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Associated Press
Two women watch as police investigate the area where two men were killed in Ciudad Juarez, Mexico, in December.

Crime stems investments in Mexico

– Dozens of Mattel Inc. employees were on their way to another day of work making Power Wheels in Mexico’s industrial heartland when gunshots erupted around them and a grenade ripped into one of their buses, killing one worker and wounding five.

The battle between drug traffickers and the army near the city of Monterrey this month was the sort of violence that is frightening U.S. companies away from new investments south of the border, where organized criminals are increasingly turning to kidnappings, extortion and cargo thefts despite a government offensive against drug cartels.

“These acts of violence are not happening in a vacuum; they’re happening in the street that could be right out in front of your building. Bullets get shot and they have to stop somewhere,” said Dan Burges, a senior director at Freightwatch Inc., a cargo security firm in Austin.

As a result, only half of the U.S. firms surveyed recently by the U.S.-Mexico Chamber of Commerce said they would go ahead with new investment plans in Mexico and several companies, including Whirlpool Corp., have recently announced they would put new factories elsewhere citing concerns about safety.

More than 35,000 people have died in drug-related violence since President Felipe Calderon deployed thousands of federal security forces four years ago to fight traffickers. In recent months, nearly 400 bodies have been pulled from mass graves in the northern states of Tamaulipas and Durango. There are near-daily reports of drug-gang executions, kidnappings and extortion.

The army said the Mattel workers were apparently caught in crossfire on May 6 when attackers believed to be working for the Zetas cartel assaulted a military convoy with guns and a grenade launcher from a highway overpass on the outskirts of Monterrey.

“The people of Mattel were shocked and incredibly saddened” by the attack, the company said in a statement released by spokesman Jules Andres.

But battles between government and cartel forces are increasingly common, and companies and their workers are inevitably affected.

One out of 10 companies reported kidnappings and 60 percent said their employees were beaten or threatened in 2010, according to the U.S.-Mexico Chamber of Commerce.

And cargo thefts from trucks and trains are rampant and soaring.

Cargo thefts cost businesses about $700 million last year, a 40 percent increase over the past three years, according to the National Multimodal Transport Alliance.

Entire trailer-loads of new cars were stolen this year along major highways in the states of Tamaulipas, Nuevo Leon, Morelos and Sinaloa. Some truck drivers refuse to drive through dangerous areas including Ciudad Juarez, where officials say criminals typically extort about $70 to pass without harm.

Increasingly, cargo thieves are stealing selectively, things such as industrial chemicals or specially processed metals, at the request of specific clients, according to Mexico’s Freight and Auto Transport Association.

Businesses in Mexico factor in payments to organized crime syndicates as part of the cost of doing business. “It’s a well known practice that many Mexican producers and shippers pay a certain percentage so they can get their goods through parts of Mexico without having them ripped off,” said a senior U.S. official in Mexico, speaking on condition of anonymity because of security concerns.

Armed security escorts can now be seen rumbling en masse on Mexico’s northbound toll highways, some privately hired by corporations, others – as in Coahuila state – provided at no charge by the government. At the Panasonic plant in Tijuana, armed escorts stand by for daily deliveries, a 20-minute trip to the U.S. border.

So many steel rolls, steel plates, aluminum and copper have been stolen on the Monclova-Monterrey highway this year that some insurance companies are suspending insurance, according to Freightwatch. Despite the losses, most U.S. companies already operating in Mexico say they have no plans to leave a place with $3-an-hour labor, lax environmental standards, tax incentives and a location close to the U.S. market.

Indeed, every day more than $1 billion worth of imports and exports cross the border, fueling hundreds of thousands of U.S. and Mexican jobs. More than 18,000 U.S. companies have operations in Mexico, including most of the Fortune 500.

But those figures could be higher, says Gabriel Casillas, JPMorgan’s chief economist for Mexico. He estimates that drug cartel-related crime lost Mexico $4 billion in foreign direct investment in 2010.