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NAFTIA* & Maquilas Van V. Miller presented at Central Michigan University 9 February 05 *Nafta = Naptha.

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Presentation on theme: "NAFTIA* & Maquilas Van V. Miller presented at Central Michigan University 9 February 05 *Nafta = Naptha."— Presentation transcript:

1 NAFTIA* & Maquilas Van V. Miller presented at Central Michigan University 9 February 05 *Nafta = Naptha

2 Operating Concepts in Maquilas Profits = Revenues – Costs Revenues can be from sales or set. Costs are: –Production (labor + materials) –Transaction (tariffs + transportation + taxes)

3 A NAFTIA GOAL Preamble- Create new employment opportunities and improve working conditions and living standards in their respective territories

4 This Goal Is about Economic Development in Mexico In 2003, Canada$29,740 Mexico $8,950 USA$37,500 World Bank data for GNI per capita on a PPP basis

5 Mexican Maquiladora Program Past year- 2800+ Plants 1.15 million Employees This week- Number of Plants 2,815 Employment1,140,153 Direct Labor Wage $ 1.88-Hour Technicians Wage$ 5.19-Hour Gross Production$ 91.64 billion (

6 Major Maquiladora Cities Tijuanamost plants, approximately 750 Juarezmost employees, maybe 300,000

7 U.S. Trade Act of 1931 Free Trade Zones (FTZ) An FTZ is a legal-geographical entity for reducing tariffs Tijuana (on the border) Costs –Production (unskilled labor) –Transaction (tariffs + transportation)

8 Bracero Program 1942-1964 Migration to the U.S. U.S. Costs –Production ( unskilled labor)

9 PRONAF 1961 Mexican Border Operations Mexican Profits = Sales Revenues - Costs

10 PRONAF/BIP (FTZ) 1965-1982 U.S. Operations on the Mexican Border Mexican Costs –Production (unskilled labor) –Transaction (tariffs + transportation + taxes) 1971Reduction of Ownership Risk

11 First Generation Maquila (located along the border) Materials Components Labor A

12 Twin-Plant/Maquila (FTZ) 1983-1994 Foreign Operations in Mexico Mexican Costs –Production (labor: un- & semi-) –Transaction (tariffs + transportation + taxes)

13 Second Generation Maquila (spreading into the country) Labor Materials AM Components

14 NAFTA Ending the Maquiladora Program There is no need for an FTZ in an FTA.

15 Maquila (TLC) 1994-2000 Maquiladora Operations in Mexico Mexican Costs –Production (labor: un- & semi- & skilled) –Transaction (tariffs + transportation + taxes) Elimination of Ownership Risk

16 Third Generation Maquila (located around the country) MDE A Materials Components MaterialsLabor Components

17 Maquila 2001-2007-Permanent Economic Development Need Continues Vertical Relationships in Mexico Sales Revenues from Mexican Customers Future Costs Materialsmore sought from Mexican suppliers Laborincreasing skills but the P/$ to Yuan/$ FX rate matters Transportation improving and JIT possible Tariffsnot an issue Taxesnow determined

18 Current and Future Issues Gaining and Losing Industries Labor NAFTA Side Accords and Reporting –The politics of getting the Agreement ratified in the USA required two side agreementsone on labor and the other on the environment. These two issues are always contentious (note the pending CAFTA) and should be remembered because they can strike at the heart of NAFTAs legitimacy.

19 Gaining and Losing Industries (automotive, electronics & electrical, textile/apparel NAFTA caused trade diversion, esp., in textile and apparel with fiber-forward rule. The industry will be a big loser in most cases if MFA stays abolished. In other industries, the tension is between the labor rates (Mexico vs. others) and the transportation factor (cost & delivery of Mexico vs. others). The motor vehicle industry should be a gainer and electronics & electrical will depend on the nature of the product, e.g. big screen TVs.

20 The Labor Issue Turnovera study of eight maquiladora cities in northern Mexico.

21 Wages and Turnover The Relationship between Turnover and Compensation in Lower-Generation Maquilas Starting WageWage ChangeAverage Wage HighLowHighLowHighLow Turnover High 7 951179 Rate Low 10 37694 Hildebrands.32 at p <.03.22 at p <.11.25 at p <.08 del

22 Generation and Wages The Relationship between Turnover and Generations in Maquilas Turnover RateN First Generation 65% 12 Second Generation 65%16 Third Generation 48%5 True Third Generation 11%*3 *Significant at p<.01

23 The Environmental Issue A study of the Top 25 Maquilas –

24 NAFTA Side Accords and Reporting Types of Voluntary Reporting Statements for the Top 25 TNC Maquilas Policies CodesPerformance Labor3+(6 safety only) 1 0 Environment 7 11 3 Quality 6 18 NA

25 Northern Maquiladora Cities Along the Mexico-Texas Border –Matamoros –Reynosa –Nuevo Laredo –Piedras Negras –Ciudad Acuna –Ciudad Juarez

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