O.C. Interests Seek Free Trade With Mexico

WASHINGTON â€”  Safi U. Qureshey has his eye on Mexico. President of a booming Irvine computer manufacturer, Qureshey sees in the developing nation a largely untapped market for high-tech American exports that could fuel the growth of his AST Research Inc. and other electronics companies well into the 21st Century.

A few miles away, in another corner of the Irvine Spectrum industrial park, Robert L. Hughes also is looking to Mexico--not as a vast new market for high-end goods but as a source of one unusually low-cost, low-tech product. A plant in Guadalajara supplies the toy balloons that Hughes’ American Imports Inc. brings into the United States for sale to novelty companies and retail distributors.

While their firms are as different as, well, north and south, Qureshey and Hughes share a major concern--both have had serious problems with tariffs and trade barriers that complicate and restrict across-the-border commerce.

As a result, they are rooting hard for a controversial proposal by the Bush Administration that would extend to Mexico, the nation’s third-largest trading partner, the same type of free-trade arrangement shared by the United States and Canada.

Opposed by organized labor and some agricultural interests, the Bush proposal faces an uphill fight in Congress. Labor leaders contend that the plan could send American jobs--especially those in garment and textile manufacturing--to Mexico, where workers are paid a fraction of what they make in the United States.

And some farmers worry that they will be forced to compete with Mexican agricultural products that are less expensive to produce, in part because they are grown under looser standards on the use of pesticides and other chemicals. The pesticide problem also worries environmentalists, who fear that contaminated food from Mexico could show up in American supermarkets.

Despite those concerns, Orange County economists, business executives and congressmen say the county’s economy, which is based largely on a highly skilled service sector and high-tech manufacturing, could reap sweeping benefits from a free-trade agreement with Mexico. And those benefits, in turn, would extend far beyond the business community, they say.

“Unlike most areas of the country where there is a positive impact from export of goods and services and a negative impact from imports, in Orange County, it’s positive both ways,� said James L. Doti, business forecasting director for the Center for Economic Research at Chapman College in Orange.

That is because the county wears two hats: It serves as a manufacturing center for high-tech electronics, such as computers, defense components and medical equipment, that could find a new market in Mexico. It also is a distribution center for imported goods, such as balloons, produced by Mexican industry. More imports would mean more jobs in the financial, legal, marketing and advertising services that support the distribution of imported products.

Mexico began easing some tariffs and trade barriers as early as 1987, and Mexican President Carlos Salinas de Gortari has said he wants to do even more. Yet tariffs on some goods remain as high as 20%, and Mexico retains a 15% value-added tax on goods shipped out of the country. In addition, some licenses are required for cross-border trade.

A free trade agreement such as the pact proposed by the Bush Administration would eliminate tariffs and other barriers in both directions.

In the long run, some suggest that a free trade agreement with Mexico would have another desirable effect--slowing illegal immigration by increasing jobs and wages in Mexico and reducing the economic pressures that drive Mexican workers to cross the border.

“Anything we do to help the labor situation in Mexico takes pressure off San Diego and Orange counties,� said Rep. Robert K. Dornan (R-Garden Grove), who backs the trade accord along with the rest of Orange County’s all-Republican congressional delegation.

“Nothing will stem illegal immigration like improving the economy in Mexico,� said Rep. Dana Rohrabacher (R-Long Beach), who represents northwestern Orange County.

But some remain unpersuaded.

“The Administration seems to be saying this is a good thing because of the free trade agreement we have with Canada,� said Mary L. Yunt, executive secretary-treasurer of the Orange County Central Labor Council, AFL-CIO.

“But there is a big difference,� she said. “The wages and working conditions in Canada are very similar to what we have in the United States. And that’s not true in Mexico.� In fact, Yunt said, some Mexicans who work in some of the maquiladora assembly plants just south of the border reportedly receive as little as $1 a day.

The maquiladora program, established in the mid-1960s to promote industrialization, permits foreign manufacturers to set up wholly owned Mexican subsidiaries in areas near the border to assemble goods for export.

The experience with the maquiladora program shows that a free trade agreement is unlikely, at least in the short run, to substantially reduce illegal immigration, said Antonia Hernandez, president and general counsel of the Mexican American Legal Defense and Education Fund.

In fact, she said, it may have the opposite effect. “Economic development in a developing country in the short term will exacerbate migration. What you’re going to have is a greater mobility of goods and people,� she said.

While MALDEF sees discussion of a free-trade accord as a positive development, Hernandez cautioned that it must address social as well as economic issues--including working conditions and wages in Mexico.

Many members of Congress share the concerns expressed by Yunt and Hernandez. The Bush Administration earlier this month asked Congress to grant a two-year extension of special authority that allows the White House to negotiate trade deals without the possibility of later congressional amendments. Without the so-called “fast track� authority, most observers believe that concluding a trade pact with Mexico will be impossible.

Conservative Republican Rep. Duncan Hunter of San Diego, for one, opposes a free-trade accord, even though the concept usually is dear to the hearts of conservatives.

“The proposed U.S.-Mexico free-trade agreement is a bad idea,� Hunter said. “It will result in the loss of thousands of American jobs and will weaken our production-based economy.� But economists say that the kind of jobs that Hunter is talking about, for the most part, left Orange County long ago.

In the 1960s and early 1970s, the county was home to a significant number of companies that depended on semiskilled workers in labor-intensive light manufacturing, including some electronics.

But over time, as the cost of living in Orange County skyrocketed, many of these companies moved their manufacturing operations, first out of the county, then out of the state and finally out of the country. Much of the work has gone to the Far East, where labor costs are very low.

“We are displacing our manufacturing activity with marketing, research and development, engineering, financial and business services,� Doti said. “The type of worker has changed. We’ve replaced less skilled workers with more highly skilled workers,� he said.

Jone Pearce, an associate professor at the Graduate School of Management at UC Irvine, in recent years has conducted an annual survey of the county’s largest 200 companies.

“About 1986, we found that with our manufacturing companies, all the flight had taken place. There was no more flight (of semiskilled jobs) out of Orange County because it had already flown,� she said.

Which is not to say that some Orange County workers would not lose their jobs if the United States and Mexico conclude a free-trade accord. But the number is likely to be small, experts say.

Of the roughly 1.2-million workers in Orange County in 1990, only 323,000 actually produced goods. The rest were involved in service industries, said Robert G. Valletta, an assistant professor at UCI who conducts the university’s annual regional employment forecast.

Fully a third of the county’s manufacturing jobs were in a narrowly defined category of high-tech industry, while many more jobs supported high-tech endeavors, Valletta said. Only 7,000 jobs remained in agriculture.

“In Orange County, you’ve got an economy that is driven to a large extent by white-collar business service industries,� Valletta said. “I don’t think we have the industries that are likely to be hurt.�

On the other hand, Orange County is home to many businesses that could reap significant benefits from a free-trade pact.

One is AST Research, which Qureshey, born in Pakistan, founded with two partners in 1980, five years after he earned his bachelor’s degree at the University of Texas at Austin. One of the nation’s leading computer manufacturers, the company employs 2,300 people worldwide and reported record sales of $534 million for the year ending June 30, 1990.

With the licensing and tariff reductions put in place just in the last year, Qureshey said, “we have done more business in Mexico in the last seven or eight months than we did in the (previous) seven or eight years.� A complete free-trade accord would drive sales even higher, he said.

In addition to opening new markets, Qureshey said, a free-trade agreement could transform Mexico into a production center for the lower-end needs of computer manufacturers, including metal cases and power supplies, much of which now comes from the Far East.

“If Mexico and Latin American open up as a growing market, and those countries are developing the infrastructure to supply the high-growth industries, it will be much more logical for an American company to buy source material from Mexico in the same time zone with much less transit time,� Qureshey said. “It takes a minimum of three to four weeks to get something shipped from Hong Kong to Irvine,� he added. “From any part of Mexico, we could probably have something trucked here in three to four days.�