LeClaire, Jennifer

U.S. border towns are growing by leaps and boundaries as companies seek strategic locations, to leverage NAFTA benefits.

A fter years of debate about the impact of free trade agreements on the United States’ trade deficit, new evidence is demonstrating big economic breakthroughs – and it often starts in small U.S. border towns.

An October 2005 report published by the National Association of Manufacturers (NAM) has good news for North American Free Trade Agreement (NAFTA) supporters, economic development executives along the borders, and U.S. manufacturers at large.

The NAM’s Interim Report on 2005 U.S. Manufactured Goods Trade reveals America’s goods deficit with NAFTA and other U.S. free trade partners has shrunk 24 percent. The countries with which the U.S. has free trade agreements – Canada and Mexico being two of the largest – account for 43 percent of our manufactured goods exports and only 6 percent of our deficit.

Of course, this is no surprise to U.S. border towns. Both in the South and the North, many American cities have enjoyed the economic benefits of their strategic NAFTA locations for the past decade. The opportunities seem to be growing and expanding, and promise of a Central American Free Trade Agreement (CAFTA) would once again put Southern states in a prime position to become major logistical centers for companies across the U.S. and Canada.

“NAFTA has been a win for border communities,” says Garrick Taylor, director of policy development for the Border Trade Alliance, a grassroots organization that serves as a forum for participants to address key issues affecting economic development in North America. “We expect trade between our NAFTA neighbors to continue to increase. Border towns over the past decade have developed ports of entry, warehouse operations, custom brokerage houses, and other necessary infrastructure to fully leverage cross-border trade.”

Don’t Mess With Texas

The U.S. border towns with the capacity to be suppliers to Mexico’s maquiladora industry have the highest export growth rates. Maquiladoras process components imported into Mexico that are, in turn, exported – usually to the U.S. Indeed, NAFTA has created investment opportunities for small and medium-sized companies based in the West and Southwest to reach new markets.

In 2004, for the third year in a row, Texas ranked as the number-one state by export revenues. Texas exports for 2004 totaled $117.2 billion, an 18.6 percent increase over 2003. The state’s top value-added Texas exports in 2004 were computer and electronic products, chemicals, machinery, transportation equipment, and petroleum and coal products.

Mexico and Canada were the leading destinations for Texas exports, accounting for approximately 50 percent of the state’s total exports during 2004. Mexico continues as the top export destination with $45.7 billion in Texas exports, an increase of almost 10 percent from 2003 and representing almost 40 percent of total 2004 Texas exports. Canada ranks second with almost $12.4 billion, representing a 14.7 percent increase from 2003.

Laredo, Texas, is also on the U.S.-Mexico border. Laredo has a long history of trading with Nuevo Laredo in Mexico, and the two cities have worked together on security and infrastructure issues and on efforts to promote their regional and trade advantages. A large banking community and the Laredo International Airport, which is the seventh-largest cargo hub to Latin America, make Laredo the most direct line to Mexico from Dallas, Houston, Chicago, and New England. In fact, nearly 60 percent of all U.S.-Mexican trade goes through Laredo. These are among the reasons that Laredo is one of the fastest-growing border cities; its population has doubled since 1988.

Also situated on the U.S.-Mexico border, El Paso, Texas, is becoming a popular location for American companies seeking to leverage NAFTA benefits. The Bureau of Transportation Statistics reports that nearly $16 billion worth of exports to Mexico were shipped through port facilities in El Paso. Imports surpassed $22.6 billion. El Paso is home to Foreign Trade Zone (FTZ) No. 68, the second-largest general purpose FTZ on the U.S.-Mexico border. The zone consists of 21 sites containing 3,003 acres spread out through the Eastside, Central, Northeast and Eower Valley areas of the city, as well as outside the city limits but within El Paso County. More than 70 firms use the FTZ, handling 200+ items. FTZ No. 68 also has the advantage of on-site U.S. Customs personnel. Major exports include automotive products and parts, chemicals, computers, food products, and medical supplies.

Meanwhile, McAllen, Texas, is just four miles from the Mexico border in the center of a market area with more than 10 million people. This border town is home to the McAllen Foreign Trade Zone (MFTZ), a free port regulated by U.S. Customs. This is a 783-acre industrial district that sees about $1.3 billion of products move in and out annually. This volume of business is due primarily to the companies relocating in nearby Reynosa as a part of the maquiladora program. Scores of manufacturing facilities leverage maquiladora programs from McAllen.

More “Grande” Opportunities

Arizona demonstrates similar border town success. Since 1994, Arizona’s exports to Mexico and Canada have doubled, including more than $1.5 billion in computer and software exports to Mexico in 2001 alone, according to the Center for Trade Policy Studies at the Cato Institute. Arizona’s farm exports to Mexico have also soared.

Located on the U.S.-Mexico border, Nogales, Ariz., boasts maquiladora access via Mexican Federal Highway 15, a four-lane corridor that connects the city with Guadalajara and other major cities in Western Mexico. Nogales’ Twin Plant Program allows American companies to transport their unassembled parts, raw materials, and components into Mexico duty-free and exempt from many Mexican tariffs and import restrictions.

Tucson, Ariz., sits about 60 miles from the Mexican border with railroad and interstate highway access to the border. Tucson has strong relationships with Mexican cities like Sonora, Jalisco and Sinaloa, and local companies like Atonix, Micromex, and ICT International Consolidated Technology have production facilities in Mexico.

Mexico and Canada are also California’s largest trade partners. Mexico is California’s largest export market, receiving 16 percent of the state’s exports. Canada is California’s third-largest export market, receiving nearly 12 percent of the state’s exports. Computers and electronic products make up 34 percent of all California goods exported to Mexico; transportation equipment exports saw a dramatic growth of nearly 48 percent in 2004 to more than $1 billion.

There are many California towns on the Mexico border, but the Imperial Valley – the cities of Brawley, Calexico, Calipatria, El Centro, Holtville, Imperial, and Westmorland – is emerging as a strategic border site with an abundant labor pool, reliable energy, lots of water, and affordable land prices, according to Louis Fuentes, former president and CEO of the Imperial Valley Economic Development Corporation. “The NAFTA corridors will be a big benefit to this area,” says Fuentes. “Then there’s the Southwest Compact, a proposal to improve highways, air corridors, railroads, and economic development infrastructure that includes California cities and six northern Mexico states.” He preducts that the Imperial Valley will be one of the top regions for importing and exporting goods in the future.

Finally, New Mexico is a key link in the supply chain between the twin plants in Mexico. The New Mexico Economic Development Department’s Maquila Supplier Program works with the Mexican Affairs Office, which then works with the management of maquila suppliers to identify products and services that are most crucial to the plants’ operations. Santa Teresa, N.M., is a prime spot on the Southwest border; its 125,000-square-foot Bi-National Park and a second park underway can accommodate strong demand by suppliers, custom brokers, and logistics companies servicing the explosive growth of manufacturing facilities in Mexico’s Juarez.

“These border towns are likely to continue to experience significant growth, mostly because this is where more suppliers are beginning to locate to supply raw materials and components that family-type operations need on the Mexican side of the border,” says Boris Kozolchyk, director of the National Law Center for InterAmerican Free Trade, a nonprofit group that has been working since 1992 to harmonize trade rules and regulations between the United States and Latin America.

The Canadian Contribution

The Canadian side of the NAFIA equation is worlds apart from the Mexican border operations. For one thing, Canada doesn’t operate maquiladoras. For another, the number of U.S. towns along the Canadian border is far greater, with 5,000 miles of the U.S. perimeter touching its northern neighbor.

“On the Canadian side, there’s been a sharp decline in what used to be almost a Detroit monopoly a number of years ago,” says Kozolchyk. Indeed, cities in North Dakota, Washington, New York, and Vermont are also seeing action north of the border. Major Canadian cities like Toronto that are hemmed in with development are seeking alternative locations to receive goods from the U.S. and even Asia.

“The northern border is seeing warehousing and distribution opportunities, along with assembly,” says Luke Rich, principal of economic development consultancy Rich Results, Inc. in Grand Island, N.Y. “But in Canada it’s not the same situation as Mexico. Thirty-nine U.S. states list Canada as their most important international trading partner.”

There are 18 ports along the North Dakota-Canada border; of these, three are open 24 hours a day, making almost every city along the border a strategic location for doing business with Canada. Meanwhile, Washington state ports in Seattle and Tacoma saw more than $300 million in exports to Canada in 2000. And Canada is also Minnesota’s top export market, with transportation equipment leading a total of $2.5 billion worth of exports.

Vermont’s Newport City is about 10 miles south of the Canadian border, serving eastern Quebec via Interstate 91, and has several industrial parks within striking distance of its northern neighbor. “Canadian-based companies do mill work here, and we are also seeing some interest from food processing companies, specifically maple syrup,” says Steve Patterson, executive director of the Northeastern Vermont Development Association.

Detroit still has a stronghold on Canadian trade, however. The Detroit-Windsor, Ontario, crossing is one of the busiest. Port Huron to Sarnia is another of most active of the six locations at which nearly three quarters of all U.S.-Canada trade is processed. About 35 percent of all Canadian trade crosses at the Ambassador Bridge in Detroit and 12 percent crosses at the Blue Water Bridge in Port Huron – representing a total value of about $125 billion.

“Michigan is a leading state for Canadian investment, with 500 affiliates, subsidiaries, branches or divisions of Canadian companies in the state,” says Harry Whalen, vice president of international development for the Michigan Economic Development Corporation. “Detroit to Toronto is a strong manufacturing/business corridor, so the border is a different situation than underdeveloped Mexico-U.S. border.”

With the promise of CAFTA, U.S. border towns are set for even more growth. Kozolchyk’s organization is working with a number of Central and South American governments to educate them on the benefits of enacting what is known as a secure lending or asset lending law to stimulate exports from the U.S.; Mexico enacted such a law in 2003. CAFTA or no CAFTA, Kozolchyk says the law would allow exporters to import products to Central and South American countries on credit, and permit border towns to serve as warehousing and logistics locations for companies doing business in Central and South America.

Copyright Halcyon Business Publications, Inc. Dec 2005/Jan 2006

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