BUSINESS/SPECIAL REPORT

OPEN BORDERS

RAPIDLY MODERNIZING MEXICO WANTS TO CREATE A FREE TRADE ZONE WITH THE UNITED STATES AND CANADA

BRENDA DALGLISH December 3 1990
BUSINESS/SPECIAL REPORT

OPEN BORDERS

RAPIDLY MODERNIZING MEXICO WANTS TO CREATE A FREE TRADE ZONE WITH THE UNITED STATES AND CANADA

BRENDA DALGLISH December 3 1990

OPEN BORDERS

BUSINESS/SPECIAL REPORT

RAPIDLY MODERNIZING MEXICO WANTS TO CREATE A FREE TRADE ZONE WITH THE UNITED STATES AND CANADA

A number of the housewives of Chihuahua, a desert city on a high plain in Mexico’s Sierra Madre mountains, are upset with the foreign-owned factories that have arrived in the city in the past 10 years. Before the new plants came, there was no shortage of young women willing to help them as housemaids—earning the minimum wage of about $3 a day. Now, many of those women are working in the factories, where an experienced operator can earn as much as $6 a day plus benefits. Leopoldo Mares, a businessman who runs a private-sector group that promotes economic development in the area, acknowledges that the plants have created a maid shortage. But he adds, “I think not having enough maids is a good thing for a country.” The improved job prospects for Chihuahua’s young women are just one sign of the profound transformation taking place in Mexico as the country moves to open its economy.

The stereotype of the Mexican worker as an unskilled illiterate whose busy fingers nimbly assemble simple products is a misleading picture of the modem industrial revolution under way in Mexico. Taking advantage of cheap labor rates and close proximity to the vast U.S. market, Mexico’s leaders are trying to refashion their country into the Japan of North America: an efficient, lowcost producer of high-quality goods. Already, the strategy has brought jobs and increasing prosperity to the northern region of the country, where multinational giants such as Kodak Inc., IBM Corp. and Sony Corp. have set up factories close to the U.S. border. They have been joined by a handful of Canadian companies, including Magna International Inc. of Markham, Ont., and Fleck Manufacturing Ltd. of Tillsonburg, Ont. In the long run, experts say, Mexico’s push to export even more raises serious issues for Canada’s manufacturing sector, which relies on the massive U.S. market and is already suffering because of high interest rates, unfavorable exchange rates and pressure from overseas competition. As a result, opposition to a proposed free trade agreement among Canada, Mexico and the United States is increasing in Canada (page 52). And some critics say that Canada’s so far unproven record under the Free Trade Agreement with the United States should make Ottawa wary of opening its doors to Mexico (page 55).

Muscle: Mexico’s new self-confidence is far removed from the still-popular traditional spectacle of the bullring. It is built instead on the economic muscle of young men and women who want a better life for their children. At 84 million, Mexico’s population has an average age of 23 years, compared with 33 in Canada. The country also has an energetic young president, 42-year-old Carlos Salinas de Gortari, a Harvard-trained economist who has vowed to accelerate the country’s transformation to a free market. Since taking office in 1988, Salinas has signalled his intent by dramatically lowering tariff rates on goods coming into the country and reversing a long-standing protectionist government policy with his push towards more liberal trade. This week, he will meet U.S. President George Bush in the Mexican city of Monterrey to

discuss the latest stage in his campaign—the proposed free trade agreement encompassing Mexico, the United States and Canada.

Nowhere is the modernization of Mexico more evident than in Chihuahua, 360 km south of the border. Surrounded by mountains, it has managed to escape many of the social problems—including drug abuse, prostitution and a chronic shortage of housing—that afflict Mexican cities closer to the border, instead, it retains a quiet, family-oriented atmosphere and is known for its silver mines and cattle ranches. Cowboys stroll the streets and restaurants feature steaks in many shapes and sizes.

Even before the foreign plants arrived, the region was one of the most prosperous in the country. Local authorities say that Chihuahua has more millionaires per capita than any other place in Mexico. For foreign companies, the city’s stability and its educational facilities make it an ideal location. In addition to the University of Chihuahua and the Chihuahua Technical Institute, the city is home to a campus of the Monterrey Institute for Technology and Higher Learning, which is affiliated with the Massachusetts Institute of Technology in Cambridge, Mass. Even many shop clerks and secretaries in the city have degrees in marketing, commerce and engineering.

The influx of foreign-owned companies has provided jobs for thousands of unskilled workers, whose families dwell in makeshift brick houses on the slopes of hills at the edge of the city. But it has also led to the rise of a thriving class of skilled workers and managers. As a

result, middle-class housing subdivisions are springing up throughout the area. Local supermarkets feature imported Swiss chocolates, French mustards and, because more women are working outside the home, large frozenfood departments.

Duty-free: In many ways, 29-year-old Patricia Morales is representative of the young, well-educated professionals who are helping to redefine Mexico. Five years ago, Morales, a graduate of the Technology University of Mexico in Mexico City, got a job as a clerk at an electronic systems factory in Chihuahua owned by Westinghouse Electric Corp. of Hampton, S.C. The factory is one of the city’s 60 so-called maquiladoras—foreign-owned assembly plants that import their components duty-free and sell most of their products to customers outside of Mexico. Employing 600 people, the Westinghouse factory turns out electronic circuit boards and wiring accessories for use in such things as aircraft and air-traffic control systems. Currently, Morales is the head of the factory’s 21-member accounting department. Although Mexico’s per capita income is only one-tenth of Canada’s, Morales’s standard of living is clearly middle-class. She and her husband, Jorge, who works in the maintenance department at the same Westinghouse plant, have almost finished building and decorating their first home. They have also managed to buy a car, a television satellite dish and a microwave oven, and they have taken vacations to the United States and Canada. Except for the row of iron bars on the security fence

that surrounds their new home, the pink splitlevel bungalow would fit into most Canadian suburbs.

Morales’s relative affluence is in stark contrast to her modest upbringing. Although her father is a doctor, she says that her family was poor when she was growing up. She attributes her success to her parents’ belief in the value of education and to the new jobs provided by the foreign manufacturing plants. After Morales finished high school in Mexico City, her mother urged her to become a flight attendant. Instead, she went to university, studied accounting and got a job in Mexico City, before moving to her new job in Chihuahua. She says that she never imagined, as a young girl, that she would end up with a career, a husband who shares the household chores and a life so much better than her parents’. She adds, “I never dreamed my life would be this good.”

Across the city at another maquiladora— General Motors’ Delco Remy auto-parts plant—28-year-old Jesus Villalobos Rivera is also savoring success. Dressed in a yellow plaid shirt and cowboy boots, he says that his mother used to plead with him not to become a bus driver like his father. “Now, I make them, not drive them,” he says. “I am the pride of my family.” With the help of a scholarship, he studied engineering at the Chihuahua Technical Institute before starting to work at the GM plant in 1986. Since then, Villalobos Rivera has taken several technical and managerial training courses, and he has also learned to speak English. “I just wanted to eat it all up,” he adds.

“I wanted to study everything and be a success. I wanted to be the best.”

Now, Villalobos Rivera supervises about 150 people, mostly line operators and technicians, and oversees two product lines at the 1,100-employee plant. Among other things, the factory turns out most of the signal-light assemblies used in GM vehicles sold throughout North America. He and his wife are living with her family while their house is being built. A year from now, they say, they would like to begin a family. And Rivera says that eventually he wants to start his own business.

Changes: For Mexicans, the maquila factories are providing a taste of the massive changes that would be set in motion by a North American free trade agreement. Under the rules of a 1962 agreement between Mexico and the United States, foreign companies are allowed to import components into Mexico duty-free as long as the finished products are exported back to the United States. U.S. customs officers charge duty only on the value added in Mexico, primarily labor. The agreement enables U.S. companies to manufacture goods more cheaply than they could at home. At the same time, the program has created large numbers of new jobs in Mexico. There are now about 1,600 maquila plants in the country, employing abut 450,000 people.

In the United States and Canada, union leaders and other critics of Mexico’s maquiladora program complain that the plants are taking jobs from their members and giving them to Mexicans who work for much less money and do not expect comparable healthand-safety conditions. They point out that workers in the factories earn an average of less

than $1 an hour, compared with an average hourly wage of roughly $11 for workers in Canada and the United States. Still, the vast majority of Mexicans appear to welcome the maquila factories. “Oh yes, it’s a very good job,” said a smock-coated assembly-line worker at the Westinghouse plant in Chihuahua. “It’s the best job I’ve had.”

As well, many Mexicans say that they expect

the rates of pay in maquila factories will continue to rise in the future. Said René Chacón, 34, engineering manager at the Westinghouse plant: “The tendency is for pay to go up and up. We see it happen every year.”

In North America, many union leaders say that the maquilas have stolen jobs that would otherwise have been available to Canadian or American workers. Ford Motor Co., for one, has a modem, high-tech factory in Chihuahua that produces more than 1,000 engines a day for the Tempo and Topaz model cars that are assembled in the United States and Canada. But company representatives maintain that without the use of inexpensive Mexican labor, they would be unable to compete with products imported from Southeast Asia and Europe— two regions that rely on low-wage countries for at least some of their manufacturing. Said Robert Lupica, general manager of Chihuahua’s Westinghouse plant, which makes components used in the U.S. parent plants for the production of larger products: “Westinghouse has won five major contracts because of this plant. If we weren’t here, the company would have lost jobs in the United States.”

Quality: Employers say that the relatively low-paid Mexican workers turn out goods that are equal in quality to those produced in North America. In many cases, the people who staff the assembly lines have never had full-time jobs, but almost all of them can read and write and do basic mathematics.

At the same time, the foreigners who operate Mexico’s maquila factories say that they have had to adapt to a workforce that is far different from the ones they are accustomed to managing in Canada and the United States.

Lupica’s Westinghouse plant, which is nonunionized, offers free breakfasts in the cafeteria every Monday to reduce absenteeism. And because Mexican culture places great importance on the role of mothers, the company gave an extra day off for Mother’s Day and presented all of the mothers in its workforce with a small gift.

Still, problems remain. A shortage of housing is one of the most severe facing the boom cities of northern Mexico. The foreign plants have attracted thousands of workers who can find jobs, but not homes. The housing shortage is creating growing unrest in the border cities, and angry protests by residents demanding improvements have become increasingly common.

Turnover: For the plant managers, employee turnover is one of the biggest problems. The plants, which tend to hire young women because of their manual dexterity in assembling small items, sometimes lose as many as eight to 10 per cent of their workers each month. As a result, the maquilas are continually searching for ways to keep their employees satisfied. By carefully screening applicants before they are hired, Westinghouse has managed to reduce its turnover rate to about two per cent a month. Lupica says that the company usually hires young women who have never worked anywhere else. It also tries to hire women who are related to other employees in the plant so that they feel more comfortable as they enter the working world.

Unions are another uncertain variable in Mexico’s struggle to modernize. Critics say that the country’s established labor organizations are more interested in maintaining close

relations with employers and Mexico’s ruling Institutional Revolutionary Party (PRI) than they are in standing up for workers’ rights. Says Antonio Santillanes, a union shop steward at GM’s Delco Remy plant: “They [union leaders] are not fighting for the workers’ interests right now.” For its part, the PRI appears equally concerned with preserving its following among union leaders.

A sign of that closeness is the fact that a new government office building in downtown Chihuahua is named after Fidel Velázquez, who leads the 5.5-million-member Confederation of Mexican Workers, the country’s largest trade union. Privately, some foreign employers say that they are more concerned about who will replace Velázquez, 91, than they are about Salinas’s successor because, in some ways, he has more control over day-to-day industrial issues than the government.

Despite Mexico’s economic accomplishments—in 1989, the economy grew by 2.9 per cent, the first expansion since 1986—many Mexicans are worried about the effects of a free trade agreement. Said Mares, who owns a chain of Futurama shopping centres in Chihuahua: “We are very fearful about it. We can’t be sure what it will bring.” He added that on a recent holiday weekend, 30 per cent of the city’s population travelled 360 km north to El Paso, Tex., the nearest U.S. border city, to shop, in part because they believe that the U.S. city has a greater variety of high-quality merchandise.

Still, Mares said that, on balance, he favors a three-nation trade agreement. Sitting in his office recently, he pulled a cassette tape recorder from his desk drawer and switched it on. Suddenly, his drab office filled with the voices of Luciano Pavarotti, Placido Domingo and José Carreras, the world’s three leading operatic tenors. Like the singers, Mares said, Mexico and its northern neighbors should learn to work together rather than compete against each other. He added, “We must learn to sing the same song.”

BRENDA DALGLISH

in Chihuahua