BILL ANALYSIS �
SB 928
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Date of Hearing: June 24, 2014
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
SB 928 (Correa and Huff) - As Amended: June 17, 2014
SENATE VOTE : 32-0
SUBJECT : International trade and investment office: Mexico
SUMMARY : Requires the establishment of an international trade and
investment office (trade office) in Mexico by January 1, 2016.
Specifically, this bill :
1)Requires the Director of the Governor's Office of Business and
Economic Development (GO-Biz) to establish and operate, or to create
a public-private partnership for the purpose of establishing and
operating, a trade office in Mexico City, Mexico, by January 1,
2016.
2)Requires the trade office to do all of the following:
a) Facilitate access to educational exchange programs between
California and Mexico;
b) Promote the export of California goods and services into
Mexico; and
c) Encourage and facilitate capital investment from Mexico into
California.
3)Requires the Director of GO-Biz to include information on the
activities of the Mexico trade office, when reporting on other
foreign trade office-related activities, as specified.
4)Limits the implementation of this measure to that which can be paid
for by private moneys received by GO-Biz for this purpose, as
specified.
5)Expands the list of legislative committees that receive information
on GO-Biz' foreign trade activities to include the Senate Select
Committee on California-Mexico Cooperation.
EXISTING LAW :
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1)Establishes GO-Biz within the Governor's Office for the purpose of
serving as the state's principal entity for issues relating to
international trade and foreign investment, excluding agricultural
issues. GO-Biz is led by a director, which is appointed by the
Governor.
2)Authorizes the Director of GO-Biz to establish and terminate trade
offices outside the U.S., as he or she determines as appropriate and
specific requirements are met. These requirements include:
a) A budget that is prepared for the overall international trade
and investment program, which includes a separately stated budget
for each trade office;
b) A description of how the overall program and each individual
office will be staffed;
c) A description of staffing levels and the positions needed to
operate each trade office;
d) A strategy and business plan for the overall international
trade and investment program including a description of staffing
levels and how a newly proposed trade office will facilitate an
increase in direct foreign investment in California or an
increase in California exports, or both.
3)Authorizes trade offices to be funded in whole or in part by
nonstate funds.
4)Requires that the annual budget, strategy and business plan for the
international trade and investment program, and a review of the
prior year's program be submitted to specified legislative offices
in the Assembly and the Senate, including the Chief Clerk in each
House, the Office of the Speaker and pro Tempore, and the standing
committee in each House with international trade oversight
responsibilities.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "Beginning in 1999,
Mexico became California's number one trade partner. Yet, we do not
have a trade office there.
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Currently, twenty-three states and the City of San Antonio, Texas
have trade offices in Mexico, with additional offices opening for
the cities of Phoenix and Tucson. In 2012, Texas bilateral trade
with Mexico totaled $194 billion and in Arizona $6.3 billion. In
that same year, California trade with Mexico totaled $62 billion,
which supported 692,000 California jobs.
We can and should do more to encourage California exports, foreign
direct investment and economic growth. Studies show that on average
40 percent of the content of U.S. imports from Mexico were
originally made in the U.S. That means a significant portion of
the money U.S. consumers spend on Mexican imports derive from U.S.
companies and workers. This figure is in sharp contrast to Chinese
imports that only average 4 percent of U.S. content."
2)Framing the Policy Issue : This bill mandates the establishment of a
foreign trade office in Mexico City, Mexico. Mexico is California's
number one trade partner and the opening of a Mexico trade office
has been, and continues to be, a priority of many Members of the
California Legislature, including the California Legislative Latino
Caucus. In proposing to mandate the establishment of this office,
however, the bill would set precedence for the Legislature's
involvement in establishing trade offices through statute.
The analysis includes background on California and Mexico relations,
establishment of foreign trade offices, and California's
globally-linked economy. Suggested amendments are listed in Comment
6.
Establishment of Foreign Trade Offices : Over the past several
decades, the state has used a variety of methods for establishing
trade offices. In 2003, when the Legislature and the Governor
agreed to eliminate the Technology, Trade, and Commerce Agency
(TTCA), the state directly operated or contracted for the operation
of 12 trade offices including offices in Shanghai, Mexico City,
Buenos Aires, London, Frankfurt, Jerusalem, Johannesburg, Seoul,
Tokyo, Hong Kong, Taipei, and Singapore. With the closure of TTCA,
nearly all related programs were removed from statute including the
authority to engage in international trade activities and operate
trade offices. One trade office remained, that being a
"self-supporting" office in Armenia, which had been established
through a separate statute, SB 1657 (Scott), Chapter 863, Statutes
of 2002, and later extended through SB 897 (Scott), Chapter 604,
Statutes of 2005.
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It was not until 2006, that the Governor and Legislature were able
to come to agreement about a new trade framework, which was included
in SB 1513 (Romero), Chapter 663, Statutes of 2006. As a condition
for re-granting the Governor's authority to open trade offices, the
Legislature required the Governor to obtain its pre-approval in the
form of a resolution or statute. With the implementation of AB 2012
(John A. P�rez), Chapter 294, Statutes of 2012, however, the
Legislature's pre-approval authority was eliminated. In April
2013, Governor Brown opened a trade office in Shanghai, China, which
is the first trade office opened under the AB 2012 rules. The
Shanghai trade office was established pursuant to a public-private
partnership between the state and the Bay Area Council. The
operation of the China Office is dependent on private donations and
the collection of those donations is the responsibility of the Bay
Area Council.
SB 928 reasserts the Legislature's involvement in the selection of
location and timing of new trade offices. The bill proposes the
opening of a trade office in Mexico City either by GO-Biz or under a
public private partnership, similar to the Shanghai Office. Funding
for the operation of the Mexico City trade office is limited to
private funding.
3)Foreign Trade Agreements : Within a globally connected economy,
trade agreements create the framework by which a significant number
of businesses and workers must compete, collaborate, and create
economic value. The U.S. is currently negotiating two major trade
promotion agreements, the Trans-Pacific Partnership and the
Transatlantic Trade and Investment Partnership. In their current
iterations, these trade agreements will cover 21% of the world's
population, with the U.S. at the nexus. These agreements are
especially important to local and regional governments which have
been proactive in using trade promotion activities as a springboard
for their own economic agenda.
The U.S. has trade agreements in force with 20 countries, including
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican
Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea,
Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore.
The U.S. is Mexico's most important trading partner with almost 80%
of Mexico's exports going to the U.S. and about 50% of Mexico's
imports coming from the U.S. The most significant trade agreement
between the U.S. and Mexico is the North American Free Trade
Agreement (NAFTA), which was entered into January 1, 1994 and also
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includes Canada. In the 20 years since NAFTA has been implemented,
trade volume between the countries has increased substantially. On
June 18, 2012, with U.S. support, Mexico was invited to join the
negotiations for the Trans-Pacific Partnership.
In an effort to diversify its export markets, Mexico has entered
into an additional 12 trade agreements, which include 44 counties.
These agreements include countries in the Western Hemisphere
including Chile, Colombia, Costa Rica, Nicaragua, Peru, Guatemala,
El Salvador, and Honduras. In addition, Mexico has negotiated
free-trade agreements outside of the Western Hemisphere and entered
into agreements with Israel and the European Union, thereby becoming
the first Latin American country to have preferential access to
these two markets. The signing of the Mexico-Japan Economic
Partnership Agreement in 2005 marked Japan's first attempt to enter
a comprehensive trade agreement with a foreign country.
4)California's Trade Economy : International trade and foreign
investment serve as critical components of California's $2.0
trillion economy. If California were a country, it would be the
17th largest exporter and the 14th largest importer in the world.
Merchandise exports from California ($168 billion) accounted for
over 10.6% of total U.S. exports in goods, shipping to over 220
foreign destinations in 2013. California's land, sea, and air ports
of entry served as key international commercial gateways for the
$538 billion in products entering and exiting the U.S. in 2012.
Statewide, 4.4 million California jobs are dependent on foreign
trade. Over 562,700 California workers benefit from jobs with
foreign-owned firms, which accounts for 5.1% of all private sector
jobs in the state.
California's significance in the global marketplace results from a
variety of factors, including: its strategic southwest and coastal
location offering direct access to growing foreign markets in
Mexico, Latin America, and Asia; its nine diverse regional
economies; its large, ethnically diverse population, representing
both a ready workforce and significant consumer base; its access to
a wide variety of venture and other private capital; its broad base
of small- and medium-sized businesses; and its culture of innovation
and entrepreneurship, particularly in the area of high technology.
Mexico has been California's top trading partner since 1999. In
2013, California exported $23.9 billion (14%) in goods. The chart
below shows export data on the state's top five trade partners.
Other top-ranking export destinations not shown on the chart include
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Hong Kong, Taiwan, Germany, the Netherlands, and the United Kingdom.
--------------------------------------------------------------------
| California Export based on Movement of Goods 2012 and 2013 |
--------------------------------------------------------------------
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| Rank | Country | 2012 Value | 2013 Value | 2012 % Share | 2013 % Share | % Change, |
| | | | | | | 2012 - 2013 |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| --- |Total | 161,880| 168,128| 10.5| 10.6| 3.9|
| |California | | | | | |
| |Exports and % | | | | | |
| |Share of U.S. | | | | | |
| |Total | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| --- |Total, Top 25 | 143,671| 149,020| 88.8| 88.6| 3.7|
| |Countries and | | | | | |
| |% Share of | | | | | |
| |State Total | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 1 |Mexico | 26,370| 23,933| 16.3| 14.2| -9.2|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 2 |Canada | 17,424| 18,819| 10.8| 11.2| 8.0|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 3 |China | 13,970| 16,359| 8.6| 9.7| 17.1|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 4 |Japan | 13,033| 12,711| 8.1| 7.6| -2.5|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 5 |South Korea | 8,246| 8,394| 5.1| 5.0| 1.8|
--------------------------------------------------------------------------------------------------------
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|Source: tradeport.org |
| |
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California's largest industry sector by employment is Trade,
Transportation, and Utilities, which encompasses everything from
major retail outlets, to import-export businesses, to transportation
and warehousing. California leads the nation in export-related
jobs. The U.S. Department of Commerce estimates that for every one
million dollars of increased trade activity, 11 new jobs are
supported. Workers in trade-related jobs earn on average 13% to 28%
higher wages than the national average.
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In today's globally linked economy, manufacturing utilizes products
from across the U.S., as well as from other nations. In 2012, 61%
($1.3 trillion) of the products imported into the U.S. were inputs
and components intended for use by American producers. In addition,
U.S. imports often include components or benefits from services
provided by U.S. firms, including many California companies. The
Wilson Center estimates that Mexican imports and Canadian imports
contain 40% and 20% U.S. components, respectively.
Trade and foreign investment support new job creation, bring new
technologies and skills to California workers, generate local and
state revenues, and generally strengthen the state's economic base.
In the future, California's economy will become increasingly reliant
on accessing foreign markets where a majority of global economic
growth is expected to occur.
5)Profile on Mexico : Mexico is located in North America, south of the
U.S. and north of Belize and Guatemala in Central America, with a
coastline along the Pacific Ocean bordering the Caribbean Sea and
the Gulf of Mexico. Mexico is the 13th largest country in the
world, based on area (1.9 million square miles), and its 120.2
million people place Mexico as the 11th most populous country in the
world.
Mexico's climate varies from tropical to desert. The 31 states that
make up Mexico have varied terrain ranging from rugged mountains
with high elevations, low coastal plains, high plateaus and desert,
to tropical jungles, and seacoast regions.
With rapid urbanization, almost three-quarters of the population
live in urban areas. There are eight cities with populations over
500,000 including the federal district, Mexico City. According to
the World Bank, only a quarter of the population live in Mexico's
rural areas. While Spanish is the official language for most people
of Mexico, the government recognizes 68 Mexican indigenous languages
as official national languages.
Since NAFTA came into force, Mexico's $1.3 trillion economy has
increasingly become oriented toward manufacturing. However,
employment in service related industries is still the dominant form
of work, representing 61.9% of jobs, and contributing 59.8% of the
country's GDP in 2013. Agriculture-related industries were
responsible for the employment of 13% of workers and represented
3.6% of GDP. Favorable trade and commerce provisions under NAFTA
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have attracted multinational corporations and other investors to
Mexico, who have established new manufacturing facilities and
provided an increasing number of mid- to high-tech related jobs,
notably in the automotive industry. In 2013, manufacturing employed
24.1% of the labor force and accounted for 36.6% of GDP.
Not surprisingly, Mexico's largest trading partners are the U.S. and
Canada with trade between the countries having tripled since NAFTA
came into force in 1994. As noted earlier in the analysis, Mexico
has also benefited from the largest network of free trade agreements
in the world, including 44 countries, on three different continents,
which provide access to a potential market of more than 113 million
consumers. Currently, more than 90% of Mexico's trade occurs under
free trade agreements.
Mexico is the 17th largest exporter in the world totaling $380.1
billion in 2013, up 65.5% since 2009 and accounting for about 21.1%
of total Mexican economic output. Mexico's top 10 exports accounted
for 81% of the overall value of its global shipments. The country's
largest exports include: manufactured goods, oil and oil products,
silver, fruits, vegetables, coffee, and cotton. Imports to Mexico,
49% coming from the U.S., included metalworking machines, steel mill
products, agricultural machinery, electrical equipment, car parts
for assembly, repair parts for motor vehicles, aircraft, and
aircraft parts.
California is home to 11 million residents of Mexican descent.
While many of these people are third and fourth generation
Americans, a significant number of people living in California still
have family ties to Mexico. In 2013, individuals in Mexico received
upwards of $22 billion in remittances from the U.S.
6)Technical Amendment : Staff recommends the Committee make a
technical amendment on page 2, line 4, to include an additional
cross reference to section 13996.42, which also provides
requirements to the operation of trade offices.
7)Related Legislation : Below is a list of legislation from the
current and prior legislative sessions.
a) AB 2012 (John A. P�rez) Economic Development Reorganization:
This bill transfers the authority for undertaking international
trade and foreign investment activities from the Business,
Transportation and Housing Agency to the Governor's Office of
Business and Economic Development. In addition, the bill
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transfers the responsibility for establishing an Internet-based
permit assistance center from the Secretary of the California
Environmental Protection Agency to Governor's Office of Business
and Economic Development. Status: Signed by the Governor,
Chapter 294, Statutes of 2012.
b) AB 2443 (V. Manuel P�rez) International Trade Program and
Sister State Relationships:
This bill would have required the State Point of Contact to
provide the Legislature with copies of any official position
taken or comments to the U.S. Trade Representative relating to a
pending trade agreement and would have authorized the
establishment of sister state relationships for the purpose of
promoting economic growth and trade and investment opportunities.
Status: Vetoed by the Governor, September 2010.
c) AB 2713 (Quirk-Silva) Public Private Partnerships to Promote
Trade: This bill authorizes the Governor's Office of Business
and Economic Development to establish public-private partnerships
to help guide state activities related to the export of
California products and the attraction of employment-producing
foreign investment. The bill requires the establishment of a
subaccount to hold private donation for county and
industry-specific marketing activities. The bill also requires
the establishment of a partnership to support California trade
and investment within South Korea. Status: Pending in the
Senate Committee on Appropriations.
d) ACR 100 (Alejo) El Salvador and California Partnership: This
resolution memorializes the Legislature's commitment to work
cooperatively with the Governor's Office of Business and Economic
Development on trade promotion and foreign investment activities
that enhance the state's economic relations with El Salvador, as
specified. Status: Pending in the Senate.
e) SCR 82 (Hueso) Sister State with Jalisco: This bill
establishes a sister state relationship between California and
the State of Jalisco, Mexico, for the purpose of promoting
economic growth and well-being of small, medium, and large
corporations and by increasing their potential trade and
investment within the State of Jalisco. Status: Chaptered by
the Secretary of State, Resolution Chapter 70, Statutes of 2014.
REGISTERED SUPPORT / OPPOSITION :
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Support
American GI Forum of California
Central California SCORE
Chamber of the Santa Barbara Region
Cien Amigos
Community Resource Project
County of Santa Barbara
Hispanic Inland Empire Chamber of Commerce
La Associaci�n de Comerciantes Unidos
La Cooperativa Campesina de California
Latino Policy Coalition
Optimum Group
Orange County Business Council
Orange County Hispanic Chamber of Commerce
Orton Development, Inc.
S.T. Johnson Company LLC
San Diego Regional Chamber of Commerce
The California Farm Labor Contractor Association
The Chamber of Commerce Mountain View
The Council for the Economic Development Of Sinaloa, Mexico
The Fresno Area Hispanic Foundation
The Greater Hispanic Chamber of Commerce
The Hayward Chamber of Commerce
The Regional Hispanic Chamber of Commerce
US-Mexico Chamber of Commerce
Women in International Trade-Los Angeles
Opposition
None received
Analysis Prepared by : Toni Symonds and Norma Huerta / J., E.D. & E.
/ (916) 319-2090