News Column

NAFTA Expansion Hits Traffic Jam

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Small minority businesses weigh the advantages and the adjustment costs of global free trade.

Arturo Volpe supports global free trade – up to a point. The CEO of Pan American Express, a trucking company in Laredo, Texas, knows from experience how opportunities open up when nations lower their tariffs and trade restrictions. But when it comes to allowing Mexican trucks full access to U.S. roads, he thinks free trade has overextended itself.

Pan American Express faces a situation familiar to many Hispanic companies. With a location near the border and annual revenues of $23.68 million (ranking 172 on the HISPANIC BUSINESS 500), the company has strategic advantages to help it compete in a binational economy. In a global trade milieu dominated by large multinational corporations, however, such small firms often lack the capital or other resources to absorb sudden changes, such as the Mexican trucking regulations.

The upside of trade seems obvious since implementation of the North American Free Trade Agreement (NAFTA). According to congressional testimony by U.S. Trade Representative Robert Zoellick, U.S.-Mexico trade grew from $81 billion in 1993 (the year before NAFTA took effect) to $247 billion last year. During the same period, 2.2 million jobs were added in Mexico and 1.3 million new jobs were created in Canada, with 13 million more in the United States.

Now President George W. Bush wants to expand NAFTA – a project originally conceived by his father and brought to fruition by President Bill Clinton – by negotiating new bilateral, regional, and global trade pacts. He faces opposition from the Democratic Senate as well as Republicans in the House of Representatives, who have been spooked by protests from labor unions, environmental groups, and protectionist industries. At stake is whether Congress will give Mr. Bush “trade promotion authority” (TPA) this year. This power, formerly called “fast-track authority,” allows a president to negotiate trade agreements independently of Congress, which would only vote for or against the final document that was agreed to by a foreign leader. Without TPA, most countries won’t negotiate, since the agreement would be picked apart in Congress.

To date, free trade’s biggest supporters have consisted of large multinational corporations and a smattering of transport-related companies like Pan American Express. But Mustafa Mohatarem, chief economist at General Motors Corp., points out the potential benefits for a wide swath of the small and minority business community. NAFTA “forces firms to increase their efficiency and productivity to meet foreign consumer demand. Even at the micro-industrial level, companies must begin to act as if they do business in one large market. For example, under NAFTA, a small supplier that sold products to GM in the U.S. now has the opportunity to supply GM in Mexico as well,” Mr. Mohatarem contends.

Hispanic companies in particular “ought to play to their strength and go global,” advocates Congressman Silvestre Reyes, a Democrat who represents El Paso. “They are bilingual and should celebrate the fact that there is another market they can get into and do well there. … The figures for NAFTA have shown a net gain [of jobs and business]. As we talk about globalization of the economy, it opens new markets to our companies.”

The debate over Mexican trucks forms a microcosm of the larger issue of global trade. At present, U.S. trucks can enter Mexico, and NAFTA stipulates that Mexican trucks are to be allowed into the United States. But small trucking companies such as Pan American, together with the International Brotherhood of Teamsters, highway safety advocates, and the American Insurance Association, have questioned the safety and maintenance records of Mexican trucks and the skills and law enforcement record of their non-unionized, low-paid drivers.

Mr. Volpe prefers the time-tested method of transferring goods across the border. First, U.S. trucks arrive at the 20-mile-wide border commercial zone. They deliver their cargo to a “drayage” hauler who ferries it across the commercial zone to the border, where it is picked up by a Mexican truck that takes it to freight yards or warehouses in the interior. Then the hauler tries to find something to bring back to deliver in the United States. When these Mexican products reach the border, the process works in reverse.

“That is the way it worked before, during, and after NAFTA,” says Volpe. “Why do we want to change it now?”

Earlier this year, a bipartisan coalition in the House of Representatives prevailed in the 285–143 vote to reject a measure that would give Mexican trucks safety permits to operate in the United States. Subsequently, President Bush threatened to veto any Senate bill that upholds the ban. Political observers say the two sides remain deadlocked, and if the issue isn’t resolved, the Mexican government may retaliate by not allowing U.S. trucks into Mexico. Moreover, the truck issue forebodes a debate over TPA. If Congress doesn’t support TPA in 2001, its chances for passage will dim as the 2002 elections heat up.

The votes of three leading Hispanic congressmen from Texas are not in question. Henry Bonilla, a Republican from San Antonio, Ruben Hinojosa, a Democrat from the lower Rio Grande Valley, and Mr. Silvestre of El Paso support allowing Mexican trucks into the United States. Mr. Bonilla, the only Hispanic Republican in the Texas delegation, represents an area that has boomed since NAFTA. “Tens of thousands of people who work for small businesses in the district benefit from free trade,” he says. “In cities like San Antonio, these include auto supply firms, construction, housing, parts suppliers, custom brokers, and shipping companies. With the boom in small business, I can’t imagine why anyone would not support this.”

Mr. Bonilla remembers 20 years ago, when unemployment in border towns like Laredo hovered between 20 and 30 percent.

Today “it is under 10 [percent],” he says. “That may be high compared to the national standard, but we have seen the benefits of trade.”

“Our district has paid a disproportionate price initially in terms of infrastructure and worker displacement [for NAFTA],” says Mr. Reyes, chairman of the Congressional Hispanic Caucus. “But now it is a definitive plus in terms of jobs created, and we make the argument of how NAFTA has helped the border in general and El Paso in particular.” On the question of trucking, he maintains that “both sides will have to invest to make sure the trucks are safe and comply with load limits.”

At one point, Mr. Bonilla asked his congressional colleagues why they didn’t object to Canadian drivers crossing the border. Mr. Volpe answers that Canadian truckers are welcome because they speak English and because their salaries and their trucking laws are similar. When testifying before Congress, the president of the American Trucking Association set the record straight on these discriminatory issues. Duane W. Acklie stated that since 1991, the Department of Transportation has recognized Mexican standards for issuing truck drivers’ licenses as equivalent to U.S. standards. He rejected the idea that drivers must speak the language of the country they drive in by citing how European drivers traverse many countries with different languages on a regular basis.

For Mr. Mohatarem of General Motors, the battle over details isn’t surprising. In the past, much of the NAFTA debate dealt with how many jobs would be gained or lost. Now, he says, people associate NAFTA with one of the greatest economic booms in U.S. history and significant economic gains in Mexico. But exposure to different business practices and new competitors presents a challenge.

And in the automotive industry, it’s a welcome one. Facundo Bravo, CEO of Uni-Boring Inc., an auto part supplier with revenues of $115 million (to rank number 33 on the HISPANIC BUSINESS 500), has seen his business increase as more cars are exported to Canada and Mexico. NAFTA “has made the process of doing international business easier, less expensive, and less cumbersome,” Mr. Bravo reports, but he believes the best is yet to come. NAFTA’s real impact will hit in 10 to 15 years when many more small and minority companies have gone global in their search for profits. It’s an eventuality, Mr. Bravo says, that all CEOs should prepare for.

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