Pact Draws Cheers, Jeers From Border 'Bullring'
Since NAFTA, US businesses recognize the importance of getting into Mexico, and many find El Paso a good launching pad. Last of a four-part series.
EL PASO, TEXAS — ROBERT CORDOVA doesn't have to reach far to find a reason to love the North American Free Trade Agreement (NAFTA). Beaming, the construction worker lays down his hammer and pulls from his jacket a check worth a week's pay -- his first Christmas bonus in 17 years.
''The NAFTA deal changed El Paso a whole lot,'' Mr. Cordova says. ''We're super-duper, double-cheese-Whopper busy.''
Indeed, most of the 2,000-mile-long border from San Diego/Tijuana to Brownsville/Matamoros is bustling. Free trade has hurled Mexican and American industries and their employees into the same unfamiliar bullring to face new markets and new competitors. Some businesses and labor workers are proving to be dazzlingly adept; others are running for their lives.
Cordova's crew has yet to pour the concrete floor for an enormous warehouse complex it is building east of town. But its owner, Security Capital Industrial Trust, has already leased the entire facility to United States businesses wanting a springboard into the beckoning Mexican market.
''The hype around NAFTA made people realize that, whether or not trade is free, we've got to get into Mexico,'' explains Wayne Windle of Mark III Industrial Developers, another warehouse builder with a waiting list of would-be tenants.
Among twin border cities, El Paso/Juarez offers some unique advantages to free-traders. While San Diego lies 40 miles from the border, El Paso sits smack on it. Though Matamoros and Reynosa are also a peso's throw across the Rio Grande, only Juarez is a major city. Its 1.2 million citizens are an excellent test market. ''El Paso is a good place to come and figure out if you can do business in Mexico,'' Mr. Windle says.
NAFTA has brought a wave of higher-technology manufacturers to El Paso, a town traditionally dominated by the low-skill garment industry, in particular bluejeans manufacturers. Garment finishers, such as the commercial laundries that stone-wash jeans, are closing down or laying off workers. Apparel manufacturers are still doing well, but El Paso's real growth in labor demand is in fields such as construction and plastic-injection molding, according to Lucinda Vargas, an economist with the Federal Reserve Bank branch in El Paso.
One of Windle's tenants is the Truesdell Company, a manufacturer of the flexible plastic tubes that protect automotive wiring. The plant supplies Truesdell customers in Mexico, the US, and Canada. ''The numbers tell the story,'' says operations manager Danny Gonzales. ''The volumes keep going up and up.''
Some customers wanted Truesdell to open a factory in Mexico, but NAFTA made it practical to simply expand the El Paso location threefold. Square footage in El Paso commands 15 percent to 20 percent higher rent than it did two years ago, Windle adds.
IN the consumer-products arena, NAFTA opened the Mexican floodgates to imports of American milk. The reason was not a decline in tariffs. Although under NAFTA tariffs fell from 10 percent to 9 percent, in effect they rose from zero. Mexico had not been collecting tariffs in order to assuage a milk shortage on its side of the border.
Rather, NAFTA boosted milk sales simply by drawing American producers' attention to the Mexican market, where they found consumers eager to pay a premium. ''American milk is perceived to be of better quality,'' notes El Paso dairyman John Lane. The mammoth Wal-Mart and Sam's Club stores rising from the Chihuahua desert in Juarez will sell US milk.
About 30 percent of Mr. Lane's production has always ended up in Mexico, he says. But before NAFTA, the sales were to Mexican families shopping for groceries in El Paso. Now those families buy Lane's milk in Juarez from large Mexican grocery chains that have begun volume purchases from his loading dock.
''NAFTA has opened up the market a great deal,'' says Lane, who operates his family's 60-year-old dairy in the shadow of the Hueco mountains east of El Paso. Still, he has chosen not to increase his overall sales volume because he says he does not wish to enlarge his herd of 1,200 Holstein, Jersey, and Brown Swiss cows. But other El Paso milk producers have aggressively moved to boost exports, he says.
THE surge in competition led to clashes with Mexican producers last spring. American milk was arbitrarily delayed at the border by customs officials or dumped to the ground. Some milk trucks were burned, and drivers were beaten.
''There is a lot of discontent'' among Mexican milk producers, says Octavio Chavez, director of the Center for International Competitiveness at Tecnologico de Monterrey, Mexico's largest private university system. ''The small guys are suffering.''
Some artificial, nontariff barriers persist. Nonetheless, Dr. Chavez says, Mexico's government has made clear to its milk producers that they must compete without protection or subsidy. ''If that's not a good activity for you, get out of it,'' he says.
While Juarez dairymen have been hurt by NAFTA, others there have yet to feel the effect of free trade. ''We haven't seen the benefit [of NAFTA] at the general level,'' Chavez says. ''The major players have. We're still waiting for the trickle down.''
For 25 years, Alejandro Carrillo has sold fresh fruit and vegetables from the tailgate of his pickup, parked alongside a busy Juarez thoroughfare. Since it is winter, most of what he sells comes from Mexico: apples from Chihuahua, corn from Sonora, tangerines from Guadalajara, and peppers from Sinaloa. During the US growing season, he hawks American produce, including grapes from California. But while tariffs have fallen, his costs have not.
That's because the savings have been pocketed by the large Mexican wholesaler from whom he buys, Carrillo says. Nonetheless, Chavez says he suspects that NAFTA's benefits will eventually reach businessmen such as Carrillo.
Among the biggest players on the Mexican side of the border are maquiladoras, the thousands of foreign-owned assembly operations whose goods once were only exported. A few years ago, Mexico began allowing maquiladoras to sell some products in Mexico by special permission.
Then NAFTA threw open the doors, allowing up to one-half of a maquiladora's output to enter Mexico without restrictions on domestic content or other criteria. The percentage will rise through 2001, when maquiladoras will be treated like any other Mexican manufacturer.
El Paso businessmen say the devaluation of the peso is giving them a ''roller-coaster ride.'' Nevertheless, they are optimistic. The 30 percent devaluation, offset somewhat by the 7 percent increase in minimum wage that the unions received, gives maquiladoras a three-to-five-year reprieve, according to Don Michie, a director of the El Paso Foreign Trade Association. He predicts foreign investment will resume, but in the meantime, US companies will make use of Mexican subcontractor factories, he predicts.
In both of the two years before free trade, production surged an average of 20 percent at maquiladoras all along the border. ''NAFTA, if anything, merely opens up more options to them,'' economist Ms. Vargas says.
''Mexico is a big growth market for us,'' adds Danny Vickers, president of Electronic Data Management International (EDM). His unusual maquiladora in Juarez has 1,800 employees engaged in processing documents for companies such as Federal Express and in software engineering on IBM systems software.
EDM's services faced no tariff barrier even before NAFTA. But the treaty will help with nontariff barriers, like software copyright, Mr. Vickers says. The permitting process that controls every aspect of Mexican business also is being streamlined.
Under the treaty, foreigners working in maquiladoras will pay Mexican income taxes for the first time. And corporate taxes will be far higher on maquiladoras, Vickers says. Both are offset by credits on US taxes.
NAFTA critic Ross Perot, who earned billions of dollars in data processing, ''should have known better than to make some of those stupid statements,'' Vickers says. ''These kinds of jobs left the US 10 years ago. There has been no acceleration.''
JAN. 3: NAFTA's US winners and losers
JAN. 5: Mexican companies stoically accept US competition
JAN. 6: Canadian furniture company back from bankruptcy
TODAY: Mexican border bullring: Some firms stumble, some thrive