The Mexican border attraction

D'ARCY JENISH March 14 1988

The Mexican border attraction

D'ARCY JENISH March 14 1988

The Mexican border attraction

They are known as maquiladoras (assembly plants). They are located primarily in Mexican cities on the U.S. border, and they are producing everything from auto parts to surgical gowns and television sets. According to the best estimates available, close to 1,300 maquilas now employ 320,000 workers. Currently, there are only four Canadian companies among the dozens of Japanese and hundreds of American firms operating in Mexico because they can pay their workers as little as $4.50 per day. But there are signs of growing Canadian interest in establishing maquila operations. Last week in Montreal, about 100 businessmen attended a provincially sponsored conference that included a seminar on maquilas. Recently, a Toronto lawyer formed a company to help Canadian firms establish operations in Mexico. And officials of a leading Canadian manufacturer of smoke detectors say that they are seriously considering moving some of their assembly operations to Mexico.

Mexico’s industrialization plan established in 1965 is similar to the programs set up in about 100 other developing countries. Its primary purpose

is to help create jobs and generate foreign exchange. In most cases, a manufacturer is allowed to ship raw material, parts or equipment into a developing country duty-free, as long as the finished product is exported. Mexico’s program has been more successful than most, mainly because of the country’s proximity to the huge U.S. market. With the steady collapse in the value of the Mexican peso since 1982, the number of new maquilas has skyrocketed. And Mexican trade officials predict that one million people may work in maquilas by the turn of the century.

But American labor leaders are beginning to apply intense political pressure in Washington to stop the creation of jobs in Mexico by U.S. firms. And other critics contend that the foreign employers are paying their Mexican workers wages that are well below subsistence levels. University of Texas economist Jeffrey Brannon told Maclean's that a worker on a maquila assembly line does not earn enough to support a family.

One Canadian auto-parts producer refused to disclose details of his maquila. James Fleck, chairman of Tillsonburg, Ont.-based Fleck Manufacturing Inc.

and a University of Toronto professor of management, would only say that his company acquired its Mexican operation when it bought a firm based in Massachusetts more than two years ago. Other Canadian companies that own maquilas include Ottawa-based computer hardware manufacturer Mitel Corp., Montreal-based sewing machine manufacturer Ideal Equipment Co. Ltd. and Custom Trim Ltd., an auto-parts company from Kitchener, Ont. Said a trade official with the Canadian Embassy in Mexico City: “It gets a little tricky. If they are unionized [in Canada], they get nervous about media exposure.”

Although initially reluctant to discuss his plans, smoke-detector manufacturer Steven Chepa said that international competitive pressures have forced his company to consider setting up a Mexican plant. Chepa is president of Toronto-based Dicon Systems Ltd., which also makes home-security devices. He said that up to 70 per cent of Dicon’s output is exported. Canada does not impose tariffs on imported smoke detectors, but Dicon pays duties to enter its major markets—the United States, Britain and the Scandinavian countries.

Chepa said that his company is now

considering opening a plant in Juarez, a Mexican city of 440,000 across the Rio Grande from El Paso, Tex. Said Chepa: “You can only achieve so much through ingenuity and automation. You get to a point where the labor cost difference is so large, you simply cannot overcome it.”

Although Canadian manufacturers have not established operations in Mexico at the same pace as their American or Japanese competitors, interest is growing rapidly. Mark Petro,

president of Leamington, Ont.-based International Business Consultants of Canada Inc., told Maclean’s that the Big Three U.S. automakers, General Motors Corp., Ford Motor Co. and Chrysler Corp., are actively looking for Canadian parts manufacturers to supply their assembly plants in Mexico. Indeed, Petro, a former manager of a Canadian-owned maquila who addressed the seminar on Mexican manufacturing in Montreal last week, said that he expects another two Canadian companies to establish operations this year. And Frank Birkhead, executive vice-president of the McAllen Economic Development Corp., a municipally funded industrial promotion organization in McAllen, Tex., said that he has received dozens of inquiries from companies in Calgary, Montreal and several parts of Ontario.

The growing awareness of Mexico’s advantages among Canadian manufacturers led Toronto trade lawyer Fred Blaser to form a company last November called Mexi-Canada Commercial Corp. The company is a parttime venture for Blaser, who remains employed at the firm of Cassels, Brock and Blackwell. His partners include a banker with expertise in trade

financing and an engineer who is fluent in Spanish. Blaser said that they have sent out 1,500 promotional letters to Canadian companies and 250 maquilas. However, he conceded that a maquila operation is less attractive to Canadian manufacturers than to their American counterparts. U.S. duties on products from the maquilas apply only to the difference between the price paid by U.S. buyers and the cost of the raw materials imported by the Mexican plants. Canada imposes a

duty on the entire product, including the cost of materials. Despite those drawbacks, Blaser said that he is already negotiating with Canadian firms that want to set up maquilas.

The maquiladoras, a word derived from a Spanish term used in colonial times to describe the fee extracted by

millers to grind farm_

ers’ corn, are clustered along the 3,000-km U.S.-Mexican border.

The two largest centres are in Tijuana, with 350 plants employing 45,000 workers, and in Juarez, with 220 plants and 85,000 workers, said Donald Nibbe, owner of the Twin Plant News in El Paso, a monthly publication serving the maquila industry.

The clustering of maquilas has occurred as a direct result of government policy, according to Richard Bolin, a former management consultant who advised Mexican officials on how to set up the ma-

quilas. Bolin, now director of a Flagstaff, Ariz.-based organization that conducts research on world trade patterns, said that Mexico developed industrial parks in order to provide good roads, sewers and electricity within small areas and to focus its promotion of the maquilas. Bolin added that the maquilas were located along the border in order to encourage a twin-plant concept. Indeed, many American companies have put assembly plants on the Mexican side, but kept their administration and distribution centres on the U.S. side. The maquilas have created jobs in such American cities as San Diego, Calif., El Paso, McAllen and Brownsville, Tex. As a result, said Bolin, politicians from those American cities will defend the maquilas against union pressures to close them.

In fact, the municipal economic-development authorities in the American border towns have become the most enthusiastic promoters of the maquilas. They now compete aggressively to bring plants to the Mexican communities on the opposite side of the border.

§ But not everyone shares o that enthusiasm for the ma quilas. University of Texas s economist Brannon, who is also director of the Center for Inter-American Border Studies, said that about 80 per cent of the maquila assembly workers earn less than $6.25 per day, although some receive meal and transportation subsidies. Brannon added that most of the assembly workers are young women with six to nine years’ education who receive a maximum three days’ train-

_ ing. He conceded that

Mexico is developing a small group of engineers, technical workers and management officials in the maquilas. But beyond those employees, there is little or no transfer of useful skills from the American companies to the Mexican workers. Said Brannon: “They

are better off in the sense that, in most cases, there are no alternatives.” As a result, as long as Mexico’s economy continues

to falter, the maquila-

doras will flourish.

D'ARCY JENISH with 5 correspondents’ reports