Snags at a recent trade summit in South America don’t bode well for Orange County businesses looking to boost their business in Latin America.
Late last month, President Bush traveled to Argentina to try to jump-start talks to get a free trade zone extended across the Western hemisphere to Brazil and Argentina, among others.
Such a pact would create one giant American free trade zone that would compete against the European Union and other trade areas.
A deal also would give the U.S. even more momentum on the trade front. During the summer, Congress narrowly OK’d the Central American Free Trade Agreement, which cuts barriers between the U.S. and the Central American countries of Costa Rica, Honduras, Nicaragua, Guatemala and El Salvador, along with the Dominican Republic.
But the administration’s recent efforts went nowhere at the Summit of the Americas. Protests turned violent and Latin American countries defied U.S. pleas for new talks on what’s called the Free Trade Area of the Americas, or FTAA.
That means OC companies will continue to have to work around trade barriers to sell their products and services in South America and other markets.
This isn’t a huge economic blow for local companies. Many of Latin America’s economies still are struggling.
But in the long term they could develop into strong trading partners. Companies such as Irvine drug maker Allergan Inc., medical device maker Edwards Lifesciences Inc., also of Irvine, and Lake Forest disk drive maker Western Digital Corp. all count sales to the Americas region.
Huntington Beach’s Cambro Manufacturing Co., a maker of trays and other food service products, has operations in Brazil among other countries in the area.
“Although it looks very appealing I wouldn’t look for anything to happen very quickly,” said Jack Kyser, chief economist for the Los Angles County Economic Development Corp.
Planning for an Americas trade deal got under way in 1994 when 34 countries in the region agreed to put together a trade area, with the intention of eliminating barriers to trade and investment over several years.
But a long-standing sticking point is agriculture subsidies. The U.S. gives huge subsidies to farmers, which gives them advantages over growers in Latin America, according to critics of the Americas trade plan.
The U.S. has offered to roll the farming subsidies back, but only if the European Union goes along as part of a proposed deal under the World Trade Organization. Countries are set to discuss the farm proposals at the World Trade Organization summit called the Doha Round in Hong Kong next month.
Now it looks like the European Union, led by France, is backing off from offers to cut farm subsidies, said Claude Barfield, a trade specialist with the American Enterprise Institute in Washington, D.C. This delay would put an Americas trade deal on hold.
“If you’re not going to have any big changes in agriculture … I think it will be (held) up for several years,” he said.
He wondered why Bush tried to start talks without the Doha Round completed.
“The administration kind of let itself walk into an impossible situation,” Barfield said.
Another hurdle facing an Americas trade deal is the recent rise of anti-Americanism in parts of South America.
Venezuelan President Hugo Chavez has grown popular by resisting the Americas trade plan, and launching verbal salvos that claim the U.S. is using the free-trade agreement to spread imperialism.
Chavez stole the spotlight at the summit in Argentina with long speeches that declared the Americas trade deal dead.
“Things are getting pretty heated, particularly around Columbia, Ecuador and Venezuela,” said John Graham, professor at the Paul Merage School of Business at the University of California, Irvine.
Still, the lack of an Americas trade isn’t a huge hit to OC businesses for now.
Countries that would make up the trade pact don’t rank among the top 10 buyers of OC goods and services. But they do offer more of a longer-term play because of their growth potential.
The biggest economy in the region is Brazil, one of the most promising countries for growth in international trade. Its economy is growing at better than 3.5% and has a population base of more than 150 million.
Brazil jumped three spots to No. 18 among buyers of OC goods and services last year, according to Vincent Dropsy, associate professor at the Department of Economics at California State University, Fullerton. OC exports to Brazil rose nearly 50% to $119 million in 2004, versus a year earlier.
Still, it’s not a huge player among OC export countries.
“Brazil is by far the most important partner in South America, but represents only 1.3% of OC exports, so the failure of FTAA will not have a significant effect on OC trade,” Dropsy said in an e-mail.
Other Americas trade countries are small, though they have seen some growth.
Argentina rose three spots to No. 42 on Cal State Fullerton’s ranking last year, with exports rising 44% to $13.4 million.
Venezuela nearly doubled its OC purchases to $12.8 million, putting it at No. 46 on the list. Uruguay saw its OC imports grow 12.5% to $1.8 million, putting it at No. 88.
OC’s medical device and technology products makers are likely to benefit from a free trade deal throughout Latin America. Other companies that have operations in countries affected by an Americas trade deal could gain from a cut in tariffs and other government-related barriers.
Under an Americas trade agreement, more companies could shift manufacturing operations to countries in the region, just as they’ve done in Mexico under the North American Free Trade Agreement.
Mexico is OC’s biggest trading partner with more than $2 billion in purchases from OC companies. The No. 2 country is Japan, which buys more than $1 billion of products.
The Americas trade plan may be in limbo for now, but OC multinationals are keeping an eye on the situation, observers said.
“They’re interested in getting a bigger flow of trade,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange. “Free trade always is beneficial to all the parties involved.”
