Business Booming While Rest of Nation Suffers Slump : Border Plants Give Boost to Mexican Economy
In a country where unemployment is rife, this city just over the Rio Grande River from El Paso, Tex., suffers from a labor shortage.
The employment boom is due to an explosion in the number of assembly plants set up here by American companies taking advantage of Mexico’s $1.30-an-hour wage rates and low energy costs to make products to send back to the United States.
About three-fourths of Juarez’s work force of 266,000 are either directly or indirectly supported by more than 180 maquiladora plants in this city, the fourth-largest in Mexico. (The name comes from the Spanish word maquila, which is the amount of grain paid to the miller to grind the corn.)
The maquiladora program allows American companies to own plants on this side of the border without Mexican partners, as required elsewhere in the country; to equip them with American machinery, and to bring in supplies from the United States to be worked on here.
Both the supplies and equipment stay here “in bond” under Mexico’s protectionist import restrictions, and only limited amounts can be sold in the Mexican market.
The plants specialize in labor-intensive assembly processes for products that largely are returned to the United States, and U.S. customs charges duty only on the value that was added by the Mexican operation.
Thus, General Motors sends its wiring harnesses--the strands of wires that connect a car’s electrical system to the battery--to be assembled by Mexican women in factories here. These assembled strands of wires and plugs are then shipped north to GM factories in Michigan.
The maquiladora plants employ more than 80,000 Mexicans, twice as many as four years ago, with a payroll of more than $160 million a year. As many as 130,000 other Mexicans work here to support the manufacturing operations, which produced an estimated $10 billion in goods that moved across the river from Juarez to El Paso last year.
The maquiladoras, which are strung along Mexico’s 2,000-mile border with the United States, are seen by the government of President Miguel de la Madrid as the salvation for this country’s sagging economy, which has been buffeted by high debt and plunging oil prices.
Besides jobs, the plants provide an influx of American technology and capital as well as help Mexicans seeking a better life who otherwise would join the stream of illegal immigrants coming to the United States.
The border industries have become Mexico’s second-largest source of foreign exchange, far behind oil but surpassing tourism for the first time last year, when they brought $1.8 billion in hard currency into the country.
The Mexicans see the border strip as a potential rival to the high-growth states of Southeast Asia, with U.S. companies locating nearby to produce goods both for the American market and other countries. On a recent trip to Mexico, Sen. Lloyd Bentsen (D-Tex.) praised a change in attitude toward foreign investment and trade on the part of the Mexican government and applauded this new spirit of cooperation as a benefit to both countries.
Closer to Home
“It doesn’t make any sense for U.S. companies to be going to Taiwan or to South Korea,” he told reporters in his home town of McAllen, Tex., a border city where the International Trade Commission held the first of a series of hearings earlier this month on the trade impact on the economies on both sides of the Rio Grande.
“The wage scale on the Mexican side is competitive with that,” Bentsen said. “We have an infrastructure here that complements the other side.”
That’s good for America, he said, because “whatever is done that helps one side spills over to the other side” of the border, which, north of the Rio Grande, is a strip that lags in development and suffers from some of the higher unemployment rates in the United States.
Among the U.S. beneficiaries is El Paso, one of the faster-growing cities in Texas, which is located just across the 50-foot-wide river from here.
Cecilia M. Lang of the First City National Bank of El Paso estimated that the Mexican plants generated $300 million for the El Paso economy last year and said that amount would triple during the next 15 years.
Jonathan W. Rogers, El Paso’s mayor, added that the 80,000 manufacturing workers in Juarez directly support 5,000 mostly white-collar jobs in his city.
“With 24,000 people out of work, I am concerned about jobs for El Paso,” he said at an ITC hearing.
Unions Oppose Plants
The major opposition to the maquiladoras comes from organized labor, which sees them as a management tool for exporting jobs overseas.
“By moving across the border to take advantage of low wage rates, companies left thousands of Americans unemployed,” said Antonio Sanchez, manager of the El Paso joint board of the Amalgamated Clothing & Textile Workers Union. “I wonder if that is good for the country and for the economy, or only for the companies who profit from it.”
But American supporters of the maquiladora concept counter that the U.S. jobs would have gone offshore anyway, probably to Asia. “If they come to Mexico instead of the Far East, at least there will be some jobs in the United States. So it’s not a total loss,” said Al Cisneros, general manager of the port of Brownsville, the Texas city more than 800 miles to the east of El Paso.
For every 10 maquiladora jobs in Mexico, two are created in the United States, said J. Michael Patrick, director of the Center for Entrepreneurship at Pan American University in Edinburg, Tex.
Texas Profits, Too
He estimated that Texas gains an annual payroll of at least $53.6 million as a result of the plants in Mexico, but other jobs spill far north from the border to plants that manufacture capital equipment and other made-in-America supplies for the maquiladoras.
William L. Mitchell, a U.S. promoter of maquiladoras here, estimated that 108,575 U.S. workers from 5,714 companies in 44 states supported factories located here.
The maquiladora program started 20 years ago, but exploded in the past few years with the devaluation of the peso, which further lowered labor costs to American companies operating in Mexico.
Trico Products Corp. just moved a windshield-wiper assembly operation to Matamoros, Mexico, across from Brownsville, because of the wage differential--$15 an hour in Buffalo, N.Y., versus $1.30 here.
Johnson & Johnson sews surgical gowns here but sterilizes them in El Paso. And RCA assembles color television sets in Mexican factories from tubes and chassis shipped from the United States.
“The Mexican-American border is a new Ruhr waiting to be developed,” said Cisneros, a prime booster. He cites Mexican labor rates, which he says are lower than those in the “Four Tigers” of Southeast Asia--South Korea, Hong Kong, Taiwan and Singapore--and $5.20-an-hour wage rates on the American side of the Rio Grande, which is far lower than the national average of $13.09.
“U.S. companies don’t have to go across the Pacific,” said Cisneros. “They just have to go across the Rio Grande.
Expects More Jobs
“We feel the border-industries program is going to create jobs on both sides of the border. Together we are compatible, we help each other. Alone, we can’t stand up,” he added.
The border strip between Texas and Mexico, from the twin cities of El Paso and Juarez on the west to Brownsville and Matamoros near the Gulf of Mexico on the east, form a distinct economic and social entity, different from the rest of the United States and Mexico.
Many Mexican children cross legally or illegally to go to school on the U.S. side. Mexican women also try to cross over so their children will be born in American hospitals, which has prompted El Paso County Judge Pat O’Rourke to send a bill for $10 million to President Reagan for social and hospital services the county supplied last year to Mexican aliens.
Pan American University’s Patrick called the U.S. side of the border “undeveloped” compared with the rest of Texas, with an average per-capita income that is 40% below the rest of the state. “Poor health, low educational achievement and limited job opportunities characterize the region,” he said.
The answer, according to border economists and politicians, is more growth for Mexico’s maquiladoras.
Shifting Trade Policy
That program also fits with the new trade and investment policies of the de la Madrid government, which appear to have shifted to a far more liberal direction.