REGIONAL REPORT : Some Southland Firms See Benefits From Free Trade : Commerce: They hope ending Mexican tariffs will spur exports. Others predict disaster, loss of U.S. jobs.

Share via

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.

Espinoza, the manager of an electric supply company in Chula Vista, said such an accord would dramatically boost sales to contractors south of the border by eliminating the tariffs that Mexican customers now pay.

But Joseph S. Francis could not disagree more. As head of the San Diego-Imperial Counties Labor Council, which represents 108,000 workers, Francis calls the proposed agreement “an economic and social disaster” that would cost thousands of U.S. jobs.


As efforts to forge a trade agreement gain momentum in Washington, lines are being drawn in Southern California over whether such a pact would be a windfall--or a bust--to the region’s economy. Either way, observers on both sides of the issue agree that a trade agreement with Mexico would have a major impact on commerce in Southern California.

California’s trade with Mexico has grown dramatically in the last five years. The U.S. Commerce Department estimates that $4.3 billion in goods and services were shipped to Mexico from California in 1990, more than double the 1987 level of $1.96 billion. Although the government does not break out separate figures on Southern California, more than three-quarters of total California trade with Mexico either originates in or is shipped through the Southland.

The proposed trade agreement got a major boost Thursday when the House granted the Bush Administration an extension of “fast-track” authority in the negotiations for a U.S.-Mexico pact. That is an arrangement in which Congress agrees to pass or reject an accord without amending it. The Senate was expected to follow suit today.

The goal the trade negotiations is to eliminate tariffs and create open markets on both sides of the border. Government officials say negotiations could take at least another year, with final enactment by Mexico and the United States occurring in late 1992 at the earliest.

Steve Jenner, associate director of San Diego State University’s Institute for Regional Studies of the Californias, said that service industries--such as telecommunications, banking, insurance, travel and trucking--would be the big immediate winners if a trade agreement goes through.

He predicted also that major retail chains, such as the Price Club discount warehouse stores, would be among the first to expand across the border to serve Mexican customers who now regularly shop in the United States.


But economists who have studied the issue concede that there would be losers in Southern California, particularly in the short run. Winter vegetable farmers say they are worried about lower-priced produce being shipped north across the border. And some manufacturers contend they would be unable to compete against plants employing lower-wage workers on the Mexican side of the border.

Stephen Wise, head of the export division of the Western Furnishings Manufacturers Assn., is worried about the impact on furniture makers in Los Angeles County, which employ about 65,000 people. The Southern California furniture industry has attracted criticism in recent years because dozens of local operations have relocated in Mexico.

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 regulation.

Even economists who support open trade acknowledge that the benefits to Southland manufacturers could be slow in coming. That’s because a trade agreement probably would call for phasing out tariffs on manufactured goods over a period of perhaps 10 years. The elimination of restrictions on services, however, would probably take place almost immediately, experts say.

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.

KPMG Peat Marwick, the accounting firm, has estimated conservatively that a trade pact would create about 80,000 jobs in the United States over the next decade. But unions dispute that figure.


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.”

Kyser, for one, takes issue with such pessimistic assessments.

“In the long term, (the trade agreement) would help create more jobs (in Los Angeles) and have a positive effect on the county’s economy,” he said. “Los Angeles firms of all kinds could take advantage of that.”

Dan Finegood agrees. He is president of Carson-based Good Companies, which manufactures furniture in Mexico for the U.S. market. He said that a trade agreement, by eliminating tariffs, would enable Good Companies to enter the Mexican market with competitively priced merchandise.

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

For Chula Vista store manager Espinoza, tariffs are not the only hurdle to overcome in doing business in Mexico. He said governmental red tape makes it much tougher for his firm, Team Wholesale Electric Co., to sell products there. Espinoza hopes that a trade agreement would remove those obstacles.

“The red tape is as bad as the tariffs,” he said. “Now, the paperwork on the Mexico side of the border takes two or three days to be approved. The longer it takes to get stuff into Mexico, the longer it takes to sell it, to place new orders and for manufacturers to ship it.”


Another free-trade supporter among Southern California business executives is Frederick Fourcher, who owns Miralite Communications in Newport Beach. Miralite makes satellite telephone systems, and Fourcher hopes a trade agreement would enable his company to attract Mexican customers who are dissatisfied with that country’s 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, sees a boon for the legal profession--especially Latino attorneys--in a U.S.-Mexico accord. “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,” Amezcua said.

Even without a trade bill, commerce between the Southland and Baja California has been steadily increasing, spurred by cultural ties and geographic proximity. Another major factor has been the boom in setting up maquiladoras, mainly U.S.- and Japanese-owned plants along the Mexican side of the border that hire low-cost labor to make goods for the U.S. market.

Many economists and business leaders expect the maquiladoras to become prototypes for a wave of U.S. manufacturing plants that will move 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. Ramirez estimated that “a minimum of 70%” of the plants are operated by Southern California companies. Most observers, both for and against a trade accord with Mexico, agree that the number of maquiladoras would increase markedly if the pact takes effect.

On Monday, at a Commerce Department seminar in San Diego, the success of a San Marcos company with a maquiladora in Ensenada was cited as an example of how Southern California investment in Mexico can yield benefits on both sides of the border.


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 a paltry $1.5 million. But, in the seven years since, annual sales have grown to more than $10 million. The cheaper labor costs in Mexico mean Eagle Creek can “put more labor” into its products and sell high-quality goods at a “globally competitive” price, said company President Steve Barker.

And, despite moving its manufacturing to Ensenada, Eagle Creek now employs twice the number of employees at its plant San Marcos that it did before it moved some operations to Mexico. The increased employment north of the border was due to increased popularity of its products because it could sell higher quality at a lower price.

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


Source: Commerce Dept.