Even as tensions between the United States and China intensified late last week over the fate of 24 U.S. Navy crew members, a slew of small and mid-sized L.A. companies are busy forming trading alliances with Chinese counterparts in anticipation of that country being admitted to the World Trade Organization later this year.
Local trade officials remained optimistic that the incident would not seriously damage China's prospects for entering the WTO.
"In the end result, it will not ultimately hold back China's entry and U.S. support of China's entry into the WTO," said Alexander Kramer, executive vice president of international trade with the World Trade Center Association in Long Beach. "It's just too important to the economy. They are an economic player in the world stage."
Responding to that expected outcome, Los Angeles companies are forming strategic alliances in a bid to gain entry to Asian markets that were previously out of their reach. And their Chinese counterparts are following the same path.
Companies that can not afford to set up their own overseas operations to handle the customs, licensing, parking, storage, import tax and distribution operations are now hiring stateside and foreign entities most often shipping brokers and quasi-governmental business councils that specialize in those tasks.
U.S. trade officials project that within five years of China's admittance to the WTO, the value of trade between the two populous countries will be double the $74.4 billion level traded last year.
Almost all of that trade flows through local seaports. More specifically, in excess of $32 billion of goods passed between China and each of the two local seaports, San Pedro and Long Beach, last year. So the expected explosion in U.S.-China trade would be felt most dramatically in Los Angeles. And much of that increased trade is expected to be facilitated through L.A.-China alliances.Seamless conduit
"These alliances make it very easy to do business because it creates a seamless system," said Guy Fox, board chairman of Global Transportation Services Inc., which represents about 100 American companies doing business with China. "You're able to take a person's freight from the factory to the customer's door, and it's as simple as selling to the guy down the street. Without an alliance, it would be very difficult to put the process together."
The alliances are also assisting American companies to ship products they have manufactured in China back into the United States.
Among the top imports into China from the United States are computer and other high-tech equipment, fresh and canned foods, machinery, farming equipment, aircraft parts and pleasure boats.
China, in turn, exports electronics, clothing, toys, footwear, luggage and other travel goods, as well as watches and clocks to the United States.
Applause, a Woodland Hills toy and housewares wholesaler, uses its alliances whenever it needs to locate a mainland China manufacturer that makes a new product the company wants to sell.
"Importers of merchandise couldn't survive without worldwide alliances in manufacturing," said Robert Solomon, owner of Applause, which a decade ago switched its contract manufacturing to China from Thailand and Indonesia.
Among the hundreds of other Los Angeles area-based companies that have entered into alliances are toy distributor Lakeshore Learning Materials; Essential Pharmaceutical Corp., a health products manufacturer; the Leon Max Co., a textile importer; the J.J. Paramount International Co. general merchandise importers; and the Coast Novelty Manufacturing Co.
In anticipation of joining the WTO, China has been slowly reducing the tariffs it levies on imported goods coming into the country over the past decade.
But China's entrance into the WTO will mean more significant reductions in those taxes, which vary depending on the product and were as high as 100 percent for automobiles a decade ago.
Preliminary indications are that the average overall tariffs for products entering China, now between 15 and 17 percent, will drop below 10 percent soon after the country enters the WTO.
Nevertheless, problems remain for American companies in Hong Kong, as well as other U.S. businesses that are trying to establish alliances with China.
Many regulations and tariff rates in China are different from those in Hong Kong, for example, and U.S. exporters regularly have difficulty locating connections for distribution and storage of exports, once the goods arrive in China.
Although China bills itself as "one country, two systems," China's business leaders acknowledge that trade is complicated by the bureaucracy in government-controlled communist China.
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