Trade and the Environment: The case of Mexico's Maquiladora
Background
The word maquiladora itself means industry in Spanish. Economists use this term to refer to general international assembly plants specifically located along the Mexican-American border. Most plants import all of their goods from foreign nations, assemble the goods in Mexico, and then export the finished product. The only process of this industry that is taxed is the actual labor within Mexico. Thus, the lack of taxes on the movement of goods through Mexican borders makes it an appealing option for the outsourcing of production.
The Maquiladora program, first sanctioned by the Mexican Secretariat of Commerce and Industrial Development in 1964, arose in response to the collapse of the Bracero Program and the corresponding high unemployment rates. The introduction of NAFTA in 1994 created further incentives for foreign industries to move their production to Mexico. This ultimately lead to an increase in the number of maquiladoras, promoting further trade between Mexico and the U.S.
Maquiladoras are attractive to transnational industries due to their (1) low wages, (2) tax credits, & (3) relaxed environmental regulations. Maquiladoras generally have been both beneficial and detrimental to Mexican citizens and their economy.
Regulations
The regulations that permit Maquiladoras can ultimately be linked to the Bracero Program, which lasted from 1951 to 1964. This program provided Mexican citizens with temporary visas to the United States to take part in agricultural harvests. These employment opportunities drew tens of thousands of Mexican citizens towards the Mexican-U.S. border. However, due to high application numbers, there were not enough spaces for all applicants to be accepted. As a result, unemployment and population rates jumped in the areas near the border.
In 1964, the Bracero program was eliminated in the United States, generating border unemployment rates between 40 and 50 percent. The Mexican government determined that there would need to be an international investors to address the unemployment and population issues. Mexico looked outwardly to foreign companies as potential sources of revenue and employment. Up until this point, these corporations had avoided Mexico due to high import taxes and foreign ownership problems.
However, these problems were addressed in 1965 by the Border Industrialization Program (BIP). Foreign-owned companies no longer had to pay taxes to import materials or equipment into Mexico. The main requirement was that all produced goods would be exported from the companies, thereby creating a source of revenue for the country. Only the actual labor was taxed in Mexico; importing and exporting remained duty-free. The major motivation for the creation of the BIP was twofold. First was the hope of solving the unemployment rates along the border, and second was the potential to attract foreign industries to Mexico as a source of revenue. Essentially, they were hoping to provide a low-cost labor alternative to areas such as China. In pursuit of this goal, however, environmental regulation and enforcement of labor laws were ultimately neglected.
Interest in Mexico’s Maquiladoras, however, was slow to build. In 1982, the value of the peso dropped, drawing significant attention from foreign investors. Additionally, in the mid 1980’s, Mexico relaxed the regulations on the companies, allowing an increase in the amount of the entire production process that was allowed in Mexico. This attracted additional companies to establish maquiladoras within Mexico’s borders. The sector continued to grow through the early nineties, with almost 1,900 individual maquiladoras by 1993.
The final, and most recognized piece of legislation effecting maquiladoras, was the North American Free trade Agreement (NAFTA), which was signed into law in 1994. Essentially, the goal of NAFTA was to eliminate any barriers existing among Canada, America, and Mexico in the hopes of increasing trade. NAFTA had several notable effects on the maquiladora sector. Firstly, it allowed gradual increases in the total amounts of maquliadora products that were allowed to be sold domestically. Secondly, it eventually removed the amount of taxes paid by the United States on the Mexican labor. Furthermore, along with NAFTA, the North American Agreement on Environmental Cooperation was passed into law, which created the Commission for Environmental Cooperation (CEC). The overall aim of CEC was to enforce any existing environmental regulations in North America.
The issue, however, is the actual implementation and enforcement of these environmental laws. Although the CEC was developed specifically for this purpose, there has been notably inadequate enforcement. Of the 80,000 metric tons of municipal waste produced annually, only about 70% is collected. Furthermore, only 11% of the 8 million tons of hazardous waste, primarily the products of maquiladoras, is actually collected and correctly dealt with.
The production of hazardous waste has been the major environmental impact of maquiladoras. Environmental legislation was developed specifically in response to this problem. First came the La Paz Agreement in 1983, which generally stated that the United States and Mexico would have to cooperate and communicate to address the environmental issues distinctively located on their border. In 1986, the agreement became more specific with the addition of Annex III (The Maquiladoras, 2011). The major regulation put into place under this regulation was that all hazardous waste produced by a company not paying taxes on imports must export their hazardous waste for treatment (The Maquiladoras, 2011).
NAFTA, however, has had a major impact on the environmental regulations. Essentially, it removed the requirement of countries to accept responsibility for the hazardous waste they produce in Mexico. Instead, the countries receiving the waste must first state that they will accept it (The Maquiladoras, 2011). After NAFTA, the removal and/or treatment of this hazardous waste was effectively voluntary. Furthermore, the individual countries, like the United States, are capable of passing legislation that would allow them to refuse to accept the return of hazardous waste. This would effectively leave the responsibility of managing the hazardous waste produced by the American companies to Mexico (The Maquiladoras, 2011).
Impacts
One of the economic advantages of maquiladoras is the cheap cost of labor in Mexico, as compared to other nations. In terms of overall cost of labor, Mexico is considered to be even lower than that of China. Additionally, Mexico has a history of experience with manufacturing, and is therefore a more attractive candidate for the outsourcing of labor than some other low-wage countries. Mexico also has the advantage of close proximity to North America, making transport of materials cheaper and more efficient. Finally, countries in North America see Mexico as a particularly good location for manufacturing because of their involvement in NAFTA. As a result, the costs of imports are much lower than to other countries, and the customs processes are expedited.
Additionally, the location of these manufacturing hubs along the Mexico-U.S. border has boosted economic activity in America itself. For example, between 1995 and 2002 about 500,000 new jobs were created in this region. During this time period, the regional job growth rate also grew beyond that of the entire United States.
The disparity between the environmental regulations in the United States and Mexico is also an economic draw. The environmental action taken by individual plants in Mexico has been considerably low, particularly compared to those in North America. A survey was conducted by the Commission for Environmental Cooperation, which showed that nearly half of those asked did not have any level of environmental policy in place at the plant, as shown by the Table titled "Survey of Mexican Plants for Environmental Policies".
Sierra Club has performed several studies on the economic impacts of the maquiladoras' pollution, and has concluded that there are at least $36 billion worth of damage each year alone. According to the club, these environmental impacts have far exceeded the economic gains in Mexico. These impacts are a prime example of externalities so far as they have not been considered when evaluating the overall economic efficiency of the programs. Furthermore, movement towards more environmentally friendly practices has been relatively slow. The chart titled "Pollution Abatement Costs of Maquiladoras" shows the overall pollution abatement costs (PAC) in different portions of the maquiladora industry as well as the value added (Stromberg, 2002). It is clear from this table that the maquiladora industry has slowed its movement towards pollution abating technology over the time period addressed. This may be in response to the relaxed environmental regulations, which have not forced maquiladoras to make major changes to address their high quantities of pollution (Stromberg, 2002).
Social Costs
Low labor wages is one of the main attractions of Mexican maquiladoras. Despite the theoretical competitive advantage of the maquiladora industry, wages are almost 40 percent lower than those paid in non-maquiladoras. Additionally, employees of a Maquiladora make minimum wage, which is much lower than that of the U.S. Low costs and low wages lead to unfair working conditions. Trade liberalization has reduced living standards for the Mexican poor. Because of a lack of safety standards, Mexicans who work in the Maquiladoras must endure a terrible working environment that includes inadequate training, exposure to many potentially hazardous materials, and inadequate information and protective equipment (Global Exchange, 2007). Thus, as a result of worker exploitation, poor social conditions in terms of living standards, working conditions, negative health effects, inequality and violence are exacerbated.
As maquiladoras boomed and NAFTA came into play, large migrations of Mexican workers transpired as job seekers headed to the border in search of work. For example, Tijuana’s population increased more than sevenfold from 1960 to 2000. However, maquiladora employees are paid poverty wages: the income earned by two adults employed full-time in the maquiladoras cover only about two thirds of the basic needs of a family of four (Simpson, 2007). Today the minimum wage in Mexico buys only a fraction of what it was able to buy in 1982 (Global Exchange, 2007). Millions of Mexico’s citizens cannot meet their basic needs and live in extreme poverty (Simpson, 2007). The maquiladoras, which are owned by transnational corporations, draw workers to their factories yet do not invest in the neighborhoods where these workers and their families live. Moreover, NAFTA does not require such investment and Mexico lacks resources to provide urban infrastructure for these neighborhoods that develop around the maquiladoras (Simpson, 2007). In these slum communities, which often surround the maquiladoras, maquiladora workers and their families are subjected to poor living conditions. These living situations contribute to health problems, violence, and lack of education for children. Despite the fact that NAFTA created jobs in Mexico and increased trade between Mexico and the U.S, it failed to reduce inequality at the border. NAFTA was a unique trade agreement because it was the first one that addressed both labor and environmental issues, but neither are enforceable or have brought adequate protections for workers or the environment (Simpson, 2007).
Since industries are not required to reduce the pollution, the waste generated has negative ramifications for the environment and those living in the area, including the maquiladora workers. The working conditions and environmental pollution affect workers’ living situations and contribute to health problems, violence, and lack of education for children. Due to insufficient treatment facilities and poor environmental regulations, the US-Mexican border areas suffered from the severest pollution in Mexico (See Environmental Impact section) (Bolterstein, 2000). These slum communities in the border areas lie next to hazardous-waste facilities and polluted waterways (Simpson, 2007). The rivers around maquiladoras are polluted with industrial and biological waste. Lining the rivers today are slum settlement where full-time maquiladora workers making products for the U.S. consumer market live in dwellings made of scraps of wood and plastic, without piped water, sewage service, garbage collection, or electricity (Simpson, 2007).
In Tijuana, there are no worker unions for any maquiladora work force. This leads to inequitable treatment of maquiladora workers. Essentially, Maquiladora employees are being subjected to unsafe working conditions, including labor accidents, exposure to hazardous materials/toxic materials. In fact, labor laws are rarely followed. Workers are exposed to toxins and face unsafe working conditions on a daily basis. Sixty percent of electronics workers in Mexico’s maquiladoras, for instance, report insufficient or no safety training on handling chemicals. In fact, most of the maquiladoras such as electronics, wood, plastics and metal industries are using and producing toxic waste every day. Studies have shown that toxins at these sites can cause grave harm to human health (Simpson, 2007).
The most common Maquiladora workers are immigrants from central Mexico and women who have little working experience. Women make up close to 60% of the maquiladora work force (Bolterstein, 2000). Since the typical Maquiladora worker is a woman in her prime reproductive years - between the ages of 16 and 28 - her constant exposure to toxic pollutants risks her own health and that of her children (born and unborn). Major health problems include neural tube defects (NTDs), spina bifita, and anencephaly (Bolterstein, 2000).
Environmental Impacts
Since the U.S. passed the Clean Air Act and Clean Water Act in the 1970s, the cost of operation for industries in U.S. was raised. The high environmental standard in the U.S. made Mexico, which has weak environmental standard enforcement, more attractive to industries. However it also caused severe environmental problems. The presence of the maquiladoras combined with loosely enforced Mexican environmental laws and a lack of suitable waste storage and treatment facilities, causes the border area to be among the most polluted in Mexico. As a result, the maquiladora industry contributes significantly to water pollution along the border between Mexico and U.S. in two major ways. First, the maquiladoras attract tens of thousands of migrants to the region, resulting in large amounts of human waste, creating an overload on the urban infrastructure and the regions fragile ecology. Both U.S. and Mexican governments have taken actions to address these issues. Between 1997 and 2000, Mexico annually designated on average US$ 34 million to water development, regulation, enforcement and state transfers in the Mexican border region. The U.S. assigned an annual US$ 50 to 100 million to water treatment facilities on both sides of the border. One example is the water treatment plants in Cd. Juárez which were constructed with a US$ 11 million grant from the U.S. The EPA has increased the water treatment in the city from zero to ninety percent (Per Stromberg, 2002).
Furthermore, the assembly plants generate tons of hazardous and toxic waste that is dumped illegally, poisoning wildlife and communities all along rivers. In 1996, the estimated quantity of hazardous waste generated by the manufacturing subsector of “Metallic products, machinery and equipment” was 152,286 tons, or approximately 15 percent of the Mexican industry’s total hazardous waste generation that year. In relative spatial terms, CESPEDES reported that approximately 33,765 tons of hazardous waste is generated in the Mexico-US border region, annually (defined as the area within 100 km from the US border), compared to 5,114,507 tons for the central Mexican states (Per Stromberg, 2002).
Moreover, air pollution is another concern along the border. Border residents are exposed daily to extremely high air-pollutant levels. For instance, particulates and carbon monoxides are the most common air pollutants among maquiladoras (Per Stromberg, 2002). In another study of the air quality in six major maquiladora cities from 1993-1999, all six cities had air contamination level significantly above the normal standard (Per Stromberg, 2002).
Case Study: Tijuana
The rise of the maquiladora program in 1965 brought in serious sewage pollution that impacted the Pacific Coast and Tijuana River Estuary. As industries migrated to the Tijuana area in the 1960s for the low-cost labor, there was also a huge influx of people seeking work in the area. Consequently both industrial and human waste exceeded the capacity of the regional sewage treatment system.
The problem was further exacerbated as population grew and more maquiladora industries came in the following decades. The number of maquiladoras increased from 140 in 1983 to 529 in 1995. As a result, approximately 13 million gallons of raw sewage spills into the Pacific Ocean and flows up to San Diego County beaches. The beaches were closed almost the entire summer of 1993, as a result (Pauw, 1995). The pollution affects the Tijuana River as well. The sewage and pollution flow from Tijuana City down the river into the Ocean at Imperial Beach. Because Tijuana and San Diego are located in the same atmospheric basin and runoff from the Tijuana River flows northward, the production of pollutants in each city affects the other. In addition, due to poor sanitation services, some neighborhoods in Tijuana City, such as Loma Taurina, have health hazards resulting from untreated sewage. During severe storms, untreated sewage spills into the streets. Moreover, the threat from industrious waste is also present to many neighbourhoods.
For example,Metales y Derivados, a lead-smelting facility in Tijuana, was shut down in 1994 when its owners failed to comply with toxic waste disposal laws (Tirrell, 2010). However, the waste was never properly treated and/or relocated and is currently leaking through its containers, seeping into the ground, and contaminating communities' water supplies. Thus, people living nearby are exposed to dangerous levels of toxins. The health risks are also severe in the Tijuana River Estuary. People stepping into the area have a high risk of getting salmonella, shigella, fibrial, cholera, hepatitis A, and malaria. In the hospitals of San Diego County, cases of tuberculosis have increased. Additionally, women on both sides of the border are giving birth to children with birth defects (Pauw, 1995).
In 1985, according to Annex I of the Border Environmental Agreements between Mexico and the U.S., Mexico responded to the problem by deciding to build a treatment facility in La Joya and the U.S. decided to build a pipeline system and a treatment facility on their side to support the La Joya facility in the event of a breakdown. The Mexican plant was completed in October of 1991 and the South Bay International Wastewater Treatment Plant in San Diego was planned to finish in 1998. Its capacity was projected to be up to 25 million gallons per day. In addition, a 3.5 mile tunnel was be constructed to dispose of the treated waste discharged into the ocean, which was scheduled for completion in May 1998. When completed, the treatment processing facilities is able to process the 13 million gallons of untreated sewage that enters the Pacific ocean everyday (Pauw, 1995).
Conclusion
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