STATE TO CONSIDER RESURRECTING TRADE OFFICES
By Judy Lin — Bee Capitol Bureau

Sacramento Bee,CA
June 15 2006

Sen. Jack Scott, D-Altadena, salvaged a California Armenia Trade
Office. It’s funded through private donations.

Sacramento Bee file, 2000/Randy Pench

California’s foreign trade offices — taxpayer-funded enterprises
disbanded three years ago amid scandal and budget woes — are staging
a comeback despite lingering questions about their usefulness.

Gov. Arnold Schwarzenegger and some legislators are once again
trumpeting the value of trade promotion for the sixth-largest economy
in the world. In recent months, the governor has established an
undersecretary for international trade, while lawmakers have proposed
resurrecting outposts in Seoul, South Korea, and Johannesburg,
South Africa.

In coming weeks, the Legislature is expected to take up bills that
call for developing a comprehensive trade strategy and moving the
state back into the business of operating trade offices.

Such a move has raised eyebrows among trade experts who believe former
state offices were mismanaged. Some have questioned whether the state
should even have trade offices.

"Historically, they have not been very successful. In fact, they have
been somewhat disastrous," said trade consultant Jock O’Connell.

"There’s this feeling in the state Capitol that California needs to
be represented by the state. The real California is superbly well
represented in the form of 57,000 exporting companies."

California’s 12 trade offices were shut down in 2003 — along with the
rest of the Technology, Trade and Commerce Agency — after critical
news reports and damaging audits appeared.

At the time the state had more than 90 workers spanning the globe,
from Hong Kong to London. Their charge was simple: Help California
businesses sell their products abroad while luring foreign investment
to the state. Last year, the state exported $116.8 billion worth
of goods.

But the legislative analyst’s office and the state auditor’s office
questioned the effectiveness of such offices.

The offices were accused of taking credit regardless of how much
involvement they had in facilitating a deal.

"For instance, an office may only have provided a list of foreign
companies potentially interested in a product developed by a California
business. However, the agency counted the total value of a subsequent
export agreement," according to one legislative analyst report.

The Orange County Register quantified the overstated benefits at
$44.2 million for one year.

In the end, only one trade office survived. The California Armenia
Trade Office was subsequently transferred to the authority of the
Business, Housing and Transportation Agency, where it remains today.

Sen. Jack Scott, D-Altadena, salvaged the trade office by requiring
that it thrive on private donations. Scott’s district is home to the
largest Armenian community in America.

Scott considers the Armenia office a pilot project that could, perhaps,
become a model for future trade offices. Unlike its predecessors,
the office is funded through $75,000 in private donations, must
file evaluation reports, and will automatically close in 2008 unless
reauthorized by the Legislature.

"We’re learning from mistakes of the past," Scott said.

But experts say accepting private donations is bad public policy.

Jeffrey Gersick, former managing director of the state’s trade offices
in London, Frankfurt, Germany, Johannesburg, and Jerusalem, said the
state’s priorities can be muddled by those who "pay to play."

Rather than putting offices where there’s growth potential, Gersick
and others say, the practice could hold the state hostage to special
interests looking to leverage the state’s seal for their own cause,
creating a case of "country du jour."

The director of the Armenian Trade Office, Arthur Khachatryan, said
he reports to the Foundation for Economic Development, a nonprofit
Armenian group based in Glendale handling the state contract.

However, the trade office keeps the state abreast of its work through
biweekly phone calls and progress reports.

"The ultimate responsibility rests with the state," Khachatryan said.

"But on day-to-day questions, of course, we work with the foundation."

Critics also question the reliability of private money. Already Scott
had to seek an extension when the Armenian community failed to raise
$75,000 in time to launch the office. Donor restrictions may have
been blurred, too.

When the Armenian National Committee, an Armenian lobbying group, sent
two $10,000 checks on Feb. 22, 2005, it exceeded a $10,000-per-quarter
fundraising restriction in the law.

Undersecretary Garrett Ashley, who was appointed by Schwarzenegger
four months ago, said it was a clerical error because the checks were
not sequential and had different dates.

Sen. Kevin Murray, D-Culver City, said he believes private donations
are the way to go. He is carrying two bills to install trade offices
in Seoul and Johannesburg, both of which are modeled after the Armenia
trade office.

Murray and Scott argue that the private-funding model deserves a
chance before being tossed out.

"If you can generate far more business than the cost of the trade
office, I can’t see how you’d lose," Scott said.

Lawmakers are trying to consolidate all trade office bills, and they
hope to develop an overall trade strategy for the state.

Assemblyman Juan Arambula, D-Fresno, chair of the jobs committee,
has written a bill that would give Schwarzenegger’s Business,
Transportation and Housing Agency $140,000 to develop an overall
state policy on trade. Assembly Bill 2601 is being supported by
the Republican governor after another bill to give the agency legal
control of trade offices failed.

Concerned that there won’t be enough oversight, Sen. Gloria Romero,
D-Los Angeles, has written a bill that would also develop a strategy
for the state. However, Senate Bill 1513 allows the Legislature to
decide where to put trade offices and requires them to be funded
through private donations.

Both bills require public disclosure of donations, but Romero’s
requires them to be posted on the Internet.

Business, Transportation and Housing Secretary Sunne Wright McPeak
said the governor has made trade promotion a priority, citing his
trade missions to Baja California, Japan and China. However, she said
the agency will be reluctant to spend taxpayer dollars.

Instead, McPeak said the agency has begun coordinating with trade
associations and the U.S. Commerce Department as a cost-effective
approach to trade promotion.

Agency officials say that even if the Legislature fails to pass a bill,
the administration intends to develop a trade strategy for the state.

Howard Shatz, a research fellow at the Public Policy Institute of
California, a nonpartisan think tank, said lawmakers will have to be
careful in formulating a plan with reliable performance measures.

Trade experts say the state should take advantage of existing resources
like the Commerce Department, look to countries with the most growth
potential, and assign trade offices clear mandates, then measure
their achievements accordingly.

"It needs to be done right because they are going to be scrutinized
given the history of trade offices," Shatz said. "The last thing you
want is another scandal."