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February 15, 2001

Profits Raise Pressures on U.S.-Owned Factories in Mexican Border Zone

By SAM DILLON

Wesley Bocxe for The New York Times
Oscar Chavez Diaz, a factory worker, eating dinner inside his home, a converted bus.


THE DIVIDING LINE
The second of two articles about life on the other side of the border.
• PART 1: Chasing Mexico's Dream Into Squalor (Feb. 11, 2001)

Video
Sam Dillon's reporter's notebook about life in Cuidad Acuña. (Requires Realplayer)

Audio
Sam Dillon explains how taxes are the root of social problems in Mexico's border cities. (Requires Realplayer)

Map
On the Border (Feb. 11, 2001)

Forum
The Fox Era in Mexico


Phillippe Diederich for The New York Times
Slum housing surrounds an industrial park in Acuña, Mexico. The large building with orange trim at center is an Alcoa factory.


Wesley Bocxe for The New York Times
Juan Tovar and Julia Quinonez, labor activists, in Acuna, Mexico.


CIUDAD ACUÑA, Mexico — Juan Tovar Santos, an assembly- line worker in this border city, will not forget the time he traveled to Alcoa's annual shareholders meeting in Pittsburgh and confronted the chief executive about working conditions in Alcoa factories here.

After Paul H. O'Neill, the Alcoa chief executive who became President Bush's treasury secretary last month, trumpeted the company's growing profits, Mr. Tovar stepped to a microphone. At the time Mr. Tovar, who was earning about $6 a day, described Alcoa managers so stingy that they stationed a janitor at bathroom doors to limit workers to just three pieces of toilet paper. He also recounted an incident in which more than 100 workers had been overcome by fumes from a gas leak and taken to hospitals.

Mr. O'Neill, stunned by the descriptions, defended conditions in Ciudad Acuña. "Our plants in Mexico are so clean they can eat off the floor," he said.

"That's a lie," Mr. Tovar shot back, speaking in Spanish through an interpreter. And he produced news clippings describing the hospitalization of his co-workers from the gas leak.

After Mr. O'Neill's own investigation determined that the chief executive of one of Alcoa's operations had covered up the leak, Mr. O'Neill dismissed him and began to improve conditions at the eight Acuña plants owned by Alcoa Fujikura Ltd., an Alcoa joint venture with a Japanese company. Today, Alcoa pays wages that are among Acuña's highest.

Still, since that meeting in 1996, tensions have continued to flare in this city across from Del Rio, Tex. There have been difficult meetings between Alcoa workers and managers to discuss pay, benefits and bathroom breaks. There was a confrontation last October in a factory parking lot in which Acuña police officers lobbed tear gas at disgruntled workers.

In Acuña, as in other border settlements, Mexican workers earn such miserable wages and American companies pay such minimal taxes that its schools are a shambles, its hospital crumbling, its trash collection slapdash, and its sewage lines collapsed. Half of Acuña's 150,000 residents now use backyard latrines.

Over the years, Mexico and its people came to accept these conditions in return for steady jobs. But now everyone from Mexican tax officials to environmental experts in both countries are debating the rules, written and unwritten, under which the mostly American corporations have operated on the border. There is rising concern that as factories making everything from sneakers to televisions have spread through the developing world, labor rights and environmental standards have often been overlooked.

"Acuña is a disgrace," said Javier Villarreal Lozano, a Mexican historian who directs a government-financed cultural institute in Coahuila, the state that includes Acuña. "A hundred years ago, U.S. employers would have been ashamed of these conditions. Henry Ford's workers living in cardboard boxes? He'd never have tolerated it."

Executives now say Alcoa recognizes that its responsibilities in Mexico may not end at the industrial park gates.

In an interview last month, Robert S. Hughes II, Alcoa Fujikura's chairman and chief executive, said Alcoa's wages were among Acuña's highest, which local officials confirmed. The average wage for a 48-hour week at Alcoa's Acuña plants is $83, the company says. The Border Workers Committee, a group that has represented laborers in Acuña, put the average wage at $70.

Desribing Alcoa's environmental and safety practices here as "world-class," Mr. Hughes said the company bases its policies on "some very clear values around people." But he acknowledged that Acuña's crisis is troubling, and said Alcoa may step up its efforts at corporate philanthropy.

"You're asking me, `do you like what you see when you drive through some of these residential areas — and I've done this — in Acuña, the same thing in Brazil, in Bangkok, in China, and the issue you're raising is important," Mr. Hughes said. "I don't think Alcoa can solve all the ills of Mexico, but we're trying to do what's right."

A No-Union Tradition

After Mexico's government began offering tax-exempt status to border assembly plants in the late 1960's, Jesús María Ramón Valdez, a son of the man who dominated Acuña politics for decades, began to bulldoze the family's sagebrush tracts into the city's first industrial parks and to invite foreign corporations to set up factories here known as maquiladoras. At first, many American executives were reticent, Mr. Ramón Valdez recalled in a recent interview.

"They said they didn't want to deal with Mexico as far as labor unions," said Mr. Ramón Valdez, who was elected Acuña's mayor in the early 1980's. To allay those fears, he said, he gave a financial stake in the industrial parks to a top local labor official. That has kept union organizers away from Acuña's plants ever since, Mr. Ramón Valdez said. "I've always managed the situation so that there are zero unions."

When Acuña began inviting American corporations south, Alcoa was producing automotive wiring systems at plants in two Mississippi towns, said Jack D. Jenkins, an Alcoa executive who works with Mr. Hughes at Alcoa Fujikuri's headquarters in the prosperous Nashville suburb of Brentwood, Tenn. Taiwanese and other Asian competitors were beginning to produce wiring components more cheaply than Alcoa could in the United States, Mr. Jenkins said. "For us it was either move to Mexico or cease to exist," he said.

Alcoa built the first of its Acuña factories in 1982. Its arrival coincided with a frenzy of construction in Acuña as subsidiaries of many other American corporations, including General Electric and Allied Signal, started up maquiladora (pronounced mah-kee-lah-DOH-rah) manufacturing operations here.

When the foreign corporations began arriving in the 1970's, Acuña was a sleepy Rio Grande settlement of 40,000 residents. Its population exploded as thousands of dirt farmers and out-of-work laborers streamed to Acuña from elsewhere in Mexico. With nowhere to live, many built makeshift shelters on vacant lands, a process that continues today. Hundreds of squatters even seized a railroad siding, building shanties on the tracks.

By the 1990's, Acuña was growing faster than any other city in northern Mexico, census officials said. Last year's census counted 110,388 residents in Acuña, but state and local officials called that a gross undercount, estimating Acuña's population in the range of 150,000 to 180,000. The city now has 60 plants.

Despite the population explosion in Acuña, there have frequently been more jobs than workers. So employers sent recruiters throughout Mexico to bring workers north.

A Struggle for Housing

One recruit was Isidro Esquivel Sánchez, who grew up in a desert town 350 miles south. In 1996 he was 21 and out of work when an Alcoa manager drove through, shouting with a loudspeaker about a better life in Acuña. It sounded good, Mr. Esquivel recalled, and he, his 19-year-old wife and two teenage siblings boarded an Alcoa bus.

When the convoy arrived in Acuña, the Esquivels and other recruits were dumped out in the central plaza on a Friday night and told to fend for themselves until Monday, when Alcoa's employment offices would open. Many of the bewildered workers slept on park benches; a kind Acuña woman let the Esquivels sleep on her floor, Mr. Esquivel said.

Mr. Hughes said that he doubted that Alcoa workers could have been treated so shabbily. "If this ever occurred it is a clear violation of the way we want to run our company," he said in the interview in a San Antonio hotel. An aide to Mr. Hughes acknowledged, however, that Alcoa provides no accommodations for recruits, instead asking them to pledge before the trip north that they have relatives who can put them up in Acuña.

Mr. Esquivel eventually got a job lugging boxes of parts to an Alcoa assembly line. He has lost all illusion that he has found a better life. "They work us like donkeys, and we come back to this," he said one evening, at the one-room, dirt-floor hovel with a rear outhouse that is home to him and his family.

Still, the Esquivels can say they have a house. Óscar Chávez Díaz, who worked for Alcoa until late last year, lives with his wife, Nelba, in the rusting carcass of a school bus.

They keep their clothes in a pile where the driver's seat used to be, and Mr. Chavez has installed a tiny three-burner stove and refrigerator beyond the bed, near the rear emergency door. He strapped an air conditioner to a side window to little effect; the bus still heats up like an oven in the sweltering summer sun. In winter it is an icebox.

Mr. Chávez bathes standing on his bus's front steps, ladling water from a bucket. The water comes from a spigot out front. It is undrinkable because the water filtration plant, which takes its water from the Rio Grande, was built almost 40 years ago, and cannot come close to providing clean water for the area's swelling population.

During an interview in October, Mr. Chávez showed a reporter pay stubs indicating that his weekly Alcoa take-home pay was $60. He said he spent about $11 for bottled drinking water. About $5 went to rent the bus, $20 for electricity and $10 for busses and taxis, he said. (He has no car.) There was little left for food or clothing. His wife, who worked in another Acuña plant stitching leather seats for Chevrolet Corvettes, earned about the same as her husband. She was spending about $40 a week on their groceries, Mr. Chavez said.

Dr. Ruth A. Rosenbaum, a social economist based in Hartford, studied the purchasing power of Mexican workers in 11 border cities last year. She calculated that even using Mr. Chavez's wages to buy only the cheapest products available in Acuña, he had to work nearly a week last fall to outfit his son, Raúl, 6, for school, 16 hours to earn enough to buy the cheapest sneakers, 12 hours for a bookbag, 9 hours for a pair of boy's pants, 3 hours for a little white shirt and 4 hours for notebooks and pencils.

"You study these wages for a while and it makes you sick to your stomach," Dr. Rosenbaum said.

Support From the North

Two American church groups, the American Friends Service Committee and the Congregation of Benedictine Sisters, have been pressing for better treatment of Alcoa's Mexican workers. In 1996, they helped Mr. Tovar, then 30 and earning less than $35 a week, to travel to Pittsburgh for the annual Alcoa meeting.

When Mr. O'Neill, then Alcoa's chief executive, heard of the plans to bring a worker to the meeting, he telephoned Susan Mika, a Benedictine Sister, in San Antonio.

" `Are you bringing workers from Mexico up to our annual meeting?' O'Neill asked me," Sister Mika recalled recently. "He was screaming. He was very upset."

But days later, using the Benedictine Congregation's ownership of Alcoa stock, Sister Mika helped Mr. Tovar enter the meeting. That is when Mr. Tovar confronted Mr. O'Neill about Alcoa's treatment of its Acuña workers, including the limits on toilet paper, which are not uncommon in public buildings in Mexico but seemed degrading to workers in the factory.

After that confrontation, Alcoa's toilet paper policy became more generous, cafeterias were modernized, and other conditions improved, Sister Mika and Alcoa workers said. Mr. O'Neill also ordered a significant pay increase.

But worker discontent continued. Last spring, a dispute over delayed paychecks in one Alcoa plant here sparked a brief work stoppage. Weeks later, Mr. Hughes traveled to Acuña for a face-to-face encounter with laborers in a downtown taco restaurant. It was a rare meeting, as senior American executives almost never go to Mexico to discuss complaints directly with workers.

Sixty laborers showed up straight from the assembly line to meet Mr. Hughes and other Alcoa executives. Also present was Julia Quiñónez, director of the Border Workers Committee.

Mr. Hughes, shirt sleeves rolled up and speaking through an interpreter, promised that there would be no reprisals for workers who spoke their minds. So they did, complaining that their pay was barely sufficient to stave off starvation. Mr. Hughes reminded workers that their compensation included not just wages, at that time about $7 a day, but also free bus rides to work, a $4.85 weekly grocery coupon and other benefits.

One laborer asked why Alcoa's profit- sharing payments, required by Mexican law, were so meager, especially as Acuña plants appear profitable and Mr. O'Neill had exercised $33 million in stock options beyond his $3 million salary in 1999. (Acuña workers said Alcoa made profit-sharing payments of about $40 a worker last year.) "The workers just told the truth about their lives," Ms. Quiñónez recalled. "They were saying, `Look, we're not robots."'

Mr. Hughes promised to study and perhaps revise Alcoa's compensation. Five months later, hundreds of workers grew impatient waiting for answers, and walked out of two Acuña plants to protest in an Alcoa parking lot. Acuña police surrounded them and fired tear gas. The protests spread, and the company was forced to negotiate, reinstating some fired workers. Scores of others quit, accepting severance payments obligated by Mexican law. One was Mr. Chávez, the worker living in the bus, who has since taken a job at another factory at about the same wage.

In November, Alcoa completed its study, and Mr. Hughes announced significant wage and benefit improvements. Mr. Tovar, who has worked at Alcoa for nine years, said his daily wage rose from $6.70 to $8.50. With bonuses for perfect attendance, grocery coupons and other benefits, his weekly compensation could now reach $90, he said.

Ricardo Hernández, who has monitored Alcoa's practices in Acuña for the American Friends Service Committee, commended Mr. Hughes in a recent letter to him, while reporting that some Alcoa plant managers have recently threatened workers who participated in the October conflict.

A reporter who toured two of Alcoa's Acuña plants last month saw workers soldering electrical components and weaving the octopus-like wiring systems for automobiles along well-lit and ventilated assembly lines. Cafeterias were clean, and workers wore protective eyeglasses.

But despite Alcoa's wage increases and improvements in factory conditions, its Acuña workers still live in a squalid grid of dirt streets, rotting garbage and swamps of open sewage.

Perhaps no one understands the problem better than Acuña's current mayor, Eduardo Ramón Valdez, a brother of the industrial park developer. In an interview, he said his city needs huge investments in potable water and paved streets. The fire department is virtually broke, so Del Rio, its twin city in Texas, has several times recently sent its fire trucks across the bridge, sirens shrieking, into Acuña to extinguish fires. Acuña's 60-year-old Social Security hospital, the basic health service for most factory workers, is outdated and overwhelmed. It has 45 beds; the city needs several times that many, he said.

And Acuña's 135 schools lack, well, nearly everything, the mayor said. "Every week I get some new plea from our teachers," the mayor said. "They need windows, toilets, drinking water. They want desks. They want a flag. It's an endless list."

But Acuña's 2000 budget was $9 million, he said, which means the city could spend just $60 on each resident. In contrast, the budget of Del Rio, population 45,000, is $32 million, allowing for a per capita expenditure of $777, 13 times as high.

Governments Short on Money Many experts blame the impoverishment on the government, which for decades has spent the lion's share of tax revenues in Mexico City. Mexico's new president, Vicente Fox, has vowed to be more generous with cities and towns and has promised a new focus on the border region's ills. Yet manufacturers along the border are not contributing much to the overall tax pie, and some officials have begun to question whether Mexico benefits from the tax breaks given to foreign companies.

Mexico City and Washington agreed in 1999 on a modest increase in the Mexican income taxes paid by American companies operating duty-free assembly plants here, while cutting their United States tax obligations by an equal amount, said Ricardo González Orta, former President Ernesto Zedillo's director of tax policies. Historically, he said, American corporations have vigorously opposed increases in their Mexican taxes.

Asked how much Alcoa pays in taxes for its Acuña operations, a spokeswoman said in a written statement that in 1999, Alcoa's Acuña factories paid a $450,000 Coahuila state payroll tax, $7.8 million to Mexico's Social Security system and $2.4 million in federal taxes earmarked for low-cost housing. The statement appeared to indicate that Alcoa paid no income, property, asset, import, export, sales or value-added taxes that year in Acuña. The company spokesman, Bonita A. Cersosimo, did not respond to requests for clarification.

Alcoa's annual reports and other company documents suggest that Alcoa Fujikura's operations in Mexico are quite profitable. In the interview, Mr. Hughes declined to disclose the prices or profits earned on the electrical systems manufactured in Acuña, calling that proprietary information.

Alcoa donated a $50,000 ambulance to Acuña in 1998, and the following year, with Ford Motor, donated $52,000 to build the Ford-Alcoa elementary school, which has 300 students enrolled in six grades.

Patricia Pérez, the lone teacher at the school during a reporter's visit last month, complained that the roof leaks, windows fall out, and no playground was built so that classrooms are surrounded by a sea of mud. But conditions appeared no worse than at scores of other broken-down Acuña schools.

In all, Alcoa donated some $170,000 to fund various Acuña civic projects last year, including support for a riverside park, an Alcoa spokeswoman said. "Wherever Alcoa operates around the world, we take being a good corporate citizen seriously," Mr. Hughes said in the interview. "We're wrestling right now with whether there's more we should be doing around community support in places like Acuña. Should we do more around housing, education, or health care?"

The day after Mr. Hughes spoke in his Texas hotel room, a rooster's crow awoke Mr. Tovar long before the sun in his two- room mortar-block home in Acuña, where he shares a bed in a makeshift kitchen with his wife, Arcelia. She boiled water for coffee and fried some potatoes, wrapping them in flour tortillas for Mr. Tovar's lunch.

A hug and a kiss later, he was in his battered pickup truck, bumping across Acuña's rutted streets in a freezing drizzle. At an intersection, police were ankle deep in mud, trying to unsnarl traffic backed up behind a blocked drainage culvert. Mr. Tovar swerved onto a side street, driving frantically to reach Alcoa's Plant No. 5 before 7 a.m. He could not afford to lose his $3- a-week punctuality bonus.


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