TIJUANA, Mexico — One year ago, Mexico’s president flew to Tijuana to announce his Border Economic Plan.
The plan was designed to promote growth along the country’s northern border by lowering taxes, increasing the minimum wage and pegging gasoline prices to those of neighboring U.S. cities.
“It’s going to be the biggest free zone in the world,” President Andres Manuel Lopez Obrador said in January 2019 as he unveiled the plan. “It is a very important project for winning investment, creating jobs and taking advantage of the economic strength of the United States.”
But local business leaders say the program has fallen shy of its intended goals.
At Margaritas, an empty bar near the border in Tijuana, manager Moy Maymontes said it is hard to measure the impact of what he called a “well-intended program.”
He said a recent spike in violence in the area is keeping Americans at home. Tourists make up at least 70% of his restaurant guests, he said.
“With all due respect, an 8% cut to the tax on the bill is not going to make up for me losing 50% of my clientele because they’re afraid to come to Tijuana,” Maymontes said.
Tijuana Secretary of Economic Development Arturo Perez Behr said what was important about the designation of the so-called zona fronteriza plan is that it recognized the border region as unique, which he said is especially true of the Cali-Baja region.
“In culture, in people, in culinary arts, in medical tourism — we’re practically the medical tourism capital of the world — and in innovation, it’s all unique to this area of Baja California and particularly to Tijuana,” said Behr.
The zone encompasses all of Tijuana, as well as Ensenada, Mexicali, Rosarito and Tecate, plus 38 other municipalities, spread along six Mexican border states.
One aim of the stimulus measures was to put more money into the pockets of people who work and live in the zone to encourage them to spend more in the border region. At the same time, the plan was also intended to keep Mexican nationals rooted at home so that “migration is an option but not obligatory,” said Lopez Obrador, who has been under pressure from President Donald Trump to reduce northbound migration.
Implemented at the beginning of 2019, the plan lowered the value-added taxes, which are the country’s main indirect taxes, from the national rate of 16% to 8% along the border. Known as VAT’s, the taxes are similar to sales taxes and are imposed on goods and services.
It also decreased income and corporate taxes from 30% to 20% — a move aimed at stimulating national and foreign investment. In addition, the minimum wage increased to 176 pesos a day, or just over $9.
Backers of the initiative had pledged to match gasoline prices in border cities with those in neighboring U.S. communities along the border, but that measure has been abandoned, according to local business leaders.
A year later, there has been no official written agreement with Pemex, Mexico’s struggling state oil company, to lower prices in Baja California, and the state Legislature recently increased gasoline taxes by 2.5 percent.
Regional business leaders had successfully lobbied for the designation, but a year later, they say, at best, it has only spurred moderate economic growth.
“We haven’t gotten there yet,” said Aram Hodoyan, the president of Tijuana’s Economic Development Council.
Hodoyan said he and other regional business leaders remain cautiously optimistic despite the slow progress in the first year.
“We have been doing more things than we expected in one year,” he said, specifically pointing to the border region’s new lower sales tax and lower import duties, or taxes placed on goods being imported into the country.
Hodoyan said the initial impact of the reduction in the sales tax was “very noticeable” in the first months of 2019 with an initial sales increase in Baja California of about 8% or 9 percent. However, that early spike stabilized throughout the year.
Without greater reductions to the cost of importing goods, the changes had little overall impact on smaller business owners in Baja California, he said.
Jason M-B Wells, the CEO of the San Ysidro Chamber of Commerce, agreed.
“It’s safe to say at a street level in Baja California those changes have had zero impact either way,” said Wells.
Last March, Lopez Obrador relaxed some of the strict regulations to the Border Economic Plan, allowing more businesses to participate, and he extended the deadline for companies to apply for tax incentives.
Prior to that, less than 1% of the companies in Baja California actually qualified, according to business leaders. Before, companies had to not be enrolled in any other tax relief programs offered by the federal government. Also, real estate and rental companies were previously excluded.
“The benefits didn’t trickle all the way down to the Average Joe, which for San Ysidro is very important because the more money people have in Tijuana, the more they spend in San Ysidro,” Wells said.
Historically, the border region had benefited from special measures designed to make it more competitive with U.S. communities. But some of those programs had been rolled back in the years before Lopez Obrador’s election, negatively impacting the local business community, said influential businessman Pedro Romero Torres-Torija.
“The economy is growing, just not as fast as we expected,” said Romero Torres-Torija, who is serving as the economic czar to Lopez Obrador.
“There are more investments coming. We have several other companies that want to establish their business here in the border region,” he said, adding that Mexican national leaders expect growth to intensify because of the new trade agreement between the United States, Canada and Mexico.
He said, in the meantime, Mexican federal officials are exploring other measures to boost growth.
“We’re training in technology and innovation, and exploring new measures to make it easier to go through the border, and to make it easier to import and export merchandise,” he said.
Hodoyan said it is difficult to tell whether the small growth in the border region can be attributed to the reduction in value-added taxes or whether it’s a domino effect of growth in the U.S. economy.
“Maybe 40% of what we’re seeing now is because of the VAT’s and things being done better in Mexico,” said Hodoyan. “And, probably 60 percent, at least here at the border, we can attribute to the growth of the U.S. economy.”
