NAFTA: Five Years Linking U.S. & Mexican Markets. Proceedings from a May conference examining sector-by-sector successes, strategies and challenges under the trade agreement. (June 1999)

NAFTA Conference
The North American Free Trade Agreement:
Five Years Linking U.S. & Mexican Markets

TABLE OF CONTENTS

EXECUTIVE SUMMARY:

Agribusiness
"High-tech opportunities and agricultural integration strategies"

Education
"Building stronger economies through collaboration between higher education and the business sector"

Health and the Environment
"Improving North America’s environment and health under NAFTA"

Manufacturing
"Optimizing co-production in North America"

Telecommunications
"Opportunities through new technologies and a new regulatory environment"

Transportation
"Cross-border and intermodal transportation issues"

Charles Hayes, Chairman, Guilford Mills (Greensboro, N.C.) Speech delivered May 20, 1999, at "NAFTA: Five Years Linking U.S. & Mexican Markets," Washington, D.C.

"…NAFTA has not been easy but it is working. It is the trade agreement for the Americas that can show the world that the free enterprise system is working and it is the only way to economic growth and prosperity."

Tomás González Sada, President and CEO, Grupo CYDSA (Monterrey, N.L.) Speech delivered May 20, 1999, at "NAFTA: Five Years Linking U.S. & Mexican Markets," Washington, D.C.

"…[W]e must now take the initiative to assure that competing in the entire world market is the major thrust of NAFTA during the next five years."

EXECUTIVE SUMMARY

"NAFTA: Five Years Linking U.S. & Mexican Markets" focused on the successes, strategies and challenges of North American companies during the trade agreement's implementation.

The successes are impossible to ignore. U.S.-Mexico trade increased 113 percent from 1993, the year before NAFTA implementation began, through the end of 1998. Mexico has become the second-largest trading partner for the United States, surpassing Japan, and Mexico is the second-largest market for U.S. goods in the world. Canada is the United States largest trading partner. The results have paid off for North American corporations, workers and consumers as companies find a dynamic market for exports, as wages increase and unemployment falls, and as the cost of goods decreases while quality increases.

Corporate strategy has varied sector by sector. The conference highlighted how Mexican companies have been able to source materials in the United States ¾ rather than Asia or Europe ¾ because NAFTA makes U.S. products more competitive. In agriculture, U.S. farmers have been able to tap Mexico's strong demand for agro-industrial products, such as corn and livestock, while Mexico has had great success selling fresh vegetables and fruits to demanding U.S. consumers. Universities explained how they are preparing a North American workforce to compete with the rest of the world. U.S. and Mexican companies have helped to clean up North America's environment and fill a gap in health care needs. NAFTA has allowed manufacturers to rationalize operations for greater efficiency. Telecommunications firms have aggressively expanded in the Mexican market, realizing the benefits of deregulations and utilizing new technology to pursue the huge potential of the North American market. Transportation experts outline logistics, security and safety issues related to moving products across international borders.

While reflecting on the success of NAFTA, this conference also outlined challenges for the future. NAFTA is only one-third of the way through its implementation process and some portions of the agreement have already been snagged by non-trade considerations. North America's relationship with the rest of the Western Hemisphere, Europe and Asia is also crucial to the future of North America's firms, workers and consumers. NAFTA does not exist in a vacuum -- business leaders must consider the next steps for trade relations with the rest of the world.

The U.S.-Mexico Chamber of Commerce presents the following proceedings, representing the insight and experience of leading industry and government officials, to explain one of the most fruitful trade relationships in the world.

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Agribusiness

"High-tech opportunities and agricultural integration strategies"

Panelists

–Ronald Nicholas, President, Nicholas International, S.A. de C.V. (Mexico City)
–The Honorable Kika de la Garza (Mission, Texas)
–Javier Mora, President, Kafeksa (New York)
–Martin Avila, Canacintra (Mexico City)
–Francisco Alverde, Embassy of Mexico (Washington, D.C.)

Overview of Key Points

Former Congressman Kika de la Garza opened the panel by discussing his role in passing the agricultural section of NAFTA when he was chair of the Agricultural Committee in the House of Representatives. De la Garza noted that many farmers who were against NAFTA at the beginning are still opposed to the agreement. He noted, however, that farmers in his state of Texas suffer more from floods or drought than from NAFTA and that agribusiness in Texas has not been adversely impacted by the agreement.

After this introduction, the economic specialist on the Mexican Desk at the U.S. State Department asked the panelists to address four questions. First, which groups are the winners and losers in U.S.-Mexico agricultural trade; second, are sanitary/phytosanitary (SPS) rules barriers to agricultural trade; third, how does one deal with products in surplus when the price collapses as has happened recently for pork and hogs; and fourth, what are the prospects for non-traditional agricultural exports from Mexico.

Mr. Alverde, representing the Mexican government, noted that Mexico is now supplying new products to meet U.S. demand and the producers of these products are clearly winners. Even Mexican avocado producers are now winners as they have been able to ship their product to certain sections of the U.S. since 1998. The view was expressed that the U.S. market is not fully open to Mexican agricultural products. De la Garza pointed out that he advises his Mexican colleagues that it is not productive to attack U.S. trade policies as politically motivated. Rather one needs to deal with issues at the technical level. He said that trade impediments on mangoes were solved by technical means. Treating mangoes with a hot water treatment led to their admission into the U.S. Technical solutions have permitted the opening of part of the U.S. market for avocados where previously the U.S. required the removal of avocado pits to prevent the introduction of insects to the United States.

Javier Mora has been working for 22 years exporting coffee from Mexico to the United States. He said the biggest problem with Mexican coffee farmers is their lack of education – both technical and general. Under NAFTA, some new technologies have been introduced in coffee production but there is a need to broaden the knowledge, understanding and use of these technologies among farmers and processors. The biggest obstacle now remaining is the lack of distribution channels at U.S. supermarkets. Many Mexican exporters cannot afford the stocking fees at U.S. supermarkets, thereby limiting the options of reaching U.S. consumers. Where Mexico coffee producers have succeeded has primarily been in the production and sale of instant coffee. Mexican coffee growers are often left only with the option of selling green coffee to large U.S. companies for processing and roasting in the U.S.

Lack of financing within Mexico for agribusiness projects is a major problem according to Mora. Farmers source of financing is through brokers. Mexico needs to find ways of attracting U.S. agribusiness companies to invest in Mexico in the production of processed food products. Martin Avila, a farmer from the Mexican state of Colima discussed his states efforts to encourage agro-industry investment. He spoke about the role NAFTA has played in increasing the price farmers obtain for their products to be exported. He noted that farmers in his state are seeking direct access to the U.S. market in products such as melons, mangoes and coffee.

One significant success story is the U.S. poultry processing company Pilgrim’s Pride. Ron Nicholas directed Pilgrim's Pride's acquisition of a Mexican poultry company in 1985 and its rapid growth in Mexico. This large scale, cost-effective production helped change Mexico’s entire poultry industry. There had been much opposition to the Pilgrim’s Pride investment in Mexico from existing poultry producers. The government of Mexico had protected its poultry industry by subsidizing feed and guaranteeing prices. Local poultry producers gained from the inefficient production which had led to a limited supply and therefore high price of poultry. Pilgrim’s Pride had to overcome a set of unwritten and changeable regulations designed to impede market entry. Today, Mexico has a far more efficient poultry industry and the potential for cross border trade is greatly increased. Industry pressure on both sides of the border has impeded the resolution of poultry certification necessary for cross-border trade. Mexican industry is lobbying for the right to seek certification that certain areas of Mexico are disease-free so that poultry can be exported to the U.S. from those areas.

The farm population in Mexico is falling, from 29 percent of the total population in 1990 to 25 percent today. Yet the opportunities for a major expansion of the agribusiness sector have increased dramatically, according to Nicholas, with the change in the land tenure laws. Small farmers can now own their land and join their land with others to form a more productive and cost efficient farm. There is growing efficiency in the retail sector for agricultural products. The Texas chain H.E.B. is now in Mexico selling both U.S. and Mexican products while Mexico’s Gigante chain in now in Los Angeles. Nicholas also pointed out that food safety is a major activity in Mexico. The SAGAR program transfers information to farmers in all Mexican states on the use of microbiology methods to improve food safety practices, steps that are necessary to maintain export markets.

The principal conclusion reached by this panel is that there is an extraordinary opportunity for investment in Mexican agriculture. That while trade in agricultural products has grown significantly since the formation of NAFTA, there is exceptional prospects for significant increase in that trade in both directions, which will improve the welfare of the citizens of both the U.S. and Mexico.[

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Education

"Building stronger economies through collaboration between higher education and the business sector"
Panelists

–Douglas X. Patiño, Vice Chancellor, California State University (Long Beach, Calif.)
–Dr. Warren J. Baker, President, Cal Poly San Luis Obispo (San Luis Obispo, Calif.)
–Guillermo Fernandez de la Garza, Executive Director, U.S.-Mexico Foundation for Science (Mexico City)
–Dr. Bertha Landrum, Director, Business Workforce Development, Maricopa Community College (Tempe, Ariz.)
–Francisco Marmolejo, CONAHEC, University of Arizona (Tucson, Ariz.)
–Carlos Mendizabal, Director, Division of Administration and Social Sciences, ITESM (Mexico City)
–Arturo Velásquez, Director General, Institutional Development, UNAM (Mexico City)

Overview of Key Points

This panel brought together educators from both sides of the U.S.- Mexico border to examine how their institutions could work together to support the business community. Arturo Velásquez of Mexico noted that business could be the tool to link higher education institutions between the two countries. Francisco Marmolejo was asked to open the discussion and set the framework for the dialogue. He examined some of the similarities and differences between institutions of higher education in the United States and Mexico and discussed a series of initiatives that could bring these institutions closer together.

In the U.S., higher education is viewed as an individual asset and more students pursue the study of liberal arts. In Mexico, higher education is viewed as a public asset and students tend to pursue more professional fields. Universities in Mexico have more part time teachers and a smaller percentage of the faculty with Ph.D.’s than similar institutions in the U.S. Marmolejo opined that by focusing on the similarity between these institutions, there could be significant advances for both countries. Much as NAFTA has integrated business between the U.S. and Mexico and there have been efficiencies due to co-production, forming inter-institutional educational networks between the U.S. and Mexico can lead to a deepening of economic development in Mexico and higher incomes on both sides of the border. These networks could include educational research and student exchanges between the U.S. and Mexico. One example raised of an existing network is the Buen Vecino Internship Program sponsored by the U.S.-Mexico Chamber of Commerce, which provides opportunities for Mexican students to work at U.S. firms and U.S. students to work in Mexican firms.

Both Velásquez and Marmolejo discussed the importance of understanding cultural difference and values. It is not enough to know the other culture’s language to maintain beneficial and respectful communications. It was noted that when trying to bridge cultural differences between institutions of higher education, individuals should try to utilize support organizations, try not to be too aggressive in these relationships, listen, and ask when something is not understood.

Velásquez urged that there be diploma programs established in international commerce. This could involve the exchange of teachers and students who learn from the inside, learn by doing, and learn the culture of their neighbors. This would be a way to break cross-cultural stereotypes.

Bertha Landrum discussed her efforts to develop programs for business workforce development through a partnership between her community college and the business community. She noted that because of the shortage of high skilled workers, it makes sense for businesses to cooperate and pool their resources for a mutual benefit. She compared this cooperation to what takes place in a merger – synergies are created – by working together firms attract suppliers, services, they share cost relationships and maximize research capabilities.

Guillermo Fernandez fully supported Landrum's thesis, that higher educational partnerships are essential for business success. Business needs a new type of skilled worker and there is a need for better educational programs to produce them. He noted that the Maricopa community college experience is a good example of business/educational partnership and it can be used as a template for other organizations and institutions.

Another example of cooperation between higher education and business is Cal Poly’s Technological and Educational Advancements in Mexico for Innovation and Needed Growth (TEAMING) initiative which was described by Warren Baker. This project provides the Cal Poly faculty and students the opportunity to understand another culture and how business is done in Mexico. Focusing on the Sinaloa region of Mexico, this project conducts courses, training seminars, workshops, and research and development projects to support technology transfer, economic development, and human resource development in that region. Both the local and federal governments in Mexico have funded this project. A key feature of this project is the involvement and interaction between the public and private sector. This project gives the students the opportunity to be engaged in real business. They learn by doing. This program faces a real challenge of obtaining funding from business if it is to continue to be fully effective.

The prepared remarks generated thoughtful comments both from the audience and from other panel members. One participant who is a certified accountant both in the U.S. and Mexico noted that it is business that is driving globalization. He urged that training be carried out in all countries so people are working with a common understanding of terminology. He urged that international internships start at even an earlier stage in the education process to combat the lack of understanding of different cultures. One representative from Mexico urged U.S. universities to help improve the Ph.D. and management programs at Mexican universities. It was noted that only 3 percent of professors in Mexico have doctorates.

There was an interesting exchange in the role educational institutions can play in helping small and medium sized business in Mexico. Guillermo Fernandez noted that there have been student demonstrations in Mexico against NAFTA, triggered, he believes, by the tremendous destruction of small business in Mexico. He argued that students need to be made to understand that the problem is not NAFTA, it is the failure of the Mexican government to support policies that assist small business. A representative of the state of Guanajuato supported this view. She said that the high cost of borrowing in Mexico for small and medium sized business must be solved to permit these companies to grow.

Doug Patiño asked whether NAFTA needs to be more than trade policies. He said that Texas has wonderful educational resources, including financial assistance and tuition wavers for needy students. However, he opined that what was needed was a public policy and a vision so that these resources be made more productive. He concluded the panel session by saying that the Educational Task Force would focus on developing internships as a practical solution to many of the issues raised and that the Task Force would continue to examine and promote models of cooperation between education and business that work.

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Health and the Environment

"Improving North America’s environment and health under NAFTA"

Panelists

–Lawrence V. Meagher Jr., President and CEO, International Hospital Corp. (Dallas, Texas)
–Dr. Juan Carlos Belausteguigoitia, Undersecretary, SEMARNAP (Mexico City)
–Michael A. Carricarte, Chairman and CEO, Amedex Insurance Group (Miami, Fla.)
–Alan D. Hecht, Principal Deputy Administrator for International Activities, U.S. EPA (Washington, D.C.)
–Dr. Andrew Nichols, Arizona House of Representatives and Director, Rural Help Office, University of Arizona (Tucson, Ariz.)
–Pablo Valencia, Director of Technology Transfer, University of Southern California School of Medicine (Los Angeles, Calif.)
–Professor David Warner, LBJ School of Public Affairs, University of Texas-Austin (Austin, Texas)

Overview of Key Points

This panel brought together both health and environmental experts to examine key aspects of U.S.-Mexico relations in these areas. While limiting environmental degradation has a significant impact on health, the health representatives on this panel focused on ways to improve health care in Mexico through the export of U.S. health technology and services. This discussion was followed by an update on some key environmental issues.

Health

Larry Meagher spoke about his company’s experiences in obtaining permission from the Mexican authorities to establish hospitals in Mexico. Currently, the International Hospital Corporation (IHC) operates several hospitals in Mexico in various sites. The demand by a sector of the Mexican populace for sophisticated, high quality health care facilities in Mexico remains significant. This demographic cohort expects to have the same or similar health care facilities and services as provided in the United States and Canada. IHC has responded by forming groups of investors, organizing the construction and managing these new facilities.

A United States-based architectural firm that specializes in the construction of modern hospitals and clinics has designed IHC’s Mexican health care facilities. In addition to the construction of the hospital, each facility has an annex that houses doctor's offices. The Mexican doctors contribute to the capitalization of the overall effort. Compared to doctors in the United States, Mexican doctors keep longer hours and service a broader patient base. IHC's Mexican hospitals pay the nursing staff wages significantly higher than the local scale. As a result, the turnover rate of the Mexican nursing staff has been greatly reduced at IHC hospitals, leading to a more stable and experienced nursing staff. IHC remains a leader in meeting the demand for high quality health care services in Mexico and seeks to continue expanding into other areas.

Mr. Carricarte spoke about how the demand of the top 3-5 percent income earning Mexican and Latin American citizens, who seek and receive the highest level of health care services, has been met with strategic alliances between insurance companies, banks and hospitals. This demographic group uses the quality health care facilities and professionals in Miami, Florida and Houston, Texas. This elite patient base, because of its earning power, subscribes to health care plans for purposes of assuring themselves admission to participating health care facilities and physicians. The premiums and the claims profile is sufficient to allow the insurance carriers to make a profit while providing wealthy Mexican and Latin American patients the level of health care they expect and want, while increasing revenues for United States-based health care facilities and professionals.

Professor Warner described large communities of United States citizens living in expatriate enclaves in Mexico. "Snowbird" retirees or military pensioners reside In communities such as Lake Chapala, Guadalajara and San Miguel de Allende. These residents could qualify for Medicare benefits, thus providing a funding base to support high quality health care facilities and professional services. Availability of these benefits would help meet the demand for the types of services created by the International Hospital Corporation or the medical-needs pilgrimages to Miami and Houston hospitals and clinics described by Mr. Carricarte. Currently, United States legislation prohibits the use of Medicare benefits to U.S. citizens living in Mexico. Professor Warner and his colleagues are seeking special legislation or a waiver to current legislation to conduct pilot projects which would reveal the actual demands for high quality health care facilities and services for United States citizens residing in Mexico who qualify for United States health care benefits.

Dr. Nichols spoke about the use of a binational foundation to address the needs of patient communities along the U.S.-Mexico border. Using the binational model as a funding vehicle, the latest technologies can be used in transborder agreements that can leverage public funds for the receipt of private donations to maximize the reach of the institution. Along the border, unfettered passage of patients, health care professionals, equipment and supplies is vital to maintaining a healthy community.

Pablo Valencia discussed binational trends in transboundary medical services. While there is an incipient level of transboundary transfer of health care know-how and technology between the United States and Mexico, especially between the Californias, there is much more that can be done. Among the barriers to increased binational activities are the disparate income levels of patients and the wide-ranging differences in the level of health care facilities. Leadership from universities, medical schools and the private sector can force the needed changes at the public level to make the provision of medical services more responsive to the border communities.

Environment

Dr. Belaustigeguigoitia addressed the reform efforts of SEMARNAP, the Mexican equivalent of the U.S. Environmental Protection Agency, to eliminate cumbersome and unnecessary federal regulations that tend to be anti-business without a rational basis. After nearly two years, a special commission charged with the responsibility to review the Mexican environmental regime to eliminate and re-write regulations, will soon publish comprehensive changes. The publication of these comprehensive changes will be made near the end of 1999.

Dr. Hecht described the 2,000-mile U.S.-Mexico border as a special area that begs attention from the governments and the private sectors of both countries. The border region has the fastest growing populations in both nations and is experiencing exceptional economic growth. These two phenomena place inordinate pressures on natural resources, the environment and energy use in a region that is wrought with poverty. The Border XXI program provides funding for a variety of programs that includes, among other activities, information sharing and joint projects to address water treatment and air quality. Dr. Hecht also highlighted an historic accord to which there was an agreement in principle, known as the The Seven Principles of Environmental Stewardship for the 21st Century. The proposed signatories to this agreement are Carol Browner, Administrator of the U.S. Environmental Protection Agency, Julia Carabias, Secretary of the Secretariat for the Environment, Natural Resources and Fisheries, Javier Cabrera, Commissioner of the Border Environmental Cooperation Commission and Albert C. Zapanta, President and CEO, the United States-Mexico Chamber of Commerce. These Seven Principles provide a framework for corporate leaders, at the top management level, to make a commitment to pollution prevention, implementation of environmental management systems with measurable objectives, public communication of their activities, civic commitment and education in the communities in which they operate and energy conservation, among other activities. This public-private partnership is a unique milestone in the NAFTA efforts to promote trade and to give credence to the environmental side agreement. [The Seven Principles of Environmental Stewardship for the 21st Century was signed by all signatories and announced in Mexico City on June 4, 1999 at the Annual United States - Mexico Binational Conference. Several corporate members of the United States-Mexico Chamber of Commerce have declared their intentions to be among the first companies in their trade sector to implement the Seven Principles. The sectors include textiles, automotive manufacturing and hospital services.][

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Manufacturing

"Optimizing co-production in North America"

Panelists:

–Hernán González, Vice President, CYDSA (Monterrey, N.L.)
–Dr. Ricardo Alaniz, President, Coordinadora de Fomento al Comercio Exterior del Estado de Guanajuato (COFOCE) (Guanajuato, Gto.)
–John DuPont, President, Nexus Group (Denver, Colo.)
–Eduardo Duran, Latin America Trade Affairs Coordinator/Customs Administrator, Mattel Inc. (El Segundo, Calif.)
–Peter Iovino, International Trade & Tax Manager, Ford Motor Company (Washington, D.C.)
–Mike Jacobs, President, Discovery International (Great Neck, N.Y.)
–Jack Kahan, President, Grupo Multiplo (Mexico City)
–Javier Mancera, Director, SECOFI-NAFTA Office, Embassy of Mexico (Washington, D.C.)

Overview of Key Points

These eight panelists came together to address not only why Mexico is an excellent choice for locating certain manufacturing activities, but also what strategies firms should utilize to take advantage of these benefits. Each of the speakers emphasized the high quality of Mexican workers and therefore the high quality of the finished product.

Eduardo Duran said that production in Mexico for Mattel makes sense because of its natural location close to the U.S. and its well developed infrastructure, in addition to the supply of skilled labor. Mattel has 25,000 employees worldwide, 17 manufacturing plants, and sales in 150 countries. Mattel started maquiladora production in Mexico in the mid-1970s in Mexicali and in 1984 established its own operation in Tijuana, now with 4,000 employees. In 1985 Mattel opened a 2,000-employee operation in Monterrey and another similar sized operation is now being built in the same city. Mattel works to provide transportation, training, and recreational services for its employees in its operations along the border.

Cydsa, according to Hernan Gonzales, has shifted a significant portion of its purchasing of equipment and technology from the Far East to the U.S. due to NAFTA. In addition, U.S. firms enjoy royalties, fees for licenses, and an increased demand for services and consulting. Mexico is also helped with this division of labor and work. Javier Mancera noted that Mexican companies that export more than 80 percent of their production, pay 40 percent more than other Mexican companies. Mexico is gaining not only with more jobs but higher paying jobs. These jobs are not just at the border. Production has increased dramatically in other regions of Mexico. In fact, Mancera pointed out, maquiladora jobs pay almost 5 times the minimum wage in Mexico.

Several of the speakers conveyed their views on strategies that a U.S. company should employ to be successful in Mexico. John Dupont reflected on his experience with a healthcare company before forming his consulting company. In 1985 they leased 4,000 sq. ft. of space to manually assemble medical devices. This operation greatly exceeded their expectations and in 1999 the company established in the Tijuana area a 100,000 sq. ft. clean room manufacturing area where they are able to integrate the entire manufacturing process. The success of this operation, according to Dupont, can be attributed to that company’s philosophy and values. It worked hard to develop an understanding of Mexican culture and the Mexican business environment, it set clear objectives for this new operation, and evolved its Mexican operation to fit the goals of the parent company.

This company also put extensive effort on its labor force. It sought to hire its workers for their technical skills, intelligence, and values. It then created a formal orientation and training program. It set high expectations for each worker, provided compensation to match and made it known that it would promote from within.

An equivalent but different strategy was that employed by Mike Jacobs in his apparel company. Discovery International began its Mexican operations in 1994 when it outsourced 10,000 garments. This grew rapidly to 1.5 million garments in 1995 when he established a cutting operation in Mexico. Discovery now has 3 plants and 780 employees. Jacobs pointed out that his strategy was to find a good Mexican partner and to pay attention to personal relationships. He noted that personal relationships are important in Mexican business, much as they were in the United States 25 years ago. Jacobs also pointed out the importance of Mexico’s strategic location. Using a freight forwarding company that he purchased, Discovery can ship out of its Mexican factory on a Thursday afternoon and have the garments in New York City on Monday morning. He noted that this is not possible from Asia or even from Central America.

Automobile co-production has been one of the real success stories of NAFTA. Peter Iovino of Ford noted that U.S. exports of cars to Mexico has grown eleven fold since the beginning of NAFTA with a similar increase in trade going from Mexico to the United States. He noted that Ford's operation in Hermisillo has one of the highest quality rating of any operation in the world. Jack Kahan, whose family has been in the Mexican automobile industry for 75 years, echoed the notion that Mexico's success has been its high quality in production.

The theme, however, of Mr. Kahan’s remarks is that one needs to look at NAFTA's long term impact on Mexico. First, economists and others need to look at all the benefits and costs, including those to the environment. He noted that the U.S.-Mexico Chamber is looking closely at this area. In addition, he sees the need to foster entrepreneurship in Mexico by examining the success of smaller companies – the second tier companies – who have benefited greatly from the opening of the market with the U.S. and Canada.

Dr. Alaniz put much of the business discussion into the perspective of its impact on his state, Guanajato, which now exports about $5 billion per year. Alaniz credited the state's lower wages, low labor turnover, quality communications network, and its skilled labor force for the high level of exports. Its main sectors include autos and auto parts, electric appliance, agribusiness, leather goods, and footwear. General Motor’s new plant in Guanajato is expected to have sales of $10 billion by 2001 up from less than $1 billion in 1995. The state has an Institute for Quality which helps companies meet international quality standards (eg., ISO 9000).

A number of panelists said that the key to continued success in joint production is being able to get goods across the border in both directions. This includes both the need for physical infrastructure [covered in the transportation panel] and the need for efficient customs operations. The Mattel representative said that Mattel had had problems with customs in the past but that the situation is now improved. Ford Motor Company has been working with Americans for Better Borders to find a solution to Section 110 of the 1996 Illegal Immigration Reform and Immigrant Responsibility Act, which if implemented would require the identity of all outgoing persons to be checked electronically. While this provision has been temporarily suspended, there are estimates that this would lead to 17 hour delays to get goods and people across the border. For manufacturing firms, having a quick, efficient, and timely process of cross-border delivery is a key to successful co-production.[

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Telecommunications

"Opportunities through new technologies and a new regulatory environment"

Panelists

–Pablo Ruiz Limon, Director of Government Relations for Mexico and Central America, Lucent Technologies (Mexico City)
–Alonso Carral Cuevas, Director General, Infoacces (Mexico City)
–Dr. Henry T. Ingle, Associate Vice President of Technology Planning and Distance Learning, University of Texas at El Paso (El Paso, Texas)
–Salma Jalife, Director of International Affairs, Comision Federal de Telecomunicaciones (COFETEL) (Mexico City)
–Richard Larios, Vice President, International Government Relations, SBC International Development Inc. (Washington, D.C.)

Overview of Key Points

Trade, brought about by NAFTA and new technology, has opened tremendous opportunities for telecommunications firms in the Americas. The opening of markets and advances in telecommunications is also creating new opportunities for small businesses, in education and for the general population.

In Mexico, privatization and liberalization have fostered tremendous growth in services. Five years ago, Mexico had one telephone company. As of May 1999, there were 17 long-distance firms, eight local companies and numerous other services, according to COFETEL.

As the industry relates to NAFTA, Alonso Carral summed up the situation as follows: "Telecommunications was not directly helped by NAFTA but the clients of telecommunications firms were." That is, the growth of industry and trade brought the need for services.

The demand for services has led to an explosion of possibilities. Dr. Henry Ingle noted that higher education institutions have been able to utilize technology to reach out beyond the traditional campus. Internet technology has helped to foment a new outlook in educational services. One growing niche is UTEP's ability to offer a full-fledged degree program over the internet. Their work with military personnel is an example of a strong market for this service. Members of the armed services, who travel frequently, never have to set foot on campus through ongoing distance learning programs. Dr. Ingle said that the distance learning component of education is not trying to replace a traditional university. He emphasized, however, that there is a large population that currently is not well served; in Texas 75 percent of the adult population does not have a university degree. The University of Texas at El Paso has found a strong demand for education in Texas, along the border and into Mexico.

Large companies, such as SBC International Development, have been able to hold a stake in Mexico's market, according to Richard Larios. SBC owns a share of Telmex and participated in the doubling of telephone service provided in Mexico. Larios sees the future of telecommunications involving data transfer and enhanced telecommunication services. Competition and changing market share are key issues for telecommunications corporations in Mexico and Latin America. Leading firms are encouraging the government of Mexico to adopt well defined government objectives for the telecommunications industry and to adopt a compatible regulatory environment. In this light, SBC would like to see a separation of the regulatory function in Mexico (COFETEL) from the executive branch agency tasked with governing telecommunications services (SCT).

Internet companies have grown exponentially -- as traditional service providers and as alternatives to traditional long distance carriers. Alonso Carral said that small businesses, which are often the backbone of economic growth and job creation, have been able to use entrepreneurial skills and tap growth in demand for telecom. He noted that his company, which owns and operates CompuServe in Mexico, has succeeded because of deregulation and because of his company’s tenacity. Carral noted that many are not happy with the state of deregulation because technology is changing faster than the regulations. He said that it is often difficult to determine the balance between protecting existing industry versus the need to allow competition and innovation. Overall, the result has been strong competition under a new and changing regulatory environment.

Salma Jalife represented the government of Mexico’s telecommunications regulatory arm. She said that the government is working to provide a clear and positive set of regulations that will allow continued growth and foment progress toward universal service. Mexico must consider its own unique circumstances under its regulatory regime. For example, increasing telephone service to all citizens -- especially in rural areas where the population is underserved -- has been and remains a priority. The goal is to deregulate positively and properly, keeping in mind that privatization is different in each country. However, the government is looking to the private sector and academia for a cooperative effort that will best serve Mexico.

As to predictions for the future - panelists agreed that the technology is changing so rapidly that it is difficult to predict what the telecom landscape will look like too far into the future.[

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Transportation

"Cross-border and intermodal transportation issues"

Panelists

–Stuart S. Dye Esq., Secretary of the Board, USMCOC; Chairman, USMCOC Infrastructure Task Force; Partner, Holland & Knight (Washington, D.C.)
–Donald Michie, Ph.D., Chairman, Industrial Development, Border Trade Alliance (El Paso, Texas)
–Martin Rojas, Director for International Affairs, American Trucking Associations (Alexandria, Va.)
–Richard Biter, Acting Director, Office of Intermodalism, U.S. Department of Transportation (Washington, D.C.)
–Tony Chacon, Assistant Vice President, Union Pacific (Omaha, Neb.)
–Oscar De Buen Richkarday, Jefe Unidad de Autopistas de Cuota, Secretaria de Comunicaciones y Transporte (SCT) (Mexico City)
–Robert Wray, Senior Partner & Project Finance/Privatization Group, Holland & Knight (Washington, D.C.)
–Dan Collins, President, Operation Respond Institute (Washington, D.C.)
–Ralph Sheridan, CEO & President, American Science & Engineering (Billerica, Mass.)
–Norman Lemley, President, Center for Maritime Leadership (Washington, D.C.)

Overview of Key Points

Stuart Dye opened the discussion by noting that the panel would examine the role and status of transportation and logistics infrastructure at the border and in Mexico. He defined logistics as the effective management of inventory and distribution and said that transportation infrastructure has been found to be a fundamental key to the ability to achieve economic progress and business stability. He noted that land borders represent the ultimate transportation interface where a variety of public and private interests, both national, state, local and foreign all clash and must be accommodated, each with its various policy and operational objectives.

The first topic taken up by the panel was the transportation infrastructure for trucking. About 80 percent of the NAFTA trade between the U.S. and Mexico is carried by truck. Martin Rojas noted the dramatic increase in truck traffic across the border since NAFTA was implemented. He quoted statistics from Texas A&M which show that from 1993 to 1997 the number of northbound trucks crossing the border increased 88 percent to 960,000 annually and the number of southbound trucks crossing the border increased 30 percent to 1,300,000. With the failure to implement the December 1995 provision of NAFTA, which would have permitted trucks to cross the border and deliver cargo in border states, Rojas said that all shipments continued to require three tractors to move one trailer over the border. Getting goods across the border going south requires interaction with Mexican customs and Mexican customs brokers. Moving goods north across the border involves U.S. Customs enforcing 400 regulations from 40 different agencies, long inspections and use of X-ray machines checking for illegal substances. Inspections from both state and federal transportation departments are also required.

Representing the U.S. Department of Transportation, Richard Biter reviewed the national corridor planning and development program established by TEA-21 (Transportation Equity Act of the 21st Century). This appropriation is for $140 million annually for fiscal years 1999 through 2003 with the federal government paying 80 percent of the program costs. This program's goal is to improve freight mobility at the Nation’s land borders, ensuring diffusion of existing freight information technologies and networks, and expediting the global flow of goods. Biter said that there would be enhanced terminal capacity to parallel growth in container traffic, greater mobility due to reduced truck congestion, and greater efficiency through access to real-time data at roadside and border crossings.

Don Michie, representing the Border Trade Alliance, provided an assessment of transportation funding for U.S.-Mexico border projects under NAFTA. His five year assessment concluded that these projects are not being funded by federal, state or local authorities. He suggested border projects might not receive intended TEA 21 funding, either. The basic problem is the legislation's assumption that national interest and priorities would be achieved by transferring funding and project authority to states and local MPOs. He cited examples where California, New Mexico and Texas prioritized provincial interest before national. A second problem with TEA 21 is that national corridor and border infrastructure (Sections 1118 and 1119) share the $140 million in annual funding. There is no separate set aside for the border. Border projects must compete with national corridors for the few dollars available. Finally, TEA 21 does not address transportation funding for rural communities. Rural communities do not have MPOs and must depend on state departments of transportation to champion their projects. Because they do not constitute a significant political constituency, their projects go unfunded. For example, the State of New Mexico did not fund a single 1999 project request submitted by its border communities.

Moving to airports, Robert Wray discussed airport privatization. He said that Argentina, Peru, and Mexico are carrying out airport privatizations. The process in Mexico has been carefully thought out by legal professionals and carried out by the Mexican transportation department, SCT. Mexico is working to privatize 35 airports. Bidders must meet certain criteria. The Mexican partner must have at least 25.5 percent ownership and the international partner must understand the airport business - how to make the airport modern and efficient for tourism and cargo.

The potential for significantly increasing the movement of goods between the U.S. and Mexico by ship was explored by Norman Lemley. Historically, bulk cargoes such as petroleum, chemicals, agricultural commodities and ores dominated markets for water transportation for trade between the United States and Mexico. Recently, Landstar Systems, Inc., one of the largest truckload carriers in North America, initiated a roll on-roll-off (Ro-Ro) ship service. The service between the Port of Mobile and the Port of Tuxpan in Mexico saves 1,000 miles of highway driving each way and was initiated in response to customer needs due to truck and rail delays. Also recognizing the need for faster service for shippers moving products between the U.S. and Mexico, Crowley American Transport recently increased service between Florida and Mexico with more nonstop capacity. In both cases, shipping and liability costs are reduced, as are security problems.

Union Pacific Railroad representative Tony Chacon explained that revenue on their Mexican operations increased from about $400 million in 1991 to about $800 million on average since 1996, with the expectation of a gradual increase over the next few years. His company has $33 million of ongoing capital expenditures, with a plan for future spending to relocate a customs examination station at Laredo/Nuevo Laredo, and yard expansions with Mexican partners FXE at Piedras Negras and TFM at Sanchez. Working with U.S. Customs, they will introduce X-ray equipment to examine containers for contraband. Finally, Chacon explained his company's efforts to work with regulatory agencies both in the U.S. and in Mexico to ensure fluid border crossings.

Two speakers dealt with safety and security of goods crossing the border. Dan Collins reported on Operation Respond, a public/private partnership, designed to improve emergency response for spills involving hazardous materials. Using a software system called "OREIS", fire and police departments can access railroad and motor carrier data bases to verify contents of cargoes to determine nature and response procedures for hazardous cargo. Collins reported that the Spanish version of this software has been fully deployed at border locations in Mexico and the English-language version at border locations in the U.S. Overall, this software is in place in 750 emergency response centers in the U.S., Canada, and Mexico. Ralph Sheridan, whose firm develops and manufactures X-ray equipment, reported on the installation of X-ray technology along the border. This technology not only can detect drug smuggling, but also illegal movement of people across the border in commercial vehicles. Currently there are seven X-ray machines in operation along the border and two more are on order and being built.

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Charles Hayes, Chairman, Guilford Mills (Greensboro, N.C.)
Speech delivered May 20, 1999, at "NAFTA: Five Years Linking U.S. & Mexican Markets," Washington, D.C.

Governors, Mr. Secretary, Chamber members and honored guests, it is my pleasure to be here today to speak on behalf of NAFTA with my esteemed textile leader counterpart from Mexico - Tomas Gonzalez Sada, chairman of Cydsa.

Those of you in the audience are well aware of the benefit that NAFTA has brought to the three trading countries. I will hit a few highlights.

1. NAFTA represents a 400 million person consumer market and trade among NAFTA partners.

2. Trade, since the inception of NAFTA, has grown 74 percent.

3. Due to NAFTA, Mexico is now our largest trading partner, after Canada, for U.S. goods.

4. Due to NAFTA, Mexico is now the largest supplier of textile apparel to the U.S., replacing China and other Asian nations. The better news is that 80 percent of those imports contain U.S. components.

From the inception of NAFTA, I have stated over and over again that NAFTA has represented a true renaissance to the textile industry.

It is very rewarding to be part of the success and, therefore, instead of giving you additional statistics, something that you already know, I would like to share with you my personal feelings and experiences that I encountered during the last 7 years of my involvement.

Through my associate, Dr. Jack Zaidenweber, who was the president of American Textil, located in Mexico City, we had a discussion concerning the formation of NAFTA with the then Acting Secretary of Commerce, Dr. Jaime Serra, and at the same time, his number one trade negotiator for NAFTA, Dr. Herminio Blanco, who is the current Secretary of Commerce for Mexico.

From the very beginning, there was no question in my mind that NAFTA was going to bring salvation to the textile industry simply because over the past 30 years, we have lost in excess of 60 percent of the entire industry to the Far East due to the fact that we could not economically produce the clothing in the United States, even though we were more than cost competitive in producing the yarn and fabrics.

With that firm belief, I became totally involved in working to promote NAFTA and in so doing, invited both Secretary Serra and now Secretary Blanco to Greensboro to attend a dinner where I would also bring together the president of the American Textile Manufacturing Institute and representatives of the fiber industry.

Now this is when the fun begins.

In preparing for this meeting, as stable as you might think I am, I became extremely nervous and to give you an idea how people can bond together over a mistake, that is exactly what happened to me. I picked up my guests at the Greensboro airport. I live approximately 7 miles away. And as I am driving back to my home I took the wrong turn and headed to a small place called Kernersville and after going 3 miles down the road, I just turned to Secretary Serra and I said, "Mr. Secretary, you are going to think I am the dumbest individual living because you are going to see the same trees going back that you saw going down. I took the wrong turn."

After a great deal of laughter which -- carried over into the dinner -- the outcome was what Mexico and the United States thought would be the hardest part of a NAFTA agreement, the textile industry, turned out to be the easiest and a model for other industries. Frankly because of what came out of that meeting in Greensboro, the two private sectors in both countries would meet without government interference, break down the barriers and move forward with free trade.

With the passage of NAFTA, it became very apparent to me that since Mexico for many years had a protected economy that their manufacturing facilities both in producing fabric and mainly in producing garments was not at that time what I would call world-class. What we decided to do was to establish outside of Cuernavaca a textile industrial park that was called NuStart. Teaming together with Grupo Alfa, DuPont and Burlington Industries, we developed an industrial city for the manufacturing of garments.

It was not just another industrial park.

In conjunction with the Mexican federal government and the State of Morelos, we also constructed a training center so that these first time employees would obtain proper training in how to manufacture a world-class garment. We didn't stop there. We, in turn, designed each plant to be air conditioned, to be properly equipped with showers, cafeterias and all amenities that show respect to the employee.

In the training center, we actually set up an area to teach the handicapped how to run a sewing machine. Then we went a step further and put in classes that would teach the employees personal hygiene, personal finance, personal health, with everything being based to build their own personal self esteem.

Today the park is in the process of being totally occupied and the existing plants already located employ approximately 3,000 people and are on their way to employing between 7,000 and 8,000. I am proud to say that the park today is a showcase for visitors from all over the world who wish to duplicate this facility in other parts of Mexico.

Having told you about NuStart, it has to raise the question about and whether or not jobs are fleeing South of the border. I am going to share with you my very simple view and vision about the matter of jobs.

As we look back at the history of the United States, it tells you that our economy started to flourish because it was built on textiles. It started predominately in New England and then because of the strong unions and high wages it migrated into the South where water power was readily available and there was an over abundance of labor.

Starting 30 years ago, the imports from Asia started to grow. As those imports accelerated, the United States apparel industry became non-competitive and, therefore, major retailers decided to go to Asia to purchase their garments utilizing the low labor rates of the Asian countries.

Our industry continued to decline and only with the creation of NAFTA did I realize that with a Western Hemisphere trading block that would extend all the way from yarn and fabric manufacturing to garment manufacturing in Mexico, did we have a chance to be viable in the 21st century.

What I am speaking about is basic economics. The United States has lost hundreds of thousands of jobs to Asia over the last 30 years. Those jobs would never come back to the United States. The existing jobs that remain in the United States will either disappear, move to Asia or, in our opinion, because of NAFTA, move to Mexico. Frankly, the reason for Mexico, it is now a low cost producing country that can compete with Asia and with just in time deliveries, become the country of choice for the major retailers.

Therefore, in my own simple way, where the textile industry migrated to the South 100 years ago because of low cost labor and energy, it is now migrating into Mexico for those same reasons. Thank God for NAFTA. If we were to continue to lose jobs to Asia, then all of us who are in the production of fabric and yams would also be forced to leave.

From a personal point of view, you can not imagine how gratifying it is to visit those plants in NuStart and to receive standing ovations from those employees where the majority now have first time jobs. To hear, the joy in their voices and to know that the Mexican worker wants to work in Mexico and they do not wish to illegally enter the United States. They do it for survival. Therefore, I believe very much in destiny and the formation of NAFTA was a stroke of destiny. For as NAFTA expands the jobs that have already gone to Asia or are on the way to Asia can come to the country of Mexico, provide employment, build a middle class structure that not only will be productive, but they will be consumers of all our products. Therefore, the issue of jobs, in my opinion is not an issue. It's strictly following the laws of economy and its benefits can only increase as free trade is expanded throughout the Americas.

I have delivered all of the above in very simple form but it is not all that simple and there will be continuing discussions, both pro and con, as NAFTA goes forward. We have great concerns in the United States and I would like to quote to you from the remarks made by Roger Milliken of Milliken & Company when he spoke recently to the International Trade and Economic Policy Forum. As quoted, Mr. Milliken stated "We have a U.S. trade policy that accepts a virtual unlimited flow of imported goods with little or no considerations or conditions whatsoever, making us the importer of last resort in order to assist other nations in crises or to advance some U.S. foreign policy. With this policy, the United States in 1998 had a 49 billion dollar textile and apparel trade deficit."

I personally fully agree with Mr. Milliken on this subject and it is one that is very worrysome to me as a citizen of the United States. Our trade organization, ATMI, constantly communicates with our elected officials on this area because we must be careful not to introduce new laws, make new policies and/or assign new trade agreements that will gut NAFTA. If we do, we lose what we have gained and the future incentives of trade agreements for the Americas will be lost.

In conclusion, NAFTA has not been easy but it is working. It is the trade agreement for the Americas that can show the world that the free enterprise system is working and it is the only way to economic growth and prosperity. Never forget that there has to be pain before there is happiness and that will happen, and not everybody will be happy, but in my own simple way, if it's good for the Americas, it will be good for all and only with the continuation and growth of NAFTA can that happen.

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Tomás González Sada, President and CEO, Grupo CYDSA (Monterrey, N.L.)
Speech delivered May 20, 1999, at "NAFTA: Five Years Linking U.S. & Mexican Markets," Washington, D.C.

It gives us great pleasure to be in Washington, witnessing the beautiful springtime, as we share with you our views on free trade in general and on NAFTA in particular.

Even though the subject of NAFTA has been controversial in each of our countries, all of us gathered here today feel that free trade is beneficial to all. As the restrictions surrounding our trade policies have been removed and the provisions of NAFTA have been implemented, a significant 74 percent increase in trilateral trade has been achieved in the five years since NAFTA became a reality.

Success stories are many, as products previously sourced by Mexico in the Far East and Europe are now procured in the United States and Canada. Likewise, our country has benefited by the redirection to Mexico of American and Canadian purchases, formerly imported from Asia.

Despite this impressive record, media coverage of NAFTA usually brings with it only descriptions of the negative aspects. This leads to the wrong conclusion that benefits do not occur in our own countries, but always somewhere else. Certain industries have not been positively affected; but overall, the benefits achieved by each of the NAFTA participants greatly outweigh any losses.

Other negative aspects of NAFTA have dealt with Mexican environmental and labor relations issues. While improvements are still required, Mexican businesses have made significant progress in these critical areas. As a result, Mexican companies are becoming better partners with their American and Canadian counterparts.

For the excellent efforts in communicating the positive achievements of NAFTA and for the organization of this Conference, we congratulate the U.S.-Mexico Chamber of Commerce and its President, our friend, Al Zapanta.

As we look at NAFTA, we discover a market of 400 million people, with a gross domestic product approaching $10 trillion and a land mass of over 8 million square miles. And even though we have achieved considerable results in trilateral trade, much of the potential is yet to be realized.

One of the important engines for future growth involves the numerous partnerships, strategic alliances, joint ventures and technology transfer agreements between companies within the region. Most could not have been concluded without the NAFTA umbrella.

Likewise, we have witnessed the identification of sector-by-sector opportunities in the automotive, electronic and textile industries. My friend at the head table, Mr. Charles Hayes, will share with us today a win-win situation that has developed within the textile industry.

Prior to NAFTA, many ready-to-wear goods were imported from the Far East. Today, it is possible to competitively manufacture these products with fabrics utilizing American and Mexican fibers and yarns, with Mexican companies providing the labor-intensive cutting, sewing and packaging operations. As a result, jobs have returned to the NAFTA region.

Certainly many other opportunities such as this exist. We must use the strengths inherent in our individual economies to create value throughout the region.

We must focus on the complementary strengths of our respective economies. To fully realize the potential benefits, we must truly integrate technology, markets, capital, natural resources and labor within our three countries. Only then can we reach the ultimate goal, a greater share of the goods and services in markets outside the NAFTA region.

To the South we have the opportunity to jointly serve the emerging markets of Central and South America. Nor can we ignore Europe, one of the largest markets in the world. Looking to the West, the two giant economies of China and Japan must be part of our future plans. Strategies must also be developed to cover other growth opportunities throughout the world.

To be successful, these efforts require unprecedented cooperation between governments and businesses in our three countries. It also demands new and innovative alliances, building on the strengths we possess, which are superior to those of any other economic block.

In closing, it is important to state that, given that trilateral trade has acquired great momentum, we must now take the initiative to assure that competing in the entire world market is the major thrust of NAFTA during the next five years.

Thank you very much for the opportunity to address this distinguished group.

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