CASE MNEMONIC: MAQUILA
CASE NAME: Maquiladoras and the Environment
As in most debates over the benefits of free trade versus environmental costs of dropped trade barriers, passage of the North American Free Trade Environment (NAFTA) was viewed by many environmentalists as coming with a huge price tag. Little consideration was given to environmental issues in the primary NAFTA agreement and only after the Clinton administration came into office were environmental concerns addressed -- in side agreements arrived at after the signing of NAFTA. In the first two years of its existence, health and welfare protections that were included as part of the NAFTA side agreements have done little to stop pollution along the U.S.-Mexico border. That pollution has in turn lead to the continued clustering of birth defects on both sides of the border, mainly anencephaly, where babies are born without fully developed brains. American officials supporting NAFTA prior to its passage claimed that industrial activity along the border by the maquiladora industries would decrease under NAFTA. The opposite has occurred, with maquiladora industries growing by 20 percent in the first two years under NAFTA. While clusters of anencephaly were present prior to the implementation of the NAFTA agreement, with cases dating back to the late 1980s, the number of cases has also grown during the past two-and-a-half years. Despite evidence of clear health problems along the border and the availability of $8 billion in federal monies for cleanup activities, the Commission for Environmental Cooperation (CEC) has done little to address the new environmental health problems brought on by the new free zone that encompasses Mexico, the United States and Canada. To date, 47 cleanup proposals have been reviewed, seven have been approved, but no funding has yet been allocated for any project. The growth of the maquiladora industries poses additional problems for NAFTA. The agreement was supposed to spread the wealth, pushing companies located in the maquiladora trade zone further into the country. Instead, more and more companies, primarily American, are relocating to take advantage of the cheaper labor costs -- where workers are paid an average of 75 cents an hour.
One of the most heated debates over how major businesses and industrialized countries should handle environmental issues has come in the area of free trade. The debate surrounding the passage and implementation of NAFTA has been no exception. Much of the debate prior to the signing of the NAFTA focused on whether the United States would lose jobs to cheaper wages offered by companies, known as maquiladoras, operating along the U.S.- Mexican border.
NAFTA supporters maintained that passage of the agreement would force maquiladora industries to die out, with free trade opening the way for entrepreneuers further inside the country. But the agreement is facing a long history of cross-border relations between the two countries that has fluctuated between acrimony and accomodation. There are numerous sociological, political and cultural factors at work. Most of the Southwestern United States was once a part of Mexico and today Mexican culture is the dominant one in much of the Southwest. For the past 150 years the land border has been an invisible one, with American business actively pursuing labor from south of the border. The result has been the same for more than a century: Mexico provides cheap labor to American corporations, which end up reaping huge profits.
The maquiladora program essentially allows foreign-owned and managed companies duty free imports of manufacturing equipment, tools, machinery and spare parts required for production into Mexico. The goods can then exported to any country in the world with only a value-added tax assessed the maquiladora industries -- which seek to profit by using cheaper Mexican labor for in production. The maquiladora industries were originally launched by the Mexican government in 1965 when Mexico set up a border development program in a zone that ran 30 kilometers wide along the common border. The goals were several: clean up the border, attract more tourists, and create more jobs by enticing both Mexican and American industries to the zone. The birth of the maquiladoras came quickly on the heels of the end of the bracero program, where U.S. companies legally imposed the idea of circular migration by permitting the legal importation of Mexican workers to U.S. farms on a seasonal basis. According to one estimate, more than 4.5 million workers were admitted to the U.S. under the bracero program.
Under the bracero program, American companies began to fully realize the advantages of undocumented labor. Employers discovered that they could undercut the wages of unionized "native" workers at will. They could exploit the "illegal" laborers, forcing extra work in poor conditions thanks to the threat of being able to fire them at any time. While the goals of setting up the maquiladora zones were admirable, they have brought about the same results as the bracero program: the exploitation of cheap labor. Companies have sought, and continue to seek, to carry out their labor-intensive production in Mexico where labor is cheap -- anywhere from one-seventh to one-tenth of U.S. labor costs for comparable work.
More than 3,000 maquiladora operations are currently in operation along the 2,000 mile border that stretches from California to Texas -- and their numbers continue to grow. These duty-free industrial plants now focus on using cheap domestic labor to assemble mostly foreign components in a number of different industries. Concentrated development along the border as well as the nature of the industrial development has polluted much of the water supply along the border and created serious environmental issues that have yet to be addressed by the three countries that are party to NAFTA (the United States, Mexico and Canada).
There is increasing evidence that pollution of the air and water supply along the border during NAFTA's first two-and-a-half years, is exacerbating health problems on both sides of the border. The most dramatic evidence of health problems has occurred on the Texas-Mexico border. Clusters of babies being born with anencephaly -- a rare neural tube birth defect in which a full-term baby is born with incomplete or missing brains or skulls -- was originally identified in both Brownsville, Texas and Matamoris, Mexico in the late 1980s. The incidents of anencephaly, along with other neural tube birth defects have increased since NAFTA was implemented in January, 1994. In Cameron County, where Brownsville is located, the Texas Department of Health reported 15 cases in 1994, up from 36 percent in 1993, when 11 were reported.
The state also discovered in late 1994, a new cluster of anencephaly cases, along with cases of spina bifida, in Maverick County. In 1992, just two cases of neural tube defects were reported. That jumped to four in 1994 and in a three-month period between December, 1994 and February, 1995, the county reported a startling one case per month.
Birth Defects Before NAFTA Cameron County (1993) -- 11cases Maverick Country (1992) -- 2 cases
Birth Defects After NAFTA Cameron County (1994) -- 15 cases Maverick County (1994-95) -- 3 cases over three months
A 1995 study that attempted to correlate 12 years of industrial activity in Matamoros, Mexico with the anencephaly rates in Brownsville, found that the prevalence of anencephaly is strongly correlated to the level of activity found in the nearby Matamoris maquila zone. The report states: "As maquila activity has waxed and waned, so has the anencephaly rate increased and decreased in Cameron, but not in Hidalgo or Nueces [two other counties studied -- but farther from Matamoros.]"
The exact cause of anencephaly has not been determined, yet there is a growing body of evidence indicating that various toxic emissions from factories play a part in the tragic birth defect. A study by the American Journal of Epidemiology which analyzed mortality data from the state of Texas indicated that men working in certain occupations with high chemical exposure have a greater risk of fathering a child with anencephaly.
While few anencephalic babies are autopsied, one conducted in Brownsville in 1991 revealed that the baby had the pesticides DDE, DDT and Lindane -- all banned in the United States -- in its tissue. Phenylglyoxilic acid, a breakdown product of styrene and ethylene -- chemicals used to manufacture plastics, were found in the body of the autopsied baby at levels that were three times the legal occupational exposure for adults in the United States.
Lax environmental regulations combined with low wages continue to make the the maquiladora region attractive to multinational companies and NAFTA has been unable to counterattack with any success so far. Data provided by the Institute for Agriculture and Trade Policy in 1993 showed that General Motors was then the largest private sector employer in Mexico and that each of the top 100 corporations in the U.S. had at least one plant operating in Mexico. The reason was found in the wages. The Institute reported that the average hourly wage in the U.S. then was $10.97 an hour compared to the average of 75 cents an hour earned by maquiladora factory workers.
Despite the growing evidence that flourishing maquiladora industries are polluting the environment and endangering the quality of life of citizens on both sides of the border, neither governmet nor NAFTA officials have sought accountability from any of the industries operating along the border. The companies have steadfastly admitted no wrongdoing. There is evidence, however, that companies don't want information getting out about their operations and health problems in the region. A number of companies, including GM, have made out-of-court settlements with families who live along the border and claimed that the operations of the companies caused their babies to be born with neural tube defects. GM was the last of 88 companies to settle in lawsuits filed originally in March of 1993 by a Brownsville attorney. He and the families involved accused the companies of polluting the atmosphere with chemicals, resulting in a high number of rare birth defects in Cameron County in the early 1990s. Martinez said that in two years he reached settlements with corporations whose payments ranged between $100,000 and $2 million.
It's unclear, however, whether these settlements will have any affect on the operations of the maquiladoras. The number of maquiladora plants has grown dramatically in 30 years and the catastrophic drop in the peso in 1995 did little to stem the tide. The number of plants has increased from just 600 in 1982 to more than 3,000 today. Since NAFTA, the number of employees in the maquiladora industries has grown 20 percent, from 546,588 in December 1993 to 689,420 in October 1995.
While lawsuit settlements might range in the millions of dollars, they are just the proverbial drop in the bucket to the hundreds of millions being made in profits. A report issued by the AFL-CIO in May1995 stated that after the peso devaluation, multinational employers in the maquilas will realize an annual windfall of more than $750 million from lower labor costs. Allied Signal CEO Lawrence Boody took home $12.4 million in 1994, the report stated, while the company's 3,800 Mexican employees combined made an estimated $7.8 million. Ford CEO Alex Trotman made $8.1 million during the same time period, more than 2,000 times the annual pay of an average Ford employee in Mexico -- which now has about 10,000 workers in assembly plants south of the border.
The intense concentration of industry and workers along the border has led to some severe environmental situations. In 1993, the Institute for Agriculture and Trade Policy estimated that approximately 100 million gallons of untreated sewage are dumped daily into the Rio Grande River from Maquiladora free trade zones. While billions of dollars are available for toxic cleanup along the border with Mexico, both U.S. and Mexican officials report that not a single environmental project has gotten off the ground in NAFTA's two years of existence.
During the NAFTA debate, the Clinton administration indicated that $8 billion would be spent over a 10-year period to clean up the industrial pollution along the border. Yet, as of September, 46 cleanup projects had been reviewed by the Border Environmental Cooperation Commission, a binational organization created after NAFTA was approved. Just seven of those projects have been approved for financing from the North American Development Bank.
Finally, two years after NAFTA was passed, the Commission for Environmental Cooperation, which was created under the North American Agreement on Environmental Cooperation, only recently began what it describes as a "pathbreaking and complex study of the effects of NAFTA trade on the environment."
3. Related Cases(1): Basel and Mexico
(7): San Diego
(9): Air Pollution
4. Steve Fox, Nov. 26, 1996
II. Legal Clusters
5. Discourse and Status:In Progress
6. Forum and Scope:NAFTA and MULTIlateral
7. Decision Breadth:2: US and Mexico
All three countries are a party to the North American Free Trade Agreement, yet the current environmental problems concern industrial pollution produced by the maquiladora industries located on the Mexican side of the common border with the United States. The failure of both countries to enforce environmental standards as part of NAFTA has further polluted the water supply on both sides of the border. This has resulted in a growing number of birth defects on both sides of the border, notably areas near Brownsville, Texas and Matamoros, Mexico.
While Canada is also a party to NAFTA, the current dispute is between the other two parties to the agreement. Ultimately, however, it's in Canada's best interests for Mexico and the United States to iron out there problems and keep NAFTA intact.
8. Legal Standing:TREATY
After some heated debate within the US Congress and in the public forum, NAFTA was signed into law on Dec. 17, 1992. The goal was a simple one: lower trade barriers and create a North American free trade zone that would compete with the European Community and the "Asian Tigers." The agreement has had some preliminary success.
NAFTA Success? 1994 Trade Totals (Estimates) Canada -- $243 Billion Mexico -- $100 Billion
In its first year in 1994, trade among the NAFTA partners soared 17 percent, growing over $50 billion in just one year. Total trade with Canada reached $243 billion, while trade with Mexico exceeded $100 billion for the first time.
The original NAFTA agreement mentioned little about the environment. With his election to office in November of 1992, President Clinton made environmental amendments to NAFTA a high priority. The Clinton administration pushed through environmental side agreements to NAFTA that resulted in the creation of the tri- national North American Commission for Environmental Cooperation. The staff of the CEC have limited authority and the inquiries it can make are limited. Only nonenforcement of existing environmental law can be challenged under the CEC. The commission has no authority to inspect environmental sites and lacks subpoena power.
III. Geographic Clusters
9. Geographic Locations
Location has been the key to survival for the maquiladora industries along the border. A 1993 study by the Institute for Agriculture and Trade Policy reported that 26 percent of the companies surveyed admitted that lax environmental regulations was an important factor in their decision to relocate to the maquiladora city of Mexicali. More recently, electronics companies have begun to relocate to the border, resulting in highly toxic and dangerous waste from its production processes.
a. Geographic domain: North America [NAMER]
b. Geographic site: Western Northern America [WNAMER]
c. Geographic impact: United States, Mexico
10. Sub-National Factors: No
11. Type of Habitat: DRY
IV. Trade Clusters
12. Type of Measure: Regulatory Standard [REGSTD]
13. Direct vs. Indirect Impacts: INDIRECT
Manufacturing is one of a number of direct causes of both air and water pollution, yet the affect on trade is indirect. Problems arise however, when trying to quantify the pollution problem, such as what level of treated sewage can be dumped into a river before it becomes a problem. In this way, the problem has many indirect impacts.
14. Relation of Trade Measure to Environmental Impact
a. Directly Related: YES.
b. Indirectly Related: YES.
c. Not Related: No
d. Process Related: YES. Pollution Land (POLL)
15. Trade Product Identification: MANY
While a number of industries operate in the maquiladora trade zone, a growing number of electronics companies are moving into the area, releasing toxic materials in their production processes.
16. Economic Data
NAFTA has worked to open up markets between the three countries. In its first year in 1994, trade among the NAFTA partners soared 17 percent, growing over $50 billion in just one year. Total trade with Canada reached $243 billion, while trade with Mexico exceeded $100 billion for the first time. Yet, the key figure in this case is the $8 billion available for environmental cleanup that has so far remained untouched. the Clinton administration indicated that $8 billion would be spent over a 10-year period to clean up the industrial pollution along the border. Yet, as of September, 1996, 46 cleanup projects had been reviewed by the Border Environmental Cooperation Commission, a binational organization created after NAFTA was approved. Just seven of those projects have been approved for financing from the North American Development Bank. Also, average hourly wage earned by Mexican workers in the maquiladora industries is reported to average at approximately 75 cents an hour.
Estimates vary depending on the source, but it's generally agreed that approximately 3,000 maquiladora operations are in place today, employing nearly 700,000 Mexicans.
17. Impact of Measure on Trade Competitiveness: MEDium
The impact can be viewed in several ways. NAFTA, as mentioned earlier has been viewed as having a tremendous impact on trade competitiveness. Implementation of environmental regulations, and cleanups, is viewed by many as being one step toward restricting the free trade being enjoyed by companies today. Accompanying the environmental issues are labor issues, such as working conditions and pay. These are issues that would end up affecting the profits currently being made by companies and which many would prefer to avoid. The problem lies in the initial fixed costs that companies would have to pay initially. Yet, over time environmental costs would become part of normal operating costs.
18. Industry Sector: MANY
Furniture and Fixtures (FURN)
Electrical Machinery (EMACH) and OTHERS.
19. Exporters and Importers: USA and MEXICO
The traditional import-export issues are not involved in this case study because of NAFTA and the maquiladora free trade zone
20. Environmental Problem Type: POLL
21. Name, Type, and Diversity of Species
22. Resource Impact and Effect: HIGH and REGULATORY
23. Urgency of Problem: HIGH, HUNDREDS OF YEARS
24. Substitutes: CONSV
Substitutes, as traditionally viewed with environmental issues, are not pertinent in this case. The issue does, however, call for what can be described as a subsitute in thinking. The call for multinational corporations to begin producing with an eye to the environment is nothing new. Since the turn of the century, business has looked at the environment as a constantly renewalbe resource. It is not. Corporations need to embrace the emerging idea of sustainable development where environmental and resource protections costs are internalized in the prodcut costs. The lack of this internalization of costs in many cases creates a trade distortion and the misallocation or misuse of natural and environmental resources.
VI. Other Factors
25. Culture: NO
26. Trans-Boundary Issues: Yes
One of the most heated debates during passage of NAFTA concerned the impact that the agreement would have on illegal immigration from Mexico to the United States. The maquiladora industries were set up as a way to battle the circular migration practices many Mexicans used to make a living. Yet, the poor wages provided by the maquiladoras, and the border location, has only made it more tempting for Mexicans to cross over to the United States for higher wages. In the first two years of NAFTA, there has been no significant reduction in illegal immigration and any reductions are only expected to come within a five-year period.
27. Human Rights:
The right to breathe clean air and drink clean water is a basic human right that is being sacrificed in the name of free trade on both sides of the border. While companies may know they are polluting, residents of Texas and Mexico live their lives, not knowing that their child may be born with serious birth defects that could be avoided. The other issue involves the exploitation of the Mexican worker by the Maquiladora industries -- a serious divergence from the stated goals of NAFTA.
28. Relevant Literature1. Bustamante, Jorge. "Mexico's Interests and the NAFTA." NAFTA as a Model of Development: 1995. 2. Corwin, Arthur F. and McCain, Johnny M. "Wetbackism Since 1964." Immigrants and Immigrants: Perspectives on Mexican Labor Migration to the United States: 1978. 3. Kelly, Mary E. "NAFTA and the Environment: Free Trade and the Politics of Toxic Waste." Multinational Monitor. Special Issue: The Case Against NAFTA. October 1993. 4. LaFrachi, Howard. The Christian Science Monitor. March 5, 1996. 5. Moss, Jr., Ambler, H. "Free Trade and Environmental Enhancement: Are They Compatible in the Americas?" Trade and The Environment, ed., Durwood Zaelke, Paul Orbuch, and Robert F. Housman: 1993. 6. Pearson, Charles S. "The Trade and Environment Nexus: What Is New SInce '72?" Trade and The Environment, ed., Durwood Zaelke, Paul Orbuch, and Robert F. Housman: 1993. 7. Pinkerton, James. "GM Settles Border Suit." The Houston Chronicle. Aug. 25, 1995. 8. Public Citizen. Executive Summary from "NAFTA's Broken Promises: The Border Betrayed." Jan. 2, 1996. Internet: http://www.essential.org/orgs/public_citizen/pctrade/borderexec.html 9. Sanchez, Ray. "NAFTA Fails To Halt Pollution." Newsday. Reprinted in the International edition of the Miami Herald, April 30, 1996. 10. The office of the United States Trade Representative. "The NAFTA and the Environment." NAFTA Information Package. Sept. 13, 1996. Internet:http://www.ustr.gov/agreements/nafta/information/index.html 11. Weintraub, Sidney. NAFTA: What Comes Next: 1994.
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