Maquiladoras Essays - Economy Of Mexico, International Trade

Maquiladoras What role does maquiladora play in the development of a country? Why is this phenomenon seen as a new phase in capitalist development? Is this a reasonable claim? The role that the maquila plays in the development of a country is an interesting topic to discuss. To understand the role that maquiladoras play, one must first gain an understanding of the original purpose of the maquila. Then, by studying the evolution of the maquiladora to a big manufacturing base, one may have a better understanding of how this type of firm may lead to the development of the host country. In the first section, I will discuss the origination and development of the maquiladoras. In section two, I will provide the opinions of some economists and their insights as to how the maquiladora has affected developing countries. The third section deals with capitalism and how maquiladoras play a role in the development of a capitalist economy. In section four, I will discuss my opinions on the arguments that I have presented. The final section will include some concluding remarks. Now, let us familiarize ourselves with the maquiladora. The word "maquiladora" is derived from the Spanish verb "maquilar", which means to mill wheat into flour. Farmers would mill wheat into portions and then give a portion to the miller; this portion was called a maquila. As time passed, the word maquila became associated with manufacturing, assembly and packaging processes that were carried out by someone that was not the original manufacturer. In today's economic world, the word"maquiladora" stands for a special type of company in Mexico (Maquila Overview 1). The component that makes the maquiladora different from any other manufacturing plant is that they are allowed to import raw materials, equipment, and parts needed for assembly, and export the finished good to the United States on a duty free basis (Maquilas 1). The first maquiladoras were built in 1966 in Baja California and Cuidad Juarez (United States firms established with the support of the Mexican government). The Border Industrialization Program created these companies in order to channel the abundant labor source in the border areas of Mexico and the United States free trade zone (Maquila Overview 1). The original purpose of the maquiladoras was to employ all the unemployed people who resided on the Mexican side of the border and also to increase Mexican exports. The United States saw these companies as a chance to take advantage of the cheap cost of labor, the lack of Mexican labor and environmental rules and regulations, and few duties (Maquilas 1). The United States tariff schedules allow for the assembly of United States-made goods outside of the country and then, the return of the final product to the United States with duty only paid on the value added to the good. There are two sections under the tariff schedules that allow for industrial operations under the maquiladora program: Item # 9802.00.60 and 9802.00.80 (were 806.3 and 807.0) that states that the value of components made in the United States are not subject to duty when further processed or assembled abroad and returned to the United States. Item # 9802.00.60 deals with metal processing Item#9802.00.80 deals with assembly (Alvarez 1). Now, maquiladoras are not only located on the border of Mexico and the United States, but all over the country. The maquiladora can now sell a portion of the goods produced in the domestic market on payment of import duties and taxes on the imported materials (Maquila Overview 1). The maquila industry would not be here today without foreign investment. Many foreign companies in the United States, Japan, and Canada have taken advantage of cheap Mexican labor and the location of the Export Processing Zones and built manufacturing companies in Mexico. These companies are usually fully owned by foreign investors. These companies are probably the most successful part of Mexico's economy. The growth of this industry has been steadily increasing over the years, generating more foreign exchange than oil or tourism (Maquila Overview 2). Overall, the maquiladora industry seems to be a good way to increase productivity, employ the unemployed and create incentive for foreign investment. However, varying opinions exist among economists and some see the maquila industry as problematic, and ultimately hindering to the overall development of the host country. Chapter 1, The Maquilas in Global Perspective states that the reformation of capitalism marks the next step in the relations of dominant powers with Third World Countries. Capitalism is the separation of economy and state. It is the social system in which the means