by Jacob Hill
August 10th, 2007
A Preliminary Evaluation of the Impact of NAFTA on the Manufacturing Sector
In this, the fourteenth year of the North American Free Trade Agreement (NAFTA), it is of the utmost importance—in terms of its continued application in the future—to look back and examine the economic impact of free trade on the U.S. and Mexico over the last decade and a half. A major component of the exercise will be NAFTA’s impact on the proliferation of the maquiladora sector, which repeatedly has resulted in a precipitous drop in manufacturing jobs in the U.S. and Mexico as well as a reliable precedence for the weakening of labor standards in much of the third world.
Human Rights Abuses in Mexican Manufacturing
One of the most drastic and disturbing results of NAFTA has been a boom in the Mexican maquiladora sector. In the U.S. and the developed world, these manufacturing units would deservedly be known as sweatshops. The maquiladoras operate within Latin America because of the abundance of cheap labor and the poor conditions being tolerated. Due to the removal of protective tariffs by free trade pacts, raw components are imported to the maquiladoras without being taxed. Additionally, the machinery involved in the maquiladora process is also allowed to enter Mexico tariff-free under NAFTA’s terms. Then, Mexican laborers work to turn the raw goods into finished products, adding value to the goods. The end products are then exported to developed nations, with minimal tax levied that is based only on the value added during production.
Although one could argue that within the capitalist model, Mexico’s comparative advantage would be its inexpensive labor, the human rights abuses often associated with the maquiladora process thus bring with them a heavy economic disadvantage. The sweatshop problem has been well known since the inception of NAFTA. In 1995, just a year after the implementation of the free trade agreement, The New York Times reported on the exploitation of Mexican young girls by the maquiladoras. U.S. companies, often working through third parties, pay children as young as 14 years of age wages under 40 cents per hour. Maquiladoras located within walled and barbed wired free trade zones are not only exempt from import taxes, but are also exempt from state and local imposts for up to 10 years. Once a corporation structure is set up as a free trade zone and secures a manufacturing contract with a large multinational company, the owner of the facility maximizes profits by informally sanctioning a number of abuses, including offering low wages, tolerating dismal safety standards, refusing to provide health benefits and insisting upon unpaid overtime.
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