BILL ANALYSIS Ó
AB 1137
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Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
AB 1137 (V. Manuel Perez) - As Amended: April 26, 2011
SUBJECT : International trade and foreign investment
SUMMARY : Makes a number of changes to programs designed to
assist local communities and businesses, enhance the local
business climate, and create jobs by increasing foreign trade
and investment. Specifically, this bill :
1)Authorizes the establishment the California Export Promotion
and Gap Financing Program (Export Assistance Program), within
the Business, Transportation and Housing Agency (BTH), for the
purpose of applying for, receiving and implementing a
federally funded export assistance program. Among other
requirements, the bill:
a) Limits implementation of the program until federal
moneys are received;
b) Requires that the Export Assistance Program to be
developed in consultation with local governments, economic
development organizations, financial institutions, small
business organizations, the federal Small Business
Administration, the federal U.S. Department of Agriculture
Rural Development, as well as financial and community
intermediaries that engaged in, or could be engaged in,
international trade and investment programs;
c) Requires that the program have clear objectives,
measurements for success, reporting requirements, methods
for ensuring program resources are available statewide, and
be implemented in a collaborative fashion with other
related business assistance programs;
d) Requires that program reporting be done annually on the
BTH website and include, at a minimum, the number of
businesses assisted, the size of businesses assisted by
number of employees and gross revenues, the number of jobs
created and retained, an estimate of the economic impact of
the financial assistance and other key program
achievements;
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e) Provides that if any federal requirements prohibit any
of the state statutory requirements of the Export
Assistance Program, BTH is to notify the relevant policy
and fiscal committees and is then authorized to waive the
state rules to the extent necessary to fulfill the federal
requirements; and
f) Authorizes BTH to adopt regulations to implement this
measure.
2)Codifies the state's participation in the federal EB5 program
by establishing the California Foreign Investment Program,
which, among other things:
a) Requires BTH to serve as the lead state entity under
specified provisions of the federal Immigration and
Nationality Act; and
b) Requires BTH to set the terms and conditions for issuing
a state designation letter within the structure and scope
of those provisions of federal law.
3)Requires BTH to consult with local and regional government
entities and associations, particularly those entities and
organizations that have foreign trade economic development
offices. As part of the consultation process, BTH is
authorized to establish a local government advisory board
(uncompensated for participation).
4)Makes technical updates to the Foreign Free Trade Zone Act,
including renaming it the California Foreign Free Trade Zone
Act.
EXISTING LAW :
1)Authorizes BTH to undertake international trade and investment
activities and, as a condition of that authority, directs the
development and implementation of a comprehensive
international trade and investment strategy (ITI Strategy.)
All international trade and foreign investment activities and
funding are required to be consistent with the ITI strategy.
2)Authorizes a public or private corporation, as specified, to
apply for and, if successful, establish, operate, and maintain
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a foreign-trade zone in accordance with certain provisions of
federal law.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose : According to the author, "increasing the number of
business and workers engaged in development and movement of
products and services for export can play an important role in
the state's overall economic recovery strategy. Last October,
as part of the federal Small Business Jobs Act, Congress
passed and the President signed The State Trade and Export
Promotion Grant Act (STEP) which authorized $90 million in
competitive grants to fund state trade promotion programs over
the next three years.
California is currently in the process of applying for a share
of the first $30 million in STEP funds. It is important that
California have a framework for implementing and overseeing
these moneys. AB 1137 provides such a framework and helps
California in applying for the next round of funding."
2)Doubling exports in five years : In January 2010, the
President announced a national goal of doubling U.S. exports
within five years, setting a 2015 target for U.S. exports of
$3.14 trillion. In accomplishing this goal, the federal
government will be proposing new programs, targeting existing
trade related activities, and increasing funding and technical
assistance within current programs.
Since the announcement of the new national goal at the start
of 2010, exports from California were up $20 billion over
2009. For California, the second largest exporter of products
in the U.S. and the largest receiver of foreign direct
investment in the nation, this federal goal could result in
significant new economic opportunities.
The National Export Initiative (NEI), the mechanism by which
the federal Administration is managing activities and funds
related to increasing U.S. exports, has identified eight
priority areas, as follows:
1. Increasing exports among small- and medium-sized
enterprises including support for trade promotion and
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export financing;
2. Creating more opportunities for U.S. sellers to meet
with foreign buyers, especially in the area of green
technologies;
3. Increasing the number of U.S. trade missions abroad and
those coming to the U.S., as well as improving
coordination with state government trade offices and
national trade associations;
4. Leveraging multiple federal agencies in the foreign
trade advocacy and extending outreach efforts to more U.S.
companies;
5. Making more credit available through existing credit
programs, development of new financial products, and
streamlining of applications and processes;
6. Working to sustain a global economic recovery to support
expanding markets for U.S. products;
7. Removal of trade barriers through the successful
conclusion of Word Trade Organization (WTO) Doha Rounds,
the Trans-Pacific Partnership Agreement, resolving the
remaining issues related to the U.S.-Korea Free trade
Agreement, and robust monitoring and enforcement of WTO
trade rules; and
8. Enhanced advocacy and trade promotion services including
providing better economic data for decision making and
increasing coordination among existing export promotion
efforts.
The first $30 million round of NEI funding for states is
available under the Small Business Administration administered
STEP. BTH has chosen not to apply for the funding and,
instead, the Community College System is applying under the
auspices of the Centers for International Trade Development
(CITD). It is anticipated that a successful California
application would result in $3 million for local and state
collaborative trade promotion efforts.
1)The ITI Strategy : Between 2003 and 2006, California had no
trade and international marketing authority. After years of
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debate, the Legislature and the Governor began an
unprecedented collaboration on the development of a new
international trade and investment program. Agreements on the
new program were codified in SB 1513, Chapter 663, Statutes of
2006.
Under California's new trade and foreign investment framework,
state activities are required to be directed through the
development and implementation of the ITI Strategy. The ITI
Strategy is prepared every five years based on current state
and regional economic research and a public vetting with the
Legislature to ensure the inclusion of jointly agreed upon
goals and measurable objectives. The current International
Trade and Investment (ITI) Strategy was finalized in August
2008 and the next strategy is due in August 2013.
The ITI Strategy takes an industry sector approach based on
the state's core and emerging industries. By emphasizing the
development of deeper relationships within core and emerging
industry sectors and their trade associations, the strategy
more closely aligns with other economic development activities
at the local level and increases the impact of the state
activities and investments. Below is the list of dominant and
emerging industries from the 2008 ITI Strategy research.
Dominant industry clusters include :
a) Professional business and information services
b) Diversified manufacturing
c) Wholesale trade and transportation
d) High-tech manufacturing
Emerging industry clusters include :
a) Life science and services
b) Value-added supply chain manufacturing and logistics
c) Cleantech and renewable energy
d) Nanotechnology
Based on the 2008 industry clusters, the ITI Strategy
identifies the following program objectives:
a) Leverage existing services to provide export assistance
to companies by the state's primary and emerging clusters;
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b) Develop a foreign direct investment program prioritized
by the state's primary and emerging clusters;
c) Promote and leverage the California brand;
d) Monitor and engage the federal government in regards to
U.S. trade policy; and
e) Integrate international trade and investment into the
state's overall economic development strategy.
Under each of the program objectives, the ITI Strategy
includes a set of specific actions, including timelines,
priority levels, and measurable outcomes. Examples of ITI
recommended actions include: (1) building a web-based
directory of international, federal, state and local resources
to assist small and medium size businesses in their import and
export activities; and (2) facilitating export trade promotion
through participation in key industry trade shows and business
match-making activities during trade delegations visits. The
ITI Strategy also strongly relies on coordinated efforts with
existing federal and local public and private stakeholders.
AB 1137 would statutorily enhance those provisions by
requiring consultation with government entities and
organizations, particularly those with foreign trade economic
development activities. Existing law only requires
consultation with business leaders. Both are important
stakeholder groups.
2)California's trade economy : International trade is a very
important component of California's $1.9 trillion economy. If
California were a country, it would be the 11th largest
exporter in the world. Exports from California accounted for
over 11% of total U.S. exports in goods, shipping to over 226
foreign destinations in 2010.
California's land, sea, and air ports of entry serve as key
international commercial gateways for products entering the
country. California exported $143 billion in goods in 2010
(up from $120 billion in 2009), ranking only second to Texas
with $163 billion in export goods. Computers and electronic
products were California's top exports in 2010, accounting for
30.1% of all state exports, or $43 billion.
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--------------------------------------------------------
| 2010 Exports From California to the World |
--------------------------------------------------------
|-----------------------+-----------------+---------------|
| Product | Value ($) |Percent |
|-----------------------+-----------------+---------------|
|334 Computers & | 43,075,351,414| 30.1 % |
|Electronic Prod. | | |
|-----------------------+-----------------+---------------|
|333 Machinery (except | 14,486,638,626| 10.1 % |
|electrical) | | |
|-----------------------+-----------------+---------------|
|336 Transportation | 12,957,683,521| 9 % |
|Equipment | | |
|-----------------------+-----------------+---------------|
|325 Chemical | 11,590,683,001 | 8.1 % |
|Manufactures | | |
|-----------------------+-----------------+---------------|
|339 Misc. Manufactures | 11,502,854,621 | 8 % |
|-----------------------+-----------------+---------------|
|111 Agricultural | 9,353,709,931 | 6.5 % |
|Products | | |
|-----------------------+-----------------+---------------|
|All Others | 40,301,943,159 | 28.1 % |
|-----------------------+-----------------+---------------|
|Total | 143,268,864,273 | 100 |
| | |% |
| | | |
---------------------------------------------------------
Manufacturing is California's most export-intensive activity.
Overall, manufacturing exports represent 9.4% of California's
gross domestic product. More than one-fifth (21.9%) of all
manufacturing workers in California directly depend on exports
for their jobs.
Small- and medium-sized firms generated more than two-fifths
(43%) of California's total exports of merchandise. This
represents the seventh highest percentage among states and is
well above the 29% national average export share for these
firms.
Mexico is California's top trading partner, receiving $21
billion (15%) in goods in 2010. The state's second and third
largest trading partners are Canada and China with $16.1
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billion (11%) and $12.4 billion (8.6%), respectively. Other
top-ranking export destinations include Japan, South Korea,
Taiwan, the United Kingdom, Hong Kong, Germany, and Singapore.
Relative to last year, the value of California products
exported to other counties was significantly up ($143 billion
v. $120 billion). In California's highest export category,
computer and electronic products, exports in 2010 were almost
at their 2006 high ($43 billion v. $44.3 billion).
3)State's diverse population as a trade advantage : California's
diverse population provides the state with a key trade and
investment advantage over other states and nations. Due to
strong past in-migration from other nations, more than
one-in-four of California's current residents (9.5 million
people) were born outside the U.S., compared to just over
one-in-ten nationally. About half of foreign-born
Californians are from Latin America, and another third are
from Asia. Net foreign in-migration currently totals
approximately 200,000 persons annually. This represents
nearly 40% of California's annual population growth. For many
immigrant groups, California represents the single largest
gathering of their brethren outside their native lands.
The first ITI Study found that California's economic and
social diversity uniquely positioned the state as a preferred
partner for certain regions around the world. Regionally, 36%
of the population in Los Angeles is foreign born, as is 27% of
the Bay Area. It is estimated that 40% of the entrepreneurs in
the Silicon Valley are foreign born. New globally-based
models for innovation and technology have brought great
changes in how world economies work, and California's
dominance as a center of innovation is being challenged. The
newly emerging economies of China, India, and Singapore, just
to name a few, have been and are committed to continuing
massive investments in research and development to become
leaders in innovation and not merely "copycat" economies.
While these dynamics pose challenges to current leading
technology centers, they also offer California new
opportunities for collaboration and cooperation. The state's
diversity could be a crucial component to successful global
collaboration. The state is already engaged in academic and
research partnerships with China, Canada, and Iceland on
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renewable energy and other technologies. The University of
California at San Diego has a multi-year manufacturing
initiative with Mexico supporting economic growth on both
sides of the border. These types of partnership efforts,
however, have not yet been brought forward into a broader
economic development framework and are too often treated as
one-off initiatives. Enormous potential exists in research,
development, and product manufacturing by capitalizing on
cross border initiatives if California can successfully
transition to the new and more highly connected economic world
of the 21st Century.
4)State Trade and Foreign Investment Infrastructure: In
support of local and private sector trade and investment
activities, the state has several ongoing programs, including
the Foreign Trade Zones (FTZ), the EB5 Program and the Centers
for International Trade Development. AB 1137 updates two of
these programs to help prepare the state to be more
competitive in accessing federal dollars and supporting local
economic development efforts.
FTZs are areas within the state where goods may be imported
without adhering to all U.S. Customs rules or tariffs. The
program is designed to promote foreign trade and global supply
chains while retaining domestic employment that might
otherwise go to foreign countries. Merchandise admitted into
a zone may, among other things, be stored, exhibited,
repacked, assembled, graded, cleaned, processed, tested,
labeled, and mixed with foreign merchandise. There are two
types of FTZs - General Purpose and Subzone Purpose Zones.
Subzones, sponsored by a General Purpose Zone, are generally
located within an industrial park or port complex whose
facilities are also used by the general public. These zones
are established by the federal government with companion state
statute authorization. California has 17 general purpose FTZs
out of 234 zones in the U.S. including zones located in
Eureka, Imperial, Long Beach, Los Angeles, March JPA, Merced,
Oakland, Palmdale, Palm Springs, Sacramento, San Diego, San
Francisco, Port Hueneme, San Jose, Santa Maria, Southern
California Logistics Airport, and Stockton.
Another key geographically targeted program is the EB5
investment visa program administered under the federal
Immigration Act of 1990, which authorizes the issuance of
10,000 new green cards a year based on a foreign investment in
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the U.S. Persons applying to this program must demonstrate
that they have invested a minimum of $1 million with the
likely result of creating at least 10 direct jobs, or
investing $500,000 in certain targeted high unemployment areas
and creating 10 direct or indirect jobs.
Based on 2010 state figures and a high unemployment rate
defined as 14.4% or greater, 56 cities, 13 counties, 21 rural
areas, and 11 metropolitan statistical areas in California
have been identified as eligible target areas. Some states,
such as South Dakota, have specific programs that target
foreign investment by people who want to apply for visas under
the investment provisions. AB 1137 takes the first step in
more effectively leveraging this federal program by placing in
statute the process by which regional marketing centers can be
approved and identification of target areas.
The California Community College System administers the
state's Centers for International Trade Development. These 8
Centers for International Trade Development, located in a
majority of the urban areas of the state, offer technical
assistance and consultation to firms doing business, or trying
to do business, globally. The northern most areas of the
state are serviced through offices in Community Colleges
located in Sacramento and San Bruno, and the most southern
center is located in Chula Vista.
Services provided through the Centers for International Trade
Development include, but are not limited to: free or low cost
import and export education programs; one-on-one counseling;
access to international trade shows; opportunities to join
trade missions; a "Help Desk" for advising on international
business transaction challenges; and access to an trade
information database ( www.citd.org/trade_info/index.cfm ) on
their Web site. The Centers for International Trade
Development serve over 2,500 businesses and entrepreneurs in
California each year.
5)Current session related legislation: : Below is a list of
related legislation from the current session:
a) AB 1409 (JEDE) - Goods Movement Update to the State
Economic Strategy : Requires that the next update of the
international trade and investment strategy include policy
goals, objectives and recommendations from the state Goods
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Movement Plan (GMAP), as well as related measurable
outcomes and timelines. Status: Pending in Assembly
Appropriations.
b) AB 1410 (JEDE Committee) - Trade Omnibus Bill : Makes
technical, non-substantive amendments to the codes relating
to international trade and foreign investment.
Specifically, this bill reorganizes the statutory placement
of the Office of California-Mexico Affairs and the
California-Mexico Border Relations Council from a general
title within state government to a more specific title on
foreign relations within the Government Code. Status:
Pending on the Assembly Floor.
c) SB 460 (Price) - Trade Marketing and Promotion : The
bill requires the Secretary of BTH to convene a business
partnership on trade promotion. Status: Pending in Senate
Appropriations.
6)Related legislation from prior sessions : Below is a list of
related legislation, some of which are discussed earlier in
the analysis.
a) AB 3021 (Nuñez) - California-Mexico Border Relations
Council : This bill established the six-member
California-Mexico Border Relations Council (Border Council)
comprised of all Agency Secretaries and the Director of the
Office of Emergency Services for the purpose of
coordinating activities of state agencies. The Border
Council is required to report to the Legislature on its
activities annually. Status: Signed by the Governor -
Chapter 621, Statutes of 2006.
b) AJR 14 (Jeffries) - Customs Duties : This resolution
memorialized the President of the U.S. and Congress to
enact legislation to ensure that a substantial increment of
new revenues derived from customs duties and importation
fees be dedicated to mitigating the economic, mobility,
security, and environmental impacts of trade in California
and other trade-affected states across the U.S. Status:
Approved by both Houses, Resolution Chapter 73, Statutes of
2007.
c) AJR 27 (Torrico) - Support U.S.-Colombia Trade Promotion
Agreement : This resolution memorialized Congress that the
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California Legislature opposes the United States-Colombia
Trade Promotion Agreement. Status: Approved by both
Houses, Resolution Chapter 145, Statutes of 2010.
d) AJR 55 (Villines) - Support U.S.-Colombia Trade
Promotion Agreement : This resolution would have
memorialized Congress that the California Legislature
supports the United States-Colombia Trade Promotion
Agreement. Status: Refused adoption in the Assembly
Committee on Jobs, Economic Development, and the Economy in
2008.
e) SB 1513 (Romero) - New International Trade Program :
Final Compromise - California International Trade and
Investment Act. This bill provided new authority for the
BTH to undertake international trade and investment
activities, and as a condition of that new authority,
directs the development of a comprehensive international
trade and investment policy for California. This bill
reflects extended bi-partisan discussions between the
Senate and the Assembly. Status: Signed by the Governor -
Chapter 663, Statutes of 2006.
REGISTERED SUPPORT / OPPOSITION :
Support
Office of Foreign Trade, Economic Development Agency, County of
Riverside (Joint - Sponsor)
Assembly Committee on Jobs, Economic Development and the Economy
(Joint -Sponsor)
California Association Microenterprise Opportunity
California Small Business Development Centers
California Small Business Development Centers, U.C. Merced
Regional Network
CDC Small Business Finance
Inland Empire Economic Partnership
Yuba Sutter Economic Development Corporation
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
AB 1137
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319-2090