Economic Development

The NAFTA Attraction

July 31, 2010
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A combination of low-cost labor and world-class infrastructure continues to make a strong case for the 16 year-old trilateral accord.


 

The North American Free Trade Agreement (NAFTA) has created the world’s largest free trade area, linking 444 million workers producing $17 trillion worth of goods and services. By lowering tariffs and trade barriers, the NAFTA has bolstered trade among the three countries. The last scheduled NAFTA tariffs and quotas were eliminated on January 1, 2008.

Trade between the U.S., Canada, and Mexico has soared since the agreement took effect, growing from $297 billion in 1993 (the year prior to the accord’s implementation) to $735 billion in 2009, according to the U.S. Trade Representative’s Office. U.S. goods exports to Canada and Mexico have grown from $142 billion in 1993 to nearly $434 billion in 2009, and U.S. goods imports from Canada and Mexico have grown from $151 billion in 1993 to more than $400 billion in 2009.

While the economic downturn of the past two years has impacted trade between the U.S., Canada, and Mexico (overall trade in goods among the three nations was at $930 billion in 2007), the positive outweighs the negative.

“Exports have a real potential to bring us out of these challenging times,” says Chris Gutierrez, president of KC SmartPort, an economic development organization representing the 18-county, bi-state (Missouri and Kansas) Kansas City region. “The market is leaning toward exports to improve the economy.”


 

Location along the I-35 corridor

Kansas City lies on the I-35 Corridor, which helps the metro area attract manufacturers looking for export opportunities in Canada and Mexico. Interstate 35 stretches from Laredo, Texas, on the U.S.-Mexico border to Duluth, Minnesota, near the Canadian border. The I-35 Corridor is a group of metropolitan areas in the southern Interior Plains region of the United States, running from San Antonio, Texas to Kansas City.

Gutierrez says location along the I-35 Corridor is important to attracting manufacturing operations to the Kansas City metro area. Aside from I-35, interstates 70 and 29 pass through the Kansas City metro area. A fourth, I-49, is under construction in Missouri.

“Highway linkages, while always important, are becoming more critical in location decisions,” he points out. “Transportations costs are significant, and the more access you have, both north-south and east-west, is a plus.”

An added benefit that the Kansas City metro touts is its location about equidistant between Mexico and Canada.

Location along the I-35 Corridor was one of the deciding factors in two recent expansion projects in the Kansas City metro area. As part of a nationwide consolidation project, Coleman Co. launched operations in a 1.1 million square foot facility in the metro area, in part because of access to I-35. Vari-Form, a supplier to Ford Motor Co., built a 36,000-square-foot production in Liberty, Mo. Thanks to its location off of I-35, the plant, which supplies a Ford plant in Kansas City, can potentially supply a Ford plant in Mexico.

“Companies [in the three NAFTA countries] know there is a locational advantage here for tri-national business,” Gutierrez says.

Last year, the metro area strengthened its rail attractiveness when Kansas City Southern Railroad and Kansas City Southern de Mexico launched a dedicated intermodal service between Kansas City, Dallas, and several Mexican destinations. The service is the beginning of a key lane within the growing KCS International Intermodal Corridor and an alternative to the more congested Chicago gateway for traffic between the Northeast U.S., Midwest, and Mexico. In addition to market competitive transit times and rates, the service allows for a fast and efficient border crossing.

Kansas City has the largest rail center in the U.S. by tonnage with five Class I systems. The rail corridor spans coast-to-coast and extends from Canada to Mexico, making Kansas City a destination on the NAFTA Railway.

Furthermore, as the third-largest truck hub in the country, the region is home to facilities operated by dozens of the leading trucking companies in the country offering eight types of carriers, from van to drayage.




 

Logistics opportunities for NAFTA companies

The state of Nebraska is situated for manufacturers to take advantage of trade with Canada and Mexico.

“We’re interested in trade, and we have important logistics opportunities, both north and south, across North America,” says Dennis Hall, CEcD, economic development manager for Nebraska Public Power District (NPPD), the state’s largest utility.

Ken Lemke, an economist for NPPD, says the state’s geographic position helps attract warehouse and distribution operations for companies doing business with Mexico and Canada, and shipping their product to all points of the U.S. “Agricultural products flow to both Mexico and Canada,” he points out.

One product that has taken advantage of NAFTA to increase in recent years is distillers grain, a byproduct of ethanol. Producers in Nebraska ship distillers grain by train to producers in Mexico, where it is used as feed for livestock and poultry. “It is a growing export market,” Hall says.

Rail lines operated by BNSF Railway and Union Pacific move product between Nebraska and both Canada and Mexico. Union Pacific is the only railroad to serve all six major gateways to Mexico, and it interchanges traffic with Canadian rail systems. BNSF connects with Canadian National and Canadian Pacific to access Canadian markets and KCS Mexico and Ferrocarril Mexicano to access Mexican markets. The state of Nebraska offers significant advantages for companies that locate facilities close to rail lines, Hall says.

By road, U.S. Route 81 is a four-lane highway from York, Nebraska, south to Kansas where it joins Interstate 35 and continues to the Mexican border. From York, U.S. Route 81 runs north to South Dakota where it joins Interstate 90 and then Interstate 29, which continues to the Canadian border. In York, Route 81 intersects with Interstate 80, which runs from the Atlantic to the Pacific, giving manufacturers importing from Mexico and Canada access to a large portion of the U.S.

The proposed Heartland Expressway in western Nebraska is a federally designated, high-priority corridor. When completed, the expressway will provide a multi-lane, divided-highway connection from Scottsbluff, Nebraska to the metropolitan cities and regional trade centers of the Great Plains from Canada to Mexico.

“Nebraska is in the center of the country, from Mexico to Canada and from east to west,” Lemke says. “Companies can access that logistical advantage to lower costs and increase profits.”

With low utility costs, Nebraska is an ideal site location choice for distribution facilities for frozen products. The state’s current industrial rate of 0.0505 cents per kilowatt-hour is below the U.S. average (0.0702 cents per kilowatt-hour), according to NPPD.

While traffic congestion may be an issue in other parts of the country, especially in metropolitan areas, Nebraska’s transportation routes have minimal congestion. This allows for more efficient and timely loading and unloading of freight, as well as faster delivery, no matter the mode of transportation.




 

Gateway between U.S., Mexico

NAFTA has perhaps had no greater impact on a U.S. metro area than it has on San Antonio. Of course, location is a major reason. San Antonio is located near the U.S.-Mexican border, making it a natural gateway for imports and exports.

“We consistently see U.S. companies, and even international companies, come to San Antonio to do business in Mexico,” says Mario Hernandez, president of the San Antonio Economic Development Foundation. “We have companies locating here each year that have direct ties to Mexico. This is directly a result of NAFTA and the increasing trade between the two countries.

“We have always tried to look south to Mexico for opportunities,” he adds. “It has been a focal point for us.”

In many instances, companies that manufacture product in Mexico have established warehouse and distribution operations in San Antonio for shipping to the U.S. Hernandez cites several examples: R.G. Barry Corp. manufactures Dearfoams Slippers in Mexico and uses San Antonio as its U.S. distribution gateway. Caterpillar manufactures diesel engine blocks in Monterrey, Mexico, which are shipped to San Antonio, where they are finished and distributed.

Going the other way, numerous Japanese automobile suppliers have located in San Antonio, not only to supply Toyota’s plant in the metro area, but also to supply automobile manufacturing plants in Mexico. And when Microsoft was looking to build a new data center, it did so in San Antonio as a way to stay connected with potential business in Mexico and South America.

“These types of expansions have really accelerated since NAFTA,” Hernandez says.

To ensure that transportation remains smooth, there have been numerous improvements in the metro area’s logistics infrastructure. There have been considerable funding projects for rail- and highway-related projects. When Kelly Air Force Base shut down in the mid 1990s, the community responded by converting it into a city-owned industrial park-Port San Antonio-that today emphasizes the transportation and logistics industry with a focus on Mexico, Hernandez says. The park has more than 2,000 acres that include warehouse and distribution facilities.

San Antonio is also at the crossroads of Interstates 10 and 35, which gives manufacturers coming over the border immediate access north to Canada and to both the East and West coasts.

“Most goods are still shipped by truck, and the highway system is very important to us,” says Hernandez, adding that San Antonio has more freeway miles than just about any other city in the U.S., except Los Angeles. “The ongoing investment in highway infrastructure from federal, state, and local governments continues.”

There is also direct access to the ports in Houston and Corpus Christi.

San Antonio continues to try to parlay its success with NAFTA into additional business opportunities. Hernandez says local officials are trying to establish relationships with seaports on Mexico’s western coast in an effort to provide an alternative route for companies with manufacturing operations in China to ship their product to the U.S. After being unloaded at a Mexican port, product would be shipped via rail to San Antonio and distributed nationwide. “We can save [manufacturers] a tremendous amount of time and money,” Hernandez emphasizes.

He believes that the San Antonio metro area will continue to serve as a Southwest U.S. distribution hub, especially for manufacturers producing product in Mexico.

“We are in an excellent position because of our geographic location and our ability to develop relationships with Mexican cities,” Hernandez says. “We know the importance of those relationships.” wt



Ken Krizner is a freelance writer based in Cleveland, Ohio, where he writes often on economic development and technology issues.
 

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