Maquila Development. The Maquila Process

Some less developed countries have attempted an alternative approach to industrial development. While the newly industrializing countries have focused on the production of consumer goods for export markets using local capital, other countries have encouraged transnational production by inducing foreign-owned corporations to build assembly plants and other low-wage factories within their borders. This type of venture is known as a maquila operation. A maquila factory is foreign-owned, but the labor force is local.

The border between the United States and Mexico is the longest between a developed and a less developed country in the world. Thousands of Mexicans annually cross the border in search of jobs in American industry and agriculture. Although many are illegal immigrants seeking to earn higher wages, others are legally admitted and provide southern California, Arizona, and Texas with a large blue-collar labor force. Not only do such workers earn wages in the United States, but they pay American income taxes and spend much of their incomes in the United States. Thus, the movement of Mexican workers across the international boundary deprives the Mexican economy of a substantial portion of their earning power.

In response to this situation, the Mexican government has long afforded its northern states along the border favored economic treatment. As early as the 1860s, it established a zona libre, or free-trade zone, consisting of a strip of territory twelve miles wide along the American border (Figure 8-15). In 1965, a Border Industrial Program was established to promote industrialization in the northern states, reduce unemployment, and stem the flow of migrants to the United States.

Figure 8-15 The Maquila Process. For many years. Mexican government policy has encouraged the development of American industry in Mexico, particularly in the area near the international boundary between the two countries. The border zone has been established as a zona libre. or free-trade zone. Wages in the zona libre are substantially higher than elsewhere in Mexico, although lower than across the border in the United States

Within the free-trade zone, goods could be imported free of duties for assembling or manufacturing and then exported. In addition, Mexican policy required higher minimum wages for workers in the free-trade zone than elsewhere in the country. Today, the free-trade-zone minimum wage is nearly three times that of places in southern Mexico.

Mexico's maintenance of its free-trade zone has been welcomed by American-owned companies faced with increasing European and Japanese competition. It has provided a ready pool of cheaper labor than could be obtained within the United States. By 1988 nearly 1.400 maquila plants, employing nearly 370.000 workers, were operating in Mexico. The vast majority of these plants are located in the northern border cities, with different cities producing for different markets. The bulk of Tijuana's products are sold in California, whereas most of those from Nuevo Laredo and Ciudad Juarez are shipped to cities in the eastern part of the United States (Figure 8-16).

Figure 8-16 Trade from Maquila Plants in Northern Mexico. Most maquila plants produce goods for sale in the United States, but different cities of origin produce for different markets. In general, Mexican-made goods sold in the eastern United States come from cities south of the Rio Grande, whereas the Tijuana area supplies many of the goods sold in California

Many workers in maquila operations perform light assembly work in the production of textiles, toys, motor vehicle parts, and electronics components. The labor force for the most part is female because women are more willing to work for lower wages and are less likely than men to join labor unions or go on strike for improved working conditions.

Proponents of maquila operations suggest that this means of industrial development is in tune with the reality of Mexico's position in the Western-dominated global economy and that it capitalizes on the geographic position of Mexico relative to the United States. As Ions as Mexico is dependent on the United States, supporters argue, it ought to derive what benefits it can from its close proximity to its powerful neighbor. The maquila factories keep Mexican laborers and their wages in Mexico and enable wage rates within Mexico to be raised. Although the recent signing of a free-trade agreement between Mexico and the United States will have the effect of extending the zona libre throughout Mexico, the northern states will remain the most profitable locations for many firms because of their relative proximity to lucrative American markets.

Critics of maquila development respond by pointing out that its benefits are offset by the fact it reinforces Mexico's status as a dependent, branch-plant economy. Moreover, they recognize that changes in American demand for textiles, electronic components, and other products manufactured in maquila industries are likely to affect conditions in Mexico. Thus, reduced demands for products made in Mexico for consumption in the United States may result in the closing of Mexican plants and the idling of Mexican labor.

Other critics of maquila development note that American-owned factories in Mexico may be largely responsible for the heavy environmental pollution affecting both sides of the border. The unchecked production of industrial wastes may contribute to health problems by exposing workers to toxic substances and contaminating local soils and water supplies. The pollution problem is compounded by the fact that American corporations owning maquila factories in Mexico can sidestep U.S. environmental protection regulations. Recently, Mexico has toughened its traditionally weak environmental laws, but the government so far has not enforced them.