PROFMEX-Consorcio Mundial para la Investigación sobre México

V. ECONOMIC INTERACTIONS IN THE ARIZONA-SONORA REGION: INTERDEPENDENCY, COMPLEMENTARITY AND INTEGRATION

5. Border Infrastructure and Transport System: The Commercial and Industrial Corridor Guaymas-Tucson

Borderlines in North America have witnessesed a progressive and silent integration that has preceded and gone beyond the Nafta agreements between Mexico-USA and Canada. In this region, markets have been able to work their way toward integration, trade, and manufacturing complementarity, but have shown weaknesses when it comes to labor market integration between Mexico and USA, where institutional agreements have not yet developed and where increased border clashes have cont ributed to a climate of anti migration policy in the USA. There are thus market forces and incomplete institutional agreements working toward integration, but other forces are opposed to the process and could hamper it. The tug between these opposing tren ds is defining the timetable of integration in the borderline between Mexico and USA. Whithin this framework, not all border states are integrating at the same pace, and the region comprised by the southwest of the United States and the northwest o f Mexico is where regional integration is accelerating the most.

Our research focus is on the Arizona-Sonora region, where the forces toward integration have been stronger than in the rest of the border. The regional dynamics are characterized by the operation of different types of markets: goods, se rvices, labour, and capital. Economic growth has been above national level in Sonora and has opened the door to integration, reducing the income gap at a more rapid pace than elesewhere on the border. There are different factors, beyond the economic, tha t have increased the interdependence and linkages between Sonora and Arizona, supporting the emergence of a binational region:

1. Nature of Integration The analysis of the integrative process between Arizona and Sonora must be approached from two perspectives: (1) functional (de facto) integration; and (2) formal integration. Both types of integration are complementary. The former, the oldest one, derives from the operation of the market, the performance of social actors, and the opening of the two economies. The latter is a product of deliberate agreements between the two federal governmen ts. Although an accurate delimitation of the Arizona-Sonora regional configuration represents a complex task, two geographical spheres or enclosures can be identified which are directly related to the types of integration: (1) the sphere which includes th e whole territory of both states, cosidered in the process of formal integration; and (2) a smaller geographical sphere but much more intense in terms of interchange flows- which is configurated from Sonora's Southern region up to th e Phoenix Metropolitan Area and is a result of functional integration.

During the last five years, cross-border trade has increased at significant rates, mainly impelled by the in-bond industry. Within this period, exports from Arizona to Mexico and from Sonora to the Unites States have quadruplied. From 1 987 to 1992, the traffic of commercial vehicles crossing from Mexico through Arizona-Sonora border ports of entry grew around 60%. Consequently, Arizona has become the third most important exporting state to Mexico, just after Texas and California.

With regard to the growing linkages in the Arizona-Sonora Region, it is estimated that 23,000 jobs in Arizona were supported by exports to Mexico, and almost 30% of those were created during the last five years (Tucson-Pima County FTCC, 1994). The relevance of the maquiladora activity is demonstrated by the fact that, at the national level, 24% of U.S. exports to Mexico and 45% of Mexico’s exports to the United States are related to the maquiladora program (Border Economy, 1994). In fact, the increasing integration of Arizona and Sonora manufacturing base has produced the configuration of cross-border maquila corridors. Around 50% of in-bond plants located in Sonora (of a total of 200) have their maquila cont racts in Arizona.

On the other hand, Nogales the main border port of entry in the Sonora-Arizona Region has developed as one of the world’s largest border crossings for horticultural and fruit products. Of all fruits and vegetables consumed in the United States and Canada during the winter cycle, 75% are imported through Nogales (SRI International, 1992). Most of this volume is provided by the states of Sonora and Sinaloa.

Arizona and Sonora began formal relations in 1959, through the Arizona-Mexico West Trade Commission. This Commission represents the origins of the current Arizona-Mexico Commission and its sister organization, the Arizo na-Sonora Commission. Up to early 1995, the Sonora-Arizona Commission was structured in twelve committees: Agriculture, Livestock, Foreign Trade, Industry and Maquila (which includes the subgroups of Major Industry and Maquila, Small Industry a nd Franchise, Infrastructure, and Services), Tourism, Banking and Finances, Communication and Media, Education, Arts and Culture, Health Services, Ecology and Environment, Law Affairs, and Sports.

The stated general objectives of this Commission are (Arizona-Sonora Commission, 1993): (1) to promote and bring about a closer relationship between the citizens of the states of Sonora and Arizona by fostering institutional and governmental relations, and through closer and more direct contact between the different sectors of both states; and, (2) to negotiate trade, scientific and technological interchanges; to improve the quality of education and health care services as well as to develop the productive activities in both states.

The Strategic Vision Project emerges from the commissions, which serve as a platform for its development. This move marks the beginning of the formalization of an ambitious project of broader integration between the two states. Formali zing the integration process through the Strategic Vision Project has required a strong change in emphasis and direction in the relationship between both states and the work of the Commissions. It is intended to go far beyond cultural and social ties and to strengthen economic, commercial and investment interactions. Thus, a reestructuring of the commissions’ committees has been suggested in order to make them a better fit to the new business emphasis, and to facilitate and adapt them to the structure of the Strategic Economic Development Vision for the Arizona-Sonora Region (SEDVASR) study components.

The proposal of accomplishing the SEDVASR is based on the recognition of the challenges imposed on the regional economies by the new conditions of global competition and technological change, as well as the potentialities offere d to both states by the North American Free Trade Agreement (NAFTA), and the increasing production integration of Mexico and the United States. Under this context, the region should be prepared to respond to the demands of the 21st century economy, in tim e for the so-called `Third Industrial Revolution', where microelectronics, robotics and informatics industries will dominate (SRI International, 1992).

The study’s central idea is to develop a joint strategic vision for the development of both states as a region, where complementarities and dynamic-competitive advantages can be enhanced and exploited, strengthening the region for comp etition in the world’s markets. Both states will benefit, particularly in terms of generating more productive jobs with better salaries which willl allow increases in living standards accross the region. The central objectives of the Strategic Vision Stu dy are as follows:

The proposal represents an innovative scheme in the subject of regional development strategies for the mentioned trends, among other factors, have forced the search for un-orthodox approaches to regional complementarity and competitiven ess in a context of increasing globalization of the economy. It represents a new strategy for binational regional planning, tending to conform to what Boisier (1994) calls a "virtual region": "Virtual region" is defined as the outcome of a contractual agreement (formal or not formal) between two or more regions ('pivotal' or 'associative'), aiming at achieving certain short and medium range objectives.

The process is nonetheless not smooth and the objectives are likewise not easy to achieve. Sonora and Arizona are immersed in very different economic, social and technological contexts, including dissimilar human and financial resources . The planning schemes and traditions are also quite different. The final impact of these on convergence is still to be determined. In this regard, it has recently been argued that current NAFTA-related initiatives, including SEDVASR, do not provide a suf ficient framework for border counties to reap the benefits of the economic integration process (Pavlakovich, 1995). Nevertheless, both state governments and social actors of the region expect that the opportunity and willingness of acting on a common obje ctive that generates regional synergy can produce some benefits to the population.

During the last two decades, the world economy has experienced deep changes, affecting both production and trade structures, as well as technological spheres. These changes have brought about a new competitive scenario for national and regional economies. In the case of the Sonora-Arizona region, there are three sets of factors impacting the development proccesses and these will continue to affect the future configuration of the region’s internal and external relations: (1) global trends, (2) country specific trends, and (3) those concerning Sonora and Arizona as a unique region.

During the last decade, Mexico has experienced an accelerated process of structural economic change, including its relations with the exterior. The main factors include the following:

Levels of production in the Sonora-Arizona region are still far apart. Per capita income in Sonora is around one third that of Arizona. But Sonoraís specialization trend in the last twenty years shows that the expected converg ence could take place in the next quarter of a century. In the last years Sonora’s traditional activities have been replaced by more value- added sectors. Agricultural activities have decreased while manufacturing, transportation and services have increas ed their share in overall production. Still the main differences lie in the big share that the agriculture sector has in Sonora’s economy, and in the comparatively low share of government services.

Manufacturing specialization in Sonora has centered on traditional industries, but is rapidly approaching a more modern pattern, today there is an almost equal share of durable and nondurable goods. A positive sign of a trend toward a m ore dynamic specialization is that in the last decade there has been a surge in the production of industrial machinery and equipment that has replaced traditional industries like food and kindred products, textile and apparel products, and the wood and fu rniture industry. In Arizona, durable goods represent three quarters of total production, while non-durables are only one quarter. Apart from the broad differences in durable goods, Arizona’s specialization is in the electric and electronic industries, w hile Sonora has relied on the automotive industry. The main difference in this sort of specialization is that in Arizona it is taking place on the basis of native technologies, while Sonora still relies on what may be called dependent technological stru ctures. However, one main development in the specialization process is that transnational corporations have induced a learning environment, which, if supported by policy, could lead to the emergence of a new industrial culture in the area, helping to fost er integration in the region.

One additional difference in the patterns of specialization is in the kind of services provided. In Arizona the pattern is toward high quality services, while in Sonora the services remain at a subsistence level. In this regard one ma in area to be analyzed is those government services which provide the basic infrastructure for businesses to develop and create the proper environment for innovation. This government agenda is in place in Arizona, but is lacking in Sonora due to a vari ety of factors, and it remains a problem to be addresed if a dynamic business environment is to be fostered.

This specialization has also brought associated changes in employment. In Sonora there has been an increase in employment in the manufacturing and services sectors, with their share increasing between 1980-1990 fro m 9.7 to 16.1 percent in manufacturing, and from 13.5 to 28.3 percent in service, providing jointly 44 percent of total employment in 1990. Arizona employment patterns remained almost constant during the period 1982-1992, with a small increase in the serv ices sector (hotel and other lodging places, personal services, repair services, auto repair, amusement and recreation services, health services, legal services, educational services, social services and memberships organizations, and other services) fro m 20 to 25 percent.

Productivity in both countries increased in the last ten years at different rates. In Arizona, overall manufacturing productivity increased 4 percent on average per annum, with a larger increase in durable goods (4.1 percent) and a litt le lower in the non-durable goods (3.9 percent). In Sonora the increase in productivity was more varied, the overall productivity increased 9.8 percent in average per annum, double than the Arizona average, with an increase of 17 percent in durable goods and 2.4 perecent in non -durable goods. If this dynamic is mantained it could be expected that standards of living will converge in the early 21st century.

An accurate estimation of intraregional trade patterns is very difficult due to existing limitations in data and technical measurements. For instance, there are a number of discrepancies caused by the manner in which the statistics are recorded along with the interpretations that have been made. The most aberrant aspects are: the overestimation of the export sector for political reasons; distortions in total exports produced by the maquiladora industry; intra-industry trade betw een transnational corporations; and differences in the management and presentation of data by various institutions.

Sonora and Arizona share a 361 mile sector of the international border between the United States and Mexico. Together, they comprise an area of 185,403 square miles and around 5.5 million people according to 1990 data. Compared to the whole NAFTA trade area, the Arizona-Sonora Region represents 2.5 percent of total area and 1.5 percent of population (Table 1). The Region as a whole exported 9,187.1 million dollars to the world in 1993, representing 1.4 percent of NAFTA countries ' total exports. The Arizona-Sonora Region also accounted for 1.5 percent of Intra-NAFTA exports. The Region seems to have an export share of total NAFTA exports on the order of its proportion to the total NAFTA population.

Export figures for Sonora and Arizona during the last decade show an outstanding positive trend. In fact, the region’s export sector has become the economy’s dynamo. On the other hand, although both states have experienced a conside rable shift in the composition of their exports, this is more dramatic in Sonora. It seems that changes in Sonora’s economic structure produced a radical change in its structure and pattern af trade. Official statistics report that in 1980 exports were on ly 151 million dollars, reaching over 200 million in 1986. By 1987 Sonora exported 410 million dollars, doubling this value by 1988 (Table 2). The main factor behind this export surge was the starting of operations at Ford’s assembly and stamping plant at Hermosillo, a joint-venture with Mazda. The export-oriented plant, the most modern and automated Ford plant of its type at that time, had an annual production capacity of 140,000 cars, upgraded to 170,000 in 1989. Starting from 1990, maquiladora exports are included in Sonora’s official statistics. That year, exports reach 2,445 million dollars, 46% related to in-bond operations. From 1990 to 1995 the value of exports has doubled up to 5,306 million dollars. Based on this year’s figures, Sonora accounts for around 7% of total national exports. Almost the whole of these exports go to the U.S. market, through inter-firm or subcontracting mechanisms.

There has been a radical change in the export structure as well. Whereas during the eighties primary products overwhelmingly dominated Sonora’s exports (agriculture, livestock, fishing and mining), since 1988 the leaders are mostly man ufactured goods. In particular, electric and electronic products, metal, mechanics, textiles, autoparts, and health products linked to the maquila industry, as well as motor vehicles. Together, between the maquila and automotive sectors, they account for about 80 to 85% of total exports since 1990. Based on this fact, and considering the type of export transaction, only around 20% of Sonora’s exports classify as "definitive"(goods of Mexican origin produced to be consumed abroad).

In a way similar to Sonora’s, Arizona has developed a dynamic export sector. With a total of 2,999.0 million dollars in 1987, exports grew to 4,769.4 and 8,528.4 million dollars by 1990 and 1994, respectively. In that period, Arizona al most trippled its total export value. Regarding trade flows to Mexico, their share has ranged between 18 to 28% of the total. Although between 1987 and 1991 Arizona’s total exports grew at a faster rate than exports to Mexico, from 1991 to 1994 the trend was reversed. In those three years exports to Mexico increased almost 150% (Table 3). In fact, by 1992 Arizona had become the third largest exporter state to Mexico within the United States, behind Texas and California.

In terms of export composition, manufacturing goods had the larger share, accounting for about 94% of total exports. This pattern is very similar to Mexicoís where manufacturing products constituted 96.8% of total exports. Expres sed in dollars, the following stand out in 1994: transport equipment (24.2%), electric & electronic equipment (19%), fabricated metal products (12.6%), and computers & industrial machinery (11.3%).

In the period 1987-1994 Arizona’s composition of exports to Mexico has remained virtually unchanged. Thus, while in 1987 the main manufacturing products were electric & electronic equipment (39.1%) and industrial machinery & co mputers (24.8%) with more than two thirds of combined total exports to Mexico, by 1994 transportation equipment (with almost 20% of total exports), fabricated metal products, primary metal industries, rubber & plastic products, paper products, as well as textile and apparel products had gained in importance. This changing pattern might be linked to the evolving structure and demands of the in-bond industry and other export-oriented activities on the Mexican side.

Table 4 sumarizes the size of intra-regional trade in the Arizona-Sonora Region. The picture depicted is highly suggestive: the trade patterns of Sonora and Arizona, in terms of export destination, are completely divergent. Whil e Arizona exports to Mexico only about a third of its total exports, 75% of this is traded with Sonora. Conversely, almost 100% of Sonora’s total exports go to the United States, with exports to Arizona constituting only one third of the total.

Based on these figures, Sonora may be said to represent the main destination for Arizona’s exports to Mexico. Most come from of the operation of the maquiladora and automotive industries. The in-bond industry also constitutes the major trade link in Sonora’s exports to Arizona, although for other goods Arizona works as a trade corridor. Nevertheless, the nature of modern production, in an integrated global manufacturing system, make the identification of product origin and destination a very difficult exercise. For instance, Sonora works as a corridor for the export of agricultural production of the neigbouring state of Sinaloa, much in the way Arizona does for the export of auto parts coming from the state of Michigan.

As pointed out in previous sections, during the last two decades the economy of Sonora experienced a substantive structural change in terms of its sectoral composition. this change was also reflected in its trade patterns. In the p rocess, Sonora’s economy has become more outwardly oriented, linking itself to international integration. Previously, international integration was not the adopted strategy, and Sonora was linked to the international market through primary products; with the new modality of international integration, Sonora now forms part of a global manufacturing system.

Table 5 shows the increasing tendency in Sonora towards international integration. Both indicators, exports/employed population and exports/state gross domestic product (SGDP), show a steady growing trend. For instance, while in 1980 th e proportion of exports in relation to SGDP was only 4.01, ten years later this index was 58.3 and 76.8 by 1994. Sonora’s role in Mexico’s external trade has also changed. By using a location quotient as a specialization index, the result suggests a stren gthening position of Sonora in Mexico’s external trade.

Sonora’s exports have shown a sustained growth since the mid eigthies, stimulated mainly by the expansion of the modern sector of the manufacturing industry. Between 1990 and 1995 alone, absolute variation in total export value of S onora reached 2,861 million dollars, of which nearly 80 per cent was provided by automotive and maquiladora industries. During that period the foreign trade balance of the state strengthened its superavit, reaching 1,671.3 million dollars in 1995.

The assessment of the possible impacts of NAFTA on Sonora’s foreign trade remains unfinished. Nevertheless, from a global perspective, it can be argued that given the positive trends in Sonora’s exports, they have been intensified by NA FTA. In addition, some indicators suggest that the signing of the agreement created a specially positive environment for foreign investment in the state, promoting new operations or the expansion of those already established.

Whithin this scenario, it can be assumed that the NAFTA induced trends will help Sonora exports, and there are some signs supporting this foresight. Assuming NAFTA had not been signed and that the evolution of Sonora’s total exports had persisted in its pre-NAFTA trend after 1993, exports would have been 15 percent lower by 1995. A similar analysis applies to Arizona, where eleven out of twenty manufacturing sectors experienced an increase in export value to Mexico in 1994, compared to the previous year (SEDVASR, 1996).

The export increase is assumed to be related to new investment, some of which is foreign and reached 89.6 million dollars in 1993, and then 77.5 million in 1994 (Table 7). Although the manufacturing industry absorbed most of the forei gn investment in the eighties, during the 1990s a sectoral diversification can be noticed: from 1991 to 1993, agriculture-livestock sector exports dominate; from 1992 to 1994, it is communal and social services (mainly hotels and restaurants); and in 1994 , trade, and particulary mining.

When analyzing the competitive nature of products exported by a territorial entity, from a wide conception of regional development, it is not enough to consider only the quantitative trend of those products. It is essential, therefo re, to examine the nature of competitiveness itself, that is, the particular type of insertion into international trade. These analytical elements are relevant because they are related to the basis of long term regional development, with more sustainabili ty and greater impact on social equity or quality of life.

With regard to international competitiveness, some studies of the Economic Comission for Latin American and the Caribbean (CEPAL) of the United Nations suggest taking seriously the concepts of "positioning" and "efficency " (CEPAL-ONUDI, 1991 and 1992). A state (or region) is badly positioned when it exports products of low relative dynamism in the market, and it is inefficient when such participation diminishes compared to that of other states or regions exporting to the same country or countries. When the above characteristics are combined, CEPAL-ONUDI distinguish four strategically different situations: a) favorable positioning and high efficiency (optimum); b) favorable positioning and low efficiency (lost opportu nities); c) unfavorable positioning and high efficency (vulnerability); and d) unfavorable positioning and low efficiency (withdrawal). According to CEPAL-ONUDI’s proposal, the incorporation of technical progress affects competitiveness, through both po sitioning and efficiency. Understanding efficiency, in terms of systemic and organizational capacities of production at levels that meet the world market demands (CEPAL-ONUDI, 1991:30).

Another characterization of competitiveness, related to the above four cases, is that which differentiates between systemic competitiveness and structural competitiveness. The first refers to the capacity of a sector or product in terms of obtaining a niche in world exports (even though this sector/product may be losing market share). The second is connected to structural nature of the group of exporting sectors in a state or region (specialization of the region in competitive sectors w hich are getting a niche at the global level). Systemic competitiveness has low sustainability, for it relies almost exclusively on price, cost, and exchange rate evolution. Structural competitiveness has high sustainability which, without neglecting the above factors, emphasizes aspects such as technological developments and productive specialization.

If this group of concepts is taken as an analytical framework and applied to the structure of Sonora's exports and its specific transactions, (definitive, temporary, maquilas and automotive industries) in order to asse ss their competitive nature, one obtains the following (from the 1994 data):

In sum, Sonora’s international insertion leads us to rethink the international competitiveness strategy implemented so far. We believe it should be pursued in order to get out of a systemic competitiveness to enter one of a structural and authentic character, offering sustainability for the long term. In CEPAL's view, competitiveness and international insertion, technical progress, and equity must receive an integrated treatment. Instead of founding competitiveness on geog raphical position, conjunctural advantages of fluctuations in the exchange rates, natural resources exploitation, and cheap labor, the deliberate incorporation and diffusion of technical progress should be actively looked for. Thus, without eliminating p rimary resource exports, a greater transformation of these products should be promoted, as well as programs directed to get greater local productive linkages in the maquiladora industry to raise the technological and workforce skill levels. On the other hand, in the case of vulnerable or lost opportunity products, a process of productive restructuring or reconversion should be undertaken which permits a reacomodation of the international markets, or the recovery of positions previously gained.

V. ECONOMIC INTERACTIONS IN THE ARIZONA-SONORA REGION: INTERDEPENDENCY, COMPLEMENTARITY AND INTEGRATION

The economic and social interactions between Sonora and Arizona are varied and present different degrees. Although these interactions have existed for a long time, their intensity and modalities have changed throughout the years. In thi s section a review of specific modalities of interdependency, complementarity and integration will be reviewed.

At present, the prime example of the integrative process between the US and Mexican economies is the maquiladora industry. It represents, undoubtedly, a lever in the internationalization of the Mexican economy. In terms of geogra phical location, Mexico’s Northern region concentrates around 80% of the 2,100 plants and 600,000 employees. By December 1994, with 181 establishments and more than 45,000 jobs, Sonora accounted for 8.8% of the number of plants and 7.7% of maquila employ ment nationally (Table 8). That year, in-bond activity generated 404 million dollars of added value (7% of the country’s total), and exports for 2,014 million dollars. After a period of stagnation in the early eighties, the number of plants almost triple d by the early nineties. Among the outstanding sectors are the electric & electronics (40.6% of operations), textiles (15.2%), automobile spare parts (7.6%), wood, paper & derivatives (5.6%), health products (5.6%) and metal mechanics (4.1%). Alth ough there has been an important geographical redistribution of maquila activity, most of it is concentrated in the border communities of Nogales (with around 35% of SonoraÕs total plants and employment), Agua Prieta, San Luis Rio Colorado, as well as in Hermosillo, the state capital.

The development of the maquiladora activity has been of great relevance for the Sonora economy; it has been responsible for the generation of half of SonoraÕs industrial jobs during the last 7 or 8 years, accounting for a round 60% of total manufacturing employment, and more than 40% of total exports at the present time. The maquiladoras represent the most important trade link between Sonora and Arizona. It has been estimated that in 1993 about 43% of all manufactu ring exports from Arizona to Mexico were related to in-bond activities (Pavlakovich, 1995). In a similar way, 40% of Sonora´s total exports is associated with this sector. According to both Mexican and US sources (SECOFI, 1995, Solunet, 1995), between 37 and 40% of maquila plants located in Sonora are linked to Arizona-based companies. In fact, this process has produced the configuration of a kind of cross-border maquila corridors (figure 1). These seem to be an extension of those for med within the Sonora territory, following a geographical pattern (west, center and/or east), depending on the location of the branch/parent company. The idea of the existence of corridors derives from the development of links related to movement of parts and components, transport services, the provision of technical assistance, and the commuting of administrative personnel among others.

The estimated impact of the in-bond facilities operating in Sonora related to Arizona-based companies is of considerable importance (SEDVASR, 1996): these operations employed about 40% of total employment generated in this activity (36, 000 jobs); contributed with 22% of total added value (263.1 million dollars); and bought around 23.5% of total Mexican inputs (8.1 million dollars) consumed by the whole in-bond industry in Sonora. Despite these interactions, it seems that the major linka ge factor between the maquiladora activity of Sonora and Arizona is of a commercial and service type, while technical-manufacturing integration is not yet fully developed.

Although the most important, in-bond activity is only one of the sectors of economic interdependence between Sonora and Arizona. According to 1993 figures, more than 24,000 jobs in the state of Arizona were dependent upon exports to Me xico (Pavlakovich, 1995). Of these 13,400 were found to be peso-sensitive; in other words, they were potentially at risk whenever the peso devaluated (Table 9). About 10,000 of the peso-sensitive jobs were in manufacturing industries, although they repres ented only about 5% of Arizona´s total manufacturing employment. The overall low sensitivity of Arizona´s manufacturing exports to peso fluctuations is the result of a combination of several factors (Pavlakovich, 1995: 14): (1) the largest volume of expor ts is from "less" peso-sensitive industries; (II) "most" peso-sensitive industries account for a relatively small number of jobs; and (III) exports to the maquila industry, which are not peso-sensitive, represent a significant portion of Arizona&O tilde;s exports to Mexico, and thus offset the overall negative impact.

Adjacent towns ("twin cities") on the Arizona-Sonora border have traditionally maintained a high degree of interdependence. As Lawrence Herzog (1990: xi) pointed out: "In the U.S.-Mexico case, the growth of border cities has generated more than increased population density at the boundary line; it has spawned a series of economic and functional circulation patterns between "twin" cities that appear to eclipse the traditional screening functions of boundaries."

In the Arizona-Sonora border this is of particular importance between Nogales, Sonora, and Nogales, Arizona; Agua Prieta, Sonora, and Douglas, Arizona; and San Luis Río Colorado, Sonora and San Luis, Arizona. For example, a study carried out in 1989 estimated that maquila employees in northern Sonora spent 34 million dollars in Arizona due to transborder outshopping (Pavlakovich, 1990: 8). According to this source, this income spreading into the U.S. communities can be t ranslated into more than 600 direct jobs in the retailing sector. A more recent study on the economic impact of Mexican visitors to Arizona indicated that, in 1991, a direct spending of 688.3 million dollars produced a total of 12,407 jobs and 142.9 mill ion in wages and salaries (Hopkins, 1992). More than 96% of visitors were Sonoran residents.

Similar studies on the economic impact of U.S. visitors to Sonora are not available. Nevertheless, some figures on the subject were recently announced. The Coordinator of the Arizona-Sonora Region Tourist Development Program informe d that during 1995 (January to November) Sonora received an economic inflow of six million dollars due to foreign-visitor spending. Around 86% of tourists came from the state of Arizona.

This process of increasing interdependence between the "twin" cities and opportunities for economic growth, however, have developed along with a risk of vulnerability caused by sudden economic changes of the respective national policie s. This is particularly relevant to the U.S. side, since it takes most of the benefits of the "asymmetrical complementarity" (Lara y Pavlakovich, 1991). Arizona border towns were hard hit during the periods of peso devaluations in 1976 and 1982, wh ich caused the collapse of local economic activity. The peso devaluations at the end of 1994 and beginning of 1995, and the economic crisis behind them, deeply affected the economy of the U.S. border towns, especially in activities such as commerce , retail, and services associated with them. It has been declared that by September 1995, about 32% of Nogales commercial establishments had closed down as a consequence of a 60% drop in sales.

Recently, interest in the service sector has been increasing, not only because of its contribution to the regional economy but also because of the possible impact the region's growth and the already operating NAFTA are having on the m. It is important to pay attention to services, particularly activities with greater export possibilites.

Among other specialized services, the transborder utilization of health care services, due to its magnitude, has been regarded as an activity of growing importance. Crossing the border for health care is considered a form of internation al trade (see Vogel, 1995:19), since both countries are importing and/or exporting this service.

In the Sonora-Arizona border area, demand for health care services is not a new phenomenom. In fact, there is evidence of binational flows of consumers for many decades, even since the 1850 years (Tinker:1988). What it is new is the tre nd toward the expansion and diversification of health care services trade as well as its markets in territorial terms on both sides of the border.

There are some interesting results from studies on cross-border utilization of health care services, which give insights on its magnitude in the Sonora-Arizona border area. The authors reported some of the main reasons for US residents utilization of health care in the Sonoran side of the border, including lower cost of service, quality of service, cultural identification, and geographical proximity.

Regarding Mexican residents seeking health care in the Arizonan side of the border, Nichols and colaborators (1991) surveyed in 1988 all health providers including doctors of medicine and osteopathy, dentists, nurs e practitioners, physician assistants and pharmacists practicing in the four Arizona counties in the border. A sample of Tucson health care providers was also included. Some of the main results of that survey are displayed in Table 1 0. 76.8% of the border respondents and 65% of Tucson respondents saw Mexican residents in their practices (at least one patient per week). The main health problems reported by border providers were injury and poisoning, diseases of the circulatory and dig estive systems, whereas Tucson providers reported digestive and circulatory diseases and conditions related to pregnancy and childbirth. Also, according to providers perceptions, Mexican residents seek their services because of superior quality of care, referrals, dissatisfaction with Mexican care, convenience, provider is Hispanic/speaks Spanish, care unavailable in Mexico, among other reasons. As Nichols points out (1994:638), US residents contribute more to Mexican health care providers' patient load than vice versa, when the proportion of the total number of patients seen in providers' practices is considered (see Table 11).

The results of these studies corroborate the growing importance of cross-border health care services, and there is no doubt regarding their expansion in the near future. However, the perspectives of growth in this type of services in th e medium and long term depend directly not only on the elimination of regulatory obstacles imposed by the US and Mexico, but significantly on their potential for international competitiveness. In this regard, in Sonora's case, all reviewed studies documen t some aspects, such as education and experience of providers, language (many Mexican providers are bilingual), costs (comparatively much lower than in the Arizona counterpart), the social-cultural pattern of the provider-consumer relationship (of great importance given that most US consumers are of Mexican origin), location of health-care providers (close to the border line) suggest competitive advantages.

On the other hand, with respect to the conditions of demand of health care services, these seem to be promising, both in terms of volume and intensity, as well as in their level of internationalization. Particularly, related to Mexico' s policy of trade openness, direct foreign investment, mainly from the US, takes the form of health-care services to the Mexican market.

Finally, it should be pointed out that, because barriers to trade in the health care sector are primarily regulatory and not tariff, NAFTA should have little effect upon present health care trade (Vogel:1995).

Other important form of interaction between Sonora and Arizona is the migratory process, particularly from the former to the latter. Sonoran migration contributes to the development of cultural, social and economic ties with Arizo na (Lozano and Casique, 1995).

Lozano and Casique (1995) have identified three migration patterns: (1) definitive or permanent, (II) temporary, and (III) transborder. As for 1990, a total of 140,469 Sonoran migrants to the United States were estimated. Of these, 83 % were permanent migrants, 14.7% temporary, and only 2.3% corresponded to transborder migrants or commuters (table 12). In the same year, around 35,000 Arizona residents were estimated to be born in Sonora, although this figure seems to be underestimated . Taking into account Sonora´s geographical proximity to the United States, in particular to Arizona which facilitates the use of informal mechanisms in the transfer of remittances , a total of 96.3 million doll ars were sent to Sonora (table 12).

The economic relevance of remittance transfers is not in doubt. Taking 1990 as a point of reference, the amount of remittances made by Sonoran migrants is considered equivalent to 2.3 % of SonoraÕs GDP, a third of mining GDP, an d around half that of livestock and fishing (Lozano and Casique, 1995: 83).

5. Border Infrastructure and Transport System: The Commercial and Industrial Corridor Guaymas-Tucson

The Guaymas-Tucson Commercial and Industrial Corridor is one of the binational projects that could strengthen the complementarity and competitiveness of Sonora and Arizona conceived of a single economic region. By taking advantage of t he position of the port of Guaymas, Sonora could seek the attraction of investment in diverse economic activities along the corridor; Arizona, besides gaining access to the Pacific Rim, it could exploit the possibilities of the north-south corridor called "CANAMEX" (Canada-United States-Mexico) brought about by NAFTA.

Some studies have pointed out that the port of Guaymas represents an alternative to Los Angeles/Long Beach (Interport, n.d.). According to this source, 70% of the shipments that arrive at ports located on the west coast have an east coa st bound final destination. Most of this cargo is transported by the southern railroad via Arizona. Interport argues that this gives an advantage to the port of Guaymas as an alternative freight point, since it produces a saving of 350 kilometers and a re duction of U.S. 350.00 per container or an average of 22% of the total cost of transportation alone. Another mentioned factor is the reduction on tariff fees, since California ports charge about double than any other port in the United States.

Guaymas is the natural Pacific gateway for the region´s products. It can be transformed into a linkage point for trade and manufacturing processes between Mexico, the United States and the Pacific Rim, including the South American mark ets (Chile, for instance). Greater integration of Guaymas with the Pacific Rim would not only allow the port to serve as a point of entry and a sender of trade flows toward the North American market, but could also function as an export site for goods bei ng shipped from the United States as well as products originating in MexicoÕs northern and northeastern regions. The vision of a corridor between Guaymas and Tucson goes far beyond its role as a transport and communication channel. It is al so conceived as a platform for the location of manufacturing, commercial and service industries. However, this initiative requires a more integrated regional development program, supported by substantial capital inflows and infrastructure investments.

Sonora-Arizona integration has been advancing at the market level at a more rapid pace than expected. Institutional agreements between the state governments are enabling a framework for further integration. The region could become a test case in North America that could push other border states within NAFTA to call for a discussion forum in which to reach institutional agreements. Dialogue is the first step toward integration, and this region’s joint commissions have been able to s et a new framework for conducting interregional dialogue. Still, institutional mechanisms have to be worked out in order to get further crossborder collaboration, which at this time is more formal than practical. But it is also true that the process wi ll not only rely on regional forces, but on the outcome of agreements at The Federal Government level which are sometimes delayed due to regional and reactionary forces unaware of the transition toward a one market economy in North America. Regions co uld lead the process but they must be linked to what is happening at the national level. Further research is required to clear out what variables could accelerate the trend toward integration. In a short period, the achievments have been spectacular, but we are still a long way from homogenization in living standards. If the nineties trends continue, it is expected that in the first quarter of the XXIst century living standards could be more homogeneous.

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