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Re: Info on Free Trade Zones?
by Elson Boles
19 November 2002 16:43 UTC
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Title: Message

I thought this is an interesting article on the vagaries of the semiperiphery.


The New York Times

November 5, 2002

Manufacturing Jobs Are Exiting Mexico


MEXICO CITY, Nov. 4 — An exodus of factories the last two years, many of them to China, has led to a wave of soul-searching among business leaders and government officials here over Mexico's ability to compete with other low-cost exporters for the United States market.

"It's like somebody shaking you and saying, `Wake up, the environment has changed, and you have to change strategy,' " said Rolando González Baron, president of Mexico's National Maquiladora Export Industry Council, which represents the plants that assemble duty-free components for export. The industry sold $77 billion of goods abroad last year, almost half Mexico's total exports.

For years, a cheap peso had masked inefficiencies in Mexican manufacturing, including high employee turnover and unwieldy logistics. But since the currency began appreciating in 1999, costs have risen some 30 percent. Now export manufacturers must figure out what Mexico has to offer besides the geographical good fortune of lying next to the rich American consumer market.

Though the maquiladora industry has stopped hemorrhaging jobs and the peso has slipped about 10 percent the last few months, the volume on the debate rose recently as Mexico played host to the Asia Pacific Economic Conference in the resort town of Cabo San Lucas. Mexican business leaders lobbied officials to crack down on China's investment subsidies, which they say are against World Trade Organization rules and are partly to blame for Mexico's woes.

"I know that China is cheating," Mr. González said. "Eventually, they are going to be in trouble if they keep cheating and don't do anything to improve. They will be sanctioned in the future."

President Jiang Zemin of China responded to the accusations of protectionist policies at the APEC meeting last month. "We are putting aside the obstacles," he told business leaders.

Mr. González and other manufacturing executives acknowledge that Mexico's problems competing with China go much deeper. Along with low labor costs and rising productivity, China offers foreign investors a sophisticated base of suppliers, tax breaks, well-trained engineers and managers and efficient ports.

In Mexico, businesses complain about high taxes and crime, red tape, transportation tie-ups at the congested border, poor infrastructure and a shortage of skilled technical workers and managers. To stay competitive, Mexico will need to develop its strengths, including its ability to provide just-in-time delivery to United States factories and retailers.

Mexico can no longer compete on low wages alone. Mexican wages for workers in the maquiladora sector range from about $2 to $2.50 an hour, including many benefits and labor taxes. Figures on Chinese labor costs are less reliable, but they range from 35 cents to as much as $1 an hour if all benefits and taxes are paid.

Historically, "Mexico has chosen to compete on labor costs, but because of that, it hasn't made the transition to more productivity-based industrial development," said Richard N. Sinkin, managing director at the InterAmerican Holdings Company, a San Diego consulting and investment firm that focuses on manufacturing in Mexico.

The maquiladora industry lost 287,000 jobs from its October 2000 peak, a 21 percent drop, to its low point in March.

The economic slowdown in the United States and a strong peso accounted for some of the loss. In addition, the Mexican government was slow to resolve confusion over new duties on Asian components and the tax status of the maquiladora plants.

Since the spring, the industry has added a few new jobs, as the peso has slipped and demand from the United States has improved, but the pace is sluggish for an industry that was the most dynamic in the late 1990's.

Some government officials say they are happy to see low-wage and low-technology jobs go elsewhere. But Jorge Carrillo, a social scientist at the College of the Northern Border in Tijuana, thinks that is misguided. "Sometimes you hear these pronouncements, `We want only high-tech.' These comments don't understand the path of industrialization."

Mr. Carrillo pointed to the Delphi Corporation's research and development center in Ciudad Juárez, a border city, where the auto parts company also employs thousands of workers in assembly plants. "There can't be a Delphi Technical Center if there isn't a manufacturing center first," he said.

Electronics is the industry that has suffered most. Government figures show production shrank 8.8 percent last year.

The Dutch giant Royal Philips Electronics has just shut its PC monitor plant in Ciudad Juárez, putting 900 people out of work. The work went to an existing plant in Suzhou, China, where Philips says it has a competitive supplier base. And in the spring, the Tokyo-based Canon Inc. shut down a 13-year-old ink-jet printer factory in Tijuana that at one point employed 700 people. The work moved to Thailand and Vietnam.

To stay competitive, the industry will have to promote research and development, so that it can offer tailor-made products, said Federico Lepe, executive vice president for the electronics industry chamber of commerce in Guadalajara.

The outlook is far from entirely grim for Mexico. Manufacturers of bulky items will stay in Mexico, since trans-Pacific shipping costs add a lot to their final price. And Mexico is continuing to evolve as an important element of an integrated North American manufacturing economy.

Last month, the Maytag Corporation announced it was shutting down its refrigerator plant in Galesburg, Ill., and moving the work to the Mexican border city of Reynosa. In September, Toyota Motor said it would expand the Tijuana plant it is building to produce Tacoma truck beds and also assemble the truck there.

The auto industry, which accounts for nearly 15 percent of Mexico's gross domestic product, is well-positioned to weather Asian competition. The industry works on a just-in-time basis, with suppliers continually delivering to the assembly plant on a tight schedule. That is hard to manage across an ocean.

Similarly, retailers that require just-in-time delivery will help Mexico keep its factories. Sanyo makes 5.5 million television sets a year, mostly for Wal-Mart Stores, dividing production between Tijuana and Forest City, Ark.

To attract more manufacturing, investors tick off lists of needed reforms, beginning with education. The average number of years of education of the Mexican work force is just eight.

"For each dollar of gross domestic product, the Chinese invest 10 times what we do in sending people to study for M.B.A.'s and master's degrees in engineering in the United States or Britain," said Carlos Mancera, a partner at Valora Consulting, an educational consulting firm here.

Mexico's high crime rate is another problem. Companies also complain that Mexico's taxes are too high and its labor laws too rigid.

But fixing those problems is such a huge undertaking that few expect to see improvements soon. "Cleaning up corruption, more transparency in the court system, a simplified tax code, vastly improved education," Mr. Sinkin, the consultant, said with more than a touch of irony. "Put all that together, and you've got a winning strategy."


Copyright The New York Times Company | Permissions | Privacy Policy

> -----Original Message-----
> From: Threehegemons@aol.com [mailto:Threehegemons@aol.com]
> Sent: Monday, November 18, 2002 10:37 PM
> To: boles@svsu.edu; ibnsubhi@yahoo.com
> Cc: wsn@csf.colorado.edu
> Subject: Re: Info on Free Trade Zones?
> Naomi Klein's No Logo, p. 202-229 has an excellent
> description of labor conditions in export processing zones,
> as they are more correctly described.  I usually mention to
> my students that conditions beyond EPZs in the periphery and
> semi-periphery aren't rosy.  Within the context of the
> capitalist world system, there is a huge labor glut (which
> the core manages through immigration controls), which isn't
> exactly the creation of the world bank.  The book "The
> Internationalization of Palace Wars" (a little difficult for
> undergrads) suggests that the World Bank's employees do not
> see themselves as the authors of the neoliberal 'Washington
> Consensus', and, in contrast to the perception of the
> IMF/World Bank by outsiders,they see themselves as easily
> pushed around and frustrated by the imperatives of certain
> governments and capital.
> Steven Sherman

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