to talk about how it affects not only the policy side, but in terms of moving goods and service, what actually happens in terms of operation. As you know, when you're doing import-export, you have to ship goods, and that includes ocean shipping and air cargo shipping. So like in Hawaii, we have like MAPSEN, we have PASA, we have foreign steam ship companies like K-Line, or Mitsui shipping company that has a lot of port of entry here with the State Department, the Harbor Division. So they have to pay their warfish fees every time they do the docking. Foreign carriers have a hard road to hoe because they can only go between the foreign port in Hawaii and back and forth. But under the Jones Act, they can't go to the mainland U.S. in that same trip. Yeah, exactly. Because you know what the Jones Act calls for. It has to be built and manufactured. The vessel itself has to be built and manufactured in the U.S. soil using American labor or American Union. On top of that, if it's American flag carrier from one port to the next port, for example, from Los Angeles port to Honolulu port, you've got to use the American carrier in this case. So I know that, you know, there's been a lot of talks about changing the Jones Act because it's been so old, you know, it's been since 1920s that's 100 years old. Exactly. So I know that like a lot of these foreign carriers as well with foreign investors or even American commerce as well, because some of these vessels are manufactured in China now. And what they're trying to do with the Jones Act, maybe 25% can be manufactured like using the Chinese labor or our steel that they have. And I know like even now the U.S. Navy is building their ships in China. And hopefully, you know, because the labor and the steel price is a lot cheaper there. But maybe they're not subject to the Jones Act the way commercial shipping is. Yeah, I think in those kind of aspects. And you know, as you know, with our new president, Donald Trump, he wants to make America great again by using American labor, bringing manufacturing back. So I don't think this Jones Act is going to work this time in terms of ships because we only we have only one or two shipyards that are capable of building a significant ocean, you know, ocean cargo ship and and for that matter, an ocean liner for cruising. And I think they're both in the south. They build an average of one or two ships a year with peanuts. And these guys, the unions there and those shipyards are effectively through the Jones Act, they're blocking American shipping interests from using ships built overseas. So the result is you pay something like five times what a ship would cost in Korea if you have it built in one of those shipyards here. And the result is it stymies American shipping. And so that's a question I put to you. You know, let's assume for a moment that it's true, we're stymying American shipping. And Madsen pays five times as much as it needs to pay for a ship. And the amortized cost of that extra hundreds of millions of dollars, we have to pay. It's passed right along to us here in Hawaii. And that's why one of the reasons why it's so expensive to buy, you know, a carton of milk. So my question is, you know, can we change that? And if we do change it, what happens if you look at I know that there's a lot of movement within from a congressional point of view, even from the state of Hawaii, I think each state nationwide has brought this issue about the Jones Act. And it's not like it happened overnight. But we've got our delegation supporting a change in the Jones Act. Russell, I know that, you know, because in Hawaii's case, I don't think it's going to affect us as much because we don't have too much shipment coming in from Asia or in terms of job shipment. And as you know, a lot of the ship that comes from Asia is like K line or could be a mid three line, or even Korea has a Hanjin Hanjin. What are they bringing? What are they bringing to us? Those foreign lines, what are they bringing here? Actually, if you look at it, a lot of these made in China stuff, or made in Asia products, or made in Japan stuff, or made in Korea stuff that we consume here in Hawaii, a lot of a country of origin, because of manufactured goods that, you know, if you look at Hawaii, 98% of all the goods that we consume here are brought in either from the mainland, or from Asia, because we don't manufacture. Yeah, we don't have anything here. Only thing that we may have is like our produce that we consume here, or because we don't have a coal or manufactured industry to produce steel for having a manufacture. So, you know, Hawaii being a isolated location in the middle of the Pacific, so we have to rely on shipping. Shipping is very important, like, you know, the State Department Transportation, I used to be with the State Department Transportation was a statewide planner. So I know what the ramification of the shipping and it's very crucial here, we have to maintain our port here, as well with our airport, with the tourists that comes here. And in terms of import, export, I would say 97% of the goods that we consume are brought in by ocean. Maybe I would say 1% or 1.5% might be from air cargo. And that a lot of the airlines that we have, and you know, even the airlines, we have a contract between signatory air and non-signatory. And when you do like the airport has their when I was there, we have to have a landing agreement with each airlines, because each airline has a agreement with each State Department Airports Division. No, I'm thinking though, you remember, you know, when we studied social studies and history back in school, that the shipping, international shipping, global shipping began like in 16th, 17th century, with these trips where the ship would carry stuff from point A to point B, and then different stuff from point B back to A, or the triangle or muta triangle, carry stuff from point A to point B from then from stuff from B to point C, and then other stuff from C to back to A. The result is, you know, that you had an efficiency going and the shipowner could make a profit that way, because he was always carrying something. You know, the, what do you call it, the deadheading when you don't have anything on board, that's, that's just expense without revenue. And so ship owners don't like to do that. So for example, if I give you a ship, one of those international carriers you mentioned, coming from Asia and bringing manufactured goods from China, Japan, what have your career, to the, to Hawaii, okay, A, they can't pick up anything in Hawaii to go to the mainland and vice versa because of the Jones Act, and B, there's nothing here, correct me if I'm wrong, there's nothing here for them to take back to Asia, nothing. I mean, we have such a sparsity of agricultural products now. Used to be we were sending agricultural products everywhere. We don't have an agricultural industry to speak of. We're not exporting anything that I can think of. You know, Moomoo's, for example, you know, we don't export, we don't make them here. We bring them in, we don't send them out. So, you know, going back to that old Bermuda Triangle kind of analogy, what happens, it's got to be more expensive, that the goods they bring in on the leg from Asia to here have got to cost more, because they're deadheading back from here to Asia, am I right? Yeah, I think in terms of a cost, and if you look at the value of the goods that's being brought in, you know, like Hawaii, where, you know, basically, like you said, if they're going back to a steamship company or air cargo people that's coming in, mostly air cargo is under done on the commercial airplanes that comes in, or they have their own little cargo. So what they do is they have the LD-3s or LD-7 pallets that has a different size, like if you go to ocean carriers, you have your 20-foot container, 40-foot container. The 40-foot containers are the large container that's used with the truck, with the piggyback style, have a flat bed with, and you see it around the freeway in delivery throughout the airports or throughout the ocean cargo areas. So they are doing their delivery orders from the U.S. Customs when they clear customs, they have to go and clear, pick up their merchandise. So what the Custom Brokers do is usually they look at classification, valuation, liquidation process. But classification, you have to classify what kind of item you're importing in. And valuation is what value based on the invoice or pro forma invoice for the shipping list. There's a value, is it F-O-B price? Is it C-I-F cost insurance break? Is it prepaid or collect costs? But none of these terms from law school. Yeah, exactly. So you've got to kind of take case by case where what country of origin the shipments are coming in. Am I right about my analysis? If you bring it in and you have nothing to bring back, then the cost of the consumer on the imported goods is going to be higher because the ship owner needs to make his expenses. He has to pay his expenses coming and going, but he really only has cargo in one direction. And so the result is we, the consumers who pay for that cargo to consume that cargo, we're paying for, you know, at the end. Yeah, I think so. Yeah, if you look at both sides of the trip. Yeah, if you look at it, depending on what commodities or goods that we're consuming, if you look at the Asian goods that we're consuming, it could be our Sony Walkmans or TVs, VCRs, or some of these products, the food stuff that we bring in from China, South Korea, or Japan that ship oil from Indonesia and the shipping company, they have their own little freight borders and they use their own little steamship companies. And the steamship company that comes from Asia are usually foreign steamship companies or steams. So in other words, the Jones Act will apply so they cannot go and do a drop shipment from Indonesia, bringing oil or from Japan, they're bringing a lot of these electronics goods. Can't stop you to do American ports. Exactly. And if you do a dropship in Honolulu, then go to Los Angeles or San Francisco or Seattle. It's not American carrier with American flags. So let's go on that for a minute. Don't you think that Hawaii would be better off if there were no Jones Act or if Hawaii was exempted from the effect of the Jones Act? This is just one question. And it's what I was saying before is that a ship made in the United States costs five times what a ship costs made in Korea or elsewhere in Korea is my favorite because it's cheapest in Korea or elsewhere in Asia. I mean, wouldn't it be better for Hawaii if Matson, for example, spent one fifth of the costs of a new ship when it buys a new ship because then it wouldn't have to amortize that cost against us and pass it on to us. So from that point of view alone, wouldn't it be a good idea to get us exempted and and why is the delegation not doing that? I guess because of the home rules concept and they want to make sure that you're protecting the American industry in terms of manufacturing. There's no industry here, though. There are no shipyards here that are building these ocean-going ships. Exactly. The US Navy has a shipyard here for that's only for military purposes. But in terms of commercial, we have to either go to San Diego or in Seattle. So we don't benefit by, you know, the union, the benefits to the unions and the benefits to shipyard owners under the Jones Act, American shipyard owners and American union. We don't benefit for that at all, but we have to pay the price of having these expensive ships because we that's why that's a lot of the if you go to the supermarket over here, you look at the retail price, I would say compared to the mainland grocery stores, you compare like the milk or orange juice or whatever or the meat that we consume here, I would say six to eight percent of the difference because we're paying like six to eight percent in transportation costs. And which, you know, if you're in the mainland, a lot of you might get a lot of these stuff cheaper. Yeah, I mean it was just another survey indicating that this was a very hard place to get a job, relatively speaking, in a very hard, it's a hard economy for people and it's a hard place to buy things because your wages aren't enough to pay for the high cost of living. And this is really a recipe for backwater. But let me go to one of the question I think we should address and that is what can Hawaii do, aside from the Jones Act now, to improve the possibilities for import-export. And you mentioned before the show we were talking before the show that we have a foreign trade zone which plays into import-export. It's a big thing. And right after this break, Russell, I'd like to talk about how that works and what, if anything, the state of Hawaii can do. You and me and our elected officials can do to facilitate better import-export by improving our transportation facilities with the State Department of Transportation, for example, at the foreign trade zone or otherwise in order to improve the prospects for trade and our economy. Let's take a short break. We'll come back and then see what Russell says. Welcome to Sister Power. I'm your host, Sharon Thomas Yarbrough, where we motivate, educate, empower and inspire. With your conception, the host of Hispanic Hawaii. You can watch my show every other Tuesday at 2 p.m. We will bring you entertainment, educational, and also we'll tell you what is happening right here within our community. Think Tech, Hawaii, Aloha. This crazy world, so caught up in nothing is making sense. Welcome back to Think Tech. More specifically, welcome back to leadership in Hawaii. Today, we're talking about talking about trade. We're talking about transportation and trade. We're talking about import-export for Hawaii. We're talking to Russell Hanma. He's a U.S. senior official for APEC Hawaii. And he thinks globally. And so, if I ask you that question, what could you offer me? We have a foreign trade zone. First, tell me how it works. In terms of foreign trade, I know that our biggest one is that foreign trade zone 9 that we've seen right next to the Homeland Security Office. But immigration is right behind on the, there's a foreign trade zone office that the State Department of Economic Department of Business and Tourism DBED operates. And it's under the state jurisdiction. But they do work with the United States U.S. Customs or with the U.S. Customs Border Protection Agency, which they changed the name in 2003. And so, under the Homeland Security, we have our immigration there, services, as well as U.S. Customs and Border Patrol Agency. And that plays a major role in terms of customs regulation. How does it work? I mean, what does it do? In foreign trade zone, like, it's like, I'll tell you a good example. Like, it's an area that you designated that if you know like a similar from a state level, like state enterprise zone, which is a similar kind of concept, but you don't pay state taxes. But in foreign trade zone, you don't take, you don't pay federal taxes. Like, in terms of U.S. Customs. Customs tax. When you're paying for the importing goods coming from foreign countries. Sanctuary. Exactly. It's a neutral zone. What long as you do conduct business in this foreign trade zone area, it's an area that's designated as a free trade area, as a free trade zone. So I can bring goods in. I can leave them there. And I can ship them out again. And there's no federal tax effect at all. Yes. Long as you have the legal documents to justify that, like it's similar to what freight borders do in terms of a warehouse entry, like you want to bring it in and you want to just store it there and re-export it out. And you don't have to pay any tariffs or anything. Maybe some fees for our service fee. But in this case, in foreign trade zone, what you can do is a good example of what we used to do at the foreign trade zone 9. I don't know if they're doing this now, but in the past in the 80s or what they used to bring apples for New Zealand. And in New Zealand, apples would be converted into apple juice. And they'll can it and actually do a manufacturing process in the country. The food processing area. And then what we do is after you have the finished product, you can re-export it out without paying any. Without ever sort of touching this economy. Yeah, even you bring in the apples coming in from New Zealand. And a lot of people do that. Like I know like Panasonic used to have a foreign trade zone in the Bayeia area. And that's where the diagnostic laboratory is with the blood bank. But that used to be a foreign trade zone for Panasonic. So what they used to do is they used to bring in parts of material from Japan and they'll assemble it there by using a local labor force in terms of manufacturing. And then after they have their finished product, they can re-export it out and without paying any. Okay, as soon as you cross the gate, so to speak, as soon as you leave the foreign trade zone and so come into Honolulu or IAEA, whatever the case may be, Bingo. Now you're subject to American customs. Harris would have you, right? Right, and you can you know and then you have a choice you can either based on whatever freight borders use like a foreign warehouse entry is a good example like foreign trade zone where you can export it import and release some of the goods that you wanted for local domestic consumptions. In other words, you want to have that finished product like apple juice and you wanted to sell it in long so safe way or time supermarket or a food land that you can whatever apple juice that comes out, you've got to pay taxes on that portion. Right, but you don't have to pay taxes on the difference between the apples and the juice. Exactly. Because juice is more valuable than apples. Exactly. So that manufacturing process is essentially not taxed. Not by tariffs anyway. Longest you're operated in that bonded kind of area. Yeah. And another good example is duty free shoppers in Waikiki at the airport. That is a foreign trade zone too. But the store is a foreign trade zone. The store itself is a duty free. So whatever whiskeys or high fashion merchandise that you see over there, you don't have to pay tariffs. Longest taxes on a sales tax because this is a foreign trade zone. So who decides this? Actually, you've got to get a license. And like foreign trade, you've got to have one US customs broker official working there to manage the foreign trade zone. Make sure there's no funny business. Exactly. Waikiki gallery at the duty free shoppers is a foreign trade zone there too. I think it depends on the which floors. So it can be a little thing. It can be a big, doesn't have to have a fence around it. It doesn't have to have barbed wire or security guards. It can be a shop. Yeah, exactly. Like duty free shoppers. Exactly. And you know, it gives an incentive for, you know, to me that kind of creates a little bit of win-win kind of situation. So what happens with duty free shoppers? I mean, everybody likes to shop there because it's cheap. I mean, I shouldn't say everybody. It's the Japanese tourists, isn't it? It's not me. If I go in there, I'm not going to get a break. But they get a break, right? Yeah, they got to show their passport and they go to the area where they have a foreign, like a duty free merchandise are laid out. And there's an area there for locals can go there too and shop and pay their generous tax. They got to pay the tax. Exactly. The Japanese tourists or whoever, whatever kind of tourist, they don't have to pay the tax. Yeah, as long as they're shown. As treated as if this transaction did not take place in the U.S. Right, right. So if you could go all over the world, duty free shoppers have some kind of outlet at the international airports throughout the country or throughout worldwide. So that gives, you know, back in the 70s and 80s, that was a good thing. Because nowadays there's so much competition that merchandising and product is all over. You know, you can get it. You can probably get it in a wholesale price anywhere, practically. OK, so here's the magic question for you. You know, Russell, you're into trade. You're, you know, the U.S. senior official for APEC, which is all about commerce and economic development. And that's what you think about. That's what you do. That's your orientation. You would like to see as much trade between this country and other countries as is possible. You would like to see the Trans-Pacific Partnership succeed. You would like to see us part of it. And I guess it's beneficial as far as your view of it is concerned for us to have foreign trade zones because that's commerce and import, export, trade, and whatnot. So my question to you is, what can the state of Hawaii do to improve its economy by way of this transportation aspect, foreign trade zones or otherwise? You know, what do we do to get in on the benefits of import, export, or to increase our import, export activities because of transportation or the way we handle import, export through any mechanism at all? And, well, what do we do and can we, in fact, do it? Yeah, I think it's already being done. You know, it's moving. I remember that you look at the numbers statistically from year 2004 to year 2014. Within that 10-year span, we must quadruple the exporting of Hawaii merchandise. And roughly right now, we have about over 840 Hawaii companies who are engaging in exporting of their services or their product. And Hawaii alone, we generate roughly about $1.5 billion in export. Where are we exporting? Most of them could be fruits, could be finished products that we bring in, woodwork, cabinet kind of things. Arts and crafts, trade, tourist items. And some of the other energy products that we come up with. So there is a market coming up in terms not only for we export tourism as well. Those numbers in there, I know like two years ago, Hawaii Tourism Authority won that export e-commerce award from the president through the White House and became one of the tourist destinations in the world. What was that for? As for exporting tourism. Oh, tourism is treated as an export. Yes. And those numbers are in there. And that's why I was saying in Hawaii, one out of five people are working in the import export trade related industry here. Well, if you look at the numbers, I would say we have like 1.4 million people in population in Hawaii. Out of that, 208,000 people are in the import export trade related industry. Well, you've said that we have increased our import export with that consideration. And other thing is, to me, if you want to expand on the business, I would like to see more trading company here, more entrepreneurs that want to go into freight borders, that want to engage in more export people. Helping these businesses how to do import export. Yeah, it's not magic. How do you do that? You get a license? Actually, all you had needed is a general exercise last to do business. And you can hire freight borders to do the trading for you. And as long as you give them the shipping request, who your consignee and the shipper is, in other words, who the buyer and the seller is, and you become like the middle man. And right now, there's so much opportunity with the internet interstate commerce and all that. You can buy a merchandise and host them on the internet and you can do the shipping right there. And you act as an agent. Ship to Asia. And ship it to Asia. Anyway, you're up all over the world. And so what you're saying, I think I hear what you're saying is you're taking goods that are manufactured on the mainland, U.S. mainland. And you're selling them to Asia. You're an exporter effectively. And you operate from Hawaii. And the goods don't actually necessarily have to actually come through Hawaii. Exactly, because they have their own little shipping department over there. Exactly. So why is it better to do that here than in California? Actually, anyway, it doesn't have to be in California. You can be anywhere and do that. Long as you can have your site and through the website. What I hear you saying is that somebody who can build a website, somebody who understands this process you've been describing can be here, live on the beach, whatnot, and engage in a profitable import-export business, mostly export, of American goods to Asia, and possibly vice versa. Tell them, tell the entrepreneurs, tell the young people what their options are. And that's what we need to impart to them. I would like to tell you when I first started doing import-export, there was no internet. There was no e-commerce or e-bay or anything where you can buy things on a wholesale and sell at retail. So we all had to represent a company and ask the company to be your company rep and get a sample of the product or service that you're selling. And we had to take that sample to overseas. Like I remember I was doing on this business with Hard Rock Cafe in Japan. And I was representing company in New York. And we're bringing in a lot of these letter jackets from Hard Rock Cafe t-shirts and put it in Japan's Hard Rock Cafe. And I was the one that was doing the transaction. And I got into surfboards and skateboards and represent this company called Action East. And it was like a generic kind of, but there's all these ways that you can approach in an entrepreneurial kind of way. But long as you have your, you've got to understand the import-export transportation operation and understand what freight borders and US customs brokers as well with a trading company operate. You yourself can operate as a trading company. Even I can do that with my iPhone or in terms that it's just a way of nowadays with the technology that's out there. Everything's capable nowadays. Yeah, and your advantage over, for example, somebody who lives in China who could read the same internet and could read the same laws about freight forwarding, your advantage is that you know the arbitrage. You know what we have here and what they don't have there and how to make a buck on satisfying that demand with what we have in the way of supply. That's the notion to me of import-export, finding out what we got here that they don't have there. And so you can do that. But I think you have to travel, don't you? You have to travel. The other thing is that if you can attend a lot of this trade show and depending on what kind of commodities or business that you want to gauge in if it's a gift item kind of trade show or it could be electronic products or something that's unique that you think there's a marketplace and you attend those trade show and you talk to those manufacturers rep and get some information and ask them if you want to be your manufacturer rep. How much is a wholesale? If you can buy it in a wholesale price or X-factory below price, then you know there's a market fee for retail. So as yourself being an intermediator like a trading company broker, you want to get you want to be good to the supplier and see if you can get the best price to the supplier. Then you have the customer, the buyer on the other side. You got to be good to them as well and see what they're looking for. So you got to kind of play both sides. And you have to think globally. Exactly. You have to think globally if you see that the possibility of the market and the supply and demand curve and opportunity. And then you can make a buck and just to close, I mean in the past we had more of this than we had now. For some reason, am I right? It's diminished and we have to rebuild that if we want to be the crossroads of the Pacific economically in terms of trade and import-export, right? Yeah, I guess in terms of rulemaking, you know, like I remember when I was being an advocate for pushing that multi-trade agreement for the Trans-Pacific Partnership so-called TPP. And I wanted to make Hawaii the headquarters because we can apply the American law here with due diligence and with the international rule of law. And based on the policy side we have it set, then we can move the private sector and people to follow and create the business opportunity. So it gives a lot of chance to a fair deal or making the playing grounds more equal in that way. Great and interesting way to earn a living too. Thank you, Russell. Russell Hanra. Yeah, thank you, Jay. You are a senior trade official for APEC Hawaii. Thank you.