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California's Foreign Trade Offices Are a Laughing Matter

By Jock O'Connell

This article appeared in the Forum section of the Sacramento Bee on June 29, 2003.

California's dozen foreign trade offices were already in jeopardy this spring before press reports in late May brought the first whiff of scandal. With the budget axe slashing deeply into state spending on education, public safety, health care and a host of programs targeting the state's most vulnerable citizens, the betting around the state Capitol was that the Davis administration would be lucky to secure money for three of the overseas outposts.

Then came the news that has prompted the state Senate Committee on Banking, Commerce and International Trade to convene a special day-long hearing this Wednesday. On May 25, the Orange County Register ran a front-page story charging that the governor's minions abroad had been submitting activity reports that were "often false or distorted." The state's Technology, Trade & Commerce Agency, which oversees the foreign offices, then fed the unverified data to a credulous Legislature.

Of the 191 businesses cited as success stories in the trade agency's latest annual report, Kimberly Kindy, an investigative reporter at the Register, interviewed executives at 58. In 31 of those 58 cases, the companies denied - at times vehemently - that the state's overseas offices had been of much help. Another six firms told her the deals cited by the trade agency never actually occurred. Only a dozen of the businesses she contacted said that overseas office personnel had played a "pivotal" role in helping close their export deals.

Hearings like the one scheduled for Wednesday have a natural tendency to focus on aspects of issues that are most amenable to legislative remedies. In this instance, bills have already been introduced that would penalize bureaucrats who would similarly exaggerate their importance in reports to the Legislature.

But this hearing could mark an epiphany if the Legislature candidly acknowledges how poorly California's interests in global commerce are being served by the state's trade promotion efforts.

The trade agency's preferred mode of self-defense has been rhetorical flatulence. In responding to Kindy's charges, agency secretary Lon Hatamiya described the overseas offices as "one of California's competitive edges in the world's marketplace." That patently silly claim is an insult to the private companies who shoulder the real burden of international trade. (Indeed, by keeping goods flowing smoothly across the state's highways, Caltrans is infinitely more important to international commerce than is Hatamiya's agency.)

Legislators might want to consider what some of California's most prominent trade professionals think of the state's dabbling in foreign trade.

Jay Winter was the executive secretary of the Los Angeles-based Foreign Trade Association of Southern California from 1985 to 2001. In a letter to The Bee last June, he wrote that "serious international business leaders have looked with dismay at the state's international trade efforts under the current and past administration." He went on to urge the governor to "close down most of the state's international trade programs managed by the Trade and Commerce Agency, disband the World Trade Commission and shutter the majority of the state's overseas trade offices."

Winter's remarks were echoed earlier this month by Rob Gordon, proprietor of the San Diego-based California Trade Network, an invaluable online service for exchanging international trade leads. "Although I was once a huge believer in this type of program," Gordon wrote in a June 3 e-mail to Hatamiya, "I have sadly reached the conclusion that the foreign trade offices should be shut down."

Michael D. White, editor of the CalTrade Report, has likewise criticized the state's trade promotion effort, terming it a "sad, pathetic disaster" for which he blames both the Legislature and successive governors.

A more specific critique has been offered by Brooks Ohlson, the director of the Sacramento-based World Trade Center of Northern California. He told a February 2002 roundtable at the Senate Office of Research that his organization rarely if ever deals with the state's overseas trade offices because "they bring nothing to the table in terms of business matchmaking and market research reports and credible information that talks about the marketplace."

Ohlson's is by no means a solitary indictment. David Murray, owner of American Safety and Rescue, a supplier of equipment to fire and police departments, told the Register's Kindy: "They are not providing anything that is unique or beneficial."

So how do government programs fall into such disrepute among members of the very constituency those programs were intended to serve? The fact is that, over the years, California's trade programs have been hijacked by public officials eager to pursue political agendas that bear only the most casual relationship with the needs and interests of the state's international business community.

But that hardly qualifies as news. In an October 1999 article, Mitchel Benson, the West Coast correspondent for The Wall Street Journal described the state's foreign trade programs as being at "the dangerous intersection of two long-standing California traditions: patronage politics and the state's zeal for exports and foreign investment."

The Bee's Dan Walters similarly observed in a March 2001 column that: "The number and location of the trade offices have been dictated by political whim rather than any rational policy."

In retrospect, none of this should have been surprising. From the very start, California's trade programs were intended primarily to provide political cover for public officials wishing to appear responsive to the growing impact of international commerce on the domestic economy.

The effective politicization of California's trade program dates back to the early 1980s when America's economy seemed to be under siege from Japan and Western Europe. A hitherto obscure economic statistic, the monthly merchandise trade deficit, became the most closely watched barometer of the nation's plight, and, as it soared during the decade, the American public grew more and more alarmed.

That rising level of anxiety drove elected officials at every level of government to cast around for ways in which they could help restore a trade surplus. Never mind that trade deficits result from broad macroeconomic forces over which state government leaders have absolutely no control. The public demanded action, and it wasn't all that particular about what was done, so long as it seemed vaguely appropriate. Almost predictably, state export promotion programs (featuring chains of trade offices overseas) became the public policy rage.

Over the years, California's foreign trade offices have been little more than token efforts. In most cases, no more than two or three staffers - often political appointees with no appreciable international business credentials - were expected to represent the commercial interests of one of the world's largest, most diverse and most dynamic economies.

As though the challenge of serving such an enormous clientele was not sufficiently daunting, the notion of equipping these outposts with anything resembling formal business plans seemed alien to Sacramento's trade bureaucrats. Worse still, the process of determining the location of the overseas offices was soon subverted to permit politicians in Sacramento to pander to domestic political constituencies with strong vestigial ties to their ancestral homelands.

The ascendancy of political over economic considerations became especially manifest in the early 1990s with the opening of trade offices in Israel, Taiwan and South Africa. In contrast to the offices established under Deukmejian, none of these new outposts had been the subject of a formal feasibility study. In fact, neither Israel nor South Africa figured to be a significant trading partner for California.

The impetus for these and subsequent offices came not from the state's trade community (which typically went unconsulted) but from politicians at the state Capitol seeking to use commercial programs to score political points with important political constituencies.

So intent have public officials been on using the trade offices to advance their narrow political agendas that, as a November 1999 report by the California Research Bureau pointed out, trade agency officials had neglected to "survey exporters to determine their needs and priorities" when preparing a foreign office location study for the administration of Gov. Pete Wilson in 1998.

Despite a change in administrations, a Sacramento-knows-best indifference to the real world has persisted. In a critical 74-page report issued in December 2001, the state auditor claimed that Davis administration officials seemed almost allergic to community outreach and had been either unwilling or unable to coordinate their activities with other organizations engaged in export promotion.

Trade agency officials have annually appeared before legislative committees in the guise of Scheherazade, spinning brilliantly fanciful tales of great accomplishments in the hope of forestalling doom. What sketchy evidence they have presented has seldom convinced state government's designated skeptics.

In 1996, the state auditor faulted the trade agency for not having devised adequate tools for measuring and therefore assuring program effectiveness. Five years later, it looked again and found the deficiency had not been corrected. For its part, the legislative analyst has persistently urged the Legislature to demand firmer data on the foreign trade offices before providing additional funding or opening new offices. But such advice has not been heeded, presumably because legislators have been more interested in flourishing symbols of their commitment to international trade than in doing anything concrete or constructive.

So the overseas office program has not merely endured, it has expanded - sometimes to the exasperation of experienced traders. When legislation authorizing a new trade office in Armenia was enacted last summer, Joseph Harrison, the president of the California Council for International Trade, told the San Francisco Chronicle that it was "the dumbest thing I've ever heard of. It's an indication that the Legislature is bowing to political pressure and they don't take trade seriously."

This summer, the Legislature's wisest course would be to bring the ill-starred experiment with foreign trade offices to an end. The scant evidence attesting to the commercial value of these facilities is now even more dubious than ever. And at a time when public safety budgets are in jeopardy and programs helping the truly needy are being slashed, a vote to persist with a program that does not even enjoy the support of its ostensible constituency would be unconscionable.

Closing the trade offices abroad would also remove a huge impediment to positive change. The foreign trade offices have been a perverse distraction. Arguing over their usefulness has prevented serious consideration of other programs that might more usefully serve California's interests in today's global economy. The unfortunate reality is that, while the nature of international business has changed dramatically since the 1980s, California's trade promotion effort remains mired in that distant era.

Today's needs suggest that the state devote more attention to educating future business executives (and public officials) about the world around us and the processes of global economic change. Greater consideration must also be paid to enhancing the transportation linkages upon which trade depends. And the sine qua non of any effective state trade policy must be a more aggressive effort to lobby on behalf of California's often distinctive interests in the "foreign" capital that matters most - Washington, D.C.

Copyright (C) 2003 by J.A. O'Connell

For more information on the author, click on Jock O'Connell