Maquiladoras Essay, Research Paper

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 today?s 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 Mexico?s 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.

46e

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)