Mexico Faces Free Trade With High Hopes and Skepticism

At closing time in Tijuana’s “Industrial City” east of downtown, the streets fill with young workers, mostly teen-age women, departing from jobs in foreign-owned assembly plants known as maquiladoras.

The spotless paved streets and the rows of factories--housing high-tech manufacturing giants such as Sanyo, Matsushita and Casio--belong to a well-oiled industrial metropolis that employs 70,000 people in more than 500 plants in this border city.

But, in the distance, the ramshackle homes of factory workers cover the hillsides and serve as a reminder that low wages are the lifeblood of this bustling border economy.

“I hardly earn enough to help my family with the rent, after paying for food and the bus,” said Maria, 16, who had just finished a shift at a U.S.-owned refrigerator-parts plant where she earns $45 for working a 48-hour week.

With the U.S. House and Senate this week approving legislation to facilitate the Bush Administration’s free-trade negotiations with Mexico, attention has focused on Mexico’s fast-growing maquiladora industry, which manufactures myriad products--from televisions to computers and jeans to toys--for export back to the United States.

There is growing sentiment here that a free-trade pact could transform Mexico into “one big maquiladora. “

Many politicians, government officials and business leaders in Mexico view the U.S.-dominated maquiladora industry on the border as a kind of free-trade prototype for a vast economic expansion, fueled by domestic labor and U.S., Japanese and other foreign capital.

“The maquiladora industry will have to transform itself into a more of a complete business unit, with marketing and sales branches,” said Oscar Martinez, a Mexican citizen and a Sony executive here, who is president of the city’s maquiladora association. “It will happen slowly, but I think there will be a lot of opportunity.”

In the San Diego-Tijuana area and other border “twin cities,” the surge of transnational development clusters--dubbed “mini-Hong Kongs”--has become a source of civic pride and, for some, economic prosperity.

“If we didn’t have maquiladoras here, it would still be the same old Tijuana, based on cheap tourism and the service industry,” said Martinez, who has risen through the industry ranks. “Now we have a lot more going for us.”

Although U.S. labor unions, environmentalists and others have raised a red flag about unbridled maquiladora- style expansion, opposition from environmentalists and the political left within Mexico has failed to pick up steam.

However, some economic experts and political analysts south of the border remain skeptical about the long-term value of transforming Mexico into what, they believe, would be a giant low-wage production site. In their view, maquiladoras do not offer a feasible economic model for this nation of 88 million people.

“I think more maquiladoras is the worst possible thing that could happen,” said Adolfo Aguilar Zinser, a researcher at the National University of Mexico, who has studied the issue and published his views in the U.S. and Mexican press.

Added Jorge G. Castaneda, a professor of international studies at the National Autonomous University of Mexico: “I think the maquiladoras are a lousy model for development.”

Among the critics’ principal concerns are:

--Low wages. Maquiladora executives say they pay most workers about $1.30 an hour, less than one-third of the legal California minimum wage but almost three times the legal minimum in Mexico. However, assembly-line employees say their net pay is closer to 80 cents an hour--hardly enough, they contend, to feed families in the expensive border region.

Some experts note that this may explain why border plant work forces consist mostly of women, and why men with families tend to seek jobs in the United States.

--The environment. Critics say the maquiladoras have a dismal history of environmental protection and worker safety. They say evidence of toxic chemical discharges from the plants has surfaced from San Diego on the Pacific to Matamoros near the Gulf of Mexico, threatening drinking water supplies.

Several studies have documented health threats to workers, particularly pregnant women, exposed to the glues, solvents, caustics, heavy metals and other substances widely used in the plants. The U.S. Environmental Protection Agency this week created a position in its office for international activities to monitor pollution from the border plants. Mexican regulatory agencies concede that they are woefully understaffed, despite stringent, U.S.-style laws on the books in Mexico City.

--Technological benefits. The expertise and technology used in the Mexican plants remain in foreign hands, critics say, with little prospect that they would become available to domestic companies.

--Larger benefits to the domestic economy. Critics say that the minimal use of Mexican-produced products and raw materials--less than 2% of all content consumed in the plants--does not offer economic benefits beyond the border region. They question how much punch the maquiladoras ultimately can provide for a poor economy like Mexico’s, which needs to turn out skilled workers and more technologically advanced products.

Worry has also been expressed that multinational corporations will simply move to sites in Asia should labor costs rise substantially in Mexico.

“There’s a delusion (in Mexico) that the United States is going to pay for Mexico’s economic development,” National University researcher Aguilar said. “But, in fact, the United States will maintain the higher-paid jobs and technology, and Mexico will specialize only in cheap labor.”

Concerns about the maquiladoras mirror broader worries in Mexico about free trade. Some argue that an agreement with the United States would damage established Mexican industry--from agriculture to manufacturing--by flooding the Mexican market with U.S. goods. Even the Mexican small farmer, once the very symbol of nationalism, could see his livelihood suffer at the hands of U.S. agribusiness, some critics say.

Leaders of Mexican industries and government officials insist that maquiladoras have had a positive impact on the Mexican economy, generating more than $3.5 billion in hard currency annually--second only to the nationalized petroleum industry, which is off limits to foreign ownership.

Under government guidelines, raw materials and equipment for the maquiladoras are transported into Mexico duty free. Finished products are later shipped to the United States, with fees paid only on the “value added” in Mexico.

Experts say that the open border for goods and capital envisioned in a free-trade pact would eliminate the preferential regulations that aid maquiladoras. But, far from damaging the industry, a trade agreement is expected to create a bonanza for expanding maquiladoras into Mexican markets that are now largely off limits to foreigners.

So far, the maquiladoras have been growing at a rapid pace, creating new jobs at a rate of nearly 20% a year over most of the last decade, according to government figures. Thanks to the maquiladoras, Tijuana has become one of the world’s largest television-manufacturing hubs, providing one-quarter of all sets purchased annually in the United States, according to one estimate.

The Mexican government initially agreed to create maquiladoras in 1965 with the intent of industrializing the border and providing work for laborers expected to be displaced by the termination of the bracero program, under which hundreds of thousands of agricultural workers migrated north as guest workers on U.S. farms and ranches.

During the 1970s, Mexican officials privately expressed their distaste for the maquiladora industry, which was derided in nationalist circles as a brazen exploitation of the nation’s workers. The assembly plants were tolerated as a kind of stopgap measure, but that view changed drastically after the collapse of the once-stable Mexico peso in 1982.

A heralded modernization started by former President Miguel de la Madrid in the early 1980s and accelerated by President Carlos Salinas de Gortari transformed Mexico from an insular economy--ever-suspicious of foreign intentions and all but impenetrable to overseas investors--into a willing solicitor of U.S. and other foreign capital.

TRADE TALKS OK’D: Senate approves “fast-track” Mexican trade talks. D1