BORDER COMMERCE

by Kelly Simmons, Managing Editor and Senior Writer

The Trade Secretariat (SECOFI) announced during October that it is taking steps to promote the purchase of domestic components for the assembly processes in maquiladora plants. The new effort includes designating suppliers of maquiladora plants as “submaquilas” and extending the tax breaks and other favorable treatment granted to maquiladoras to the suppliers. These domestic suppliers would be designated as indirect exporters under the proposed changes and qualify for the same incentives reserved for the maquiladoras. According to statistics gathered by INEGI, Mexico’s National Statistics Institute, only 1.5 percent of the components used by maquiladora plants in 1995 came from Mexican suppliers.

Reaction to the news by industry executives was mixed with some pointing out that components are available at very cheap prices from most of the parent companies across the border in the United States. According to INEGI statistics approximately 86 percent of maquiladora jobs are contentrated in the four border states of Chihuahua, Baja California, Tamaulipas and Coahuila. However, it was noted that the potential for suppliers to sell to maquiladoras located in the interior of the country is much greater, especially those that specialize in assembly of electronic components.

According to reports from INEGI, maquiladora employment was up 19.7 percent over 1995. In July 1995, 636,118 workers were employed in maquilas in Mexico and in July 1996, over 761,700 workers were employed in the border factories. That number had risen to 770,000 employed in maquilas by August, a 20% increase over the same month in 1995. However, exports from Mexico grew only 19 percent in August while during 1995 they were growing at an average of 30 percent.

The lag in export growth is causing concern among business leaders and the financial community that the Mexican peso is over valued. In October, the peso was averaging an exchange rate of 7.52 pesos to the U.S. dollar, a rate that was much stronger than the 7.69 rate at the end of 1995. Overvaluing of the peso, it is feared, could cause massive imports of consumer goods and a drop in the country’s economy.

Meanwhile, inflation in Mexico in the first two weeks of October was running 1.04 percent. The Central Bank of Mexico stated that in the first eight months of 1996 the rate of inflation was 18.5 percent, growing to 19.54 percent by the first weeks of September.

An October economic accord signed by President Zedillo and the heads of the workers congress, the national campesino confederation and the business coordinating council, included a cap on annual inflation of 15 percent and an increase to the minimum wage of 17 percent. The accord also included price increases for electricity rates, and fuel, making the governments ability to contain inflation to 15 percent uncertain. Demands by several industry groups for price increases of consumer products such as milk and tortillas could also derail the inflation forecast.

Meanwhile in the border city of El Paso, inflation was running at a high of 6 percent, double the national average, with a price increase during the month of August of 0.7 percent, according to a regional bank survey. The cost of living in the city has also increased 6.2 percent, double the national average of 3 percent, while salaries are growing at only 3 percent.

Across the State of Texas, unemployment was highest in border communities. The top four cities for unemployment, running in double digits, were all border towns with McAllen leading with 18.4% unemployment. El Paso and Laredo’s unemployment rates were tied at 12.1%,and Brownsville was fourth at 11.8%.

Sources: El Norte, SourceMex, El Paso Times


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