Border Areas Get Lesson in the Cost of Trade : NAFTA: States and cities will have to involve the private sector in financing infrastructure improvements, U.S. officials say. About $16 billion in projects is needed.

Border states and cities will have to come up with innovative ways to finance infrastructure improvements in the region before they can fully realize the jobs and economic benefits expected from increased U.S.-Mexico trade.

That’s the message U.S. government officials brought to last week’s annual Border Governors’ Conference here, where leaders from California, Arizona, New Mexico and Texas met with their counterparts from Mexico’s border states to discuss the issues related to approval of the North American Free Trade Agreement and other regional concerns.

The U.S. and Mexican governments won’t be able to pay for the roads, bridges, sewers, new border checkpoints and communications links that must be built to fully leverage NAFTA, Assistant U.S. Secretary of Commerce Charles F. Meissner said in a speech to the governors.

Meissner said $16 billion in improvements are needed along the border to facilitate trade, but only $3 billion in U.S. and Mexican funds are available thus far. “The public sector cannot meet these needs. The private sector must help,” he said.

Although Congress increased highway and border improvement funding in 1991 with a view toward increased traffic that would result from border trade, the funds still run about 35% short of what the states will need to simply maintain current levels of service, said Bruce Cannon, chief strategic planner for the Federal Highway Administration.

So, states and cities have no choice but to become entrepreneurial if the infrastructure for the post-NAFTA era is be built. They may have to charge a variety of tolls and fees to help finance the improvements, some speakers suggested. But others warned that charging excessive fees would only dampen the commercial forces that NAFTA was designed to unleash.

The trade pact was designed to ease trade barriers among Mexico, the United States and Canada.

Meissner offered the governors his help in setting up a “consultative” group of bankers and investment professionals to help the states draw up business plans and conduct feasibility studies on border improvements.

Officials said cooperation in planning between U.S. and Mexican states will be critical to ensure maximum efficiency of dollars spent and to persuade the private sector to invest in improvements.

Both Texas and Arizona have set up numerous joint committees with their Mexican neighbors, bolstering ties that have been in place for decades.

California, by contrast, has been slow in cementing commercial relations with Baja California, officials from other states said. Whereas other border governors have made it a priority to develop closer ties with neighboring Mexican states, most coordinated activities in California are being carried out between the municipal governments of San Diego and Tijuana.

California’s relative lack of statewide coordination may be due to Gov. Pete Wilson’s preoccupation with the state’s financial problems and the fact that up to now the state’s massive economy hasn’t had to put much energy into stimulating trade, some officials noted.

Nevertheless, several critics of the state’s passive stance said Wilson’s politicizing of the illegal immigrant issue in his re-election campaign has hurt California’s relationship with Mexico, which could put the state at a competitive disadvantage as it scrambles for a piece of federal- and private-sector infrastructure funds.

Meissner said NAFTA already has begun to produce its much-touted dividends. He noted that U.S. exports to Mexico grew 16% over the first quarter, while Mexico’s exports to the United States grew 22%. He said Detroit auto makers exported 10,000 vehicles to Mexico over the first two months of 1994, equal to the total for all of 1993.

A San Diego customs brokerage house dealing almost exclusively in Mexican exports reported a 15% increase in volume over the first three months of this year, all attributable to NAFTA, Meissner said.

“To borrow an expression from (Texas) Gov. Ann Richards, this dog can hunt,” Meissner said of the trade agreement.

But while NAFTA may already be producing economic benefits, it is also creating financial pressures that the fiscally strapped states are struggling to cope with.

By December, 1995, California must spend $30 million that it doesn’t have to expand border inspection facilities for Mexican trucks. At that point, Mexican vehicles will have the freedom to make runs outside the 25-mile commercial zone north of the border that they are now restricted to.

To pay for the facilities, the California Department of Transportation must either take funds from other project plans or charge the truckers a fee for inspection, a risky measure.

Carl B. Williams, assistant director of Caltrans, said the issue is an example of how border states are unfairly burdened with the inspection costs that ought to be borne by the federal government since the trucks ultimately will be making deliveries throughout the nation.

“They saw all this rosy trade stuff with NAFTA, but there is a lot of dirty, tough work to make this happen,” Williams said.