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Laredo Thrives on Mexico Trade

While debate heats up in Congress over whether NAFTA will cost American workers jobs, the view from the border is positive

HERE in the nation's largest inland port, citizens predictably favor ratification of the North American Free Trade Agreement (NAFTA), even though some will admit that they are unsure how it will affect their already-thriving businesses.

"The `sucking sound' of American jobs going to Mexico?" asks Mayor Saul Ramirez, scoffing at Ross Perot's prediction of the consequence of ratification. "That's not what we hear in Laredo. We hear the tractor trailers that come from Idaho, Ohio, [and] Tennessee" carrying United States exports to Mexico even before NAFTA, and "making the cash registers ring up north," Mr. Ramirez says.

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Last year 3,600 trucks a day crossed Laredo's international bridges. Two-thirds were southbound, hauling 38 percent of Mexico's $40.6 billion worth of imports from the US. By the year 2000, the city forecasts truck crossings to rise to 10,000 a day without NAFTA, 16,000 if the treaty is ratified by the legislatures of Canada, the US, and Mexico.

"In a very real sense, what NAFTA hoped to create is already happening," says Mike de la Garza, a vice president of H-E-B Grocery Company.

"At least half of our sales go across the border," Mr. De la Garza notes. The San Antonio-based chain has 250 stores in Texas, including four outlets in Laredo and a fifth under construction.

In the 12 months ended last August, Laredo added jobs at the fastest rate of any Texas city.

"When Mexico's healthy, Laredo's healthy," says Beto Gutierrez, president of Armadillo Homes. He expects to build 200 of the 600 new homes likely to be built here this year.

"If this were 1982, I'd be hyping Laredo," Mr. Gutierrez adds. But he and other businessmen learned caution in 1983, when the peso's devaluation brought retail sales to Mexico to a standstill. "It was lights out," he recalls. "One day you owned a piece of property worth $20,000. The next day it was worth zero, and there were no buyers."

The importance of Mexico to Laredo merchants can be seen in the fact that in 1981 this low-income city led the US with an amazing $40,000 in retail sales per household. As much as two-thirds was actually attributable to Mexican shoppers.

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In the first year after devaluation, 300 stores closed in the downtown shopping district. The same number failed the next year. "It was barren," Mayor Ramirez says. Only 87 residential building permits were issued in 1983.

Now the city of 140,000 is bustling again. A thousand residential permits were issued in 1992. Lack of utilities, not slack demand, holds down construction.

Last year's retail sales of $1.9 billion were nearly double the 1981 figure. Stores again swarm with shoppers from Mexico.

Many Mexican shoppers work in the 58 maquiladora (foreign-owned) factories in Nuevo Laredo, a city three times as populous as its US sister. Others drive from the interior of Mexico.

Raul Cardenas, the Mexican consul, notes with less than approval the Mexican license plates in the parking lot of Laredo malls. "Some products bought here can be bought in Mexico," he notes. In December, Mexico began enforcing a duty-free limit of $50 per trip "to protect Mexican industry" and "increase the sales of Mexican merchants," Mr. Cardenas says.

Vision '93, an annual economic outlook report prepared by Laredo State University, says the limit had a short-term effect: "Entrepreneurial Mexican shoppers quickly learned that they could increase their quota by $50 for every neighborhood child that they brought shopping with them."

Mr. De la Garza says H-E-B isn't feeling squeezed by the duty-free limit, but then "three or four bags of groceries may not look like much" to a customs official, compared with a television set, he says.

Mayor Ramirez and some retailers insist the limit is still being felt. "Trade has hit a plateau," Ramirez says.

Al Serrano, manager of the local Wal-Mart store, believes the limit hurts all stores, but isn't sure what his business volume would have been without it. Right now he is concerned about new duties of 100 to 1,000 percent that Mexico has begun to levy on products made in China. Many Laredo stores carry some goods made in China, Mr. Serrano figures.

He says the duties against China were imposed to stem imports of cheap shoes - an influx that hurt Mexican producers.

What will happen, he wonders, if the same thing happens to Japan next month? And would NAFTA make any difference? "You read all kinds of point of view," he says. "It's just one of those wait-and-see situations."

De la Garza says that NAFTA will simply streamline and accelerate trade activity. Most importantly, ratification by the US "would send all the right signals" to Mexico. President Salinas has worked hard to eradicate the Mexican perception of the US as hostile exploiters, he says.

Cardenas says the Mexican government is confident that a wary US Congress will ratify NAFTA in time for it to take effect next January, as scheduled. "It is natural for neighbors to trade with each other."

But Laredo may not benefit as much from that trade after NAFTA. Vision '93 notes that Mexican shoppers cross the bridge because of better availability of products at a lower price.

It is possible "that the full implementation of NAFTA, by making more US-made products available and price-competitive in Mexico, will adversely affect both of these reasons," the report says. Thus, NAFTA "will make retail sales in Laredo even less reliable."

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