NAFTA and The Environment
CASE MNEMONIC: MAQUILA
CASE NAME: Maquiladoras and the Environment
I. Identification
As in most debates over the benefits of free trade versus
environmental costs of dropped trade barriers, passage of the North
American Free Trade Environment (NAFTA) was viewed by many
environmentalists as coming with a huge price tag. Little
consideration was given to environmental issues in the primary
NAFTA agreement and only after the Clinton administration came
into office were environmental concerns addressed -- in side
agreements arrived at after the signing of NAFTA. In the first
two years of its existence, health and welfare protections that
were included as part of the NAFTA side agreements have done
little to stop pollution along the U.S.-Mexico border. That
pollution has in turn lead to the continued clustering of birth
defects on both sides of the border, mainly anencephaly, where
babies are born without fully developed brains. American
officials supporting NAFTA prior to its passage claimed that
industrial activity along the border by the maquiladora industries
would decrease under NAFTA. The opposite has occurred, with
maquiladora industries growing by 20 percent in the first two years
under NAFTA. While clusters of anencephaly were present prior to
the implementation of the NAFTA agreement, with cases dating back
to the late 1980s, the number of cases has also grown during the
past two-and-a-half years. Despite evidence of clear health
problems along the border and the availability of $8 billion in
federal monies for cleanup activities, the Commission for
Environmental Cooperation (CEC) has done little to address the new
environmental health problems brought on by the new free zone that
encompasses Mexico, the United States and Canada. To date, 47
cleanup proposals have been reviewed, seven have been approved, but
no funding has yet been allocated for any project. The growth of
the maquiladora industries poses additional problems for NAFTA.
The agreement was supposed to spread the wealth, pushing companies
located in the maquiladora trade zone further into the country.
Instead, more and more companies, primarily American, are
relocating to take advantage of the cheaper labor costs -- where
workers are paid an average of 75 cents an hour.
2. Description
One of the most heated debates over how major businesses and
industrialized countries should handle environmental issues has
come in the area of free trade. The debate surrounding the passage
and implementation of NAFTA has been no exception. Much of the
debate prior to the signing of the NAFTA focused on whether the
United States would lose jobs to cheaper wages offered by
companies, known as maquiladoras, operating along the U.S.-
Mexican border.
NAFTA supporters maintained that passage of the agreement
would force maquiladora industries to die out, with free trade
opening the way for entrepreneuers further inside the country. But
the agreement is facing a long history of cross-border relations
between the two countries that has fluctuated between acrimony
and accomodation. There are numerous sociological, political and
cultural factors at work. Most of the Southwestern United States
was once a part of Mexico and today Mexican culture is the dominant
one in much of the Southwest. For the past 150 years the land
border has been an invisible one, with American business actively
pursuing labor from south of the border. The result has been the
same for more than a century: Mexico provides cheap labor to
American corporations, which end up reaping huge profits.
The maquiladora program essentially allows foreign-owned and
managed companies duty free imports of manufacturing equipment,
tools, machinery and spare parts required for production into
Mexico. The goods can then exported to any country in the world
with only a value-added tax assessed the maquiladora industries --
which seek to profit by using cheaper Mexican labor for in
production. The maquiladora industries were originally launched by
the Mexican government in 1965 when Mexico set up a border
development program in a zone that ran 30 kilometers wide along the
common border. The goals were several: clean up the border,
attract more tourists, and create more jobs by enticing both
Mexican and American industries to the zone. The birth of the
maquiladoras came quickly on the heels of the end of the bracero
program, where U.S. companies legally imposed the idea of circular
migration by permitting the legal importation of Mexican workers
to U.S. farms on a seasonal basis. According to one estimate,
more than 4.5 million workers were admitted to the U.S. under the
bracero program.
Under the bracero program, American companies began to
fully realize the advantages of undocumented labor. Employers
discovered that they could undercut the wages of unionized
"native" workers at will. They could exploit the "illegal"
laborers, forcing extra work in poor conditions thanks to the
threat of being able to fire them at any time. While the goals
of setting up the maquiladora zones were admirable, they have
brought about the same results as the bracero program: the
exploitation of cheap labor. Companies have sought, and continue
to seek, to carry out their labor-intensive production in Mexico
where labor is cheap -- anywhere from one-seventh to one-tenth of
U.S. labor costs for comparable work.
More than 3,000 maquiladora operations are currently in
operation along the 2,000 mile border that stretches from
California to Texas -- and their numbers continue to grow.
These duty-free industrial plants now focus on using cheap domestic
labor to assemble mostly foreign components in a number of
different industries. Concentrated development along the border
as well as the nature of the industrial development has polluted
much of the water supply along the border and created serious
environmental issues that have yet to be addressed by the three
countries that are party to NAFTA (the United States, Mexico and
Canada).
There is increasing evidence that pollution of the air and
water supply along the border during NAFTA's first two-and-a-half
years, is exacerbating health problems on both sides of the
border. The most dramatic evidence of health problems has occurred
on the Texas-Mexico border. Clusters of babies being born with
anencephaly -- a rare neural tube birth defect in which a full-term
baby is born with incomplete or missing brains or skulls -- was
originally identified in both Brownsville, Texas and Matamoris,
Mexico in the late 1980s. The incidents of anencephaly, along
with other neural tube birth defects have increased since NAFTA was
implemented in January, 1994. In Cameron County, where Brownsville
is located, the Texas Department of Health reported 15 cases in
1994, up from 36 percent in 1993, when 11 were reported.
The state also discovered in late 1994, a new cluster of
anencephaly cases, along with cases of spina bifida, in Maverick
County. In 1992, just two cases of neural tube defects were
reported. That jumped to four in 1994 and in a three-month period
between December, 1994 and February, 1995, the county reported a
startling one case per month.
Birth Defects Before NAFTA Cameron County (1993) -- 11cases Maverick Country (1992) -- 2 cases
Birth Defects After NAFTA Cameron County (1994) -- 15 cases Maverick County (1994-95) -- 3 cases over three
months
A 1995 study that attempted to correlate 12 years of
industrial activity in Matamoros, Mexico with the anencephaly
rates in Brownsville, found that the prevalence of anencephaly is
strongly correlated to the level of activity found in the nearby
Matamoris maquila zone. The report states: "As maquila activity
has waxed and waned, so has the anencephaly rate increased and
decreased in Cameron, but not in Hidalgo or Nueces [two other
counties studied -- but farther from Matamoros.]"
The exact cause of anencephaly has not been determined, yet
there is a growing body of evidence indicating that various toxic
emissions from factories play a part in the tragic birth defect.
A study by the American Journal of Epidemiology which analyzed
mortality data from the state of Texas indicated that men working
in certain occupations with high chemical exposure have a greater
risk of fathering a child with anencephaly.
While few anencephalic babies are autopsied, one conducted
in Brownsville in 1991 revealed that the baby had the pesticides
DDE, DDT and Lindane -- all banned in the United States -- in its
tissue. Phenylglyoxilic acid, a breakdown product of styrene and
ethylene -- chemicals used to manufacture plastics, were found in
the body of the autopsied baby at levels that were three times the
legal occupational exposure for adults in the United States.
Lax environmental regulations combined with low wages
continue to make the the maquiladora region attractive to
multinational companies and NAFTA has been unable to counterattack
with any success so far. Data provided by the Institute for
Agriculture and Trade Policy in 1993 showed that General Motors
was then the largest private sector employer in Mexico and that
each of the top 100 corporations in the U.S. had at least one plant
operating in Mexico. The reason was found in the wages. The
Institute reported that the average hourly wage in the U.S. then
was $10.97 an hour compared to the average of 75 cents an hour
earned by maquiladora factory workers.
Despite the growing evidence that flourishing maquiladora
industries are polluting the environment and endangering the
quality of life of citizens on both sides of the border, neither
governmet nor NAFTA officials have sought accountability from any
of the industries operating along the border. The companies have
steadfastly admitted no wrongdoing. There is evidence, however,
that companies don't want information getting out about their
operations and health problems in the region. A number of
companies, including GM, have made out-of-court settlements with
families who live along the border and claimed that the operations
of the companies caused their babies to be born with neural tube
defects. GM was the last of 88 companies to settle in lawsuits
filed originally in March of 1993 by a Brownsville attorney. He
and the families involved accused the companies of polluting the
atmosphere with chemicals, resulting in a high number of rare birth
defects in Cameron County in the early 1990s. Martinez said that
in two years he reached settlements with corporations whose
payments ranged between $100,000 and $2 million.
It's unclear, however, whether these settlements will have
any affect on the operations of the maquiladoras. The number of
maquiladora plants has grown dramatically in 30 years and the
catastrophic drop in the peso in 1995 did little to stem the tide.
The number of plants has increased from just 600 in 1982 to more
than 3,000 today. Since NAFTA, the number of employees in the
maquiladora industries has grown 20 percent, from 546,588 in
December 1993 to 689,420 in October 1995.
While lawsuit settlements might range in the millions of
dollars, they are just the proverbial drop in the bucket to the
hundreds of millions being made in profits. A report issued by
the AFL-CIO in May1995 stated that after the peso devaluation,
multinational employers in the maquilas will realize an annual
windfall of more than $750 million from lower labor costs.
Allied Signal CEO Lawrence Boody took home $12.4 million in 1994,
the report stated, while the company's 3,800 Mexican employees
combined made an estimated $7.8 million. Ford CEO Alex Trotman
made $8.1 million during the same time period, more than 2,000
times the annual pay of an average Ford employee in Mexico --
which now has about 10,000 workers in assembly plants south of
the border.
The intense concentration of industry and workers along the
border has led to some severe environmental situations. In
1993, the Institute for Agriculture and Trade Policy estimated
that approximately 100 million gallons of untreated sewage are
dumped daily into the Rio Grande River from Maquiladora free
trade zones. While billions of dollars are available for toxic
cleanup along the border with Mexico, both U.S. and Mexican
officials report that not a single environmental project has gotten
off the ground in NAFTA's two years of existence.
During the NAFTA debate, the Clinton administration
indicated that $8 billion would be spent over a 10-year period to
clean up the industrial pollution along the border. Yet, as of
September, 46 cleanup projects had been reviewed by the Border
Environmental Cooperation Commission, a binational organization
created after NAFTA was approved. Just seven of those projects
have been approved for financing from the North American
Development Bank.
Finally, two years after NAFTA was passed, the Commission
for Environmental Cooperation, which was created under the North
American Agreement on Environmental Cooperation, only recently
began what it describes as a "pathbreaking and complex study of
the effects of NAFTA trade on the environment."
3. Related Cases
(1): Basel and Mexico
(2): Florido
(3): NAFTA
(4): Border
(5): Basel
(6): Tijuana
(7): San Diego
(8): Trail
(9): Air Pollution
(10): Colorado
4. Steve Fox, Nov. 26, 1996
II. Legal
Clusters
5. Discourse and Status:
In Progress
6. Forum and Scope:
NAFTA and MULTIlateral
7. Decision Breadth:
2: US and Mexico
All three countries are a party to the North American Free
Trade Agreement, yet the current environmental problems concern
industrial pollution produced by the maquiladora industries
located on the Mexican side of the common border with the United
States. The failure of both countries to enforce environmental
standards as part of NAFTA has further polluted the water supply
on both sides of the border. This has resulted in a growing
number of birth defects on both sides of the border, notably areas
near Brownsville, Texas and Matamoros, Mexico.
While Canada is also a party to NAFTA, the current dispute is
between the other two parties to the agreement. Ultimately,
however, it's in Canada's best interests for Mexico and the
United States to iron out there problems and keep NAFTA intact.
8. Legal Standing:
TREATY
After some heated debate within the US Congress and in the
public forum, NAFTA was signed into law on Dec. 17, 1992. The
goal was a simple one: lower trade barriers and create a North
American free trade zone that would compete with the European
Community and the "Asian Tigers." The agreement has had some
preliminary success.
NAFTA Success?
1994 Trade Totals (Estimates)
Canada -- $243 Billion Mexico -- $100 Billion
In its first year in 1994, trade among the NAFTA partners soared
17 percent, growing over $50 billion in just one year. Total
trade with Canada reached $243 billion, while trade with Mexico
exceeded $100 billion for the first time.
The original NAFTA agreement mentioned little about the
environment. With his election to office in November of 1992,
President Clinton made environmental amendments to NAFTA a high
priority. The Clinton administration pushed through environmental
side agreements to NAFTA that resulted in the creation of the tri-
national North American Commission for Environmental Cooperation.
The staff of the CEC have limited authority and the inquiries it
can make are limited. Only nonenforcement of existing
environmental law can be challenged under the CEC. The commission
has no authority to inspect environmental sites and lacks
subpoena power.
III. Geographic Clusters
9. Geographic Locations
Location has been the key to survival for the maquiladora
industries along the border. A 1993 study by the Institute for
Agriculture and Trade Policy reported that 26 percent of the
companies surveyed admitted that lax environmental regulations
was an important factor in their decision to relocate to the
maquiladora city of Mexicali. More recently, electronics
companies have begun to relocate to the border, resulting in
highly toxic and dangerous waste from its production processes.
a. Geographic domain: North America [NAMER]
b. Geographic site: Western Northern America [WNAMER]
c. Geographic impact: United States, Mexico
10. Sub-National Factors: No
11. Type of Habitat: DRY
IV. Trade Clusters
12. Type of Measure: Regulatory Standard [REGSTD]
13. Direct vs. Indirect Impacts: INDIRECT
Manufacturing is one of a number of direct causes of both air
and water pollution, yet the affect on trade is indirect.
Problems arise however, when trying to quantify the pollution
problem, such as what level of treated sewage can be dumped into a
river before it becomes a problem. In this way, the problem has
many indirect impacts.
14. Relation of Trade Measure to Environmental Impact
a. Directly Related: YES.
b. Indirectly Related: YES.
c. Not Related: No
d. Process Related: YES. Pollution Land (POLL)
15. Trade Product Identification: MANY
While a number of industries operate in the maquiladora trade
zone, a growing number of electronics companies are moving into the
area, releasing toxic materials in their production processes.
16. Economic Data
Industry Output:
NAFTA has worked to open up markets between the three countries.
In its first year in 1994, trade among the NAFTA partners soared 17
percent, growing over $50 billion in just one year. Total trade
with Canada reached $243 billion, while trade with Mexico exceeded
$100 billion for the first time. Yet, the key figure in this case
is the $8 billion available for environmental cleanup that has so
far remained untouched. the Clinton administration indicated that
$8 billion would be spent over a 10-year period to clean up the
industrial pollution along the border. Yet, as of September,
1996, 46 cleanup projects had been reviewed by the Border
Environmental Cooperation Commission, a binational organization
created after NAFTA was approved. Just seven of those projects
have been approved for financing from the North American
Development Bank. Also, average hourly wage earned by Mexican
workers in the maquiladora industries is reported to average at
approximately 75 cents an hour.
Employment:
Estimates vary depending on the source, but it's generally
agreed that approximately 3,000 maquiladora operations are in place
today, employing nearly 700,000 Mexicans.
17. Impact of Measure on Trade Competitiveness: MEDium
The impact can be viewed in several ways. NAFTA, as mentioned
earlier has been viewed as having a tremendous impact on trade
competitiveness. Implementation of environmental regulations, and
cleanups, is viewed by many as being one step toward restricting
the free trade being enjoyed by companies today. Accompanying the
environmental issues are labor issues, such as working conditions
and pay. These are issues that would end up affecting the profits
currently being made by companies and which many would prefer to
avoid. The problem lies in the initial fixed costs that companies
would have to pay initially. Yet, over time environmental costs
would become part of normal operating costs.
18. Industry Sector: MANY
Furniture and Fixtures (FURN)
Electrical Machinery (EMACH) and OTHERS.
19. Exporters and Importers: USA and MEXICO
The traditional import-export issues are not involved in this
case study because of NAFTA and the maquiladora free trade zone
V. Environment Clusters
20. Environmental Problem Type: POLL
21. Name, Type, and Diversity of Species
Name: Many
Type: Many
Diversity: N/A
22. Resource Impact and Effect: HIGH and REGULATORY
23. Urgency of Problem: HIGH, HUNDREDS OF YEARS
24. Substitutes: CONSV
Substitutes, as traditionally viewed with environmental
issues, are not pertinent in this case. The issue does, however,
call for what can be described as a subsitute in thinking. The
call for multinational corporations to begin producing with an eye
to the environment is nothing new. Since the turn of the century,
business has looked at the environment as a constantly renewalbe
resource. It is not. Corporations need to embrace the emerging
idea of sustainable development where environmental and resource
protections costs are internalized in the prodcut costs. The lack
of this internalization of costs in many cases creates a trade
distortion and the misallocation or misuse of natural and
environmental resources.
VI. Other Factors
25. Culture: NO
26. Trans-Boundary Issues: Yes
One of the most heated debates during passage of NAFTA
concerned the impact that the agreement would have on illegal
immigration from Mexico to the United States. The maquiladora
industries were set up as a way to battle the circular migration
practices many Mexicans used to make a living. Yet, the poor
wages provided by the maquiladoras, and the border location, has
only made it more tempting for Mexicans to cross over to the
United States for higher wages. In the first two years of NAFTA,
there has been no significant reduction in illegal immigration
and any reductions are only expected to come within a five-year
period.
27. Human Rights:
The right to breathe clean air and drink clean water is a
basic human right that is being sacrificed in the name of free
trade on both sides of the border. While companies may know they
are polluting, residents of Texas and Mexico live their lives,
not knowing that their child may be born with serious birth defects
that could be avoided. The other issue involves the exploitation
of the Mexican worker by the Maquiladora industries -- a serious
divergence from the stated goals of NAFTA.
28. Relevant Literature
1. Bustamante, Jorge. "Mexico's Interests and the NAFTA."
NAFTA as a Model of Development: 1995.
2. Corwin, Arthur F. and McCain, Johnny M. "Wetbackism Since
1964." Immigrants and Immigrants: Perspectives on Mexican Labor
Migration to the United States: 1978.
3. Kelly, Mary E. "NAFTA and the Environment: Free Trade and
the Politics of Toxic Waste." Multinational Monitor.
Special Issue: The Case Against NAFTA. October 1993.
4. LaFrachi, Howard. The Christian Science Monitor.
March 5, 1996.
5. Moss, Jr., Ambler, H. "Free Trade and Environmental
Enhancement: Are They Compatible in the Americas?" Trade and
The Environment, ed., Durwood Zaelke, Paul Orbuch, and Robert
F. Housman: 1993.
6. Pearson, Charles S. "The Trade and Environment Nexus: What
Is New SInce '72?" Trade and The Environment, ed., Durwood
Zaelke, Paul Orbuch, and Robert F. Housman: 1993.
7. Pinkerton, James. "GM Settles Border Suit." The
Houston Chronicle. Aug. 25, 1995.
8. Public Citizen. Executive Summary from
"NAFTA's Broken Promises: The Border Betrayed." Jan. 2, 1996.
Internet: http://www.essential.org/orgs/public_citizen/pctrade/borderexec.html
9. Sanchez, Ray. "NAFTA Fails To Halt Pollution."
Newsday. Reprinted in the International edition of the
Miami Herald, April 30, 1996.
10. The office of the United States Trade Representative. "The
NAFTA and the Environment." NAFTA Information Package.
Sept. 13, 1996. Internet:http://www.ustr.gov/agreements/nafta/information/index.html
11. Weintraub, Sidney. NAFTA: What Comes Next: 1994.
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