Maquiladoras

What role does maquiladora play in the development of a country? Why is this
phenomenon seen as a new phase in capitalist development? Is this a reasonable
claim? The role that the maquila plays in the development of a country is an
interesting topic to discuss. To understand the role that maquiladoras play, one
must first gain an understanding of the original purpose of the maquila. Then,
by studying the evolution of the maquiladora to a big manufacturing base, one
may have a better understanding of how this type of firm may lead to the
development of the host country. In the first section, I will discuss the
origination and development of the maquiladoras. In section two, I will provide
the opinions of some economists and their insights as to how the maquiladora has
affected developing countries. The third section deals with capitalism and how
maquiladoras play a role in the development of a capitalist economy. In section
four, I will discuss my opinions on the arguments that I have presented. The
final section will include some concluding remarks. Now, let us familiarize
ourselves with the maquiladora. The word maquiladora is derived from the
Spanish verb maquilar, which means to mill wheat into flour. Farmers would
mill wheat into portions and then give a portion to the miller; this portion was
called a maquila. As time passed, the word maquila became associated with
manufacturing, assembly and packaging processes that were carried out by someone
that was not the original manufacturer. In todays economic world, the word
maquiladora stands for a special type of company in Mexico (Maquila
Overview 1). The component that makes the maquiladora different from any other
manufacturing plant is that they are allowed to import raw materials, equipment,
and parts needed for assembly, and export the finished good to the United States
on a duty free basis (Maquilas 1). The first maquiladoras were built in 1966 in
Baja California and Cuidad Juarez (United States firms established with the
support of the Mexican government). The Border Industrialization Program created
these companies in order to channel the abundant labor source in the border
areas of Mexico and the United States free trade zone (Maquila Overview 1). The
original purpose of the maquiladoras was to employ all the unemployed people who
resided on the Mexican side of the border and also to increase Mexican exports.

The United States saw these companies as a chance to take advantage of the cheap
cost of labor, the lack of Mexican labor and environmental rules and
regulations, and few duties (Maquilas 1). The United States tariff schedules
allow for the assembly of United States-made goods outside of the country and
then, the return of the final product to the United States with duty only paid
on the value added to the good. There are two sections under the tariff
schedules that allow for industrial operations under the maquiladora program:
Item # 9802.00.60 and 9802.00.80 (were 806.3 and 807.0) that states that the
value of components made in the United States are not subject to duty when
further processed or assembled abroad and returned to the United States. Item #
9802.00.60 deals with metal processing Item#9802.00.80 deals with assembly
(Alvarez 1). Now, maquiladoras are not only located on the border of Mexico and
the United States, but all over the country. The maquiladora can now sell a
portion of the goods produced in the domestic market on payment of import duties
and taxes on the imported materials (Maquila Overview 1). The maquila industry
would not be here today without foreign investment. Many foreign companies in
the United States, Japan, and Canada have taken advantage of cheap Mexican labor
and the location of the Export Processing Zones and built manufacturing
companies in Mexico. These companies are usually fully owned by foreign
investors. These companies are probably the most successful part of Mexicos
economy. The growth of this industry has been steadily increasing over the
years, generating more foreign exchange than oil or tourism (Maquila Overview
2). Overall, the maquiladora industry seems to be a good way to increase
productivity, employ the unemployed and create incentive for foreign investment.

However, varying opinions exist among economists and some see the maquila
industry as problematic, and ultimately hindering to the overall development of
the host country. Chapter 1, The Maquilas in Global Perspective states that the
reformation of capitalism marks the next step in the relations of dominant
powers with Third World Countries. Capitalism is the separation of economy and
state. It is the social system in which the means of production are privately
owned, and the economy is uncontrolled and unregulated, and all land is owned
privately. Capitalism is a political/economic system that recognizes each and
every person as an individual with individual rights (Capitalism 1). The author
of chapter 1 argues that with the reformation of capitalism on a global scale
with help the Third World countries achieve substantial development that will
help their people live better lives. Since the status of industrial countries
were not achieved in the third world, they made goals for themselves that proved
to be inefficient. The Third World mainly exported raw materials. The big
industrial nations saw opportunity to invest in these countries and build
Maquilas in the export processing zones. The primary goal was to create jobs and
generate lots of foreign exchange. These goals were the benefits of the host
country. The United States, being a global economic leader, saw opportunity to
invest. The main goal of American Trade Policy is to have one world market
without any trade barriers, discriminations or subsidies. The maquilas and
foreign investment in the companies are the plans for the big economic leaders
to create development in the third world. Do these investments help or hurt
global capitalism? The maquilas role in the development of Mexico is being
seriously considered. Many argue that the existence of these production
zones does increase economic growth in that economic activity increases.

However, this growth is not necessarily development. The author of Chapter 1
argues that with capitalism comes opportunities to sustain development. He lists
6 factors that can determine the success of development: 1. Links: greater
backward links, raw materials, and greater forward links, goods to US shows
development 2. Keeping in foreign exchange 3. Upgrading of personnel 4.

Technology transfer 5. Good labor conditions 6. Fair distribution of costs and
benefits between foreign investors, population, and government. However, the
author argues that the strongest capitalist effects can be seen near the border
of Mexico and the US. Larison and Skidmore argue that the big nations will not
contribute foreign direct investment unless they see maximum profit. The main
objective of the Third World is to develop. Without the help from the industrial
nations, this development would never take place. I believe that the development
of the countries that host maqiladora factories are helped and hindered by these
companies. Even though the industrialized countries claim to be capitalist and
respect each individual, they are exploiting the Mexican people. The investors
are taking advantage of the cheap labor and the laz labor and environmental laws
in Mexico. They are essentially going back on their word and taking advantage of
the Mexican people. The United States also would like to see all boarders open
and free to trade. However, since Mexico is still not fully developed and still
maintains a strong sense of Nationalism, they may need to keep some
projectionist policies in place. Essentially, the Unites States is using Mexico
as a middle-man. They are doing the hard part of the work, and we are
enjoying their hard work and paying half the price that it would cost to produce
these goods in the states. I think that everything has its limits and that the
United States cannot fully call its intentions capitalistic until it changes its
ways. The establishment of the Maquiladora industry by United States and other
countries was initially a good idea. What the Mexicans did not realize was that
the United States saw an opportunity to take full advantage of their people and
laws. Even though many more Mexicans have jobs as maquila workers, they are
making close to nothing and being exploited. I think the system on which we run
is totally one-way, with only our best interest in mind. The development of the
Mexican maquila industry has definitely flourished, but then why has the economy
stayed the same? The economy in Mexico is still stagnated and not considered a
fully developed economy like that of the United States. The growth of the
maquilas has stopped productivity by domestic producers. I think this industry
has not helped the development of the country as much as it might be able to in
the future if some policy reforms are made.


Bibliography
Alvarez, J. (2000). The Maquiladora.
(4-23-00) Larison, Thomas D. (1997). International Political Economy. New York:
Harcourt Brace College Publishers. Chapter 1, The Maquilas in Global
Perspective. Maquilas/Export Processing Zones. (2000).
Maquila Overview. (2000)
Economics

About the author