The U.S.- Border Economy in Transition July 2014

Texas-Tamaulipas-Nuevo León-: Energized to Build a Stronger Border Region Christopher Wilson, Erik Lee and Rick Van Schoik*

Findings from the -Tamaulipas-Nuevo border is still closing in on the vision established by León-Coahuila Regional Economic CSG-West almost 10 years ago. At that time, CSG- Competitiveness Forum West envisioned secure manufacturing zones, high- priority corridors and more environmentally On July 1st, 2014 federal, state, and local friendly vehicles as part of a vision of a green, stakeholders from the southern portion of the Texas- secure, and productive border. Mexico border convened at Texas A&M Congressman Henry Cuellar gave the keynote International University in Laredo for the Regional address and cited the figure that 40% of all U.S. Economic Competitiveness Forum. The forum was production heads south, indicating that more jointly hosted by the Border Legislative Conference, national attention needed to be paid not only to our Woodrow Wilson International Center for Scholars southern border but to all of our neighbors in Latin Mexico Institute, North American Research America. He went on to note that the U.S.-Mexico Partnership, and the Office of Congressman Henry High-Level Economic Dialogue is meant to make the Cuellar, and made possible by the support of the southern border a more seamless and productive U.S. Agency for International Development – commercial zone. Mexico. Building on successful sessions earlier this year in San Diego and Nogales, it was designed to The Region generate new ideas on how to strengthen the The South Texas-Mexico border region stands out competitiveness of the border region. This document from the rest of the border in a few key ways. First, it highlights some of the key concepts and contains the most important commercial corridor recommendations identified by stakeholders at the connecting the United States to Mexico, connecting Laredo session. the eastern seaboard and industrial Midwest of the United States to , the region around Overview , and even Mexico’s major Pacific port at With major growth in U.S.-Mexico trade flowing Lazaro Cardenas. The Laredo- ports of through the area and with major potential—both entry are the key binational gateways for the tapped and untapped—in the development of energy corridor, the crossing comprises 35% of all U.S.- resources, the South Texas-Mexico border region is Mexico trade and more than 40% of cross-border undergoing a period of rapid transformation with trade. While transportation logistics and related tremendous opportunities, even as it continues to industries dominate the Laredo–Nuevo Laredo struggle with persistent poverty and public security economy, manufacturing, tourism and agriculture challenges. are growing in relative importance in the Valley and the Mexican cities across the river, such Edgar Ruiz from CSG-West opened the Laredo as and Matamoros. Economic Competitiveness Forum by saying the 1

In contrast to other areas of the border, no single Mexico is one example, but electrical grid sister city pair dominates the South Texas-Mexico interconnections between the two countries were region. The area is home to more medium- sized established over a hundred years ago. Nonetheless, cities (at least a dozen with more than 50,000 in terms of both energy infrastructure and residents) and more border crossings than any other production, much greater collaboration is possible. section of the border. The numerous crossings are Reiterated by stakeholders and experts throughout an obvious transportation asset, even as the forum was the clear sense that the United States improvements are needed to modernize some of and Mexico can develop and exchange energy in a them. The twin cities in this region tend to have a more productive and cleaner way together than they clear sense of interconnectedness, of the binational can individually. They articulated a vision of energy nature of their communities, even as binational security for both the U.S. and Mexico through economic planning is still in its early stages. With so interdependence rather than independence. many small and medium sized cities, and their comparatively small municipal budgets, inter-city The development of energy resources from the Eagle cooperation and the support of state and federal Ford Formation in South Texas has grown governments are vital to develop the region’s immensely during the past few years. Starting from capacity. a base of near zero production in 2008, production levels have skyrocketed. In 2013, each day the Eagle Ford Shale produced 838 thousand barrels of oil, 3.8 In contrast to other areas of the border, no single sister billion cubic feet of natural gas, and over 200 city pair dominates the South Texas-Mexico region. thousand barrels of condensate. The geology that The area is home to more medium- sized cities (at least has produced such abundant resources does not stop a dozen with more than 50,000 residents) and more at the border, and Mexico’s recently adopted energy border crossings than any other section of the border. reform opens the possibility of private investment to facilitate the development of its numerous prospective shale plays in northeastern Mexico, particularly in the Sabinas and Burgos basins.

Lastly but of enormous importance, much of this The investment that led to such a boom in region is being transformed by the development of production in Texas and might occur in northeastern unconventional energy resources, particularly shale Mexico has numerous positive economic oil and gas. In Texas, the Eagle Ford Formation has consequences, including job creation, infrastructure quickly become the site of extensive drilling and development, and increased tax revenue. There are production, creating immense economic also (sometimes unexpected) challenges as a result opportunities but also some important challenges. of such quick growth in the energy industry. North In Mexico’s federal congress, where secondary American Development Bank Managing Director legislation to implement its historic energy reform Geronimo Gutiérrez emphasized that large-scale was being considered as this forum took place, new investment from U.S.-based oil and gas companies opportunities to develop shale resources are likely was not automatic but instead dependent upon these to emerge within the next few years. The states of companies’ capacity to expand their large and Tamaulipas, Nuevo León and Coahuila have many of complex operations beyond the Eagle Ford into the nation’s largest prospective shale plays, making Mexico’s shale gas areas. Nevertheless, there are discussion of the potential opportunities and challenges associated with taking advantage of the challenges timely. opportunities associated with energy production and addressing the associated challenges and risks. A Energy front page article in the New York Times the day Despite the sensitivity of the issue, Mexico and the prior to the conference highlighted that energy- United States have a long history of cooperation on driven economic development was not benefiting all energy issues. The recent agreement on the citizens in the region equally. development of hydrocarbon resources in the Gulf of

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Stakeholders pointed to three key ways to customers in both nations are on the line when maximize benefits and mitigate risks of border wait times become long and unpredictable. energy development in the region: The use of just-in-time supply chain management by industry and the extreme sensitivity of some goods • Workforce Development: In order for local (such as produce) to wait times add to the communities to take advantage of the importance of border efficiency. opportunities that energy production provides, it is essential to build human capital. Industry, To make the border more competitive for universities, and local government must all come commerce, stakeholders suggested: together to increase educational opportunities and improve workforce development. • Extending dedicated and separated trusted • Infrastructure Investment: Given the growth of traveler and trusted shipper lanes as far back as energy production in the region, opportunities to traffic extends on a busy day. This is particularly export beyond the Texas-Mexico region will be important and needed at the World Trade available if the right port and pipeline Bridge, and has the potential to both greatly infrastructure is in place. Similarly, given reduce wait times for trusted shippers and to current differences between U.S. and Mexican eventually increase enrollment (and therefore energy costs, refining infrastructure, and other border security) in C-TPAT and FAST. factors, energy and electricity trade offer benefits • Stakeholders expressed a strong belief that for both nations. However, additional cross- greater infrastructure investment is needed to border infrastructure—pipelines and build the transportation and border crossings interconnects—is needed to boost trade. needed to facilitate an ever-increasing quantity • Community Involvement: Growth in the energy of U.S.-Mexico trade. In Laredo, 464,000 more industry creates jobs, but it also puts stresses on trucks cross the border today than in 2009. sometimes scarce natural resources, such as Further growth is anticipated. water. The increased demand for certain skill • To build the infrastructure, federal sets can also raise costs for non-energy appropriations will likely need to be industries and local governments. All of these supplemented with capital from local challenges are best managed through ongoing governments and the private sector. There are communication and collaboration between already successful examples of such projects in industry and local communities. Related to this operation, but new legislative frameworks may is the possible need for revenue sharing among facilitate additional opportunities for public different levels of government to address local private partnerships. effects of energy development. This is • Stakeholders viewed the Border Master Plan particularly important in Mexico given the process as both useful and in need of overall tax structure. improvements, noting a desire for greater private sector involvement in the planning Facilitating Trade and Travel process and speedier delivery of prioritized More than half of all U.S.-Mexico trade crosses the projects. Specific projects mentioned were the South Texas-Mexico border, making modern commercialization of the Donna bridge and the infrastructure and the efficient management of the construction of an additional port of entry at region’s ports of entry vital to the regional economy. Laredo. Additionally, several of the border cities and towns • Some observers suggested that new port of entry in this area depend greatly on the movement of facilities be created in conjunction with free and people for purposes of shopping, study or visiting secure trade zones, which could allow for greater family to sustain their communities. The impact, labor mobility, improved security at however, extends far beyond the border. The manufacturing plants, and decreased tax and competitive edge of manufacturers and the paperwork burdens for some products, advantageous consumer goods prices enjoyed by depending on their destination. 3

with the state of Texas, Mexico only ranks third Travel and the Local Economy. Though the U.S.- behind India and China in terms of the number of Mexico relationship is in many ways managed from students studying in Texas. Expanding bilateral the capitals of Washington and Mexico City, the trade offers an opportunity for expanding heart of the relationship on the ground is at the educational exchange which in turn should help to border, and particularly at the ports-of-entry where expand commercial opportunities in the future. people from the United States and Mexico exchange Daniel Rodriguez of the U.S. Commercial Service goods, ideas and culture. Unfortunately, the border reminded the attendees that U.S. export service crossings and the area surrounding them do not assistance includes student recruitment; educational always project the image of a vibrant, neighborly services to international students is considered an relationship that exists between twin cities along the export. border. As Congressman Henry Cuellar pointed out in his opening remarks, there are issues with how Workforce development opportunities border crossers are treated at ports of entry. pointed out by stakeholders on the issue of Stakeholders suggested that in terms of architecture workforce development included the and overall management, the ports-of-entry and the following: retail spaces that often surround them could be • Workforce development must occur together in a made more welcoming and user-friendly. Of course, cross-border fashion. Short-term solutions the crossings also serve a vital law enforcement include components such as increased academic function, but there is a sense in border communities exchanges and development of emergency that there still remains ample opportunity to responders for the fast growing energy sector. improve the border crossers’ experience while • Workforce development can integrate whole maintaining operational integrity. Beyond the industries. For example, Texas A&M official crossings, cities and economic development International University is creating a Latino organizations should consider revitalization Leadership Institute and an International programs focused on the retail and community Petroleum Institute to facilitate energy spaces close to the border. development. Education and Workforce Development * Christopher Wilson is Senior Associate at the Educational exchange between the United States Mexico Institute of the Woodrow Wilson International Center for Scholars. Erik Lee is and Mexico is a challenge for universities in both Executive Director of the North American Research countries. While border states like Texas do tend to Partnership. Rick Van Schoik is the Portfolio host more Mexican university students than their Director, Energy and Environment of the North counterparts in the interior, boosting numbers of American Research Partnership. Ruth Soberanes of international students remains a challenge for them the North American Research Partnership also as well. Despite its shared history and long border contributed to this report.

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