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NAFTIA* & Maquilas
Van V. Millerpresented at
Central Michigan University9 February 05
*Nafta = Naptha
Operating Concepts in Maquilas
• Profits = Revenues – Costs
• Revenues can be from sales or set.
• Costs are: – Production (labor + materials) – Transaction (tariffs + transportation +
taxes)
A NAFTIA GOAL
Preamble-
“Create new employment opportunities and improve working conditions and living standards in their respective territories”
This Goal Is about Economic Development in Mexico
In 2003,Canada $29,740Mexico $8,950USA $37,500
World Bank data for GNI per capita on a PPP basis
Mexican Maquiladora Program
Past year-• 2800+ Plants• 1.15 million Employees
This week-
Number of Plants 2,815
Employment 1,140,153
Direct Labor Wage $ 1.88-Hour
Technicians Wage $ 5.19-Hour
Gross Production $ 91.64 billion(www.maquilaportal.com)
Major Maquiladora Cities
• Tijuana—most plants, approximately 750
• Juarez—most employees, maybe 300,000
U.S. Trade Act of 1931
• Free Trade Zones (FTZ) An FTZ is a legal-geographical entity for reducing
tariffs
• Tijuana (on the border)
• Costs– Production (unskilled labor)– Transaction (tariffs + transportation)
Bracero Program 1942-1964
• Migration to the U.S.
• U.S. Costs– Production ( unskilled labor)
PRONAF 1961
• Mexican Border Operations
• Mexican Profits = Sales Revenues - Costs
“PRONAF”/BIP (FTZ) 1965-1982
• U.S. Operations on the Mexican Border
• Mexican Costs– Production (unskilled labor)– Transaction (tariffs + transportation +
taxes)
• 1971—Reduction of Ownership Risk
First Generation Maquila(located along the border)
Materials Components
Labor
A
Twin-Plant/Maquila (FTZ) 1983-1994
• Foreign Operations in Mexico
• Mexican Costs– Production (labor: un- & semi-)– Transaction (tariffs + transportation +
taxes)
Second Generation Maquila(spreading into the country)
Labor Materials
A M
Materials Components
NAFTA Ending the Maquiladora Program
• There is no need for an FTZ in an FTA.
Maquila (TLC) 1994-2000
• Maquiladora Operations in Mexico
• Mexican Costs– Production (labor: un- & semi- & skilled)– Transaction (tariffs + transportation +
taxes)
• Elimination of Ownership Risk
Third Generation Maquila(located around the country)
M DEA
Materials Components
Materials Labor
Components
“Maquila” 2001-2007-Permanent
• Economic Development Need Continues• Vertical Relationships in Mexico• Sales Revenues from Mexican Customers• Future Costs
• Materials—more sought from Mexican suppliers• Labor—increasing skills but the P/$ to Yuan/$ FX
rate matters• Transportation— improving and JIT possible• Tariffs—not an issue• Taxes—now ‘determined’
Current and Future Issues
• Gaining and Losing Industries
• Labor
• NAFTA Side Accords and Reporting– The politics of getting the Agreement ratified in the USA required
two side agreements—one on labor and the other on the environment. These two issues are always contentious (note the pending CAFTA) and should be remembered because they can strike at the heart of NAFTA’s legitimacy.
Gaining and Losing Industries(automotive, electronics & electrical, textile/apparel
• NAFTA caused trade diversion, esp., in textile and apparel with fiber-forward rule. The industry will be a big loser in most cases if MFA stays abolished.
• In other industries, the tension is between the labor rates (Mexico vs. others) and the transportation factor (cost & delivery of Mexico vs. others).
• The motor vehicle industry should be a gainer and electronics & electrical will depend on the nature of the product, e.g. big screen TVs.
The Labor Issue
• Turnover—a study of eight maquiladora cities in northern Mexico.
Wages and Turnover
The Relationship between Turnover and Compensation in Lower-Generation Maquilas
Starting Wage Wage Change Average Wage
High Low High Low High Low
Turnover High 7 9 5 11 7 9
Rate Low 10 3 7 6 9 4
Hildebrand’s .32 at p < .03 .22 at p < .11 .25 at p < .08
del
Generation and Wages
The Relationship between Turnover and Generations in Maquilas
Turnover Rate N
First Generation 65% 12
Second Generation 65% 16
Third Generation 48% 5
‘True’ Third Generation 11%* 3
*Significant at p<.01
The Environmental Issue
• A study of the Top 25 Maquilas– www.maquilaportal.com
NAFTA Side Accords and Reporting
Types of Voluntary Reporting Statements for the Top 25 TNC Maquilas
Policies Codes Performance
• Labor 3+(6 safety only) 1 0
• Environment 7 11 3
• Quality 6 18 NA
Northern Maquiladora Cities
• Along the Mexico-Texas Border– Matamoros– Reynosa– Nuevo Laredo– Piedras Negras– Ciudad Acuna– Ciudad Juarez