Cooperation blooming between Mexico and Arizona

• Arizona is looking to boost its trade for small- and medium-sized businesses with Mexico.
• Arizona figures to benefit from its technical expertise in aerospace and other advanced industries.
• The cooperative spirit comes as Arizona's economy could use a lift and as Mexico is in transition.

MEXICO CITY – More than a dozen Arizona government and business officials listened intently last week as Juan Carlos Ituarte, who works in economic development in the small Mexican state of Queretaro, rattled off impressive recent growth in manufacturing of cars and aviation.

Much of it involved the kind of work Arizonans already do, but Ituarte acknowledged something that could calm fears of outsourcing: Queretaro still needs technical help from engineers and academics, the kind of brainpower Arizona has and Mexico wants.

"Your targets are tied very closely to what we're doing," Joe Snell, president and CEO of Tucson Regional Economic Opportunities, told Ituarte. "From our standpoint, we see it as one region separated by a few checkpoints."

Steve Zylstra, who heads the Arizona Technology Council, suggested Queretaro's aviation industry, which largely caters to European companies such as Airbus, might benefit from flight testing in Arizona, an area where the state has especially deep roots.

The frank and friendly exchanges came during a trade-mission visit to the Mexican capital by dozens of Arizona officials seeking to expand trade opportunities, particularly for small- and medium-size businesses. The delegation capped three days of meetings on economic development, infrastructure and tourism with the formal opening of the Arizona State Trade and Investment Office in Mexico.

Arizona officials left with few firm commitments but did restart the kind of dialog intended to help grow the $14 billion traded annually between the state and Mexico. Perhaps just as importantly, there were no signs of the border-related tensions that had strained Arizona's relations with Mexico in recent years.

For Arizona, the trade office opens in the midst of what has been dubbed the "Mexican moment." The country is upending decades of economic and governmental traditions in an effort to put the country and its 40 million middle-class residents on the path to a more stable future. Arizona, meanwhile, is looking to boost its relatively small international trade profile at a time when job and wage growth has sputtered.

It is a sound approach that should help people on both sides of the border, said Christopher Wilson, a senior associate at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington. Although many people think of trade with Mexico as a sprint to kill U.S. jobs, Wilson said it's a better deal than trade with China.

"Don't get me wrong, there is competition between the United States and Mexico for the placement of factories. But there's a lot of collaboration as well," said Wilson, the author of "Working Together: Economic Ties between the United States and Mexico."

"That's because we don't just trade finished goods with one another; we actually build products together. ... Imports from Mexico contain on average 40 percent U.S. content. The comparative figure for China is just 4 percent."

About 36 percent of all Arizona exports went to Mexico last year, according to the U.S. International Trade Administration. About a third of Arizona's exports worldwide last year involved aircraft parts, copper ores and electronic processors and circuits. That suggests Arizona's smaller businesses have scarcely made a dent in the state's overall exports.

That's what Sandra Watson, the president and CEO of the Arizona Commerce Authority, hopes to change with the opening of the trade office.

Riding a wave

Mexico sees itself as riding a demographic wave. Next year, its manufacturing costs could equal China's. But in important other ways, Mexico may fare better than China, said Manuel Molano, an economist with the Mexico Institute for Competitiveness.

For one, its population is younger than China's. It's also younger than the United States', although America has more resources to manage its aging population, Molano said.

Mexico also has a relatively stable democracy. By contrast, China and Russia have autocratic rulers that make business dealings more dicey, he said.

And Mexicans are becoming more educated and prosperous, he said. In 2000, about half of Mexican households had a washing machine; more recently it was 62 percent. The share of young Mexicans who had attended college had grown to 25 percent.

"The problem we've had is we don't enough good jobs to keep them here," Molano said. "But that's changing."

Mexico has the 14th-largest economy in the world and some expect it to reach No. 5 by 2050. Not surprisingly, that has brought new attention.

Last year, President Barack Obama and Mexican President Enrique Peña Nieto agreed to look at ways to lift innovation and competitiveness regionally. That puts a focus on the 10 states on the U.S.-Mexico border, which have a combined output equal to the world's fourth-largest economy, said Ana Luisa Fajer, director general under Mexico's secretary of foreign relations.

Texas accounted for 45 percent of U.S. trade with Mexico last year. California was second with 11 percent.

California Gov. Jerry Brown, who firmly opposed the North American Free Trade Agreement when he ran for president in 1992, paid a visit to Mexico City in July to consider opening a trade office there, as about two dozen states have done.

Reforms take hold

Last year's reforms, and what Wilson called Peña Nieto's budget stumbles, helped slow Mexico's growth in 2013 to 1.3 percent, according to the World Bank. That followed three years in a row of at least 4 percent annual growth in its gross domestic product, a broad measure of economic activity.

The country is expected to rebound next year and continue to grow quickly afterward as its reforms kick in.

The educational system spent relatively well, Fajer said, but too much went to administrators, leaving students with subpar resources. Taxes generally went unpaid in border regions, where duties should have been collected.

Monopolies in telecommunications yielded overly high prices while the oil and gas industry wasn't suited for the unconventional extractions that make up about half the country's untapped reserves.

The reforms targeted each of these problems, raising hopes that the country is on a better economic path. This presents opportunities with schools like Arizona State University and the University of Arizona, both of which had representatives in Mexico last week.

But stability can be an elusive commodity in Mexico.

Cartel-related violence has generally subsided on Peña Nieto's watch, but last week it came back into horrifying focus.

Twenty-eight students from a teachers college were apparently massacred in the southern town of Iguala, allegedly with help from local police who had been infiltrated or bought off. Another 15 students were missing last week.

"We are reducing violence. It's still a challenge," Fajer told the Arizona delegation at a meeting in her agency. "Everybody knows about it, but we are reducing violence."

A week that began with news of a massacre ended with the unrelated arrest of a suspected cartel boss from Juarez.

Working together

In Peoria, Alberto Osio and a small number of lab workers are hoping to change the way the world sees cross-border collaboration, perhaps literally.

His Mexican-based company, Yolia Health, manufactures contact lenses for the near-sighted that, combined with special drops, reshape the eyeball over the course of five days. Afterward, his company claims, patients have normal vision that lasts about a year.

Osio produces the lenses at a lab near Los Angeles and they are refined in Peoria to exact specifications for Mexican patients. The lenses are shipped from Arizona to Mexico, where the system already has regulatory approval from the Mexican equivalent of the Food and Drug Administration. They have applied for FDA approval, a process that could take at least another 18 months if it moves quickly, said Eduardo Osio, Alberto's brother, who oversees operations in Mexico.

Full approval in the U.S. and Mexico probably would mean the company would have to scale up quickly for a product that could find customers around the globe, Eduardo Osio said, adding that his preference would be to consolidate lens-making in Arizona and could mean hundreds of jobs, though for now it employs fewer than 20 in the U.S.

Yolia was one of the winners of an Arizona taxpayer-funded grant from the Commerce Authority worth up to $250,000 to help it grow its business. Yolia is working with Phoenix-based BioAccel, a bioscience company, to expedite FDA approval.

If some processes can drag on for months, others can be settled on the spot.

John Halikowski, the director of the Arizona Department of Transportation, discussed ways to facilitate smoother and more coordinated border crossings with Raul Murrieta Cummings, Mexico's undersecretary for infrastructure.

At one point, Halikowski explained that an experimental program to ship fruit across the border by rail needed Mexican approval on technical details.

Cummings, aware that the delegation was leaving in a day, leaned over, picked up a red phone and ordered a meeting on the matter at the delegation's hotel the next morning.

But his influence has its limits.

Cummings, a serious man with a disarming smile, apologized for the slow progress on renovations to Mexico's side of the Nogales-Mariposa border-crossing station, saying he had told the vendor they were the worst in Mexico.

"We are not very proud of this company," he told his guests.

Such cooperation is usually lost in the attention paid to Senate Bill 1070, Arizona's controversial 2010 immigration-enforcement law.

Last month, former Mexican President Vicente Fox visited Phoenix, where he was asked by Spanish-language media why he would visit "a racist state." Fox brushed aside the question but later said, "We're talking about a new future being built here."

"Borders and countries have problems all the time," Fox said. "We have to have a positive attitude in trying to solve each one of them bilaterally, that is considering both points of view."

Similarly, Gov. Jan Brewer, who skipped the Mexico City trip to make time for a trade trip to Europe, bristled at the mention of the bill she signed into law.

"I think this a manufactured image that people like to prey on," Brewer said two weeks ago. "To my mind, it's ridiculous that people want to continue down that path. (SB) 1070 had nothing to do with our commerce or economic development or our relationships or our love for the country of Mexico. ... People who continue to hang on to that are driving something they don't have a grip on. It's that simple."

Osio, for one, also wants to move on.

"Everybody has his opinion on that issue," he said of immigration and border matters. "If somebody's reaching out a hand to you and you need it, you should take it. The opportunity is there."

ON THE BEAT

Ronald J. Hansen covers the Arizona economy. He has seen the debate over free trade play out from Michigan and its dealings with Canada to Arizona's commerce with Mexico.

How to reach him

ronald.hansen@arizonarepublic.com

Phone: 602-444-4493

Twitter: @ronaldjhansen