News-Sentinel.com

Thursday, 03/18/1999

NAFTA

Mexico, U.S. need each other to prosper

Experts say the trend toward trade was inevitable.

By LYNNE McKENNA FRAZIER of The News-Sentinel



News-Sentinel photo by C. Somodevilla
Busy bridge This international trade bridge spans the Rio Grande River between Matamoros, Mexico, and Brownsville, Texas. A majority of the morning traffic moves from Mexico to the United States because many Mexicans work in America and live south of the border.

McALLEN, Texas — "We didn't go to GE and say, `Do you want to come to McAllen?' They came here."

Nancy Boultinghouse, who directs marketing efforts for the McAllen Economic Development Corp., doesn't think McAllen and its sister city of Reynosa, Mexico, are stealing jobs from the Midwest.

Companies come to look at the Texas-Mexico border region largely because of the maquiladoras on the Mexican side, she said.

The McAllen development group once held educational workshops about maquiladoras. That's no longer necessary, Boultinghouse said.

Maquiladora zones allow companies to establish assembly plants where workers put together components made in other countries into finished products. They have thrived since the approval of the North American Free Trade Agreement in 1994.

Fort Wayne, Ind.-area workers, though, might see maquiladoras as the enemy. Many union leaders decry the factories as foes, accusing them of employing more than 1 million low-paid Mexican workers in jobs that could be held by U.S. workers. The beneficiaries, they say, are corporations with higher profits.

Indeed, more than 2,100 northeast Indiana workers have been certified as losing their jobs to production moving to Mexico.

Many U.S. workers who live along the border agree. Compared with wages in northern states, wages are much lower at border factories a few miles from Mexican plants where the pay is $40 to $50 a week. Titan Tire Co. shifted work from Iowa to Brownsville, Texas, cutting wages nearly in half to $7 an hour, said Gene Hanson, president of the AFL-CIO in the Rio Grande Valley.

"They're exploiting our people down here," he said.

But others see benefits on the Texas side from the maquiladoras.

"If we didn't have this, we would dry up," said David Neipert, assistant professor in the Department of Management, Marketing and International Business at University of Texas-Pan American. Of Texas' $52 billion in annual trade with Mexico, $8 billion passes through the Rio Grande Valley, he said.

Services tied together

A 1997 study for the McAllen EDC estimated one of every 10 jobs in the metro is linked to maquiladora operations.

Businesses such as customs brokers, freight forwarders, maintenance operations, supply companies and a wide range of transportation services are tied to maquiladoras, Neipert said. The McAllen Free Trade Zone, the largest in the nation, is filled with distribution centers.

"It's a big mistake to say a job down here in a maquiladora means a job lost in the Midwest," said John Sargent, director of the doctoral program in the Department of Management, Marketing and International Business at the University of Texas-Pan American.

Part of the reason for the perception that NAFTA hurts U.S. workers can be tied to data. Some of the job numbers attributed to production relocating in Mexico are misleading.

For example, 800 Raytheon Co. workers were certified for retraining assistance. But only one small line — 25 workers — actually was affected by the transfer of work to Mexico, said Jim Holderness with the Fort Wayne office of the Indiana Workforce Development Division.

Most of the production jobs being lost in Fort Wayne and Whitley County are moving to Florida. And Ray-theon has cut back its projected layoffs to 560.

Proponents of liberalized trade can't point to specific companies that added or kept workers because of lower trade barriers. But a study of Indiana manufacturing employment identified trade as a key to increased employment.

Among the state's 680,700 manufacturing workers at the end of 1997, Lawrence Davidson estimated nearly 29 percent held jobs supported by exports. Davidson is director of Indiana University's Global Business Information Network.

Davidson sees evidence that exports are accounting for almost all the growth in the state's manufacturing sector. The total number of manufacturing jobs rose by 3,000 from 1996 to 1997, but he estimated the number of export-related manufacturing jobs rose by 11,000.

Moving in NAFTA's direction

Efforts to defeat NAFTA failed because the trend toward freer trade already was entrenched, said Gilberto de los Santos, professor in the University of Texas-Pan American's Department of Management, Marketing and International Business.

Businesses that have opened factories in maquiladora parks are familiar to the Fort Wayne area. Besides General Electric, which built its first motor plants along the border in the 1970s, are MagneTek; Siebe; Breed Technologies, the parent company of United Steering Systems; and Square D. Those plants are being built, at least in part, to produce goods once made in northeast Indiana.

But the loss of jobs has not caused a ripple in the Fort Wayne area so far.

In some cases, retirements took care of expected layoffs. In other cases, workers facing layoff found other jobs, in some cases before factories or lines shut down, Holderness said.

Allen County's unemployment rate remains at a 28-year low — 2.7 percent, compared with the Rio Grande Valley's 18 percent unemployment rate.

But the Fort Wayne area has been unusual, said Sharon Langlotz, manager for the dislocated worker programs in Indiana. Across the state, more than 10,500 job losses are attributed to NAFTA-related shutdowns.

"There are a lot in training in Muncie," where Borg-Warner Automotive laid off several hundred, she said. "There aren't any jobs for (those workers) to go to."

No one knows what kind of jobs many of these workers are finding. New regulations require the state to collect that information. For now, the state staff only has anecdotes which suggest workers are paid much lower starting wages, but begin to close the gap quickly, Langlotz said.

Nor is there a good profile of the worker in northeast Indiana who has been laid off. Nationally, more women have been affected, Langlotz said. But that's not necessarily the case in the Fort Wayne area.

Buying U.S. goods

The impact of maquiladoras is not only a matter of jobs. Ninety percent of the goods and services purchased by the maquiladoras come from the United States, said Arnold Pedraza, business marketing manager for the Office of Center Operations and Community Service at the University of Texas-Pan Am.

"If they have empty space on a truck coming down, they fill it up with office supplies," he said.

Despite the falloff in exports to Asia, Indiana's total exports rose in 1997 and 1998, largely because sales to Canada and Mexico continued to rise, Davidson at IU said.

"Canada and Mexico are keeping export sales afloat. That's got to be helping employment stay up," he said.

And the market for almost all of the maquiladoras' production is the United States.

That elicits attacks from some critics.

But others say the maquiladora plants are doing the same thing as manufacturers in Asia and Europe. They're targeting the biggest, most free-spending consumer market in the world — the United States.

"We're buyers and consumers," Pedraza said. "Companies want accessibility to this market."

"The big rich countries like the United States, France, Germany, Canada, the UK — we can't continue to keep and attract jobs that are highly unskilled and can easily be done in other parts of the world," Davidson said.

But communities need to be aware of vulnerable industries and prepare for the likelihood that those jobs will leave, he said.

Ironically, NAFTA threatens the attractiveness of maquiladoras.

Companies in the maquiladoras pay no duties on the components they bring in or the assembled products they ship out.

But in 2001, under the treaty, Mexico no longer will be able to give that special tax break only to companies in the maquiladoras. Components and finished goods will have to be treated the same as at any other factory in the nation.

Whether or not Mexico will slap duties on the maquiladora imports and exports, and threaten the goose laying a golden egg is a matter of debate. What happens in two years may depend as much on internal politics as on economics.