San Francisco Chronicle / David Armstrong, Chronicle Staff Writer
The excruciating electoral end game in Florida is not yet played out, but one thing is certain: The next president will have a full agenda of international trade issues to grapple with when he takes office Jan. 20.
Chief among them are implementing the big trade deal with China; tweaking the relationship with America's NAFTA partners, Mexico and Canada; and balancing corporate commercial impulses with sensitivity to labor and the environment.
All these issues have important consequences for Northern California companies, given the area's intense involvement with trade.
"Twenty percent of America's exports are moving through California's ports," says Joseph W. Harrison, president of the California Council on International Trade in San Francisco. "Incoming goods are even higher. We are a very internationalized region."
Both Texas Gov. George W. Bush and Vice President Al Gore are considered internationalists and free traders. Gore may be somewhat more committed to protecting workers and the environment because organized labor and environmentalists are part of his core constituency. But most trade-watchers see no dramatic difference between the two men.
Both Gore and Bush, for example, supported the landmark 1995 North American Free Trade Agreement, which lowers barriers and speeds the movement of goods and services among the United States, Canada and Mexico.
Both men also favor active American involvement in the World Trade Organization and greatly expanded business with China despite that country's nominally communist government.
Regardless of who moves into the White House next month, "There is a whole slew of trade agreements, and a lot of implementation needs to be thrashed out, " says Nova Sayers, vice president for international issues at the San Francisco Chamber of Commerce. "E-commerce, computer equipment, biotechnology and telecoms are all affected." All four industries are key to Northern California's technology-driven economy.
NAFTA, the WTO and bilateral trade deals that the United States has struck or is negotiating with Jordan, Chile, Singapore and China all have their own sets of rules and schedules, Sayers says.
This shifting array of trade pacts is expected to provide the next administration with challenges that will make deciphering a Palm Beach butterfly ballot look simple.
In e-commerce, for example, there are jurisdictional sticking points between the United States and the European Union. There's even a dispute over who gets to decide the resolution of disputes. Settling disagreements with the EU on e-commerce policy comes down to "whose laws or whose experts" are used, Sayers says.
The biggest challenge of the next few years, though, will be to stabilize the trade relationship with China.
The Asian giant is a nascent military and economic superpower of 1.3 billion people that U.S. companies have dealt with fitfully for the past 20 years.
SOME SECTORS STILL CLOSED
Although the United States sells many goods, from wheat to aircraft, to China, broad sectors such as finance and telecommunications have remained largely off-limits to foreigners.
In addition, American business people have long complained of a lack of clarity, civil law and consistency in Chinese commerce. Political mistrust goes back to the Communist Revolution of 1949 and has continued even after the end of the Cold War.
Even given major obstacles, an ever-closer economic relationship between the two countries is evolving:
In June, for example, Congress granted permanent normal trading relations status to China. This status, which is given to all but a handful of countries,
previously had to be granted one year at a time, usually after contentious debate. The congressional action removed a strongly symbolic hurdle.
Moreover, Washington has struck a bilateral trade deal with Beijing that would slash Chinese tariffs on American products, open potentially lucrative Chinese markets to American companies during a three- to four-year span and force domestic Chinese companies to abandon protectionism and compete with foreign companies on a level playing field.
Third, the U.S. is supporting China's entry to the World Trade Organization,
tying implementation of much of the U.S.-China bilateral agreement to China's admission to the WTO, which sets global trading rules. Most observers expect that to happen in the first or second quarter of 2001.
"It's a provisional done deal," says George P. Koo, director of Pacific Rim Services for Deloitte & Touche LLP in Santa Clara. "We still need to make sure that the last 'i' is dotted and the last 't' is crossed."
CHINA DEAL HAS TOP PRIORITY
Virtually all Bay Area trade observers regard closing and enforcing the China deal as the top priority for the new administration. This is especially true among executives at firms that already do business in China, or want to.
At Meetchina.com, a 2-year-old San Francisco company that promotes business-to-business commerce between Chinese and international firms over the Internet,
the harmonization of commercial relations with China would bring increased clarity and predictability to doing business.
"Implementing and monitoring the WTO agreement, that's a big issue for our company," says Melinda Yee Franklin, executive vice president of global alliances. Meetchina.com has 600 employees in China and 50 in its San Francisco headquarters.
Franklin, who was director of the mayor's Office of International Trade and Development in San Francisco before joining the dot-com world, says contracts will have greater standing, intellectual property will have greater protection and foreign companies will have greater status after China opens itself more fully to the world.
Moreover, under pending rules, foreign Internet companies could own up to 50 percent of Chinese Internet companies; presently, such firms must be majority-owned in China.
Refining contract law and standardizing accounting and investment rules will make it much easier for foreign companies to operate in China. Presently, China clings to remnants of a communist economy, such as large, state-owned enterprises and strict restrictions on foreign ownership.
For Thomas Chin, president of Sino American Investment and Development Corp., reform in China can't come too soon. Chin, whose San Francisco company does market research and distributes software in the health and telecommunications fields in China, has an office in Shanghai and has operated in China for more than 20 years.
Chin says he will be anxious until the WTO and U.S.-China bilateral deals are implemented, but no matter who occupies the White House, "I think the momentum is there" to push the deals forward.
Such reform would make it easier for companies like his to operate in China largely free of Beijing's micromanagement, because foreign software will be more freely distributed through Chinese channels than it can be under present rules.
Deloitte & Touche's Koo, who consults with U.S. companies that want to enter Asian markets, agrees reform in China is needed, but says he doubts things can change overnight. "There will still be business transacted on an understanding and a handshake. That's just a cultural habit. That won't change."
WTO TO ENFORCE AGREEMENTS
Even after formal agreements with China kick in, assuming they do, enforcing them will be a challenge. This job will fall to the WTO, which provides a benchmark for rules and procedures and acts as a kind of international court on trade issues, helping to resolve standoffs between nations.
"Monitoring and implementing China's agreements with us will be important," says R. Sean Randolph, president of the Bay Area Economic Forum. "There will probably be a lot of issues. We have to pick our fights carefully."
While relations with China preoccupy nearly all trading companies and trade-watchers, there are other items on the agenda for the new administration.
They range from refining and perhaps extending NAFTA, to extending additional trade-related government aid to small and mid-size businesses, offering tax relief to U.S. firms on overseas earnings, and safeguarding workers' rights and the environment as trade liberalization and globalization move forward.
"Fishing, forest depletion, child labor and semi-slave labor -- these issues have pushed themselves forward and will not easily be pushed back in the box," says Steve Cohen, co-director of the Berkeley Round Table on the Economy.
"I think the people have been heard," Sayers says. Trade organizations and individual companies "are incorporating those concerns in their dialogue."
The next president should also listen as closely to small and mid-size businesses as he does to mega-corporations, says Jose Duenas, president of the Bay Area World Trade Center.
"We'd like to see the same level of support to small business in access to foreign market intelligence and having consultants evaluate business plans that will help companies realize their goals," Duenas says. The Bechtels and Levi Strausses don't need help, he says, but smaller firms do. "It needs to go beyond tax cuts and other incentives."
Even so, tax reform is needed, says John Nicolai, a partner in the San Francisco office of Ernst & Young. Presently, Washington taxes the overseas earnings of U.S. multinationals. "That forces companies to bring back earnings and not reinvest them in the developing world," he says.
Nicolai says he hopes to see leadership on this point from the new president. "All this starts in the House and Senate and ends up on his desk. It can be driven by the president."
LATIN AMERICAN PRIORITIES
Beyond such business-friendly changes to the U.S. tax code, interest in engaging Mexico and Latin America is strong in Northern California, where commercial, historical and family ties with countries south of the border are also strong.
"We think NAFTA works," says Harrison of the California Council for International Trade. After settling the trade relationship with China, Harrison rates engaging Latin America as the second-most-important U.S. trade priority.
"No. 2, after China, is a free trade area in the Americas," Harrison says. "If you export the concept of NAFTA, it'll work. Not without problems, (but) if you have proper job retraining programs, you can meet the concerns from labor about job-loss from trade agreements. Maybe that's something the president and new Congress can do."
Another new president, Vincente Fox of Mexico, has proposed a long-term integration of his country with Canada and the United States. Perhaps the three NAFTA partners can adopt open borders for job-seekers and immigrants and eventually adopt a common currency along the lines of the European Union, Fox has suggested.
Randolph says Fox's ideas are worth studying.
"Canada is our No. 1 trading partner and Mexico is No. 2, having surpassed Japan," Randolph says. "Fox has come out with a big trial balloon. He has dropped a vision on the table. We collectively, the U.S., Canada and Mexico, are much more integrated than 10 years ago, thanks to NAFTA."
Randolph says that Bush, who established a good working relationship with Mexico as governor of Texas, is somewhat more likely than is Gore to "seriously engage with Mexico" should he become president.
Other trade-watchers say they are still looking for signs of leadership on trade issues, which didn't play a hugely prominent role during the presidential campaign.
"Whoever handles trade will have to be somebody really nimble," says Jeremy Potash, executive director of the California-Asia Business Council in Oakland. In the late 1990s, "(Federal Reserve Chairman Alan) Greenspan managed the Asian crisis when the world was in danger." Someone of that caliber will have to be found, she says.
"I have a concern over whether we have leadership," on trade, Sayers says. "Our economy is so strongly driven by trade. It would be easy to lose momentum."
E-mail David Armstrong at darmstrong@sfchronicle.com.
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