Michael Young

Wednesday, 31 August 2005 13:14

CAFTA

In Washington, the proposed free trade agreement between the United States, five Central American nations — Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua — and the Dominican Republic has been one of the most hotly debated issues of the summer. CAFTA, as the agreement is called, has divided Republicans and Democrats, business and labor, free-market economists and environmentalists.

Nevertheless, it is important for U.S. manufacturers to understand the potential benefits of CAFTA. The U.S. Commerce Department estimates that CAFTA will immediately eliminate duties on more than 80 percent of U.S. exports of industrial and consumer products to Central America and the Dominican Republic. Remaining duties would be phased out over a ten-year period. The U.S. would benefit from this duty-free regime because about 80 percent of imports from the CAFTA countries already enjoy duty-free treatment in the United States.

Ohio companies can profit from expanded exports to the CAFTA countries. According to the Commerce Department, Ohio’s exports to CAFTA nations totaled $197 million in 2004, making Ohio eighteenth among the states in exports to the region. Manufactured goods accounted for almost 90 percent of those exports. From 2000 to 2004, Ohio sales to CAFTA countries increased by a remarkable 90 percent, including a jump of 16 percent from 2003 to 2004. The Commerce Department predicts that Ohio’s exports of chemicals, textiles and motor vehicles will benefit the most from CAFTA. Ohio exports of resin, synthetic rubber, and artificial fibers and filaments have experienced strong growth since 2000. The CAFTA countries’ duties on these and other high-value chemical products will be eliminated immediately or phased out over five years under CAFTA. Ohio textiles have demonstrated a similar pattern of increased trade with the CAFTA countries.

Both the U.S. Trade Representative and the Commerce Department note that CAFTA will give Midwestern garment-makers — as well as U.S.-based suppliers of fabric and yarn — a critical advantage over other international apparel producers. CAFTA countries are the second largest market in the world for U.S. fabric and yarn. The U.S. government expects this market to expand following the implementation of CAFTA. Ohio exported $19 million worth of fabric-mill products in 2004, up from only $1.4 million in 2000. The Commerce Department predicts that CAFTA will also benefit other Ohio manufacturing sectors, including producers of plastic; railroad rolling stock; sugar and confectionary products; engines, turbines and power transmission equipment; aerospace products and parts; and apparel accessories.

U.S. government statistics reveal that Ohio manufacturers are the beneficiaries of a global marketplace and earlier free-trade accords. In 2004, Ohio exports totaled $31.2 billion. In the first year of the free trade agreement with Chile, Ohio’s exports to that country alone grew by 20 percent. Since the North American Free Trade Agreement (NAFTA) was signed ten years ago, Ohio’s combined exports to Canada and Mexico have more than doubled.

Ohio’s agricultural sector is also predicted to benefit from the enhanced marketing opportunities under CAFTA. The U.S. Department of Agriculture estimates that in 2003 the state’s agricultural exports reached $1.2 billion and helped support 18,960 jobs in Ohio. The elimination or phase-down of import duties in the CAFTA countries will likely open additional markets for American soybeans, corn, wheat, dairy products, beef, and pork. Soybeans are Ohio’s top agricultural export, and corn ranks third. Ohio is the ninth largest exporter of wheat in the U.S. CAFTA would immediately eliminate most duties on these and other agricultural products.

Following the sound and fury about the perceived advantages and disadvantages of CAFTA, both the House and the Senate have approved this trade pact. Ohio companies must now be ready to seize the opportunity to expand their markets in Central America and the Dominican Republic.

Frederick P. Waite, of counsel in the Washington office, practices international trade and customs law on behalf of domestic and foreign producers, domestic consumers, trade associations and multinational trading companies. Reach him at (202) 467-8852 or fpwaite@vssp.com. Kimberly R. Young, an associate in the Washington, D.C. office, also practices in the area of international trade and customs law. Reach her at (202) 467-8881 or kryoung@vssp.com.

Thursday, 29 November 2001 06:38

It's a tenant's market

Currently fashionable gloom and doom market reviews need to be taken in historical context.

Did we expect the record-breaking development and absorption pace of the past three years to continue forever? Conditions in the office market in Columbus are similar to conditions in 1997. Vacancy rates are higher than they have been for a few years. The recent construction slowdown will give the real estate market a chance to catch its breath.

Existing market dynamics make the site selection process more complicated than ever. Today's economic climate has created a tenant's market for office space -- both in the suburbs and downtown. In the Columbus office market today, there is an ample supply of brand-new office space and second-generation space and an abundance of sublet space.

While many companies are taking a wait-and-see attitude toward the economy, some have decided to shop the market now due to their expectation of top quality space at fire-sale rates.

While there are bargains, businesses need to be aware of a few realities. Rental incentives will be offered to tenants with excellent credit ratings who require substantial amounts of space and are willing to sign a lease for five years or longer. Smaller users or start-up companies will not provide a landlord enough security to qualify for leasing incentives.

Here are some items to consider if you're in the market for new space:

* Many newer buildings in the Columbus market have been constructed with tax abatements. That alone can save a great deal of money over the life of your lease -- and makes it hard for older properties to compete. Although developers of new space are motivated to maintain their quoted rates for their buildings, they may offer several months free rent or lower the rate for the first year.

* Existing properties are fighting to retain tenants while developers are eager to fill empty new spaces. Because of the brand-new Class A space available in the market, owners of second generation Class A or Class B properties are much more willing to offer incentives to lease space there. Periods of free rent and higher tenant improvement packages, relatively new to the Columbus market, are available.

* One result of the changing economic environment and corporate consolidation is that there is more sublease space available than ever. Because many tax abatements are granted for a 10-year period, it is possible to find sublease space that still benefits from tax abatement. Subleasing, or taking over a lease from another tenant, can save you up to 40 percent of the quoted rental rate.

* Commercial real estate agents, with their in-depth knowledge of the real estate market and the leasing process, save clients time, headaches and thousands of dollars. Interview several real estate agents to find one you are comfortable working with. Make sure that person has both the experience and the tools to support your decision-making process.

Commit to working with one company -- a good agent is going to make sure you visit all available properties that fit your space requirements. Check Top 25 lists or look for property listing signs to find real estate agents active in your area.

In addition to finding tax abatements to help you save money, commercial real estate agents can assist you with savings in other ways. A client needing 20,000 square feet of office space recently received a State of Ohio Job Creation Tax Credit for creating 25 new jobs at 150 percent over minimum wage. That could impact your rent as much as $1 to $1.25 per square foot per year. Sometimes locating in a Community Reinvestment Area is as simple as selecting one side of a street rather than the other.

The length of the real estate decline will be a factor in the economy. In Columbus, interest rates are low, unemployment is low and inflation is low. The Columbus real estate market has never experienced a prolonged downturn.

The Columbus industrial market has already turned the corner -- leasing activity picked up substantially in third quarter. Sublease space is being absorbed rapidly in the office market. If you're hoping to pick up bargain office space, you'd better get started now.

If your lease is due to expire in the next six to nine months, now is the time to go out kicking tires.

Michael E. Young is principal and managing director of the Columbus office of NAI Welsh, a full-service commercial real estate company providing service to clients worldwide. He can be reached at 280-4822 or myoung@welshco.com.