Why the story of the Exo-s factory is the story of NAFTA

SAN JUAN DEL RIO, Mexico – Looming above a Canadian auto-parts plant, keeping watch over workers, is a painting of the Virgin Mary. This same plant plans a celebration of its latest expansion with a party featuring a mariachi band.

It’s far from Windsor. It’s close to Mexico City.

The story of the Exo-s factory is the story of NAFTA: manufacturing booming in Mexico, while surviving in the north; supply chains that are internationally interconnected and extra-efficient; and a Mexican workforce seeing the most modest gains and longing for more.

Canadian auto-parts companies have more than 120 plants and 43,000 employees in Mexico, and this Quebec-based plastics-maker is among them. It has grown a bit in Canada, but exploded here: when it opens a new warehouse on its property, its Mexican workforce will have nearly tripled to 300.

While workers hammer and weld together the new warehouse frame, the plant manager explains why Mexico was a must.

His company’s customers – GM, Cadillac, Fiat Chrysler – are here and need plastic products. They opened plants here because of Mexico’s low costs, government incentives, and free-trade agreements with 47 countries allowing tariff-free shipment throughout Latin America.

“For us it was a no-brainer,” Francois Ouellet said.

“When (our customers) open a new plant they want us to be close to them. If not we would have put at risk our actual business we have in Canada and the United States… We would have a problem to keep our business (without Mexico).”

The company’s U.S. and Canadian branches are still adding jobs, albeit more modestly. Canada has about 127,000 auto jobs today, the same the year before NAFTA was signed in 1993.

But something dramatic then happened. Canada’s long-term trendline looks like a steep mountain: employment climbed toward a peak in 2000, dropped, then plunged catastrophically after the 2008 recession and is now slowly inching back to early 1990s levels.

The Great Recession was a near-death experience for many companies, including the precursor to Exo-s. It relied upon GM for three-quarters of its revenues – and that giant’s near-collapse almost pulled down an entire ecosystem of suppliers.

Exo-s responded by diversifying. It not only spread operations to Mexico; it spread beyond the auto sector, beyond its core business of under-the-hood plastics like engine covers and coolant tanks.

On the same Mexican plant floor that produces car parts, an overhead machine spits down black, plastic trash bins. Someone strips away excess plastic, then hands the bins to Nataly Jacobo.

She grabs one bin to insert a wheel, then another, then another. She repeats this over an eight-hour shift, six days a week. The 23-year-old usually works on car parts, producing more than 3,000 pieces a week.

Her weekly salary is about Cdn $61.

This represents a raise for her. She arrived here three months ago from a job that paid $51. She also gained benefits here: the company subsidizes half her meals, offers free transport, and built a shower with hot water which many households here lack.

Ask her whether she deserves more, and she squirms. But she answers a broadly phrased followup: What if NAFTA were adjusted, so people in your country earned more?

“Mexicans make very little,” Jacobo replied.

“(Salaries) could be a bit higher… It would be good if they kept us in mind (at the negotiating table) – the Mexicans.”

Salaries have indeed increased in this manufacturing area. Ouellet estimates that his average worker makes about $6-$7 an hour with benefits, and it’s going up because of an acute labour shortage here.

“Go around everywhere. You’re going to see signs that they need employees. All companies – hotels, restaurants,” Ouellet said. “It’s really hard to find employees. So there’s (salary) increases.”

That’s in this manufacturing area.

But the overall story of NAFTA, in Mexico, is one of flat wages. In fact, they’ve declined overall because traditional corn-farming communities have been hard-hit by U.S. competition since 1993.

The Canadian government is pushing for higher labour standards in a new agreement. It has consulted closely with union leader Jerry Dias, who has done multiple interviews in Mexico spreading the message that Mexicans deserve a pay raise.

Dias said workers across the continent would benefit if Mexicans got more independent unions, freer collective bargaining, and pay hikes. The Unifor boss repeatedly told media assembled at last week’s NAFTA talks: “Mexican workers deserve to be able to buy the products that they make.”

It’s more complicated than that, according to industry and some analysts.

For starters, it’s unclear how an international agreement would enforce local labour laws. Dias favours an international panel. But the U.S. wants to end the international panels that already exist for intra-industry disputes.

There’s also the question of unintended economic consequences.

Industry insists profit margins are tight, and big salary hikes would just steer jobs like Jacobo’s toward Asia – or to machines. Canada’s auto-parts association says these jobs simply won’t ever return to Canada.

But the association’s Flavio Volpe said Canada does benefit from being part of supply chains that include Mexico.

That includes a certain plastics maker from Richmond, Que. It is planning a party in its other home – about a 43-hour drive south, off a road lined with taco eateries and women selling colourful, hand-woven indigenous clothing.

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