Nervously awaiting details of free-trade agreement.

U.S.-Mexico-Canada pact will buoy some, crush others

As negotiations on the U.S.-Mexico-Canada free-trade agreement reach a mid-way point, the Los Angeles business community is feeling eagerness and pangs of anxiety about what's in store for it.

President Bush requested a draft copy of the proposed free-trade accord by the end of January. At press time last week no details had been made public.

Many economists believe the pact would fuel more Southland jobs in international trade, which already sustains an estimated 290,000 local workers. Imports and exports travelling between L.A. and its southern neighbor, today running at a combined value of about $580 million a year, are also expected to leap.

A trade pact, nevertheless, will threaten certain local companies and jobs. Because Bush is expected to share details only with certain private-sector advisers and members of Congress, many local business people feel uncomfortably in the dark.

"As a CEO, you feel a little nervous about this, because it's out of your control," said Chief executive Officer Gerard McLarnon of Applied Solar Energy Corp., a City of Industry-based manufacturer of solar cells. McLarnon said every Southland chief executive he knows feels too unfamiliar with the proposal to either cheer on new opportunities or curse the potential heightened competition.

Bush and the presidents of Mexico and Canada have promised a so-called North American Free Trade Agreement, which would dovetail Mexico with the U.S.-Canada free-trade accord of 1989 to liberalize trade rules and phase out most import tariffs in North America. The aim is to spawn unprecedented access and investment among each nation's markets. After a final pact is hammered out, its contents would be made public when it faces debate and a vote in the U.S. Congress.

Not waiting for that day, some Los Angeles business owners are laying plans take advantage of the proposed North American common market of 360 million consumers. Others have already begun cashing in on the Mexican government's ongoing economic liberalization -- a crash program that is not waiting for a trade pact to move ahead.

Some local business chieftains do keep apprised of the negotiations. A few, including Bank of America's senior executive in Los Angeles, Vice Chairman James Miscoll, flew with Gov. Pete Wilson to Mexico Jan. 21 to chat with Mexican President Salinas about the talks' status.

But most local business owners and employees must wait patiently to hear exactly how the governments plan to unify the three economies, which comprised a $6 trillion output last year.

Of paramount concern is which Los Angeles businesses will be clobbered, or at least forced to change their ways, by Mexico-based firms that might thrive under lax labor and health standards there and, most of all, cheap wages.

"You're going to see our industry go down there and exploit those workers," predicted Steven Eames, contracts representative to Los Angeles and elsewhere for the International Brotherhood of Boilermakers. "This affects union and non-union alike," he said. "I worry about the forge industry and some shipyards in L.A. because I think they'll go down there in a heartbeat."

UCLA industrial relations professor Darryl Holter said labor-intensive manufacturing will gain more reason to flee Los Angeles for Mexico. He said prime candidates are furniture, electronics and automobile parts firms.

Many industries already manufacture south of the border. But high tariffs on imports and other barriers leave little option but to set up maquiladora assembly plants, which are governed by rather restrictive Mexican laws.

In Compton, 350 union workers at a Kmart warehouse might lose their jobs if the big discounter sets up warehouses in Mexico, said Marta Samano, political and education director for the L.A.-based International Ladies Garment Workers Union.

"When are they going to raise wages in Mexico?" a retired Los Angeles union member screamed at Mexican government official invited to a trade conference in L.A. last month. The union man waved over the audience's head a photocopy of a pay stub from a General Motors worker in Reynoso, Mexico, that indicated the Mexican autoworker was earning 70 cents an hour.

Business people feel anxiety for several reasons. The GMs and the IBMs have long been in Mexico, but they now see younger and smaller companies buying land and signing agreements. And they hear rumors like the one about a Mexican outfit considering flying a jumbo jet full of janitors up to L.A. on weekends to clean office buildings cheaply.

More importantly there is evidence that "free trade" with Mexico is well under way.

Savvy Los Angeles businesses are already cashing in on four years of economic liberalization by the Mexican government:

* Airline entrepreneur William J. Wolf, whose AirL.A. flies commuter planes daily to Tijuana from L.A. International Airport, plans to extend service to Ensenada in April and to Mexicali in May. Last month he inaugurated small-cargo service to Mexico. Access to Tijuana airport came after the Mexican government decided to liberalize air transit in 1988. The Los Angeles-based airline received the only LAX-Tijuana franchise, said Wolf, company co-founder and vice president of marketing.

* Maria de la Luz, owner of Electronics & Satellite Corp. of Whittier, sold $449,000 worth of communications equipment in December to the Mexican Department of Education. The Mexican government has become more receptive to American businesses under President Salinas. Without that push, de la Luz said she probably would have lost the contract to a Japanese competitor and might have faced bankruptcy in 1991.

* Freight carrier Mike Keller said his Mexico traffic is growing at roughly 15 percent a month. The president of Compton-based Conex Freight Systems Inc. in August leased 2.5 acres in Chula Vista (California's first border town north of Tijuana). Now he has committed to purchase 5.2 acres nearby for cross-border hauling. The bulk of his goods originate in Asia and are shipped to the L.A. or Long Beach ports, where he then trucks them southward, largely to maquiladora assembly plants.

"We are anticipating a great deal of construction materials moving into the Baja region, and anything and everything moving down to the interior of Mexico," said Keller.

Baja is undergoing great resort building and speculation, while the interior lures back investment money that fled Mexico in the early 1980s. Helping attract this cash are a host of moves by the Mexican government since the mid-1980s. They include taming Mexico's horrendous inflation, cutting the average tariff rate from 40 percent to 10 percent, ending many import licenses and allowing 100 percent foreign ownership of more Mexican companies.

The trends have grabbed Los Angeles business leaders by the lapels, starting at the executive suite.

Accompanying Gov. Wilson on his trade mission last month were two dozen business leaders, including Robert J. Harter, vice president and general counsel for Rykoff-Sexton Inc., the giant L.A.-based restaurant-supplies distributor. Also traveling were top executives and board members from the biggest telephone and rail utilities, like Pacific Bell and Southern Pacific Transportation Co.

The utility that supplies natural gas to most Southland businesses, Southern California Gas Co., is eyeing Mexico. "What we're hoping for is to further integrate the Canadian, U.S. and Mexican markets to take some of this surplus supply that exists in the Southwest and Canada and move it into Mexico," said Mark Pocino, SoCalGas vice president of gas supply.

Even Mexico's oil industry, off limits to foreign ownership, according to its constitution, has loosened. Mexico now lets foreigners produce all but 19 of the major petrochemicals in Mexico, down from 50 five years ago, according to an oil analyst.

What's on the table in U.S.-Mexico talks

Mexico, with a population of 83 million consumers and workers, is Los Angeles County's greatest potential trade partner in the 21st Century.

L.A. is home to the largest Hispanic consumer market outside Mexico.

One in 40 L.A. workers already makes his living directly from foreign trade, and the ratio is growing.

Last year an estimated $500 million in goods passed between Mexico and the L.A. Customs District, plus many millions more in products partially assembled in maquiladora plants, which U.S. Customs authorities tally separately.

The U.S. and Mexican governments have promised vast benefits to American companies from "free trade," generally playing up investment and sales opportunities and downplaying labor and "unfair competition" issues.

Here's a rough sketch of what the United States says is on the table:

* Market access: Tariffs on some 27,000 different goods could be lowered. The fees paid to bring goods across the border currently average 10 percent on exports to Mexico and 4 percent on imports sent here. Related topics are government-purchasing rules and special or phased reductions for more politically-sensitive industries like agriculture, automobiles, textiles and apparel.

* Trade rules: Safeguards are considered to avoid rapid assault on domestic industry by cheaper foreign imports. Coordinated law enforcement could ward against "dumping" goods at unfairly low prices and other outlawed trade practices. Common standards could be set to nullify subtle barriers embedded in local law or custom.

* Services: Negotiators are wrestling over which rules to impose on service companies. Finance, insurance, transportation, telecommunications, law and accounting are concerned.

* Investments, intellectual property and dispute settlements: Special rules are contemplated to protect and encourage investment, guard against copyright and patent infringement, and to resolve quarrels.