State Is Pushed to Sell Itself
California produces some of the world’s finest foods, movies and software, but unlike other states, it has no outposts abroad to market its goods to eager buyers.
Unless you count Armenia, a former part of the Soviet Union, where the trade office is funded by donations from California’s Armenian American community.
The Golden State exported more than $116 billion worth of goods last year and handled 40% of the country’s container traffic. After Gov. Arnold Schwarzenegger took office in 2003, he vowed to be a “super-salesman” for the state, whose $1.6-trillion economy ranks among the world’s largest.
Now, a group of lawmakers and business leaders is prodding the governor and the state to get back to promoting the state’s industries.
Senate Majority Leader Gloria Romero (D-Los Angeles) successfully pushed legislation requiring the state Business, Transportation and Housing Agency to develop a strategy for attracting foreign investment and trade. That bill, which was passed by a wide margin, has been sent to the governor’s office.
Schwarzenegger has not taken a position on the legislation, said Darrel Ng, a spokesman for his office.
The state once staffed a dozen trade offices abroad, including in Tokyo, Shanghai and London. But during the budget crisis of 2003, the Legislature shut down the California Technology, Trade and Commerce Agency, which had a $13-million budget and 91 employees, and closed 11 of the 12 outposts.
State Sen. Jack Scott, a Democrat from the Pasadena area, which has a large Armenian American community, was able to save the Armenia office because it was privately funded.
Romero said state officials needed to determine whether they should reopen offices abroad and if so, how they should be managed and funded. The state also needs to look at the effects of tax policies and other regulations on foreign companies, she said.
“We have been flying blind in California,” she said. “We don’t have a trade policy.”
Garrett Ashley, a former Schwarzenegger aide whom the governor picked to head the state’s international trade efforts, said California has suffered because it lacked the resources to sell itself overseas.
“I think there’s no question that a state the size of California and the significance of California needs to have a presence in the international business arena and a way to promote itself,” Ashley said.
Jock O’Connell, a trade consultant in Sacramento, agrees that the state’s trade strategy needs an overhaul. But he said foreign trade offices were a waste of taxpayers’ money because they were too difficult to manage from afar and often became politicized.
“The common point of view in the private sector is these trade offices serve political, not commercial, purposes,” he said.
The state would be better off using its resources to modernize California’s highway system, railroads and ports, O’Connell said. Airports should be a high priority because more than 50% of the state’s exports, including electronic components and perishable commodities, are shipped by air.
The governor has asked voters to approve a $20-billion transportation bond measure in November that includes $3.1 billion to facilitate the movement of goods.
On trade missions to Japan, Israel and China, the governor used his celebrity to hawk California wine, produce and other products. The governor is taking another group of officials and executives to Mexico in November.
After Schwarzenegger’s Asia trip, Air China signed multimillion-dollar contracts with United Airlines to have its San Francisco maintenance facilities service the Chinese airline’s Boeing 747 and 777 engines, according to the governor’s office. Schwarzenegger also helped persuade Virgin America, the new budget U.S. airline partly owned by British entrepreneur Richard Branson, to locate its headquarters in the Bay Area hub.
Famima, one of Asia’s biggest convenience store chains, decided to expand into California after its chief executive saw a billboard in Tokyo featuring Schwarzenegger, the governor’s office said.
In two years, Famima has opened six of its high-end convenience stores in Southern California and plans to have a bunch more in place by year end.
But some foreign employers have recently left the state for better offers, citing high operating costs and taxes. Last year, Nissan Motor Co. announced it was moving its U.S. headquarters, which employed 1,300 people, from Gardena to Nashville. Carlos Ghosn, chief executive of the Japanese auto firm, said Tennessee’s “favorable business and taxation climate” played a role in the decision to move.
The Organization for International Investment, a Washington-based lobbyist for foreign firms, has asked the California Franchise Tax Board to amend its “discriminatory” policy of taxing transactions between those firms and their California-based subsidiaries, including royalty payments and interest on loans.
The board has agreed to consider that petition at its meeting Wednesday.
“I think this is a case of the state sending a mistaken signal of hostility to these companies when it’s not intending to,” said Todd Malan, executive director of the group.
State officials argue that they are only trying to collect taxes on income that is legitimately tied to business within California.
But Alex Spitzer, senior vice president of taxes for the U.S. subsidiary of Switzerland-based Nestle, said the state’s tax policies were one reason his company decided to put a $359-million factory in Indiana instead of California. The food giant employs 7,500 people in California.
The disputed tax policy, he said, “is reflective of the attitude California projects that, ‘We love the jobs but not the businesses that create them.’ ”