Conference promotes trade opportunities south of the border.

Conference promotes trade opportunities south of the border

Los Angeles businessmen - perhaps weary of being told to pounce on new markets in liberalized China, liberated Eastern Europe and "less-closed" Japan - are now being advised their 1990s deals could lie only 150 miles from home: in Mexico.

At a trade conference in downtown Los Angeles Oct. 26, U.S. Commerce Secretary Robert Mosbacher and Mexican Secretary of Commerce Jaime Serra predicted L.A.'s nearest foreign market would be cut loose from most trade barriers under the proposed free trade agreement between the two countries. They also pointed to Mexico's recent efforts to stem bureaucratic corruption and the wicked inflation of the 1980s.

The Department of Commerce-sponsored event wasn't simply hype and wishful thinking. Seminars ran all day outlining the loosening rules for trade and investment instituted by Mexico since 1986. These moves are getting an unprecedented push from Mexican President Carlos Salinas.

"It's Salinas-troika," quipped Richard G. Pascal, a Beverly Hills-based export manager. Like many of the several hundred U.S. and Mexican conferees, Pascal said he was enthusiastic about the campaign, announced in June by Salinas and President George Bush, to begin negotiating a free-trade accord.

"It'll be very significant," estimated Steven B. Zisser, an L.A. customs-law attorney. "But the question is, how quickly will they phase it in?"

U.S. Commerce officials at the conference said first Congress must give its blessing to the idea. Then negotiation and ratification could follow, with barriers beginning to drop in 1993.

Canada has asked to be included in any U.S.-Mexico free-trade zone.

"People are saying you'll have a `common market of North America' like Europe's Common Market," said Zisser.

Mexico already is the third-largest trading partner of the United States. It ranks behind Japan and Canada, with 1989 imports and exports together valued at $52 billion.

"Just in the last two years, U.S. exports to Mexico rose 70 percent," said Mosbacher. Foreign investment rose 400 percent in the first half of 1990 compared with the prior year.

Asked by the Business Journal to name the most viable investment opportunities for Los Angeles-area companies, Mosbacher listed five: building, manufacturing, engineering, real estate and fast food. "And you'll have more instantaneous benefits right along the border," he speculated.

Several industries, however, are taboo. Oil and mineral extraction, some agriculture production and immigration policy are excluded by the Mexican government or constitution.

"Almost everything else is on the table," said Martin Torres, press attache for the Mexican Consulate in Los Angeles. "We're looking to lower the tariff and non-tariff barriers and have a framework to handle disputes."

While Mexico's 100 percent import tariffs for many imports in the past have dropped to an average 15 percent to 20 percent in the 1980s, they can still daunt American entrepreneurs. A phase-out could tip the balance. "That's a 15 percent competitive advantage (to be gained) compared with Taiwan or any one else trading with Mexico," said Pascal. He said the strongest exports would likely include bio-medical supplies, medical testing equipment, telecommunications and electronics.

Pascal, marketing director of Intercontinental Business Center, said imports to America could likewise swell. "There'll be a flow in both directions."

Some conferees said they were skeptical of broad impacts.

"The only thing they really have to offer is cheap labor," said a U.S. official with a major Los Angeles bank. Hourly wages in manufacturing south of the border average $1 to $1.50, compared with more than $13 in Japan and the United States.

Currently, cheap labor is used by Mexico-based foreign subsidiaries taking advantage of the so-called maquila law, which allows them to set up plants in Mexico for the assembly phase of manufacturing. The advent of full-scale production in Mexico, however, is very attractive to foreigners, especially Asians who want to sell the output to the United States. Total manufacturing was the No. 1 opportunity identified by many conferees. Some doubted there was even a runner-up.

"It's manufacturers. I can't think of anyone else who would benefit, other than, obviously, anything connected with them, like law, finance and accounting firms," said lawyer Zisser. "Service people will stay here," he predicted.

Security Pacific Bank Trust Services Director James R. Quandt, who did not attend the conference, said he hasn't seen much enthusiasm over better trade ties. "It's still very much of a foreign country."

Special trust agreements, a key vehicle for foreign ownership of Mexican land, are not yet a hot item at the Los Angeles bank, he said.

"Candidly, Mexico may be wrought with opportunity," Quandt said, "but (Americans) are looking with a very cautious eye."