Promises, Promises

Has NAFTA Helped or Hurt Tucson?

Proponents said NAFTA would mean new jobs for Tucson. Eight years after the trade agreement went into effect, what's the reality?

Promises kept? Promises broken? Or promises still to keep?

Promises Made

IN THE FALL OF 1993, before Congressional passage of the North American Free Trade Agreement (NAFTA), proponents proclaimed it would be a boon to Arizona's economy, including Tucson. U.S. Rep. Jim Kolbe, a leading supporter of the treaty, told the Tucson Citizen that locally he saw, "jobs being created in warehousing, trucking, distribution, the service sector, manufacturing and high technology."

One local computer manufacturing businessman said of the proposed treaty, "If NAFTA passes, I think our sales to Mexico will quadruple." He anticipated that in the long run he might have to double his work force of 21.

The treaty went into effect in January 1994, immediately removing certain tariffs among Canada, the United States and Mexico and reducing others over a 15-year period. Eight years later, the local economy is still waiting to realize the positive impact promised by Rep. Kolbe and other NAFTA boosters. Instead of community gains, thousands of jobs may have been lost in Tucson while backers of free trade have a tough time naming anyone who has come to town because of the treaty.

Local officials had projected that Tucson's proximity to the border would help as a supply point for the maquiladora industries located in Mexico. With increased trade, they assumed, would come the need for more warehousing and distribution jobs to supply Mexican industries with materials.

While across-the-board job gains were anticipated because of NAFTA, some job losses were also predicted. But, according to Kolbe and others, these jobs would be in lower-paying occupations like the textile industry, which were leaving the country anyway.

Then-City Manager Michael Brown predicted that NAFTA would create "an estimated 15,000 new export-related job opportunities in Arizona over the next 10 years." Based on that assumption, Brown recommended the Tucson City Council endorse the treaty.

Before the Council agreed on a split vote to support NAFTA, Councilman Bruce Wheeler said it was a given that some local jobs would go to Mexico because of the treaty, but that he supported it anyway. His reasons, he said, were that it would help achieve the goal to "educate the people, provide health care, lower tariffs, open borders, create jobs and make business healthy and responsible."

Mayor George Miller echoed those sentiments, then added "that there is a slight tinge of racism in the opposition's contention that Mexico is suddenly a country that can't be dealt with."

Many in America, including labor unions, environmentalists and former presidential candidate Ross Perot, did not agree with NAFTA supporters, predicting a different future if the treaty was approved. In 1993, Ray Figueroa of the Southern Arizona Central Labor Council said, "The United States will lose hundreds of thousands of jobs. The jobs that will be created here will be low-wage transportation jobs, just bringing the goods to the states."

Former Tucson City Councilman Chuck Ford said it was hard for him to see anything positive in the treaty for low-income wage earners in Arizona. Ford called the battle over NAFTA "basically a class clash. Those with power and money are in favor of it, and politicians must rely on those people to help them get elected."

Once the treaty was adopted, Kathy Hannan of Local 99R of the United Food and Commercial Workers Union told the Arizona Daily Star that "we can only hope the people we have entrusted to run our government will not let us down, in terms of lost jobs."

A much more upbeat future was seen then by Augie Garcia, president of Sun Belt Coating, a local painting supply business. NAFTA, he said, "means more business, a stronger bottom line and fewer border headaches." Plus, he added, "Now the Mexican people will be more willing to invest and purchase more, and so I'll be able to sell more."

Broken Promises

AFTER EIGHT YEARS, Garcia's rosy scenario now looks unrealistic. While local trade with Mexico and Canada has increased since NAFTA was approved, both Tucson and Arizona have seen a sizable reduction in market share of commerce with their southern neighbor. At the same time, the number of jobs lost in town because of the treaty continues to grow and is beginning to include high-paying manufacturing positions.

That sort of downturn wasn't what economic development officials predicted in 1993. Looking back, Rosemary Cora-Cruz, rapid response coordinator for Pima County's One Stop Job Center, said, "We thought we'd see a positive gain in jobs from NAFTA. Everyone thought that if you bring in distribution [companies], you will have jobs for drivers, packaging, phone, fiber optics, warehouse personnel. But that has not been happening."

Rob DeMarco, local office manager for the Arizona Department of Economic Security's Job Service program, concurred. "I'd say we're not seeing an increase in warehousing and distribution jobs as predicted. There is no greater net gain than, say, for any other job."

Job loss due to NAFTA has been documented since 1994. According to Pima County figures, more than 1,100 jobs from at least 15 companies have been lost in Tucson as a direct result of the treaty, with most of that happening since 1998.

Local manufacturing firms have either moved production to Mexico to take advantage of lower wages or have shut down completely, unable to compete with products made by lower-paid workers. With these closures comes a ripple effect in the community. Smaller companies that once supplied goods or services to those manufacturers--such as Triple S Plastics, which did so for power-tools maker McCulloch Corp.--have had to close up shop.

This impact on suppliers has prompted the U.S. Department of Labor to include NAFTA job retraining for laid-off employees in these "secondary companies" as well as for the primary firm. Employment experts say that in addition to these documented job losses, there is also a "multiplier effect": For every job loss recorded there are usually two more in the community. Thus, NAFTA's effect on Tucson could easily add up to a loss of 3,000 jobs in the last eight years.

Contrary to earlier predictions, these were not all low-paying jobs. Recently, Competitive Engineering, a supplier of hard-drive equipment for IBM and others, had to cut its 150-person work force in half. As Don Martin, head of the company, said, "We set the wage and benefit standard in Tucson for our industry for the last 13 years. But we're putting more of the business into Mexico now. You've got to go where the action is because you need to keep costs down. Our labor costs are $3 an hour in Mexico, compared to $12 an hour here."

Martin indicated that NAFTA was not a major factor in this shift of jobs to Mexico; rather it was a function of the different wage rates and customers' constant demands for lower prices. However, he hopes to retain some positions in the engineering, technology and marketing areas in Tucson. In the long run he said, "Our goal is to grow the business, but the bottom line is that jobs will move to Mexico and the U.S. will lose them."

The personal impact on the workers who lose these jobs varies. Some of them can easily find other work. Many, though, for lack of skills or education, have difficulty in securing a similar-paying position and no one seems to know how many workers and their families have had to relocate elsewhere.

Pima County's Cora-Cruz works alongside state re-employment counselors to try and place the dislocated into decent jobs, but it is a daunting task. "Most of our clients end up making about 80-85 percent (of what they earned in their previous job). Many people have to start over on the career ladder and can't possibly catch up if they are in their late 30s or 40s," she said.

Cherrybelle, Inc, a local garment manufacturer, had employees in this category. Since the mid-1960s, it employed about 75 people. But in 2000, the company closed its doors, unable to compete with merchandise made by low-wage workers in Mexico and Asia.

According to Larry Greenburg, a former longtime manager at the company, "We had an opportunity to go to Mexico, but didn't believe in that. We really didn't want to go out of business. We started people above minimum wage because that was just the way we were. People stayed with us, most of them for 20 to 25 years. But we were forced by cheap labor all over the world to shut down. It wasn't just NAFTA. That's just the way it is."

One of those who lost a job at Cherrybelle, Inc. was Sandra Purdy, a former supervisor of inspection and packing for the firm. Now in her mid-50s, Purdy said, "I had been with the company for 22 years and hoped to retire from there. They were a great company."

"I don't have any good thoughts about NAFTA," Purdy said. "It has cost a lot of American jobs. Taking businesses and moving them down to Mexico took jobs away from American citizens. Since NAFTA, businesses have closed that otherwise would still be around."

Using money provided by the federally funded NAFTA-TAA (Trade Assistance Agreement) retraining program, Purdy recently received a diploma in accounting from Chaparral College. She said of her new field, "I never imagined I'd be doing this. But I'm glad. I like doing books, plus my husband is retiring soon and I plan to work only part-time. I don't expect the old salary. Fortunately, my husband will have a good retirement from the railroad."

The retraining program that helped Purdy has been criticized as a subsidy for U.S. companies that want to make more profit by manufacturing with fewer restrictions and lower costs in Mexico.

NAFTA-TAA is a taxpayer-funded program. "This is a very good retraining program," Cora-Cruz said. "It's not uncommon to see an expenditure of $15,000 per employee, and that does not include money for a job search allowance or relocation or income support. The employer pays nothing beyond the ordinary taxes that everyone pays. (The funds for the program) all come out of the U.S. Department of Labor's budget."

County and state offices, however, could not provide the total cost of the local NAFTA-TAA program. The best estimate, according to one official, is that $4 million a year is spent on retraining alone, excluding administration and other expenses.

Despite job losses and the high costs of retraining laid-off workers, many economic development officials continue to believe in NAFTA. They assume that increased trade among Tucson, Mexico and Canada since the treaty was adopted means more jobs. They also point to other changes which have occurred since 1993.

John Grabo, vice president for corporate services of the Greater Tucson Economic Council, suggested that NAFTA has helped Tucson and will do so even more in the future. "Our opportunities [under the treaty] are just being exploited," he said, "and there is a well-developed effort with Mexico under way and growing opportunities in Canada. The future is quite bright."

Addressing the jobs lost in Tucson since the adoption of the treaty, Rob DeMarco of the state's Department of Economic Security said, "Anecdotally, I don't see any acceleration of local companies leaving the country. It's no worse than it has been for awhile. In the 1980s Sherwood Medical and National Semiconductor moved their shops to Mexico and Sri Lanka. It's nothing new."

Vera Pavlakovich, director of the Borderlands economic development program at the University of Arizona, lists another impact of the treaty. "It did provide a framework which helped bring those involved with economic development in Tucson closer together to coordinate action and that was one positive development. They have developed visions and held discussions in how Tucson can benefit from NAFTA. Plus, there is more awareness of Mexico being our neighbor and the opportunities there."

Jack Camper, head of the Tucson Metropolitan Chamber of Commerce, stresses the treaty's impact on the nation. "Overall, NAFTA has helped the United States of America," he said. "There hasn't been that giant sucking sound [of jobs fleeing to Mexico] that Ross Perot predicted. Locally, we have one of the lowest unemployment rates in years, and I think international trade helped that."

According to information from the U.S. Department of Commerce, between 1993 and 1999 Tucson did see a sizable gain in trade with Canada, but only an 80 percent increase with Mexico--anemic compared to other Southwestern cities. The community also showed a steady rise in total foreign trade. While these changes obviously resulted in some new jobs being created locally, the number can't be estimated accurately by economic development officials. They also have difficulty in naming specific companies that have located to Tucson because of NAFTA.

In 1993, regional economists Carolyn Sherwood-Call and Ronald H. Schmidt of the Federal Reserve Bank of San Francisco predicted positive trade increases due to NAFTA. "In Arizona, the real promise of the trade pact is not in jobs lost or created but in trade increases that would result in greater sales and more money for re-investment," Sherwood-Call said.

After eight years, Tucson has seen a different picture of mostly broken promises. Increased trade with Mexico and Canada has not kept pace with that shown by other border and Southwestern cities. As those communities saw their trade increase dramatically, Tucson lagged behind, exceeding only Albuquerque in dollar growth. The New Mexico city was obviously putting its eggs in another basket, since its total for all international trade zoomed from $257 million in 1993 to $2.7 billion in 1999, a whopping 957 percent increase, the second fastest in the nation and eight times Tucson's rate.

Tucson's loss of trade market share with the nation's NAFTA partners has even treaty supporters concerned. Some are quick to blame the lack of improvements needed to process additional truck traffic at Arizona/Mexico border crossings, even though in November 1993 the Tucson Citizen ran a banner headline story which proclaimed, "Border bottlenecks targeted."

Congressman Kolbe, an aggressive, high-profile player in the adoption of NAFTA, declined to be interviewed on this and other treaty-related issues.

But the Chamber of Commerce's Camper said, "We've allowed other points of entry in Texas and California to take {some of that business}. We don't have the infrastructure in place in Arizona to handle it. It has to do with the ability to process trucks at the border. We've got some work to do."

Bruce Wright, the University of Arizona's associate vice president for economic development, agreed that Nogales border delays are hurting trade. To look at making the Mariposa crossing there a more efficient mover of cargo, Wright's office is about to embark on a yearlong study for the Arizona Department of Transportation. Entitled the "Nogales Cyberport Project," according to Wright this effort will look at new concepts for the border including its design, advanced technology that could be employed in the crossing process and security issues.

The University of Arizona's Pavlakovich agreed that there are problems with border infrastructure, and added, "Geography may be one (other) reason" for Tucson's failure to keep pace with the increase in trade, especially with Mexico. "The centers of production and consumption are around the Great Lakes and in central Mexico, [not along the borders]. I don't know for sure, but there are some alarming indicators that we are falling behind."

Wright adds two additional reasons for the drop in market share. He believes other communities such as San Antonio and El Paso have been more aggressive than Tucson in marketing themselves. In addition, he said local officials have been complacent and until recently weren't reviewing what the competition was doing.

There is another potential factor involved in trade loss that is not mentioned by economic development officials. It has to do with problems encountered by local service companies doing business in Mexico. One firm, whose president asked to remain anonymous, was enthusiastic a few years ago about entering the Mexican market. But then he experienced mordida, the practice of expecting small bribes in exchange for business.

"Our company ran into real issues with cultural differences and the way contracts are handled," this Tucson businessman says. "The results were horrific. To obtain service contracts, we were asked for mordida. Frankly, my company wasn't willing to do business that way. So none of our business is done in Mexico now."

An official with a small manufacturing company that moved to town recently indicated it had not experienced that problem. He also said it was Tucson's proximity to the border, and not NAFTA, that attracted the company here.

John Wright, a business consultant for Cheng Fwa Industrial Company, points out that Tucson has an ideal location for technical support and for getting the right people for the Taiwanese-based firm that does all types of metal stamping for computers. Wright says the company, which employs about 40 people, chose Tucson because "it is strategically located, like a hub, between El Paso, Mexico and California."

Promises to Keep

WHILE OTHER CONCERNS, including the failure to stem the flow of illegal immigration from Mexico and environmental pollution problems along the Mexican border, are often attributed to NAFTA, it is still the amount of trade and number of jobs gained--or lost--that continues to garner the most attention. It is obvious from the numbers that Tucson just hasn't done very well in the competition for the new dollars and employment positions created since 1993.

To change that, both the City of Tucson and the Greater Tucson Economic Council have become more involved. Through the relatively new Tucson/Mexico and Tucson/Canada projects, they hope to increase the beneficial impacts of NAFTA locally.

Former businessman Augie Garcia has been the director of the Tucson/Mexico Trade Office for the last few years. With 5 1/2 employees and an annual budget of $449,000, the office works to help local companies increase their business in Mexico.

"We were really asleep at the wheel," Garcia said, "even after NAFTA was approved. We talked a lot, but didn't do much until 1997."

But now, he promises, Tucson is moving in the right direction in trying to recapture lost business and in defining Tucson's role vis-à-vis Mexico. The game plan, he said, has first been to make contacts through tourism and use it as a vanguard for reconnecting with business people in Mexico. He believes that effort has paid off, and hopes the results of a privately-funded $66,000 study recently conducted by the University of Arizona and expected to be released in March will confirm it.

The second needed step, Garcia stressed, is to define Tucson's role in the context of the Arizona/Sonora/Sinaloa region as a marketing and distribution center for products coming into and out of Mexico. Finally, he thinks the developing triangularization of communities, in the local case of Ottawa, Canada; Tucson; and Ciudad Obregon, Sonora, Mexico, will place the city in a key position.

To implement this plan, his office is pushing five business sectors through its Puerto Nuevo effort: transportation and an intermodal center; warehousing and distribution; manufacturing; research at the University of Arizona's Technology Park; and business services and finance.

Garcia is optimistic about the prospects. "Manufacturing jobs will be created, like more jobs at the Technology Park which pay well. There will be jobs at a variety of salaries and they will be all over the map."

GTEC's Grabo agreed. He heads up the Tucson/Canada project, and went to Ottawa recently, accompanied by several officials, including Mayor Bob Walkup.

"Our future is quite strong," he said. "The goal of the Tucson/Canada project is to establish a virtual corridor with the city of Ottawa in three areas: life sciences, including medical and drug research; optical sciences and telecommunications; and information technologies. This will develop beneficial economic opportunities through tangible linkages between industries, economic clusters, universities, research parks and private businesses."

Grabo expects the outcome of this effort to include "Canadian companies having their U.S. base in Tucson and using our proximity to Mexico. There will be a staging area in Tucson for final assembly of products, administration, and market penetration into Mexico." He also looks for joint business opportunities to develop, including in the financing and educational fields.

"I believe we are on the front end of what will be the economic development of linking cities in the future," Grabo said. "I expect over time that investment and job creation will go back and forth between Tucson and Ottawa. I am very optimistic."

Others don't agree. They foresee that the next eight years of NAFTA will mimic the last eight, especially in the area of lost jobs.

Jim Watson, AFL-CIO union representative to the Southern Arizona Central Labor Council, doubts that the treaty will have any positive impacts on workers in Tucson. "NAFTA has accelerated the loss of good-paying jobs," he said. "The replacement jobs are not nearly as good. When Cherrybelle Inc. [and others] got replaced by telemarketing firms, who won here? Maybe a few people at the high end won, but most of us lost."

Don Martin from Competitive Engineering puts his opinion in even more blunt terms. "The movement of jobs to Mexico," he said, "will absolutely reduce the standard of living in Tucson. We're in a global economy, and there's no stopping it."

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