Pending free-trade pact could bring windfall to local attorneys.

The North American Free Trade Agreement, hailed by the Bush administration as a partial cure to the United States' continuing trade deficit woes, is so complex that it will cause a mini-boom for Los Angeles law firms with expertise in international trade law.

As proposed, NAFTA would phase out the remaining trade barriers between the United States, Canada and Mexico in no more than 15 years after the treaty is ratified. The phase-in of Mexico tariff reductions on American imports will confuse small and mid-sized Los Angeles exporters. That will likely boost business for foreign trade attorneys, said trade consultants and attorneys.

Downtown Los Angeles-based Carlsmith Ball Wichman Murry Case Mukai & Ichiki in 1989 was one of the first U.S. law firms to open a branch in Mexico, following passage of a Mexican law allowing 100-percent foreign ownership of law and professional firms in Mexico, said John Rodgers, one of two attorneys at the firm's Mexico City office.

"We do work for a bank and oil company in Mexico and a variety of other clients," Rodgers said. "As NAFTA liberalizes trade across the U.S./Mexico border, I think we'll see a lot more small and mid-size companies start trading there as well."

Companies used to dealing with Mexican trade laws, many of them large corporations, already have their own attorneys. But Los Angeles companies that want to export on a smaller scale still have a long way to go on the international law learning curve. They are the ones that will boost international trade attorneys' case loads, Rodgers said.

Canada and the United States signed a similar trade agreement in 1989 to phase out tariffs. But unlike Mexico, Canada's culture, language and business protocol are more familiar to U.S. business leaders. Canada also is perceived as a friendlier place for foreign investors than Mexico, which nationalized billions of dollars in foreign investment, much of it from the United States, in the 1960s, said international investment experts. The Mexican government seized many foreign-owned factories without paying for them. Until the late 1980s, U.S. investors didn't want to invest heavily in Mexico for fear their investments could be seized by the Mexican government.

NAFTA proponents say the agreement would give U.S. companies faith that they still will have free trade with Mexico after President Carlos Salinas de Gortare leaves office in 1994. Under Mexican law the president serves a six-year term and cannot run for re-election.

President Salinas started deregulating foreign investment in Mexico in 1989, encouraging international investment in Mexico's ports, airports, communications and water-and-sewer facilities. In turn, the liberalized atmosphere paved the way for Southern California law and accounting firms with international tax and business law expertise to expand their practices.

Demand for local law firms with international trade expertise will be great enough that even those that choose not to open offices in Mexico could profit from the NAFTA agreement.

"Even in its simplified preliminary form, (the NAFTA document) is eight inches thick," said Grey Bryan, a partner with the Los Angeles office of O'Melveny & Myers, who represents clients in matters of international law.

The changing regulations raise more questions than they answer for small and mid-sized companies that have never done business in Mexico.

"The North American Free Trade Agreement in the short run will complicate trade with Mexico. The tariffs are gradually phased out over 15 years. What few people know is that the current draft has a clause that lets countries reinstate pre-NAFTA tariffs if they find other countries are dumping products in any of the three markets," Bryan said.

For instance, Nissan and Volkswagen each have manufacturing subsidiaries in Mexico, as does Chrysler Corp. The Mexican subsidiaries of Germany-based Volkswagen and Japan-based Nissan can qualify for import duty exemption on the units they sell in the United States and Canada as long as they can prove that 62.5 percent of the manufacturing (the value of the product created) took place in one of the three countries.

"If officials find a foreign manufacturer dumping components (supplying them below cost) to its Mexican subsidiary, NAFTA has a 'snap back' provision that lets member countries re-instate pre-treaty tariffs," Bryan said.

Meanwhile, the NAFTA agreement alone won't wipe out the U.S. foreign trade deficit, which totaled $7.8 billion for July, the highest in nearly two years. But it could create a new conduit that might let California, Arizona, New Mexico and Texas companies boost sales.

Getting paid for products sold to Mexico, long a concern of companies that want part of the Mexican market, is also simplified under NAFTA, said Anthony J. Wall. He is a partner at law firm Gibson, Dunn & Crutcher's Los Angeles office.

"NAFTA lets Canadian and American banks open fully owned subsidiaries in Mexico. That lets the banks increase their market share and expands the market for their services," Wall said. The subsidiaries of U.S. banks in Mexico will make it easier for U.S. businesses to sell goods in Mexico. For example, Bank of America, First Interstate Bank and a limited number of other California banks have offices in Mexico. They can serve their business customers in Mexico and Los Angeles.

Workloads will increase for Los Angeles lawyers and consultants with expertise in international tax law, banking and securities as a result of NAFTA, Wall added.

NAFTA will initially cost Los Angeles some manufacturing jobs. But it will create financial services and trade-related jobs in the long run, Wall said.

"There are always going to be people, groups, who will fight NAFTA. They'll say, 'Here is a factory that was closed because of NAFTA.' But if you don't take advantage of the new opportunities, you're going to fall behind in the global competition for consumer dollars," Wall said.

Already, Los Angeles companies export more electronic, computer and telecommunications equipment than ever before. The value of products produced in California that were sold to Mexico jumped from $1.3 billion in 1989 to $2.1 billion in 1991, according to data supplied by the Massachusetts Institute for Social and Economic Research.

Two-way trade between California and Mexico grew 12 percent from 1989 to 1990 and 18 percent from 1990 to 1991, according to the institute.

The NAFTA agreement would change policy with a written document aimed at breaking down trade and investment barriers that have faced non-Mexican businesses since the 1960s.

John O'Dell, a professor in the International Relations Department at University of Southern California, said NAFTA influence on California won't show up for another five to 10 years.