News Column

Unrealized Potential

July/August 2002, HISPANIC BUSINESS Magazine

By Jonathan J. Higuera

In the California border town of San Ysidro, backers of a proposed development called Las Americas envision an open-air mall surrounded by housing, a library/cultural center, art galleries, and a privately funded port-of-entry bridge connecting the town with Tijuana, Mexico. For some, Las Americas offers a glimpse of what the U.S.-Mexico border region could be.

“This becomes the physical manifestation of what NAFTA is,” says C. Samuel Marasco, the developer behind the project. “We will convert the border from our back door to our front door.”

It’s that kind of investment that trade proponents envisioned when they sought the landmark North American Free Trade Agreement (NAFTA) in the early 1990s. And while the vision is still hoped for, the reality is very different. Congestion and chaos reign when it comes to border life. Living conditions along most of the nearly 2,000-mile border are more akin to developing-world poverty than suburbia in the United States.

While it was being negotiated, NAFTA was at times portrayed as a down payment toward the infrastructure needs of the U.S.-Mexico border region. The payment never arrived in any meaningful sense, however, and the September 11 terrorist attacks have since changed U.S. priorities for the foreseeable future. Instead of billions of dollars for improving the quality of life along the border, billions will be spent on homeland security. Instead of new wastewater treatment plants, the twin cities are more likely to get more Border Patrol and Customs agents using the latest high-tech applications for filtering out unwanted people and goods.

“Before 9-11, there was a potential synergy between Fox and Bush,” says Michael Acosta, associate director of the Institute for Policy and Economic Development at the University of Texas at El Paso. “Since then, not much has happened.”

It’s not that border advocates aren’t trying. Rep. Silvestre Reyes (D-TX), Sen. Kay Bailey Hutchison (R-TX), and Sen. Jeff Bingaman (D-NM) recently introduced legislation to create a Border Authority that would oversee and act on the major border issues. But their bill has been overshadowed by President Bush’s $37 million plan to create a Homeland Security Agency. The proposal, which has strong support in Congress, would place all border enforcement officials under one agency.

Already, the stepped-up security measures since September 11 have choked off traffic coming into the United States, putting a squeeze on border merchants on both sides of the border and hurting local economies that depend on foreign visitors.

Yet despite the uncertainties, the movement of goods and services between the United States and Mexico has grown steadily, and at times spectacularly. Its value approaches $1 billion a day – not as much as the nearly $2 billion in trade between the United States and Canada, but more than that for all other Latin American countries combined.

Mexico now exports nearly $160 billion in goods and services annually, and its biggest export market is the United States. At the same time, it has opened itself up to a plethora of U.S. companies, which have found a willing consumer market. It’s not unusual for Mexicans to eat a hot dog from an AM PM market or sip a Starbuck’s coffee.

“When NAFTA was being negotiated, we were preparing for a deluge of products from Mexico,” says Bill Sykes, president of Sykes Co., a distributor of Mexican fruits and vegetables based in Nogales, Arizona. “Because of relaxed import duties, we thought we’d get tons of products. But it went the other way. American products started showing up all over Mexico.”

Mexico hasn’t slowed its quest for more trade pacts, either. The Fox administration is a big supporter, as is the Bush administration, of the proposed Free Trade Area of the Americas pact, which would link the countries of the Western Hemisphere in a single trading bloc. They’ve also sought agreements with Asian countries. In May, Mexico hosted the Asian Pacific Economic Cooperation Meeting in Puerto Vallarta.

One reason U.S. Hispanics were urged to support NAFTA is that they could become the bridge to facilitating trade between the two countries. With their knowledge of the language and culture of both countries, they would be at the leading edge of future business trends. But globalization has occurred at such a rapid pace that only U.S. Hispanic-owned companies mobile enough to meet global standards are finding success.

“Hispanic companies have an advantage in trading with Mexico, other things being equal,” says Van Whiting Jr., a senior fellow at the Center for U.S.-Mexico Studies at the University of California, San Diego.

Despite vociferous opposition to NAFTA and free trade both here and abroad, economists contend that the benefits – the U.S. economic recession notwithstanding – have outweighed the negatives.

“In the United States, we sometimes forget that the alternative to trade with Mexico is not usually domestic U.S. production, but trade with Asia. Trade with Mexico leads to specialization and a deeper integration of the two economies,” says Mr. Whiting.

One needs to look no further than Mexico’s maquiladora industry to see examples of that integration. Even before September 11, the plants began feeling the effects of a slowing U.S. economy. So far, layoffs are estimated to have reduced its 1 million workers by nearly 25 percent.

“Some maquilas have become world-class production sites, while others are still competing primarily on the basis of wage costs,” Mr. Whiting says.

To put it even more bluntly: “They’ve been kind of lazy, taking advantage of the peso devaluations to balance their profit-and-loss sheets,” says Pia Orrenius, a senior economist with the Federal Reserve Bank of Dallas.

She expects to see Mexico’s manufacturing sector experience the same trends witnessed in the United States – low-cost labor flight and more capital-intensive production. “They will employ fewer workers, but there will be a demand for skilled workers,” she says.

The trump card for future cross-border trade may lie in e-commerce initiatives. Already the concept of cross-border electronic transactions has transformed some industries, such as the auto supply industry, which has streamlined intra-enterprise communications in the area of inventory control and supply-chain management. E-commerce will have an even greater impact on these business-to-business services than on retail commerce, predict some.

“It gives us the opportunity to be suppliers to large companies from right here in El Paso,” says Mr. Acosta. He cites the U.S.-Mexico e-commerce project being pursued by the Holguin Group (“El Paso Maps Out a High-Tech Future,” September 2001) as one example.

For the time being, Mr. Whiting believes, companies on both sides of the border have their work cut out for them.
“We have yet to see the full adjustment of firms in both countries to the demands of truly world-class competitiveness,” he says. “This includes total quality production, just-in-time inventory and distribution, and low costs.”

While nobody can predict the future of trade between the United States and Mexico, some have a clear idea of where it isn’t going. It won’t be like the European Union, which allows for the free movement of people and goods between its member countries.

“In 10 years you will have free trade for 80 percent of the goods between Mexico and the U.S.,” predicts Boris Kozolchyk, president of the National Law Center for Inter-American Free Trade, a nonprofit group that has been working since 1992 to harmonize trade rules and regulations between the United States and its Latin American neighbors. “Now it’s roughly 50 percent or less. I don’t think we’ll be reaching the common-market stage like that in Europe for a number of years.”

Nowhere is the holdup to free trade more evident than in trucking. For seven years, Mexican truckers have been prevented from entering the United States, even though under the terms of NAFTA they should have had access beginning in 1995.

“In a free-trade agreement, it’s imperative that the rules are fair and equitable to both sides,” says Ricardo Calderón, an international business attorney in Eagle Pass, Texas, who was recently re-elected as president of the Texas Association of Mexican American Chambers of Commerce. “Right now I have Mexican trucking companies as clients who have to meet higher safety requirements than Canadian truckers.”

He believes international trade has created jobs for Eagle Pass citizens, “but not at the pace we would like it to be.” Eagle Pass still has unemployment above 25 percent. “Had it not been for NAFTA, our joblessness would be 40 to 50 percent,” he says.

Jonathan J. Higuera is a business writer at the Arizona Daily Star in Tucson.


Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters