Orange County Register, CA
April 29 2006
Foreign trade offices could make comeback
A Register investigation exposed how the offices inflated accounts of
their economic impact.
By BRIAN JOSEPH
The Orange County Register
SACRAMENTO – Three years after they were written out of the state
budget, foreign trade offices are back, with lawmakers and Gov.
Arnold Schwarzenegger working to revive the programs even though
they’ve never been able to prove their value.
The California Legislature in 2003 eliminated the Technology, Trade
and Commerce Agency and its 12 trade offices across the globe after
an Orange County Register investigation exposed how the offices
inflated accounts of their economic impact. The Register found
offices taking credit for any business deal in which they were even
remotely involved, resulting in at least $44.2 million in false or
overblown claims in one report alone.
Since then, legislators and private trade groups annually have tried
to resurrect the programs to no avail, but this year could be
different. Three bills in the Senate and another in the Assembly have
emerged from hearings this month with some momentum as legislators
from both parties are signaling renewed support for trade offices.
“This is a big push,” said Assemblyman Greg Aghazarian, R-Stockton,
who was carrying a bill for the governor that would have opened one
office in Mexico and two in Asia. It died in the Assembly Committee
on Jobs, Economic Development, and the Economy this week along with
three other trade office bills.
He is now co-authoring, with committee chair Juan Arambula, D-Fresno,
and several other Assembly members, a bill that wouldn’t directly
establish trade offices, but rather calls for the state to develop an
overall trade strategy, then determine whether trade offices could
play a role.
“The goal is to re-establish trade offices, but do it the right way
this time,” Aghazarian said.
Schwarzenegger has not taken a position on Arambula’s bill, but his
deputy assistant press secretary, Darrel Ng, said expanding trade
remains a priority for the governor and “He believes trade offices
are a component of that.”
In the Senate, the three bills there call for the private funding of
trade offices, with public disclosure of contributors on the Web and
a $10,000 limit per quarter. Like many lawmakers, Sen. Kevin Murray,
D-Los Angeles, who has two bills that would establish offices in
Seoul, Korea and Johannesburg, South Africa, views private funding as
a solution to the concerns about the previous programs.
“The problems we had previously had to do with cost effectiveness,”
he said. “This is not an issue because we’re not using state funds.”
Trade experts, however, see potential problems with privately funded
offices carrying California’s stamp of approval. With someone else
controlling the purse strings, they worry private contributors could
control offices bearing California’s name. Lawmakers counter a trade
office without the California seal would carry no weight with
potential business partners.
Said trade consultant Jock O’Connell: “If they’re producing a public
good, they should be publicly financed.”
O’Connell and other experts aren’t convinced trade offices produce
any public good. California exports increased by nearly $7 billion
last year, to $116.8 billion, the second-highest on record, according
to the Public Policy Institute of California. Howard Shatz, a
research fellow for the institute, said closing the offices has had
little impact.
“Somehow trade offices are viewed as being very important, but
there’s just not evidence that they are,” he said, noting academic
research is inconclusive on what trade offices accomplish. It appears
they don’t have much an economic impact, good or bad.
“The jury is out as to the value that these offices have,” said
Michael White, editor of the CalTrade Report, an online magazine
covering international trade as it relates to California. He said
lawmakers don’t understand the dynamics of international trade.
“They’re going to produce a mandate to reopen trade offices,” White
said, “and they’ll think they’re accomplishing something.”
What the Legislature should do, experts say, is create an
international trade agency in California that would coordinate all of
the state’s programs. Otherwise, the trade offices are on their own,
without direct oversight or leadership. O’Connell said Arambula’s
bill, which first examines the state’s role in international trade,
then considers trade offices, is a “big” step in the right direction.
Experts are also concerned the Legislature hasn’t solved all of the
problems under the previous program. Before they were shut down,
trade offices were broadly taking credit for any deal in which they
were even remotely involved under criteria that “but for” the
involvement of the trade office, the deal would not have taken place.
“Has the ‘but for’ problem been solved yet?” Shatz asked. “If we’re
not solving that up front, we’re probably setting ourselves up for a
repeat.”
Other questions remain. When the trade offices were eliminated in
2003, the Legislature reserved the power to establish a privately
funded office in Armenia as part of a political move by a lawmaker
facing re-election in a district with a large Armenian population. It
took from 2002 to 2005 to collect the necessary funds and it won’t be
until 2007 when the Legislature receives a report on the success of
the Armenian office and its oversight.
There’s also the question of whether the Legislature is duplicating
efforts by Lt. Gov. Cruz Bustamante, who, in his role as chairman of
the California Commission for Economic Development, has established
nine unofficial trade offices, in places like Mexico City and Taipei.
These offices, which are financed and staffed by local organizations
under an agreement with the lieutenant governor, were some of the
first efforts to fund trade offices with private dollars.
THE DEBATE
Proponents want to start state-backed trade offices that are
privately funded, with full disclosure of funders on the Internet.
Opponents say it’s risky to put California’s stamp of approval on
something it does not control through funding.
Déjà vu
The state’s 12 foreign trade offices were eliminated in 2003, but
bills proceeding through the Legislature now could lead to new ones.
AB 2601: By Assemblyman Juan Arambula, D-Fresno, and several other
Assembly members of both parties. In the process of being amended.
Would require the Secretary of Business, Housing and Transportation
to study the state’s potential role in international trade then
develop an overall trade strategy, including, possibly, trade
offices.
SB 1513: By Sen. Gloria Romero, D-Los Angeles. Would require the
Secretary of Business, Transportation and Housing to study the
desirability of trade offices, then produce a strategy for the
Legislature if there is a need. Stipulates private funding for trade
offices, with donations limited to $10,000 per quarter. Requires
donations to be posted on the Web.
SB 1525: By Sen. Kevin Murray, R-Los Angeles. Would create a
privately funded trade office in Johannesburg, South Africa.
Donations limited to $10,000 per quarter. Donations posted on the
Web.
SB 1529: By Sen. Kevin Murray, R-Los Angeles. Would create a
privately funded trade office in Seoul, Korea. Donations limited to
$10,000 per quarter. Donations posted on the Web.