Trade Impacts Michigan

March 30, 2008
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GRAND RAPIDS — It has been said that planes, trains and automobiles have made the world smaller. For Michigan, many believe a smaller world equals bigger opportunities through global trade.

According to the International Trade Commission, Michigan exported $40.4 billion in merchandise in 2006, ranking sixth among all 50 states in this category. Small to medium-sized companies are responsible for 97 percent of U.S. exports. The U.S. Chamber of Commerce reported that in 2004, 88 percent of Michigan companies exporting goods were small to medium-sized. The survey also stated that 201,000 jobs in Michigan are due to foreign employers.

Import and export taxes play a big role in the success of global trade. A recent conference put together by the Grand Rapids Area Chamber of Commerce brought in speakers to discuss global trade and the Latin American Trade Coalition — most specifically, the U.S.-Colombia Trade Promotion Agreement and what it means for Michigan.

The Latin American Trade Coalition is a group of U.S. companies and organizations working to open trade with Panama and Colombia under Congressional support. The Latin American Trade Coalition is the umbrella that the U.S.-Colombia and the U.S.-Panama Trade Promotion Agreements are under; each is different.

“The trade agreements are so specific by what each country is trying to protect in their country … each trade agreement has its unique little nuances to it,” said Sonja Johnson, interim executive director of the Van Andel Global Trade Center of Grand Valley State University.

She said the agreements as a whole are “a good strategic way to enter a market that a Michigan-based company hasn’t been into before, because our costs have been too high for the customer in that country.”

Many of the fears businesses may have, she believes, come from lack of information and not understanding how to approach the subject, but she noted there are services available to assist with the process in order to help Michigan businesses grow their operations in foreign markets.

The Van Andel Global Trade Center is such a service. The center provides a variety of services, mostly to small and medium-sized business. The two biggest services are consulting and training. Johnson said the center’s goal is “to keep (companies) costs down as low as possible and our students learning.”

Johnson used the example of how companies can keep costs down by taking advantage of the Kent Ottawa Muskegon Foreign Trade Zone. A U.S. Foreign Trade Zone is a designated area near a port of entry that is considered a territory outside of the U.S. and free of taxes and tariffs until the goods or materials leave the FTZ.

“If a company is to utilize that — maybe they’re bringing in some raw materials — here they can bring them in larger quantities and hold them in the free trade zone, and when they bring them into the commerce of the United States, maybe they’ll be doing it in small increments of what they’re using per day or week. They can pay that import tax at the time they bring it in to the United States,” said Johnson. “Or they bring a bunch of components in and make a unique product; they’re paying the duties on the finished good, the manufactured product, rather than the individual components.”

In certain cases companies have the option to postpone taxes until their products are ready to be sold.

The U.S.-Colombia Trade Promotion Agreement would eliminate or lower tariffs on U.S. manufactured goods and agricultural products going into Colombia. Many Colombian products entering the U.S. are currently duty-free. Tariffs put on U.S. products entering Colombia average 14 percent for manufactured goods. Such high tariffs make it difficult for U.S. companies to compete in foreign markets, according to the U.S. Chamber of Commerce.

The International Trade Administration reported that in 2006, Michigan exported $91 million in goods to Colombia. Transportation equipment made up 49.1 percent and chemical manufacturers were responsible for 31 percent. The report also showed Michigan exporting $12.8 million to Panama the same year.

A weakened dollar presents more opportunities for U.S. products to be available in more markets.

“The countries that might not have been able to afford our products are now being able to. They’re able to see the difference in quality, and that’s one thing that the United States has always been known for.”

Johnson believes trade agreements presented by the Latin American Trade Coalition need to be examined on a case-to-case basis, but the agreements in general could help keep Michigan companies competitive in the global market and maintain jobs.

“If Michigan can continue to be creative in their work force and how they approach the market, they can continue to keep jobs,” said Johnson.

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