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SAN FRANCISCO - International trade is not something external to the state or the region, but instead is a critical component of the Bay Area's economy, generating jobs, supporting economic development and stimulating economic competitiveness, according to a new report issued recently by the Bay Area Economic Forum.

"While sometimes viewed as a zero-sum game, trade in fact reflects a complex web of economic integration and interdependence, involving cross-border research, design, manufacturing and marketing, with widely distributed benefits when conducted in an open and transparent environment," the report said.

According to the piece - published in cooperation with the Bay Area World Trace Center - the global economy should expand modestly in 2003, with growth of 3.7%. The major developed economies - the US, European Union and Japan - will continue to experience slow growth. Latin America's economies will see very slight growth at best.

However, NAFTA partners - Mexico and Canada - should fare better.

As a region, Asia should put in the strongest economic performance with growth of approximately 6.3%.

After a period of rapidly expanding trade through most of the 1990s, and a fifty-year period in which global trade growth exceeded growth in GDP, world trade contracted in 2001. A slight expansion of 2.1% is expected for 2002, with accelerating but modest growth of 6.1% in 2003. As the world's largest importer and exporter, the strength of economic recovery in the US will have a major impact on global trade volumes.

A range of negotiations is underway that will also influence the short and long-term climate for trade.

"The World Trade Organization's (WTO) Doha Round is aiming for broad-based multilateral agreements on issues ranging from tariffs to agriculture, services, competition policy and intellectual property by 2005. A Free Trade Agreement of the Americas (FTAA) is also targeted for completion in 2005.

Bay Area and California businesses will benefit more immediately from new bilateral trade agreements with Jordan and Vietnam," it said.

Agreements were reached in late 2002 on free trade with Chile and Singapore, which go to Congress for approval in 2003. Other free trade agreements are being considered with Australia, New Zealand, the Southern African Customs Union, Central America, Morocco, Taiwan, Jordan, and Turkey.

Exports from California have grown faster than exports from the United States as a whole, and the state accounts for a higher share of US exports (16%) than of GDP (12.8%), the report said.

As a result, California has a disproportionate interest in trade expansion.

"Given the Bay Area's orientation toward Asia and the fact that its exports are heavily based on technology products with a high intellectual property content, international trade agreements that improve access to Asian markets and improve intellectual property protection will be particularly important to Bay Area companies," the report said.

China's recent membership in the WTO illustrates the benefits of market liberalization. Already the United States' fastest growing market (exports to China have grown at an average annual rate of 12% since 1990), China has become the United States' fourth largest trading partner. Its impact on global trade will continue to grow, with surging foreign investment solidifying China's role as a global manufacturing and export center.

That country's growing domestic market will be increasingly important to trading partners, providing a new engine for growth in an otherwise lagging global economy. Membership in the WTO will accelerate access to that market in a range of sectors.

International trade plays a strong role in the Bay Area's economy. The Bay Area ranks as the second largest exporting region in the nation, after only New York-New Jersey, and international trade supports a significant part of the workforce, particularly in the computer and electronics sector, where 35% of manufacturing employment is tied to trade.

Asia is the region's dominant trading partner - more than half of the Bay Area's exports go there - followed by Europe and NAFTA. Asian markets are particularly important to the Bay Area's high technology industries. This pattern has been consistent for the last decade, but Mexico's share of regional trade is growing.

The region sells a wide range of products and services abroad, but its export profile is dominated by high technology - semiconductors and semiconductor equipment, computers and computer equipment, software, telecommunications equipment, medical technology, biotechnology and pharmaceuticals. A large number of the region's leading companies in these sectors earn 40-60% of their total revenues from overseas sales.

International trade, the report said, is increasingly linked to direct foreign investment, as companies develop overseas partnerships and production facilities, assemble products from designs and components sourced in multiple countries, and sell into global and regional as well as national markets. This globalization of production is producing a pattern of international interdependence and mutual benefit far more complex than the traditional import-export model suggests.

Many Bay Area companies are leaders in this process. Services - legal, accounting, architecture, design and engineering, tourism and education, as well as food and wine, also figure prominently in the region's export profile.

Not only major corporations, but also a large number of small and medium sized companies throughout the region are exporting and benefiting from international trade.

Looking at several sectors that are of particular importance to the region, global information technology markets are weak, but accelerating growth in the last quarter of 2002 is expected to carry into 2003, producing modest but significant growth.

A bellwether for IT markets generally, the Semiconductor Industry Association projects 20% market growth for semiconductors this year. As with other sectors, much of that growth will come from Asia. Good opportunities exist in medical technology and pharmaceuticals, particularly in developed countries with aging populations (Japan and the EU).

Agricultural exports, including wine, are also expected to grow modestly.

Services, the fastest growing segment of the global economy, should see significant growth, reaching $350 billion by 2005. With its knowledge-based economy, the Bay Area is in a strong position to compete in this area.

Trade isn't something that happens "out there," external to the region, but instead is critical to the Bay Area's economy, generating jobs, supporting economic development, and stimulating economic competitiveness.

The strength of the Bay Area's economy in 2003 and beyond, and its recovery from an extended period of recession and slow growth, the report said, will depend to a significant degree on growth in its leading overseas markets, the health of the global economy, and continued international trade, investment and export expansion.

Barring unpredictable events, the report said, the outlook for the Bay Area's international trade activities this year "is for continued opportunity in selected markets, and moderate trade expansion globally." 

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