State and Baja Team Up to Promote Business Deals

When Baja California officials flew to South Korea last year to lobby the electronics giant Daewoo to build a $270-million television picture tube plant in their state, an unlikely booster went along to help seal the deal: California Trade and Commerce Secretary Julie Meier Wright. Last week, Daewoo broke ground on the plant in Mexicali.

When California dairy farmers were losing a critical export market because Baja California state regulations limited the shelf life of milk at Tijuana supermarkets to two days, officials of the Mexican state interceded to make it seven.

Milk exports to Baja have since begun to rise.

And as cities and states on both sides of the U.S.-Mexico frontier fought among themselves for the first allotment of environmental cleanup funds created by the North American Free Trade Agreement, the two Californias put their support behind a common list of proposed projects.

The teamwork landed more than $70 million in funds for two new waste-water plants, one in each California--the first projects anywhere to receive NAFTA funding.

While California and Mexico brawl over drugs, immigration and other issues, the governments on both sides of the border seem finally to have agreed that, where business is concerned, what’s good for one is good for the other.

It flows from the perception held by many that the San Diego-Tijuana region--at 4 million the largest population complex along the 2,000-mile U.S.-Mexico border--has become one metropolis that “happens to have an international border running through it,” says UC San Diego sociologist Charles Nathanson.

The sense of economic commonality was not always there. When California’s economy was racing ahead on defense dollars and aerospace in the 1980s and before, the state’s economic posture toward its southern neighbor was best described as one of “benign neglect,” said Max Schetter, vice president of the Greater San Diego Chamber of Commerce.

That attitude contrasted starkly with that of Texas, which for generations has nurtured--and benefited from--a solid economic relationship with its four neighboring Mexican states, built on the personal involvement of the states’ governors.

That has usually been missing in the two Californias.

Indeed, Gov. Pete Wilson, advocate of crackdowns on illegal immigration and a prime force behind Proposition 187, the measure intended to deny state aid to illegal immigrants, is viewed by many Mexicans as persona non grata.

Critics say that California still isn’t doing enough, and that it is a Johnny-come-lately in binational trade promotion. They inevitably compare California’s relationship and track record with Baja to that of Texas, and find California wanting.

California still “lacks an appreciation for the opportunities that the maquiladoras represent to businesses here,” said UCLA planning and public policy professor Raul Hinojosa, who has completed a study of the economic interdependency of the two border states.

But NAFTA, the drastic shrinkage of California’s defense and aerospace industry, and the money and jobs being generated by Tijuana’s booming maquiladora industries have fostered a major attitude adjustment on the part of California.

“It took the geopolitical shock waves of the early 1990s to turn us around, mainly the loss of our biggest purchaser, the Pentagon,” said Nathanson, who also heads San Diego Dialogue, a think tank concerned with border issues.

The prime economic generators for this cross-border economy are Baja California’s mushrooming foreign-owned maquiladoras, plants that manufacture products principally for the U.S. market or elsewhere in the hemisphere.

For decades, the plants had relatively little impact on the California economy. But today, despite Mexico’s economic crisis--even because of it--the maquiladoras are becoming a sophisticated economic force in their own right.

The peso crash and NAFTA have attracted more and more foreign investment, including a big cash infusion from Asian firms, and the maquiladoras are growing 10% a year in numbers of workers and plants. By the end of 1995, there were more manufacturing jobs in Tijuana--about 130,000--than in San Diego County. As many as 8,000 of those employees live on the U.S. side and commute daily.

But the chief value to California is the supply and service business that the maquiladora industry is creating for San Diego and the rest of the state. The 850 maquiladoras in Baja California alone imported $5.4 billion in goods and services in 1994, the last year for which figures are available. Of that, $810 million came from California.

That share will be boosted by the rules of NAFTA, which force high-tech manufacturers to make their televisions, refrigerators and computer monitors with a higher percentage of materials originating in the U.S.-Canada-Mexico trade zone.

“We feel there is a tremendous potential to improve on that,” Wright said.

For Baja California, the support of California officials in their efforts to attract outside manufacturers lends enormous credibility when touting the synergy and convenience of being right across the border from San Diego. It’s especially important to Asian executives who want access to U.S. schools and consumer amenities.

And that’s what Wright helped Baja California do on a two-week trip to Japan, South Korea and Taiwan last summer, where the binational trade delegation visited 52 businesses and government officials, imploring them to consider the border region for expansion and plant relocations.

In addition to luring South Korea’s Daewoo, whose plant will employ 1,200 by early 1997, the Californias’ trade mission last summer was also responsible for attracting a Matsushita battery factory and a Taiwan-based computer monitor manufacturer that will begin operations in Tijuana in September, creating 400 new jobs.

The monitor maker, whose plant start-up hasn’t been announced, is “coming here because they can buy their picture tubes from Sony in San Diego. They know they can find high-technology products across the border in California and the labor they need in Baja California,” said Jorge Gallego, the Baja California secretary of economic development. “The Californians helped in the meeting in Taiwan and then invited them to San Diego to see the opportunity.”

Shouldn’t California be trying to lure jobs to San Diego, not Tijuana?

The state is long past the stage of trying to compete with Mexico for manufacturing jobs in which low labor costs are the deciding factor, Wright said; California’s main opportunity is in cementing supply and service relationships.

“If there is an investment in Baja, there is an investment in California,” she said in an interview. “These companies may assemble in Tijuana but they will usually have headquarters and their engineers officed on the California side. The top executives of these plants almost always live in San Diego.”

And as Tijuana’s mushrooming maquiladoras go increasingly high-tech, the lucrative export opportunities for California contractors, designers, chip-makers, and raw materials providers are expanding.

The list of California-based suppliers ranges from Orange County Container, a La Puente-based cardboard box maker, to the Los Angeles-based law firm of Latham & Watkins and technology giants Hewlett Packard and Sun Microsystems.

Such economic links tend to have a momentum of their own, but to many Mexico observers, political obstacles still loom large--namely, Gov. Wilson.

“There are definitely some important things California has done, but the reality of it is that Gov. Wilson is still the odd man out. He is seen as a major political liability in terms of getting things done,” said UCLA’s Hinojosa.

Many Mexicans believe Wilson, with his pro-Proposition 187 stance and election tactics of 1994, exploited the illegal immigrant issue. The vehemence of feeling against him is such that Wilson must send Wright as his proxy to plead California’s case in Mexico or to Mexican businessmen, observers on both sides of the border say.

“In general, politicians and businessmen don’t like to get involved with Wilson for their image,” said Jose Luis Perez Canchola, vice president of the Mexican Academy of Human Rights in Mexico City.

Wilson’s staff, needless to say, considers this unfair, but perseveres on the business front.

Rudy Fernandez, director of the Governor’s Office of California-Mexico Affairs in San Diego, acknowledged that Wilson is “portrayed as a guy who hates Mexico” but attributed it to “hype and misconceptions.”

“Despite the rhetoric, California and Mexico are doing increasing business. There is an unfortunate public perception, but look at all the programs California has working with Baja California. We doubled our trade office staff in Mexico City and our export financing staff. The governor was in the forefront of the NAFTA trucking issue, insisting we expand our inspection stations. We have also grown our agriculture and environmental inspections.

“Has there been damage? The perception of damage has been that of politicians, but business has continued to prosper,” Fernandez said.