NAFTA Slowly Forces US Workers to Uplift Skills

As firms on border in Mexico upgrade, US towns like El Paso must boost training

Recent news in this booming city - and its twin across the Rio Grande - El Paso, Texas - has read like unrelated business-page blips. But taken together, the stories paint a picture of economic evolution on the Mexico-US border that is both perilous and promising:

* Acer computers will build a huge manufacturing campus in Ciudad Jurez, creating thousands of jobs, many high-skilled.

* Levi Strauss is closing another plant in El Paso, bringing the famous jeansmaker's job cuts there to almost 2,000 in one year.

* Gap, the ubiquitous US clothing retailer, is studying setting up manufacturing operations in Tlaxcala, a central Mexico state.

* Dayco Products, a plastics manufacturer, is expanding in El Paso from 30 employees in 1997 to 170 this year citing its proximity to Jurez.

* Philips, the electronic consumer-products giant with thousands of manufacturing jobs in Jurez, will build a $2 million distribution warehouse in El Paso - creating 30 jobs.

As a unique point of encounter between the developed and developing worlds, the border shows how the future of each side depends increasingly on linking their individual strengths.

Mexico's lower wages will continue to attract labor-intensive industries, analysts say. The United States will profit from providing necessary services and related, higher-skilled manufacturing.

The border area is expected to become more attractive for investment in 2001, when new "rules of origin" for manufactured products begin under the North American Free Trade Agreement (NAFTA). But low-skill manufacturers especially will continue to seek the lowest-cost location possible, which means in the future they will head deeper into Mexico.

Thus with NAFTA rules offering enhanced preferential treatment to manufacturers operating in either the US, Mexico, or Canada by 2001, more non-NAFTA-based companies like the Taiwanese company Acer and the Dutch company Phillips are going to set up shop here. They want a foot in the NAFTA door.

At the same time, Gap's interest in central Mexico exemplifies how higher land and labor costs on the border will drive some sectors, such as textiles and clothing manufacturing, away.

The southern shift of a traditional border industry like garmentmaking is good news for Mexico, which worries about a growing development and income schism between its increasingly industrialized north and a lagging center and south.

And since one goal of NAFTA was to create more jobs in Mexico to lessen migration pressures, more jobs in Mexican regions with strong migrant traditions is also good news for the US.

Plants move away from border

This year a growing percentage of new maquiladoras, or tariff-free assembly plants, are locating away from the border in such Mexican states as Aguascalientes, Yucatn, Oaxaca, and even in far-south Chiapas. The Oaxaca state government is promoting the mostly rural southern state as about one-third cheaper per employee than the average border state.

Ready access to the US will continue to be an advantage for the border, although "We're seeing steady development of industrial parks anchored by an airfield in places like Yucatan and Oaxaca," says Salvador Musalem, a spokesman for Mexico's Commerce and Industrial Development Secretariat.

But the trend also spells trouble for the US side, analysts warn, unless communities like El Paso prepare workers for the job shift and tap into the opportunities that Mexico's development offers. As the Acer project, Sony electronics labs in Tijuana, and other high-tech projects show, more higher-skilled jobs are also going south of the border.

The US border's growing economic dependence on the Mexican side may constitute a new pecking order that doesn't please everyone.

"El Paso doesn't want to hear that the engine that drives its economy is Ciudad Jurez," with its 200,000 maquiladora jobs, says Donald Michie, an El Paso business consultant and business teacher at the University of Texas. "But instead of fussing over retailing on the border and the garment industry, which are history, they need to be preparing the kids and training workers for a different future."

Adds John Best, a director of the El Paso-Jurez-based Best/White real estate brokerage firm, "Either these border communities [on the US side] figure out how to add value" to products being made on the Mexico side, "or they will continue to be economically depressed."

El Paso, like other border cities, can either become a "bedroom community" for Americans and migrating Mexicans working in manufacturing jobs in Jurez - "but companies don't invest in their bedroom communities, they invest where they are located," Mr. Michie notes - or it can work to attract the manufacturing-support industry "that provides better jobs," he adds.

To do that, El Paso, which continues to suffer from double-digit unemployment even as the rest of Texas and the US have seen joblessness fall to record lows, will have to keep kids in school longer and offer better training for workers, observers say.

And it will have to attract more than transborder-oriented warehouse space, which is a strong sector of the economy but does not bring in many new jobs or particularly well-paid ones.

The dozens of unemployed women who go every day to La Mujer Obrera (The Woman Laborer), a downtown El Paso retraining organization helping laid-off garment workers, offer an idea of how difficult the transition will be for some. Most of the women speak little English, have few math skills, and are unfamiliar with computers.

"What I'm good at is sewing, but it looks like those jobs are all going to Mexico where I came from," says a 17-year garment worker, who is now one of Mujer Obrera's trainees.

But others say a combination of NAFTA's next stage taking effect in 2001 and proximity to low-wage Mexico will make the US border an attractive place for manufacturing growth well into the future.

Example of new development

One of those optimists is Mark Lautman, general manager of the Santa Teresa Real Estate Development Corp. that is creating a new, 22,000-acre city on the border in Santa Teresa, N.M.

The new manufacturing-based city already has 1 million square feet of industrial space and 1,000 manufacturing jobs, and is set to add those amounts annually for at least the next three years. "Right now is the best time to be on the hunt for value-added manufacturing," Mr. Lautman says.

His high hopes are based on solid experience. Lautman helped developed Rio Rancho, the new high-tech manufacturing community anchored by Intel outside Albuquerque, N.M. Lautman notes that as more companies moved in and better jobs were added, Rio Rancho's average income jumped from $19,000 in 1986 to $44,000 in 1996. And he says something similar can happen on the border, with the right emphasis.

Lautman says his development company is emphasizing manufacturing jobs because Santa Teresa, with a land port (no river to cross) into Mexico, will also feature residential and commercial development.

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