Local businesses eye possible new supply sources down Mexico way.

In the wake of the announcement of a U.S.-Mexico-Canada free trade pact, and before Congress begins debating the agreement, some Southland business leaders last week were mulling one key byproduct of the pact: new supplier relationships.

Extra demand on suppliers will be created by a torrent of new enterprises expected to be established in low-wage Mexico.

But will they use American suppliers or Mexican? Or Asian?

The issue concerns thousands of Southland companies that potentially could sell to the new outfits that will be founded in Mexico by Mexicans or foreign companies, like Hughes Aircraft Co. and Mattel Inc., which already have operations down there.

Several trade experts last week said some Mexican companies would undoubtedly look north, but not necessarily to Los Angeles, and more often to suppliers based in lower-wage U.S. cities or rural areas.

Critics of the pact in its current form even predicted that the United States and Los Angeles in particular might suffer a new loss of supplier jobs.

The pact to create a common market of 360 million consumers, which still needs congressional approval, covers industries from textiles and apparel to financial services and transportation. No draft is available until September to the general public, but certain businesses and politicians have been provided copies. Summaries made public indicate the pact, if passed without change, would lower customs duties on most goods immediately and phase out other duties over 15 years.

This would save production costs. Other benefits include the proposed ending of other import barriers, like the licenses Mexico currently requires to import U.S. agriculture products. Overall, vast new incentives are expected for cross-border trade.

But the name Green Giant popped up in conversations last week, as business people pointed to one company that set up operations in Mexico in 1983 and then switched to Mexican suppliers. Today its frozen-food plant in Central Mexico buys from 150 different Mexican growers for its supplies of vegetables, primarily cauliflower and broccoli for U.S. supermarkets.

Also Green Giant, a division of Pillsbury Co., transferred about 150 processing jobs from its Watsonville, Calif., plant southward.

A Green Giant spokesman, however, noted that 150 jobs still remain Watsonville; also, 175 jobs went to Ohio and about 950 more workers were hired Mexico, indicating a production expansion and a mixed picture for U.S. suppliers.

Many Mexican industries pay roughly one-tenth the wages offered in the United States. But not all the raw materials or highly skilled workers can be found today for some industries. Not surprisingly, many trade experts are bullish on the prospects for U.S. suppliers.

If the trade accord is approved, El Segundo-based Mattel Corp. will likely rely more on its U.S. suppliers for the two plants it already operates in Mexico, said Mattel Vice President of Government Affairs Fermin Cuza.

Mattel makes toys at maquiladora assembly plants in Monterrey and Tijuana and buys 80 percent of the resins and plastics it needs from U.S. suppliers.

But most of its future suppliers, like today's, will likely remain in low-wage areas or in zones closer to the border, he speculated.

For Mattel, the 12 percent duty on dolls and 6.8 percent duty on other toys currently imported from Mexico would disappear under the trade pact.

That makes Mexico a more attractive manufacturing location, noted Cuza, and makes the Orient less appealing.

One of Japan's largest television manufacturers is considering relocating 37 suppliers in North America to take advantage of the pact. Perhaps 27 would go to the United States and 10 to Mexico, according to the San Diego-based real estate broker representing the TV-maker.

The broker, who asked not to be named, said many large Asian companies are anticipating similar moves because their imported components would still face customs duties coming to North America.

Dr. Kent Wong sees the U.S. supplier prospects as fearsome. Wong, director of UCLA's Center for Labor Research and Education, said most U.S. labor unions expect little work supplying U.S. companies in Mexico under the trade pact.

"There's a lot of fear in unions and among other workers here," said Wong. "There's tremendous concern within the garment, electronics, food processing and light manufacturing industries."

U.S. Rep. Esteban Torres doesn't like the pact. "We're going to lose not just low-skilled jobs, but high-tech and high-paying jobs too," said the Congressman representing Pico Rivera and Whittier.

"I'm not against trade with Mexico; we've had it since before the Mexican Revolution," noted Torres, himself Hispanic. "But I represent workers in L.A County who are highly under-employed and have already seen industries in great abundance here, like the paint industry and bakeries, simply leave for Mexico."

Torres faults trade negotiators for not devising specific "content" definitions. These would spell out whether a product is truly "North American." That would distinguish it from, for instance, a Taiwanese import that was slightly altered in a U.S plant and not deserving of duty-free status.

Content rules were outlined in a general sense only for motor vehicles in the 7-page summary of the pact issued by the White House Aug. 12. Executives at Nissan Motor Ltd. and Toyota Motor Corp., which both have based their U.S. import-export arms in L.A. County, said it was too early to comment on ramifications last week. Toyota officials are currently reviewing a draft provided to them.

Torres complained that he was only allowed to review a "classified" copy of the draft held in the Ways & Means Committee. The congressman, who sits on the Small Business Committee, said he felt frustrated that he could not divulge its contents to all the small businesses he is supposed to support.