This is the accessible text file for GAO report number GAO-03-891 
entitled 'International Trade: Mexico's Maquiladora Decline Affects 
U.S.-Mexico Border Communities and Trade; Recovery Depends in Part on 
Mexico's Actions' which was released on July 25, 2003.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

Report to Congressional Requesters:

July 2003:

INTERNATIONAL TRADE:

Mexico's Maquiladora Decline Affects U.S.-Mexico Border Communities and 
Trade; Recovery Depends in Part on Mexico's Actions:

GAO-03-891:

GAO Highlights:

Highlights of GAO-03-891, a report to congressional requesters

Why GAO Did This Study:

Mexico’s maquiladoras have evolved into the largest component of U.S.
-Mexico trade. Maquiladoras import raw materials and components for 
processing or assembly by Mexican labor and reexport the resulting 
products, primarily to the United States. Most maquiladoras are U.S. 
owned, and maquiladoras import most of their components from U.S. 
suppliers. Maquiladoras have also been an engine of growth for the 
U.S.-Mexico border. However, the recent decline of maquiladora 
operations has raised concerns about the impact on U.S. suppliers 
and on the economy of border communities.

Because of these concerns, GAO was asked to analyze (1) 
changes in maquiladora employment and production, (2) factors 
related to the maquiladoras’ decline, and (3) implications of 
recent developments for maquiladoras’ viability.

What GAO Found:

After growing rapidly during the 1990s, Mexican maquiladoras 
experienced a sharp decline after October 2000. By early 2002, 
employment in the maquiladora sector had contracted by 21 percent and 
production had contracted by about 30 percent. The decline was 
particularly severe for certain industries, such as electronics, and 
certain Mexican cities, such as Tijuana. The downturn was felt on the 
U.S. side of the border as well, as U.S. exports through U.S.-Mexico 
land border ports fell and U.S. employment in manufacturing and 
certain other trade-related sectors declined.

The cyclical downturn in the U.S. economy has been a principal factor 
in the decrease in maquiladora production and employment since 2000. 
Other factors include increased global competition, particularly from 
China, Central America, and the Caribbean; appreciation of the peso; 
changes in Mexico’s tax regime for maquiladoras; and the loss of 
certain tariff benefits as a result of the North American Free Trade 
Agreement. 

Maquiladoras face a challenging business environment, and recent 
difficulties have raised questions about their future viability. 
Maquiladoras involved in modern, complex manufacturing appear poised 
to meet the industry’s challenges. Still, experts agree that 
additional fundamental reforms by Mexico are necessary to restore 
maquiladoras’ competitiveness. U.S. trade and homeland security 
policies present further challenges for maquiladoras.

www.gao.gov/cgi-bin/getrpt?GAO-03-891.

To view the full product, including the scope and methodology, click on the 
link above. For more information, contact Loren Yager at (202) 
512-4347.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Maquiladoras Contribute to Integration along the Diverse U.S.-Mexico 
Border:

After Rapid Growth, Maquiladoras and Border Region Experienced Declines 
Beginning in 2000:

Cyclical and Structural Factors Cited in Maquiladora Decline:

Maquiladora Downturn Spurs Some Positive Changes, but Fundamental 
Challenges to Future Viability Remain:

Agency Comments and Our Response:

Appendixes:

Appendix I: Structure of Employment Growth in the U.S.-Mexico Border
Area: 

U.S. Border Employment Outpaced Nation’s since 1995:

Appendix II: Effect of U.S. Economic Conditions on Employment in
Mexican Maquiladoras:

Appendix III: Mexico-China Competition in the U.S. Market for Imports:

Appendix IV: U.S.–Mexico Trade, by U.S. Port, 1999–2002:

Appendix V: Maquiladora Employment Statistics: 

Appendix VI: Objectives, Scope, and Methodology: 

Appendix VII: Comments from the Department of State: 

Appendix VIII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Tables:

Table 1: Employment Growth of the United States and U.S.
Metropolitan Statistical Areas at the U.S. Mexico Border by
Industry: 1990–2002 and 2000–2002:

Table 2: Components of Employment Changes by Sectors in U.S.
Metropolitan Statistical Areas at the U.S. Mexico Border,
1990–2002:

Table 3: Summary of Regression of Maquiladora Employment and
U.S. GDP and Real Peso Exchange Rates:

Table 4: Summary of Regression of Maquiladora Employment and
U.S. GDP and Real Peso Exchange Rates for Three Subperiods:

Table 5: Summary of Regression of Maquiladora Employment and
U.S. Manufacturing Shipments and Real Peso Exchange Rates:

Table 6: Top 25 U.S. Imports from China for Which China's Share of
U.S. Imports Grew, while Mexico's Share Declined between 1995 and 
2002: 

Table 7: Trade Flows through Major U.S.-Mexico Land Border
Crossings:

Table 8: Maquiladora Employment by State and City, 1990–2002:

Table 9: Maquiladora Employment by City and Industry, 1990–2002:

Figures: 

Figure 1: Map of U.S.-Mexico Border Twin Cities:

Figure 2: Maquiladoras’ Share of Mexico’s Trade 1990-2002:

Figure 3: Map of Mexico Showing Share of Maquiladora
Establishments, by State:

Figure 4: Growth in Maquiladora and Total Mexican Manufacturing
Production, 1993–2002:

Figure 5: Maquiladora Textile and Apparel Employment, Nonborder and 
Border Regions, 1990–2001:

Figure 6: Maquiladora Employment and Establishments, 1990-2002:

Figure 7: Mexican Maquiladora Employment in the Border Region
by Industrial Sector, January 1997–October 2002:

Figure 8: Mexican Maquiladora Employment, by Border City,
January 1990 - December 2002:

Figure 9: Growth of Manufacturing Production in Mexican Border
States, 1993–2002:

Figure 10: Annual Growth Rates of U.S. Gross Domestic Product
and Maquiladora Employment, 1980-2002:

Figure 11: Value of U.S. Imports from Mexico and China, 1995–2002:

Figure 12: U.S. Imports of Textiles and Apparel from Mexico, China,
and Caribbean Basin Countries, 1990–2002:

Figure 13: Real Dollar Exchange Rate of Mexican Peso and Chinese
Yuan, 1995–2002:

Figure 14: Nonfarm Annual Employment Growth in the United
States and in U.S. Metropolitan Statistical Areas at the
U.S.-Mexico Border, 1991-2002:

Figure 15: Employment Gains (Losses) in Nonfarm Employment in 
Metropolitan Statistical Areas at the U.S. Mexico Border Due to 
National, Industry-mix, and Local Effects:

Abbreviations: 

BIP: Border Industrialization Program:

CBI: Caribbean Basin Initiative:

CNIME: Mexico's National Council of the Maquiladora Export Industry 
(Consejo Nacional de la Industria Maquiladora de Exportación):

FAS: Free-Alongside-Ship:

GDP: Gross Domestic Product:

ITA: Information Technology Agreement:

ITC: International Trade Commission:

MSA: Metropolitan Statistical Area:

MEDC: McAllen Economic Development Corporation:

NAFTA: North America Free Trade Agreement:

PROSEC: Sectoral Promotion Program (Programa de Promoción Sectoral):

USTR: Office of the U.S. Trade Representative:

WTO: World Trade Organization:

Letter July 25, 2003:

The Honorable Max Baucus 
Ranking Minority Member 
Committee on Finance 
United States Senate:

The Honorable Jeff Bingaman 
The Honorable Kay Bailey Hutchison 
United States Senate:

Mexico's Maquiladora program, which was established in 1965 to attract 
investment and create jobs along the U.S.-Mexico border, has evolved 
into the largest and most dynamic component of U.S.-Mexico trade. U.S. 
companies own the vast majority of maquiladora plants, and maquiladoras 
import about 80 percent of their components from U.S. suppliers. With 
double-digit growth rates in output and employment until its peak in 
the last quarter of 2000, maquiladora-based production has been one of 
the engines of regional employment and income growth for the U.S.-
Mexico border. However, over the past 2 years, the level of employment 
and production in maquiladora operations has declined sharply. This 
decline has led a number of observers to express concern about the 
future viability of maquiladoras. Some observers in the United States 
are also concerned that the decline of Mexico's maquiladoras could 
adversely affect U.S. companies that supply these plants and could hurt 
the economy of border communities.

In response to your concern about the significance of these 
developments, this report analyzes (1) the ways in which the 
communities along the U.S.-Mexico border are integrated and how 
maquiladoras have contributed to U.S.-Mexico interdependence; (2) 
recent changes in maquiladora production, employment, and cross-border 
trade; (3) factors that have affected employment and production in the 
maquiladora sector; and (4) factors that could affect the maquiladora 
industry's future viability.

To address these objectives, we met with U.S. and Mexican government 
officials in Washington, D.C., and Mexico City. We contacted business 
and nonprofit sector representatives, academicians, and other experts 
on the maquiladora industry in the United States and Mexico, and we 
reviewed extensive documentation and academic research provided by 
these sources. We obtained and analyzed official data on employment and 
trade trends from both U.S. and Mexican government agencies. We also 
conducted a series of semistructured interviews with 29 representatives 
of business associations consisting of maquiladora-specific and 
principal industry sector organizations at the local and national 
levels. We relied on business associations because, as representatives 
of the maquiladoras, they could comment on issues facing their members, 
such as increased competition, and could explain the reasons for plant 
closures, changes in employment levels, and other changes within the 
industry. We conducted site visits in three major border "twin cities": 
San Diego, California-Tijuana, Baja California; El Paso, Texas-Juarez, 
Chihuahua; and McAllen, Texas-Reynosa, Tamaulipas.

Results in Brief:

A variety of social and economic factors link U.S. and Mexican border 
communities, and maquiladoras play a significant role in this 
interdependence. Trade figures indicate that the four U.S. border 
states account for about 62 percent of U.S. exports to Mexico, while 70 
percent of these exports were destined for Mexican border states. 
Border communities are also drawn together socially by family and 
educational ties and economically by twin-plant production and retail 
commerce. Residents in the twin cities cross the border about one 
million times every day to work, shop, attend classes, visit family, 
and participate in other activities. The maquiladora sector, which 
relies heavily on imports from the United States and represents the 
principal industrial activity on the Mexican side of the border, drives 
cross-border economic integration as well as the increasing U.S.-Mexico 
interdependence. However, the border is a diverse region, and the 
extent of interdependence between communities along the border varies 
widely.

After growing rapidly during the 1990s, Mexican maquiladoras 
experienced a sharp decline in production and employment after October 
2000. In early 2002, employment in the maquiladora sector had 
contracted about 20 percent, losing nearly 290,000 jobs, and production 
had contracted about 30 percent. The decline was particularly severe in 
certain industries and cities. For example, maquiladora employment in 
the Mexican electronics industry declined 31 percent between 2000 and 
2002, and Tijuana, a city with significant maquiladora electronics 
manufacturing, experienced a 30 percent decline in maquiladora 
employment. In addition, overall manufacturing production in the 
Mexican border region began declining in 2000. The downturn was felt on 
the U.S. side as well. For example in 2001, the value of U.S. exports 
through U.S.-Mexico land border ports fell by 10 percent. Similarly, 
employment on the U.S. side of the border declined in manufacturing and 
certain other trade-related sectors. Despite these contractions, 
overall U.S. border employment grew in most U.S. border metropolitan 
statistical areas.

According to government researchers, academicians, and industry 
representatives, both cyclical and structural factors have contributed 
to the decline in Mexico's maquiladora employment and production since 
2000. Representatives of industry groups emphasized, and our economic 
analysis confirms, that the cyclical downturn in the U.S. economy has 
been a primary factor in the decline of the maquiladoras. However, 
industry sources and other experts noted that Mexico's maquiladoras 
also face increased global competition in the U.S. market, particularly 
from China, Central America and the Caribbean. The real appreciation of 
the peso relative to the dollar and key competitors' currencies has 
heightened such pressure. Additionally, industry representatives 
indicated that Mexican government policies such as changing the tax 
regime applied to maquiladoras have created a climate of uncertainty 
for investors. Meanwhile, owing to commitments undertaken under the 
North America Free Trade Agreement (NAFTA), Mexico has now phased out 
some benefits to the maquiladora sector.

Factors affecting the recovery of Mexico's maquiladoras include recent 
industry and government actions and the prospect of future Mexican 
reforms. The recent decline of the maquiladoras has added impetus to 
the ongoing evolution in the industry toward more sophisticated 
manufacturing and prompted the Mexican government to take several steps 
in support of the maquiladoras. For example, the Mexican government has 
greatly expanded the number of components that can be imported by 
maquiladoras and other firms with little or no duty assessments. 
However, government, industry, and other experts agree that additional 
fundamental reforms by Mexico, in areas such as energy and labor 
practices, are still necessary to restore the country's attractiveness 
as a business and investment location. Though difficult, tackling such 
reforms is made more urgent by U.S. trade and homeland security 
policies that are likely to present further challenges for maquiladora 
operations.

Background:

Mexico's Maquiladora program has been a central feature of the U.S.-
Mexico border. The U.S.-Mexico border stretches nearly 2,000 miles, 
from the Pacific Ocean in California to the Gulf of Mexico in Texas. 
Four U.S. states (Arizona, California, New Mexico, and Texas) and six 
Mexican states (Baja California, Chihuahua, Coahuila, Nuevo Leon, 
Sonora, and Tamaulipas) make up the border. Texas contains the longest 
section of the U.S. border with Mexico, with several large and numerous 
small border crossings across the Rio Grande. Compared with Texas, 
California's border with Mexico is relatively short, but it includes 
San Diego-Tijuana, the single busiest U.S.-Mexico border crossing. 
Arizona's principal border crossing with the Mexican state of Sonora at 
Nogales plays a significant role in agricultural trade. The relatively 
small border crossings between New Mexico and Mexico reflect the 
sparsely populated areas in that region of the border. Figure 1 shows 
the U.S.-Mexico border, including all U.S. and Mexican border states, 
some Mexican border cities with varying concentrations of maquiladora 
plants, and some ports of entry on the U.S. side of the border.

Figure 1: Map of U.S.-Mexico Border Twin Cities:

[See PDF for image]

[End of figure]

During the 1990s, the population along the border experienced 
significant growth. On the U.S. side, the population increased by 21 
percent, considerably more than the overall U.S. population, which grew 
by 13.2 percent. Some cities on the U.S. border experienced significant 
increases in population, such as Yuma, Arizona, and McAllen, Texas--
respectively, the third and fourth fastest growing metropolitan areas 
in the United States. Population on the Mexican side of the border 
increased even more rapidly, growing by 32 percent between 1990 and 
2000. The majority of the border's residents live in communities along 
the border that are composed of twin cities--a city on each side of the 
border--such as San Diego-Tijuana and El Paso-Juarez. The San Diego-
Tijuana area alone has a combined population of about 4 million, and 
the El Paso-Juarez area has a population of 1.9 million.

The Maquiladora[Footnote 1] program was first established by the 
government of Mexico in 1965 as part of the Border Industrialization 
Program (BIP) and maquiladoras have been a driving force in the 
development of the U.S.-Mexico border region. Under the BIP, Mexico 
encouraged foreign corporations to establish operations along the 
northern border to provide employment opportunities for Mexican workers 
displaced after the termination of a temporary cross-border work 
arrangement known as the Bracero Program.[Footnote 2] Also known as 
"in-bond" plants[Footnote 3], maquiladoras were allowed to import 
temporarily, on a duty-free basis, raw materials and components for 
processing or assembly by Mexican labor and to re-export the resulting 
products, primarily to the United States.

The maquiladoras have undergone a dynamic evolution over the last four 
decades. In the mid-1960s, maquiladoras consisted primarily of basic 
assembly operations taking advantage of Mexico's low labor costs. By 
the 1980s, U.S. multinationals representing various industrial sectors 
established maquiladora plants along the U.S.-Mexico border. Japanese 
and European companies also established maquiladora plants in Mexico to 
compete in the U.S. market. Since the 1980s, some firms moved from low-
skilled assembly work to more advanced manufacturing operations. 
Researchers from Mexico's Colegio de la Frontera and San Diego State 
University note that the number of "technical workers" employed by 
maquiladoras increased significantly from the early 1980s to the 1990s. 
Some maquiladoras now employ workers in development and design as well 
as manufacturing. For example, Delphi Automotive in Juarez, the largest 
private employer among maquiladoras in Mexico, now has a sophisticated 
research and development center that employs hundreds of highly skilled 
workers and engineers.

Over the years, as maquiladoras evolved and expanded, the term 
maquiladora has come to be used loosely to refer to almost any 
subsidiary plant of a foreign company involved in export from Mexico, 
particularly those located along the U.S. border. However, the 
Maquiladora program continues to be quite distinct from other efforts 
initiated by the Mexican government to encourage exports.[Footnote 4] 
Firms must register with the government of Mexico to be considered 
maquiladoras and, once registered, are eligible for several key 
benefits, such as preferential tariffs on inputs and machinery, and 
simplified Mexican customs procedures. In this report, we define 
maquiladoras as those firms officially participating in Mexico's 
Maquiladora program.

In addition to the Maquiladora program, the U.S.-Mexico trade 
relationship has also been influenced by other important developments 
such as NAFTA. NAFTA was concluded between the United States, Mexico 
and Canada in 1992 and entered into force on January 1, 1994. This 
agreement provided, among its other provisions, for the elimination of 
tariffs and other barriers to U.S.-Mexico bilateral trade by 2008. It 
also required Mexico to change certain provisions of the Maquiladora 
program, such as elimination of duty-free benefits for imports of 
components from non-NAFTA countries. U.S.-Mexico trade has expanded 
sharply since NAFTA's inception. Much of this trade involves 
"production sharing," whereby final goods are produced with parts, 
labor, and manufacturing facilities from the United States and Mexico. 
Because it enables firms to increase specialization, take advantage of 
low labor costs in Mexico, and attain other efficiencies, production 
sharing is a key benefit to U.S. companies under the Maquiladora 
program.

Maquiladoras Contribute to Integration along the Diverse U.S.-Mexico 
Border:

A variety of social and economic factors create strong linkages between 
communities on both sides of the U.S.-Mexico border, and maquiladoras 
play a critical part in this interdependence. Residents in the twin 
cities cross the border about one million times every day to work, 
shop, attend classes, visit family, and participate in other 
activities. Maquiladoras have increased trade between the United States 
and Mexico and have helped to develop the economies of several border 
regions. While communities along the U.S.-Mexico border share certain 
traits, each region is distinct.

Multiple Social and Economic Ties Fuel Integration at the Border:

A wide range of social ties--educational, political, cultural, and 
familial--contribute to integration along the U.S.-Mexico border. For 
example, certain U.S. universities in border cities offer combined 
degrees or exchange programs with their counterparts on the Mexican 
side. In some schools, such as the University of Texas at El Paso and 
the University of Texas-Pan American, Mexican nationals cross the 
border regularly to attend classes. Political interaction and 
cooperation between local authorities of twin cities enhance 
integration. Cultural and family ties also contribute significantly to 
integration at the border. The U.S. counties with the highest 
concentration of Hispanics are located along the southwest border, and 
by far most of the Hispanics in southern border states are of Mexican 
descent.

Trade and retail sales contribute to economic interdependence at the 
border. Approximately $200 billion in trade went through the U.S.-
Mexico border in 2002. Much of U.S.-Mexico trade occurs between border 
states. For example, 62 percent of U.S. exports to Mexico originated in 
Texas, California, Arizona, and New Mexico; of this, 70 percent was 
destined for Mexican border states. Research by the Federal Reserve 
Bank of Dallas indicates that trade between the United States and 
Mexico has positive effects on border communities, because U.S. border 
cities typically provide 
a variety of services such as transportation and customs 
brokerage.[Footnote 5] Retail sales to Mexican nationals also 
contribute significantly to the economies of cities on the U.S. side of 
the border. According to one estimate, retailers in Texas annually make 
an estimated $15 billion in sales to Mexican shoppers. In McAllen, 
Texas, 35 percent, or about $700 million worth, of retail sales are 
made to Mexican nationals. Residents from Tijuana make 1.5 million 
trips per month into the San Diego area, mainly to shop. In El Paso, 
Juarez residents account for more than 20 percent of retail sales. On 
the other hand, because of the high cost of pharmaceuticals in the 
United States, a growing number of U.S. residents regularly cross the 
border into Mexico to purchase prescription drugs.

Maquiladoras Drive U.S.-Mexico Trade and Border Integration:

Maquiladoras import most inputs from the United States and export most 
of what they produce back to the United States. Growth in U.S.-Mexico 
trade and economic interdependence at the border during the last decade 
can be explained to a great degree by the participation of maquiladoras 
in supplying a strong U.S. market during the 1990s. Mexican exports 
increased by about 340 percent between 1993 and 2001, in large part 
because maquiladora-related exports increased by over 400 percent 
during this time, according to a report by the Mexican Commission on 
Northern Border Affairs.[Footnote 6] By 2001, maquiladoras accounted 
for 41 percent of total Mexican trade with all countries - 34 percent 
of Mexico's imports and 48 percent of its exports (see fig. 2). Trade 
with the United States makes up a significant share of maquiladora 
trade. In 2001, 79 percent of maquiladora imports of components and 
parts for production were from the United States and 98 percent of 
their exported products were destined for the U.S. market. Maquiladora 
trade between the United States and Mexico totaled about $121 billion 
in 2001, with maquiladora exports ($75 billion) accounting for more 
than half of Mexico's total exports to the United States.[Footnote 7] 
Border cities are typically seen as the primary beneficiaries of 
growing U.S.-Mexico trade. However, states such as Florida, Tennessee, 
and Ohio, which doubled their exports to Mexico during the second half 
of 1990s, have also benefited from growing U.S.-Mexico trade.

Figure 2: Maquiladoras' Share of Mexico's Trade 1990-2002:

[See PDF for image]

[End of figure]

Furthermore, maquiladoras are directly connected to U.S. companies 
through ownership and production ties. The list of Mexico's top 100 
maquiladora employers includes such U.S. firms as Delphi, RCA, Ford 
Motor Company, Tyco, General Electric, General Instruments, Johnson & 
Johnson, and ITT. All told, 79 percent of the top 100 maquiladora 
employers are from the United States. Maquiladoras are important to the 
United States because they are a strategic means by which U.S. 
companies stay competitive in the global marketplace. By offering lower 
production costs, maquiladoras enable U.S. companies to produce goods 
more cheaply in Mexico than in the United States. In essence, 
maquiladoras and U.S. companies are part of a greater production-
sharing model, which is an important part of overall North American 
production. Moreover, more than 26,000 U.S.-based companies, located 
mainly in the Midwest, supply maquiladoras with raw materials and 
components.

The Mexican border region has benefited in terms of job creation from 
the dominant presence of maquiladoras on the Mexican side of the 
border. Overall, 77 percent of all maquiladora establishments are 
located in the six Mexican border states shown in figure 3. Also, about 
83 percent of maquiladora employment was located in border states. 
During most of the 1990s, maquiladoras represented more than half of 
the industrial activity in the states of Chihuahua and Tamaulipas. 
During the same time period, the maquiladoras represented nearly three 
quarters of industrial production in the state of Baja California, 
which contained almost one third of Mexico's maquiladora firms.

Cities on the U.S. side of the border have benefited from the large 
flow of trade created by maquiladoras. Between 1990 and 2002, more than 
half a million jobs were added to the U.S. border region, including 
jobs in services, retail trade, finance, and transportation, and after 
1995, employment growth in the U.S. border region exceeded the U.S. 
national average (see app. I for details). The employment gains are 
particularly notable, because the border region historically has had 
high rates of unemployment. Some studies have outlined the effect of 
overall border economic trends on local border communities. For 
example, researchers estimated that in one Texas border community, in 
2001, services and supplies purchased by maquiladoras amounted to $136 
million and a total of 32,577 jobs were sustained by maquiladoras and 
related manufacturing activity.

Figure 3: Map of Mexico Showing Share of Maquiladora Establishments, by 
State:

[See PDF for image]

[End of figure]

The same researchers estimated that 15 percent of maquiladora workers' 
salaries was spent in the region on goods and services. In one Arizona 
border community, researchers surveyed maquiladora workers and found 
that workers who crossed the border to shop made an average of 5.5 
trips a month and spent about $35 on each trip. Almost one third of 
retail sales in the same Arizona community are attributed to Mexican 
nationals, according to local sources.

Despite their role in generating employment in Mexico, the 
maquiladoras' benefit to the country remains a subject of some debate. 
Some express reservations about the maquiladoras' ability to generate 
economic development for Mexico, since these plants have generally been 
unable to establish a network of domestic inputs providers or create 
significant linkages to the internal Mexican economy. In April 2002, 
for example, the former Mexican Foreign Minister noted that without 
proactive Mexican government policy to set up domestic suppliers, the 
benefits of the maquiladora industry would never extend beyond the 
border. In addition, critics in the environmental and labor movements 
on both sides of the border also assail these plants.[Footnote 8] Some 
environmental groups claim that maquiladoras are responsible for the 
growing pollution problem in the border region. Similarly, some labor 
organizations criticize the maquiladoras for the low wages paid to 
workers and for allegedly poor working conditions.

Border Has Distinct Regions with Varying Degrees of Integration:

Although communities along the U.S.-Mexico border share certain traits, 
they are also quite distinct. The level of integration between cross-
border twin cities depends on location, population, economic profile, 
and cross-border political cooperation. We observed some of these 
differences during fieldwork in three border areas: McAllen-Reynosa, El 
Paso-Ciudad Juarez, and San Diego-Tijuana.

McAllen-Reynosa. McAllen and Reynosa are economically interdependent. 
Both are medium-size cities, McAllen with a population of about 
569,000, and Reynosa with about 420,000, and there are no other 
sizeable urban areas nearby on either side of the border. Officials at 
the McAllen Economic Development Corporation (MEDC) capitalized on the 
interdependence between McAllen and Reynosa and incorporated it into 
their economic strategy for the region starting in 1988. At that time, 
McAllen had high unemployment and Reynosa's economy was based on 
subsistence farming. Working with political leaders in McAllen and 
Reynosa, MEDC developed a strategy based on promoting industrial 
development in Reynosa, recognizing that if companies opened 
maquiladoras there, McAllen would benefit by providing inputs and 
offering management, engineering, warehousing, trucking, legal, and 
accounting services. In the 14 years since its establishment, MEDC has 
recruited 178 companies to the area, in diverse manufacturing sectors, 
such as electronics, auto parts, and telecommunications.

El Paso-Ciudad Juarez. Although El Paso and Ciudad Juarez are also 
closely integrated, such ties have developed differently than in 
McAllen-Reynosa. Ciudad Juarez is a larger metropolitan area, with a 
population of 1.2 million, and it is home to more maquiladora employees 
than any other Mexican city. On the U.S. side, El Paso and the 
neighboring communities in southern New Mexico are much smaller. El 
Paso's economy has been shaped by economic activity in Ciudad Juarez, 
especially that of providing services to maquiladoras. In addition, 
Juarez residents contribute to El Paso's economy by purchasing items 
ranging from cars to clothing and services such as financial and health 
services. In 2001, there were approximately 46 million northbound 
crossings via the three international bridges that connect the two 
cities. However, business leaders and other observers whom we met in 
the El Paso-Juarez area frequently noted that integration and economic 
dependence between El Paso and Juarez occurred spontaneously, rather 
than by design. The development of maquiladoras on the Mexican side 
occurred much earlier than in Reynosa and was largely attributed to 
individual efforts by entrepreneurs in Juarez and El Paso that began in 
the 1960s, rather than to a collective vision. However, in recent 
years, in Santa Teresa, a nearby border community in southern New 
Mexico, developers created a strategic plan to build an industrial park 
as a supplier base, with warehouse and distribution facilities, to 
service maquiladoras. The Santa Teresa port of entry opened 11 years 
ago. Developers envisioned that this border crossing would serve as an 
alternate point of entry to El Paso for cross border trade.

San Diego-Tijuana. The dynamics of integration between San Diego and 
Tijuana are notably different from other cross-border twin cities. In 
this area, economic dependence is more one-sided. Unlike El Paso or 
McAllen, San Diego is a large metropolitan area in its own right, with 
a population of close to 3 million. Many of the major economic 
activities in San Diego, including defense and space manufacturing, 
biosciences, and tourism, are not directly connected to Tijuana. While 
Hispanics account for at least 50 percent of the population in most 
U.S. counties along the Southwest border, they account for only about 
27 percent of the population in San Diego County, suggesting lower 
levels of family ties or connections to Mexico. In contrast, Tijuana, 
with a population of about 1.2 million, is heavily dependent on 
maquiladoras, and the city is closely tied to the U.S. market. In 
addition to U.S. companies, Tijuana has also been the preferred 
location for Japanese and Korean maquiladora investments, which have 
made this area the world's leading producer of color televisions. More 
than 600 maquiladora plants, employing approximately 150,000 people are 
located in Tijuana. Moreover people in Tijuana are more likely to cross 
the border to shop or do business in San Diego than vice versa; in 
fact, it is estimated that two out of three residents of San Diego have 
never been to Tijuana. In contrast, Tijuana residents spend between 3 
to 5 billion dollars in purchases in the San Diego region, mostly in 
the communities adjacent to the border. In addition, 7 percent of 
economically active people in Tijuana work in San Diego, earning an 
estimated $650 million a year in wages and salary income.

After Rapid Growth, Maquiladoras and Border Region Experienced Declines 
Beginning in 2000:

Maquiladora production and employment grew rapidly throughout the 1990s 
but declined sharply after October 2000. Within the diverse maquiladora 
sector, the decline was particularly steep in certain industries and in 
some border cities. Overall, Mexican manufacturing production in the 
border region also declined and cross-border trade flows fell. At the 
same time, U.S. border employment in manufacturing and certain other 
trade-related sectors contracted. Nevertheless, the U.S. border region 
continued to experience stronger employment growth than did the United 
States as a whole.

Maquiladoras Grew Rapidly in the 1990s, with Growth Varied by Region 
and Industry:

During the 1990s, maquiladoras proved to be one of the more dynamic 
components of Mexican manufacturing. Maquiladora production increased 
by 197 percent from January 1993 until its peak in October 2000, while 
overall manufacturing production in Mexico increased by only 58 percent 
in the same time period (see fig. 4). During that time period, 
maquiladora employment tripled, adding more than 900,000 jobs to the 
Mexican economy. In 2000, maquiladoras accounted for about 4 percent of 
total employment and about 20 percent of manufacturing employment in 
Mexico.

Figure 4: Growth in Maquiladora and Total Mexican Manufacturing 
Production, 1993-2002:

[See PDF for image]

Note: Certain statistics on Mexican industrial production were not 
available for years prior to 1993.

[End of figure]

With respect to employment, most major Mexican border cities and 
industrial sectors experienced growth in maquiladora employment over 
the decade, although some grew faster than others. For example, Tijuana 
and Mexicali tripled their maquiladora employment, and the electronics 
industry more than doubled its maquiladora employment in the border 
region. The electronics industry, which was already the largest 
maquiladora employer, added more than 200,000 jobs in the border region 
during the 1990s. For the Mexican border region as a whole, maquiladora 
employment rose 145 percent--from 342,555 in January 1990 to 839,200 in 
October 2000 (see app. V, table 8, for more information). While 
maquiladoras have typically been concentrated in the border region, 
maquiladora employment growth throughout the rest of Mexico was 
actually higher than in the border region during the 1990s. Growth in 
the nonborder region was particularly strong in the textile and apparel 
sector, in which employment rose in the nonborder region from about 
22,000 in 1990 to about 224,000 jobs in 2001 (fig. 5). As a result of 
the stronger growth in the nonborder region, the share of textile and 
apparel maquiladora employment in the border region fell from 49 
percent in 1990 to 17 percent in 2001.[Footnote 9] Much of the 
investment in the apparel sector occurred in anticipation of duty-free 
treatment for most U.S. imports of apparel from Mexico under NAFTA in 
1999.[Footnote 10]

Figure 5: Maquiladora Textile and Apparel Employment, Nonborder and 
Border Regions, 1990-2001:

[See PDF for image]

[End of figure]

Maquiladora Decline Started in 2000, Unevenly Affecting Industries and 
Border Cities:

After growing since the program's inception over 35 years ago, 
particularly in the 1990s, Mexican maquiladora production and 
employment began to decline sharply in late 2000. Maquiladora 
production declined about 30 percent from late 2000 to early 2002. At 
the same time, maquiladora employment contracted about 20 percent, 
losing nearly 290,000 jobs nationally, about 174,000 of which were 
located in the border region.[Footnote 11] Similarly, the number of 
maquiladora establishments (factories) in operation began to decline as 
well (see fig. 6). Nevertheless, even with the pronounced declines, the 
overall numbers of maquiladora employees remain at levels similar to 
those in 1998-1999.

Figure 6: Maquiladora Employment and Establishments, 1990-2002:

[See PDF for image]

[End of figure]

While the Mexican maquiladora downturn was evident both nationally and 
in the border region, certain industries experienced larger declines 
(see fig. 7). For instance, in the border region, the electronics 
industry experienced one of the steepest and largest maquiladora 
employment declines of any industrial sector, contracting by 31 percent 
and losing more than 112,000 jobs in the 2-year period between October 
2000 and October 2002.[Footnote 12] In contrast, the automobile and 
auto parts industry experienced a less severe maquiladora employment 
decline of 13 percent (about 24,000 jobs) in less than a year, before 
resuming some growth in November 2001. Textiles and apparel also 
experienced a steep employment decline, falling by 26 percent and 
losing more than 12,000 jobs. Nationally, the textile and apparel 
industry lost more than 70,000 jobs. In all other border industrial 
sectors combined, maquiladora employment declined by about 16 percent 
over a little more than a year but has grown by about 4 percent since 
January 2002.

Figure 7: Mexican Maquiladora Employment in the Border Region by 
Industrial Sector, January 1997-October 2002:

[See PDF for image]

Note: Data broken down by industrial sector in the border region were 
available only through October 2002.

[End of figure]

As figure 8 illustrates, the decline in maquiladora employment also 
affected cities in the Mexican border region differently. The two 
largest border cities, Juarez and Tijuana, both experienced significant 
declines in maquiladora employment, accounting for over half of the 
total jobs lost in the border region. After peaking in October 2000, by 
December 2002, maquiladora employment had fallen 27 percent in Juarez 
and 30 percent in Tijuana. The smaller city of Nogales, Sonora, 
experienced one of the sharpest percentage changes in maquiladora 
employment in the border region, declining by 44 percent. In contrast, 
the city of Reynosa experienced a decline of only about 5 percent 
between September and December 2000, and its maquiladora employment has 
since rebounded, with 7 percent growth since January 2001. Reynosa's 
decline in electronics and auto parts employment was much less severe 
than other cities.

Figure 8: Mexican Maquiladora Employment, by Border City, January 1990 
- December 2002:

[See PDF for image]

[End of figure]

Mexican Border Experienced Overall Decline in Manufacturing and Cross-
Border Trade:

The decline in Mexico's maquiladora production contributed to a decline 
in overall manufacturing production in Mexico's border region.[Footnote 
13] Figure 9 shows the growth of manufacturing production for three 
Mexican border states: Baja California, Coahuila, and Sonora. Baja 
California, the state with the largest share of maquiladoras, grew more 
rapidly than the other border states but also experienced the largest 
decline in overall manufacturing production after October 2000. 
Similarly, manufacturing production in Coahuila, Nuevo Leon (not 
shown), and Sonora also experienced downturns beginning in late 2000 
and early 2001.[Footnote 14]

Figure 9: Growth of Manufacturing Production in Mexican Border States, 
1993-2002:

[See PDF for image]

[End of figure]

During the maquiladora decline, exports, imports, and overall trade 
through U.S.-Mexico land border ports also dropped. The value of cross-
border trade dropped 5 percent in 2001 and remained flat in 2002, owing 
in large part to the 10 percent decline in U.S. exports to Mexico 
through these ports. Although each of the four major land border ports 
experienced some decline, Nogales experienced the greatest decline, 
losing about 20 percent of its value between 2000 and 2002 (see app. 
IV, table 7, for levels of U.S. trade with Mexico through the four main 
land border points). Maquiladoras, which accounted for 40 percent of 
U.S. exports to Mexico and 54 percent of Mexican exports to the United 
States in 2001, contributed to this decline.

U.S. Border Employment in Manufacturing and Transportation Services 
Fell, but Overall Employment Growth Continued:

The decline in Mexico's maquiladoras was also felt on the U.S. side, as 
manufacturing employment in border municipalities declined by 6 percent 
overall from 2000 through 2002.[Footnote 15] Other U.S. sectors related 
to trade also experienced declines in employment at the border. U.S. 
border employment in transportation and public utilities, which 
includes trucking and warehousing, was down 4 percent, and employment 
in wholesale trade was down 3 percent overall. Similar to the 
maquiladora employment declines in Mexico, employment declines on the 
U.S. side of the border also varied by region. For example, 
manufacturing employment declined by 18 percent overall in Texas' 
border cities, and employment declines in wholesale trade and 
transportation and in public utilities were more pronounced in Arizona. 
(App. I provides a detailed analysis of employment trends in the U.S. 
border region.):

Despite the contractions in manufacturing and certain other trade-
related sectors, other sectors in the U.S. border region grew. As a 
result, total nonagriculture-related employment in the border area grew 
by 4 percent even after the U.S. economic slowdown began in 2000 and 
national employment contracted 1 percent through 2002. Some border 
metropolitan areas maintained even stronger employment growth. For 
example, the McAllen area grew by 9 percent between 2000 and 2002, 
while Laredo grew by 6 percent, and San Diego and Las Cruces grew by 5 
percent each over the same period. On the other hand, El Paso's overall 
nonfarm employment fell, primarily because its mix of industries is 
weighted towards sectors that have been shrinking (see app. I for 
details).

Cyclical and Structural Factors Cited in Maquiladora Decline:

The decline in maquiladora production and employment since the last 
quarter of 2000 is attributable to both cyclical and structural 
factors. Government researchers, academicians, economic studies, and 
industry representatives agree that the cyclical downturn in the U.S. 
economy has been a primary factor in the decline. However, industry 
sources and other experts emphasized that the maquiladoras have also 
been adversely affected by structural factors, such as increased 
competition in the U.S. market, particularly from China, Central 
America and the Caribbean, and by the strength of the Mexican peso, 
which has further eroded the maquiladoras' competitiveness. Changing 
Mexican tax policies have also contributed to the maquiladora decline 
by creating a climate of uncertainty for foreign investors. Meanwhile, 
owing to commitments undertaken under NAFTA, Mexico has phased out some 
of the key benefits of the Maquiladora program.

It is clear from our research that all of these factors were at work 
before and during the recent maquiladora downturn, and that each was 
changing in a direction adverse for maquiladora production and 
employment. However, the sheer number of simultaneous changes over a 
relatively brief period makes it difficult to isolate or quantify the 
impact of individual factors. Although many government, academic, and 
industry sources generally refer to the cyclical downturn in the U.S. 
economy as a principal factor in the decrease in maquiladora employment 
and production since the last quarter of 2000, there is no such 
agreement on the relative importance of other factors associated with 
the decline of the maquiladoras. Therefore, the order in which we 
present these other factors is generally based on the results of our 
semistructured interviews with industry associations (see app. VI).

U.S. Economic Slowdown Adversely Affects Maquiladoras:

In explaining the decline in maquiladora production and employment 
beginning in the last quarter of 2000, government, academic, and 
industry sources generally emphasized the role of the downturn in the 
U.S. economy. Of the 23 industry association representatives we 
interviewed whose membership had experienced a decline in production or 
employment, about three-quarters cited the recent downturn in the U.S. 
economy as a major factor. As noted earlier in this report, maquiladora 
production is often linked to U.S. manufacturing through production-
sharing arrangements. In fact, about 98 percent of maquiladora 
production is destined for the U.S. market. Thus, it is not surprising 
that the maquiladoras are very sensitive to fluctuations in U.S. 
manufacturing and demand. Our analysis of economic data supports the 
conclusion of experts and interviewees, demonstrating that historically 
maquiladora employment typically grows when the overall U.S. economy 
expands and is negatively influenced when the U.S. economy slows down 
(see app. II for a discussion of the effect of the economic downturn in 
the United States on employment for various maquiladora industrial 
sectors). Moreover, maquiladora employment has been even more sensitive 
to changes in U.S. manufacturing production, particularly in sectors 
such as textiles and autos, and a sharp drop in U.S. manufacturing has 
characterized the present U.S. economic slowdown.

As figure 10 illustrates, maquiladora employment shows a correlation 
with U.S. economic performance over the past two decades. On average, 
maquiladoras added almost 118,000 employees annually from 1995 to 
2000.[Footnote 16] During this period, U.S. annual economic growth 
averaged 3.6 percent. However, in 2001, as U.S. economic growth slowed 
to 1.4 percent, the maquiladoras lost nearly 229,000 jobs.

Figure 10: Annual Growth Rates of U.S. Gross Domestic Product and 
Maquiladora Employment, 1980-2002:

[See PDF for image]

[End of figure]

Moreover, although the Mexican economy as a whole is very closely 
linked to that of the United States, the maquiladoras appear to have 
been affected by the U.S. economic slowdown more severely than the 
Mexican economy overall. While Mexico's economy contracted .2 percent 
in 2001, it resumed growth at .7 percent in 2002. However, the 
maquiladora sector declined both years 9.2 percent and 8.3 percent, 
respectively.[Footnote 17] Of the industry associations indicating that 
their membership had experienced a decline in employment or production, 
about half reported that the maquiladoras had been more negatively 
affected by the U.S. economic downturn than had other businesses in 
Mexico.

Mexico Faces Increased Global Competition in the U.S. Market:

Among the 23 industry associations that indicated a decline in their 
memberships' employment or production, mounting foreign competition in 
the U.S. market was the most frequently offered explanation for the 
decline of the maquiladoras over the past 2 years. Over one-half of the 
representatives of industry associations referred specifically to the 
role of China in the maquiladoras' decline. One maquiladora spokesman, 
for example, suggested that China's entrance into the World Trade 
Organization (WTO)[Footnote 18] has made that country a more attractive 
choice for foreign direct investment, while foreign investment in 
Mexico's maquiladoras has decreased.

Among the major suppliers of imports to the United States, Mexico 
ranked second and China third in 2002. As figure 11 illustrates, both 
Mexico and China experienced significant growth in exports to the 
United States from 1995 to 2002. However, between 2000 and 2002, U.S. 
imports from Mexico grew at a slower pace than those from China. As a 
result, the gap between Mexico and China narrowed in China's favor.

Figure 11: Value of U.S. Imports from Mexico and China, 1995-2002:

[See PDF for image]

[End of figure]

As appendix III details, Mexico recently lost market share in 47 out of 
152 major U.S. import categories. At the same time, China gained U.S. 
market share in 35 of those 47 import categories, including toys, 
furniture, electrical household appliances, television and video 
equipment and parts, and apparel and textiles. Some of these industries 
represent significant sectors of maquiladora production.

Recent International Trade Commission (ITC) staff research suggests 
that while Mexico does face increased competition from China in the 
U.S. market, some sectors are more threatened than others.[Footnote 19] 
According to the ITC staff research, a growing share of some textiles 
and apparel products sold in the United States are being produced in 
China rather than Mexico. In contrast, this staff research notes that 
within the machinery sector, the data did not indicate a shift in 
competitiveness away from Mexico towards China. Mixed results are 
apparent in the electronic products sector. Mexico lost U.S. market 
share to China in the telephone and telegraph equipment segment in both 
2001 and 2002, and Mexico's gain in the computer hardware segment in 
2001 was more than offset by a sharp loss to China in 2002.

The ITC staff research noted above concludes that China has competitive 
advantages over Mexico in terms of labor costs, electricity costs, and 
diversity of component suppliers. In this context, it is worth noting 
that wages along the U.S.-Mexico border, where the maquiladoras are 
concentrated, tend to be higher than in other areas of Mexico[Footnote 
20]. More recent ITC staff research indicates that the cost of water 
for industrial uses (important in the textiles industry) and corporate 
income tax rates are lower in China. On the other hand, the ITC staff 
research suggests that Mexico's comparative advantages include lower 
transportation costs, shorter transit time, and lower international 
communication costs. Mexico also provides greater protection for 
intellectual property, more transparency in regulation and 
administration, and a network of free-trade agreements with third 
countries.

Several industry representatives noted that Mexico also faces increased 
competition from countries in Central America or the Caribbean. One 
industry spokesperson noted that the U.S. decision in May 2000 to grant 
NAFTA-parity access to Caribbean Basin Initiative (CBI) countries had 
eroded Mexico's ability to compete in the U.S. apparel market, 
particularly because a number of Central American and Caribbean 
countries have lower labor costs than Mexico. According to a Mexican 
economic research group, manufacturing wages in Mexico are almost 67 
percent higher than in the Dominican Republic and about 92 percent 
higher than in Honduras.[Footnote 21]

The heightened global competition from China and CBI countries is part 
of a larger phenomenon in which the benefits enjoyed by maquiladoras 
and other Mexican producers have eroded as U.S. trade preferences or 
liberalization accorded to other countries have expanded. The recent 
experience of the Mexican textiles and apparel industry, one of the 
major maquiladora sectors, illustrates this point. In 1994, NAFTA gave 
Mexico preferential access for its textiles and apparel. Other 
countries' exports to the United States and Canada generally did not 
receive similar advantages.[Footnote 22] U.S. imports of Mexican 
textile and apparel products grew rapidly, with Mexico's share of total 
U.S. imports in this sector doubling from 7 percent in 1994 to 14 
percent in 2000 (see fig. 12). Mexico surpassed both China and the 
Caribbean Basin countries to become the largest supplier to the U.S. 
market. However, under the Trade and Development Act of 2000, the 
United States allowed textile and apparel products from Caribbean Basin 
countries that met certain requirements to receive preferential access 
to the U.S. market. This legislation also stipulated that to benefit 
from the special treatment, CBI-based apparel operations must use U.S.-
made inputs, and, according to a Mexican textile industry association, 
operations have shifted from using Mexican textiles. In addition, under 
the WTO Agreement on Textiles and Clothing, all quotas on textile and 
apparel products are being phased out by 2005. For some products quotas 
have already been removed. Despite the recent U.S. recession and a 
decline of total U.S. imports of textiles and apparel by 5 percent 
between 2000 and 2002, U.S. imports of textiles and apparel from China 
rose 12 percent, making China again the largest foreign supplier to the 
U.S. market. Figure 12 shows these changing patterns of U.S. imports in 
textiles and apparel from Mexico, China, and CBI countries.

Figure 12: U.S. Imports of Textiles and Apparel from Mexico, China, and 
Caribbean Basin Countries, 1990-2002:

[See PDF for image]

Note: Caribbean Basin Countries are those eligible for the Caribbean 
Basin Trade Partnership Act preferential access. These countries are 
Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin 
Islands, Costa Rica, Dominica, Dominican Republic, El Salvador, 
Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, 
Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, Saint 
Lucia, Saint Vincent and the Grenadines, and Trinidad and Tobago.

[End of figure]

Industry Representatives Blame Strong Peso for Loss of Competitiveness:

Many industry representatives whom we contacted also called attention 
to the role of the strengthening Mexican currency in eroding the 
maquiladoras' competitiveness. Historically, growth periods in the 
maquiladoras have been associated with devaluations of the peso. For 
example, after the peso was devalued in 1984, there was a 3-year surge 
in U.S. automotive industry investments in maquiladora plants. 
Similarly, according to a study by the El Paso Branch of the Federal 
Bank of Dallas, the peso devaluation in December 1994 played a key role 
in spurring the expansion of Mexico's maquiladoras during the second 
half of the past decade.[Footnote 23] However, beginning in the last 
quarter of 1998, the Mexican peso consistently appreciated against the 
dollar in real terms, a trend that continued while the maquiladoras 
experienced their greatest employment decline, from the end of 2000 to 
the beginning of 2002 (see app. II for the relative dependence of 
maquiladora employment on the real peso exchange rate). As the peso 
appreciated in real terms, maquiladora operating expenses increased.

Moreover, this real appreciation of the Mexican peso took place as the 
currencies of some of Mexico's East Asian competitors were depreciating 
against the dollar. For example, figure 13 compares the performance of 
the Chinese yuan to the Mexican peso, in real terms, between 1995 and 
2002. Unlike the peso, the yuan has actually depreciated since early 
1998.

Figure 13: Real Dollar Exchange Rate of Mexican Peso and Chinese Yuan, 
1995-2002:

[See PDF for image]

[End of figure]

Changes in Mexican Tax Policies Raise Investor Uncertainty:

Among industry groups whose members had experienced losses in 
employment or production, about two-thirds of those we interviewed 
indicated that uncertainty resulting from Mexican government tax 
policies was a major factor in the maquiladoras' decline. These groups 
noted that such uncertainty had caused some firms to withdraw from, or 
downsize, their operations in Mexico and had also discouraged new 
foreign direct investment in Mexico. In particular, industry 
representatives said that frequent changes to the fiscal regime had 
increased the tax burden and administrative costs to maquiladoras. They 
were also concerned that the frequent changes reduced the maquiladoras' 
ability to develop long-term investment plans.

In addition to the duty-free treatment on import of parts, components, 
and other inputs, maquiladora plants enjoyed, at least until the mid-
1990s, a virtual freedom from taxation. Though legally subject to 
income taxes, in practice, the companies paid only a small assets tax, 
a flat minimum of 2 percent of the value of the maquiladora's assets. 
Moreover, the maquiladoras were permitted to use the cost of wages to 
offset their tax on assets. This virtually eliminated taxes for some 
maquiladoras. According to experts, the twin benefits of duty-free 
import and minimal taxation were primary incentives for foreign firms 
to establish manufacturing operations in Mexico.

The tax regime applicable to maquiladoras remained constant for almost 
30 years but began to evolve rapidly in the 1990s. The most significant 
of these tax changes, the treatment of what are known as "permanent 
establishments" is frequently noted by industry groups and others as a 
cause of investor uncertainty about the industry.

A permanent establishment typically is a branch of a company from one 
country that is doing business in another "host" country, and which may 
be taxed in that host country. According to U.S. Treasury officials, 
permanent establishment is a concept found in virtually all double 
taxation treaties. Mexico adopted the permanent establishment concept 
as part of its income tax law in 1981. According to U.S. Treasury 
officials and Mexican tax experts GAO consulted, Mexico essentially 
exempted maquiladoras from the tax that could be imposed on permanent 
establishments until 1998. However, starting in 1998, Mexico began 
seeking to treat the foreign parent companies of maquildoras as having 
permanent establishments in Mexico for tax purposes. By treating the 
maquiladoras as permanent establishments, the Mexican government could 
subject the foreign parent companies to taxation, potentially allowing 
Mexico to increase the revenues it collects from maquiladora 
operations.

The right of the Mexican government to tax maquiladoras as permanent 
establishments was affirmed in the U.S.-Mexico tax treaty of 1992. 
However, U.S. companies with maquiladora operations in Mexico were 
concerned that Mexico's application of permanent establishment to their 
maquiladora operations would subject them to double taxation. This 
could occur if Mexico imposed a broad definition of how permanent 
establishments could be taxed that the U.S. Treasury would not accept, 
because it would prevent the U.S. parent company from getting a full 
credit in the United States from the taxes actually paid in Mexico. 
Resolution of potential problems, such as double taxation, associated 
with the treatment of maquiladoras as permanent establishments has 
necessitated a series of additional bilateral agreements between the 
United States and Mexico. It took several years and several different 
iterations to finally resolve such practical problems, and this caused 
a prolonged period of uncertainty for maquiladoras. Other changes in 
Mexico's tax regime have contributed to the climate of investor 
uncertainty. In 2002, for example, Mexico limited the ability of 
businesses, including maquiladoras, to take a tax credit on salaries. 
According to industry representatives, this provision could have 
significantly increased the tax burden on some maquiladoras. However, 
according to Mexican officials, this tax provision has subsequently 
been ruled unconstitutional.

NAFTA Phased Out Some Maquiladora Benefits:

The phasing out of maquiladora benefits as part of NAFTA was also cited 
by industry associations as a major factor in the decrease in 
maquiladora production and employment. When NAFTA was signed in 1993, 
it envisioned fundamental changes to the maquiladora model. The most 
significant of these changes was embodied in Article 303 of NAFTA, 
which eliminated duty drawback (or refunds of duties)[Footnote 24] for 
inputs of non-NAFTA origin as of January 1, 2001, if the final products 
incorporating these inputs are to be subsequently exported to another 
NAFTA country. For various reasons, notwithstanding the 7-year grace 
period provided, the maquiladoras did not develop a network of domestic 
suppliers in Mexico. As a result, implementation of Article 303 has 
adversely affected the competitiveness of maquiladoras that rely on 
non-NAFTA suppliers for inputs and resulted in closure of some 
maquiladora firms.

According to officials with the Office of the U.S. Trade 
Representative, some aspects of the Maquiladora program were not 
consistent with NAFTA's trade objectives. For example, the duty 
drawback provisions of the Maquiladora program were in conflict with 
NAFTA's rules of origin requirements. Under NAFTA's rules of origin, 
goods traded among NAFTA partners are allowed duty-free status only 
when the goods comprise a minimum percentage of North American content. 
However, the Maquiladora program provided duty drawbacks for inputs 
imported to Mexico from any source, including non-NAFTA countries, 
undermining the duty-free benefits that North American products were to 
receive in Mexico as a result of NAFTA. Second, such drawback programs 
represented an advantage for exporters versus firms involved in 
production for the domestic market, since the latter would not receive 
an equivalent duty drawback. In negotiating NAFTA, the United States 
hoped to reverse this advantage, which led to the development in Mexico 
of an economic system with separate production tracks for exports and 
for goods destined for domestic consumption. In fact, U.S. officials 
explained that they envisioned the gradual phasing-out of maquiladoras 
with the implementation of NAFTA, as duty-free treatment would apply to 
all trade among NAFTA member countries.

The rationale behind Article 303 was to encourage firms to develop 
North American suppliers for critical inputs by providing an incentive 
for maquiladoras to shift sourcing of components or inputs to North 
America, including Mexico. The development of a network of North 
American suppliers would mean that more value would be added during the 
production process in Mexico, the United States, and Canada.The 
elimination of duty drawback would necessitate significant changes in 
the sourcing of maquiladora inputs, particularly for maquiladora 
operations of some Japanese and other Asian companies that were heavily 
dependent on certain inputs from the Far East. The implementation of 
Article 303 was therefore scheduled for January 1, 2001, 7 years after 
NAFTA's entry into force, to allow the maquiladoras to relocate their 
supply chain to North America. However, a network of Mexican domestic 
suppliers for the maquiladoras largely failed to materialize during 
this period. Maquiladora observers have suggested several explanations, 
principally the scarcity of credit in Mexico to support entrepreneurial 
activity and the lack of an entrepreneurial culture among Mexican 
businesses.

Under NAFTA, Mexico could have chosen to counter the loss of duty 
drawback following implementation of Article 303 by reducing or 
eliminating its most favored nation duties on key inputs. U.S. 
officials note that Canada eliminated hundreds of its most favored 
nation duties before Article 303 took effect. Instead, in order to 
cushion the impact of NAFTA Article 303, Mexico instituted a measure 
known as the sectoral promotion program with targeted and reversible 
tariff reductions.[Footnote 25]

Since Article 303 was implemented, maquiladoras that depend on inputs 
from outside North America have seen their competitiveness erode. Some 
maquiladoras have reported production cost increases of up to 20 
percent due to the implementation of Article 303. Japanese, Korean, and 
Taiwanese companies involved in maquiladora production have been 
particularly affected by the implementation of Article 303 and have led 
the way in relocating from Mexico to other countries. Industry 
associations we contacted, representing maquiladoras in the Tijuana 
area, where Asian-owned maquiladoras are concentrated, as well as an 
association representing Japanese business in Mexico, attributed the 
departure of maquiladora firms from Mexico, at least in part, to the 
implementation of Article 303.

Maquiladora Downturn Spurs Some Positive Changes, but Fundamental 
Challenges to Future Viability Remain:

Significant challenges continue to confront Mexico's maquiladoras, 
although recent industry and government action and the prospect of 
future Mexican reforms may bolster prospects for maquiladoras' 
recovery. The downturn during the past 2 years has accelerated ongoing 
industry evolution and has been a catalyst for several industry and 
government changes to improve the competitiveness of the sector. 
However, maquiladoras still face fundamental challenges. For the most 
part, meeting these challenges depends on further action by the 
government of Mexico, but some of the challenges are related to U.S. 
policies that are likely to put additional pressure on maquiladoras.

Maquiladoras Face Serious Challenges and Questions about Viability:

The factors described in the previous section as having a role in the 
maquiladora's recent decline still confront the industry. As a result, 
some Mexican government officials have stressed the need to move beyond 
the current "maquiladora model" to attract a new generation of more 
technologically advanced operations that would allow Mexico to remain 
competitive.

Given the continuous evolution of maquiladora operations, Mexico's 
maquiladora industry is now a complex sector with substantial 
diversity. One academic expert concludes that as firms become involved 
in more sophisticated, capital-intensive operations, they are less 
likely to close and move their plants because of cyclical downturns 
such as the one maquiladoras faced after 2000. Some Mexican 
maquiladoras are now recognized as having sophisticated production and 
management methods. According to industry experts, such maquiladoras 
are better positioned to weather the maquiladora downturn and deal with 
continuing challenges. Nevertheless, researchers point out that the 
transition to more advanced 
production practices is quite uneven.[Footnote 26] Many maquiladoras 
remain oriented toward lower-skill activities that involve few Mexican 
inputs besides labor. The downturn of the last several years has 
resulted in a shake-out involving some losers, notably among this type 
of operations.

Downturn Catalyst for Industry and Government Efforts to Improve 
Competitiveness:

One positive aspect of the recent maquiladora downturn is that it has 
spurred some actions by industry and the government of Mexico to 
restore Mexican competitiveness. In the face of increased global 
competition, maquiladoras are seeking to capitalize on Mexico's unique 
competitive advantages, particularly those associated with that 
country's proximity to the United States and its growing network of 
free trade agreements. For example, noting the recent establishment of 
plants in Juarez by several computer manufacturing firms, one industry 
analyst explained that Mexico's quick time-to-market location is 
essential for the success of both new products as well as repairs in 
the computer value chain. Similarly, a senior industry expert noted 
that the growth of automotive maquiladoras, in northern and central 
Mexico, underscores the competitive advantages resulting from the 
efficient combination of U.S. and Mexican inputs. According to this 
source, notwithstanding the arrival of new competitors, the Mexican 
automotive industry is poised to take advantage of the full opening of 
the regional North American automotive market that will occur in 2004. 
Mexico also stands to benefit as a direct and indirect automotive 
sector exporter to the United States and other countries with which 
Mexico has signed trade agreements.

Some industry sources reported unexpected benefits associated with the 
recent losses experienced by the maquiladoras. According to industry 
representatives in Juarez, the rapid pace of maquiladora growth had put 
intense pressure on local infrastructure during the late 1990s. Local 
authorities simply could not keep up with the demand for health, 
education, and other services associated with the dramatic increases in 
population growth that accompanied the expansion of maquiladoras. They 
viewed the slowdown of the past 2 years as a welcome respite.

In addition, a number of industry representatives noted that the 
downturn has resulted in significant drops in employee turnover and in 
the associated hiring and training costs. Prior to the downturn, they 
said, maquiladoras in some border cities reported very high employee 
turnover rates because the rapid growth in maquiladora establishments 
allowed workers to continuously find new jobs in other plants. One 
expert suggested that such turnover in some border cities had reached 
80 percent at the height of the maquiladora boom. Consequently, 
employers had significant hiring and training costs and were forced to 
keep some positions overstaffed to compensate for the turnover. This 
could have more fundamental implications for the ability of some 
maquiladoras to build a highly skilled workforce, since it is not 
feasible to invest in significant training for workers whose expected 
tenure with a firm is only a few months. Industry sources told us that 
the turnover rates had dropped sharply since the downturn, and some 
maquiladoras report that this has had a positive effect on 
administrative costs as well as the cost of training new employees.

Finally, industry sources stressed the importance of Mexican government 
action for the development of a favorable business environment that can 
respond quickly to changing market forces faced by maquiladoras. In 
response to industry pressure, the Mexican government recently 
undertook several measures in support of the maquiladoras, primarily 
aimed at easing irritants.

* On May 12, 2003, the Mexican government issued a decree modifying 
certain aspects of the Maquiladora program.[Footnote 27] The reforms 
are aimed primarily at simplifying regulations that apply to companies 
that provide support and logistic services to maquiladoras, and to 
enhance legal certainty for Mexican exporters, including maquiladoras. 
An important provision of the new decree will be streamlined customs 
requirements for companies with several subsidiaries operating under 
the Maquiladora program. This would allow such companies greater 
flexibility in the transfer of finished or semi-finished products from 
one subsidiary to another. The decree also contains provisions that 
would reduce administrative costs and procedures. For example, a 
maquiladoras will only have to submit a single report on an annual 
basis, which can be submitted electronically. Based on initial industry 
reaction, it is unclear whether the new decree will satisfy critics 
seeking greater legal certainty and improved incentives for 
maquiladoras.

* In response to the recent crisis in the maquiladora industry, Mexico 
has greatly expanded its sectoral promotion program (PROSEC). First 
launched in November 2000, PROSEC was intended to reduce the impact of 
NAFTA Article 303 (which became effective January 1, 2001) by providing 
that duty rates on imported inputs from non-NAFTA suppliers of either 0 
or 5 percent. Initially, maquiladora industry representatives 
complained that PROSEC was too restrictive because it applied to very 
few imported inputs. However, throughout 2001 and 2002, the list of 
products eligible for tariff reduction under PROSEC was progressively 
expanded to include more than 16,000 products from 22 industry sectors, 
including electronics and textiles and apparel.

* In September 2002, the Mexican government provided additional support 
to the maquiladoras through a program called the Information Technology 
Agreement (ITA) Plus.[Footnote 28] ITA Plus immediately removed tariffs 
from inputs, parts, and components used in the electronic and high-
technology sectors, regardless of the country of origin. It also 
provided for the gradual removal of tariffs from semifinished and 
finished products in those sectors. According to Mexican officials, in 
addition to lowering tariffs on electronic and high technology inputs, 
ITA Plus may help to reduce the administrative burden on the 
maquiladoras.

* The Presidential Council for Competitiveness was created in July 2002 
to promote investment, increase employment, and accelerate Mexico's 
economic growth. A cooperative effort between government and business 
that is chaired by the Minister of Economy, the council's activities 
include the creation of fiscal stimulus packages for export factories 
in twelve different sectors of the economy, including maquiladoras as 
part of the in-bond industry. One objective of the council is the 
development of manufacturing clusters, which will deepen the supply 
chain in Mexico. In support of the work of the council, the Secretariat 
of the Economy has agreed to fund, through the National Council of the 
Maquiladora Export Industry (CNIME), a comprehensive study on the 
maquiladora industry.

* Recent agreements between the United States and Mexico have largely 
resolved the threat of double taxation of U.S. firms that was raised by 
Mexico's efforts to define maquiladora parent companies as permanent 
establishments, discussed above. As a result of a Second Additional 
Protocol to the U.S.-Mexico tax treaty, signed in 2002, the United 
States will be able to provide a foreign tax credit to U.S. firms that 
have paid income taxes to Mexico with respect to their maquiladora 
operations. Mexico has also independently announced that it will make 
no changes to existing agreements on permanent establishment until 
2007.

These steps by the Mexican government seem to reflect wider recognition 
by officials in Mexico City of the maquiladoras' importance to Mexico. 
Industry representatives complained that the Mexican government was 
slow to respond to the challenges faced by the maquiladoras. According 
to these representatives, the Mexican government initially took "a wait 
and see" approach to the maquiladoras decline, in the belief that 
labor-intensive maquiladora operations leaving Mexico would be readily 
replaced by better paid, more profitable industries. As job losses 
continued in the first three months of 2002, maquiladora 
representatives pressured the government to implement remedial 
measures.

Future Challenges Remain, Involve Difficult Reforms:

Notwithstanding the initiatives discussed above, government, industry 
and academic sources suggest that meeting remaining challenges to the 
future success of the maquiladoras will, in some cases, require 
fundamental Mexican reforms in several areas, including energy, 
infrastructure and labor. However, the initiatives Mexico is pursuing 
in these areas may be difficult to bring about.

Some Consider Energy Reform Vital to Mexico's Competitiveness:

Government officials and industry representatives stated that there is 
an urgent need for energy reform in Mexico. Energy sector reform is 
important to the maquiladora industries because they require reliable 
and competitive energy prices to compete with suppliers in other 
nations. The ITC, for example, has noted that electricity and 
industrial water costs are two areas in which Mexico is less 
competitive than China. The Fox administration maintains that without 
energy reform, Mexico may experience a power crisis as early as 2004, 
and it introduced an energy reform bill in August 2002. The legislation 
stalled in the Mexican Congress, however, because some legislators 
opposed aspects of reform dealing with privatization that would entail 
amending the Mexican constitution.

Upgrading and Modernizing Mexican Infrastructure Is Critical:

Maquiladora and other Mexican industry associations cite improving 
Mexico's infrastructure as critical to advancing Mexico's 
competitiveness. According to a report by the Mexican Government 
Commission for Border Affairs, the six Mexican states that border the 
United States share the advantage of an adequate basic infrastructure, 
with a road network variously described as good, fluid, or 
satisfactory. However, even in this region, about 32 percent of the 
Mexican federal highways are in poor condition. Another study found 
that critical problems persist in Mexico's road infrastructure, 
notably, limited public or private investment in highways in recent 
years. Some maquiladora representatives we spoke with cited 
infrastructure shortcomings as a disincentive for potential investors 
in maquiladoras.

Need for Mexican Labor Reform Acknowledged:

According to Mexican labor officials, as part of its platform to 
modernize Mexico and improve its international competitiveness, the 
government has sought to reform the labor code. Maquiladora 
representatives stated that improvements in labor productivity depend 
on reform of labor regulations to provide increased flexibility to 
employers. The Fox administration has responded to this need for labor 
reform by developing a labor reform package that represents a 
compromise between labor groups, business, and government. Key elements 
of the reform package include the use of secret ballots in union 
elections, the allowance of more than one union to represent worker 
interests, expanded employer flexibility to hire workers on a trial 
basis, and a strengthened binding arbitration process. This reform 
package was not passed by the Mexican Congress before congressional 
elections were held in July 2003, in part because it lacked consensus 
support within the Mexican labor movement.

Worker Skills in Mexico Must Be Improved:

A consultant for the maquiladora industry cites worsening shortages of 
trained labor in most cities where maquiladoras are concentrated as 
among the challenges confronting the industry that the government must 
address. One academic study[Footnote 29] of the maquiladoras' viability 
found that to develop more technology-intensive operations, Mexico 
needs a large number of highly educated workers. However, according to 
the Commission on Border Affairs, the data indicate a low level of 
educational attainment in the economically active population along the 
border, with over one-third of adults having completed only primary 
education or less. The search for better educated workers has led a 
number of companies to establish assembly plants in cities further from 
the border, with better reputations for good public secondary education 
and trade schools.[Footnote 30]

U.S. Policies May Exert Additional Pressure on Maquiladoras:

Action by Mexico is key to the maquiladoras' future viability, 
particularly since U.S. approaches to trade liberalization and homeland 
security may put additional pressure on maquiladora operations. 
Industry representatives noted that present U.S. policies in these 
areas could undermine current benefits and reduce future 
competitiveness.

U.S. Trade Liberalization Could Affect Maquiladora Development:

Regarding U.S. trade policy, the future development of the maquiladora 
industry in Mexico may also be affected by further changes in 
competitors' access to the U.S. market. The United States is engaged in 
trade negotiations in several venues, including the Doha Round among 
the 146 members of the WTO, the Free Trade Agreement of the Americas 
(FTAA) involving 34 nations of the Western Hemisphere, and the U.S.-
Central America Free Trade Agreement. These negotiations may reduce 
barriers to non-NAFTA countries' products to levels similar to those 
enjoyed by NAFTA participants, Mexico, and Canada. For example, in the 
WTO, the United States has proposed to eliminate all industrial tariffs 
by 2015, and in the FTAA, the United States has proposed to phase out 
textile and apparel tariffs within 5 years after the agreement is 
implemented, if its hemispheric partners reciprocate. As we concluded 
in a 2001 report,[Footnote 31] expansion of trade benefits to wider 
numbers of competitors, while benefiting U.S. consumers and other trade 
partners, dilutes the benefits of prior trade preferences. Some 
business association representatives that we interviewed expressed 
concern that future U.S. trade agreements would erode benefits provided 
to Mexican suppliers in the U.S. market under NAFTA. Representatives 
for one industry association expressed hope that the United States 
would use negotiations such as the FTAA to strengthen regional 
competitiveness relative to global competitors such as China.

U.S. Homeland Security Measures Could Slow Cross-Border Movement of 
Goods and Personnel:

Maquiladora industry experts also expressed concern that U.S. security 
measures instituted at ports of entry after September 11, 2001, could 
erode the Mexican maquiladora industry's advantage of proximity to U.S. 
markets. Of particular concern are U.S. government measures that 
require advance notice for transborder shipments of goods and 
additional information on the entry into and departure from the United 
States of every foreign citizen.[Footnote 32] Companies that use just-
in-time operations, an important element in some maquiladora 
operations, could be especially hurt by requirements related to advance 
notice for shipments, because they could not ship goods immediately on 
receiving an order.[Footnote 33] Firms that rely on regular and 
efficient movement of workers and service operations across the border 
could be especially affected by the information requirements for 
Mexican workers who cross the border frequently. For example, at one 
major border crossing in downtown El Paso, less than a mile from 
Interstate 10, significant congestion would result if U.S. authorities 
had to screen traffic bound for Mexico to obtain information from every 
departing alien. Successful implementation of these new requirements 
will require close coordination of U.S. and Mexican national and local 
officials as well as adaptation of the private industry to the new 
requirements.

Conclusion:

Both the United States and Mexico have an interest in the future of 
maquiladoras given their central role in U.S.-Mexico trade and the 
border economy. Partly driven by maquiladoras, Mexico has assumed a 
more prominent place among U.S. trade partners in recent years, 
becoming the United States' second leading trading partner, after 
Canada. Moreover, production and employment linkages have developed 
between maquiladoras and producers throughout the United States and are 
based on the high volume of U.S.-generated components used in 
maquiladora operations. Businesses in communities on the U.S. side of 
the border provide services to the maquiladoras, such as customs 
brokerage and commercial transportation. Retail sales to Mexican 
citizens in U.S. border communities contribute substantially to U.S. 
business and tax receipts. The decline in Mexico's maquiladora 
production and employment has already taken its toll on cross-border 
trade and trade-related employment in certain U.S. border communities. 
Maquiladoras have become an even more important element of the Mexican 
economy, particularly over the decade of the 1990s, when maquiladora 
growth propelled Mexico into the ranks of the world's leading exporters 
and generated 900,000 new jobs. Employment created by maquiladoras on 
the Mexican side of the border has become a mainstay of economic 
activity in that country. The decline over the past 2 years has served 
as a catalyst for further transformation of the industry, as well as 
Mexican industry and government efforts to restore competitiveness. The 
challenges still confronting maquiladoras and the pressure from U.S. 
trade and homeland security policies lend urgency to Mexican efforts to 
create an environment where cross-border links between U.S. and Mexican 
firms and communities can continue to prosper.

Agency Comments and Our Response:

We provided a draft of this report for comment to five U.S. government 
agencies: Department of State, the Office of the U.S. Trade 
Representative, U.S. Customs and Border Protection (formerly U.S. 
Customs), Department of the Treasury, and the U.S. International Trade 
Commission. We also asked for comments from three Mexican government 
agencies: the Ministry of the Economy (Secretaría de Economía) the 
Ministry of the Treasury (Secretaría de Hacienda), and the National 
Institute of Statistics, Geography and Information Technology 
(Instituto Nacional de Estadística, Geografía e Informática). We 
received informal written comments from all of these U.S. and Mexican 
government agencies, except Mexico's Ministry of Economy. In addition, 
the Department of State provided formal written comments, which are 
reprinted in appendix VII.

In general, all of the agency comments were technical or editorial in 
nature, which we incorporated as appropriate in the text of our report. 
In addition, U.S. ITC staff had more extensive comments related to our 
decision to exclude firms operation under the so-called PITEX program 
from the general scope our work, noting that PITEX firms are important 
in certain sectors, such as autos, and account for a substantial share 
of Mexico's total exports to the United States. While we recognize that 
firms operating under PITEX are an important element in U.S-Mexico 
production-sharing operations, as are maquiladoras, we limited our 
report to the Maquiladora program for several reasons. First, our 
requesters specifically expressed an interest in the maquiladora 
industry and the effects of the recent decline of the maquiladoras 
along the U.S.-Mexico border. Unlike maquiladoras, which are still 
concentrated along the border, firms operating under the PITEX program 
are spread throughout Mexico. Secondly, the data the government of 
Mexico collects on maquiladoras are significantly more extensive and 
are not altogether comparable to the data collected on PITEX firms. 
Thus, there would have been problems in comparing the two types of 
operations. Finally, the data available on PITEX firms suggest that 
they have experienced trends in recent years not unlike those observed 
among maquiladoras. Including data on PITEX firms would not have 
significantly altered our message.

We are sending copies of this report to other interested members of 
Congress, the Secretary of State, the Secretary of the Treasury, the 
U.S. Trade Representative, the Secretary of the Department of Homeland 
Security, the Commissioner of Customs, and the Chairman of the U.S. 
International Trade Commission. We will also make copies available to 
others upon request. In addition, the report will be available at no 
charge on the GAO Web site at http://www.gao.gov.

If you, or your staff, have any questions about this report, please 
contact me on (202) 512-4347. Other GAO contacts and staff 
acknowledgments are listed in appendix VIII.

Loren Yager 
Director, International Affairs and Trade:

Signed by Loren Yager: 

[End of section]

Appendixes:

Appendix I: Structure of Employment Growth in the U.S.-Mexico Border 
Area:

This appendix examines U.S. employment changes along the U.S.-Mexico 
border and explores whether employment in the border areas of the 
United States has been disproportionately affected by the recent 
slowdown in U.S. economic activity and the associated decline in cross-
border trade between the United States and Mexico. For the purpose of 
this analysis, the U.S. border with Mexico is defined as the 
metropolitan statistical areas (MSA) closest to the U.S.-Mexico border, 
comprising the MSAs for San Diego, California; Tucson, Arizona; Las 
Cruces, New Mexico; and El Paso, Brownsville, Laredo, and McAllen, 
Texas.[Footnote 34]

U.S. employment in the border area increased by approximately 591,000 
jobs between 1990 and 2002, largely owing to the overall national trend 
in employment growth. For example, according to our analysis, 60 
percent of the jobs gained were due to the growth of the national 
economy. However, 230,000 of those jobs could be linked to local 
factors, that is, factors associated with the area's attractiveness for 
employment creation. Most of the new jobs were added from 1995 to 2002. 
However, the ways in which each border subregion benefited from the 
employment growth vary considerably.

U.S. Border Employment Outpaced Nation's since 1995:

U.S. employment in the U.S.-Mexico border area grew by 35 percent 
between 1990 and 2002, gaining 591,000 jobs. The services sector was 
the largest employer and accounted for approximately 48 percent of the 
job growth (282,000 jobs) during this period. Other sectors with 
notable employment growth were retail trade (93,000 jobs); finance, 
insurance, and real estate (20,000 jobs); transportation and public 
utilities (31,000 jobs); and government (128,000 jobs). As figure 14 
shows, total nonfarm employment growth rates in the border region were 
generally similar to those observed for the United States from 1993 to 
1995. However, employment growth in the border MSAs exceeded employment 
growth at 
the national level after 1995.[Footnote 35] Furthermore, growth of 
nonfarm employment in the border area continued even after the U.S. 
economic slowdown began in 2001. Laredo and McAllen grew fastest, 
followed by Brownsville, Tucson, Las Cruces, and San Diego.

Figure 14: Nonfarm Annual Employment Growth in the United States and in 
U.S. Metropolitan Statistical Areas at the U.S.-Mexico Border, 1991-
2002:

[See PDF for image]

[End of figure]

Some border industries experienced a decline in employment in 2001 and 
2002, particularly manufacturing (down 6 percent), transportation and 
public utilities (down 4 percent), and wholesale trade (down 3 percent) 
(see table 1). As table 1 shows, declines in manufacturing were 
relatively more severe in Texas (down an average of 18 percent), while 
declines in wholesale trade and transportation and public utilities 
were more pronounced in Arizona (down 9 and 11 percent, respectively). 
A closer look at Texas further shows that the manufacturing, 
transportation, and public utilities sectors declined after 2000 in all 
four Texas border MSAs.

Table 1: Employment Growth of the United States and U.S. Metropolitan 
Statistical Areas at the U.S. Mexico Border by Industry: 1990-2002 and 
2000-2002:

United States: 2000-2002: Total nonfarm: -1%; Construction & 
mining: -1%; Manufacturing: -9%; Transportation & public utilities: -
4%; Wholesale trade: -4%; Retail trade: 0%; Finance, insurance, & real 
estate: 2%; Services: 2%; Government: 3%.

1990-2002: Total nonfarm: 20%; Construction & mining: 22%; Manufac-
turing: -12%; Transportation & public utilities: 17%; Wholesale trade: 
8%; Retail trade: 19%; Finance, insurance, & real estate: 16%; 
Services: 47%; Government: 16%.

US-Mexico Border: 2000-2002: Total nonfarm: 4%; Construction & 
mining: 5%; Manufacturing: -6%; Transportation & public utilities: -
4%; Wholesale trade: -3%; Retail trade: 7%; Finance, insurance, & real 
estate: 6%; Services: 5%; Government: 8%.

1990-2002: Total nonfarm: 35%; Construction & mining: 48%; Manufac-
turing: -7%; Transportation & public utilities: 43%; Wholesale trade: 
13%; Retail trade: 27%; Finance, insurance, & real estate: 21%; 
Services: 65%; Government: 37%.

San Diego, CA: 2000-2002: Total nonfarm: 5%; Construction & mining: 
9%; Manufacturing: -1%; Transportation & public utilities: -1%; 
Wholesale trade: -1%; Retail trade: 8%; Finance, insurance, & real 
estate: 4%; Services: 6%; Government: 8%.

1990-2002: Total nonfarm: 30%; Construction & mining: 46%; Manufac-
turing: -5%; Transportation & public utilities: 40%; Wholesale trade: 
14%; Retail trade: 22%; Finance, insurance, & real estate: 14%; 
Services: 59%; Government: 26%.

Tucson, AZ: 2000-2002: Total nonfarm: 2%; Construction & mining: -
1%; Manufacturing: -4%; Transportation & public utilities: -11%; 
Wholesale trade: -9%; Retail trade: 3%; Finance, insurance, & real 
estate: 7%; Services: 0%; Government: 9%.

1990-2002: Total nonfarm: 42%; Construction & mining: 43%; Manufac-
turing: 21%; Transportation & public utilities: 14%; Wholesale trade: 
32%; Retail trade: 24%; Finance, insurance, & real estate: 35%; 
Services: 60%; Government: 49%.

Las Cruces, NM: 2000-2002: Total nonfarm: 5%; Construction & 
mining: 0%; Manufacturing: 3%; Transportation & public utilities: -5%; 
Wholesale trade: 8%; Retail trade: 6%; Finance, insurance, & real 
estate: 0%; Services: 8%; Government: 6%.

1990-2002: Total nonfarm: 37%; Construction & mining: 50%; Manufac-
turing: -8%; Transportation & public utilities: 31%; Wholesale trade: 
56%; Retail trade: 35%; Finance, insurance, & real estate: 25%; 
Services: 111%; Government: 14%.

Brownsville, TX: 2000-2002: Total nonfarm: 2%; Construction & 
mining: 7%; Manufacturing: -19%; Transportation & public utilities: -
4%; Wholesale trade: 7%; Retail trade: 6%; Finance, insurance, & real 
estate: 0%; Services: 5%; Government: 6%.

1990-2002: Total nonfarm: 47%; Construction & mining: 96%; Manufac-
turing: -14%; Transportation & public utilities: 66%; Wholesale trade: 
22%; Retail trade: 38%; Finance, insurance, & real estate: 5%; 
Services: 93%; Government: 53%.

El Paso, TX: 2000-2002: Total nonfarm: -1%; Construction & mining: 
-2%; Manufacturing: -17%; Transportation & public utilities: -10%; 
Wholesale trade: -9%; Retail trade: 4%; Finance, insurance, & real 
estate: 12%; Services: 1%; Government: 8%.

1990-2002: Total nonfarm: 22%; Construction & mining: 46%; Manufac-
turing: -24%; Transportation & public utilities: 31%; Wholesale trade: 
-4%; Retail trade: 26%; Finance, insurance, & real estate: 35%; 
Services: 43%; Government: 38%.

Laredo, TX: 2000-2002: Total nonfarm: 6%; Construction & mining: -
6%; Manufacturing: -22%; Transportation & public utilities: -5%; 
Wholesale trade: -10%; Retail trade: 14%; Finance, insurance, & real 
estate: 11%; Services: 10%; Government: 13%.

1990-2002: Total nonfarm: 62%; Construction & mining: 3%; Manufac-
turing: -22%; Transportation & public utilities: 82%; Wholesale trade: 
12%; Retail trade: 45%; Finance, insurance, & real estate: 63%; 
Services: 106%; Government: 81%.

McAllen, TX: 2000-2002: Total nonfarm: 9%; Construction & mining: 
4%; Manufacturing: -18%; Transportation & public utilities: 0%; 
Wholesale trade: 0%; Retail trade: 9%; Finance, insurance, & real 
estate: 11%; Services: 19%; Government: 12%.

1990-2002: Total nonfarm: 69%; Construction & mining: 92%; Manufac-
turing: -25%; Transportation & public utilities: 120%; Wholesale trade: 
11%; Retail trade: 55%; Finance, insurance, & real estate: 56%; 
Services: 165%; Government: 71%.

Source: GAO calculations using U.S. Department of Labor, Bureau of 
Labor Statistics data.

[End of table]

Analysis of Employment Trends:

To analyze the factors at the national and local levels that 
contributed to the employment trends described above, we employed a 
methodology known as shift-share analysis that decomposes employment 
growth (or decline) in a region over a given time period into three 
components: the national growth effect, the industry-mix effect, and 
the local (competitive) effect.

1. National growth effect. The national growth effect is that part of a 
regional change in total employment ascribed to the national growth 
rate of total employment. It assumes that the region's employment 
growth matches the overall national rate. The national growth component 
is the change that would be expected given that the local area is part 
of a changing national economy.[Footnote 36]

Our analysis shows that from 1990 through 2002, the border counties 
gained 339,100 jobs due to economic trends at the national level (see 
table 2). However, the actual gain occurred prior to the year 2000 as 
an estimated 15,800 jobs were lost due to the national trend in 2001 
and 2002. The border area's biggest employer, the service sector, had 
the highest national growth component (97,300 jobs), followed by the 
government (71,200 jobs), and retail trade sectors (65,900 jobs). Our 
analysis incorporating possible differences among the border subregions 
shows that from 1990 through 2002, nonfarm employment growth in San 
Diego accounted for nearly 50 percent of the increase in employment due 
to employment expansion at the national level.

2. Industry-mix effect. An industry-mix effect is the amount of change 
that a region would have experienced had each of its industries grown 
at their industry national rates, less the national growth effect. This 
component identifies the share of local job growth that can be 
attributed to the region's mix of industries and seeks to address 
whether employment growth in an area outpaced the nation owing to a 
concentration of faster growing industries.

For the period 1990 to 2002, the border area gained 21,200 jobs owing 
to a concentration of faster growing sectors there than in the nation 
as a whole. This gain in total employment was achieved primarily with 
employment gains in the services (114,400 jobs) and construction and 
mining (4,200 jobs), and it occurred despite employment losses totaling 
95,200 jobs from other sectors, notably manufacturing (69,800 jobs), 
government (10,500 jobs), and wholesale trade (8,500 jobs). Moreover, 
47 percent of the employment growth due to the industry-mix effect 
occurred between 2001 and 2002. In subregions, the industrial mix 
component for all sectors decreased total nonfarm employment during 
1990-2002 only in El Paso, Texas.

3. Local (competitive) effect. A local (competitive) effect seeks to 
isolate the extent to which factors unique to the local area have 
caused growth or decline in regional employment. The effect is defined 
as the employment change that remains after the national and industrial 
mix components have been accounted for, and it is therefore the purely 
regional aspect of the region's employment growth. If a region's 
competitive share is positive, the region is considered to have local 
advantage in promoting employment growth. This advantage could result 
from such factors as local businesses having superior technology, 
management, location, market access or the local labor force's having 
higher productivity, lower wages, or both. A negative competitive share 
component could be caused by local shortcomings in any or all of these 
aspects.

Local conditions appear to have been a significant factor in the 
increase in U.S. border employment, particularly since 1995. Across all 
sectors, the competitive share component--employment growth 
attributable to local conditions--totals to a net addition of 230,000 
jobs. This indicates that the border area was competitive in securing 
additional employment from 1990 through 2002. As figure 15 shows, 
nearly all of these employment gains were realized in the years since 
1995. Furthermore, 43 percent of border area employment gains owing to 
local factors were achieved between 2001 and 2002. The top three 
sectors in competitive share gains in employment from 1990 through 2002 
were services (70,600 jobs), government (67,200 jobs), and 
manufacturing (37,500 jobs). However, for the 2000-2002 period, the 
transportation and public utilities sector showed a reduction in jobs 
(approximately 300 jobs) owing to local factors. In addition, factors 
unique to the local area caused employment declines in certain 
subregions and sectors during 1990-2002, notably, in Laredo, Texas, in 
construction and mining; El Paso, Texas, in wholesale trade and 
services; Brownsville, Texas, in finance, insurance, and real estate; 
Tucson, Arizona, in transportation and public utilities; and Las 
Cruces, New Mexico, in government employment. Furthermore, subregions 
in Texas generally lost their local edge in securing manufacturing 
employment from 1990 through 2002 and this loss was more pronounced in 
2001 and 2002. Similarly, owing to local factors from 2001 to 2002, 
Tucson, Las Cruces, and El Paso lost jobs in transportation and public 
utilities; Tucson, El Paso, and Laredo lost employment in wholesale 
trade; and El Paso lost service employment; and Brownsville and Las 
Cruces lost employment in the finance, real estate, and insurance 
sector.

Figure 15: Employment Gains (Losses) in Nonfarm Employment in 
Metropolitan Statistical Areas at the U.S. Mexico Border Due to 
National, Industry-mix, and Local Effects:

[See PDF for image]

[End of figure]

Table 2: Components of Employment Changes by Sectors in U.S. 
Metropolitan Statistical Areas at the U.S. Mexico Border, 1990-2002:

Employment in thousands

Local effect.

US-Mexico Border; Local effect: 2001-2002; 
Total nonfarm: Local effect: 98.1; 
Construction & mining: Local effect: 7.5; Manufacturing: 
Local effect: 10.8; 
Transportation and public utilities: Local effect: (0.3); 
Trade: Local effect: 31.1; 
Wholesale trade: Local effect: 0.9; Retail 
trade: Local effect: 29.4; Finance, insurance, 
and real estate: Local effect: 3.6; Services: 
Local effect: 23.3; Government: Local effect: 
25.1.

Local effect: 1990-2002; Total nonfarm: Local effect: 230.5; 
Construction & mining: Local effect: 21.6; 
Manufacturing: Local effect: 37.5; Transportation and public 
utilities: Local effect: 17.1; Trade: Local effect: 35.4; 
Wholesale trade: Local effect: 4.3; Retail 
trade: Local effect: 29.0; Finance, insurance, 
and real estate: Local effect: 5.3; Services: 
Local effect: 70.6; Government: Local effect: 
67.4.

San Diego, CA; Local effect: 2001-2002; 
Total nonfarm: Local effect: 67.0; 
Construction & mining: Local effect: 6.9; Manufacturing: Local effect: 
10.7; Transportation and public utilities: Local effect: 1.6; Trade: 
Local effect: 19.5; 
Wholesale trade: Local effect: 1.3; Retail 
trade: Local effect: 17.8; Finance, insurance, 
and real estate: Local effect: 1.4; Services: 
Local effect: 16.1; Government: Local effect: 
10.8.

Local effect: 1990-2002; 
Total nonfarm: Local effect: 91.2; 
Construction & mining: Local effect: 14.0; 
Manufacturing: Local effect: 10.4; Transportation and public 
utilities: Local effect: 8.2; Trade: Local effect: 12.6; 
Wholesale trade: Local effect: 3.0; Retail 
trade: Local effect: 8.5; Finance, insurance, 
and real estate: Local effect: (0.5); 
Services: Local effect: 29.8; Government: 
Local effect: 16.6.

Tucson, AZ; Local effect: 2001-2002; 
Total nonfarm: Local effect: 6.3; 
Construction & mining: Local effect: 0.1; Manufacturing: Local 
effect: 2.0; 
Transportation and public utilities: Local effect: (0.9); 
Trade: Local effect: 1.8; 
Wholesale trade: Local effect: (0.6); Retail 
trade: Local effect: 2.2; Finance, insurance, 
and real estate: Local effect: 0.7; Services: 
Local effect: (2.2); Government: Local effect: 
4.8.

Local effect: 1990-2002; Total nonfarm: Local effect: 42.3; 
Construction & mining: Local effect: 2.2; 
Manufacturing: Local effect: 9.7; Transportation and public utilities: 
Local effect: (0.8); Trade: Local effect: 4.6; Wholesale 
trade: Local effect: 1.6; Retail trade: Local 
effect: 2.4; Finance, insurance, and real 
estate: Local effect: 2.1; Services: Local 
effect: 7.6; Government: Local effect: 16.9.

Las Cruces, NM; Local effect: 2001-2002; 
Total nonfarm: Local effect: 2.7; 
Construction & mining: Local effect: 0.0; Manufacturing: Local effect: 
0.4; Transportation and public utilities: Local effect: (0.0); 
Trade: Local effect: 0.7; 
Wholesale trade: Local effect: 0.2; Retail 
trade: Local effect: 0.6; Finance, insurance, 
and real estate: Local effect: (0.0); 
Services: Local effect: 1.0; Government: Local 
effect: 0.6.

Local effect: 1990-2002; Total nonfarm: Local effect: 6.8; 
Construction & mining: Local effect: 0.4; 
Manufacturing: Local effect: 0.1; Transportation and public utilities: 
Local effect: 0.2; Trade: Local effect: 1.7; Wholesale 
trade: Local effect: 0.4; Retail trade: Local 
effect: 1.3; Finance, insurance, and real 
estate: Local effect: 0.1; Services: Local 
effect: 4.7; Government: Local effect: (0.4).

Brownsville, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 2.6; 
Construction & mining: Local effect: 0.4; Manufacturing: Local effect: 
(1.2); Transportation and public utilities: Local effect: 0.0; 
Trade: Local effect: 2.0; Wholesale trade: Local effect: 0.5; 
Retail trade: Local effect: 1.4; Finance, 
insurance, and real estate: Local effect: (0.1); Services: Local 
effect: 0.9; Government: Local effect: 0.7.

Local effect: 1990-2002; Total nonfarm: Local effect: 18.6; 
Construction & mining: Local effect: 1.5; 
Manufacturing: Local effect: (0.2); Transportation and public 
utilities: Local effect: 1.4; Trade: Local effect: 3.7; Wholesale 
trade: Local effect: 0.5; Retail trade: Local 
effect: 3.0; Finance, insurance, and real 
estate: Local effect: (0.3); Services: Local 
effect: 6.7; Government: Local effect: 5.9.

El Paso, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 0.5; 
Construction & mining: Local effect: (0.2); 
Manufacturing: Local effect: (2.9); Transportation and public 
utilities: Local effect: (1.0); Trade: Local effect: 1.5; Wholesale 
trade: Local effect: (0.6); Retail trade: Local effect: 2.1; 
Finance, insurance, and real estate: Local effect: 1.0; Services: 
Local effect: (0.7); Government: Local effect: 2.9.

Local effect: 1990-2002; Total nonfarm: Local effect: 7.6; 
Construction & mining: Local effect: 1.4; 
Manufacturing: Local effect: (5.1); Transportation and public 
utilities: Local effect: 1.3; Trade: Local effect: 1.2; Wholesale 
trade: Local effect: (1.5); Retail trade: 
Local effect: 2.6; Finance, insurance, and 
real estate: Local effect: 1.5; Services: 
Local effect: (1.6); Government: Local effect: 
9.0.

Laredo, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 4.3; 
Construction & mining: Local effect: (0.2); 
Manufacturing: Local effect: (0.2); Transportation and public 
utilities: Local effect: (0.2); 
Trade: Local effect: 1.9; Wholesale trade: Local effect: (0.2); 
Retail trade: Local effect: 2.0; 
Finance, insurance, and real estate: Local effect: 0.2; Services: Local effect: 1.1; 
Government: Local effect: 1.6.

Local effect: 1990-2002; Total nonfarm: Local effect: 16.5; 
Construction & mining: Local effect: (1.0); 
Manufacturing: Local effect: (0.2); Transportation and public 
utilities: Local effect: 3.9; Trade: Local effect: 2.9; Wholesale 
trade: Local effect: 0.1; Retail trade: Local 
effect: 2.8; Finance, insurance, and real 
estate: Local effect: 0.9; Services: Local 
effect: 4.1; Government: Local effect: 5.9.

McAllen, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 14.7; 
Construction & mining: Local effect: 0.5; Manufacturing: Local 
effect: (1.1); Transportation and public utilities: Local effect: 0.2; 
Trade: Local effect: 3.6; Wholesale trade: Local effect: 0.3; 
Retail trade: Local effect: 3.2; Finance, 
insurance, and real estate: Local effect: 0.5; 
Services: Local effect: 7.1; Government: Local 
effect: 3.8.

Local effect: 1990-2002; Total nonfarm: Local effect: 47.5; 
Construction & mining: Local effect: 3.2; 
Manufacturing: Local effect: (1.7); Transportation and public 
utilities: Local effect: 2.9; Trade: Local effect: 8.8; Wholesale 
trade: Local effect: 0.2; Retail trade: Local 
effect: 8.4; Finance, insurance, and real 
estate: Local effect: 1.5; Services: Local 
effect: 19.3; Government: Local effect: 13.6.

Industrial-mix effect.

US-Mexico Border; Local effect: 2001-2002; 
Total nonfarm: Local effect: 10.0; 
Construction & mining: Local effect: (0.6); 
Manufacturing: Local effect: (20.6); Transportation and public 
utilities: Local effect: (3.1); 
Trade: Local effect: (1.5); Wholesale trade: Local effect: (3.0); 
Retail trade: Local effect: 2.4; 
Finance, insurance, and real estate: Local effect: 3.4; Services: 
Local effect: 17.2; Government: Local effect: 15.2.

Local effect: 1990-2002; Total nonfarm: Local effect: 21.2; 
Construction & mining: Local effect: 4.2; 
Manufacturing: Local effect: (69.8); 
Transportation and public utilities: Local effect: (1.8); 
Trade: Local effect: (12.6); 
Wholesale trade: Local effect: (8.5); Retail 
trade: Local effect: (1.8); Finance, 
insurance, and real estate: Local effect: (2.8); Services: Local 
effect: 114.4; Government: Local effect: (10.5).

San Diego, CA; Local effect: 2001-2002; 
Total nonfarm: Local effect: 5.1; 
Construction & mining: Local effect: (0.3); 
Manufacturing: Local effect: (11.7); Transportation and public 
utilities: Local effect: (1.5); Trade: Local effect: (0.8); Wholesale 
trade: Local effect: (1.7); Retail trade: Local effect: 1.3; Finance, 
insurance, and real estate: Local effect: 2.2; Services: Local 
effect: 10.1; Government: Local effect: 7.2.

Local effect: 1990-2002; Total nonfarm: Local effect: 16.5; 
Construction & mining: Local effect: 1.4; 
Manufacturing: Local effect: (38.9); 
Transportation and public utilities: Local effect: (0.9); 
Trade: Local effect: (6.8); 
Wholesale trade: Local effect: (4.8); Retail 
trade: Local effect: (1.1); Finance, 
insurance, and real estate: Local effect: (1.8); Services: Local 
effect: 68.4; Government: Local effect: (4.9).

Tucson, AZ; Local effect: 2001-2002; 
Total nonfarm: Local effect: 2.3; 
Construction & mining: Local effect: (0.1); 
Manufacturing: Local effect: (3.0); Transportation and public 
utilities: Local effect: (0.3); 
Trade: Local effect: (0.2); Wholesale trade: Local effect: (0.4); 
Retail trade: Local effect: 0.4; 
Finance, insurance, and real estate: Local effect: 0.5; Services: 
Local effect: 2.9; 
Government: Local effect: 2.6.

Local effect: 1990-2002; Total nonfarm: Local effect: 7.5; 
Construction & mining: Local effect: 1.1; 
Manufacturing: Local effect: (8.9); Transportation and public 
utilities: Local effect: (0.2); Trade: Local effect: (1.8); 
Wholesale trade: Local effect: (1.0); Retail 
trade: Local effect: (0.3); Finance, 
insurance, and real estate: Local effect: (0.4); Services: Local 
effect: 19.7; Government: Local effect: (1.9).

Las Cruces, NM; Local effect: 2001-2002; 
Total nonfarm: Local effect: 0.7; 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (0.3); Transportation and public 
utilities: Local effect: (0.1); 
Trade: Local effect: (0.0); Wholesale trade: Local effect: (0.0); 
Retail trade: Local effect: 0.1; 
Finance, insurance, and real estate: Local effect: 0.1; Services: 
Local effect: 0.4; 
Government: Local effect: 0.6.

Local effect: 1990-2002; Total nonfarm: Local effect: 0.6; 
Construction & mining: Local effect: 0.2; 
Manufacturing: Local effect: (0.9); Transportation and public 
utilities: Local effect: (0.0); Trade: Local effect: (0.3); 
Wholesale trade: Local effect: (0.1); Retail 
trade: Local effect: (0.0); Finance, 
insurance, and real estate: Local effect: (0.1); Services: Local 
effect: 2.3; Government: Local effect: (0.6).

Brownsville, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 0.5; 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (1.1); Transportation and public 
utilities: Local effect: (0.2); 
Trade: Local effect: (0.1); Wholesale trade: Local effect: (0.1); 
Retail trade: Local effect: 0.1; 
Finance, insurance, and real estate: Local effect: 0.1; Services: 
Local effect: 0.8; Government: Local effect: 0.9.

Local effect: 1990-2002; Total nonfarm: Local effect: 0.0; 
Construction & mining: Local effect: 0.2; 
Manufacturing: Local effect: (3.8); Transportation and public 
utilities: Local effect: (0.1); Trade: Local effect: (0.6); 
Wholesale trade: Local effect: (0.4); Retail 
trade: Local effect: (0.1); Finance, 
insurance, and real estate: Local effect: (0.1); Services: Local 
effect: 5.1; Government: Local effect: (0.6).

El Paso, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: (0.1); 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (3.3); Transportation and public 
utilities: Local effect: (0.4); 
Trade: Local effect: (0.2); Wholesale trade: Local effect: (0.4); 
Retail trade: Local effect: 0.3; 
Finance, insurance, and real estate: Local effect: 0.3; Services: 
Local effect: 1.6; Government: Local effect: 2.0.

Local effect: 1990-2002; Total nonfarm: Local effect: (4.6); 
Construction & mining: Local effect: 0.6; 
Manufacturing: Local effect: (12.8); 
Transportation and public utilities: Local effect: (0.3); 
Trade: Local effect: (1.6); 
Wholesale trade: Local effect: (1.3); Retail 
trade: Local effect: (0.2); Finance, 
insurance, and real estate: Local effect: (0.2); Services: Local 
effect: 11.0; Government: Local effect: (1.4).

Laredo, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 0.4; 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (0.2); Transportation and public 
utilities: Local effect: (0.4); Trade: Local effect: (0.1); Wholesale 
trade: Local effect: (0.1); Retail trade: Local effect: 0.1; 
Finance, insurance, and real estate: Local effect: 0.1; in 
Services: Local effect: 0.4; 
Government: Local effect: 0.5.

Total nonfarm: Local effect: 1.0; Construction & mining: Local effect: 
0.3; Manufacturing: Local effect: (0.5); Transportation and public 
utilities: Local effect: (0.2); Trade: Local effect: (0.4); 
Wholesale trade: Local effect: (0.3); Retail 
trade: Local effect: (0.0); Finance, 
insurance, and real estate: Local effect: (0.1); Services: Local 
effect: 2.2; Government: Local effect: (0.3).

McAllen, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 1.2; 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (1.1); Transportation and public 
utilities: Local effect: (0.2); 
Trade: Local effect: (0.1); Wholesale trade: Local effect: (0.2); 
Retail trade: Local effect: 0.2; 
Finance, insurance, and real estate: Local effect: 0.2; Services: 
Local effect: 1.0; 
Government: Local effect: 1.4.

Local effect: 1990-2002; Total nonfarm: Local effect: 0.2; 
Construction & mining: Local effect: 0.4; 
Manufacturing: Local effect: (3.9); Transportation and public 
utilities: Local effect: (0.1); Trade: Local effect: (1.0); 
Wholesale trade: Local effect: (0.7); Retail 
trade: Local effect: (0.1); Finance, 
insurance, and real estate: Local effect: (0.1); Services: Local 
effect: 5.7; 
Government: Local effect: (0.9).

National effect.

US-Mexico Border; Local effect: 2001-2002; 
Total nonfarm: Local effect: (15.8); 
Construction & mining: Local effect: (0.9); 
Manufacturing: Local effect: (1.6); 
Transportation and public utilities: Local 
effect: (0.7); Trade: Local effect: (3.6); 
Wholesale trade: Local effect: (0.6); 
Retail trade: Local effect: (2.9); 
Finance, insurance, and real estate: Local effect: (0.8); 
Services: Local effect: (4.9): 
Government: Local effect: (3.2).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 339.1; 
Construction & mining: Local effect: 17.5; 
Manufacturing: Local effect: 40.0; Transportation
tation and public utilities: Local effect: 15.4: 
Trade: Local effect: 80.5; 
Wholesale trade: Local effect: 14.7; Retail 
trade: Local effect: 65.9; Finance, insurance, 
and real estate: Local effect: 17.1; Services: 
Local effect: 97.3; Government: Local effect: 
71.2.

San Diego, CA; Local effect: 2001-2002; 
Total nonfarm: Local effect: (8.6); 
Construction & mining: Local effect: (0.5); 
Manufacturing: Local effect: (0.9): 
Transportation and public utilities: Local effect: (0.4); 
Trade: Local effect: (1.9): 
Wholesale trade: Local effect: (0.4): 
Retail trade: Local effect: (1.6); 
Finance, insurance, and real estate: Local effect: (0.5): 
Services: Local effect: (2.9); 
Government: Local effect: (1.5).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 182.8; 
Construction & mining: Local effect: 8.7; 
Manufacturing: Local effect: 21.7; Transportation
tation and public utilities: Local effect: 7.2: 
Trade: Local effect: 42.4; 
Wholesale trade: Local effect: 7.9; Retail 
trade: Local effect: 34.5; Finance, insurance, 
and real estate: Local effect: 11.0; Services: 
Local effect: 58.0; Government: Local effect: 
33.8.

Tucson, AZ; Local effect: 2001-2002; 
Total nonfarm: Local effect: (2.5); 
Construction & mining: Local effect: (0.2); 
Manufacturing: Local effect: (0.2): 
Transportation and public utilities: Local effect: (0.1); 
Trade: Local effect: (0.5): 
Wholesale trade: Local effect: (0.1): 
Retail trade: Local effect: (0.4); 
Finance, insurance, and real estate: Local effect: (0.1): 
Services: Local effect: (0.8); 
Government: Local effect: (0.5).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 54.5; 
Construction & mining: Local effect: 3.8; 
Manufacturing: Local effect: 4.8; Transportation
tation and public utilities: Local effect: 2.3: 
Trade: Local effect: 12.2; 
Wholesale trade: Local effect: 1.8; Retail 
trade: Local effect: 10.4; Finance, insurance, 
and real estate: Local effect: 2.2; Services: 
Local effect: 16.9; Government: Local effect: 
12.3.

Las Cruces, NM; Local effect: 2001-2002; 
Total nonfarm: Local effect: (0.4); 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (0.0): 
Transportation and public utilities: Local effect: (0.0); 
Trade: Local effect: (0.1): 
Wholesale trade: Local effect: (0.0): 
Retail trade: Local effect: (0.1); 
Finance, insurance, and real estate: Local effect: (0.0): 
Services: Local effect: (0.1); 
Government: Local effect: (0.1).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 8.9; 
Construction & mining: Local effect: 0.5; 
Manufacturing: Local effect: 0.5; Transportation
tation and public utilities: Local effect: 0.3: 
Trade: Local effect: 1.9; Wholesale 
trade: Local effect: 0.2; Retail trade: Local 
effect: 1.7; Finance, insurance, and real 
estate: Local effect: 0.4; Services: Local 
effect: 1.9; Government: Local effect: 3.4.

Brownsville, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: (0.8); 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (0.1): 
Transportation and public utilities: Local effect: (0.0); 
Trade: Local effect: (0.2): 
Wholesale trade: Local effect: (0.0): 
Retail trade: Local effect: (0.2); 
Finance, insurance, and real estate: Local effect: (0.0): 
Services: Local effect: (0.2); 
Government: Local effect: (0.2).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 16.8; 
Construction & mining: Local effect: 0.5; 
Manufacturing: Local effect: 2.3; Transportation
tation and public utilities: Local effect: 0.8: 
Trade: Local effect: 4.3; Wholesale 
trade: Local effect: 0.7; Retail trade: Local 
effect: 3.6; Finance, insurance, and real 
estate: Local effect: 0.6; Services: Local 
effect: 4.4; Government: Local effect: 3.9.

El Paso, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: (1.8); 
Construction & mining: Local effect: (0.1); 
Manufacturing: Local effect: (0.2): 
Transportation and public utilities: Local effect: (0.1); 
Trade: Local effect: (0.4): 
Wholesale trade: Local effect: (0.1): 
Retail trade: Local effect: (0.3); 
Finance, insurance, and real estate: Local effect: (0.1): 
Services: Local effect: (0.4); 
Government: Local effect: (0.4).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 42.8; 
Construction & mining: Local effect: 1.9; 
Manufacturing: Local effect: 8.1; Transportation
tation and public utilities: Local effect: 2.3: 
Trade: Local effect: 10.2; 
Wholesale trade: Local effect: 2.3; Retail 
trade: Local effect: 8.0; Finance, insurance, 
and real estate: Local effect: 1.6; Services: 
Local effect: 9.4; Government: Local effect: 
9.2.

Laredo, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: (0.5); 
Construction & mining: Local effect: (0.0); 
Manufacturing: Local effect: (0.0): 
Transportation and public utilities: Local effect: (0.1); 
Trade: Local effect: (0.1): 
Wholesale trade: Local effect: (0.0): 
Retail trade: Local effect: (0.1); 
Finance, insurance, and real estate: Local effect: (0.0): 
Services: Local effect: (0.1); 
Government: Local effect: (0.1).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 10.5; 
Construction & mining: Local effect: 0.8; 
Manufacturing: Local effect: 0.3; Transportation
tation and public utilities: Local effect: 1.7: 
Trade: Local effect: 3.0; Wholesale 
trade: Local effect: 0.5; Retail trade: Local 
effect: 2.4; Finance, insurance, and real 
estate: Local effect: 0.4; Services: Local 
effect: 1.9; Government: Local effect: 2.4.

McAllen, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: (1.1); 
Construction & mining: Local effect: (0.1); 
Manufacturing: Local effect: (0.1): 
Transportation and public utilities: Local effect: (0.0); 
Trade: Local effect: (0.3): 
Wholesale trade: Local effect: (0.0): 
Retail trade: Local effect: (0.3); 
Finance, insurance, and real estate: Local effect: (0.0): 
Services: Local effect: (0.3); 
Government: Local effect: (0.3).

Local effect: 1990-2002: 
Total nonfarm: Local effect: 22.7; 
Construction & mining: Local effect: 1.3; 
Manufacturing: Local effect: 2.3; Transportation
tation and public utilities: Local effect: 0.8: 
Trade: Local effect: 6.5; Wholesale 
trade: Local effect: 1.2; Retail trade: Local 
effect: 5.3; Finance, insurance, and real 
estate: Local effect: 0.8; Services: Local 
effect: 4.8; Government: Local effect: 6.2.

Total employment change.

US-Mexico Border; Local effect: 2001-2002; 
Total nonfarm: Local effect: 92.3; 
Construction & mining: Local effect: 6.0: 
Manufacturing: Local effect: (11.4): 
Transportation and public utilities: Local effect: (4.1); 
Trade: Local effect: 26.0: 
Wholesale trade: Local effect: (2.7): 
Retail trade: Local effect: 28.8; 
Finance, insurance, and real estate: Local effect: 6.2: 
Services: Local effect: 35.6; 
Government: Local effect: 37.1.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 590.8; 
Construction & mining: Local effect: 43.4; 
Manufacturing: Local effect: 7.7; Transportation
tation and public utilities: Local effect: 30.7: 
Trade: Local effect: 103.4; 
Wholesale trade: Local effect: 10.4; Retail 
trade: Local effect: 93.1; Finance, insurance, 
and real estate: Local effect: 19.6; Services: 
Local effect: 282.3; Government: Local effect: 
128.1.

San Diego, CA; Local effect: 2001-2002; 
Total nonfarm: Local effect: 63.4; 
Construction & mining: Local effect: 6.0: 
Manufacturing: Local effect: (1.9): 
Transportation and public utilities: Local effect: (0.3); 
Trade: Local effect: 16.8: 
Wholesale trade: Local effect: (0.7): 
Retail trade: Local effect: 17.5; 
Finance, insurance, and real estate: Local effect: 3.1: 
Services: Local effect: 23.3; 
Government: Local effect: 16.4.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 290.5; 
Construction & mining: Local effect: 24.1; 
Manufacturing: Local effect: (6.8); Transportation
tation and public utilities: Local effect: 14.5: 
Trade: Local effect: 48.2; 
Wholesale trade: Local effect: 6.2; Retail 
trade: Local effect: 42.0; Finance, insurance, 
and real estate: Local effect: 8.7; Services: 
Local effect: 156.2; Government: Local effect: 
45.6.

Tucson, AZ; Local effect: 2001-2002; 
Total nonfarm: Local effect: 6.1; 
Construction & mining: Local effect: (0.2); 
Manufacturing: Local effect: (1.3): 
Transportation and public utilities: Local effect: (1.3); 
Trade: Local effect: 1.1: 
Wholesale trade: Local effect: (1.0): 
Retail trade: Local effect: 2.1; 
Finance, insurance, and real estate: Local effect: 1.0: 
Services: Local effect: (0.1); 
Government: Local effect: 6.9.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 104.4; 
Construction & mining: Local effect: 7.1; 
Manufacturing: Local effect: 5.6; Transportation
tation and public utilities: Local effect: 1.3: 
Trade: Local effect: 14.9; 
Wholesale trade: Local effect: 2.4; Retail 
trade: Local effect: 12.5; Finance, insurance, 
and real estate: Local effect: 4.0; Services: 
Local effect: 44.2; Government: Local effect: 
27.3.

Las Cruces, NM; Local effect: 2001-2002; 
Total nonfarm: Local effect: 3.0; 
Construction & mining: Local effect: 0.0: 
Manufacturing: Local effect: 0.1; 
Transportation and public utilities: Local effect: (0.1); 
Trade: Local effect: 0.6; 
Wholesale trade: Local effect: 0.1; Retail 
trade: Local effect: 0.6; Finance, insurance, 
and real estate: Local effect: (0.0); 
Services: Local effect: 1.3; Government: Local 
effect: 1.1.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 16.3; 
Construction & mining: Local effect: 1.1; 
Manufacturing: Local effect: (0.3); Transportation
tation and public utilities: Local effect: 0.5: 
Trade: Local effect: 3.3; Wholesale 
trade: Local effect: 0.5; Retail trade: Local 
effect: 2.9; Finance, insurance, and real 
estate: Local effect: 0.4; Services: Local 
effect: 8.9; Government: Local effect: 2.4.

Brownsville, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 2.3; 
Construction & mining: Local effect: 0.3: 
Manufacturing: Local effect: (2.4): 
Transportation and public utilities: Local effect: (0.2); 
Trade: Local effect: 1.7: 
Wholesale trade: Local effect: 0.3; 
Retail trade: Local effect: 1.4; Finance, 
insurance, and real estate: Local effect: 0.0; 
Services: Local effect: 1.5; Government: Local 
effect: 1.4.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 35.5; 
Construction & mining: Local effect: 2.2; 
Manufacturing: Local effect: (1.7); Transportation
tation and public utilities: Local effect: 2.1: 
Trade: Local effect: 7.3; Wholesale 
trade: Local effect: 0.8; Retail trade: Local 
effect: 6.5; Finance, insurance, and real 
estate: Local effect: 0.2; Services: Local 
effect: 16.2; Government: Local effect: 9.2.

El Paso, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: (1.4); 
Construction & mining: Local effect: (0.3); 
Manufacturing: Local effect: (6.4): 
Transportation and public utilities: Local effect: (1.6); 
Trade: Local effect: 0.9: 
Wholesale trade: Local effect: (1.1): 
Retail trade: Local effect: 2.0; 
Finance, insurance, and real estate: Local effect: 1.2: 
Services: Local effect: 0.4; 
Government: Local effect: 4.4.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 45.8; 
Construction & mining: Local effect: 3.9; 
Manufacturing: Local effect: (9.8); Transportation
tation and public utilities: Local effect: 3.3: 
Trade: Local effect: 9.9; Wholesale 
trade: Local effect: (0.5); Retail trade: 
Local effect: 10.4; Finance, insurance, and 
real estate: Local effect: 2.9; Services: 
Local effect: 18.8; Government: Local effect: 
16.8.

Laredo, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 4.2; 
Construction & mining: Local effect: (0.2); 
Manufacturing: Local effect: (0.4): 
Transportation and public utilities: Local effect: (0.6); 
Trade: Local effect: 1.7: 
Wholesale trade: Local effect: (0.3): 
Retail trade: Local effect: 2.0; 
Finance, insurance, and real estate: Local effect: 0.3: 
Services: Local effect: 1.4; 
Government: Local effect: 2.0.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 27.9; 
Construction & mining: Local effect: 0.1; 
Manufacturing: Local effect: (0.4); Transportation
tation and public utilities: Local effect: 5.4: 
Trade: Local effect: 5.5; Wholesale 
trade: Local effect: 0.3; Retail trade: Local 
effect: 5.2; Finance, insurance, and real 
estate: Local effect: 1.2; Services: Local 
effect: 8.2; Government: Local effect: 7.9.

McAllen, TX; Local effect: 2001-2002; 
Total nonfarm: Local effect: 14.7; 
Construction & mining: Local effect: 0.4: 
Manufacturing: Local effect: (2.2): 
Transportation and public utilities: Local effect: (0.0); 
Trade: Local effect: 3.2: 
Wholesale trade: Local effect: (0.0): 
Retail trade: Local effect: 3.2; 
Finance, insurance, and real estate: Local effect: 0.6: 
Services: Local effect: 7.8; 
Government: Local effect: 4.9.

Local effect: 1990-2002: 
Total nonfarm: Local effect: 70.4; 
Construction & mining: Local effect: 4.9; 
Manufacturing: Local effect: (3.3); Transportation
tation and public utilities: Local effect: 
Trade: Local effect: 14.3; Wholesale trade: 
Local effect: 0.7; Retail trade: Local effect: 
13.6; Finance, insurance, and real estate: 
Local effect: 2.2; Services: Local effect: 
29.8; Government: Local effect: 18.9.

Source: GAO analysis using U.S. Department of Labor, Bureau of Labor 
Statistics data:

Note: Numbers in parentheses indicate employment losses.

[End of table]

[End of section]

Appendix II: Effect of U.S. Economic Conditions on Employment in 
Mexican Maquiladoras:

Our statistical analysis shows that the key factors cited in our 
semistructured interviews as responsible for the maquiladora downturn-
-namely, the U.S. general economic slowdown, particularly in U.S. 
manufacturing, and the real peso-dollar exchange rate--are significant 
determinants of maquiladora employment. We found a strong relationship 
between maquiladora employment and U.S. economic conditions. This 
relationship is stronger than that between maquiladora employment and 
the real peso-dollar exchange rate, but considerably weaker than that 
between maquiladora employment and changes in U.S. manufacturing 
shipments. We also found that maquiladora sectors are more sensitive to 
changes in U.S. manufacturing shipments than to broader U.S. economic 
conditions.

A major reason for the rapid growth of the maquiladora industry has 
been its direct tie to the U.S. economy, particularly to U.S. 
manufacturing. As a result, the maquiladoras are partly independent of 
Mexico's internal economic trends. This independence from the Mexican 
economy has made the industry a stabilizing force when the Mexican 
economy heads into recession.[Footnote 37] However, the direct tie to 
U.S. manufacturing also makes the industry predisposed to U.S. business 
cycles. As mentioned previously in the main body of this report, the 
number of maquiladoras and the employment they generate has declined 
from a peak reached in 2000.[Footnote 38] This decline has been 
attributed to several factors. The most important of these factors is 
the downturn in the U.S. economy. An additional factor that has been 
alleged to contribute to the apparent decline has been cost increases 
due to increases in the inflation adjusted value of the peso relative 
to the dollar, i.e., the real exchange rate of the peso.[Footnote 39] 
This appendix investigates the relationship 
between maquiladora employment in Mexico and U.S. economic performance 
and the real peso exchange rate.[Footnote 40]

To determine the link between maquiladora employment and U.S. economic 
conditions, we assembled data on maquiladora employment in total and by 
main sectors as well as data on U.S. GDP on a quarterly basis from 
January 1980 to December 2002. We then converted all of these data to 
their natural logarithms and performed a regression of maquiladora 
employment on the real peso-dollar exchange rate and the real U.S. 
GDP.[Footnote 41] The results of the regression are presented in table 
3.

Table 3: Summary of Regression of Maquiladora Employment and U.S. GDP 
and Real Peso Exchange Rates:

Total maquiladora employment; Constant: -19.76; U.S. GDP in billions of 
chained 1996 dollars: 3.68; Real pesos per dollar: 0.17; R-square: 
0.99.

Standard errors: Constant: 0.46; U.S. GDP in billions of chained 1996 
dollars: 0.05; Real pesos per dollar: 0.05.

Textile products; Constant: -29.50; U.S. GDP in billions of chained 
1996 dollars: 4.64; Real pesos per dollar: -0.31; R-square: 0.97.

Standard errors: Constant: 0.90; U.S. GDP in billions of chained 1996 
dollars: 0.09; Real pesos per dollar: 0.10; 

 Footwear & leather products; Constant: -12.98; U.S. GDP in billions 
of chained 1996 dollars: 2.32; Real pesos per dollar: 0.70; R-square: 
0.80.

Standard errors: Constant: 1.15; U.S. GDP in billions of chained 1996 
dollars: 0.12; Real pesos per dollar: 0.12.

 Furniture products; Constant: -33.03; U.S. GDP in billions of chained 
1996 dollars: 4.77; Real pesos per dollar: 0.47; R-square: 0.94.

Standard errors: Constant: 1.28; U.S. GDP in billions of chained 1996 
dollars: 0.13; Real pesos per dollar: 0.14.

Transportation equipment; Constant: -33.77; U.S. GDP in billions of 
chained 1996 dollars: 4.94; Real pesos per dollar: 0.87; R-square: 
0.93.

Standard errors: Constant: 1.40; U.S. GDP in billions of chained 1996 
dollars: 0.15; Real pesos per dollar: 0.15.

Electronics; Constant: -12.15; U.S. GDP in billions of chained 1996 
dollars: 2.73; Real pesos per dollar: 0.11; R-square: 0.98.

Constant: 0.41; U.S. GDP in billions of chained 1996 dollars: .04; 
Real pesos per dollar: .04; R-square: [Empty].

Electrical & electronic machinery; Constant: -4.71; U.S. GDP in 
billions of chained 1996 dollars: 1.74; Real pesos per dollar: 0.22; 
R-square: 0.96.

Standard errors: Constant: 0.37; U.S. GDP in billions of chained 1996 
dollars: 0.04; Real pesos per dollar: 0.04.

Electrical & electronic materials & accessories; Constant: -17.04; 
U.S. GDP in billions of chained 1996 dollars: 3.24; Real pesos per 
dollar: 0.06; R-square: 0.98.

Standard errors: Constant: 0.52; U.S. GDP in billions of chained 1996 
dollars: 0.06; Real pesos per dollar: 0.06.

Other manufacturing; Constant: -18.82; U.S. GDP in billions of chained 
1996 dollars: 3.56; Real pesos per dollar: 0.15; R-square: 0.99.

Standard errors: Constant: 0.40; U.S. GDP in billions of chained 1996 
dollars: 0.04; Real pesos per dollar: 0.04.

Source: GAO analysis of Bank of Mexico (Banco De México) data on 
maquiladora employment, U.S. Department of Commerce, Bureau of 
Economics data on GDP, and U.S. Department of Agriculture, Economic 
Research Service data on exchange rates:

Note: Numbers in italics are standard errors. All estimated 
coefficients were significant at 99 percent of confidence.

[End of table]

As table 3 shows, maquiladora employment is very sensitive to U.S. 
economic growth and the exchange rate. Our results show that a 1 
percent rise (or fall) in U.S. GDP increases (decreases) total 
maquiladora employment by 3.68 percent, while a 1 percent rise in the 
real peso exchange rate decreases maquiladora employment by 0.17 
percent.[Footnote 42] Maquiladora employment is consequently more 
responsive to changes in the U.S. economy than to changes in the real 
exchange rate of the peso.[Footnote 43] In addition, maquiladora 
employment in the automotive sector is most responsive to change in 
U.S. GDP, while maquiladora employment in electrical apparatus and 
machinery is least responsive. The automotive sector is also the most 
responsive to real exchange rate variations, while the electrical 
materials sector is least responsive.

To investigate the stability of our estimates, we divided our sample 
into three separate time periods: 1980 to1985, 1986 to1993, and 1994 to 
2002. Respectively, these three periods correspond roughly to the 
periods before and after the implementation of Mexican economic policy 
reform and after the implementation of NAFTA. Our analysis of the 
effect of U.S. GDP and the real peso-dollar exchange rate on total 
maquiladora employment during these three periods is shown in table 4. 
As the table shows, the responsiveness of maquiladora employment to 
U.S. economic conditions and the real peso exchange rate is fairly 
consistent with our results in table 3. However, the strongest 
maquiladora employment responsiveness to U.S. GDP growth occurred in 
the pre-NAFTA reform period (1986 to 1993). The post-NAFTA period (1994 
to 2002) has a lower response coefficient for GDP and a higher response 
coefficient for exchange rates. It should be noted that the peso 
depreciated considerably in December 1994, after the onset of the "peso 
crisis.":

Table 4: Summary of Regression of Maquiladora Employment and U.S. GDP 
and Real Peso Exchange Rates for Three Subperiods:

[See PDF for image]

Source: GAO analysis.

[A] All coefficients were significant at least at 95 percent of 
confidence, except the coefficient for peso-dollar exchange rate (1986-
1993).

Note: Numbers in italics are standard errors.

[End of table]

We also looked into whether the U.S. manufacturing sector has a unique 
effect that cannot be captured by overall U.S. GDP. To do so, we 
obtained data on U.S. manufacturing shipments and performed a set of 
regressions similar to those we performed using GDP. The results of our 
analysis appear in table 5.

Table 5: Summary of Regression of Maquiladora Employment and U.S. 
Manufacturing Shipments and Real Peso Exchange Rates:

Total maquiladora employment; Constant: -72.36; U.S. manufacturing 
shipments in 1996 dollars: 6.73; Real pesos per dollar: 0.48; R-square: 
0.78.

Standard errors: Constant: 5.17; U.S. manufacturing shipments in 1996 
dollars: 0.40; Real pesos per dollar: 0.21.

Textile products; Constant: -103.44; U.S. manufacturing shipments in 
1996 dollars: 9.07; Real pesos per dollar: 0.22[A]; R-square: 0.89.

Standard errors: Constant: 4.73; U.S. manufacturing shipments in 1996 
dollars: 0.37; Real pesos per dollar: 0.19.

Footwear & leather products; Constant: -42.45; U.S. manufacturing 
shipments in 1996 dollars: 3.97; Real pesos per dollar: 0.73; R-square: 
0.52.

Standard errors: Constant: 5.42; U.S. manufacturing shipments in 1996 
dollars: 0.42; Real pesos per dollar: 0.22.

 Furniture products; Constant: -95.34; U.S. manufacturing shipments in 
1996 dollars: 8.27; Real pesos per dollar: 0.78; R-square: 0.65.

Standard errors: Constant: 8.67; U.S. manufacturing shipments in 1996 
dollars: 0.68; Real pesos per dollar: 0.35.

Transportation equipment; Constant: -94.21; U.S. manufacturing 
shipments in 1996 dollars: 8.23; Real pesos per dollar: 1.21; R-square: 
0.60.

Standard errors: Constant: 9.47; U.S. manufacturing shipments in 1996 
dollars: 0.74; Real pesos per dollar: 0.38.

Electronics; Constant: -54.51; U.S. manufacturing shipments in 1996 
dollars: 5.20; Real pesos per dollar: 0.35; R-square: 0.85.

Standard errors: Constant: 3.19; U.S. manufacturing shipments in 1996 
dollars: 0.25; Real pesos per dollar: 0.13.

Electrical & electronic machinery; Constant: -31.81; U.S. 
manufacturing shipments in 1996 dollars: 3.35; Real pesos per dollar: 
0.43; R-square: 0.86.

Standard errors: Constant: 1.95; U.S. manufacturing shipments in 1996 
dollars: 0.15; Real pesos per dollar: 0.08.

Electrical & electronic materials & accessories; Constant: -66.96; 
U.S. manufacturing shipments in 1996 dollars: 6.21; Real pesos per 
dollar: 0.32; R-square: 0.83.

Standard errors: Constant: 4.04; U.S. manufacturing shipments in 1996 
dollars: 0.32; Real pesos per dollar: 0.16.

Other manufacturing; Constant: -70.33; U.S. manufacturing shipments 
in 1996 dollars: 6.55; Real pesos per dollar: 0.47; R-square: 0.79.

Standard errors: Constant: 4.80; U.S. manufacturing shipments in 1996 
dollars: 0.38; Real pesos per dollar: 0.19.

Source: GAO analysis.

[A] Coefficient was not significant at 95 percent. All other 
coefficient estimates are significant with at least a 95 percent level 
of confidence.

Note: Numbers in italics are standard errors.

[End of table]

As can be seen from table 5, a 1 percent change in U.S. manufacturing 
shipments induces an employment growth in maquiladoras of approximately 
6.7 percent. Overall, the table shows, the maquiladora employment's 
response to changes in U.S. manufacturing shipments is larger than its 
response to changes in U.S. GDP. We also found that certain maquiladora 
sectors, such as textile products, furniture and transportation 
equipment, are particularly sensitive to changes in U.S. manufacturing 
shipments.

[End of section]

Appendix III: Mexico-China Competition in the U.S. Market for Imports:

Although U.S. imports from Mexico ($130.8 billion)[Footnote 44] 
exceeded those from China ($109.2 billion) in 2001, these figures 
represented a decline of 3.2 percent for Mexico and an increase of 1.9 
percent for China. In 2002, both countries experienced growth, but U.S. 
imports from China grew faster than U.S. imports from Mexico. This 
development, coming at a time of decreased maquiladora employment and 
increased plant closings, has led to speculation that Mexico is losing 
ground because of China's production cost advantages.

To highlight the competition between Mexico and China, we selected U.S. 
imports items from Mexico in 1995 and 2002, with a value of more than 
$100 million in 2002. We also obtained information on U.S. imports from 
China that matched the categories of the imports from Mexico. We then 
selected U.S. imports for which the share from Mexico had declined 
between 1995 and 2002 and matched them with imports for which the share 
from China had increased between 1995 and 2002.

In 2002, the United States imported from Mexico 152 categories of items 
valued at more than $100 million each. The total value of these items 
was $123.1 billion, while the total value of the same categories of 
items from China was $88.2 billion. From 1995 to 2002, the share of 
U.S. imports from Mexico decreased for 47 of the 152 categories. For 
these 47 categories, in 2002, the total value of imports from Mexico 
was $25.5 billion and the value of imports from China was $23.4 
billion. China's share of U.S. imports increased for 35 of the 47 
categories. The total value of these 35 items was $20 billion for 
Mexico and $23 billion for China.

Table 6 shows the top 25 U.S. import categories in which imports from 
China increased, while imports from Mexico declined between 1995 and 
2002. As the table shows, Mexico and China appear to be in direct 
competition for several import categories. Although a direct causal 
link is difficult to establish, China seems to have gained U.S. market 
shares at the same time that Mexico has lost them in some import 
categories, such as toys, furniture, electrical household appliances, 
television and video equipment and parts, and apparel and textiles. 
Maquiladoras are concentrated in the categories where China appears to 
have gained U.S. market shares.

Table 6: Top 25 U.S. Imports from China for Which China's Share of U.S. 
Imports Grew, while Mexico's Share Declined between 1995 and 2002:

Dollars in millions.

Toys, puzzles, scale models; Mexico: Value of U.S. imports in 2002: 
$180; Mexico: Share in U.S. total imports 1995: 4.5%; Mexico: Share in 
U.S. total imports 2002: 2.2%; China: Value of U.S. imports in 
2002: $6,927; China: Share in U.S. total imports 1995: 73.3%; China: 
Share in U.S. total imports 2002: 84.3%.

Furniture and parts thereof; Mexico: Value of U.S. imports in 2002: 
595; Mexico: Share in U.S. total imports 1995: 6.9%; Mexico: Share in 
U.S. total imports 2002: 4.7%; China: Value of U.S. imports in 
2002: 4,932; China: Share in U.S. total imports 1995: 12.2%; China: 
Share in U.S. total imports 2002: 38.7%.

Articles and equipment for general physical exercise, etc.; Mexico: 
Value of U.S. imports in 2002: 176; Mexico: Share in U.S. total imports 
1995: 5.4%; Mexico: Share in U.S. total imports 2002: 4.8%; 
China: Value of U.S. imports in 2002: 2,011; China: Share in U.S. total 
imports 1995: 28.7%; China: Share in U.S. total imports 2002: 55.3%.

Electrical transformers, power supplies for adp machines or units; 
Mexico: Value of U.S. imports in 2002: 1,625; Mexico: Share in U.S. 
total imports 1995: 25.4%; Mexico: Share in U.S. total imports 2002: 
24.8%; China: Value of U.S. imports in 2002: 1,553; China: 
Share in U.S. total imports 1995: 10.8%; China: Share in U.S. total 
imports 2002: 23.7%.

Electromechanical domestic appliances; Mexico: Value of U.S. imports in 
2002: 408; Mexico: Share in U.S. total imports 1995: 24.8%; Mexico: 
Share in U.S. total imports 2002: 20.6%; China: Value of U.S. 
imports in 2002: 1,062; China: Share in U.S. total imports 1995: 35.8%; 
China: Share in U.S. total imports 2002: 53.5%.

Television receivers, including video monitors and video projectors; 
Mexico: Value of U.S. imports in 2002: 4,797; Mexico: Share in U.S. 
total imports 1995: 65.6%; Mexico: Share in U.S. total imports 2002: 
47.5%; China: Value of U.S. imports in 2002: 860; China: Share 
in U.S. total imports 1995: 2.6%; China: Share in U.S. total imports 
2002: 8.5%.

Made-up articles of textile materials; Mexico: Value of U.S. imports in 
2002: 340; Mexico: Share in U.S. total imports 1995: 29.6%; Mexico: 
Share in U.S. total imports 2002: 19.1%; China: Value of U.S. 
imports in 2002: 839; China: Share in U.S. total imports 1995: 33.9%; 
China: Share in U.S. total imports 2002: 47.1%.

Articles of jewelry and parts thereof; Mexico: Value of U.S. imports in 
2002: 158; Mexico: Share in U.S. total imports 1995: 2.9%; Mexico: 
Share in U.S. total imports 2002: 2.6%; China: Value of U.S. 
imports in 2002: 524; China: Share in U.S. total imports 1995: 1.0%; 
China: Share in U.S. total imports 2002: 8.6%.

Parts for television, radio, and radar apparatus; Mexico: Value of U.S. 
imports in 2002: 1,021; Mexico: Share in U.S. total imports 1995: 
34.7%; Mexico: Share in U.S. total imports 2002: 24.3%; China: 
Value of U.S. imports in 2002: 523; China: Share in U.S. total imports 
1995: 3.6%; China: Share in U.S. total imports 2002: 12.5%.

Stoves, ranges, grates, cookers, barbecues, braziers, and similar 
nonelectric domestic appliances; Mexico: Value of U.S. imports in 2002: 
325; Mexico: Share in U.S. total imports 1995: 42.5%; Mexico: Share in 
U.S. total imports 2002: 26.8%; China: Value of U.S. imports 
in 2002: 467; China: Share in U.S. total imports 1995: 7.1%; China: 
Share in U.S. total imports 2002: 38.5%.

Exports of articles imported for repairs etc.; imports of articles 
exported and returned; Mexico: Value of U.S. imports in 2002: 3,870; 
Mexico: Share in U.S. total imports 1995: 11.6%; Mexico: Share in U.S. 
total imports 2002: 11.5%; China: Value of U.S. imports in 
2002: 371; China: Share in U.S. total imports 1995: 1.0%; China: Share 
in U.S. total imports 2002: 1.1%.

Articles of stationary, of paper or paperboard; Mexico: Value of U.S. 
imports in 2002: 116; Mexico: Share in U.S. total imports 1995: 20.6%; 
Mexico: Share in U.S. total imports 2002: 16.5%; China: Value 
of U.S. imports in 2002: 349; China: Share in U.S. total imports 1995: 
33.1%; China: Share in U.S. total imports 2002: 49.6%.

Electric filament or discharge lamps and parts thereof; Mexico: Value 
of U.S. imports in 2002: 244; Mexico: Share in U.S. total imports 1995: 
18.0%; Mexico: Share in U.S. total imports 2002: 16.0%; China: 
Value of U.S. imports in 2002: 341; China: Share in U.S. total imports 
1995: 7.0%; China: Share in U.S. total imports 2002: 22.4%.

Unrecorded media; Mexico: Value of U.S. imports in 2002: 266; Mexico: 
Share in U.S. total imports 1995: 12.5%; Mexico: Share in U.S. total 
imports 2002: 9.5%; China: Value of U.S. imports in 2002: 333; 
China: Share in U.S. total imports 1995: 10.3%; China: Share in U.S. 
total imports 2002: 11.9%.

Brassieres, girdles, corsets, braces, suspenders, garters, and similar 
articles; Mexico: Value of U.S. imports in 2002: 201; Mexico: Share in 
U.S. total imports 1995: 18.8%; Mexico: Share in U.S. total imports 
2002: 11.8%; China: Value of U.S. imports in 2002: 309; China: 
Share in U.S. total imports 1995: 5.2%; China: Share in U.S. total 
imports 2002: 18.2%.

Garments of textile fabrics, made-up of fabrics of felt or nonwovens; 
Mexico: Value of U.S. imports in 2002: 233; Mexico: Share in U.S. total 
imports 1995: 46.9%; Mexico: Share in U.S. total imports 2002: 28.1%; 
China: Value of U.S. imports in 2002: 252; China: Share in 
U.S. total imports 1995: 18.7%; China: Share in U.S. total imports 
2002: 30.4%.

Trailers and semitrailers; other vehicles, not mechanically propelled; 
and parts thereof; Mexico: Value of U.S. imports in 2002: 113; Mexico: 
Share in U.S. total imports 1995: 40.7%; Mexico: Share in U.S. total 
imports 2002: 14.7%; China: Value of U.S. imports in 2002: 
165; China: Share in U.S. total imports 1995: 8.4%; China: Share in 
U.S. total imports 2002: 21.4%.

Articles of aluminum; Mexico: Value of U.S. imports in 2002: 180; 
Mexico: Share in U.S. total imports 1995: 22.3%; Mexico: Share in U.S. 
total imports 2002: 22.3%; China: Value of U.S. imports in 
2002: 162; China: Share in U.S. total imports 1995: 7.0%; China: Share 
in U.S. total imports 2002: 20.1%.

Women's or girls' slips, petticoats, briefs, panties, nightdresses, 
pajamas, negligees, bathrobes, and similar articles; Mexico: Value of 
U.S. imports in 2002: 196; Mexico: Share in U.S. total imports 1995: 
9.0%; Mexico: Share in U.S. total imports 2002: 9.0%; China: 
Value of U.S. imports in 2002: 149; China: Share in U.S. total imports 
1995: 4.4%; China: Share in U.S. total imports 2002: 6.8%.

Centrifuges; filtering or purifying machinery and apparatus; Mexico: 
Value of U.S. imports in 2002: 449; Mexico: Share in U.S. total imports 
1995: 19.7%; Mexico: Share in U.S. total imports 2002: 15.5%; 
China: Value of U.S. imports in 2002: 136; China: Share in U.S. total 
imports 1995: 1.7%; China: Share in U.S. total imports 2002: 4.7%.

Petroleum oils and oils from bituminous minerals (other than crude); 
Mexico: Value of U.S. imports in 2002: 569; Mexico: Share in U.S. total 
imports 1995: 2.4%; Mexico: Share in U.S. total imports 2002: 2.1%; 
China: Value of U.S. imports in 2002: 96; China: Share in U.S. 
total imports 1995: 0.0%; China: Share in U.S. total imports 2002: 
0.4%.

Safety glass, consisting of toughened (tempered) or laminated glass; 
Mexico: Value of U.S. imports in 2002: 279; Mexico: Share in U.S. total 
imports 1995: 41.6%; Mexico: Share in U.S. total imports 2002: 41.0%; 
China: Value of U.S. imports in 2002: 84; China: Share in U.S. 
total imports 1995: 0.6%; China: Share in U.S. total imports 2002: 
12.3%.

Orthopedic appliances; splints etc.; artificial parts of the body; 
hearing aids and other appliances; Mexico: Value of U.S. imports in 
2002: 143; Mexico: Share in U.S. total imports 1995: 13.0%; Mexico: 
Share in U.S. total imports 2002: 5.2%; China: Value of U.S. 
imports in 2002: 82; China: Share in U.S. total imports 1995: 2.0%; 
China: Share in U.S. total imports 2002: 3.0%.

Sanitary fixture including ceramic sinks, washbasins and pedestals, 
baths, bidets, water closet bowls and flush tanks, urinals; Mexico: 
Value of U.S. imports in 2002: 210; Mexico: Share in U.S. total imports 
1995: 51.4%; Mexico: Share in U.S. total imports 2002: 44.4%; 
China: Value of U.S. imports in 2002: 71; China: Share in U.S. total 
imports 1995: 0.0%; China: Share in U.S. total imports 2002: 15.0%.

Measuring or checking instruments, parts and accessories thereof; 
Mexico: Value of U.S. imports in 2002: 141; Mexico: Share in U.S. total 
imports 1995: 8.7%; Mexico: Share in U.S. total imports 2002: 7.8%; 
China: Value of U.S. imports in 2002: 39; China: Share in U.S. 
total imports 1995: 0.3%; China: Share in U.S. total imports 2002: 
2.2%.

Source: GAO calculation using U.S. International Trade Commission data.

[End of table]

[End of section]

Appendix IV: U.S.-Mexico Trade, by U.S. Port, 1999-2002:

Trade with Mexico through U.S.-Mexico border crossings dropped in 2001 
and remained flat in 2002. Whereas, total trade through the 4 major 
land border ports fell by 5 percent in 2001, U.S. exports to Mexico 
through these ports fell by 10 percent. The port of Nogales, Arizona, 
experienced the sharpest decrease in trade, with total trade declining 
by 9 percent in 2001 and 13 percent in 2002. Table 7 provides 
information on U.S. imports, exports, and total trade with Mexico by 
border crossing. The four border crossings examined--Laredo, El Paso, 
San Diego, and Nogales--are Customs districts that represent 33 
individual ports of entry along the U.S.-Mexico border.

Table 7: Trade Flows through Major U.S.-Mexico Land Border Crossings:

Exports: 

Total All Ports; U.S. dollars in millions: 1999: 692,821; U.S. dollars 
in millions: 2000: 780,419; U.S. dollars in millions: 2001: 731,026; 
U.S. dollars in millions: 2002: 693,257; Percent change: 1999-
2000: 11%; Percent change: 2000-2001: -7%; Percent change: 2001-2002: -
5%.

Laredo, TX; U.S. dollars in millions: 1999: 45,351; U.S. dollars in 
millions: 2000: 57,659; U.S. dollars in millions: 2001: 52,081; U.S. 
dollars in millions: 2002: 48,937; Percent change: 1999-2000: 
21; Percent change: 2000-2001: -11; Percent change: 2001-2002: -6.

El Paso, TX; U.S. dollars in millions: 1999: 13,171; U.S. dollars in 
millions: 2000: 18,045; U.S. dollars in millions: 2001: 16,299; U.S. 
dollars in millions: 2002: 16,476; Percent change: 1999-2000: 
27; Percent change: 2000-2001: -11; Percent change: 2001-2002: 1.

San Diego, CA; U.S. dollars in millions: 1999: 10,760; U.S. dollars in 
millions: 2000: 12,662; U.S. dollars in millions: 2001: 12,342; U.S. 
dollars in millions: 2002: 12,873; Percent change: 1999-2000: 
15; Percent change: 2000-2001: -3; Percent change: 2001-2002: 4.

Nogales, AZ; U.S. dollars in millions: 1999: 5,631; U.S. dollars in 
millions: 2000: 7,325; U.S. dollars in millions: 2001: 6,217; U.S. 
dollars in millions: 2002: 5,366; Percent change: 1999-2000: 
23; Percent change: 2000-2001: -18; Percent change: 2001-2002: -16.

Border subtotal; U.S. dollars in millions: 1999: 74,913; U.S. dollars 
in millions: 2000: 95,691; U.S. dollars in millions: 2001: 86,939; U.S. 
dollars in millions: 2002: 83,652; Percent change: 1999-2000: 
22; Percent change: 2000-2001: -10; Percent change: 2001-2002: -4.

Imports: 

Total all ports; U.S. dollars in millions: 1999: 1,024,766; U.S. 
dollars in millions: 2000: 1,216,888; U.S. dollars in millions: 2001: 
1,141,959; U.S. dollars in millions: 2002: 1,163,549; Percent 
change: 1999-2000: 16%; Percent change: 2000-2001: -7%; Percent change: 
2001-2002: 2%.

Laredo, TX; U.S. dollars in millions: 1999: 51,611; U.S. dollars in 
millions: 2000: 63,298; U.S. dollars in millions: 2001: 62,877; U.S. 
dollars in millions: 2002: 65,351; Percent change: 1999-2000: 
18; Percent change: 2000-2001: -1; Percent change: 2001-2002: 4.

El Paso, TX; U.S. dollars in millions: 1999: 21,007; U.S. dollars in 
millions: 2000: 24,333; U.S. dollars in millions: 2001: 24,151; U.S. 
dollars in millions: 2002: 24,938; Percent change: 1999-2000: 
14; Percent change: 2000-2001: -1; Percent change: 2001-2002: 3.

San Diego, CA; U.S. dollars in millions: 1999: 19,077; U.S. dollars in 
millions: 2000: 22,263; U.S. dollars in millions: 2001: 21,303; U.S. 
dollars in millions: 2002: 23,013; Percent change: 1999-2000: 
14; Percent change: 2000-2001: -5; Percent change: 2001-2002: 7.

Nogales, AZ; U.S. dollars in millions: 1999: 10,516; U.S. dollars in 
millions: 2000: 13,050; U.S. dollars in millions: 2001: 12,477; U.S. 
dollars in millions: 2002: 11,112; Percent change: 1999-2000: 
19; Percent change: 2000-2001: -5; Percent change: 2001-2002: -12.

Border subtotal; U.S. dollars in millions: 1999: 102,211; U.S. dollars 
in millions: 2000: 122,944; U.S. dollars in millions: 2001: 120,808; 
U.S. dollars in millions: 2002: 124,414; Percent change: 1999-
2000: 17; Percent change: 2000-2001: -2; Percent change: 2001-2002: 3.

Trade (exports+imports): 

Total all ports; U.S. dollars in millions: 1999: 1,717,587; U.S. 
dollars in millions: 2000: 1,997,307; U.S. dollars in millions: 2001: 
1,872,985; U.S. dollars in millions: 2002: 1,856,806; Percent 
change: 1999-2000: 14%; Percent change: 2000-2001: -7%; Percent change: 
2001-2002: -1%.

Laredo, TX; U.S. dollars in millions: 1999: 96,962; U.S. dollars in 
millions: 2000: 120,957; U.S. dollars in millions: 2001: 114,958; U.S. 
dollars in millions: 2002: 114,288; Percent change: 1999-2000: 
20; Percent change: 2000-2001: -5; Percent change: 2001-2002: -1.

El Paso, TX; U.S. dollars in millions: 1999: 34,178; U.S. dollars in 
millions: 2000: 42,378; U.S. dollars in millions: 2001: 40,450; U.S. 
dollars in millions: 2002: 41,414; Percent change: 1999-2000: 
19; Percent change: 2000-2001: -5; Percent change: 2001-2002: 2.

San Diego, CA; U.S. dollars in millions: 1999: 29,837; U.S. dollars in 
millions: 2000: 34,925; U.S. dollars in millions: 2001: 33,645; U.S. 
dollars in millions: 2002: 35,886; Percent change: 1999-2000: 
15; Percent change: 2000-2001: -4; Percent change: 2001-2002: 6.

Nogales, AZ; U.S. dollars in millions: 1999: 16,147; U.S. dollars in 
millions: 2000: 20,375; U.S. dollars in millions: 2001: 18,694; U.S. 
dollars in millions: 2002: 16,478; Percent change: 1999-2000: 
21; Percent change: 2000-2001: -9; Percent change: 2001-2002: -13.

Border subtotal; U.S. dollars in millions: 1999: 177,124; U.S. dollars 
in millions: 2000: 218,635; U.S. dollars in millions: 2001: 207,747; 
U.S. dollars in millions: 2002: 208,066; Percent change: 1999-
2000: 19; Percent change: 2000-2001: -5; Percent change: 2001-2002: 0.

Source: U.S. Department of Commerce, Bureau of the Census, official 
trade statistics.

Note: Values for imports are general imports at customs value, and 
values for exports are total exports at Free-Alongside-Ship (FAS) 
value.

[End of table]

[End of section]

Appendix V: Maquiladora Employment Statistics:

After growing rapidly throughout the 1990s, Mexican national 
maquiladora employment peaked in October 2000 and declined sharply 
through March 2002. However, the rise and decline in maquiladora 
employment varied by state and city. As table 8 shows, the city of 
Tijuana experienced both the greatest percentage increase in 
maquiladora employment (233 percent from 1990 through October 2000) and 
the greatest decline (30 percent through December 2002). For each state 
or city, table 8 shows the number of jobs in 1990, followed by the 
number of jobs at the peak of employment (usually around October 2000) 
and at the lowest point, or trough, following the peak. The table also 
includes the changes in employment in absolute and percentage terms. 
The rise and decline of maquiladora employment also varied by industry. 
Table 9 shows employment changes for three key industries--electronics, 
autos and parts, and textiles and apparel--along with details on the 
rise, peak, and trough for the top five border region cities in terms 
of maquiladora employment.

Table 8: Maquiladora Employment by State and City, 1990-2002:

Industry/area: All Industries.

Industry/area: National; Jobs-1990: All Industries: 446,436; All 
Industries: Jobs at peak: All Industries: 1,347,803; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 901,367; Percent change in jobs: 
1990 to peak: All Industries: 202%; Jobs at trough: All Industries: 
1,060,173; All Industries: Date of trough: All Industries: 
Mar-02; All Industries: Duration: peak to trough: All 
Industries: 1 year, 6 months; Change in jobs: peak to trough: All 
Industries: -287,630; Percent change in jobs: peak to trough: All 
Industries: -21%; Jobs in 12/02: All Industries: 1,084,911; Percent 
change in jobs: trough to 12/02: All Industries: 2%.

Industry/area: Border states; Jobs-1990: All Industries: 402,432; All 
Industries: Jobs at peak: All Industries: 1,045,410; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 642,978; Percent change in jobs: 
1990 to peak: All Industries: 160; Jobs at trough: All Industries: 
829,954; All Industries: Date of trough: All Industries: Feb-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 5 months; Change in jobs: peak to trough: All Industries: -
215,456; Percent change in jobs: peak to trough: All Industries: -21; 
Jobs in 12/02: All Industries: 834,216; Percent change in jobs: trough 
to 12/02: All Industries: 1.

Industry/area: Baja California; Jobs-1990: All Industries: 87,657; All 
Industries: Jobs at peak: All Industries: 293,248; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 205,591; Percent change in jobs: 
1990 to peak: All Industries: 235; Jobs at trough: All Industries: 
215,837; All Industries: Date of trough: All Industries: Apr-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 7 months; Change in jobs: peak to trough: All Industries: -
77,411; Percent change in jobs: peak to trough: All Industries: -26; 
Jobs in 12/02: All Industries: 218,887; Percent change in jobs: trough 
to 12/02: All Industries: 1.

Industry/area: Coahuila; Jobs-1990: All Industries: 30,952; All 
Industries: Jobs at peak: All Industries: 116,428; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 85,477; Percent change in jobs: 
1990 to peak: All Industries: 276; Jobs at trough: All Industries: 
102,683; All Industries: Date of trough: All Industries: Dec-
01; All Industries: Duration: peak to trough: All Industries: 
1 year, 3 months; Change in jobs: peak to trough: All Industries: -
13,745; Percent change in jobs: peak to trough: All Industries: -12; 
Jobs in 12/02: All Industries: 116,258; Percent change in jobs: trough 
to 12/02: All Industries: 13.

Industry/area: Chihuahua; Jobs-1990: All Industries: 163,953; All 
Industries: Jobs at peak: All Industries: 336,995; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 173,042; Percent change in jobs: 
1990 to peak: All Industries: 106; Jobs at trough: All Industries: 
253,722; All Industries: Date of trough: All Industries: Oct-
02; All Industries: Duration: peak to trough: All Industries: 
2 years, 1 month; Change in jobs: peak to trough: All Industries: -
83,273; Percent change in jobs: peak to trough: All Industries: -25; 
Jobs in 12/02: All Industries: 262,558; Percent change in jobs: trough 
to 12/02: All Industries: 3.

Industry/area: Sonora; Jobs-1990: All Industries: 38,924; All 
Industries: Jobs at peak: All Industries: 111,591; All 
Industries: Date of peak: All Industries: Nov-00; Change in 
jobs: 1990 to peak: All Industries: 72,667; Percent change in jobs: 
1990 to peak: All Industries: 187; Jobs at trough: All Industries: 
70,525; All Industries: Date of trough: All Industries: Dec-
02; All Industries: Duration: peak to trough: All Industries: 
2 years, 2 months; Change in jobs: peak to trough: All Industries: -
41,066; Percent change in jobs: peak to trough: All Industries: -37; 
Jobs in 12/02: All Industries: 70,525; Percent change in jobs: trough 
to 12/02: All Industries: 0.

Industry/area: Tamaulipas; Jobs-1990: All Industries: 80,947; All 
Industries: Jobs at peak: All Industries: 187,581; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 106,634; Percent change in jobs: 
1990 to peak: All Industries: 132; Jobs at trough: All Industries: 
161,139; All Industries: Date of trough: All Industries: Jan-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 4 months; Change in jobs: peak to trough: All Industries: -
26,442; Percent change in jobs: peak to trough: All Industries: -14; 
Jobs in 12/02: All Industries: 165,988; Percent change in jobs: trough 
to 12/02: All Industries: 3.

Industry/area: Nuevo León; Jobs-1990: All Industries: 13,868; All 
Industries: Jobs at peak: All Industries: 72,878; All 
Industries: Date of peak: All Industries: Sep-00; Change in 
jobs: 1990 to peak: All Industries: 59,010; Percent change in jobs: 
1990 to peak: All Industries: 426; Jobs at trough: All Industries: 
50,423; All Industries: Date of trough: All Industries: Mar-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 7 months; Change in jobs: peak to trough: All Industries: -
22,455; Percent change in jobs: peak to trough: All Industries: -31; 
Jobs in 12/02: All Industries: 52,181; Percent change in jobs: trough 
to 12/02: All Industries: 3.

Industry/area: Border cities; Jobs-1990: All Industries: 342,555; All 
Industries: Jobs at peak: All Industries: 839,200; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 496,645; Percent change in jobs: 
1990 to peak: All Industries: 145; Jobs at trough: All Industries: 
665,637; All Industries: Date of trough: All Industries: Aug-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 11 months; Change in jobs: peak to trough: All Industries: -
173,563; Percent change in jobs: peak to trough: All Industries: -21; 
Jobs in 12/02: All Industries: 667,046; Percent change in jobs: trough 
to 12/02: All Industries: 0.

Industry/area: Juarez; Jobs-1990: All Industries: 122,231; All 
Industries: Jobs at peak: All Industries: 264,241; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 142,010; Percent change in jobs: 
1990 to peak: All Industries: 116; Jobs at trough: All Industries: 
192,485; All Industries: Date of trough: All Industries: Dec-
02; All Industries: Duration: peak to trough: All Industries: 
2 years, 3 months; Change in jobs: peak to trough: All Industries: -
71,756; Percent change in jobs: peak to trough: All Industries: -27; 
Jobs in 12/02: All Industries: 192,485; Percent change in jobs: trough 
to 12/02: All Industries: 0.

Industry/area: Tijuana; Jobs-1990: All Industries: 59,870; All 
Industries: Jobs at peak: All Industries: 199,428; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 139,558; Percent change in jobs: 
1990 to peak: All Industries: 233; Jobs at trough: All Industries: 
140,069; All Industries: Date of trough: All Industries: Dec-
02; All Industries: Duration: peak to trough: All Industries: 
2 years, 3 months; Change in jobs: peak to trough: All Industries: -
59,359; Percent change in jobs: peak to trough: All Industries: -30; 
Jobs in 12/02: All Industries: 140,069; Percent change in jobs: trough 
to 12/02: All Industries: 0.

Industry/area: Matamoros; Jobs-1990: All Industries: 38,360; All 
Industries: Jobs at peak: All Industries: 69,989; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 31,629; Percent change in jobs: 
1990 to peak: All Industries: 82; Jobs at trough: All Industries: 
52,396; All Industries: Date of trough: All Industries: Jan-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 4 months; Change in jobs: peak to trough: All Industries: -
17,593; Percent change in jobs: peak to trough: All Industries: -25; 
Jobs in 12/02: All Industries: 55,183; Percent change in jobs: trough 
to 12/02: All Industries: 5.

Industry/area: Reynosa; Jobs-1990: All Industries: 23,541; All 
Industries: Jobs at peak: All Industries: 68,199; All 
Industries: Date of peak: All Industries: Sep-00; Change in 
jobs: 1990 to peak: All Industries: 44,658; Percent change in jobs: 
1990 to peak: All Industries: 190; Jobs at trough: All Industries: 
64,877; All Industries: Date of trough: All Industries: Dec-
00; All Industries: Duration: peak to trough: All Industries: 
4 months; Change in jobs: peak to trough: All Industries: -3,322; 
Percent change in jobs: peak to trough: All Industries: -5; Jobs in 12/
02: All Industries: 69,389; Percent change in jobs: trough to 12/02: 
All Industries: 7.

Industry/area: Mexicali; Jobs-1990: All Industries: 20,729; All 
Industries: Jobs at peak: All Industries: 65,494; All 
Industries: Date of peak: All Industries: Oct-00; Change in 
jobs: 1990 to peak: All Industries: 44,765; Percent change in jobs: 
1990 to peak: All Industries: 216; Jobs at trough: All Industries: 
49,056; All Industries: Date of trough: All Industries: Apr-
02; All Industries: Duration: peak to trough: All Industries: 
1 year, 7 months; Change in jobs: peak to trough: All Industries: -
16,438; Percent change in jobs: peak to trough: All Industries: -25; 
Jobs in 12/02: All Industries: 55,191; Percent change in jobs: trough 
to 12/02: All Industries: 13.

Share of border states in national; Jobs-1990: 90%; Jobs at peak: 78%; 
Jobs in 12/02: 77%.

Share of border cities in national; Jobs-1990: 77%; Jobs at peak: 62%; 
Jobs in 12/02: 61%.

Industry/area: Share of 5 border cities (above) in the overall border; 
Jobs-1990: 77%; Jobs at peak: 80%; Jobs in 12/02: 77%.

Source: National Institute of Statistics, Geography and Information 
Technology (Instituto Nacional de Estadística, Geografía e 
Informática).

Note: The "share of border states in national" is the percentage share 
that maquiladora employment in border states makes up of national 
maquiladora employment in Mexico. The "share of border cities in 
national" is the percentage share that maquiladora employment in the 41 
Mexican border municipalities makes up of national maquiladora 
employment. The "share of 5 border cities in the overall border" is the 
percentage share that the five border cities listed in the table make 
up of total maquiladora employment in the 41 border municipalities that 
comprise the border region.

[End of table]

Table 9: Maquiladora Employment by City and Industry, 1990-2002:

Industry/area: Electronics:

Industry/area: National; Jobs-1990: Electronics: 166,501; 
Electronics: Jobs at peak: Electronics: 468,254; Electronics: 
Date of peak: Electronics: Sep-00; Change in jobs: 1990 to 
peak: Electronics: 301,753; Percent change in jobs: 1990 to peak: 
Electronics: 181%; Jobs at trough: Electronics: 320,282; Electronics: 
Date of trough: Electronics: Apr-02; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 1 year, 8 
months; Change in jobs: peak to trough: Electronics: -147,972; Percent 
change in jobs: peak to trough: Electronics: -32%; Jobs in 10/02: 
Electronics: 326,229; Percent change in Jobs: trough to 10/02: 
Electronics: 2%.

Industry/area: Border cities; Jobs-1990: Electronics: 142,330; 
Electronics: Jobs at peak: Electronics: 360,857; Electronics: 
Date of peak: Electronics: Oct-00; Change in jobs: 1990 to 
peak: Electronics: 218,527; Percent change in jobs: 1990 to peak: 
Electronics: 154; Jobs at trough: Electronics: 248,163; Electronics: 
Date of trough: Electronics: Oct-02; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 2 years, 1 
month; Change in jobs: peak to trough: Electronics: -112,694; Percent 
change in jobs: peak to trough: Electronics: -31; Jobs in 10/02: 
Electronics: 248,163; Percent change in Jobs: trough to 10/02: 
Electronics: 0.

Industry/area: Juarez; Jobs-1990: Electronics: 48,647; Electronics: 
Jobs at peak: Electronics: 111,023; Electronics: Date 
of peak: Electronics: Oct-00; Change in jobs: 1990 to peak: 
Electronics: 62,376; Percent change in jobs: 1990 to peak: Electronics: 
128; Jobs at trough: Electronics: 68,908; Electronics: Date of 
trough: Electronics: Aug-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 1 year, 11 months; 
Change in jobs: peak to trough: Electronics: -42,115; Percent change in 
jobs: peak to trough: Electronics: -38; Jobs in 10/02: Electronics: 
71,100; Percent change in Jobs: trough to 10/02: Electronics: 3.

Industry/area: Tijuana; Jobs-1990: Electronics: 27,598; Electronics: 
Jobs at peak: Electronics: 97,551; Electronics: Date 
of peak: Electronics: Oct-00; Change in jobs: 1990 to peak: 
Electronics: 69,953; Percent change in jobs: 1990 to peak: Electronics: 
253; Jobs at trough: Electronics: 61,971; Electronics: Date of 
trough: Electronics: Apr-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 1 year, 7 months; 
Change in jobs: peak to trough: Electronics: -35,580; Percent change in 
jobs: peak to trough: Electronics: -36; Jobs in 10/02: Electronics: 
64,566; Percent change in Jobs: trough to 10/02: Electronics: 4.

Industry/area: Matamoros; Jobs-1990: Electronics: 17,806; 
Electronics: Jobs at peak: Electronics: 32,052; Electronics: 
Date of peak: Electronics: Oct-00; Change in jobs: 1990 to 
peak: Electronics: 14,246; Percent change in jobs: 1990 to peak: 
Electronics: 80; Jobs at trough: Electronics: 18,486; Electronics: 
Date of trough: Electronics: Feb-02; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 1 year, 5 
months; Change in jobs: peak to trough: Electronics: -13,566; Percent 
change in jobs: peak to trough: Electronics: -42%; Jobs in 10/02: 
Electronics: 19,177; Percent change in Jobs: trough to 10/02: 
Electronics: 4.

Industry/area: Reynosa; Jobs-1990: Electronics: 13,809; Electronics: 
Jobs at peak: Electronics: 31,073; Electronics: Date 
of peak: Electronics: Sep-00; Change in jobs: 1990 to peak: 
Electronics: 17,264; Percent change in jobs: 1990 to peak: Electronics: 
125; Jobs at trough: Electronics: 28,299; Electronics: Date of 
trough: Electronics: Jan-01; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 5 months; Change in 
jobs: peak to trough: Electronics: -2,774; Percent change in jobs: peak 
to trough: Electronics: -9%; Jobs in 10/02: Electronics: 29,049; 
Percent change in Jobs: trough to 10/02: Electronics: 3.

Industry/area: Mexicali; Jobs-1990: Electronics: 8,257; Electronics: 
Jobs at peak: Electronics: 32,963; Electronics: Date 
of peak: Electronics: Sep-00; Change in jobs: 1990 to peak: 
Electronics: 24,706; Percent change in jobs: 1990 to peak: Electronics: 
299; Jobs at trough: Electronics: 21,656; Electronics: Date of 
trough: Electronics: Jun-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 1 year, 10 months; 
Change in jobs: peak to trough: Electronics: -11,307; Percent change in 
jobs: peak to trough: Electronics: -34%; Jobs in 10/02: Electronics: 
23,270; Percent change in Jobs: trough to 10/02: Electronics: 7.

Industry/area: Share of border cities in national; Jobs-1990: 
Electronics: 85%; Electronics: Jobs at peak: Electronics: 77%; 
Electronics: Date of peak: Electronics: Change in 
jobs: 1990 to peak: Electronics: Percent change in jobs: 1990 
to peak: Electronics: ; Jobs at trough: Electronics: ; Electronics: 
Date of trough: Electronics: Duration: peak to 
trough: Electronics: Duration: peak to trough: Electronics: ; 
Change in jobs: peak to trough: Electronics: ; Percent change in jobs: 
peak to trough: Electronics: ; Jobs in 10/02: Electronics: 76%; 
Percent change in Jobs: trough to 10/02: Electronics: .

Industry/area: Share of 5 cities (above) in border; Jobs-1990: 
Electronics: 82%; Electronics: Jobs at peak: Electronics: 84%; 
Electronics: Date of peak: Electronics: Change in 
jobs: 1990 to peak: Electronics: Percent change in jobs: 1990 
to peak: Electronics: ; Jobs at trough: Electronics: ; Electronics: 
Date of trough: Electronics: Duration: peak to 
trough: Electronics: Duration: peak to trough: Electronics: ; 
Change in jobs: peak to trough: Electronics: ; Percent change in jobs: 
peak to trough: Electronics: ; Jobs in 10/02: Electronics: 83%; 
Percent change in Jobs: trough to 10/02: Electronics: .

Industry/area: Autoparts and other transportation: 

Industry/area: National; Jobs-1990: Electronics: 104,487; 
Electronics: Jobs at peak: Electronics: 250,635; Electronics: 
Date of peak: Electronics: Oct-00; Change in jobs: 1990 to 
peak: Electronics: 146,148; Percent change in jobs: 1990 to peak: 
Electronics: 140; Jobs at trough: Electronics: 218,289; Electronics: 
Date of trough: Electronics: Oct-01; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 1 year, 1 
month; Change in jobs: peak to trough: Electronics: -32,346; Percent 
change in jobs: peak to trough: Electronics: -13; Jobs in 10/02: 
Electronics: 233,747; Percent change in Jobs: trough to 10/02: 
Electronics: 7.

Industry/area: Border cities; Jobs-1990: Electronics: 77,200; 
Electronics: Jobs at peak: Electronics: 188,572; Electronics: 
Date of peak: Electronics: Jan-01; Change in jobs: 1990 to 
peak: Electronics: 111,372; Percent change in jobs: 1990 to peak: 
Electronics: 144; Jobs at trough: Electronics: 164,599; Electronics: 
Date of trough: Electronics: Oct-01; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 10 months; 
Change in jobs: peak to trough: Electronics: -23,973; Percent change in 
jobs: peak to trough: Electronics: -13; Jobs in 10/02: Electronics: 
171,289; Percent change in Jobs: trough to 10/02: Electronics: 4.

Industry/area: Juarez; Jobs-1990: Electronics: 39,272; Electronics: 
Jobs at peak: Electronics: 98,821; Electronics: Date 
of peak: Electronics: Oct-00; Change in jobs: 1990 to peak: 
Electronics: 59,549; Percent change in jobs: 1990 to peak: Electronics: 
152; Jobs at trough: Electronics: 82,798; Electronics: Date of 
trough: Electronics: Oct-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 2 years, 1 month; 
Change in jobs: peak to trough: Electronics: -16,023; Percent change in 
jobs: peak to trough: Electronics: -16; Jobs in 10/02: Electronics: 
82,798; Percent change in Jobs: trough to 10/02: Electronics: 0.

Industry/area: Tijuana; Jobs-1990: Electronics: 1,021; Electronics: 
Jobs at peak: Electronics: 6,701; Electronics: Date 
of peak: Electronics: Jan-01; Change in jobs: 1990 to peak: 
Electronics: 5,680; Percent change in jobs: 1990 to peak: Electronics: 
556; Jobs at trough: Electronics: 3,647; Electronics: Date of 
trough: Electronics: Dec-01; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 1 year; Change in jobs: 
peak to trough: Electronics: -3,054; Percent change in jobs: peak to 
trough: Electronics: -46; Jobs in 10/02: Electronics: 4,826; Percent 
change in Jobs: trough to 10/02: Electronics: 32.

Industry/area: Matamoros; Jobs-1990: Electronics: 14,086; 
Electronics: Jobs at peak: Electronics: 21,376; Electronics: 
Date of peak: Electronics: Apr-01; Change in jobs: 1990 to 
peak: Electronics: 7,290; Percent change in jobs: 1990 to peak: 
Electronics: 52; Jobs at trough: Electronics: 15,543; Electronics: 
Date of trough: Electronics: Oct-01; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 7 months; 
Change in jobs: peak to trough: Electronics: -5,833; Percent change in 
jobs: peak to trough: Electronics: -27; Jobs in 10/02: Electronics: 
21,073; Percent change in Jobs: trough to 10/02: Electronics: 36.

Industry/area: Reynosa*; Jobs-1990: Electronics: 4,753; Electronics: 
Jobs at peak: Electronics: 14,624; Electronics: Date 
of peak: Electronics: Sep-00; Change in jobs: 1990 to peak: 
Electronics: 9,871; Percent change in jobs: 1990 to peak: Electronics: 
208; Jobs at trough: Electronics: 13,470; Electronics: Date of 
trough: Electronics: Dec-01; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 1 year, 4 months; 
Change in jobs: peak to trough: Electronics: -1154; Percent change in 
jobs: peak to trough: Electronics: -8; Jobs in 10/02: Electronics: 
14,450; Percent change in Jobs: trough to 10/02: Electronics: 7.

Industry/area: Mexicali; Jobs-1990: Electronics: 3,010; Electronics: 
Jobs at peak: Electronics: 7,247; Electronics: Date 
of peak: Electronics: Dec-00; Change in jobs: 1990 to peak: 
Electronics: 4,237; Percent change in jobs: 1990 to peak: Electronics: 
141; Jobs at trough: Electronics: 6,063; Electronics: Date of 
trough: Electronics: May-01; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 6 months; Change in 
jobs: peak to trough: Electronics: -1,184; Percent change in jobs: peak 
to trough: Electronics: -16; Jobs in 10/02: Electronics: 7,353; Percent 
change in Jobs: trough to 10/02: Electronics: 21.

Industry/area: Share of border cities in national; Jobs-1990: 
Electronics: 74%; Electronics: Jobs at peak: Electronics: 75%; 
Electronics: Date of peak: Electronics: Change in 
jobs: 1990 to peak: Electronics: Percent change in jobs: 1990 
to peak: Electronics: ; Jobs at trough: Electronics: ; Electronics: 
Date of trough: Electronics: Duration: peak to 
trough: Electronics: Duration: peak to trough: Electronics: ; 
Change in jobs: peak to trough: Electronics: ; Percent change in jobs: 
peak to trough: Electronics: ; Jobs in 10/02: Electronics: 73%; 
Percent change in Jobs: trough to 10/02: Electronics: .

Industry/area: Share of 5 cities (above) in border; Jobs-1990: 
Electronics: 80%; Electronics: Jobs at peak: Electronics: 79%; 
Electronics: Date of peak: Electronics: Change in 
jobs: 1990 to peak: Electronics: Percent change in jobs: 1990 
to peak: Electronics: ; Jobs at trough: Electronics: ; Electronics: 
Date of trough: Electronics: Duration: peak to 
trough: Electronics: Duration: peak to trough: Electronics: ; 
Change in jobs: peak to trough: Electronics: ; Percent change in jobs: 
peak to trough: Electronics: ; Jobs in 10/02: Electronics: 76%; 
Percent change in Jobs: trough to 10/02: Electronics: .

Industry/area: Textiles and Apparel: 

Industry/area: National; Jobs-1990: Electronics: 42,464; Electronics: 
Jobs at peak: Electronics: 294,855; Electronics: Date 
of peak: Electronics: Jul-00; Change in jobs: 1990 to peak: 
Electronics: 252,391; Percent change in jobs: 1990 to peak: 
Electronics: 594; Jobs at trough: Electronics: 224,230; Electronics: 
Date of trough: Electronics: Mar-02; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 1 year, 9 
months; Change in jobs: peak to trough: Electronics: -70,625; Percent 
change in jobs: peak to trough: Electronics: -24; Jobs in 10/02: 
Electronics: 240,315; Percent change in Jobs: trough to 10/02: 
Electronics: 7.

Industry/area: Border Cities; Jobs-1990: Electronics: 20,891; 
Electronics: Jobs at peak: Electronics: 47,493; Electronics: 
Date of peak: Electronics: May-01; Change in jobs: 1990 to 
peak: Electronics: 26,602; Percent change in jobs: 1990 to peak: 
Electronics: 127; Jobs at trough: Electronics: 34,908; Electronics: 
Date of trough: Electronics: Apr-02; Duration: peak to trough: 
Electronics: Duration: peak to trough: Electronics: 1 year; 
Change in jobs: peak to trough: Electronics: -12,585; Percent change in 
jobs: peak to trough: Electronics: -26; Jobs in 10/02: Electronics: 
35,217; Percent change in Jobs: trough to 10/02: Electronics: 1.

Industry/area: Juarez; Jobs-1990: Electronics: 8,634; Electronics: 
Jobs at peak: Electronics: 10,649; Electronics: Date 
of peak: Electronics: Jul-97; Change in jobs: 1990 to peak: 
Electronics: 2,015; Percent change in jobs: 1990 to peak: Electronics: 
23; Jobs at trough: Electronics: 4,592; Electronics: Date of 
trough: Electronics: Apr-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 4 years, 9 months; 
Change in jobs: peak to trough: Electronics: -6,057; Percent change in 
jobs: peak to trough: Electronics: -57; Jobs in 10/02: Electronics: 
4,857; Percent change in Jobs: trough to 10/02: Electronics: 6.

Industry/area: Tijuana; Jobs-1990: Electronics: 2,483; Electronics: 
Jobs at peak: Electronics: 9,875; Electronics: Date 
of peak: Electronics: May-01; Change in jobs: 1990 to peak: 
Electronics: 7,392; Percent change in jobs: 1990 to peak: Electronics: 
298; Jobs at trough: Electronics: 6,782; Electronics: Date of 
trough: Electronics: Apr-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 1 year; Change in jobs: 
peak to trough: Electronics: -3,093; Percent change in jobs: peak to 
trough: Electronics: -31; Jobs in 10/02: Electronics: 7,394; Percent 
change in Jobs: trough to 10/02: Electronics: 9.

Industry/area: Matamoros; Jobs-1990: Electronics: 368; Electronics: 
Jobs at peak: Electronics: 2,537; Electronics: Date 
of peak: Electronics: Sep-99; Change in jobs: 1990 to peak: 
Electronics: 2,169; Percent change in jobs: 1990 to peak: Electronics: 
589; Jobs at trough: Electronics: 1,662; Electronics: Date of 
trough: Electronics: Jan-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 2 years, 5 months; 
Change in jobs: peak to trough: Electronics: -875; Percent change in 
jobs: peak to trough: Electronics: -34; Jobs in 10/02: Electronics: 
1,675; Percent change in Jobs: trough to 10/02: Electronics: 1.

Industry/area: Reynosa; Jobs-1990: Electronics: 925; Electronics: 
Jobs at peak: Electronics: 3,141; Electronics: Date 
of peak: Electronics: Oct-99; Change in jobs: 1990 to peak: 
Electronics: 2,216; Percent change in jobs: 1990 to peak: Electronics: 
240; Jobs at trough: Electronics: 2,089; Electronics: Date of 
trough: Electronics: Jul-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 2 years, 10 months; 
Change in jobs: peak to trough: Electronics: -1,052; Percent change in 
jobs: peak to trough: Electronics: -33; Jobs in 10/02: Electronics: 
2,267; Percent change in Jobs: trough to 10/02: Electronics: 9.

Industry/area: Mexicali; Jobs-1990: Electronics: 2,454; Electronics: 
Jobs at peak: Electronics: 2,758; Electronics: Date 
of peak: Electronics: Nov-97; Change in jobs: 1990 to peak: 
Electronics: 304; Percent change in jobs: 1990 to peak: Electronics: 
12; Jobs at trough: Electronics: 1,429; Electronics: Date of 
trough: Electronics: Mar-02; Duration: peak to trough: Electronics: 
Duration: peak to trough: Electronics: 4 years, 4 months; 
Change in jobs: peak to trough: Electronics: -1,329; Percent change in 
jobs: peak to trough: Electronics: -48; Jobs in 10/02: Electronics: 
1,562; Percent change in Jobs: trough to 10/02: Electronics: 9.

Industry/area: Share of border cities in national; Jobs-1990: 
Electronics: 49%; Electronics: Jobs at peak: Electronics: 16%; 
Electronics: Date of peak: Electronics: Change in 
jobs: 1990 to peak: Electronics: Percent change in jobs: 1990 
to peak: Electronics: ; Jobs at trough: Electronics: ; Electronics: 
Date of trough: Electronics: Duration: peak to 
trough: Electronics: Duration: peak to trough: Electronics: ; 
Change in jobs: peak to trough: Electronics: ; Percent change in jobs: 
peak to trough: Electronics: ; Jobs in 10/02: Electronics: 15%; 
Percent change in Jobs: trough to 10/02: Electronics: .

Industry/area: Share of 5 cities (above) in border; Jobs-1990: 
Electronics: 71%; Electronics: Jobs at peak: Electronics: 61%; 
Electronics: Date of peak: Electronics: Change in 
jobs: 1990 to peak: Electronics: Percent change in jobs: 1990 
to peak: Electronics: ; Jobs at trough: Electronics: ; Electronics: 
Date of trough: Electronics: Duration: peak to 
trough: Electronics: Duration: peak to trough: Electronics: ; 
Change in jobs: peak to trough: Electronics: ; Percent change in jobs: 
peak to trough: Electronics: ; Jobs in 10/02: Electronics: 50%; 
Percent change in Jobs: trough to 10/02: Electronics: .

Source: National Institute of Statistics, Geography and Information 
Technology (Instituto Nacional de Estadística, Geografía e 
Informática).

Notes: Data on the border region broken down by industrial sector were 
only available through October 2002.

Data listed for textile and apparel jobs in Matamoros in 1990 are for 
1994. Data were not available for prior years for that city and 
industry.

The "share of border cities in national" is the percentage share that 
maquiladora employment in the 41 Mexican border municipalities makes up 
of national maquiladora employment. The "share of 5 border cities in 
the overall border" is the percentage share that the 5 border cities 
listed in the table make up of total maquiladora employment in the 41 
border municipalities that comprise the border region.

[End of table]

[End of section]

Appendix VI: Objectives, Scope, and Methodology:

Our work focused on employment and production trends on the U.S.-Mexico 
border and recent trends in the maquiladora industry. We also analyzed 
data on overall U.S.-Mexico trade and compared trends along the border 
with developments in the broader U.S. and Mexican economies. To 
complete our objectives, we conducted interviews with government 
officials in the U.S. and Mexico, as well as semistructured interviews 
with 29 industry associations. Between November 2002 and February 2003, 
we conducted site visits in three areas of the border with a 
considerable maquiladora presence: McAllen, Texas-Reynosa, Tamaulipas; 
El Paso, Texas-Juarez, Chihuahua; and San Diego, California-Tijuana, 
Baja California. Our selection criteria consisted of two 
characteristics integral to the maquiladora industry: (1) the number of 
maquiladora employees and (2) the number of maquiladora plants.

In addition to conducting site visits in selected border areas, we met 
with U.S. officials and traveled to Mexico City to meet with Mexican 
government officials. In the United States, we met with officials from 
the Department of State, Office of the U.S. Trade Representative, 
International Trade Commission, Environmental Protection Agency, 
Immigration and Naturalization Service, Department of Labor, Department 
of Transportation, Department of the Treasury, and U.S. Customs. In 
Mexico, we met with officials from the Ministry of Economy; Ministry of 
Labor; National Institute of Statistics, Geography and Information 
Technology; Ministry of Treasury; Ministry of Government; and Ministry 
of Environment. We obtained, reviewed, and analyzed data from 
maquiladora industry experts, nongovernmental organizations, and 
Mexican and U.S. government agencies.

We also met with academics at educational institutions in Mexico and 
the United States, including San Diego State University; the University 
of California, Los Angeles; University of California, San Diego; 
University of Texas at El Paso; Colegio de la Frontera, Tijuana; 
Universidad Nacional Autónoma de Mexico; and Universidad Autónoma 
Metropolitana de Xochimilco. In addition, we met with numerous 
representatives of industry and nongovernmental organizations as well 
as other maquiladora experts.

To understand how communities along the U.S.-Mexico border are 
integrated and the role that maquiladoras play in U.S.-Mexico 
interdependence (objective 1), we interviewed experts on the 
maquiladora industry, academics, and representatives of 
nongovernmental organizations. We reviewed extensive documentation and 
academic research provided by these sources, analyzing economic, 
social, and political linkages between border communities and the 
influence of the maquiladora industry in the border region. We 
identified similarities and differences between border communities with 
regard to social and economic integration.

To review the status and trends in trade, employment, and output 
(objective 2), we obtained original official data on employment and 
trade from both U.S. and Mexican government agencies. We analyzed the 
data to identify trends in employment and production in the U.S.-Mexico 
border area. We compared our analysis of trends along the border with 
developments in the broader U.S. and Mexican economies. For example, 
for the United States, we conducted a shift-share analysis that 
decomposes employment growth (or decline) in a region over a given time 
period into three components: the national growth effect, the industry 
mix effect, and the local (competitive) effect. To assess the quality 
and reliability of the data, we conducted in-person meetings with 
government officials of the National Institute of Statistics, Geography 
and Information Technology in Mexico City to discuss the methodology 
for collecting the data and any known limitations or biases. For 
instance, statistics on maquiladora employment and production are 
affected when companies leave the program. Although establishments and 
employees are no longer considered part of the maquiladora sector and 
statistics correctly show a decline in maquiladora employment, the 
firms and employees may still remain in operation outside of the 
program. We also analyzed the data sources for internal consistency, as 
well as external consistency with other sources of information, such as 
our structured interviews. Although both U.S. and Mexican statistics 
have some limitations, we consider the data sufficiently reliable to 
present general trends and magnitudes in production, employment and 
trade.

To identify the factors that have affected employment and production in 
the maquiladora industry (objective 3), we analyzed economic data and 
conducted semistructured interviews. Specifically, to determine the 
link between maquiladora employment and U.S. economic conditions, we 
assembled data on maquiladora employment in total and by main sectors 
as well as quarterly U.S. GDP data from January 1980 to December 2002. 
We then converted all of these data to their natural logarithms and 
performed a regression of maquiladora employment on U.S. real GDP, U.S. 
manufacturing shipments and the real peso-dollar exchange rate. The 
semistructured interviews were conducted in person and by telephone 
with 29 representatives of business associations, consisting of 
organizations representing principal industrial sectors involved in 
maquiladora operations, and maquiladora associations at the local and 
national level.

Of these 29 organizations, 23 reported their members experienced a 
decline in employment and/or production. We asked these 23 
organizations to discuss the major reasons for the maquiladoras' recent 
decline. We relied on business associations to identify the factors 
affecting employment and production in the maquiladora industry, 
because of the direct experiences of their membership with plant 
closures, changes in employment levels, and other company changes. We 
also relied on associations to comment generally on issues facing the 
industry, such as increased competition, and for information on overall 
industry trends. In selecting potential interview participants from 
maquiladora and other business associations, to ensure representation 
throughout the industry, we considered three criteria: geographic 
location, industry sector, and country of origin or region of 
representation.

Of the 29 associations interviewed, 17 were maquiladora associations 
and 12 were industry-specific associations. The maquiladora 
associations were primarily identified through the membership list for 
Mexico's National Council of the Maquiladora Export Industry (Consejo 
Nacional de la Industria Maquiladora de Exportación --CNIME) that has a 
membership including 22 maquiladora associations located across Mexico. 
We contacted all 22 members and the national association, and we 
completed interviews with the national association and 14 local member 
associations. We completed additional interviews with two maquiladora 
associations that were not members of CNIME, but were included to 
broaden representation of country of origin/region of representation 
(i.e., Japan and the United States). Of the 12 industry-specific 
associations, we sought interviews with associations representing major 
industrial sectors, specifically targeting the electronics, 
automotive, and apparel sectors.[Footnote 45] Of the 29 associations, 
Mexico, the United States, and Japan were the country of origins/
regions of representation included.

We developed 14 questions for the semistructured interview guide, based 
on previous research. Six questions were closed ended, and eight were 
open ended. Participants' responses to the open-ended items were 
content-analyzed by two trained coders, and intercoder reliability 
values were computed. Reliability values ranged from 58 percent to 100 
percent. The coding category scheme was modified until 100 percent 
agreement was reached between the two coders. The results will not be 
generalizable outside our sample; however, we believe we have included 
associations in a way that is as balanced and inclusive as possible 
within the number of interviews we were able to conduct.

To identify the implications of recent developments in the maquiladora 
industry for the border region and U.S.-Mexico trade (objective 4), we 
analyzed documents and interviews citing factors that might influence 
the recovery of maquiladora production. We also analyzed the debate 
about the viability of the industry and some initiatives to identify 
and address its recovery. The information on foreign laws in this 
report does not reflect our independent legal analysis, but is based on 
interviews and secondary sources.

We performed our work from July 2002 through July 2003 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix VII: Comments from the Department of State:

United States Department of State:

Washington, D.C. 20520:

Dear Ms. Westin:

We appreciate the opportunity to review your draft report, 
"INTERNATIONAL TRADE: Mexico's Maquiladora Decline Affects U.S. - 
Mexico Border Communities and Trade; Recovery Defends in Part on 
Mexico's Actions," GAO-03-891, GAO Job Code 320147.

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report.

If you have any questions concerning this response, please contact Sue 
Saarnio, Bureau of Western Hemisphere Affairs, at (202) 647-8209.

Christopher B. Burnham 
Assistant Secretary for Resource Management and Chief Financial 
Officer:

Signed by Christopher B. Burnham: 

Enclosure:

As stated.

cc: GAO/IAT - Kim Frankena State/OIG - Luther Atkins State/WHA - J. 
Curtis Struble State/H - Paul Kelly:

Ms. Susan S. Westin, Managing Director, International Affairs and 
Trade, U.S. General Accounting Office.

Department of State Comments on GAO Draft Report "INTERNATIONAL TRADE: 
Mexico's Maquiladora Decline Affects U.S.-Mexico Border Communities and 
Trade; Recovery Depends in Part on Mexico's Actions" (GAO-03-891, GAO 
Code 320147):

This GAO report presents a good factual discussion of the downturn of 
Mexico's Maquiladora industry. We applaud GAO's efforts in this well-
documented and well-researched report.

The report's discussion of the related issue of Mexico's 
competitiveness in world trading markets merits further study. In 
particular, we call to GAO's attention an excellent study of this 
multi-faceted issue "Economic Competitiveness in Mexico: Recent 
Evolution, Prospects and Repercussions for the United States" published 
in April 2003 by the Center for Strategic and International Studies. 
The American Chamber of Commerce in Mexico City also recently has 
completed extensive research on this subject.

The State Department also would like to call to GAO's attention 
announcements made by the Mexican government at the June 9-10, 2003, 
U.S.-Mexico Partnership for 
Prosperity conference in San Francisco, California, regarding Mexican 
efforts to maintain competitiveness. At that event, high-level U.S. and 
Mexican officials held to 
customs, corporate transparency, investment and fiscal incentives. 
These measures were taken at the recommendation of a private sector 
Partnership for Prosperity steering committee working with Mexican 
government officials and the U.S. Embassy in Mexico and the U.S. 
Foreign Commercial Service.

Those efforts will continue under the auspices of the Partnership for 
Prosperity.

[End of section]

Appendix VIII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Kim Frankena (202) 512-8124 Juan Gobel (213) 830-1031:

Acknowledgments:

In addition to those listed above, Joel Aldape, Bronwyn Bruton, 
Gezahegne Bekele, Francisco Enriquez, Reid Lowe, Alison Martin, and 
Timothy Wedding made key contributions to this report.

:

(320147):

FOOTNOTES

[1] Maquiladora is a term derived from the Spanish word maquilar, which 
is the service a miller provides when he grinds wheat into flour. 
Similarly, a maquiladora provides assembly services without necessarily 
taking ownership of the goods being assembled.

[2] The Bracero Program allowed Mexican citizens to work on a temporary 
basis in the United States between 1942 and 1964. It was initially 
designed to address labor shortages in the U.S. agricultural and 
railroad industries during World War II. 

[3] When the BIP was established, companies with assembly plants in 
Mexico would deposit a bond with the Mexican Department of Commerce and 
Industry (Secretaría de Comercio y Fomento Industrial) for the value of 
the duty on imported components and machinery. The bond would be 
returned when the finished products assembled using the imported 
components were exported.

[4] Among the most important of these programs is PITEX (Program for 
Temporary Importation to Manufactured Exports), established in 1990 as 
another government of Mexico program that allows companies to import 
components duty-free. PITEX requires companies to export a minimum of 
30 percent of their total annual sales. Companies operating under PITEX 
are more commonly located in the interior of Mexico and typically use 
more Mexican components than do maquiladoras, which are primarily 
located in Mexico's northern border region. The type of employment and 
production data the Mexican government collects on maquiladoras is not 
available for PITEX firms. The U.S. International Trade Commission 
(ITC) issues an annual report on production-sharing trade, including 
between the United States and Mexico, as part of its Industry, Trade, 
and Technology Review series. In that report, the ITC considers trade 
under the Maquiladora program and the PITEX program as production-
sharing trade. For comparison of Mexico's imports and exports under the 
Maquiladora Program and PITEX by Harmonized Tariff chapters, see Ralph 
Watkins, U.S. International Trade Commission, "Production-Sharing 
Update: Developments in 2001," Industry Trade and Technology Review, 
USITC, pub. 3534, July 2002, appendix C.

[5] Lucinda Vargas, Federal Reserve Bank of Dallas, "The Binational 
Importance of the Maquiladora Industry", Southwest Economy, Issue 6, 
November/December, 1999.

[6] Northern Border Regional Development Program, 2001-2006 (Programa 
de Desarrollo Regional, Frontera Norte 2001-2006), Commission on 
Northern Border Affairs (Comisión para Asuntos de la Frontera Norte).

[7] Exports from PITEX assembly plants ($46 million), accounted for 
another one-third of Mexican exports to the United States.

[8] We have prepared several reports on environmental and labor issues 
related to maquiladoras. See U.S.-Mexico Trade: Assessment of Mexico's 
Environmental Controls for New Companies, GAO/GGD-92-113 (Washington, 
D.C.: Aug. 3, 1992) and U.S.-Mexico Trade: The Work Environment at 
Eight U.S.-Owned Maquiladora Auto Parts Plants, GAO/GGD-94-22 
(Washington, D.C.: Nov. 1, 1993).

[9] Data on textiles and apparel in the border region were available 
annually only through 2001. The National Institute of Statistics, 
Geography and Information Technology (Instituto Nacional de 
Estadística, Geografía e Informática) provided us data broken down by 
industry and region through October 2002.

[10] For information about investment in Mexico's textile and apparel 
sector in 1999, see Larry Brookhart and Ralph Watkins, U.S. 
International Trade Commission, "Production-Sharing Update: 
Developments in 1999," Industry Trade and Technology Review, USITC, 
pub. 3335, July 2000, p. 15.

[11] Mexico's National Institute of Statistics, Geography and 
Information Technology (Instituto Nacional de Estadística, Geografía e 
Informática) defines the border region as the 41 municipalities located 
along the U.S.-Mexico border.

[12] Nationally in Mexico, the electronics and electrical components 
sector declined by 32 percent from September 2000 through April 2002.

[13] Overall manufacturing production consists of manufacturing by both 
maquiladora and nonmaquiladora manufacturing companies. The growth in 
both maquiladora production and total manufacturing production in 
Mexico is shown in figure 3.

[14] Data on manufacturing production were not available for the 
Mexican border states of Chihuahua and Tamaulipas.

[15] The U.S. border municipalities for which appropriate employment 
data through 2002 were available are San Diego, California; Yuma, 
Arizona; Las Cruces, New Mexico; and Brownsville, El Paso, Laredo, and 
McAllen, Texas.

[16] Maquiladoras reached their peak employment level of 1.3 million 
employees in October 2000.

[17] The figure for 2002 is preliminary, based on data available 
through September.

[18] China formally joined the WTO in December 2001.

[19] Ralph Watkins, U. S. International Trade Commission, "Mexico 
Versus China: Factors Affecting Export and Investment Competition," 
Industry Trade and Technology Review, USITC, pub. 3534, July 2002, p. 
11ff.

[20] Average wages in Mexico's six border states are higher than in 
other regions of Mexico except the central area around Mexico City.

[21] Actual figures: Mexico: $2.5/hour; Dominican Republic: $1.5/hour; 
Honduras: $1.3/hour. Source: "Perspectives of the Maquiladora Industry 
in the Mexican Economy" (Perspectivas de la Industria Maquiladora en La 
Economía Mexicana), Center for Analysis and Economic Projections of 
Mexico (Centro de Análisis y Proyecciones Económicas de México), 
December 9, 2002.

[22] U.S. nonreciprocal trade programs, such as the Generalized System 
of Preferences for developing countries and CBI for Caribbean and 
Central American trade partners, generally excluded textile and apparel 
from special preferences. Canada is an exception, also receiving 
benefits through NAFTA.

[23] William C. Gruben, Federal Reserve Bank of Dallas, "Was NAFTA 
Behind Mexico's High Maquiladora Growth?" Economic and Financial 
Review, Third Quarter 2001.

[24] "Duty drawback" refers broadly to the refund, waiver, or reduction 
of customs duties owed on imported goods, on condition that the goods 
are subsequently exported.

[25] See discussion of the sectoral promotion program (PROSEC) below.

[26] James Gerber and Jorge Carrillo, "Are Tijuana's and Mexicali's 
Maquiladora Plants Competitive?" San Diego Dialogue, July 2002. 

[27] Decree for the Development and Operation of the Maquiladora Export 
Industry (Decreto que reforma el diverso para el fomento y operación de 
la industria maquildora de exportación), Official Daily Gazette (Diario 
Oficial), May12, 2003, Section 1, page 107.

[28] The Information Technology Agreement (ITA) was negotiated under 
the auspices of the WTO and concluded in 1996, eliminating tariffs on 
information technology products by the participating members. Mexico 
has not joined the WTO ITA, but chose to unilaterally eliminate tariffs 
on certain information technology products in its ITA Plus initiative. 
However, because Mexico did not commit to these tariff cuts in the WTO, 
it may change them at any time.

[29] John Sargent and Linda Matthews, The University of Texas-Pan 
American, Center of Economic Studies, Boom or Bust: Is it the End of 
Mexico's Maquiladoras? Working Paper #2002-6, August 2002.

[30] For a discussion of the trend for new maquiladora investments to 
be located in the interior of Mexico see Rubén Mata, U.S. International 
Trade Commission, "Recent Developments in Mexico's Assembly Industry," 
Production Sharing: Use of U.S. Components and Materials in Foreign 
Assembly Operations, 1994-1997, USITC, pub. 3146, Dec. 1998, pp. 2-
10ff.

[31] U.S. General Accounting Office, International Trade: Comparison of 
U.S. and European Union Preference Programs, GAO-01-647 (Washington, 
D.C.: June, 2001).

[32] Two measures regarding advance notification of cargo shipments are 
cause for industry concern: (1) an informal U.S. Customs proposal that 
would require trucks to declare the contents of their cargo 4 hours 
before they enter the United States and 24 hours before they enter 
Mexico, which falls under the Advance Electronic Information provision 
of the Trade Act of 2002 and has not yet gone into effect and (2) a 
U.S. customs measure known as the 24-hour rule, effective since 
December 2, 2002, which requires ships traveling to U.S. seaports to 
declare the contents of their cargo 24 hours before they depart from a 
foreign port - 19 CFR 4.7(b)(2). Regarding entry of foreign citizens, 
at issue is an Immigration and Naturalization Service mandate that is 
part of Section 110 of the Illegal Immigration Reform and Immigrant 
Responsibility Act of 1996.

[33] Customs officials noted that they are keenly aware of the 
importance of "Just in Time" delivery and have taken that into account 
in any programs proposed for cargo clearance. Customs also intends to 
offer a program known as Free and Secure Trade to speed the clearance 
of known shippers, importers and carriers, and assist in moving traffic 
border-wide.

[34] The U.S. border with Mexico is defined by the states of 
California, Arizona, New Mexico, and Texas. However, a meaningful 
description of the border would require the exclusion of large portions 
of each of these states. Many analysts define the border in terms of 
the contiguous counties that have direct geographical links with 
Mexico. According to this definition, the U.S.-Mexico border consists 
of the counties of San Diego and Imperial in California; the counties 
of Yuma, Pima, Santa Cruz, and Cochise in Arizona; the counties of 
Hidalgo, Luna, and Dona Ana in New Mexico; and the counties of El Paso, 
Hudspeth, Culberson, Jeff Davis, Presidio, Brewster, Terrell, Val 
Verde, Kinney, Maverick, Dimmitt, Webb, Zapata, Starr, Hidalgo, and 
Cameron in Texas.

[35] Given that NAFTA was implemented in 1994, the graph suggests that 
NAFTA had an employment-stimulating effect in the border counties.

[36] For example, during the time period 1990-2000, nonfarm employment 
in the United States grew by 20 percent (i.e., from 109.4 million to 
130.8 million). Therefore, the national growth component of any region 
within the United States during this period would be 20 percent of the 
the region's 1990 employment.

[37] For example, in 1995, when Mexico's GDP fell by 6 percent, 
employment in the maquiladora industry grew by more than 9 percent. 
During 1998, when export earnings by the oil industry were off 
significantly, the maquiladora industry became the largest source of 
foreign revenue. See, Gerber, J, "Whither the Maquiladora? A Look at 
the Growth Prospects for the Industry After 2001," Comercio Exterior, 
Bancomext. 9:3, 1999.

[38] In comparison to 2000 figures, latest statistics (November 2002) 
show 452 fewer maquiladora companies consisting of 310 garment 
maquiladoras, 56 electronic and electric accessory maquiladoras, 69 
furniture assembly maquiladoras, and approximately 17 companies in the 
rest of manufacturing.

[39] The real exchange rate reflects the relative price of goods. It is 
the nominal exchange rate adjusted for differences in inflation rates 
between trading partners.

[40] Maquiladoras are particularly sensitive to movements of real 
exchange rates since they generate their revenues in dollars by 
exporting their output to the United States while incurring production 
costs (labor and other local inputs) in pesos. An appreciation of the 
real exchange rate of the peso makes goods made in the United States 
cheaper relative to their cost in Mexico. For example, in 2002, Mexico 
had an average annual rate of inflation in consumer prices of 5.7-
percent, while the United States had an average inflation rate of 2.4-
percent. Consequently, the peso lost purchasing power inside Mexico at 
a rate of 5.7 percent, but if its exchange rate were not allowed to 
adjust, its loss of purchasing power in the United States would be 2.4 
percent. As a result, the goods purchased in the United States would be 
3.3 (5.7 percent minus 2.4 percent) percent cheaper relative to their 
cost in Mexico. The peso-dollar exchange rate has, in effect, 
appreciated in real terms even if the nominal exchange rate does not 
change. An appreciation of real exchange rate of the peso, therefore, 
makes maquiladoras less competitive in the U.S. market.

[41] The regression equations we estimated are represented by the 
following relationship:

lnXj= a+b lnY + glnW + e

Where Xj is Maquiladora employment, Y is U.S. Gross Domestic Product, W 
is the exchange rate of the dollar relative to the peso, and a, b, g 
are positive constants to be estimated. J represents the maquiladora 
sectors and ln indicates natural logarithms.

[42] It should be noted that other factors not explicitly captured in 
our estimates may also affect maquiladora employment.

[43] It should be noted that the peso-dollar exchange rate has been 
more volatile then U.S. GDP during this period. 

[44] The figures used in the analysis presented in this appendix are 
from the U.S. International Trade Commission. They differ somewhat from 
figures cited earlier in this report for U.S. imports from Mexico, 
which were provided by the Mexican National Institute of Statistics, 
Geography and Information Technology (Instituto Nacional de 
Estadística, Geografía e Informática).

[45] We identified major industry sectors with information presented in 
MEXICONOW on the 100 largest maquiladora firms. Although the service 
industry was one of the largest, it represents a very diverse group of 
operations with too little in common to allow the identification of 
factors of the recent industry downturn that would be applicable to all 
of the industry's members. Therefore, we sought to interview 
participants that represented the electronics, automotive, and apparel 
sectors.

GAO's Mission:

The General Accounting Office, the investigative arm of Congress, 
exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics.

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading.

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. General Accounting Office

441 G Street NW,

Room LM Washington,

D.C. 20548:

To order by Phone:  

 Voice: (202) 512-6000:

 TDD: (202) 512-2537:

 Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.

General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

20548: