San Diego Business Journal Small Business: Free Trade Area Will Encourage Smaller Companies

What NAFTA did for local small business trade with Mexico, the FTAA could do for all of the New World.

Richard Feinberg, director of the Asia Pacific Economic Cooperation Study Center at UCSD, described the effects that the proposed Free Trade Area of the Americas agreement could have on small businesses in San Diego.

The region could see gains similar to what it has experienced under the North American Free Trade Agreement in the 1990s, he said.

FTAA was hammered out by President George W. Bush and others during the Quebec City Summit last month. The summit laid the groundwork for a regional trade pact that would be in place by 2005, Feinberg said.

Since NAFTA passed, local firms have taken greater advantage of global markets, more than doubling their business in Mexico, he said.

In 1999, San Diego exported $3.8 billion worth of goods to Mexico , a figure Feinberg conceded was exaggerated since it also includes goods made elsewhere and shipped through the region.

However, most small- and medium-sized businesses in the region are not taking advantage of opportunities to sell overseas beyond the three major markets , Mexico, Canada and Japan, he said.

"Only about 10 percent of the county's output is sold to foreign customers," Feinberg said. "The county's total merchandise sales to Central and South America and the Caribbean amounted to only $398 million in 1999. Sales to Brazil , nearly a trillion-dollar economy , totaled only $132 million. These numbers suggest that San Diego is not yet a true gateway to Latin America and Asia."

The new agreement could change all that, he said.

Could Spur Local Trade

"FTAA could spur much greater San Diegan commerce with Latin America. The trade pact could lower all sorts of barriers to trade and investment, including tariff and non-tariff walls. It could make harmonious and transparent national systems governing regulation and investment," Feinberg said. "It could create a less risky and more predictable business climate throughout the region."

Even the debate around the treaty would help as it builds greater awareness of the many opportunities in Latin American markets, he said.

Wendy Gillespie, executive vice president of San Diego-based Frontier Trading Inc., is one of many small business leaders looking forward to the passage of the FTAA. The company, with five employees in San Diego and an additional 12 employees in Tijuana, sells grocery products overseas.

Frontier Trading finds it difficult to get into many markets throughout South America, Gillespie said.

"(There are) import duties of 20 to 25 percent, with additional taxes of 20-25 percent in most of Latin America," she said. "(These) present major barriers to entry make many U.S. products for consumers uncompetitive."

FTAA would change that, allowing Frontier Trading and other small companies to enter markets where businesses from other countries already have a foothold, Gillespie said.

U.S. Products
'Conspicuously Absent'

"The European Union already has trade agreements with South America, as is obvious by the numerous European products on the shelves, while U.S. products are conspicuously absent," she said.

Bob Cange, principal, of Cange & Associates International, Inc., agreed. This Rancho Bernardo-based export management company and international business consultancy, with a staff of four people, promotes U.S.-manufactured luxury consumer products to 70 countries across the globe.

CAI is a staunch supporter of free trade agreements, based on its experience since NAFTA was passed about 10 years ago, Cange said.

"We had a tremendous boost to our business, as well as to the companies that we represent in Latin America, as a result of NAFTA. The sales in Mexico just skewed dramatically as a result of NAFTA lowering trade barriers, etc.," he said.

CAI, whose clients include Greenwood, Miss.-based Viking Range Corp., Greenville, Mich.-based Northland Corp. and Rancho Cucamonga-based Oso Technologies, won't release figures, but Cange said its business in Mexico quadrupled since the passage of NAFTA.

Now that the Free Trade Area of the Americas agreement has been signed, Cange expects that business with the rest of Latin America will once again expand dramatically.

Benefits Large And Small Firms

"We would anticipate to extend the experience we've had in Mexico through other countries that now have various levels of barriers, as Mexico did beforehand," he said. "So by broadening that trade agreement reach to markets throughout Latin America, the same benefit would accrue to large and small U.S. exporters."

Cange predicted FTAA will benefit U.S. exports in general, and his own company in particular.

"We, as a small company, benefit from the reduction of those trade barriers," he said. "The more we are able to sell more openly and freely into markets that have previously had those kinds of protections, the better for us and the better for the client companies that we represent."