WorldCity Business Magazine

Chinese checkers

by Mary Dempsey

China is using the massive volume of its trade to post feverish inroads in the United States and elsewhere and that has some industries, mostly notably textiles, offering panicky predictions about job loss and unbeatable competition.

Beyond the obvious difficulties that many U.S. companies face trying to compete with Asia on price and volume, China’s success may actually offer some South Florida companies unexpected opportunities.

At WorldCity’s first quarterly TransWorld TradeLinks conference at the InterContinental Hotel in Doral in late June, Peter Quinter, a lawyer in the Customs and international trade practice at Becker & Poliakoff, told the audience that, while South Florida has always focused on Latin America and the Caribbean, it’s now time to take a harder look at how the Miami area can feed off China’s dynamism.

Quinter and John Price, president of consulting firm InfoAmericas, were keynote speakers at TransWorld TradeLinks. WorldCity president Ken Roberts opened the conference by providing an overview of South Florida’s international trade links, its major trade partners and the most important products moving in and out of the region’s airports and seaports.

Quinter told participants that U.S. companies have to abandon the notion of competing head-on with China, which, because of its massive and cheap labor force, can make some products for next to nothing. Rather, he said, they should look at offering China what it doesn’t already have.

“Some companies have already figured it out. Del Monte in Florida sells its products in China. Eventually it will sell to all the Wal-Marts that will be set up in China,” said Quinter. “China has a lot of money. The Chinese want to buy a lot of products from the U.S.”

Quinter described his visit to the Forbidden City in Beijing and his surprise at finding a Starbucks coffee shop there. It proves, he said, that “You can fight China or you can join it.”

But Quinter, who travels regularly to Beijing, where his law firm has an office, emphasized that Florida’s relationship with China goes well beyond trade. “It’s about money coming in [to the United States]. The Chinese are buying property, entire shopping centers, condominium developments. There is opportunity.”

**Although Quinter spoke about direct benefits offered by new business links with China, trade remains an important factor, albeit sometimes indirectly. China’s insatiable appetite for commodities like soybeans from Argentina, copper from Chile, oil from Venezuela and iron ore and steel from Brazil have boosted Latin American economies in the past three years.

John Price, president of consulting company Infoamericas, said those good times in Latin America translate into good times for Florida, too.

“Latin America is a part of the world that depends on imported goods. Those goods come from the United States or they come through the United States,” said Price. “There is a direct benefit to Miami. Our port is designed to handle those value-added goods. And companies like UPS, DHL and FedEx ship those value-added goods door-to- door.”

In addition to U.S. exports to Latin American countries, where economic upswings have spawned growing demand for goods – - and more disposable income to buy them—cargo coming from China to Miami has also given a boost to local shipping, logistics and port-services companies.

Last year, China held the No. 7 spot among South Florida’s most important trade partners. With $2.5 billion in trade, the Asian nation was the top non-Latin American trade partner with the Miami area in 2004.

**One of the biggest recent developments to affect that trade occurred on January 1, 2005. “After 44 years of existence, the incredibly repressive MultiFibre Agreement came to an end,” said Price. “It was supposed to have been in effect for 10 years but it went on for 44 because the industry [in the United States] couldn’t keep up.”

The agreement established quotas for textiles coming into the United States as a way to protect the domestic textile and garment industries. When the agreement ended, China’s clothing exports jumped quickly and dramatically.

Sewing It Up

Price said much of this was a one-time adjustment in a market that had been artificially repressed for four decades. Still, the United States responded in May with new restrictions on seven categories of apparel, including T-shirts and underwear.

Although some large U.S. textile makers support the quotas, most U.S. clothing manufacturers and retailers now produce a preponderance of their goods overseas and want import restrictions lifted. As a result, the focus has shifted to how Chinese exports of apparel affect nearby Central America.

Despite scare stories about Chinese exports flooding global markets and putting Latin America textile producers out of business, Price said countries like Honduras, Nicaragua and Peru—which have among the lowest labor costs in Latin America have done well. And U.S. businesses that feed yarn, cloth and other supplies to the Central American textile sector have also seen gains.

To continue that beneficial relationship, noted both Quinter and Price, U.S. should approve the Central America Free Trade Agreement, which also includes the Dominican Republic, as soon as possible.

The DR-CAFTA free trade pact has been stalled in Congress, despite efforts of the Bush Administration to get it approved. Democratic leaders have argued that it will cost U.S. jobs and worsen the country’s current account deficit. President George Bush has called passage of the agreement one of his priorities.

Price explained: “CAFTA is important because Miami’s economy is dependent on this trade. CAFTA not going forward means the logistics and transportation services are not going to invest in this town. Without CAFTA, the whole idea of going forward on bigger trade issues is going to be held back. The U.S. has already lost a lot of Latin American trade to Europe. Without CAFTA, that’s just going to continue.”

The conference speakers noted that Europe, like the United States, initially looked at trade barriers as a strategy for dealing with powerhouse China. But, unlike the United States, it rethought that strategy and began to negotiate to get China to voluntarily limit certain exports.

In addition to more free-trade pacts, Price said, the U.S. needs halt its drift toward rising protectionism if it is to capitalize on the China factor. Business also needs to lobby lawmakers to make sure that anti-moneylaundering measures and anti-terrorism regulations implemented in the name of Homeland Security do not become burdens that scare off investment including investments from China.

“If we don’t get CAFTA and end protectionism, if we don’t start planning, then we are on the verge of a trade war,” Price said.