What is a Maquila or a Maquiladora? Mexican Border Factories Employ Thousands and Account for a Great Share of Mexican Exports but At What Cost?

A quote in the previous LawPundit posting uses the term maquila (short for maquiladora).

Map of the maquiladora plants in Mexico from The Cutting Edge
The Wikipedia under maquiladora tell us that:

A maquiladora or maquila is a factory that imports materials and equipment on a duty-free and tariff-free basis for assembly or manufacturing and then re-exports the assembled product, usually back to the originating country. A maquila is also referred to as a “twin plant”, or “in-bond” industry. Nearly half a million Mexicans are employed in maquiladoras.

The term “maquiladora”, in the Spanish language, refers to the practice of millers charging a “maquila”, or “miller’s portion” for processing other people’s grain….

During the later half of the sixties, maquiladora industries rapidly expanded both geographically and economically and by 1985, had become Mexico’s second largest source of income from foreign exports, behind oil. Since 1973, maquiladoras have also accounted for nearly half of Mexico’s export assembly. Between 1995 and 2000, exports of assembled products in Mexico tripled, and the rate of the industry’s growth amounted to about one new factory per day. By the late twentieth century, the industry accounted for approximately 25 percent of Mexico’s gross domestic product, and 17 percent of total Mexican employment. However, profits generated from maquiladoras are typically sent back to the United States, or other investor-based countries, and therefore, maquiladoras do not promote direct economic development within Mexico.

Since globalization and physical restructuring have contributed to the competition and advent of low-cost offshore assembly in places like Taiwan, China, and countries in Central America, maquiladoras in Mexico have been on the decline since 2000: According to federal sources, approximately 529 maquiladoras shut down and investment in assembly plants decreased by 8.2 percent in 2002. Despite the decline, there still exist over 3,000 maquiladoras along the 2,000 mile-long United States–Mexico border, providing employment for approximately one million workers, and importing more than $51 billion in supplies into Mexico. As of 2006, maquiladoras still account for 45 percent of Mexico’s exports. Maquiladoras, in general, are best represented among operations that are particularly assembly intensive.“

We also found some legal analysis online of maquiladoras as well as related economic articles and materials, including several posters who regard maquiladoras as sweatshops:

  • Truett, Lila J. and Truett, Dale B., NAFTA and the Maquiladoras: Boon or Bane?. Contemporary Economic Policy, Vol. 25, No. 3, pp. 374-386, July 2007. Available at SSRN: http://ssrn.com/abstract=993979 or DOI: 10.1111/j.1465-7287.2006.00043.x

  • Covington M. Wall, Mexico Economic Crisis, Fiat Peso Currency Skating on Thin Ice Mexico Jun 02, 2009 – 03:28 AM

    GDP fell 8.2% in the first quarter of this year alone directly impacting the unemployment rate officially around 5.1% in the first quarter up from 3.7% a year ago. The hardest hit segments of the economy have been the auto and maquiladora industries. Domestic auto sales have contracted close to 25% and auto exports have fallen nearly 41%. Exports as a whole have fallen sharply, by some estimates around 45%, due to the severity of the economic crisis in the US which because of NAFTA is México’s largest trading partner. The US is also the destination of nearly 80% of goods traded internationally. In addition to oil exports the US has also been the primary destination for migrant labor receiving nearly 500,000 annually but off sharply this year along with remittances sent by migrants. Remittances alone, which amount to roughly 30% of GDP, make up a large part of direct foreign investment. Direct foreign investment in the 1Q of this year totaled 2.6 billion USD and is 36% lower by some estimates compared to 2008 figures which totaled 21 billion for the entire year. [emphasis added]

    Continued deterioration of macroeconomic conditions is causing officials to frantically try to find ways to bolster the economy in order to hedge off an economic melt down thus avoiding a repeat of the last great crisis in 1995.

  • Patrick J. Kelly, Mexico Maquiladoras and NAFTA (March 2001)
  • Editorial, Lucinda Vargas, Senior Economist, Maquilaportal.com, NAFTA, the U.S. Economy and Maquiladoras

  • Mexican Taxation of Maquiladoras, UnderstandMexico.com
  • Discover the Cost-Saving Benefits of Mexico Manufacturing with Maquiladoras, MadeInMexico.com
  • Gil Villagrán, MSW, Maquiladoras-NAFTA’s Sweatshops, (gvillagran [at] casa.sjsu.edu)
    Saturday May 2nd, 2009 12:41 PM

  • Mike Westfall, Maquiladoras–American Industry Creates Modern-Day Mexican Slaves, The Cutting Edge, The Edge of Labor, June 8th, 2009, who writes:

    NAFTA has been a disaster for the working people and the communities in which they live in all three nations. Today we clearly see that the results of NAFTA have led to a much weaker America with devastated and shuttered manufacturing communities. Mexican wages have dropped, and almost 20 million more Mexicans now live in poverty. American business leaders have been quick to seize upon the opportunity to take advantage of these desperate workers.

    It is common knowledge that many U.S. politicians get hefty campaign contributions from industry. The only NAFTA winners have been the companies and politicians.

  • Vic Kolenc, Hundreds hungry for NAFTA business, El Paso Times, 06/12/2009 12:00:00 AM MDT

  • Niñas de la maquila: malos tratos y abuso, Vanguardia.com.mx, por El Universal , 14-Junio-2009 (10:03 a.m.)

  • Maquila Solidarity Updates, Maquila Solidarity Network

  • Maquilaportal.com

Foxconn & Hon Hai Precision Industry : China’s Largest Exporter Opening Dell Assembly Plant in Mexico on the Border of the United States and Mexico

The future is always in the making and it behooves us to look carefully at international economic developments, especially when they take place on our own borders.

What company known to you is the manufacturer of, among other things, iPods, iPhones, Macbooks, Playstations, Wii’s, Xbox 360s, Nokia and Motorola cell phones, Kindles, and motherboards for Intel, Dell and HP?

You’ve heard of them, right? Foxconn is China’s biggest exporter, where it employs about a half a million people, and it is one of the world’s largest OEM manufacturers of electronics and computers. As we read at Philip Elmer-DeWitt’s Fortune Apple 2.0 blog:

Although it keeps a relatively low profile in the United States, Foxconn is one of the world’s largest manufacturers of electronics and computer components. It built many of the first generation iPhones, as well as MacBook Pros, MacBook Airs, iPod nanos and Mac Minis.

It also makes motherboards for Intel (INTC), Dell (DEL) and HP (HPQ), Playstations for Sony (SNE), Wii’s for Nintendo, Xbox 360s for Microsoft (MSFT), cell phones for Motorola (MOT) and Kindles for Amazon (AMZN).

Foxconn employs nearly half a million people and does most of its manufacturing in mainland China. It was China’s largest exporter in 2007.

Foxconn is the trade name of Taiwan-based and Hong Kong-centered Hon Hai Precision Industry Co. Ltd., a company founded by and still run by CEO Terry Guo (Terry Tai-Ming Gou, traditional Chinese: 郭台銘; pinyin: Guō Táimíng). The 2008 Fortune Global 500 ranked Hon Hai – with $51.828 billion in revenues – 132nd among all the firms of the world and 8th among electronics concerns. We became interested in this conglomerate because it is the OEM manufacturer of an ALDI camera that we own (see PremierImage.com.tw).

Foxconn is involved in an interesting and significant story just breaking on the border between the United States and Mexico.

It all began with golf.

Phyllis Eileen Banks writes about the still unincorporated community of Santa Teresa (near El Paso, Texas) in New Mexico as follows:

According to Roadside History of New Mexico by Francis L. and Roberta B. Fugate, “In the early 1970s, professional golfer Lee Trevino was one of the principal backers in the design and construction of a golf course and country club known as Santa Teresa.” It was originally planned with luxury homes and an airport for fly-in golfers. Later Trevino withdrew but growth continued.

Since then, Santa Teresa has been made a Port of Entry to Mexico, but you are going to have trouble finding that at Google Maps or Google Earth. The development is perhaps too new.

As written by Jose Z. Garcia of New Mexico State University in The Sunland Park-Santa Teresa Project: An Interview With Jerry Pacheco at the blog La Politica: New Mexico!, the area is booming:

The South Mesilla Valley is today, arguably, the biggest economic development project in New Mexico history, driven by two major factors: first, is the $5 billion expansion of El Paso’s Ft. Bliss, which is causing West El Paso to spill over into New Mexico between El Paso and Anthony, and, to a lesser extent into the Chaparral area. The second is the growth of Cd. Juarez on the West Side, between Anapra and the Santa Teresa border crossing, which promises to create all kinds of business synergies on the U.S. side.

In his analysis of developments, Garcia refers to:

Jerry Pacheco, executive director of the International Business Accelerator, a consulting firm for businesses considering locating in the Southern Dona Ana County region…. [who] points to three inter-related projects, begun within the past year, that are going to transform the Santa Teresa-Sunland Park region profoundly.

The first of these is Foxconn.

Garcia writes:

First, Foxconn, the largest manufacturer of electronic and computer equipment in the world, has just completed phase one of its assembly plant, located on the Mexican side of the border just yards away from the border and from the crossing at San Jeronimo-Santa Teresa. Foxconn is assembling desktop computers and servers for Dell at this facility–the largest maquila plant in Mexico….

By the end of the year there should be 5000 workers and depending on the state of the economy, thousands more to come, up to 30,000 workers according to current plans. With that many workers, West Juarez is assuredly going to go through a boom in low-cost housing, commercial development, and urban sprawl. On the U.S. side there will be a reciprocal demand for more upscale housing for managers, trucking facilities for the increased traffic at the port and more businesses serving the Juarez maquila sector, like Expeditors.

A key strategic reason for Foxconn to locate at San Jeronimo was the availability of ample space on both sides, very near the border crossing, and the presence of a user-friendly international border crossing. Expeditors International, a large logistic services company, has constructed a facility on the U.S. side of the fence, across from Foxconn, from which they will supply Foxconn with the inventory of parts needed to assemble Dell computers….

Read the rest of Garcia’s posting here

We find this business confluence of China, Mexico and the United States to be significant because it shows how the traditional political and commercial borders have become increasingly interconnected in our globalized modern world.