The Armenian connection

In the summer of 2003, budget-cutting California lawmakers closed state trade promotion offices in London, Hong Kong, Mexico City and other world business centers, a dozen in all.

But they voted to keep one open -- in Yerevan.

That’s in Armenia.

Responding to an enthusiastic pitch from California’s large and influential Armenian American community, the Legislature passed a law creating the California-Armenia Trade Office. They charged the new state agency with boosting California’s exports to a poor, landlocked nation of 3 million people in a tumultuous region where Europe and Asia uneasily meet.

Legislators, however, insisted on one novel caveat: This effort to represent California in a nation with an economy the size of San Bernardino County’s should run on private donations and get no taxpayer funds.

Supporters say it’s an innovative way to help exporters reach potentially lucrative emerging markets, not only Armenia but other former Soviet states, including Georgia, Azerbaijan and Kazakhstan.

“This trade office created a new model for California,” said Sen. Jack Scott (D-Altadena), author of the Armenia trade bill. Scott’s district includes Glendale, home to a thriving Armenian American community.

That group “loves the idea that their state of California is working with Armenia as a gateway to that big region,” said Johnny Nalbandian, who runs the trade agency’s office in Glendale.

But critics consider it ludicrous to put the state’s sole overseas trade office in such a small and isolated country. If California were a nation, it would have the world’s eighth-largest economy, they note. Armenia ranks 128th.

“If you’re going to have a trade office for the state and if you only had to have one, it would seem that, logically, that office would be in a more central location and a larger market,” said John Leibman, a Los Angeles lawyer and former member of the California State World Trade Commission.

Armenia is California’s 89th-largest export market, ranking behind Bulgaria and ahead of the Bahamas. California’s exports to Armenia, mainly transportation equipment, machinery, computers and electronics, totaled $25 million last year, about 2% of the state’s global exports. Armenian exports to California, mostly processed foods, rugs and diamonds, were valued at about $15 million, the California-Armenia Trade Office said.

Although commerce between California and Armenia hit a record in 2006, boosted by $11 million in sales of motor vehicles, the trade office claims credit for creating only $40,000 in trade. The contract with the state required a minimum of $150,000 for 2006, a June 30 report from the Schwarzenegger administration to the Legislature said. The report cited only one significant achievement, a deal between a North Hollywood spirits importer and Safeway to market a high-end Armenian vodka.

“It appears the trade office did not successfully complete any of the priorities set forth in the contract,” read a letter signed by Dale E. Bonner, secretary of the California Business, Transportation and Housing Agency, which oversees the trade office.

What’s more, critics warn that bureaucrats in Sacramento don’t have the money to effectively supervise the operations of a faraway entity. Bonner noted in his letter that the Scott legislation did not provide “budget authority for direct supervision or ongoing oversight.”

As a result, the state could be legally liable for any misconduct by unsupervised representatives working in a part of the world not known for especially honest or stable governments.

“This is an invitation to a scandal,” said Jock O’Connell, a veteran trade consultant in Sacramento. “They’ve created a system that allows a private company to obtain for a ridiculously small amount of money the right to represent California commercial interests in a distant country, while effectively prohibiting any state agency from looking into the activities of the people who are representing us overseas.”

O’Connell and other opponents say it’s a mistake to reauthorize the Armenian office’s mandate before the Schwarzenegger administration meets a February deadline from the Legislature to come up with a comprehensive international trade and investment strategy.

But a new bill by Scott extending the Armenian office’s mandate from Jan. 1, 2008, to 2010 is moving quickly toward passage.

The bill, SB 515, is now in the Assembly Appropriations Committee and could win final approval in late August. Based on his past statements, Gov. Arnold Schwarzenegger could be expected to sign it. “The state’s trade office in Armenia holds the promise of new trade opportunities in an emerging market and does so without taxpayer funds,” he said when he signed a 2005 bill that extended the life of the trade office through the end of this year.

Lawmakers extol the fact that the office, the only trade outpost from any U.S. state in Armenia, is self-supporting. California’s 12 former trade offices had an annual budget of $6 million in state funds.

In 2005, the Armenian American community, through the nonprofit Foundation for Economic Development, contributed $74,500 to fund the office’s first year. To the state’s surprise, that turned out to be enough to run the operation for a second year, thanks to a number of “freebies,” including office space in Yerevan and Glendale, Nalbandian said.

One of those freebies is Nalbandian’s salary, which he declines to disclose. Though he works full-time for the trade office, he is paid by the foundation. The group’s only function is to contract with the state to open and operate the Armenian office.

Nalbandian’s salary is not part of the budget the foundation submitted to the state as part of its contract bid proposal, the only one received by the state. Darrel Ng, a spokesman for the Business, Transportation and Housing Agency, said his agency did not know what Nalbandian was paid. Ng also said he was unaware of any other California agency that operates using only private funds.

Jerry Levine, a San Francisco trade consultant who has worked for dozens of U.S. state and foreign governments, scoffed at the assertion that Armenia could serve as a gateway for California exports to Eastern Europe and western Asia.

“Trade directors of other states burst into laughter at the news that California not only closed its real offices but has its only one in Armenia,” he said. “Even worse, the bill would extend the mandate of this office to all the former USSR states. And what is their relationship to Armenia? Cordial?”

Armenia’s eastern and western neighbors, Azerbaijan and Turkey, have closed their borders to trade with Armenia because of political and ethnic conflicts in the region.

Transportation routes to two more friendly frontier states -- Georgia to the north and Iran to the south -- “are inadequate or unreliable,” a U.S. State Department background paper said.

Nalbandian said criticism of Scott’s bill was unfounded. Commerce between California and Armenia is poised to take off, he asserted, now that the trade office has had more than a year to get organized.

“We’re talking to some mighty big companies to try to help them make things happen,” Nalbandian said. “If this model works, it will benefit the state tremendously.”

marc.lifsher@latimes.com