U.S. businesses' hopes of easy money dashed NO FAST BUCKS SOUTH OF THE BORDER

THE BALTIMORE SUN

CIUDAD JUAREZ, Mexico -- The promise of cheap labor wa enough to move Cal Kessler to open a tiny furniture-manufacturing operation south of the border more than years ago.

"My wife and I only had $250 in savings when we first started out," said Mr. Kessler, a broad, rambunctious man. "We figured we could spare $20 a day without going hungry. And for $20, we could hire three Mexican workers."

Today some 600 workers are employed by Mr. Kessler's maquiladora -- a Spanish word that roughly translates to mill. But he says the bigger his operation gets, the less he makes. Now, he says, it would be cheaper for him to run the same plant in the United States.

"The Mexican government keeps coming and adding expenses. They come to us and say, 'Hey, now that you are this big, you have to pay housing taxes,' " he says with some agitation. "Then they tell us we have to provide meals to the workers. Then they tell us we have to have a doctor on the premises at all times and that we have to pay for all medicines given out to workers."

Over the past 25 years, hundreds of manufacturers like Mr. Kessler have been lured to Mexico by cheap labor costs and the elimination of import duties on raw materials shipped here. Many are successful, even though they say that the road has been full of setbacks and hardships.

Others have abandoned Mexico after their plants were crippled by low worker productivity, border delays, cultural misunderstandings, poor service by utility companies, an unsophisticated infrastructure and difficult union leaders.

"Let me tell you," says Mr. Kessler, whose main operations are in El Paso, Texas, "business people coming down here in search of cheap labor and other big savings are in for a rude awakening."

These voices of experience are sought out more and more as the U.S. Congress prepares to vote on the North American Free Trade Agreement.

The proposed agreement among the United States, Canada and Mexico would eventually remove tariffs on all goods and services, creating the world's largest trading bloc with some 370 million consumers.

Mexico actually began to curtail its protectionist trade policies several years ago, attracting foreign investment to help rein in its debilitating inflation rate -- which went from close to 160 percent in 1987 to 12 percent last year -- and to bring its foreign debt under control.

The trade agreement, known as NAFTA, would wipe out all remaining tariffs on products shipped here from the United States and Canada, giving U.S. businessmen a distinct advantage over the Japanese and Europeans.

And the Mexican market, with its 88 million consumers, is considered ripe for cultivation for products ranging from telecommunications systems to industrial chemicals to household appliances and cosmetics.

"Mexicans love U.S. products," says Chuck Cross, a Timonium trade-show organizer who held two shows in Mexico last year. "They look to us as the world's leading country in industrial products."

Proponents of NAFTA, which was negotiated by the Bush administration, also say that the trade pact will cause a sharp drop in the number of Mexicans who illegally enter the United States by raising their standard of living and increasing job opportunities.

Opponents to the agreement, including U.S. union leaders, point out that more jobs for Mexican workers means fewer jobs for Americans.

Human rights monitors say that U.S. companies will take advantage of Mexico's lax enforcement of labor laws, and environmentalists predict that U.S. plants in Mexico will be run -- as many are now -- with little regard for existing regulations to protect Mexico's air and water from contamination.

These are issues that the Clinton administration wants to discuss again with the Mexicans before the NAFTA is ratified. Pressure on the administration is domestic.

Unrealistic expectations

But the maquiladora owners and managers who have confronted the same issues for years indicate that their own vision of NAFTA is murky and that some of the expectations it has aroused may be unrealistic.

While they have enjoyed the benefit of paying their Mexican workers less than a third the average salary of U.S. workers, maquiladora managers say the difficulties they have encountered were far worse than expected.

"If I were a businessman in the States, and I knew what I know now, I would not come here unless my business was extremely labor-intensive," says Juana Maria Orozco, manager of the Falcon Industries maquiladora in Ciudad Juarez.

"The costs for labor are going up, and they will keep going up. Besides that, there are many hidden costs."

Ciudad Juarez, a city across the Rio Grande from El Paso, has been transformed by the maquiladora industry from a dusty town of street vendors to a bustling industrial center of some 800,000 people.

Economists expect the maquiladora industry to continue expanding. Already, it is one of the country's greatest sources of foreign capital, above tourism. According to a report by the Treasury Ministry, maquiladoras generated almost $5 billion last year.

But members of the maquiladora association of Ciudad Juarez say that 10 Juarez maquiladoras, employing 4,000 people, have closed their doors in the past 18 months.

Arturo Otero Carreon, head of the association, said that many of these plants could not sustain the rising operating costs, which he says have increased 100 percent over the past 10 years.

Among the fastest-rising costs are government-mandated benefit packages for workers. Even with these benefits, Mexican workers are paid far less than U.S. workers, but that doesn't relieve the shock to U.S. employers here.

Mexican benefit packages make up about two-thirds of total payroll, compared to a third in the United States, including Social Security.

$18.40 with benefits

Mrs. Orozco, a Spaniard who has lived in Mexico many years, says that without benefits, her 160 workers make an average of 29 pesos per day, the equivalent of about $9.60. They work five days, nine hours a day. With benefits, however, she says, the average daily wage totals about $18.40.

Mexican law mandates that companies pay an additional Social Security tax for their workers, which is equivalent to about 23 percent of their wage and pays for medical benefits.

Companies in Mexico are also required to contribute to a federal government housing program for workers, an additional 6 percent of their payroll, and another 2 percent of payroll must be contributed into a government retirement fund.

Christmas bonuses -- usually the equivalent of 15 days to a month's salary -- are also required by law.

Mrs. Orozco and Mr. Kessler say additional bonuses are required to help develop loyalty among workers. Turnover at Falcon's plant is about 8 percent each month, and Mr. Kessler says his is at least that and maybe higher.

"Mexican workers are creative and imaginative. But they are very unstable," says Mrs. Orozco, whose workers turn scrap iron into polished table bases. "They become bored doing the same work day after day. And there are so many maquilas that they can quit one job today and get another one tomorrow."

Mrs. Orozco and Mr. Kessler have hired doctors to respond to emergencies and conduct routine physicals on workers. They provide transportation for their workers. Mr. Kessler provides each worker two meals a day. And Mrs. Orozco says she often gives out food baskets and helps pay school costs for exemplary employees.

'Saint Monday'

Mrs. Orozco also developed a creative solution to a peculiar attendance problem.

She said her workers were consistently absent on Mondays, and so she changed the workweek from Monday through Friday to Tuesday through Saturday.

"In Mexico, workers observe the Day of 'San Lunes,' " she says, meaning "Saint Monday" in Spanish. "People always missed Mondays. They had errands to run, things they could not do on the weekend. So we decided to turn Monday into a day of rest, and payday is on Saturdays.

"No one misses Saturdays," she added, smiling.

Many of the companies here have been criticized for horrible working conditions and pollution. But Mr. Kessler insists, "I don't understand all the criticism that Mexican workers are subjected to cruel working conditions in these plants. Mexican workers have never been treated so good."

Poor infrastructure in Mexican border towns has also hampered maquiladora operations, Mrs. Orozco says.

The telephone system is particularly unreliable. Business managers have waited months to have additional telephone lines installed, drainage systems built and electrical service increased.

"I am thinking about converting to an electrical oven in the foundry," Mrs. Orozco says. "In the United States, I would just go to the electricity company and present my request, and they would be happy to have the increased service.

"In Mexico, it could take months and months of study and mounds of documents to be filled out," she adds. "I'm not sure it's worth it."

Maquiladora operations are also stifled by bureaucratic regulations and laws, many of which exist as a source of corruption as much as enforcement.

Mr. Kessler says that each item he ships into and out of Mexico must be listed on an inventory. And, he said, it is not unusual for trucks to sit at the border for two days while Mexican customs officials unload and inspect the cargo to make sure the inventory is accurate.

About environmental regulations, Mrs. Orozco said: "The government has so many laws, if you followed all of them, you wouldn't be able to move a finger.

"The government knows that at any time, a company is probably violating at least one of the laws," she added. "If they want, they can come in and shut you down at any time."

However, most of these laws are not enforced. Mexico's court system takes at least three years to issue decisions on lawsuits by residents fed up with illegal dumping or workers harmed by exposure to toxic chemicals.

Paying bribes is easy out

The infamous "mordida" is still the quickest way to avoid the inconvenience of the laws from border delays by customs officials to plant closures by health inspectors. Translated as "bite," a mordida is the Spanish slang word for bribe.

"I needed to have a truck in North Carolina on time," says Mr. Kessler. "The customs agent wanted to completely off-load the truck. So we gave him a little money, and they let us go through."

Blanca Isela Rivas, a manager at the Kessler plant in Juarez, says she has to keep a stash of petty cash to pay off health and environmental inspectors.

"And the inspectors negotiate less and less," she said. "They set their price, and we either pay it or they will close us down."

The last bribe she paid was $400.

Ms. Rivas contends that corruption of this sort is the reason the maquiladoras have earned a reputation for turning the border into a cesspool of contamination. She agrees with observations that work stations at the Kessler plant, where employees wield ++ power drills and paint guns, are cramped and possibly dangerous. Chairs hang on metal hooks over the workers' heads.

"Someone could be killed if those chairs fall," she said.

But, she said, maquiladora managers "have no incentives to clean up their businesses. They know as long as they pay off officials, they don't have to change a thing."

All of these arrangements are not inflicted only on foreign companies. Mexican companies are also victims of bribery and are required to pay the same worker benefits as U.S. maquiladoras. But executives at these companies have grown up in this country's business culture and are better equipped to deal with it.

An executive at McCormick Corp., the Baltimore spice company, says the key to overcoming the complications involved with operating in Mexico is to find competent Mexican partners who have important contacts in the government and who understand the country's complex business laws.

Jim Albrecht, a vice president at McCormick, says the company has been doing business in Mexico for decades. It has entered a joint-venture agreement with one of Mexico's most successful food companies.

"You have to be involved with a successful company and not a wounded duckling looking for help," he said.

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