World trade looms larger for Southland economy.

Year's developments often mix promise and concern

For foreign traders in Los Angeles, 1992 was supposed to be the last year to strike European Community deals before the unified tariff barriers rose up, the year to leap forward with China trade and a year to establish ties with former East Bloc countries.

Well, those came true for most importers and exporters. But for many, 1992's most memorable, troubling and opportunity-laden development was the completion of the North American Free Trade Agreement. Although NAFTA still lacks approvals by the legislatures of Canada, Mexico and the United States, anticipation of yes votes fueled many efforts at L.A.-Mexico deals.

Of course, NAFTA and other foreign developments were overshadowed for some companies by single events. For example, American Honda Motor Co. in Torrance lost a dispute with the U.S. Customs Service over the content of automobiles imported from Canada. Back duties owed could total millions of dollars, if Honda's anticipated appeal fails.

At the Port of Los Angeles, steamship companies ended the year most concerned over the "anti-business" climate in the city, said port Director of Marketing Al Fierstine. Under a new state budget rule, the city was allowed to dip into port reserves. Roughly one-fifth, or $44 million, is sought.

"They're concerned the port may want to raise tariffs (docking fees) to make up the difference," said Fierstine. If steamship companies divert some of their calls to lower-cost Seattle, for instance, that would mean less foreign-trade work for truckers, customs brokers and others in the Southland.

Nevertheless, the Mexico accord was the big enchilada for many Angelenos, whose proximity and cultural ties to Mexico put them on the front lines. Aiming to lower duties and liberalize trade law among the three signatory countries, NAFTA's goal is to make it far easier to sell goods and services across the borders. And the historic integration of the three nations' economies -- two high-wage-rate systems with a low-wage Third World regime -- is provoking anticipatory deals.

Traders and investors expect the Mexican economy to continue swelling, as it has since economic reforms began in the 1980s.

L.A.'s largest computer-products wholesaler, Merisel Inc., bought control of a distributorship in Mexico City last summer.

Two of L.A.'s biggest utilities pounced on the chance to supply Mexico energy. Southern California Gas Co. and Southern California Edison Co. disclosed they are negotiating with the Mexican government to foster large-scale power generation just south of the border. SoCalGas hopes to sell natural gas to Mexican power plants in Baja, while Edison plans to invest $300 million in a 1,400 megawatt plant near the Texas border. The deals were not inked by press time.

El Segundo-based Mattel Toys Inc. relied heavily on its existing Mexican assembly plants and feeds materials from 45 U.S. vendors to its toy fabricators in Mexico.

Many small companies started Mexican distributorships or invested there, too. But others feared the trade agreement's ramifications. In August, several Southland real estate brokers told the Business Journal that one-third of local manufacturers could be lured abroad, especially south of the border, by wage rates roughly one-tenth of U.S. rates.

"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 L.A. "I am against the free trade agreement. The timing is off."

If Mexico provided the most promise and fear, China was a close second.

China escaped a congressional campaign to kill its "most-favored nation" status, which would have pushed tariff rates skyward for Chinese imports. The potential impact on L.A. importers of Chinese textiles, electronics and other goods was never felt, because President Bush's pro-China policy prevailed.

The change would have been particularly important to L.A., especially if China had retaliated against American exports. During the first half of 1992, China was the fastest growing trading partner of the L.A. Customs District. Two-way trade shot up $1.3 billion to $4.3 billion, according to the TradeWatch database. Taiwan ranked second in growth, with trade up $846 million to $6 billion. (Figures for the second half of 1992 were not available at press time.)

Overall, L.A.'s foreign trade defied the economic slump here. From January through June, the value of trade through local ports and airports surged to $58.4 billion, up 9 percent from a year earlier. That compares with the 5.6 percent rate for all of 1991.

By April 1993, if their respective growth rates hold steady, the L.A. Customs District is expected to catapult above New York as the richest customs district in the nation. New York Customs District trade grew just 3 percent in 1992's first half.

The top exports were machinery, aircraft and spacecraft, and electronics. They comprised 51 percent of L.A.'s $24.7 billion exports in the first half of 1992, according to the most recent customs data, compiled by TradeWatch database.

The top imports were electronics, machinery and vehicles. They totaled 55 percent of the $33.6 billion imports in the first half.

Lower prices fueled the boom in imported machinery, said L.A.-based export manager Ed Garber.

"They bought machinery at advantageous prices, from earth-moving equipment to production equipment to printing presses and lathes," he said.

The customs numbers also revealed some disturbing downturns. For example, exports to L.A.'s most lucrative trading partner, Japan, skidded 11 percent, or $655 million. Japan's economic crunch is widely credited for cooling its appetite for foreign goods.

Interestingly, imports from Japan only grew by 2 percent. "It used to be Japan, Japan, Japan, because of good quality, timely delivery..." said Jacques Naffaa, first vice president of Capital Bank of California in downtown L.A., which lends to importers of textiles and electronics. "But their prices have skyrocketed," added Naffaa, whose clients increasingly turn to China and elsewhere.

Most Asian trade with the U.S. moves through the Port of L.A. and the Port of Long Beach.

This year the twin ports trimmed their aggressive $2 billion plans to double cargo-handling capacity between 1990 and the year 2020. Officials from both ports, however, say their 100 percent expansion goals will still be met with the reconfigured plans.

Long Beach withdrew from the original plan of building some 2,000 man-made acres of land atop rock and landfill in the harbor. Rather, Long Beach has bought dozens of existing land parcels nearby and moved to expand atop them.

So the Port of L.A. moved ahead with a scaled-down 582-acre landfill. The resulting $550 million project will become "Pier 400" and host cargo-handling terminals.

The Port of L.A. moved 1.7 million cargo containers, up 13 percent, from January through September, the most recent period available. For cargo measured in weight, the corresponding figures dropped slightly to 48 million metric revenue tons. (One metric revenue ton is 2,204 pounds or 35.3 cubic feet, whichever is greater.)

At the Port of Long Beach from January through October, containers were up about 3 percent to 1.5 million. Tonnage was down 6 percent from last year to 59.7 million metric-revenue tons.

Those figures were flatter than the typical growth year in the 1980s. Shipping sources blamed the worldwide economic slowdown, in part.

Despite weaker economies abroad, many L.A. companies increased foreign sales in 1992. Computer distributor Merisel's foreign subsidiary sales will likely account for one-third of total sales, said Chief Financial Officer James Brill. That would amount to a record of some $690 million vs. $530 million last year when using stock analysts' revenue estimates.

Burbank-based Iwerks Entertainment Inc., a marketer of specialty theaters, doubled its foreign sales in fiscal 1992, to roughly $32 million, according to a source close to the private company.

But foreign sales for both companies only accounted for a slightly greater share of total sales.

Economic conditions, not world-trade developments, were paramount for many traders.

Coupled with another misfortune, often insurance-related, it drove a few out of business.

Ali Fattahi, manager of machinery exports at North Hollywood-based Brown, Harriman International saw his budding manufacturing plant also killed by liability insurance premiums, he said. Insurance costs totaled $80 for each infra-red sauna that he produced at his Brea plant, which wholesaled for $1,600 each, he said. After two years, he pulled the plug on the plant.