Exporters Hope Chilean Trade Deal Leads to Wider Latin America Pact
By CHRIS CZIBORR
Orange County companies hoping for freer trade with Latin America are looking to get a slice of it later this year with an expected accord with Chile.
Earlier this month, President Bush signed a free trade pact with Chile that awaits ratification by Congress and Chilean lawmakers in the fall. Upon approval the deal is set to cut tariffs on 85% of goods traded between the countries.
Chile is a small market for OC companies, which export about $40 million to the country each year. Irvine-based Allergan Inc., Santa Ana’s Ingram Micro Inc. and Aliso Viejo-based Fluor Corp. also have operations there.
“The Chile free trade agreement is important news, and trade with Chile will benefit from the agreement,” said Anil Puri, dean of the College of Business and Economics at California State University, Fullerton. “But Chile’s trade volume is not as large as what we have with a number of countries with which we do not have trade agreements.”
The big prize is Brazil and the rest of Latin America.
OC companies send about $140 million worth of products to Brazil each year, making it the county’s second biggest Latin American market after Mexico.
“If the Free Trade Area of the Americans goes through, that will open the door for Cambro products in a huge way, especially since Brazil has such high tariffs,” said Ken French, Rio de Janeiro-based sales manager for Huntington Beach’s Cambro Manufacturing Co., a maker of trays and other food service products.
The Free Trade Area of the Americas plan, which would free trade among all the hemisphere’s nations except Cuba, got a boost earlier this month after Brazil and the U.S. reaffirmed intentions to push for a pact by 2005.
The plan, which dates back to the first Bush administration, has had its ups and downs and still faces major sticking points, including opening up agricultural markets.
“Some of the Latin American population fears a loss of sovereignty,” French said. “That’s going to be a fairly typical pattern given the wide division between haves and have-nots in Latin America.”
For now some OC companies are trying to make inroads into the Mercosur trade area, which includes Brazil, Argentina, Uruguay and Paraguay. Mercosur leaders say they want to negotiate free trade with the U.S. as a bloc.
In April Irvine computer security products maker Rainbow Technologies Inc. bought Brazilian software maker Proteq Ltda.
“That was a strategic regional move,having a presence in Brazil gives us an immediate foothold into other Mercosur countries,” said Russ Hubbard (photo), Rainbow’s general manager for Latin America.
Free trade with Chile should boost Rainbow’s business there, Hubbard said. Chile recently passed laws requiring banks and other financial companies to use data security products. Rainbow makes software and devices that safeguard data.
“The new laws put Chile into our upper echelon of priorities, although Brazil still will remain our most important South American market,” Hubbard said.
Rainbow’s tariffs in Chile should go from 20% to 8% once the trade pact is ratified, Hubbard said.
“Chile still will have high tariffs on software, but they do want to open up and make sure they have all the hardware tools necessary to protect that software and help the country thrive as a first world economy,” he said.
Avi Crane, a vice president at Irvine avocado packer and distributor Calavo Growers Inc., said free trade with Chile should yield benefits for his company, which relies on Chilean avocados.
“The exporter out of Chile always paid the tariffs, so tariffs didn’t hit our bottom line,” Crane said. “But the cost of doing business is going to go down because of tariff reduction. So our Chilean exporter should be able to send us more avocados.”
The upshot from the Chile deal could be renewed momentum for a hemisphere-wide deal, Cambro’s French said.
“The smaller Andean countries like Peru, Ecuador and Columbia will be encouraged,” he said. “But it’s a tough call on Brazil and Argentina because the commercial interests are so big. Brazil doesn’t like the U.S. agricultural subsidies for its farmers, especially for products like orange juice and sugar. And Brazil doesn’t like the U.S. subsidies for its steel industry.”
Baja Layoffs Continue, Unions Gain
The number of workers in Baja California’s border plants dropped by 5% in the past year, according to recent numbers from Ruiz Morales and Associates of Tijuana.
But the pace of layoffs has slowed. From 2001 to 2002, there was a 13% drop in workers at the plants, which produce everything from clothes to electronics from the U.S. market.
Several Orange County companies run Baja plants, including San Juan Capistrano plumbing products maker Fluidmaster Inc., Huntington Beach guitar and musical gear maker BBE Sound Inc., Anaheim apparel maker AST Sportswear Inc. and San Clemente-based medical device maker ICU Medical Inc.
The hourly wage for a Baja plant worker was about $2.25 per hour in May, according to Juan Morales of Ruiz Morales. Wages are expected to rise 4% percent this year, he said.
A growing number of Baja’s plants are unionized in some form. Almost half, 48%, have a union pact, up from 40% in 2001.
Further job cuts are likely to spur more unionizing, Morales said.
Mexico’s border plants are in transition. They’ve lost their low-cost edge to China and other Asian nations and now are touting speed and proximity to the U.S.
Mexican plant workers earn about $440 per month, versus $75 for a factory worker in China.
Mexico had 3,500 border plants at the end of 2000 and about 3,200 as of November. About 100,000 jobs were cut in the downsizing. Tijuana has 20% of Mexico’s border plants at 650 and 13% of the industry’s workers at 144,000.
,Mandy Jackson,
San Diego Business Journal
