Offshore assembly industry
Although the term maquiladora or maquila is often used interchangeably with export assembly firm, it refers to a company operating under a very specific tax regime initiated by the Mexican government in 1969, and it is applicable to only one type of export production first established in communities near the U.S.-Mexico border. The official definition of the maquiladora regime defines it as “temporary importation of goods necessary for the transformation, elaboration, or repair of products destined to be exported, without taxes [being levied] on these temporary imports” (de la O 2002, p. 200).
In September 1942, Mexico and the United States agreed to the Bracero Program in an attempt to alleviate wartime U.S. labor shortages in agriculture and other areas. Approximately 5 million Mexican men participated in this guest worker (bracero) program until it ended in 1964. With the mechanization of agriculture in the United States and the decrease in demand for Mexican labor, the Mexican government began planning alternate sources of employment. During a 1964 tour of the Far East, Minister of Industry and Commerce Campos Salas was introduced to the notion of export production zones. He envisioned this as an alternative for Mexico’s economic development.
In December 1964, the United States unilaterally canceled the Bracero Program. As many as two hundred thousand braceros, comprising 40 to 50 percent of the border population, found themselves without jobs, leading to a buildup of social unrest. In response, the Mexican government inaugurated the Border Industrialization Program (BIP), later known as the Maquiladora Program. The purpose of the BIP was to promote export-led industrialization in northern Mexico, encouraging foreign investment in Mexican maquiladoras. Corollary objectives included the creation of employment and increasing the income of the border population to foment a stronger local economy. The pillars of the BIP were proximity to the United States; use of favorable articles of the U.S. Tariff Code, which permits firms to import goods manufactured abroad with U.S. components to reenter the United States, paying duty only on the value-added, cheap labor; and a Mexican government friendly to investors. Campos Salas was quoted in the Wall Street Journal (on May 25, 1976) as saying, “Our idea is to offer free enterprise an alternative to Hong Kong, Japan, and Puerto Rico” (Bustamante 1983, p. 233). This translated into tax incentives for foreign firms, lax enforcement of environmental laws, and a blind eye to the breaking of labor laws.
Initially, maquiladora enterprises were allowed to settle in a 20-kilometer strip along the Mexican border. After four years, however, Mexican government officials were disappointed with the results. Two important objectives of the program had been: (1) having foreign firms make use of Mexican products and firms (known as linkages with the local economy), and (2) the transfer of technology and know-how to Mexican managers and firms. Neither goal was being met. In addition, maquiladoras experienced high turnover rates, as workers frequently changed jobs, seeking incentives and bonuses to complement low wages. As a result, in 1972, the Mexican government expanded the zone to include all of Mexico. To encourage further growth, the Mexican government provided additional incentives to foreign firms, including lowering the minimum wage in the interior of the country, easing the ability of foreign firms to form joint ventures with Mexican corporations, and, after 1983, granting maquiladoras the opportunity to sell up to 40 percent of their products in Mexico.
At the beginning of the BIP, United States companies trickled across the border. By the late 1970s, however, transnational corporations had taken over the border economy. Since the 1980s, maquiladoras have been the engine driving the Mexican economy, providing more than 1,200,000 jobs.
Most scholars of Mexican development agree that the Maquiladora Program has progressed through four stages or generations. Jorge Carrillo, Alfredo Hualde, and Cirila Quintero Ramírez denote these as the stages of inception, growth, consolidation, and crisis. During the inception stage (1965–1982), the border region truly operated as an industrial enclave. Under the program’s special directives, products were assembled solely for export. The rest of the country was ruled by import-substitution industrialization, which levied high tariffs to discourage imports and promoted production for the national market.
Most of the firms that participated in the program’s first stage were labor-intensive operations seeking cheap labor. However, the jobs created did not go to the male agricultural workers laid off in 1964 by the termination of the Bracero Program. Managers preferred to hire young women, creating a labor force segregated by age and sex. In 1974, 80 percent of the maquiladora labor force was female. Younger women, between the ages of sixteen and twenty-four, were more likely to work in electronics assembly, while older women tended to work in the lower paying textile and garment industry (see Fernández-Kelly 1983).
Women were the cheapest source of labor available, and they were thus the preferred workers in Mexico (as they had been in the export processing zones of East Asia). Lower wages were justified through the “feminization” of assembly work. That is, assembly was designated as “unskilled” work, and women workers were held to have traditionally feminine skills (such as knowing how to sew and embroider), which were considered useful for such employment. Managers construed women as being “docile, undemanding, nimble-fingered, and uninterested in participating in unions” (Sklair 1993, pp. 171–172). Crucial in this framing was employers’ desire that women not demand higher wages. Moreover, although high percentages of women were the primary or sole providers for their families, they were paid lower wages than their male counterparts. Maquiladora management treated women as secondary and supplemental earners deserving of lower wages.
The second stage of growth (1983–1994) was marked by changes in three main areas: (1) There was a shift to export-oriented industrialization, (2) there was an increased participation of men in the labor force, and (3) there was a movement of firms toward the interior of Mexico. Mexico’s inability to pay its foreign debt in 1982 signaled the end of import-substitution industrialization and the opening of Mexican markets to foreign goods and production. Export production was promoted as a crucial means of earning needed foreign exchange to pay the debt and fulfilling International Monetary Fund (IMF) loan deferment agreements. The Maquiladora Program blossomed, assisted by changes in regulations—such as the ability to sell 40 percent of production within the newly opened Mexican markets and the devaluation of the peso. With the devaluation of the peso, foreign companies’ dollars stretched further, while national firms, who earned pesos, struggled to compete as inputs, wages, and overhead costs increased overnight.
The ensuing economic crisis resulted in increased unemployment. Under these conditions, men’s participation in the maquiladora labor force increased from 20 to 40 percent. This change did not signal an improvement in working conditions, but rather the precariousness of workers’ situation. There was, however, a continued gender segregation of employment. A significant number of the new firms that settled in Mexico during this second stage were capital-intensive automobile and auto-parts maquiladoras. Because this was considered skilled work, men were preferred to women. These transplants, mostly from the United States, used a combination of old machinery, new computerized equipment, and selective implementation of flexible production techniques, such as teamwork, Just-in-Time (JIT) production, and Total Quality Management (TQM). However, they differed from the U.S. auto industry in a number of key ways. In particular, the selective adoption of work innovations was combined with low wages and heavy control of workers. Lastly, responding to high turnover rates and wages in the border region, there was a slight shift of firms to the interior of Mexico.
The third stage of consolidation (1995–2000) followed Mexico’s signing of the North American Free Trade Agreement (NAFTA). Important changes in this stage included a strengthening of the Maquiladora Program, the rise of the “third generation maquila,” and the geographical segmentation of firms. In effect, NAFTA regulations closely followed the Maquiladora Program tax regime, thus increasing the number of national and foreign firms taking advantage of these terms. Yet because of this similarity, the Maquiladora Program was slated to end in the year 2001. This would have ended the most important advantage of the maquiladoras, a 4 percent tax exemption on wages. In the end, however, the program was extended until 2007 due to the political clout of its lobby association. The future of the program continues to be debated at the highest levels of government.
NAFTA allowed U.S. and Canadian companies to move greater portions of their production processes (not only assembly, as previously allowed) to Mexico. In the garment industry, for example, this meant that design, cut, laundry, and trim operations could move south. New regulations also translated into a large number of Asian and some European firms moving to Mexico in order to take advantage of the all-important U.S. market. The number of firms joining the Maquiladora Program was also greatly enhanced by the devaluation of the peso that followed the signing of NAFTA, which cut wages again. However, wages in maquiladoras were now compared to those in East Asia, among the lowest in the world, and not those of the interior of the country.
The consolidation of maquiladoras was also related to geographical segmentation. Participation and competition in international markets drew more firms to Mexico based on low wages and geographical proximity to United States. Thus, the more labor-intensive firms seeking the lowest wages and costs of production (such as garments, footwear, and toy production) moved south, with the more capital-intensive sectors (electronic, automobile, and auto parts) remaining in the north of Mexico.
In the stage of consolidation, third-generation maquilas grew—those that moved beyond assembly to become highly productive, innovative, world-class firms. While most scholars agree these third-generation maquilas exist, there is great debate as to how widespread and complete the process of industrial upgrading has been. On the one hand, there has been enhanced participation of Mexican engineers and technicians, a crucial element of organizational learning. However, organizational innovations have occurred in only a few large automobile and auto-parts firms. Moreover, these innovations continue to be implemented selectively and in conjunction with low wages, worker control, and union marginalization, instead of the high wages and worker autonomy envisioned in the management philosophies. The result has been a hybrid system of greater productivity through the intensification of work. The majority of maquiladoras remain laborintensive assemblers with a strong gender division of labor and little possibility for promotion.
The last stage in the development of the Maquiladora Program (2001–2006) was marked by the crisis brought about by the 2001 U.S. recession. Over 80 percent of Mexican production was destined for the U.S. market, so the U.S. recession sent shock waves throughout Mexico. All types of production facilities, including the important maquiladora industrial sector, saw a sharp decline in output and revenues. Many firms either shut down or moved to lower-wage countries, such those in East Asia and Central America, leaving the maquiladora sector in crisis.
In evaluating the performance of the Maquiladora Program, it is evident that the goal of development has not been completely fulfilled. The articulation of the local economy (through raw materials, components, and services) to maquiladora export production has been minimal with less than 3 percent of product components being from Mexico (see Carrillo, Hualde, and Quintero Ramírez 2005). Other than in the small number of third-generation maquilas, it is impossible to speak of technology transfer per se, but rather of technology relocation, since most of the technology used in maquiladoras is obsolete. However, in a smaller number of companies where advanced technology is used, the number of Mexican technicians and skilled workers has increased.
Not only has the Maquiladora Program not solved the problem of male unemployment caused by the termination of the Bracero Program, it has accentuated it. Women have been drawn to the border region by employment in the maquiladoras, while men have remained mostly unemployed. Border infrastructure has been pressed to the maximum, as cities and towns have spread into the countryside without public services. Moreover, maquiladoras have routinely disposed of toxic waste by either dumping it into public canals that pass through worker communities or by abandoning drums of waste in the desert. One study found that 60 percent of maquilas did not return toxic wastes to the United States, as required by maquiladora regulations (see León Islas 2004). While the program did create an economic boom, with the maquiladora industry bringing in the secondlargest amount of revenue for Mexico after oil, it has also exacerbated social inequalities and created ecological disasters along much of the border.
SEE ALSO Borders; Corporations; Gender; Labor; North American Free Trade Agreement; Technology, Transfer of
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Carrillo, Jorge, Alfredo Hualde, and Cirila Quintero Ramírez. 2005. Recorrido por la historia de las maquiladoras en Mexico. Comercio Exterior 55 (1): 30–42.
De la O, María Eugenia. 2002. La flexibilidad inflexible: estudios de caso de plantas maquiladoras electrónicas en el norte de México. Papeles de Población July–September (33): 200–221.
Fernández-Kelly, María Patricia. 1983. For We Are Sold, I and My People: Women and Industry in Mexico’s Frontier. Albany: State University of New York Press.
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Nancy Plankey Videla
Maquiladoras is the term used for foreign assembly plants, particularly in Mexico, but also in Central America and the Dominican Republic. These plants play an important role in the process of globalization and are usually located in countries with relatively low labor costs. Typically, components and other manufacturing inputs produced by capitalintensive processes in industrialized countries are assembled in labor-intensive processes in developing countries, then reexported to markets throughout the world. These assembly plants are often located in free trade zones (FTZs), export-processing zones (EPZs), or bonded facilities in industrial parks.
ORIGINS AND TERMS
Assembly plants in Mexico that rely on imported components operate under the Maquiladora Decree, which governs both the Maquiladora Program and the Programa de Importación Temporal para la Exportación program (PITEX; Temporary Import Program for Exportation). Under the Maquiladora Decree, machinery, components, and supplies are imported duty free as long as the assembled articles are exported. Until November 2006, maquiladoras were exempt from certain taxes that were applicable to companies that manufactured goods strictly for the domestic market in Mexico. Prior to the entry into force of the North American Free Trade Agreement (NAFTA) in 1994, no duty was applied to the value of U.S.-made components contained in articles imported from assembly plants in Mexico. However, under NAFTA all goods from Mexico are imported free of duty, provided the articles meet NAFTA's rules of origin requirements.
The Maquiladora Program was established in Mexico in 1965 to encourage investment in manufacturing operations along its northern border. A key objective was to create jobs for agricultural workers displaced by termination of the Bracero Program in the United States at the end of 1964. The government of Mexico was concerned that the lack of job opportunities for the newly unemployed bracero workers, many of whom had families that had resettled in Mexico's northern border cities, would lead to political instability in the region.
Confined to Mexico's northern border until 1972, the maquiladora industry grew slowly until the Mexican economic crisis of the early 1980s, when the devaluation of the Mexican peso made the cost of Mexican labor inexpensive in dollar terms and competitive with labor costs in other parts of the developing world. Initially, all assembled goods had to be exported, but by 1994 maquiladoras were permitted to sell up to 50 percent of their production in the Mexican market, and in 2001 all maquiladora products could be sold throughout Mexico. By 1993 the maquiladora industry included more than 2,000 plants and nearly one-half million employees; by the end of 2000, the industry employed 1.3 million workers in 3,700 plants, and 60 percent of these facilities were in the border area. Maquiladora plants produce electronic articles, motors and generators, engines and other auto parts, appliances, apparel, and furniture.
The PITEX Program was established in 1985 to give assembly plants producing motor vehicles, auto parts, and computers for both the Mexican and U.S. markets tax incentives comparable to those for the maquiladora plants. Unlike the Maquiladora Program prior to 1994, there were no restrictions on where PITEX operations could be located or the portion of a company's production that could be sold in the domestic market. Differences between the programs became so subtle that the November 2006 Maquildora Decree merged PITEX with the Maquiladora Program. In 2004 companies operating under the Maquiladora Decree accounted for 82 percent of Mexico's total exports to the United States, with maquiladoras accounting for two-thirds of that total and PITEX companies the remaining one-third.
The maquiladora industry has attracted controversy. Critics claim that maquiladoras export large numbers of jobs from the United States, that they cause severe pollution problems in Mexican and U.S. border cities, that they exploit the largely female workforce, and that they are not integrated with the Mexican economy. Furthermore, critics say that maquiladoras have caused infrastructure shortages in border cities, that they close operations and leave the country at the first sign of labor difficulties, and that they have not produced significant transfers of technology. Proponents of the Maquiladora Program point to the stability of most firms in the industry, the job creation in the stagnant Mexican economy, improved environmental management systems, the growing capitalintensive nature of maquiladoras, increased training and transfers of technology (including managerial skills), high levels of worker satisfaction, and the generation of foreign exchange as benefits of the industry. Opponents of NAFTA, including U.S. labor unions and their supporters, focused on the maquiladora industry in their attacks on the treaty and on globalization.
NAFTA AND A U.S. RECESSION
Implementation of NAFTA began January 1, 1994, and gradually many of the special privileges enjoyed by maquiladoras were extended through programs such as PITEX to all firms manufacturing in Mexico. The transition from the special protections provided by the Mexican maquiladora regulations to the more open NAFTA regime was not handled smoothly by the Mexican government. This created uncertainty and the perception of risk during the time that the U.S. economy was in a recession, from 2001 to 2002. During that period, U.S. producers lost U.S. market share to imports from Asia or shifted production from North America to suppliers in China and elsewhere in Asia. The U.S. recession and global restructuring had a significant effect on the maquiladora industry. Employment in the maquiladora industry fell by 250,000 workers during the U.S. recession, with plants assembling computer equipment, telecommunications equipment, and apparel taking the hardest hits. Only by early 2007 had employment in the maquiladora industry recovered to near the employment figures of the year 2000.
Since 1965 the maquiladora industry has evolved away from primarily low-technology, labor-intensive assembly operations to more sophisticated, capitalintensive undertakings requiring a more skilled workforce and employing more technical personnel and engineers. By 2007, electrical equipment for industrial customers, aircraft and automotive parts, and large-screen televisions dominated the product mix, with apparel, consumer electronics (except televisions), and furniture on the decline. Assembly in Mexico continues to be an important component of the strategies for many North American industries to remain competitive with imports from Asia, particularly for products with high transportation costs, whose customers demand just-in-time deliveries, that are subject to frequent style changes or short production runs, and for which protection of intellectual property is important.
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maquiladoras (mäkē´lädō´räs), Mexican assembly plants that manufacture finished goods for export to the United States. The maquiladoras are generally owned by non-Mexican corporations. They take advantage of plentiful lower-cost Mexican labor, advantageous tariff regulations (lessened somewhat as a result of the North American Free Trade Agreement), and close proximity to U.S. markets to produce such items as home appliances and automobiles. Starting on a small scale in the mid-1960s, the maquiladoras were initially almost entirely located in the N border region of Mexico. They grew dramatically after Mexico substantially revised its economic regulations concerning foreign investment in the early 1980s. From 1983 to 1990, the maquiladora industry grew at approximately 20% annually, and it grew even more sharply with the U.S. economic boom in the late 1990s; it is one of Mexico's primary sources of foreign exchange. The maquiladoras stimulated rapid population migration to the border region, particularly at its eastern and western extremities (Matamoros/Brownsville and Tijuana/San Diego). After 2000 the number of plants and workers they employed declined; in 2002 some 3,600 plants employed approximately 960,000 workers. Beginning in the late 1990s an increasing number of the plants were located in the Mexican heartland, and many plants now use automation extensively.