Debate flares over trade pact impact on factories.

The North American Free Trade Agreement, on the heels of pollution laws and the workers' compensation system, may drive one-third of Southland manufacturers away in the next five years, industrial real estate brokers and others said last week.

Others said the trade pact will eventually create more jobs here to replace those lost.

If the industrial exodus is as large as some predict, another 250,000 factory jobs could soon be rent from the Southland economy, spelling additional woe for retailers, landlords, banks, governments and virtually anyone trying to make a living in Los Angeles.

Especially at risk: Los Angeles' legion of small factories, which have thrived in latter years by employing low-cost immigrants eager for work. At latest count, there are some 18,000 factories in Los Angeles County, employing an average of less than 50 workers each. Now, these small job shops are looking for options, said brokers.

"Maybe 30 percent, perhaps closer to 40 percent of existing (industrial) tenants are relocating or going out of business," said Brad Luster, senior vice president at Major Properties, an industrial brokerage in downtown Los Angeles. "I am against the (North American) Free Trade Agreement. The timing is off."

Added Alan Green, broker with The Donaty Group in downtown, "I am seeing them going to Mexico, to Central America, to other states. The Free Trade Act was a cut from a dagger for these (industrial) guys."

Vacancy rates are up and rents down in local industrial space, brokers report.

Even without the free trade pact, about 150,000 manufacturing jobs have evaporated from Los Angeles County in the last three years, leaving about 750,000 factory hands. In total, there are about 4 million workers in the county, meaning that manufacturing makes up about one in five Southland jobs.

Moreover, economists generally estimate that each manufacturing job creates another one to two jobs in the local economy, in collateral activities such as trucking, warehousing, administration and marketing.

Defense cutbacks, the recession, an expensive workers' compensation system and business outmigration are blamed for the factory job losses of the last three years.

The North American Free Trade Agreement, if approved by the U.S. Congress, would free up trade among Canada, the United States and Mexico, and remove disincentives for domestic manufacturers to set up shop down south.

Tariff barriers, certain licensing laws and the inability of Americans to own plants in Mexico have been disincentives that will be eased under the trade pact.

Treaty proponents say that Mexicans will buy enough product from the United States to make the pact a "win-win" for both countries.

"We think there will be a dramatic increase of exports from Southern California into Mexico. Every billion dollars worth of goods exported will create another 100,000 jobs here," said Tom Huston, senior partner at Carlsmith Ball, a law firm with offices in Los Angeles and Mexico City. Huston represents a group of U.S.-based Hispanic business owners, who plan to export into Mexico as the tariffs are lowered.

But others contend that Southland factories, surviving on Hispanic muscle, are at risk from even cheaper-labor plants in Mexico.

"The prospects are scary," said Kent Wong, director of UCLA's Center for Labor Research and Education. "The free trade act will have damaging repercussions for industry in Southern California. It will clearly lower wages, and decrease the tax base. Jobs will flow from Los Angeles to the maquiladoras (manufacturing zones that line the Mexican side of the U.S.-Mexico border)."

Wong and industrial real estate brokers contend the free trade pact endangers Los Angeles manufacturers with a threat they can't outmaneuver -- 50-cent-an-hour labor and lessened environmental regulations only 150 miles away.

And Mexico has no workers' compensation system, the state's mandatory insurance system for injured workers that many small manufacturers say adds 17 percent to 50 percent or more to factory payroll costs.

"If you can pay some guy $30 a week for a 48-hour week in Mexico, why would you stay here?" asked broker Green. Making Green's question particularly pertinent: Southland manufacturing in recent decades has actually become more labor intensive, in response to the abundant local labor supply, according to Goetz Wolff, Los Angeles economist who has studied local labor markets.

Industries that have been grown here, until recently, included apparel, food processing, simple metal fabrication such as chain-link fencing, furniture making, and other forms of low-tech light manufacturing -- but now, cheaper labor is available just a four-hour drive south, and the border could be wide open.

"A low-wage, low-skill industrial strategy is doomed to failure, given global labor markets," said Wolff, describing the growth of low-tech manufacturing in Los Angeles in the last 20 years. "In effect, that is what Los Angeles has had."

Light manufacturers such as LeVone Furniture, in South Central Los Angeles, and Douglas Furniture, in the South Bay, have announced plans or are already on their way to Mexico maquiladoras.

Ironically, the big, heavily capitalized manufacturers -- automakers, steel plants, tire plants -- that might not be so threatened by cheap labor have long ago left the Los Angeles economy for reasons now debated and partially lost in the shrouds of history.

The struggling industrial sector of the market means changing industrial real estate values, said broker Luster of Major Properties. "People think their (industrial) property is worth (for sale) $100 a square foot, but it is really worth $30 to $50 a square foot," he said. "Values have been going down."

Industrial rents are in reverse too. "Tenants know that the market is eroding, and they are holding off renting, waiting for better rates," said Mike Meraz, industrial broker with Magnum Properties in downtown Los Angeles. "Landlords are being very nice, and offering free rent" for a month or two, to entice tenants.

Said broker Luster, "We've got buildings at 20 cents a square foot (monthly rent), in areas that used to be 50 cents." Luster joked that perhaps, "since we have 1960s level mortgage rates, now we are going to have 1960s rents." Luster said he even has a good building listed at 18 cents a square foot.

Luster expects that many industrial building owners will have to declare bankruptcy, unable to make mortgage payments, and that in turn will have ramifications for banks.

While the world of small manufacturers might seem far away from many Angelenos, already the shrinkage of industrial Los Angeles is sending ripples through the regional economy.

The 150,000 manufacturing jobs lost in the county in the last three years are one-half of the total 300,000 jobs lost in Los Angeles County since 1989.

With employment soft, retail sales, after adjustment for inflation, have been running about 11 percent below levels of two years ago in the county.

Classified help-wanted advertising volume in the Los Angeles Times is running at one-third of levels in the late 1980s. Recent evidence suggest that house prices, long stolid at least in nominal terms, are also beginning now to crack.

Industrial real estate brokers are cautious about the future. "I see nothing going on in the economy to stimulate action," said Meraz of Magnum Properties. "And this is an election year, when things are supposed to be boosted? We're in the toilet, and I don't see how it is going to get better."

However, some say even this pass is just another adjustment on the road to progress. "I can't tell you what the new factories in Los Angeles will be in the future, but they will come in here," said broker Luster. "New high-tech industry will emerge."