NAFTA Pays Off for California as Exports Surge

After a year of bad economic news from south of the border, the free-trade agreement with Mexico and Canada is paying off for California, fueling a 17.2% jump in exports during the first quarter of 1996, the California Trade and Commerce Agency reported Wednesday.

The North American Free Trade Agreement, designed to boost trade by removing barriers among the three countries, has contributed to Mexico’s recovery by easing the import of high-technology components and raw materials needed to feed expanding production lines, said Carlos Casas, Mexico’s trade commissioner in Los Angeles.

The beginning of a turnaround in Mexico’s battered economy contributed to a 20.4% jump in California exports to that country, largely in electronics components and computers, in the first three months of the year compared with 1995 levels. In the same period last year, in the midst of the peso crisis, exports to Mexico declined 3.8% compared with the prior year.

“NAFTA is clearly benefiting California’s economy,” said Trade and Commerce Secretary Julie Meier Wright.

State officials said sales to Mexico and Canada represented $5 billion, or 20% of the state’s total first-quarter exports of $25.6 billion. Sales to Canada expanded by 36.6% in the first quarter, led by the high-technology industry.

Exports to Japan, South Korea and the seven members of the Assn. of Southeast Asian Nations rose more than 20% during the first three months of the year.

California experienced a first-quarter slowdown in sales to Europe, where governments are getting their domestic houses in order in anticipation of further unification of their monetary and economic systems.

Federico Sacasa, group executive vice president of the Bank of America’s International Trade Bank, said the long-term trade benefits from NAFTA were obscured by the peso crisis in Mexico in December 1994. Since then, he said, Mexico has made dramatic progress through a painful economic readjustment that included the repayment of debt and maintenance of a tight money supply.

The Mexican economy is predicted to grow between 1% and 3% in the second half of this year, after months of painful contractions.

“Because of the crisis in Mexico, everybody tended to look at [NAFTA] as a very short-term proposition, but this is truly a strategic endeavor that is going to take five or 10 years to complete,” Sacasa said.

NAFTA also fueled a wave of investment by Asian companies eager to use Mexico as a manufacturing platform for the United States. Seven hundred maquiladora plants, also known as twin plants, have been established in the Tijuana region, which has become the world’s largest producer of televisions.

Patrick Osio, a San Diego-based business consultant, agreed that large Mexican companies are launching long-overdue modernization programs that include the purchase of computers and telecommunications equipment. In the past three months, at least four companies have set up Internet-related services in the Baja region.

But Osio said interest rates remain high, making it difficult for companies or individuals to make large capital investments.

“The Mexican economy is beginning to adapt and come out of the shock,” he said. “However, small business in Mexico is still severely affected, as is the consumer.”

Jennifer Soto Perque, trade manager with LATrade, a regional export-promotion group, predicted California firms will return to Mexico this year in significant numbers since the economy appears to be on the mend.

She said Canada’s proximity and English-speaking population have made it an attractive market for California companies just entering the global market.

Safety Syringe, an Arcadia supplier of syringes to the dental industry, made its first shipment to Canada last winter after landing some orders through a trade show.

“It’s a friendly market,” said Tim Reasner, a company executive.

Since the implementation of NAFTA, several Silicon Valley firms have expanded their operations in Canada, according to the Canadian Consulate in Los Angeles.

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Export Bonanza

The value of California’s exports surged by 17.2% in the first quarter of this year, continuing a trend that has seen state exports more than double in eight years.

Top Markets

First-quarter 1996, in billions of dollars:

Japan: $4.7

Canada: $3.0

South Korea: $2.3

Mexico: $2.1

Singapore: $1.6

Taiwan: $1.3

Britain: $1.2

Germany: $1.0

Malaysia: $0.9

Hong Kong: $0.8

*

California Exports

In billions of dollars: $96.6

Source: California Trade and Commerce Agency