NYT

February 15, 2001

Profits Raise Pressures on U.S.-Owned
Factories in Mexican Border Zone (Part II)

Part I

By SAM DILLON

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.

Oscar Chavez Diaz, a factory worker,
eating dinner inside his home, a
converted bus.

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.

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.

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.

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

"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.