While the pandemic has ravaged much of the cross border economy. Theas Mara industry has flourished KBB S border reporter. Gustavo tells us what's behind this resurgence.
This is the of Tijuana is booming. Maquila Dora industry, the daily thunder from thousands of cargo trucks, shipping goods into the us through the OTA Mesa border crossing. Those trucks carry everything from Topo, Chico Hardell to Toyota Tacomas assembled just outside TECA. Each one is a sign of what's shaping up to be a new roaring twenties for Tuas maquila dos, which are manufacturing and warehouse facilities along the Southern
Border. Well, this is undoubtedly the most exciting and the most dynamic, uh, time period we've had in the maquila industry for decades.
This is he Ernesto Bravo. He works for Tema, a company that helps foreign businesses move to Mexico, and they've been doing it since the 1980s. So that makes Rao our resident historian for the bustling border towns. Maquila Dora industry.
The, the industry was born really in the seventies. It grew significantly in the eighties. Two thousands was a bit of a challenging period, uh, with China coming into the WTO, the world trade organization and enjoying certain benefits in terms of international trade. Um, a lot of manufacturers actually migrated to China, but over
The last few years, the companies that left they're coming back,
We have seen reverse migration. If you wanna say from Asia to Mexico, as companies realize that they need to be closer to their clients. Uh, and with the us being the number one market in the world for everything virtually, you want to be the, the closest place you can be.
The pandemic made it abundantly clear that saving money by shifting manufacturing away from north America is a bad bet. Mauricio Torro heads, the real estate division at the TP legal law firm in Tiana. He witnessed firsthand what happened to businesses that expand supply chains before the pandemic. One of his clients thought they could save money by opening a manufacturing facility in south America. But
When the COVID situation started that product wasn't able to come or to arrive here in Mexico or in, in the us in time. So all their operation get get delayed, and it was a big problem for the company.
The fastest growing sector of Tianas maquila auto industry is fulfillment centers. These are essentially repackaging and shipping warehouses that use a little known section of the us tariff code to avoid paying fees on certain imports. It's called section 3 21, and it allows companies to avoid fees as long as they ship items worth 800, hundred dollars or less directly to customers. So instead of shipping items in bulk to the us companies set up fulfillment centers, just south of the border, that's why we're in the middle of a fulfillment center building boom in Tijuana, GUI works for Veta. One of the biggest industrial developers in the region, she says compared to just a year ago, the growth has been
10 times. Yeah, 10 times, at least 10 times. And we know that probably is gonna grow more
Experts who follow Tijuana maquila industry are bullish on the market. Demand is high and the underlying conditions behind the boom don't seem to be going away
Unless there is a change or unless there is something that catastrophic happens. I think that we will continue to see growth,
But there's at least one big potential roadblock. And that's Tijuana infrastructure, businesses need stable sources of water and power to run warehouses. They need roads to transport goods across the border, and they need a reliable transit system for their employees to get to work on time. Historically, Tijuana has not invested in infrastructure and that could come back to haunt the city. What,
What needs to happen now is a lot of will from, uh, governments and business people to put on, uh, investment into the infrastructures of the city, because see if we keep on growing and there's no more roads and, and security and lightning and everything that the city needs in order for keep on the growth, it probably it's gonna collapse,
But for now expect the trucks to keep on rolling at O time makes
For more on the story and the resurgence of maces in Tijuana. We're joined now by K PS, investigative border reporter Gustavo, Hey
Gustavo, Hey Christina, how's it going?
So before we dive into why Tijuana seeing a resurgence in maces, which as you say are manufacturing and warehousing facilities along the border. Give us a little background. When did we last see maquila us last flourish and why, and when did they start to leave Mexico?
Well, so maquila have been a cornerstone of, uh, Tiana economy for decades, right? They, they produced cars, electronics, even medical devices, actually a fair amount of the ventilators that kept people alive during the early days of the pandemic came from, uh, Malo in ti and the industry took a little bit of a hit in the two thousands around the time China came into the world trade organization and received a certain benefits in terms of international trade. At the time China had significantly lower labor cost in Mexico, but over the last couple years, labor cost over there have more or less equals to those in Mexico. And companies are seeing that cost savings just aren't worth dealing with the, uh, supply chain issues.
And I know you've noted that the pandemic also has put an additional strain on supply chain issues. And so we're seeing more companies actually return to Mexico. What do we know of what companies are actually coming back and how can we this impact us consumers?
Well, I can't really give you names of specific companies that have moved. They're they're all really secretive about it. Uh, almost to the point of being paranoid, particularly American companies. They don't want the bad publicity for being in Mexico. Uh, but I can tell you a lot of the companies that are moving to Tijuana, aren't your typical household names. They're smaller companies that subcontract or do work for some of the Walmarts or targets of the world and from a supply chain standpoint, I mean, that that's Tijuana's biggest advantage right now, the location, right? We like to complain about waiting a few hours to cross the border, but it's nothing compared to waiting weeks to cross the Pacific only to get stuck in a bottleneck at the port of Los Angeles.
You say fulfillment centers are by far the fastest growing industry there. Can you say more about why that is and how companies are using section 3 21 of the us tariff code?
Yeah. So just to explain section 3 21 is a, a part of a tariff code that companies can use to avoid paying fees on importing goods. The way it works is if you ship items worth $800 or less and mail them directly to individual customers in the us, you don't have to pay tariffs on it. Let's use laptops. As an example, companies, shipping crates of laptops to the us have to pay a tariff instead they can ship them in bulk to a fulfillment center in Tijuana. The laptops will be repackaged into smaller boxes, get slapped with a shipping label that has your name and address on it. Then they'll be loaded into trucks and cross the border without having to pay any fees. Now, the most interesting thing I think about section 3 21 is that it's really, it's been around since the 1930s, but has just recently become popular. And that's because of the actions of former presidents, Barack Obama and Donald Trump, eh, Obama, and around 2016, increased the limit on section 3 21 goods from $200 to $800. This was a way to help, uh, e-commerce companies and Trump of course raised tariffs on China. So both of those actions, right? Raising the cap and increasing the number of tariffs, have both incentivized companies to take advantage of section 3 21. How
Is the return of a booming Mata industry impacting Mexican workers? Are there enough workers to, to fill the need? And how do wages at these jobs compare to other available
Work? Well, you mentioned the workforce. So that's actually a huge draw for companies. I mean Mexico's average age is 28 compared to about 39 in the us. And Mexico's workforce is projected to grow in the next decade. And now Mexico in terms of wages, right Mexico ago has a weird minimum wage system. It's one wage at the border and another wage in the interior of the country, along the border, it's about 260 pesos a day, or just over $12. And maquilas tend to pay a lot more than that. Now, of course, $12 a day sounds awful to our American listeners, but it's an upgrade to what was at the border. And it's a lot more than what people are making at the Southern states of Mexico.
If this rate of expansion continues, how could the Kwana and the border economy change over the next few years?
See, well, one of the things I'm interested in reporting on and just keeping an eye on is the presence and the growth of the tech industry in Tijuana. Uh, the city has several vocational training schools and they produce way more software engineers and coders than San Diego does. Of course coding. Is it own language, right? So it doesn't matter if you're learning it in the us or Mexico. It it's the same thing. And companies are starting to take, no, I've
Been speaking with Gustavo Salli KBS, investigative border reporter. Thank you so much.
Well, thank you, Christina.