U.S. and Mexican Companies Form Maquiladoras

Date 1965

In the mid-1960’s, the governments of Mexico and the United States encouraged the formation of a series of factories called maquiladoras along the border between the two countries. Officials hoped that the maquiladoras would provide economic boosts to cities on both sides of the border.

Also known as Border Industrialization Program

Locale Mexico; United States

Key Figures

• Luís Echeverría Álvarez (b. 1922), president of Mexico, 1970-1976
• Richard M. Nixon (1913-1994), president of the United States, 1969-1974
• Gustavo Díaz Ordaz (1911-1979), president of Mexico, 1964-1970
• Octaviano Campos Salas (fl. mid-twentieth century), Mexican minister of industry and commerce in 1965

Summary of Event

In 1965, Mexico’s minister of industry and commerce, Octaviano Campos Salas, proposed the establishment of a tariff-free zone along the United States-Mexico border. President Gustavo Díaz Ordaz wholeheartedly supported the idea, marking the beginning of the maquiladoras, or factories, program. The program, officially known as the Border Industrialization Program, may be considered the forerunner of NAFTA, the North American Free Trade Agreement, which Canada, Mexico, and the United States signed in 1992.

From the Mexican standpoint, the maquiladoras were designed to benefit the entire country. Although they were located primarily in border areas, the intent was to open free trade zones in parts of Mexico that needed economic stimulation. The government envisioned that the spread of benefits from the areas would have a positive effect on the country as a whole. In fact, it hoped that the program would lead to the establishment of a de facto Mexican-United States free trade area along the entire border. The maquiladoras did provide an economic boost to cities on both sides of the border, but they brought problems as well.

Maquiladoras were considered labor-intensive businesses that could create sorely needed jobs in Mexico and keep U.S. industries competitive in a global economy by lowering labor costs. The factories began as joint ventures between a variety of Mexican and U.S. companies. A few Mexican companies established operations, and several plants formed around Mexican labor cooperatives. The bulk of the maquiladoras, however, were subsidiaries of U.S. companies.

The Mexican government developed its program to allow manufacturers to use low-cost labor to assemble final products for re-export. The procedure was simple: Mexican manufacturers would import components and raw resources from the United States duty free. They would transform these materials into finished products and ship them back to the United States. Often, the shipping consisted of short trips across the border, since many of the American companies built component manufacturing “twin” plants on their side of the dividing line between the two countries. The only duty paid was on the added value (principally the cost of labor) of the goods.

There were other benefits as well. For example, American companies could, through thirty-year trusts created by Mexican credit institutions, gain control over their factories and office facilities through leases, or, in some cases, outright ownership. Without the trusts, they could have no control, since Mexican law prohibited foreign companies from owning any land in areas within sixty miles of the American border or thirty miles of the coast.

As the program grew, the Mexican government relaxed some of its limitations on American companies. For example, it eased its ban on American companies selling any of the finished goods in Mexico. Once that happened, the companies were allowed to sell up to 20 percent of their production within Mexico. Such benefits, combined with cheap labor, were magnets for U.S. companies looking to cut production costs. The government also removed its restriction prohibiting U.S. companies from buying components in Mexico. This worked to Mexico’s advantage, as by 1987, American companies had purchased nearly $300 million worth of local parts. The revisions strengthened a growing program and led to even more jobs in the border cities on both sides.

The phenomenon of Mexicans working for American companies was not new. During the nineteenth century, Mexican peasants moved into border communities seeking employment. Many entered the United States looking for jobs with the expanding railroads, and business operators in northern Mexico tried to enter American markets. Subsequently, cattle ranching grew and became more modernized in the American Southwest and northern Mexico.

World War II increased cooperation between the United States and Mexico. The two governments negotiated the bracero program in 1942. U.S. president Franklin D. Roosevelt and his Mexican counterpart, Manuel Avila Camacho, agreed to allow Mexicans to serve as agricultural workers in the American West. The United States needed braceros to replace farmworkers serving in its armed forces. Later, the Mexican workers spread into the American railroad industry. By July, 1945, there were an estimated fifty-eight thousand Mexicans working in the agricultural industry and another sixty-two thousand working for the railroads. There were also thousands of illegal immigrants working in various American industries.

In addition to the agricultural and railroad workers, thousands of other Mexican laborers rushed north to work in new defense plants all along the border, from El Paso to San Diego. Consequently, Mexican border cities such as Tijuana and Ciudad Juarez started growing considerably. This presented problems for the Mexican government, in that it all but created two Mexicos. The area along the United States border became known as Mexamerica.

For a long while after the war, the Mexican government concentrated on building up Mexamerica. Specifically, the government increased its investment in agriculture throughout Mexico, 75 percent of the funds going for irrigation projects. Most of the money was invested in the northern part of the country. The project turned a desert wasteland into a fertile, productive agricultural region. Many large modern farms emerged, similar to those on the American side of the border. The Mexican farmers grew crops, most of which were destined for markets in the United States. Railroads expanded to connect the Mexican and American farming regions. The effect was an imaginary, but all too real, dividing line between northern and southern Mexico.

In 1964, the American government ended the bracero program. President Lyndon B. Johnson, however, did not want to abandon Mexico. Both governments acted independently to offset the loss of jobs in Mexico. The U.S. government encouraged American businesses to invest in Mexico and re-export to the United States. The government pointed out to American companies that under U.S. tariff codes, they could export items “offshore” for processing or assembly, paying duty only on the value added when they sent the goods back to the United States. This idea appealed to many American manufacturers.

A year later, the Mexican government modified its foreign investment laws to allow American firms to establish plants in Mexico. The primary goal was to provide jobs in northern Mexico for returning braceros and others. The modified laws succeeded so well that in the early stages of the program, 89 percent of the maquiladoras were located along the Mexico-United States border. The government also hoped to create a foundation for an industrial base. It succeeded in both aims, even though success did not always come easily. In 1969, President Richard M. Nixon virtually closed the U.S.-Mexico border during a controversy over drugs. Then, in August, 1971, he unexpectedly imposed a 10 percent duty on imports that severely affected Mexico, which sold more than 70 percent of its exports to the United States. Mexican president Luís Echeverría Álvarez, a staunch supporter of the maquiladoras program, continued to push for better relations between the two countries. His diplomacy prevailed, and the program grew.

Significance

The maquiladoras program attracted the hoped-for investment and foreign exchange earnings. Significantly, the maquiladoras became Mexico’s second-largest source of foreign earnings, behind oil and ahead of tourism and migrant workers. In the first twenty years of their existence, the number of maquiladoras grew to almost one thousand. By 1987, American firms had invested approximately $2 billion in their “offshore” operations in Mexico. Those figures satisfied the Mexican government’s foreign investment goals. There was similar success in the employment picture.

The maquiladoras program created jobs. Ironically, at its outset, young, single women filled as many as 78 percent of them. These were women who, for the most part, were born and reared in the borderlands. Without the maquiladoras, they probably would have been unemployed. This created a disruption in Mexico’s social structure. Traditionally, Mexican women stayed home, and men worked outside the home. Many of the men who might have worked in the maquiladoras, however, had remained in the United States as the bracero program wound down. Those who returned did not want to work for the low wages offered in the border plants. Women therefore became the primary source of workers for the maquiladoras.

The successes of the program, however, came at a price. The maquiladoras attracted opposition both in Mexico and in the United States. Organized labor in the United States complained that the program took jobs away from Americans. Some Mexicans criticized the program because it exploited the nation’s workers and did little to improve technology, train workers for better jobs, or increase wages. It is important to note that 83.1 percent of the maquiladoras jobs were considered technical. Worse, the critics said, the maquiladoras were strangling the Mexican border cities.

The Mexican government argued that the program provided Mexicans with a chance to escape the poverty so prevalent in the interior of the country. The buildings in which they worked contained amenities such as air conditioning and lighting that improved employment conditions and made the employees’ lives easier. Regardless of the arguments pro and con, people flocked to the border cities to seek work, inadvertently creating problems. The large number of workers moving into Tijuana, Ciudad Juarez, and other large border cities overtaxed the communities’ facilities. There was also concern over the mental state of workers who put in long hours doing repetitive tasks for low wages. Finally, there was an increase in the pollution generated by the growing number of plants.

The Mexican government continued to adapt the maquiladoras program, which admittedly got off to a slow start. In 1966, for example, the dutiable value of maquiladoras shipments to the United States was only $3 million. Ten years later, it rose to $536 million. By 1979, it exceeded the $1 billion barrier. Significantly, in 1976, maquiladoras exports equaled more than half of Mexican exports to the United States of manufactured goods, excluding chemicals and some food, oil, and fiber products. About two-thirds of the exports consisted of items such as electronic and television parts, telephone switchboards, bicycles, textiles, and transportation and communication equipment. Over the years, the variety of goods produced by the maquiladoras increased.

Trial and error resulted in a much larger program than the Mexican government planned on at the program’s inception. Even though the original design dictated that all products assembled were to be re-exported to the United States, the government expanded the program to include some European and Japanese companies. These companies also have established operations on the border.

Bibliography

Comité Fronterizo de Obreras (CFO; Border Committee of Women Workers). http://www.cfomaquiladoras .org. Web site of a grassroots Mexican workers organization headquartered in Piedras Negras, Coahuila, Mexico.

Kamel, Rachael, and Anya Hoffman, eds. The Maquiladora Reader: Cross-Border Organizing Since Nafta. Philadelphia: American Friends Service Committee, 1999. Presents an overview of the maquiladora industry as well as essays that explore worker’s rights, working conditions and health issues, discrimination, labor activism, and more. Includes bibliographical references.

McBride, Robert H., ed. Mexico and the United States. Englewood Cliffs, N.J.: Prentice Hall, 1981. This collection includes a particularly informative essay by Laura R. Randall, “Mexican Development and Its Effects upon United States Trade,” which presents meaningful statistics regarding the maquiladoras program.

Pastor, Robert A., and Jorge G. Castaneda. Limits to Friendship: The United States and Mexico. New York: Alfred A. Knopf, 1988. A uniquely formatted book in which the two authors present contrasting views in a series of essays devoted to a variety of topics affecting U.S.-Mexican relationships.

Raat, W. Dirk. Mexico and the United States: Ambivalent Vistas. Athens: University of Georgia Press, 1992. An easy-to-read book focusing on the manner in which the United States and Mexico have affected each other’s history, including the impact maquiladoras have had on the border regions.

Riding, Alan. Distant Neighbors: A Portrait of the Mexicans. New York: Alfred A. Knopf, 1985. A concise overview describing Mexico’s political and governmental structures and economic and social conditions from 1970 to 1985.

Roett, Riordan, ed. Mexico and the United States: Managing the Relationship. Boulder, Colo.: Westview Press, 1988. A readable collection of essays that focuses on the economic agenda and key bilateral issues affecting U.S.-Mexican relations.

Schmitt, Karl M. Mexico and the United States, 1821-1973: Conflict and Coexistence. New York: John Wiley & Sons, 1974. A highly readable treatise on the often stormy relationship between the two countries, with an excellent summary of the inception of the maquiladoras program.

United States. General Accounting Office. International Trade: Mexico’s Maquiladora Decline Affects U.S.-Mexico Border Communities and Trade. Washington, D.C.: Author, 2003. A U.S. government report analyzing the state of the maquiladoras program and its decline in the early years of the twenty-first century. Available at http://www.gpoaccess.gov/gaoreports/. In search box, enter article number GAO-03-891.

Vazquez, Josefina Zoraida, and Lorenzo Meyer. The United States and Mexico. Chicago: University of Chicago Press, 1985. A concise history of U.S.-Mexican relations presented in two parts. Includes discussions of ties among the United States, Mexico, and other Central and South American countries.