NEWS ANALYSIS : Southland Businesses See Benefits From Free Trade : Commerce: Ending high Mexican tariffs would spur exports. Service, retail firms would be first gainers.

There is no doubt in Arturo Espinoza’s mind that a free-trade agreement between the United States and Mexico would be great for his business.

The manager of the Team Wholesale Electric Co. store in Chula Vista believes the pact would dramatically boost his sales of electrical supplies to contractors south of the border by eliminating tariffs of up to 40% that his Mexican customers now pay.

Business executives like Espinoza have joined the growing ranks of Southern Californians who now see a trade agreement between the two nations yielding a “net gain” for the region.

Although Mexico’s economy is only one-thirtieth the size of the United States’, a trade agreement would have a heightened impact on Southern California. Commerce between California and Mexico has grown dramatically in the last five years, with an estimated $4.3 billion in goods and services shipped to Mexico in 1990. More than three quarters of that trade either originates in or is shipped through Southern California.

Southland service industries--such as telecommunications, banking, insurance, travel and trucking--would be the big immediate winners. Retail chains would be among the first to expand across the border to serve customers who regularly cross into the United States to shop.

Robert Price, chairman of the San Diego company that owns the popular Price Club discount warehouse chain, said he is studying the Mexican market and the opportunities that a trade agreement would create. The Price Club’s San Diego stores do a brisk business with Mexican citizens.

On Thursday, the House gave the Bush Administration approval for “fast-track” negotiations on a free-trade agreement, and the Senate is expected to follow suit. The fast track means Congress will vote for or against any pact without amending it.

The pact, if enacted, would eliminate tariffs and open markets on both sides of the border to companies that sell a vast range of products and services. Talks on a trade bill could take at least another year, with final enactment by both countries occuring in late 1992 at the earliest.

In Southern California, there would be losers in the short run, particularly in heavy manufacturing and agriculture. Many unions remain opposed to the free-trade idea, which they see resulting in lost jobs for U.S. workers.

And, although some environmentalists now support the concept of a trade agreement, others still worry that it would encourage some U.S. industrial polluters to flee south, where there is less environmental regulation.

Economists agree that the benefits to Southland manufacturers would be slower in coming. That’s because Mexico and the United States would phase out tariffs on manufactured goods over a period of up to 10 years. The abolition of restrictions on services, on the other hand, would probably take place almost immediately after an agreement was reached.

After Thursday’s congressional action, opponents conceded that some type of trade pact appears inevitable.

“From our perspective it looks pretty bleak,” said Joseph S. Francis, executive secretary-treasurer of San Diego-Imperial Counties Labor Council, which represents 108,000 union workers. “We think it’s going to be an economic and social disaster for American workers and communities and will provide no help to the Mexican worker.”

In testimony before Congress earlier this year, Thomas Donahue, secretary-treasurer of the 14-million-member AFL-CIO, said a free-trade agreement “between two such disparate economies is unsound in theory and disastrous in practice. . . . It would pave the way for hundreds of thousands of our jobs to be exported to Mexico.”

Among agricultural interests, California growers of winter vegetables say they would be especially damaged by a trade agreement because of competition from lower-cost Mexican growers. Avocado farmers, whose annual crop represents more than $100 million to San Diego County’s economy, also are threatened, although California Avocado Commission spokesman Howard Seelye said Mexican avocados would be kept out of the United States until a pesticide for the prevalent avocado seed beetle is found.

Even proponents of an agreement concede that some short-term job losses would result as more and more Southland companies open plants, called maquiladoras, along the Mexican side of the border. The plants enable U.S. firms to use cheap labor to produce goods that then are exported back across the border.

Among Southern California industries that could lose the most jobs is furniture manufacturing, which has already seen the exodus of dozens of plants from Los Angeles to Mexico. The flight in large part has been to escape rigid U.S. environmental laws.

Jack Kyser, chief economist for the nonprofit Economic Development Corp. of Los Angeles County, said the county could lose 25,000 of its estimated 860,000 manufacturing jobs over the first three or four years of free trade. But, he said, a trade agreement would bring benefits over the longer haul.

“In the long term, it would help create more jobs (in Los Angeles) and have a positive affect on the county’s economy” as a result of economic development in Mexico and the resultant increase in Mexicans’ buying power. “Los Angeles firms of all kinds could take advantage of that,” Kyser said.

Commerce between the Southland and Baja California has been steadily increasing, even without a trade bill. The growth is spurred by obvious cultural ties and geographic proximity as well as the boom in the maquiladoras.

Many observers expect the maquiladoras to become prototypes for a wave of U.S. manufacturers that would go to Mexico if a trade agreement takes effect. Tijuana and other Baja California cities, with their easy freeway access and proximity, have become preferred sites for Southland manufacturers.

There are now 700 plants employing 70,000 workers in Baja California, said Anthony Ramirez, vice president of Made in Mexico, a Chula Vista consulting firm. He estimates that “a minimum of 70%” of the plants are operated by Southern California companies.

The rise of the maquiladoras, in turn, has brought economic benefits north of the border, Pegg said. Nearly 300 of the plants have set up offices or plants in San Diego, and up to $95 million of maquiladora wages gets pumped back into the local economy, he said.

The growing numbers of Southern Californians who support a trade pact contend that any short-term loss of U.S. jobs would eventually be compensated for by increased “global competitiveness” of Southland firms.

Take Dan Finegood, president of the Carson-based Good Companies, which manufactures furniture in Mexico for the U.S. market. By eliminating tariffs, the trade agreement would enable him to make a foray into the Mexican market, as well, with competitively priced furniture products.

“An agreement would be wonderful . . . . It would allow us to produce and sell in Mexico without any problems,” Finegood said.

Another business owner who supports the trade pact is Frederick Fourcher. He said an agreement would boost sales for his company, Miralite Communications in Newport Beach. Miralite makes satellite communications systems, and Fourcher hopes to capture customers who are dissatisfied with Mexican telephone service.

“Offer developing countries a better and inexpensive way to do business, and they’ll always find the budget to buy your products,” Fourcher said.

Alfredo M. Amezcua, a Santa Ana attorney who is president of the Hispanic Chamber of Commerce of Orange County, said a trade agreement would benefit the legal profession as well. “For the first time in Orange County’s business history, Hispanic lawyers will have a real opportunity to utilize their language, culture and customs to their advantage,” he said.

On Monday, at a U.S. Commerce Department seminar in San Diego, the success of a San Marcos company with a plant in Ensenada was touted as a possible model for other U.S. companies to follow under a new trade agreement.

When the company, Eagle Creek Travel Gear, opened its Ensenada plant in 1984 as a defensive move against lower-cost imports from the Far East, sales of its luggage and backpack products were sluggish. But, in the seven years since then, sales have grown sevenfold to $10 million. The cheaper labor costs in Mexico mean Eagle Creek can “put more labor” into its products and sell high quality at a “globally competitive” price, President Steve Barker said.

And, despite moving its manufacturing to Ensenada, Eagle Creek now employs twice the number of employees--60--in San Marcos that it did before the move to Mexico, because of increased sales, Barker said.

Staff writers George White and Bob Baker in Los Angeles and Cristina Lee in Orange County contributed to this story.

Exports to Mexico

A free trade agreement with Mexico is likely to accelerate California’s fast-growing export trade with that nation, which has doubled in less than four years.

Total U.S.

1990: $28 billion*

1989: $24.97 billion

1988: $20.64 billion

1987: $14.58 billion

Total California

1990: $4.3 billion*

1989: $3.67 billion

1988: $2.88 billion

1987: $1.96 billion

*Estimate

Source: Commerce Dept.