Across the Rio Grande:
Interdependence and the Developing Region of the
Texas/Mexico Border
[They] told us that this is a national problem, and they couldn't do anything for us. But we are doing something for ourselves.
Along the border between Texas and Mexico runs the Rio Grande, and on either side of the river lie the border cities of Texas and Mexico. Economically and socially linked even before the North American Free Trade Agreement (NAFTA), these regions have become increasingly interdependent since NAFTA was signed. In the past five years, the Texas/Mexico border has been characterized by the rapid growth in trade, commerce and human movement.
Although NAFTA has signified a development in globalization, the integration of the Texas/Mexico border has resulted in a local regionalization. The border accommodates the free flow of goods and capital, and is where trade transactions have their greatest and most immediate impacts. One-half of US trade with Mexico travels across the Texas border, and the economy of Texas is more affected by Mexico than any other state. Decentralization and interdependence of the Texas/Mexico border region has led to the increasing importance of the border region, as well as the need for policy to address regional development, which is outlined in Valeria Leonardi's chapter, "Regional Bi-National Decision Making: Sustainable Development in the US/Mexico Borderlands."
The trade that Texas fosters flows through border cities, forming a region that interdependently links commerce, industry, labor, and infrastructure. The principal Texas border cities are each situated across the Rio Grande River from Mexican cities, creating "twin city" configurations. The twin cities from east to west are Brownsville and Matamoros, McAllen and Reynosa, Laredo and Nuevo Laredo, and Juarez and El Paso (see Figures 2 and 3).
Figure 3
Figure 3 (continued)
Along with their interdependent economies, the "twin cities" share geography and a culture based on a common Latino history. A demographer of the region describes its close geographic and cultural relationship as follows: "One continues to ask, does the border stop? It has been more than five years since I ceased worrying about that question, responding instead with an operative solution: there cannot be one sole spatial definition of the border. . ." The economies of the Texas border cities depend not only on Mexico's overall economic success and the strength of the peso, but on the trade and commerce of its "twin city." For example, several department stores in Brownsville, Texas have been forced to close as a result of declining purchases by Mexican consumers whose purchasing power had been debilitated by the weak peso following the 1994 peso devaluation crisis. Business leaders in McAllen, Texas actively pursue international companies to establish maquiladora plants in Mexico which will benefit McAllen through the settlement of distributors, consumers, and residents. Recently, the trucking industry has comprised a large part of Laredo, Texas' economy, which transports almost one-third of US trade with Mexico. El Paso, Texas has been cited as an effective location for US businesses entering the Mexican market because of its close proximity to the maquiladora plants in its twin city of Juarez, Mexico. El Paso provides homes for the factory owners and managers of the maquiladoras , and as well as warehouses that hold the goods assembled in the plants. Each of the Texas border cities heavily depends on the economic relationship it shares with its twin city.
However, the growth and development of the region's economy has also been haunted by concerns over issues such as crime, infrastructure, and labor. Problems of corruption that transcend NAFTA have proliferated during this decade. Also, as the cities of this region become increasingly interdependent through the flow of trade, it is apparent that the infrastructure of the border region is under-capacity to meet the demands of the trade and commerce induced by NAFTA. There are bottlenecks of trucks crossing the International Bridges between the cities, highways are insufficient in carrying capacity and number, and difficulties exist in the safety standards of Mexican trucks. In addition, laborers have been affected by NAFTA's developments, as the crux of the border region's economy, the maquiladora industry, has raised concerns on both sides of the border. This issue is also pervasive on the interdependent San-Diego/Tijuana border, as explored in Chapter 7. Maquiladoras employ thousands of Mexicans, causing a massive influx of Mexican workers to the border in search of employment, resulting in questions about the quality, sustainability, and the adherence to workers' rights within the maquiladoras. Although maquiladoras fuel the economies of the Texas border cities, the growth of the maquiladora industry has caused a sectoral labor shift on the US side of the border, from the demand of low-skilled to high-skilled labor. Americans living on the border worry that job losses will cause increasing unemployment and economic depression.
The afore-mentioned cities, and the Texas/Mexico border region in general, are inextricably linked by flows of goods, services, investment and capital that have increased as a result of NAFTA. In the border region, the "twin cities" have stronger economic relationships with one another than with their respective countries. Their economic strength depends on their "twin city," and demands in labor and infrastructure are thus shared. This interdependent nature demonstrates that decisions and developments for the region will equally affect the cities on both sides of the border.
The demographics of the border region's cities can be summarized as follows: In the city of El Paso, Hispanics represent 70 percent of the population and own 60 percent of the 15,000 businesses in the El Paso area. In 1994, the population of El Paso was about 400,000, and the population of Juarez, Mexico was approximately 600,000 (see Figure 4).
This chapter will comprise a general analysis of the socio-economic nature of the Texas/Mexico border region and the integration of the border twin cities that has been promulgated by NAFTA. Following is an explanation of the implications of cross-border trade on infrastructure and labor in Texas and Mexico, aspects which are affected by the increased trade and commerce induced by the free flow of goods through NAFTA. Since these sections are predicated by the need for policy to address the economic and social interdependence of this region, this chapter will indicate the consequences of the lack of policy efforts.
The twin cities along the Texas/Mexico border have been developing as a result of free trade and globalization, which are among the primary goals of NAFTA. As a key factor in the internationalization trend, this region has become increasingly important. Although NAFTA was negotiated in Washington, DC and Mexico City, it has been implemented on the border. The Texas/Mexico border region has experienced the effects of the trade and commerce induced by NAFTA, and as it economy has developed, the region has become interdependent. The socio-economy of the border demonstrates the growing deepening of regionalization along the border, shifting the emphasis of NAFTA's trade from a global outlook to a specific, integrated region that thrives on and is deeply affected by NAFTA.
The economies of the Texas/Mexico border cities are characterized by bi-national trade and commerce. The Texas economy depends on trade with Mexico, since it trades more with Mexico than with any other state. This relationship is demonstrated by the role of Texas border cities such as Laredo, McAllen, Brownsville, and El Paso as "launching pads" for trade with Mexico. They provide transportation for cross-border trade, sites for warehouses that hold goods produced in Mexico, and homes for American executives and managers of the plants in Mexico. Because of this interdependence resulting from their trade, the effects on these cities of trade and commerce can be volatile. For example, Texas border cities suffer from economic troubles originating in Mexico, such as an unstable peso, or restrictions by the US government on trade with Mexico. Thus, this interdependence can have negative effects as well. When one economy suffers, so does the other. As described by Dan Riskind, owner of Riskind's department store, "It's gotten to the point that every time Mexico sneezes, we catch a cold over here."
The 1994 peso devaluation debilitated Mexican consumers, causing losses to border industries, real estate, and retailers. These border regions also depend on the jobs that the cross-border trade provides. The maquiladora "twin plant" formation: a production plant on the Mexico border, and a distribution plant on the Texas border, creates jobs in both countries. Yet American workers at the border are concerned that the Maquiladora industry will cause job losses for them. Currently, the Mexican economy is recovering from the peso devaluation that drastically reduced US exports to Mexico. While the economies of the Texas border towns suffered, they are now seeing the effects of an improving Mexican economy. As trade with Mexico grows and these border cities Mexican consumers increase, their economies are improving.
El Paso, Texas has been targeted as a gateway for American companies seeking to do business in Mexico, since American businesses realize the importance of entering the Mexican market. Wayne Windle of Mark III Industrial Developers explains, "The hype around NAFTA made people realize that, whether or not trade is free, we've got to get into Mexico." For the people in the border cities, they are faced with new markets and new competitors. Some businesses and people have profited from their adept responses to these changes, while others have suffered. For example, companies such as Mark III Industrial Developers and Security Capital Industrial Trust build and lease buildings to be used as warehouses. American companies in El Paso use these facilities as springboards into the Mexican economy, which has created an influx of construction jobs to meet the demand of El Paso's expansion.
El Paso's geography has also determined its use as a point of operation for Mexican business. It lies directly on the Rio Grande, across from its border "twin city" Juarez. Its close proximity to Juarez, Mexico, a city of 1.2 million citizens, makes it an effective place to understand and test the Mexican market.
El Paso's economy has undergone changes with the transfer from low-skilled labor to high-technology manufacturers. Before NAFTA, El Paso was traditionally dominated by the low-skilled garment industry, in particular blue jeans manufacturers. Lately this production has been shifting to the Mexican side of the border. For example, the New York manufacturer of cotton fabrics Galey & Lord, Inc. acquired Dimmit Industries S.A. de D.V. of Mexico, which is a subsidiary of Farah, Inc. of El Paso. The cost of acquisition for Galey & Lord was $22.5 million, and signifies the shift of the apparel industry to the Mexican side of the border. 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. For example, a tenant of one of Mark III Industrial Developers' warehouses is Trusdell Company, a manufacturer of the flexible plastic tubes that protect automotive wiring, which supplies Trusdell companies in Mexico, the US, and Canada. Despite the peso devaluation crisis in 1994, El Paso's businesses did not suffer as was expected from their dependency on the maquiladoras, an industry that was protected from Mexico's economic troubles.
Juarez, Mexico has also benefited from El Paso's growing economy. In 1996 Mexico began construction of an electric power generating plant in Juarez. The plant is estimated to cost $647 million, and will serve the city of Juarez and more than 300 factories, including American consumers. This has been seen as a breakthrough for the Mexican government, showing further integration between the Mexican and US economies in the Texas/Mexico border region.
Retailers in McAllen, across the Rio Grande from Reynosa, Mexico, fuel the Texas border city's economy. These stores rely on Mexican consumers, and while many were in McAllen before NAFTA, they have expected NAFTA to cause sales to grow even more. A large portion of McAllen's retail shoppers are Mexicans crossing the border from Reynosa or other nearby cities. Yet retailers have been struggling more than a year after the peso devaluation. According to Juan Alvarez, Sales Manager of Laser Sound Electronics shop in McAllen, "They {Mexican shoppers} used to come four of five times a month, and now they come and they spend almost nothing. If the peso is high, the sales are low. We've lost about 70 percent of our business." The dependence of Texas retailers on Mexican consumers demonstrates the interdependency of these cross-border economies.
The nearby city of Brownsville also depends on Mexican shoppers. The city has three large supermarkets and a shopping mall, and most of the shoppers are from Matamoros, Mexico, a city of 1 million. Recent changes in the buying power of these Mexican consumer, caused by a suffering Mexican economy, have had grave effects on the economy of Brownsville. Brownsville's Amigold Mall closed four of its department stores in 1995 following Mexico's 1994 peso devaluation crisis. One of the store's managers explains, "Sales on the border are tough, and the peso is the main factor." According to the US Customs Service in Brownsville, 527,000 fewer pedestrians crossed the main international bridge than in 1994. On the other hand, by the end of 1995 some retailers in McAllen, such as President of Jones & Jones Department Store Lan Jones, began to notice their sales improving. "From what I see, last week the peso started to get better. Maybe they're finally getting their confidence back in their economy, said Jones." At this point, analysts predicted that a lack of recovery by the peso would result in a 5 percent drop in the city sales tax revenues, and could cost the city $800,000 in their annual retail profits of $12 million.
These cities are also dependent on the apparel manufacturing industry. Since the economies of the Texas border cities are crucial to the state as a whole, the Texas state government has intervened at times to help this industry and to ensure a stable economy. For example, the Texas Commerce Department helped Mexico's Elastico Selecto to expand the company into McAllen. The Commerce Department's assistance to Elastico Selecto, which supplies internationally to brands such as Playtex, Frederick, and Warner, although controversial, allowed the company to obtain Small Business Administration economic development funds.
As demonstrated, the interdependence of the economies of the Texas and Mexico border regions is evident by the retail industry in the towns of McAllen and Brownsville. Retailers have suffered from a struggling peso and hope that it will improve in the future. These border stores are demonstrative of the region's dependence on Mexican consumers.
Demonstrating the interdependence of the twin cities of Texas and Mexico, recent signs of a peso recovery and increasing US exports to Mexico have resulted in a strengthening Texas economy and a positive forecast for the 1997 economy of the state. Public and private economists at the end of 1996 are equally encouraged by the performance of the Texas economy, which is expected to hold a growth advantage over the country through the end of the decade. Although there is concern that another crisis in the Mexican economy would hurt the Texas economy, Dr. Ray Perryman, business economist at the Southern Methodist University, expects that Mexico will continue to be a source of growth for Texas. Most of this growth is attributed to increased US exports to Mexico. Nearly half of US exports are from Texas, and Texas' exports constitute five percent of the state's overall economy.
Texas' apparel industry in border towns such as McAllen and Brownsville was recovering by higher sales to Mexico. The shoppers themselves are the most visible sign that Mexico's economy is recovering and that the border regions are benefiting. According to the Federal Reserve's latest report on the region's economy, the improvement in Texas' apparel industry is shown by the recent influx of Mexican shoppers into McAllen, where Mexican shoppers account for 20 percent of retail sales, $1.3 billion annually. Increases in the number of shoppers determines the success of the retail stores, as well as the demand for the apparel produced in the plants along the border. While retail sales on the border fell by an estimated nine percent in 1995, the higher number of shoppers caused retail sales to improve by 20 percent that year.
Japanese businesses, realizing the opportunities of the maquiladoras and the trade of the Texas/Mexico border since NAFTA, have also expanded operations to the Mexican border areas. By 1996, 10 Japanese-owned maquiladora plants had opened in Reynosa, Mexico. The majority of the plants produce from technological components, such as Alcom Electronicos de Mexico. Because the Japanese companies also bring investment to the Texas border areas, the Chambers of Commerce of the Texas border cities are actively recruiting the companies. All of the 107 maquiladora plants in Reynosa fuel McAllen's economy by building distribution warehouses on the Texas side of the border to ship goods into the US. Japanese businesses also invest in McAllen through the purchase of homes, services, and consumer goods.
For this reason, McAllen has sent out trade missions to Asia to welcome investors who build plants in Mexico and live in McAllen. Mike Allen, Chief Executive Officer of the McAllen Economic Development Corp. explains the strategy of these missions. "We're going after supplier companies that are capital intensive. The labor-intensive plants are in Mexico because labor is inexpensive there. The suppliers will locate there." Business and civic leaders from Japan and the Southern United States also met in Houston in September 1996 for a conference on Japanese-owned Maquiladoras and other business ties between the countries. There were 150 families living across the border in McAllen, Texas. By spending on homes, retail, cars, corporate travel, hotels, freight, supplies, and restaurants, the Chambers of Commerce estimate that Japanese contributions to the Texas border economies total $387 million.
Japanese businesses are allowed to enter the Mexican border region through a current provision. In order to give tax breaks to maquiladoras, products destined for US markets must be assembled at the plants under NAFTA rules, while the components of the products can be made anywhere. By 2001, all products assembled at maquiladoras must be made entirely of parts manufactured in Mexico, the United States, or Canada in order to avoid tariffs when the goods are shipped to the US. Until Japanese companies are not allowed to use maquiladora production, both Reynosa and McAllen are benefiting from Japanese business development on the border. The benefits offered by the Texas/Mexico twin cities attracts the production activities of the Japanese firms, and indirectly are causes the further deepening economic interdependence of the region.
The Texas/Mexico border demonstrates the regionalization of trade, and the direct effects of the economic interdependence of the border twin cities. The Mexican cities profit as sites for maquiladora plants, while the Texas cities provide homes, shopping, warehouses, and the high-skilled labor needed as part of the production process. These twin cities have been developing from NAFTA's cross-border trade, and from
economic integration. The increase of trade and commerce also leads to environmental degradation. Chapter 9 explores the challenges of environmental sustainability as the border region develops and becomes increasingly interdependent. Policy affecting this border region must be predicated by its interdependent nature, and the acknowledgment that the strength of each city relies on its relationship with its twin city.
NAFTA has been a catalyst for growth and trade along the Texas/Mexico border region, an area that had been growing even before the agreement was signed. The agreement allows companies to build operations along the borders and to freely transport their products, thus further integrating the economies. Shoppers and tourists can cross the border more freely. NAFTA has facilitated a state of interdependence between the people and the economies of the border region, and with this trend follows the need for infrastructure to accommodate the goods and people that are crossing the border. Transportation capacities have been expanding to meet these NAFTA-related needs, but the border infrastructure is currently insufficient to handle the cross-border traffic. The infrastructure of the border, bridges, highways, and transportation vehicles involves the various needs. Interested actors include American businesses, Mexican workers, consumers, and American workers, who have needs and interests that coincide and conflict.
The Texas/Mexico region is characterized by heavy trade across the border. The cities of Laredo and Juarez in particular carry a large portion of cross-border trade. Each of the twin cities, Laredo and Nuevo Laredo, McAllen and Reynosa, El Paso and Juarez and, Brownsville and Matamoros, facilitate this trade to varying degrees. Customs gates serve as passages between the cities, fostering or impeding the trade of goods, laborers, and consumers. The majority of the US trade with Mexico passes through the Texas borders, coming for the most part from the maquiladora plants close to the border. Maquiladoras operate in Mexico close to the border so that the goods can be easily transported to their twin plants on the American side of the border. The need for employers to travel across the border and for goods to be returned to the US for distribution necessitates functional and efficient cross-border transportation. In addition, Mexicans cross the border to shop in these border cities, fueling retail sales, employment, and the economies of Laredo, El Paso, McAllen and Brownsville. For this reason, infrastructure is necessary to allow the cross-border commerce and trade that is integral to this area.
To opponents of NAFTA, the increased flow of goods illustrates "the giant sucking sound," promised by Ross Perot during the 1992 US presidential election. Yet Mexican and US businesses exporting to the US depend on transportation between Texas and Mexico, and hope for expanded facilities in order to efficiently trade their goods. US companies that own the maquiladora plants are also interested in the expansion of cross-border transportation mechanisms. Infrastructure is a pivotal element of the interdependent relationship of the Texas/Mexico border region. It is also vital to the social and economic nature of the border region, since it facilitates the exchange of people, culture, and commerce.
Since the NAFTA, efforts have been made to expand the existing transportation mechanisms across the border to accommodate trade flow across the Texas/Mexico border. Transportation officials predicted that the border infrastructure would not have sufficient capacity for the trade that NAFTA has induced. The flow of goods and services had increased from NAFTA by more than 20 percent in each direction by 1995, causing strain to highways, bridges, and railroads. Plans have been introduced to facilitate trucking, the primary form of cross-border transportation, yet development has been slowed by rejections of increased access to highways and by the enforcement of regulations.
Problems of insufficient border infrastructure have arisen, since the free flow of goods necessitates cross-border transportation. The growth of trade and commerce has resulted in congested highways and long waits at US Customs gates, yet efforts to increase the volume of Mexican trucks have also been controversial. The following is an analysis of the efforts to expand the existing border infrastructure, the achievements and actions made since the implementation of NAFTA, and the opposition to further infrastructure advancements.
International bridges, roadways usually covering water which link Texas and Mexico by Customs gates, have been identified as a key need in the development of cross-border infrastructure. Agriculture, travelers and other goods are carried over the bridges. For example, the international bridge between Pharr, Texas and Reynosa, Mexico was calculated to have served one million customers in the first seven months of its use. Although these bridges are heavily used, they lack sufficient funds for construction. In these first few months, truckers had paid tolls totaling $1.4 million, yet $2.5 million had been needed for the bridge's construction costs. In addition, most cities lack international bridges or need more. For example, transportation consultants working for the governor of Texas found a year after NAFTA was signed that $300 million would need to be spent on "NAFTA-related needs," such as bridges and border crossings. According to Kathryn Lawrence, director of international marketing and tourism at the Greater El Paso Chamber of Commerce, the border of El Paso's "most pressing problem is an international bridge." El Paso currently has four bridges, yet only two can carry traffic, since the other two are currently under prolonged construction. Laredo's international bridges cannot accommodate the heavy flow of traffic, since its three international bridges are congested with tractor-trailers. Therefore, NAFTA's effect of increased bi-national trade has created a subsequent need for border infrastructure.
Particularly since the NAFTA was signed, the standards and impacts of Mexican trucks have been under the scrutiny of the US government and border residents. This issue is characterized by the differing interests of Texas highway officials, Mexican truckers, and the US companies whose goods are being transported.
Mexican truckers are an important element of cross border trade. They carry goods from American-owned maquiladora plants in Mexico across the US border to American plants. Although American companies employ these truckers to deliver their goods, these companies do not enforce American safety standards on the Mexican truckers. Yet with the increase of truck traffic as a result of NAFTA, Texas highway officials have begun more stringent inspections of Mexican trucks by US Customs agents along the border. In 1996 the Texas Department of Public Safety increased their border safety inspection of Mexican truckers driving into Brownsville, Texas from Matamoros, Mexico. Texas law enforcement officials have increased their inspections because they feel that the vehicles do not meet the minimum safety standards established by US state and federal law. According to these officials, Mexican trucks have worn-out tires, bad brakes, and do not have the proper documentation, such as proof of insurance.
Furthermore, past events have shown that the safety of the contents and quality of these trucks threaten the border region. More than a fourth of the approximately 5,000 Mexican trucks traveling to Texas every day carry corrosives, chemicals, explosives, jet fuel, and pesticides, according to pro-NAFTA Texas Attorney General Dan Morales. Although Morales has acted an advocate to NAFTA, he has reservations about the safety of Mexican trucks traveling across the border. Morales has warned that unless the federal government takes action, there exists the danger of a spill occurring in a metropolitan area. He said, "This deadly cargo, carried under such conditions, is nothing short of a time bomb." An incident in November of 1995 contributed to the concern about the Mexican trucks. Acrylic acid, a toxic chemical, leaked from a tanker waiting in line for US Customs inspection. The liquid then vaporized into a noxious chemical, "chewing holes into the pavement," said Lee Thompson, a member of the hazardous materials response team that averted a possible fire. According to Thompson, several Mexican trucks traveling within the US border exploded or leaked toxins in 1995, threatening Texas' water supply. Chapter 9 outlines the environment effects caused by factors such as trucking and the increased flow of goods across the border.
Texas' enforcement of safety standards has caused disapproval and discontent from Mexican truckers transporting goods for American companies. Mexican truckers allege that they are subject to unwarranted inspection. "We're tired of being mistreated, of paying too many fines and oftentimes being hand-cuffed and treated like criminals," said Rodolfo Gonzalez, president of the National Chamber of Freight Carriers of Matamoros, which is across from Brownsville, Texas. Another Mexican trucker, Antonio Hernandez Sandoval, concurs. He averages two 30-mile border crossings a week from the border town of Valle Hermoso, Mexico to Texas, and describes the only recent inspections in 1996. "Until last year, they would check you from time to time, and it was the usual inspection such as brakes, air hoses, lights and proper documentation. Now they check you on everything, even for loose mirrors or a broken taillight."
The complaints of Mexican truckers reached it climax July 15, 1996, when Mexican truckers planned a blockade of four international bridges from Brownsville to McAllen. In protest of the inspections, they hoped to paralyze freight traffic coming in and out of Mexico. When planning the blockade, Gonzalez said, "We don't want to do it because it would be harmful to both sides of the border. But if the harassment doesn't stop, we will have to take a stand. So far, this is our recourse."
American companies also want to transport their goods by Mexican trucks without resorting to demonstrations such as a blockade. According to C. James Kraus, General Manager and Director at the Port of Brownsville, where most trucks driving from Matamoros, Mexico unload their merchandise, Brownsville and McAllen officials should take the threats of a blockade seriously because it would be devastating, not only to their local economies, but also to the rest of the US. Local companies receive shipments that these truckers bring to the border which are then loaded onto ships headed for US destinations. "If the people from General Motors or any other big corporations who have maquiladoras foreign-owned assembly plants in Matamoros or Reynosa don't get their shipments on time, they'll have to pay a lot of money for the vessels anchored here," said Kraus. The Port of Brownsville handles about 2.5 million tons of cargo a year, or the equivalent of about $3 billion. In addition, produce growers in Mexico would also lose money from a standoff. Delays would be devastating for goods that expire after short periods of time when they do not reach their destination as planned. Since infrastructure provides the crucial link to US trade with Mexico, it will be necessary for the economy of the border region to maintain this trade link, and for the US government to address any conflicts that threaten this link or inadequacies.
Along with the border inspections, there have been obstacles to the opening of US highways to Mexican truckers beyond the border zones. Despite the benefits of NAFTA trade, President Clinton and Transportation Secretary Frederico Peña in 1996 decided to restrict Mexican truckers to narrow commercial zones of 20 miles beyond their borders. This decision delayed a proposal called for in NAFTA to allow Mexican truckers full access to Southwest border states by December 18, 1996. The delay was described as election-year politics designed to appease the Teamsters' Union for lost trucking jobs in the US and toward key voting groups in important states fighting for protection from the consequences of lowered trade barriers. Vague concerns about the safety of Mexican trucks on American roadways were cited as a reason for the delay.
Thus, the safety of Mexican trucks has become a controversial issue, measured by their inability to meet American standards. While Mexican truckers complain of unwarranted inspections, Texas officials feel that they are necessary. In addition to this, the US government is under pressure not to allow Mexican trucks onto US highways. Through these differing interests, American companies will lose money if the transport of their goods is delayed either by a truckers' protest, inspections by US Customs agents, or political maneuvering. The expected increase in trade by NAFTA in the coming years will likely result in growing conflict between these groups. James Jones, former US Ambassador to Mexico, said, "Here again, this is one of those difficult issues when you are opening up trade as rapidly as we have. This is going to require some time to work out differences." If there is no resolution, American companies will take losses, and the border environment will be subject to the safety standards of the Mexican trucks. In addition, Texas border officials will be presented with greater pressure to alter the intensity of their inspections. In the meantime, Mexican truckers will continue to feel alienated by the scrutiny of the Texas border officials. Continued conflict would be detrimental, if not paralyzing, to future cross-border trade.
A practical issue arising from the increased use of the highway infrastructure along the Texas/Mexico border is highway spending. The current major highways such as Intestates 35 and 69 through Texas and Mexico are unable to accommodate the current amount of traffic, since the number of trucks and trips across the border has grown exponentially as a result of NAFTA. Joseph Wardy, president of Herman Miles Trucking in Texas, said, "Truck traffic has grown to massive size." He attributed one-half of his business' 1995 growth to NAFTA. The growth described by Wardy has created the need for the expansion of Texas' largest interstates. Consultants working for the governor estimate that Texas alone needs to spend at least $2 billion on highways over the next decade, and the immediate border region will need several hundred million dollars of that.
In many respects the success of NAFTA rests on the expansion of highways such as Interstates 69 and 35. Specific plans have been proposed to upgrade Interstate 35, which runs from Texas to Mexico through Laredo and Nuevo Laredo. Crossing this border can take as long as twelve hours, and urban areas need to be widened to ease congestion. Texas state officials hope to increase the carrying capacity of the road to better accommodate this traffic. Local Texas politicians that see the need for improved highways are concerned that Congress will not approve the spending. One plan proposes that the expansions be funded by the users. Interstate 69 already connects Indianapolis and Port Huron, Michigan. The new addition would connect Indianapolis, Houston and Laredo by highway. The foreseen benefits of this highway in Texas have been lauded by the group Alliance for I-69 Texas, along with local and state entities and individuals. One group, the Greater Houston Partnership, explains, "the importance of an I-69 as a trade corridor is reinforced by the amount of products being trucked along less efficient routes from the Midwest and Northeast. Benefits would accrue to the advantage of East Texas." The advantages of I-69 are increased safety along the highways and economic development effects, including increased jobs and wages.
If highways such as Intestates 35 and 69 are not built or expanded upon, the results will be increased congestion in urban areas and disruptions to the flow of trade due to long delays crossing the border. The economies of cities such as Laredo, which thrive as the key links to US and Mexico cross-border trade, would suffer. Issues such as the funding for this infrastructure and the most efficient method of its expansion remain. If these highways are not expanded, then companies will not be able to transport their goods across the border. Since it is in the interest of the US to pursue free trade, which requires efficient cross-border transport of goods, a solution must be reached to expand the capacity of these interstates. Chapter 11 explores similar challenges faced by the underdeveloped EU region during its efforts of integration.
Laredo, Texas is a hub of US trade with Mexico, emulating the border region's interdependency through lifted trade barriers across the border and the bi-national flow of goods resulting from NAFTA. A 1996 study by Laredo City Manager Peter Vargas estimated that one-third of US trade with Mexico is transported through Laredo. For example, American factory parts and supplies cross the Laredo border to be delivered to the industrial city of Monterey, Mexico. In addition, American agricultural products are shipped to the port of Veracruz from Galveston, Mexico. Goods are transported through Laredo in part to serve the maquiladoras in Nuevo Laredo and other cities in Mexico. For example, Mattel, Inc. owns a warehouse in Laredo to store goods produced by Mexican maquiladoras. From its location in Laredo, goods are shipped across the border to a production plant in Monterey and back again to the warehouse.
Because of networks such as these, Laredo is one of the busiest inland ports in the United States, and is known as Mexico's Gateway to the North. Last year an average of 4,000 trucks per day crossed the international bridge from Laredo into its Mexican twin city, Nuevo Laredo. This number is expected to triple to 12,000 by the year 2000. As goods need to be transported into and out of Laredo, an industry based on transportation itself has been created in Laredo to serve the movement of goods, including jobs such as short-haul truckers, customs brokers, freight forwarders and warehouse workers. Although the need for transportation companies has been profitable for truckers, it has also created concern for the stability of this industry. J.C. 'Pépe' Trevino has owned Southern Enterprises, a short haul trucking company since 1947, and has been enjoying increased business resulting from the need for trucking services. Yet despite his profits, he worries that Laredo's transportation market will bring in competitors. Many of those are currently only owner-operated rigs, which charge less because they operate without insurance and charge less. He is also worried about a new trend from NAFTA of registering goods brought across the border electronically. "Our fear is that someday there will be no need for warehouses on the border," said Trevino about the new electronic system. This innovation would result in lost jobs for Mexican truckers by changing the current system of US warehouses at the border which hire truckers to ship their goods in and out of Laredo.
While Laredo has been named as one of the nation's fastest-growing cities, its growth coupled with insufficient infrastructure have resulted in traffic congestion. Traffic congestion "has come at a price: Streets snarled by Mexican trucks, hauling everything from breakfast cereal to sulfuric acid, idling for hours in a bumper-to-bumper caravan of clamor and fumes . . . That's just part of what it takes to move commerce," added Carlos Villarreal, Laredo's deputy city manager. Although the infrastructure cannot currently facilitate the initial increasing commerce, efforts to build transportation facilities have echoed Laredo's boom. Its major infrastructure projects include new schools, a new highway loop, repairs on its fourth international bridge, a new hospital, and a new airport, while Laredo's old and dusty roads are being paved.
As the heart of US trade with Mexico, Laredo embodies the deficiencies of infrastructure and the development of the transportation industry since NAFTA. It is fighting congestion with measures to expand its infrastructure, and the transportation industry is growing along with the its distribution warehouses. Yet the nature of Laredo's growth may be only short-term. Future developments resulting from NAFTA may eventually threaten Laredo's structure as a hub for trade passing between the US and Mexico.
Infrastructure provides the crucial link to US/Mexico trade. The primary issues of infrastructure are the following:
Future policies will be motivated primarily by the need for US companies to transport their goods. In Leonardi's chapter, the future of the border region's infrastructure demonstrates the need for cooperation between the following actors: the US and Mexican governments, companies whose goods are being traded, and border highway officials and residents. A solution will rest on the actions of these entities in developing an infrastructure that can accommodate the increased need for transportation and the relative depoliticization of trade issues.
The economic interdependence of the Texas/ Mexico border region resulting from NAFTA has resulted in changes for the US and Mexican workers on the border. Low-skilled labor has been increasingly in demand in Mexico as maquiladora plants multiply, resulting in a vacuum of jobs from the Texas border cities and a need for higher-skilled labor. Simultaneously, concerns have arisen about the uncertain futures of US workers, as well as the rights and standards of Mexican workers with the proliferation of the maquiladora plants. As the plants and labor of the border become increasingly interdependent, the border cities are affected by their twin cities across the border. Labor is characterized by the interdependence of the production process, as explained in the section "Socio-economy of the Border Region."
As indicated in earlier chapters, NAFTA has been accompanied by the proliferation of industry along the border. Although maquiladora plants have existed since 1965 when they were developed as part of Mexico's Border Industrialization program, their numbers have increased since NAFTA was signed. Provisions of NAFTA allow goods produced in Mexico to be imported into the US at relatively low prices. US companies can import partially-made goods into Mexico from the United States duty-free, finish them by Mexican labor, and then re-export them to the United States without tariffs.
Typically maquiladoras are arranged in twin-plant configurations wherein a business establishes production in Mexico while the rest of the company resides in the US The Mexican city of Juarez, the twin city of El Paso, Texas, has the highest concentration of maquiladora workers, with more than 23 percent of the total workers employed in the maquiladora sector. From 1986-95 maquiladora employment growth averaged 12.1 percent a year. In 1995 alone, the number of maquiladora plants rose 14.5 percent from between January and August. During this period, the value of raw materials processed by maquiladora plants increased by 31.3 percent, imported raw materials grew 30.5 percent, and domestic raw materials rose 69 percent (see Figure 5).
This growth was facilitated by economic factors in Mexico, such as a devalued peso, and lower costs of production than those in the US- for the most part due to lower wages paid to Mexican workers. According to estimates, American industries saved $25,00 per worker in 1990 by using maquiladoras. The low wages paid to Mexican workers more than offsets any increase of US workers' productivity.
Inequalities in productivity between US and Mexican workers are offset by differences in their wages. Gary Huefner, economist with the Institute for International Economics, noted that the average annual output in 1992 for a US manufacturing worker was $75,000, while the average output for the Mexican manufacturing worker of products competing in the US market was $9,500. (see Figure 6)
This translates to a productivity ratio between the US and Mexico of 7.9 to 1. In 1993, workers in a Mexican Ford plant were estimated to be 80 percent as effective as an American worker, yet the Mexican workers were paid six percent of the wages of their American counterparts.
With the increasing number of maquiladora plants on the border, there has been concern about the effects on labor on both sides of the border. Workers on the Texas border worry that maquiladoras will cause job losses as a result of the competition created by lower wages and less restrictive Mexican labor practices within maquiladoras. There is also concern that Mexican workers are being exploited, that they are unable to unionize, and that the Mexican government fosters this situation of exploitation.
A major issue in Mexican labor is the rights of workers on the border, specifically those who work in maquiladoras. There is a disparity between the theory of Mexican laws for workers rights and their implementation. Despite guarantees of labor rights in the Mexican constitution, the PRI continues to control labor unions through rigged elections bribes, and the appointment of labor bosses to high public offices. Mexican labor law assures labor rights, yet in practice they have been inadequate. Mexican maquiladora workers are subject to high production quotas, indiscriminate firings, and the extensive use of temporary workers. Maquiladora labor is general assembly work; which means it is often monotonous, low-skilled, and is subject to the constant pressure to increased productivity. Health and safety laws in Mexico are not enforced, and a Maquiladora worker has a 1 in 3 chance of suffering a work-related injury. Workers also suffer noise pollution, exposure to unsafe chemicals, and loss of eyesight resulting from the conditions of the maquiladora plants.
Mexican labor laws allow workers to unionize, and encourage the participation of workers in the management of the organization that employs them. Yet contradictions occur as the efforts of Mexican workers to assert their rights through organization have been impeded by the government. A side agreement on "labor cooperation" of NAFTA cites labor unions in Canada, the US and Mexico as a means of achieving workers' rights. This side agreement established that each party would commit and be in accordance with their respective domestic laws "to promote a wide range of labor principles," including the freedom of association and the right to bargain collectively. Yet labor unions in Mexico have historically maintained close ties to the state, allowing the government to control union activities. Most labor groups, such as Mexico's largest, Mexican Workers Federation, operate in close alliance with the PRI, the dominant political party in Mexico. Mexico's corporate statist and authoritarian political system can have debilitating effects on the free voice accorded to unions, thus raising questions of the effectiveness of Mexican labor unions when they operate subservient to the government. Actions of the Mexican government show that it continues to be able to control wage and labor practices. In some cases the government has laid-off organizers from companies to ensure the low wages and the powerlessness of these workers. An example of the Mexican government's broad authority over union matters occurred when the government intervened against striking workers nationwide of the national telecommunications company TelMex in 1984 and 1987, and at the major airline carrier Mexicana de Aviacion in 1982 and 1987. Also, in 1983 and 1988, the government used its control over labor unions to lower real wages to 40 percent. Suppression of unionization facilitates the government's objective of maintaining strict control over its workers and suppressing wages. This also enables the Mexican government to tacitly invite foreign companies to establish production plants in Mexico. American multi-national corporations (MNC's) are lured by the savings in workers' wages, while Mexico's economy benefits from the MNC's investment and employment.
Mexico's unionization struggles and the government's suppression of wages and rights are shown in a situation in which a Mexican affiliate of an American based company tried to organize an independent union. US-owned Kirkwood Corporation's Mexican production plant for appliance makers such as Philips, Sunbeam, and Braun fired roughly three-fifths of its workers in a component plant in Mexico City between March 23 and June 21 of 1995. The workers of the Kirkwood plant, mostly women, had begun in 1994 to complain of the sanitary levels of the restrooms and bathrooms, and of harassment by the male security guards. The remaining workers were also given a wage cut of one-half from 30 pesos a day, or $10, to five dollars a day after the 1994 peso devaluation. These firings show the denial of the Mexico's constitutional rights of organization to its workers. Much of this denial works to the advantage of American companies, which the majority of increased its maquiladora plants in Mexico in 1995 and 1996 to take advantage of low operating costs. The protesting workers were fired after refusing to join the Confederation of Workers and Peasants of the State of Mexico (COCEM), a pro-business union with close ties to the ruling government party. The Mexican Board of Conciliation and Arbitration exists so that workers like these can organize independently, but it has been known to serve the needs of the Mexican government rather than the workers. "If you're an independent union that will push up wages and hurt foreign investment, the Board simply will not grant you recognition and will not authorize strikes."
The Clinton administration, in reaction to concerns over Mexican worker rights, established the National Administrative Office (NAO) after the signing of NAFTA to enforce labor law in Mexico. The organization was tested in April of 1994, when more than 200 Sony workers were assaulted with riot gear and fire hoses after holding a demonstration outside Sony's Mexican plant to hold a union election. When the workers filed the case to the NAO, they won, but only to receive a promise that US Labor Secretary would consult with his Mexican counterpart Santiago Onate. The efforts of the Clinton administration to provide mechanisms to ensure labor rights in Mexico have been unsuccessful in such cases. In the meantime, US companies continue to expand into Mexico, profiting from low wages and production costs allowed by the Mexican government.
Other protests against lowered wages demonstrate the Mexican workers' discontent of the maquiladoras. Workers at an RCA Thompson electronics plant in the border city of Juarez, Mexico staged a strike in February of 1995. The 5,000 striking workers sought a 30 percent wage increase to offset the peso devaluation. Their lowered wages had resulted from the peso devaluation of 1994, as well as Mexico's attempts to jump-start its economy through strict wage and price controls. Meanwhile, workers in maquiladora plants such as RCA were looking to the Mexican government for guidance. The workers were members of a state-supported union which had not been meeting their demands. According to Cecilia Trillo, production operator, "The union has told us that this is a national problem, and they couldn't do anything for us. But we are doing something for ourselves." At this Juarez, Mexico RCA plant, workers were unsatisfied with the ability of the government and the union to achieve their goals.
The absence of unions, and the maintenance of low wages and compliance of Mexican workers, has been a major attraction for American MNC's to shift their operations to Mexico. US companies with productions in Mexico have been influential in keeping wages low and workers powerless. According to Ed Feigen, who monitors American MNC's in Mexico for the AFL-CIO, "US companies that operate in Mexico are on the cutting edge of driving down wages and undermining unions. They (the maquiladoras) are cleaner than sweatshops, but these plants do not pay livable wages." The protests of Mexican workers show the discontent in the US-owned maquiladora plants, and will be perpetuated in the future by further suppression of labor wages and rights.
An argument frequently offered by liberal economic theorists is that Mexican wages will eventually improve as a result of the foreign investment provided by US companies with operations in Mexico. Although US companies and the Mexican government are accused of working to maintain low wages for Mexican workers, the investment of building subsidiaries in Mexico could work to improve labor standards in Mexico indirectly by improving its economy. By contributing money to the Mexican economy, such plants would eventually alleviate the conditions of Mexican laborers. NAFTA was implemented in part with the goal of a sustained economy and abundant jobs in Mexico. But those who argue that economic integration will lead to well-paid jobs admit that this will only occur in the long-run. While Mexican government fosters a system of low wages and control over its workers in order to build its economy through foreign investment, this argument explains that the future consequences of an improved Mexican economy could be increased wages and improved labor standards.
American labor unions are a powerful force in the US, affecting the policies of the President and Congress. Many of the efforts by the US government to reverse or cushion the effects of NAFTA on US labor have resulted from pressure of these labor groups. They have ensured that retraining programs will assist US workers who lose their jobs due to relocation of manufacturing plants. Also, labor unions have convinced the US government to monitor labor conditions along the border, and have pressured the US government and US businesses to place restrictions on Mexican plants operating below national standards.
Labor groups in the US were fighting for the protection of US workers against the consequences of NAFTA since even before the agreement was signed. An aid program for displaced workers was added to NAFTA as a hotly disputed side agreement to NAFTA in 1993 as a result of the labor lobby. The side agreement sought to provide retraining to US workers affected by plant relocations to Mexican maquiladora plants, where it was argued that workers earned less in a day than their US counterparts earned in an hour. These American workers for the most part were losing their jobs as demand for labor in Texas border towns shifted from low-skilled to high-skilled labor. Two years later, the Labor Department reported that 35,000 Americans applied for retraining assistance after losing their jobs because of NAFTA. According to Greg Woodhead, an economist from the AFL-CIO, "That's just the tip of the iceberg, because not everyone who loses a job from NAFTA goes through the troubles of reapplying."
Although many workers in Texas have sought to utilize the program, difficulties have arisen in the implementation of the NAFTA Transitional Adjustment Assistance program in El Paso, Texas. More than 7,000 workers, Hispanic women, have been laid off in this border town since early 1995 by factories that have moved operations to Mexico. The program promises "rapid" and "timely" job retraining for workers displaced by the changes of NAFTA, yet more than 1,000 of the 1,300 El Paso workers enrolled in the program in 1996 were only in English or high school equivalency classes. The students can draw economic assistance for up to 18 months and free tuition for the duration of the program, yet problems occur when the program is spent teaching English rather than the skills of the high-tech jobs that are developing in Texas border towns such as El Paso. Those enrolled in the English classes are at the risk of having their benefits expire before receiving classes beyond English. According to Raul Ramirez, Executive Dean for Institutional Development with El Paso Community College, "Eighteen months is difficult at best in a population of people that speaks English well. It's impossible for a population of people that does not have English skills. Impossible." Yet Harry Crawford, Trade Adjustment Assistance Coordinator with the Texas Workforce Commission, does not feel that there are shortcomings in the job retraining program in El Paso. "To say that we have failed because we haven't retrained workers who are really far down the ladder is somewhat unrealistic. Everybody always wants a six-month whiz-bang program that gets them in and out, and into a $15 an hour job. And that's just not going to happen." He did acknowledge that 18 to 24 months is not long enough to train workers with low skills. Many involved in the program identify the problem of low-skilled workers who will use the 18 months of training to merely learn English rather than to develop the high-tech skills needed in the emerging labor market. Dr. Ramirez believes that the government needs to extend the program to a minimum of 36 months. "I think where they missed the boat is in not realizing that the jobs that are emerging and will emerge to the year 2000 are of a higher technology level that requires skills that our workforce does not have."
Despite doubts that the program does not achieve its goals of assistance to displaced workers, improvements seem plausible. For example, a workforce commission spokesman from Austin told the Dallas Morning News that he plans to get involved. He said, "We should have recognized this problem 10 years ago. We'll have to catch up. And we will catch up and get these people trained. But are they going to go through a heck of a lot of suffering and some tough times during the catch-up time? I believe so." The prevailing attitude for those working to retrain workers on the Texas border is hopeful.
An additional argument from of liberal economic theorists substantiates job losses and displacement for Americans on the Texas border. As part the current economic environment of free trade, job losses are inevitable labor shifts on the border, and do not result in a net loss of jobs. On a macro-level, free trade has not changed aggregate employment levels; instead, job losses represent sectoral labor shifts. Aggregate employment levels increased by 2.7 million people through 1994, while NAFTA-related job losses amounted to only two-tenths of one percent of the total 7.2 million unemployed. Not only is there a net gain in jobs, one study in 1994 of trade protection in the US shows the losses incurred of maintaining jobs no longer needed through changing trade patterns. The study estimated that the "cost to the economy and to consumers of preserving" trade-affected employment averaged $170,000 per job across 21 sectors, a figure that far exceeds both the Federal program cost of NAFTA adjustment and the average compensation paid to employees in the protected industries (approximately $28,000) Changes that workers on the Texas border are facing are unavoidable in the process of free trade. For these reasons, NAFTA's adjustment assistance program can be useful to prepare workers for such inevitable changes. Since NAFTA, displaced workers must become sufficiently skilled to meet the demands of jobs created by the trend of free trade.
Concerns regarding Mexican labor rights and standards plaguing NAFTA's implementation on the Texas/Mexico border are as follows:
Leonardi's chapter proposes that policy to develop the labor and the economy of the Texas/Mexico border region must implement the side agreements through the responsibility of US companies and the US and Mexican governments. Such a prescription should take the form of clear guidelines that US maquiladora companies should follow, enforced by NAFTA side agreements and Mexican constitutional labor laws.
In this chapter, the interdependence of the Texas/Mexico border has been assessed in general terms according to its economic and social integration, specifically in relation to the development of infrastructure throughout the border region, and labor issues that have arisen as plants relocate as maquiladoras across the border. The economies of the Texas border cities depend on their twin cities in Mexico for consumption of goods produced in Texas, for purchasers of their real estate, and for the bi-national trade upon which the transportation industry and distributor warehouses on the Texas border have been built. With the increased trade and commerce across the border, it has become evident that the existing infrastructure is inadequate to carry the flow of goods and people crossing the border. In addition, NAFTA has been accompanied by concerns of labor conditions on both sides of the border. While jobs are being lost on the Texas border, jobs are being created in the expanding maquiladora plants in Mexico, raising issues of Mexican workers' rights and conditions, along with the uncertain futures of low-skilled laborers in Texas who are losing their jobs to the maquiladora workers in Mexico.
Economic interdependence, trade, and commerce have been endemic to the border region since NAFTA was signed in 1992, and increased regionalization has resulted from the globalization trends of NAFTA. These twin cities depend more on their economic relationships with the cities across the border than with any other city in Mexico or the US. Yet issues such as infrastructure and labor demonstrate that the border region is still working to accommodate the changes of NAFTA. For this reason, policy-making will necessitate the consideration of this economic interdependence. As jobs move across the border and others are created, transportation facilities are being built to link the border region, and the twin cities of the border increasingly depend on the people and business across the border, future decisions will entail policies that address this interdependence. If the infrastructure is not properly developed and expanded, then it cannot facilitate the trade and commerce that has multiplied under NAFTA. If labor issues in Mexico are not addressed, protests by plants that are not allowed to unionize for their rights will continue to erode the productivity of these plants. In addition, US workers unprepared for the shifting labor demands on the US border will face high unemployment and ensuing economic depression of their city if they are left untrained.
Although national boundaries are blurred by the interdependent relationships, paradoxes continue to exist in this border region. The Texas border cities seek the investments of maquiladora plants to build their economies, yet the influx of these plants has raised concern that US workers are losing their jobs, and Mexican laborers are working under low labor standards. In addition, while infrastructure must meet the needs of increased trade throughout the region, Mexican trucks are considered unsafe and a threat to the environment of this region. An overall question remains: will the interdependent nature of this region be developed sustainably to allow for simultaneous economic development and social progress on both sides of the border? Leonardi's chapter seeks to answer this question with the goal of a sustainable policy for the border region.
According to a CRS Report for Congress on NAFTA, "Trends in trade, which fluctuate over time, were well-defined prior to NAFTA. Furthermore, in a world with increasingly open and fluid capital markets, the United States may not be able to easily insulate itself or private investors from any future financial crises that might befall Mexico." The issues discussed in this chapter are predicated on the inevitable interdependence of the economies, infrastructure, and labor across the Texas/Mexico border region. Since this region proved unable to immediately accommodate for the changes brought about by NAFTA, efforts are currently being made (and will need to continue) to foster the economic growth and social strength of this interdependent region. It is imperative that development efforts focus not solely on economic issues, but on social problems as well, as the fate of both Mexico and Texas are tied inextricably.