Beyond the maquila model? NAFTA and the Mexican apparel industry

In 1990, Mexico was the seventh largest exporter of garments to the USA, trailing Hong Kong, China, South Korea, Taiwan, the Philippines, and the Dominican Republic. Ten years later, it was number one on the list, with garment exports increasing in value from US$709 million in 1990 to US$8.7 billion in 2000 (INEGI 2001). This paper examines the Mexican clothing industry's recent export dynamism, which has allowed Mexico to emerge as the new production center of an integrated North American textile and apparel complex.1 Particular attention is paid to how inter-firm networks between US and Mexican companies are restructuring the post-- NAFTA apparel industry, and how this process affects the upgrading prospects of Mexican firms.

First, I briefly review the contemporary debate regarding Mexico's strategy of development through export-oriented growth. Much of this discussion has been precipitated by the dramatic expansion of Mexico's in-bond or maquila industry since the implementation of the North American Free Trade Agreement (NAFTA). Second, I explain how NAFTA encourages the development of "full-package" networks between US clients and textile and apparel manufacturers in Mexico. Third, I examine the governance structure of post-NAFTA cross-border networks in terms of the role played by US lead firms, and fourth, I assess the implications of these networked forms of production for upgrading the Mexican textile and apparel industries, drawing on fieldwork conducted in northern, central, and southern Mexico.

The key finding is that NAFTA-inspired, full-package networks provide limited opportunities for some Mexican manufacturers to move beyond the assembly-export role associated with the maquila regime. As compared with the assembly networks traditionally linking US manufacturers and maquiladoras, full-package networks offer greater opportunities for industrial upgrading because they connect a more diverse set of US buyers to Mexican textile and apparel manufacturers. My analysis underscores the importance of these buyers and focuses on the most powerful firms in the post-NAFTA North American apparel industry. These include US-based retailers and marketers, branded manufacturers, and large contractors that play a critical role in shaping export-oriented garment production networks in Mexico. The extent to which local producers in Mexico benefit from their export activities depends largely on the governance structure of the particular networks that connect them to foreign markets. Specifically, my analysis underscores how key actors in the North American apparel commodity chain-the "chain drivers"-shape the upgrading prospects of the Mexican firms that participate in the networks they govern.2

ECONOMIC LIBERALIZATION AND A SECOND "MEXICAN MIRACLE"?

Like many countries in Latin America, Mexico followed an import-substituting industrialization (ISI) development model from the late 1930s through the end of the 1970s. For much of this period, the Mexican economy posted an impressive record of growth. Between 1940 and 1970, Mexican GNP grew at a rate of 6.5 percent per year, with an annual per capita growth rate of 3 percent, and the real minimum wage rose steadily from the mid-1950s through the mid-1960s (Villarreal 1977). Nevertheless the growth achieved during the years of the so-called "Mexican miracle" could not save the ISI regime from a series of crises caused primarily by a persistent balance of payments problem, which began in the late 1960s (Fajnzylber 1983; Aspe Armella 1993). Although for a time Mexico was able to finance ISI through agricultural surpluses and later through petroleum exports, these sources were exhausted by the early 1980s and Mexico was plunged into its worst economic crisis since the Great Depression, with a major devaluation of the peso in 1982. By the end of that year, Mexico had negotiated a loan package with the International Monetary Fund to relieve some of the crushing pressure caused by its debt.

The country's economic woes worsened in the middle of the decade, however, as oil prices continued to fall and the deficit continued to grow. By 1985, there was widespread speculation that Mexico might default. This time, Mexico, along with other debtor nations in Latin America, received relief from the USA in the form of the Baker Plan. The price exacted for this support was continued commitment to, and acceleration of, liberalizing reforms begun by Mexican President Miguel de la Madrid (1982-88). Mexico's accession to the General Agreement on Tariffs and Trade (GATT) in 1986 was an important indication that the country was indeed moving in the direction of greater openness, and this tendency was confirmed by the announcement in December 1987 of the Pacto de Solidaridad Economica (Economic Solidarity Pact). Mexico's adoption of a new development paradigm, and particularly its reliance on export-oriented growth as the central tenet of this strategy, was further solidified with the signing of the North American Free Trade Agreement in 1993. As the apotheosis of Mexico's neoliberal turn, NAFTA represents the consolidation of past reforms, while also reflecting the future of Mexico's new insertion in the global economy.

The package of neoliberal reforms adopted by Mexico since the mid-1980s is designed to achieve macroeconomic stability by controlling inflation, opening markets, and championing private sector-led growth. The key to Mexico's liberalization program, however, is export promotion, and by all accounts, the export sector of the Mexican economy has been highly dynamic in recent years. Between 1990 and 2000, Mexico's exports more than quadrupled in value, from US$40.7 billion to US$166.5 billion, and most of that growth occurred after NAFTA's implementation in 1994 (Buitelaar and Padilla 2000; INEGI 2001). The fact that Mexico has transformed itself from a tightly closed economy to a highly open one in the span of little more than a decade, and has achieved this transformation in a context of overall economic stability and dramatic export growth, might be hailed by some as a second Mexican miracle.

However, there is significant debate in Mexico today about the extent to which its agenda of development through export promotion can reduce poverty and promote more equitable growth. The liberalization strategy has been successful when judged in its own terms, but it is not designed to create jobs or reduce inequality, and when such criteria are added to an evaluation of Mexico's recent economic performance, the conclusions are considerably less bright (Dussel Peters 2000). The December 1994 devaluation of the peso gave a quick boost to Mexican exports, but the peso's loss of over half of its pre-devaluation value in a matter of months meant a massive decline in Mexicans' purchasing power. Furthermore, employment creation over the last decade has been lackluster, and wage inequality in Mexico has worsened since 1987 (Salas and Zepeda 1999; Dussel Peters 2000).

Much of the debate in Mexico today focuses on the maquila sector, which has been the linchpin of the country's export dynamism. Maquiladoras are in-bond plants that assemble a variety of products (though chiefly apparel, electronics, autos and auto parts) for export from US components. Maquila exports receive preferential access to the US market under clause 807 (now 9802) of the US Trade Law, which allows goods assembled abroad from US-made components to be imported into the USA virtually duty-free.' (Duty is assessed only on the minimal value-added by foreign labor during the assembly process.) Mexico's maquiladoras have exhibited extraordinary dynamism in the post-NAFTA period. In 1994, the year that NAFTA went into effect, there were 600,585 Mexicans working in over 2,000 maquiladoras (Buitelaar and Padilla 2000). By the end of that decade maquila employment had doubled; in December 2000, there were more than 1.3 million workers employed in 3,703 maquiladoras operating throughout Mexico (INEGI 2001).