Behind the Wire 061080

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ICFTU:
Behind the Wire

WEPZA:
Comments and Questions

61. "It is to the inexperienced foreign investor what the package holiday is to the cautious tourist" comments the ILO report with a note of humour. EPZ investors come in many shapes and sizes, and some even come from the Third World. The multinationals are not all from the countries of the North either: more and more of those setting up in the processing zones are Third World firms, mainly from the NICs, including Korea, omnipresent in Central America. Many textile maquilas in Central America are under the control of Korean or Taiwanese groups who came to the region mainly to take advantage of the export quotas to the United States. More and more enterprises are under local ownership. 61. The ILO tourism analogy is "dead right". After sixty paragraphs of nonsense we find out that there is nothing sinister about the EPZ model after all, just sound development policy of creating a predictable accessible ready to use manufacturing environment. We've known that all along.
We also see here that quotas, not low wages, are another reason for firms to open new plants in EPZs, and these are being done by more advance third world countries. It is encouraging to see that the lessons of development are being learned all over the world and the centuries of suffering of the people in the least developed countries may be coming to an end.
Perhaps we should give the unions credit for the unintended consequences of their protectionist policies in textiles and garments. By keeping the developed world's consumer prices artificially high through quotas and the multi-fiber agreement, and accepting the lower standards of living for workers in the industrial countries that such policies require, they have provided a profitable gap which the less developed countries could exploit to gain jobs and manufacturing skills. The EPZs of the developing world are grateful for your help!
62. In Guatemala, in 1994, there were 138 Guatemalan-owned maquilas, 11 North American and 53 Korean. Of the 225 enterprises in El Salvador's EPZs, 11 are Salvadorian, 8 Taiwanese, 16 Korean, 13 North American and 1 French, while 56 are "unidentified". The subcontracting and "name borrowing" system complicates the identification of the real owners. But behind the supposedly locally owned enterprises there are often enterprises from the North who have decided they don't want to get their hands dirty, and prefer just to buy the products from them. Their role only emerges when a dispute breaks out. 62. WOW! These data are really encouraging. 70% of the firms in backward Guatemala are locally owned. Only 5% are owned by the oppressive "Gringo" on whom Guatemala is developing a "parasitic" relationship. The ICFTU has provided the data here to refute its own nonsense. Clearly development has taken place, the industry is not an enclave, or run by foreigners. Technology has been transferred, so have skills, and capital.
But is this just a ruse by the deceitful firms of the North as the last two sentences imply?
63. In 1994, for example, the American clothing company, The GAP, had to intervene with the owners, mainly Korean, of maquilas in the Continental Industrial Park in Honduras because the strikes provoked by these firms' anti-union policy were disrupting distribution to the United States. 63. Of course not. This example shows indeed the independent nature of all the players, the costs of poor employee relations at some companies, and the responsible nature of multinational companies. The only lesson learned is the whole trading system is working very well, but we suspect this is not the lesson the author intended to show.
Geographical distribution
#64. EPZs are a global phenomenon, but one that is very unevenly spread, in terms of investment and jobs. The industrialised countries only have a few zones, mainly located in poorer or more remote regions: Australia, for example has a "Trade Development Zone" in the Northern Territory (Darwin). In the developing countries, investment in these zones is concentrated in a handful of countries: in 1986, 14 countries out of a total of 45 accounted for 94.5 percent of employment in the zones. 64. One industrialized country, the United States of America, has about 250 general purpose Foreign Trade Zones for import and export trade and another 250 Foreign Trade Factory Subzones in which almost all automobiles and household appliances are manufactured. There are said to be parts from 23 different countries in the average American-produced automobile. A few years ago, the rules were improved to make it easier to manufacture in general purpose Foreign Trade Zones. Data that is not a decade old will find this dominance much reduced.
65. This concentration can also be found at the regional level. In Africa, also in 1986, three countries, Egypt, Tunisia and Mauritius, represented 96.5 percent of employment in the zones. In Latin America, Mexico, Brazil and the Dominican Republic account for 91 percent of employment between them. The processing zones, which the poorest countries are trying to set up as if they will open the door to development like a magic wand, in fact tend to favour the newly industrialised countries. 65. The revolution in EPZs is only 40 years old and has not yet reached more than 100 developing countries. The huge successes of the NICs and a few of the more experienced developing countries account for the skew in distribution of jobs. And they also indicate the yet unrealized potential for change.
Integration
66. Is the question of location symptomatic of the objective assigned to the export processing zones? Have these countries joined the ranks of the newly industrialised thanks to the presence of the zones, or did the international companies choose to invest in the zones because the country's economy already showed signs of dynamic industrial development? 66. This is a very good "chicken or egg first" question. So far the evidence seems to be that the zones came first. Puerto Rico, Mexico, Taiwan, Singapore, Hong Kong, Korea (whose 19 special industrial programs which followed Masan/Iri EPZs are really EPZ systems themselves), Sri Lanka, Mauritius, Dominican Republic, etc. But the installation of EPZs in mature industrial countries, such as those of Central Europe and the C.I.S., and even inside the European Union itself, would seem to be a good idea. Zones work well in the USA so far and will be around for a long time.
67. This is not just empty rhetoric; this question will recur throughout our journey into the world of export processing zones: "it raises far more complex questions" notes the ILO "concerning the links between foreign investment, particularly investment in the export processing zones, and the process of innovation in local industries". The proportion of production and employment in the zone in relation to the rest of the country clearly determines whether it has a decisive or incidental impact, economically, socially, or even politically. When the zones represent, as is the case in Mauritius or Macao, more than three-quarters of industrial employment (1984), they are no longer enclaves; they are the country's whole economy. 67. It will be useful for you to look up a paper "Export Processing Zones in Developing Countries: A Global View" presented at the WEPZA conference at Barranquilla, Colombia in December 1988 and published in the Journal of The Flagstaff Institute Vol. XIII, Number 1, in April 1989. Authors Paula Holmes and Paul Meo of the World Bank concluded, "In the smaller countries (population under 5 million) EPZ employment is now 40% of formal employment in manufacturing. And the very weak data available on internationally- comparable wages does not support the frequent assertion that EPZs pay relatively lower wages than the domestic economy. Clearly EPZs seem worthy of consideration by any small country considering an export drive." [Note: the countries referred to were Barbados, El Salvador, Jamaica, Honduras, Mauritius, Panama and Singapore].
68. The same does not apply when the zones, as is the case in Brazil for example, only represent 1.5 percent of jobs in the manufacturing sector or a minimal proportion of the country's total exports, as is the case in India. According to 1993 figures, EPZs only had a 2.67 percent share of the country's foreign trade. The apparent statistical insignificance of the role of the EPZs does not explain everything, as they may disguise their true impact. In Mexico, for example, the maquilas represent 10 percent of industrial employment, but their contribution to the balance of payments is considerable, far greater for example than tourism. Politically, their presence along the 3,000 km border with the United States is such that they play a strategic role in Mexico's economic policy and its bilateral relations with the United States. 68. The huge populations of Brazil, Indonesia and India make current EPZ efforts seem small. In Brazil and India they have not been a major focus of development. The Brazilian zone in Manaus has been an import zone designed for local regional development. It is not at all surprising that its exports are low. In India zones have had only a limited role, but the Santa Cruz Electronics Export Processing Zone near Bombay did export 87% of the country's electronic exports in the early 80s. Mexico has shown what can be done with a population reaching towards 100 million in the year 2000.
Decline predicted
69. With the advent of globalisation, the EPZ phenomenon is being called into question by the sheer extent of trade liberalisation and the deregulation of economies. "The transnationalisation of the economy" writes the ILO (San Jose) "which includes the opening up of economies, could push the maquiladoras out of the picture. Their competitiveness is based on quotas, subsidies and exemptions which, in addition to lower costs, particularly in terms of labour, have made such investments very profitable. But with the approval of free trade agreements, the whole region is turning into a free trade zone, with no room for special preferential systems. 69. This statement clearly demonstrates a lack of understanding of the nature of the EPZ. It is an investment attraction and management device based on comparative advantage and not on illegal trade or investment subsidies. Quotas, a device of the multi-fiber agreement which operated for many years but is now phasing out, were available to all manufacturers in a country -- not just in EPZs. Because EPZs provide lowest cost industrial quality infrastructure, services, security, and speed to companies, they are unlikely to be eliminated by the extension of Free Trade Areas or Preferential Tariff Arrangements. On the contrary, the increasing complexity of FTAs and PTAs (200 pages of complex rules of origin in NAFTA) will lead the manufacturer to Zones for guidance and support.
70. On the contrary, the global market will lead to global laws of supply and demand, with equal GATT regulations for all. In this new context, the maquila will have a low profile, its only advantage being to provide cheap labour, working in highly exploitative conditions, given that the free circulation of goods will be guaranteed by trade agreements. 70. The "natural" law of supply and demand was, thankfully, discovered by economists 200 years ago, not dictated by GATT or WTO or legislated by anybody. The Commissars in the USSR thought they could do better by planning and dictating from the center, but didn't succeed.
As admitted in paragraphs 60-63 these were not the keys to EPZs success, and thus will not be the keys in the future. The paper has moved back to unsubstantiated and inflammatory assertions, which the author must know to be contrary to the facts he himself has explained.
71. "In an interview published at the end of 1991, Daniel Azzini, a United Nations consultant in Uruguay, took a similar view: "the export processing zones are just one step on the road to the globalisation of the economy and their usefulness will decline over the next five to ten years". 71. Mr. Azzini has the right to his opinion, but the author of this ICFTU report knows these predictions to be false. First in paragraph 6 they themselves complain about the "Their continued growth..." The tone of the entire report is that EPZs are a growing menace, and further they would not be a tempting target if they were to wither and die on their own in another five years. Secondly, at this time (1997) five of the ten years have passed, and EPZs are expanding all over the world. There were 32 new zones created in the USA in 1996. Also in the last five years 56 have been designated within MERCOSUR. In paragraph 46 the author notes four more starting in El Salvador, and we are aware of many others in Central American, South America, Asia, Africa, and Europe. Trumpeting known falsehoods is not very enlightening.
Balance sheet
72. For multinational enterprises, the search for comparative advantage is at the heart of the world economic system.
72. For multinational enterprises the search for markets is at the heart of the world economic system. Comparative advantage through product differentiation, technological advantage, and high productivity among many other factors is how they go about finding, serving, and maintaining markets.
73. The principal advantage of the processing zones is cheap labour. Governments seeking to attract international enterprises don't hide it: they "sell" their low wages in the prospectuses and publicity materials that they distribute to potential investors. 73. We go back to oversimplification again. In paragraph 60 the ICFTU author laid this false argument to rest when he recognized that the advantage of EPZs is that they offer a "modern, predictable, environment with ready-to-use infrastructure." The low wages are also not a function of the export processing zone. They are a function of the depressed state of development of the country, and the lack of opportunity for the workers. Low wages should be highlighted. They are a fact.
74. In 1990, a group of Salvadorian business men, financed by USAID, placed a very enlightening advertisement in the US sewing industry's trade magazine, Bobbin. Introducing "Rosa Martinez", a pretty young woman sitting at her sewing machine, the advertisement said, with deliberate "double entendre". "You can hire her for 57 cents an hour. She is not only beautiful. She and her companions are known for their industriousness, their seriousness and their ability to learn". 74. We can attest to El Salvadorian workers industry, serious dedication and their ability to learn from direct experience going back two decades. The fact that she is beautiful is politically incorrect in the north, as it does not contribute to her productivity, but it is an important part of the Latin culture.
Cultural differences, particularly in advertising, have caused numerous misunderstandings. We have seen one zone send a brochure printed to look like a very large and detailed ant, to indicate that their workers were as hard-working as ants. It was not received well in the developed countries.
75. For the promoters of the export processing zones, the economic rationale is simple: these zones, by attracting foreign investment, promote national industrial development, enabling a transfer of technology, bringing in currency, improving infrastructure and creating jobs. But is the equation is idyllic as it seems? 75. It is a pretty sound package of benefits that many countries have found to be true. That is why they are so popular now.

76. Nobody seriously questions the contribution the export processing zones have made to job creation. "The only benefit the zones have brought us" writes German Garcia Facundo of the CTD (Democratic Workers' Confederation) of El Salvador, "is the creation of 50,000 jobs in 1994, but they are badly paid jobs carried out in inhuman conditions." In Guatemala, according to the association of exporters of nontraditional products, the number of workers employed in the EPZs rose from 6,500 in 1986 to 70,000 in 1992. 76. It is good to know that in paragraph 3, when the "many experts" questioned the employment gains of zones, that neither they nor the author had been serious. Jobs in EPZs are generally higher paid than jobs in the rest of the economy as was pointed out in our paragraph 67, working conditions are generally better also. They are often not the same as worker standards in developed countries, and that is why we must encourage them in their development. It is also easy to estimate that these 120,000 export jobs and the 240,000 indirect jobs resulting from them are now feeding a minimum of one million people in Central America -- whether they are in EPZs or not.
77. As it is usually estimated that one job created in an EPZ leads to the creation of one job outside the zone, the impact is far from negligible, particularly in economies that traditionally have high levels of unemployment and underemployment. While some trade unions, such as the Workers' Confederation of Cyprus, have a positive view of the export processing zones and believe that "they introduce new occupations and skills", the zones' record in terms of workers' training and the transfer of technologies tends to be negative. Working conditions clearly illustrate this: these enterprises, notes the ILO (San Jose, April 95), are very much cost-oriented, and are more interested in keeping labour costs to a minimum than improving the productivity of labour". 77. One export industry job results in about two indirect jobs in a community. In New York City in 1972 it was about 2.7; in India in the 1970s it was said to be 7; in Puerto Rico in the 1960s it was 1.86; on the Mexican side of the US border in the 1980s it was 2. But it is not one. Anyway, we agree it is far from negligible.
Unions blame the pioneering garment industry for not transferring technology. But the lady at the sewing machine who sees the young sewing machine repairman making good money and leading a better life, gets the idea that maybe her children should get an education -- and dedicates herself to seeing that they do. And that is no small accomplishment!
"...training and the transfer of technologies tends to be negative." But these are economies that have high levels of unemployment. It is not plausible that being unemployed provides more training than being employed in a factory environment.
Mark Lester showed that in Penang, Malaysia, the transfer of technology from these pioneering sewing and electronics assembly industries was considerable. (Reference; Lester, Mark, 1982. "Export Processing Zones and Technology Transfer in Malaysia." Journal of The Flagstaff Institute 6(1): 1-37.
78. The maquilas hire young women with little training and fire them after a few years. The Central American institute for labour research (ICAL) states quite clearly that "the export processing zones do not contribute to the industrial development of the countries in which they are established. These enterprises are characterised by their low level of technology transfer and by monotonous tasks that do not allow workers to develop new skills". (Instituto Centroamericano de Asesoria Laboral, ORIT seminar, Santo Domingo, February 1994). 78. At the Export Processing Zones at Kaohsiung, Taiwan, one can see 50,000 workers, all quite highly skilled, in three EPZs. They started sewing in the early 1960s (at wages of US$0.16 per hour) and grew out of it by about the mid-1980's (wages at $3.00 per hour). Since then, they have been requiring high levels of education to qualify for the high-tech factories in the zones (wages at $5.00 per hour). Each year they import US$2 billion of components and export $4 billion of product -- or value added and exported per worker of $40,000/year. The nature of garments is that value added and exported per year is closer to $5000/year per worker. Industrialization has to begin somewhere!
The EPZs of Taiwan have produced net exports of about $30 Billion since their founding -- or about 1/3 of Taiwan's present positive foreign exchange position, one of the highest in the world. Pretty good for a population of 20 million!
79. Currency earnings are not particularly high. A study carried out by the ICFTU and its regional organisation for Asia and the Pacific (APRO) in six countries of Asia (Bangladesh, China, India, Malaysia, Philippines and Sri Lanka) found that in 1995 "export income is often exaggerated in official figures. In fact the statistics often ignore the large-scale importation of the products needed to assemble goods in the zones. 79. See our paragraph 78 for the current EPZ standard set by Taiwan over the past 30 years. All the countries in the ICFTU study are at the lower end of the EPZ learning curve. Taiwan does not ignore the cost of imports. The reader is referred to Taiwan EPZ statistics -- probably the best set in the world.
80. For example, while in one year Sri Lanka recorded a gross export income of 250 million dollars from its EPZs, on closer examination, it appears that at the same time its imports amounted to the equivalent of 174 million dollars". Bo Jonsson, an economist at the ICFTU, explains that "our research shows that net export income amounts to barely one third of their gross value. And from that you have to deduct the profits sent home by the companies." 80. The pioneering garment industry. See our paragraph 78. This is no great revelation since even in the industrial world the value added in a manufacturing facility is normally between 25% and 50% of the final selling price. This does not diminish the worth of the product or the activity.

ICFTU: Behind the Wire	WEPZA: Comments and Questions
61. "It is to the inexperienced foreign investor what the package holiday is to the cautious tourist" comments the ILO report with a note of humour. EPZ investors come in many shapes and sizes, and some even come from the Third World. The multinationals are not all from the countries of the North either: more and more of those setting up in the processing zones are Third World firms, mainly from the NICs, including Korea, omnipresent in Central America. Many textile maquilas in Central America are under the control of Korean or Taiwanese groups who came to the region mainly to take advantage of the export quotas to the United States. More and more enterprises are under local ownership.	61. The ILO tourism analogy is "dead right". After sixty paragraphs of nonsense we find out that there is nothing sinister about the EPZ model after all, just sound development policy of creating a predictable accessible ready to use manufacturing environment. We've known that all along. We also see here that quotas, not low wages, are another reason for firms to open new plants in EPZs, and these are being done by more advance third world countries. It is encouraging to see that the lessons of development are being learned all over the world and the centuries of suffering of the people in the least developed countries may be coming to an end. Perhaps we should give the unions credit for the unintended consequences of their protectionist policies in textiles and garments. By keeping the developed world's consumer prices artificially high through quotas and the multi-fiber agreement, and accepting the lower standards of living for workers in the industrial countries that such policies require, they have provided a profitable gap which the less developed countries could exploit to gain jobs and manufacturing skills. The EPZs of the developing world are grateful for your help!
62. In Guatemala, in 1994, there were 138 Guatemalan-owned maquilas, 11 North American and 53 Korean. Of the 225 enterprises in El Salvador's EPZs, 11 are Salvadorian, 8 Taiwanese, 16 Korean, 13 North American and 1 French, while 56 are "unidentified". The subcontracting and "name borrowing" system complicates the identification of the real owners. But behind the supposedly locally owned enterprises there are often enterprises from the North who have decided they don't want to get their hands dirty, and prefer just to buy the products from them. Their role only emerges when a dispute breaks out.	62. WOW! These data are really encouraging. 70% of the firms in backward Guatemala are locally owned. Only 5% are owned by the oppressive "Gringo" on whom Guatemala is developing a "parasitic" relationship. The ICFTU has provided the data here to refute its own nonsense. Clearly development has taken place, the industry is not an enclave, or run by foreigners. Technology has been transferred, so have skills, and capital. But is this just a ruse by the deceitful firms of the North as the last two sentences imply?
63. In 1994, for example, the American clothing company, The GAP, had to intervene with the owners, mainly Korean, of maquilas in the Continental Industrial Park in Honduras because the strikes provoked by these firms' anti-union policy were disrupting distribution to the United States.	63. Of course not. This example shows indeed the independent nature of all the players, the costs of poor employee relations at some companies, and the responsible nature of multinational companies. The only lesson learned is the whole trading system is working very well, but we suspect this is not the lesson the author intended to show.
Geographical distribution
#64. EPZs are a global phenomenon, but one that is very unevenly spread, in terms of investment and jobs. The industrialised countries only have a few zones, mainly located in poorer or more remote regions: Australia, for example has a "Trade Development Zone" in the Northern Territory (Darwin). In the developing countries, investment in these zones is concentrated in a handful of countries: in 1986, 14 countries out of a total of 45 accounted for 94.5 percent of employment in the zones.	64. One industrialized country, the United States of America, has about 250 general purpose Foreign Trade Zones for import and export trade and another 250 Foreign Trade Factory Subzones in which almost all automobiles and household appliances are manufactured. There are said to be parts from 23 different countries in the average American-produced automobile. A few years ago, the rules were improved to make it easier to manufacture in general purpose Foreign Trade Zones. Data that is not a decade old will find this dominance much reduced.
65. This concentration can also be found at the regional level. In Africa, also in 1986, three countries, Egypt, Tunisia and Mauritius, represented 96.5 percent of employment in the zones. In Latin America, Mexico, Brazil and the Dominican Republic account for 91 percent of employment between them. The processing zones, which the poorest countries are trying to set up as if they will open the door to development like a magic wand, in fact tend to favour the newly industrialised countries.	65. The revolution in EPZs is only 40 years old and has not yet reached more than 100 developing countries. The huge successes of the NICs and a few of the more experienced developing countries account for the skew in distribution of jobs. And they also indicate the yet unrealized potential for change.
Integration
66. Is the question of location symptomatic of the objective assigned to the export processing zones? Have these countries joined the ranks of the newly industrialised thanks to the presence of the zones, or did the international companies choose to invest in the zones because the country's economy already showed signs of dynamic industrial development?	66. This is a very good "chicken or egg first" question. So far the evidence seems to be that the zones came first. Puerto Rico, Mexico, Taiwan, Singapore, Hong Kong, Korea (whose 19 special industrial programs which followed Masan/Iri EPZs are really EPZ systems themselves), Sri Lanka, Mauritius, Dominican Republic, etc. But the installation of EPZs in mature industrial countries, such as those of Central Europe and the C.I.S., and even inside the European Union itself, would seem to be a good idea. Zones work well in the USA so far and will be around for a long time.
67. This is not just empty rhetoric; this question will recur throughout our journey into the world of export processing zones: "it raises far more complex questions" notes the ILO "concerning the links between foreign investment, particularly investment in the export processing zones, and the process of innovation in local industries". The proportion of production and employment in the zone in relation to the rest of the country clearly determines whether it has a decisive or incidental impact, economically, socially, or even politically. When the zones represent, as is the case in Mauritius or Macao, more than three-quarters of industrial employment (1984), they are no longer enclaves; they are the country's whole economy.	67. It will be useful for you to look up a paper "Export Processing Zones in Developing Countries: A Global View" presented at the WEPZA conference at Barranquilla, Colombia in December 1988 and published in the Journal of The Flagstaff Institute Vol. XIII, Number 1, in April 1989. Authors Paula Holmes and Paul Meo of the World Bank concluded, "In the smaller countries (population under 5 million) EPZ employment is now 40% of formal employment in manufacturing. And the very weak data available on internationally- comparable wages does not support the frequent assertion that EPZs pay relatively lower wages than the domestic economy. Clearly EPZs seem worthy of consideration by any small country considering an export drive." [Note: the countries referred to were Barbados, El Salvador, Jamaica, Honduras, Mauritius, Panama and Singapore].
68. The same does not apply when the zones, as is the case in Brazil for example, only represent 1.5 percent of jobs in the manufacturing sector or a minimal proportion of the country's total exports, as is the case in India. According to 1993 figures, EPZs only had a 2.67 percent share of the country's foreign trade. The apparent statistical insignificance of the role of the EPZs does not explain everything, as they may disguise their true impact. In Mexico, for example, the maquilas represent 10 percent of industrial employment, but their contribution to the balance of payments is considerable, far greater for example than tourism. Politically, their presence along the 3,000 km border with the United States is such that they play a strategic role in Mexico's economic policy and its bilateral relations with the United States.	68. The huge populations of Brazil, Indonesia and India make current EPZ efforts seem small. In Brazil and India they have not been a major focus of development. The Brazilian zone in Manaus has been an import zone designed for local regional development. It is not at all surprising that its exports are low. In India zones have had only a limited role, but the Santa Cruz Electronics Export Processing Zone near Bombay did export 87% of the country's electronic exports in the early 80s. Mexico has shown what can be done with a population reaching towards 100 million in the year 2000.
Decline predicted
69. With the advent of globalisation, the EPZ phenomenon is being called into question by the sheer extent of trade liberalisation and the deregulation of economies. "The transnationalisation of the economy" writes the ILO (San Jose) "which includes the opening up of economies, could push the maquiladoras out of the picture. Their competitiveness is based on quotas, subsidies and exemptions which, in addition to lower costs, particularly in terms of labour, have made such investments very profitable. But with the approval of free trade agreements, the whole region is turning into a free trade zone, with no room for special preferential systems.	69. This statement clearly demonstrates a lack of understanding of the nature of the EPZ. It is an investment attraction and management device based on comparative advantage and not on illegal trade or investment subsidies. Quotas, a device of the multi-fiber agreement which operated for many years but is now phasing out, were available to all manufacturers in a country -- not just in EPZs. Because EPZs provide lowest cost industrial quality infrastructure, services, security, and speed to companies, they are unlikely to be eliminated by the extension of Free Trade Areas or Preferential Tariff Arrangements. On the contrary, the increasing complexity of FTAs and PTAs (200 pages of complex rules of origin in NAFTA) will lead the manufacturer to Zones for guidance and support.
70. On the contrary, the global market will lead to global laws of supply and demand, with equal GATT regulations for all. In this new context, the maquila will have a low profile, its only advantage being to provide cheap labour, working in highly exploitative conditions, given that the free circulation of goods will be guaranteed by trade agreements.	70. The "natural" law of supply and demand was, thankfully, discovered by economists 200 years ago, not dictated by GATT or WTO or legislated by anybody. The Commissars in the USSR thought they could do better by planning and dictating from the center, but didn't succeed. As admitted in paragraphs 60-63 these were not the keys to EPZs success, and thus will not be the keys in the future. The paper has moved back to unsubstantiated and inflammatory assertions, which the author must know to be contrary to the facts he himself has explained.
71. "In an interview published at the end of 1991, Daniel Azzini, a United Nations consultant in Uruguay, took a similar view: "the export processing zones are just one step on the road to the globalisation of the economy and their usefulness will decline over the next five to ten years".	71. Mr. Azzini has the right to his opinion, but the author of this ICFTU report knows these predictions to be false. First in paragraph 6 they themselves complain about the "Their continued growth..." The tone of the entire report is that EPZs are a growing menace, and further they would not be a tempting target if they were to wither and die on their own in another five years. Secondly, at this time (1997) five of the ten years have passed, and EPZs are expanding all over the world. There were 32 new zones created in the USA in 1996. Also in the last five years 56 have been designated within MERCOSUR. In paragraph 46 the author notes four more starting in El Salvador, and we are aware of many others in Central American, South America, Asia, Africa, and Europe. Trumpeting known falsehoods is not very enlightening.
Balance sheet
72. For multinational enterprises, the search for comparative advantage is at the heart of the world economic system.	72. For multinational enterprises the search for markets is at the heart of the world economic system. Comparative advantage through product differentiation, technological advantage, and high productivity among many other factors is how they go about finding, serving, and maintaining markets.
73. The principal advantage of the processing zones is cheap labour. Governments seeking to attract international enterprises don't hide it: they "sell" their low wages in the prospectuses and publicity materials that they distribute to potential investors.	73. We go back to oversimplification again. In paragraph 60 the ICFTU author laid this false argument to rest when he recognized that the advantage of EPZs is that they offer a "modern, predictable, environment with ready-to-use infrastructure." The low wages are also not a function of the export processing zone. They are a function of the depressed state of development of the country, and the lack of opportunity for the workers. Low wages should be highlighted. They are a fact.
74. In 1990, a group of Salvadorian business men, financed by USAID, placed a very enlightening advertisement in the US sewing industry's trade magazine, Bobbin. Introducing "Rosa Martinez", a pretty young woman sitting at her sewing machine, the advertisement said, with deliberate "double entendre". "You can hire her for 57 cents an hour. She is not only beautiful. She and her companions are known for their industriousness, their seriousness and their ability to learn".	74. We can attest to El Salvadorian workers industry, serious dedication and their ability to learn from direct experience going back two decades. The fact that she is beautiful is politically incorrect in the north, as it does not contribute to her productivity, but it is an important part of the Latin culture. Cultural differences, particularly in advertising, have caused numerous misunderstandings. We have seen one zone send a brochure printed to look like a very large and detailed ant, to indicate that their workers were as hard-working as ants. It was not received well in the developed countries.
75. For the promoters of the export processing zones, the economic rationale is simple: these zones, by attracting foreign investment, promote national industrial development, enabling a transfer of technology, bringing in currency, improving infrastructure and creating jobs. But is the equation is idyllic as it seems?	75. It is a pretty sound package of benefits that many countries have found to be true. That is why they are so popular now.
76. Nobody seriously questions the contribution the export processing zones have made to job creation. "The only benefit the zones have brought us" writes German Garcia Facundo of the CTD (Democratic Workers' Confederation) of El Salvador, "is the creation of 50,000 jobs in 1994, but they are badly paid jobs carried out in inhuman conditions." In Guatemala, according to the association of exporters of nontraditional products, the number of workers employed in the EPZs rose from 6,500 in 1986 to 70,000 in 1992.	76. It is good to know that in paragraph 3, when the "many experts" questioned the employment gains of zones, that neither they nor the author had been serious. Jobs in EPZs are generally higher paid than jobs in the rest of the economy as was pointed out in our paragraph 67, working conditions are generally better also. They are often not the same as worker standards in developed countries, and that is why we must encourage them in their development. It is also easy to estimate that these 120,000 export jobs and the 240,000 indirect jobs resulting from them are now feeding a minimum of one million people in Central America -- whether they are in EPZs or not.
77. As it is usually estimated that one job created in an EPZ leads to the creation of one job outside the zone, the impact is far from negligible, particularly in economies that traditionally have high levels of unemployment and underemployment. While some trade unions, such as the Workers' Confederation of Cyprus, have a positive view of the export processing zones and believe that "they introduce new occupations and skills", the zones' record in terms of workers' training and the transfer of technologies tends to be negative. Working conditions clearly illustrate this: these enterprises, notes the ILO (San Jose, April 95), are very much cost-oriented, and are more interested in keeping labour costs to a minimum than improving the productivity of labour".	77. One export industry job results in about two indirect jobs in a community. In New York City in 1972 it was about 2.7; in India in the 1970s it was said to be 7; in Puerto Rico in the 1960s it was 1.86; on the Mexican side of the US border in the 1980s it was 2. But it is not one. Anyway, we agree it is far from negligible. Unions blame the pioneering garment industry for not transferring technology. But the lady at the sewing machine who sees the young sewing machine repairman making good money and leading a better life, gets the idea that maybe her children should get an education -- and dedicates herself to seeing that they do. And that is no small accomplishment! "...training and the transfer of technologies tends to be negative." But these are economies that have high levels of unemployment. It is not plausible that being unemployed provides more training than being employed in a factory environment. Mark Lester showed that in Penang, Malaysia, the transfer of technology from these pioneering sewing and electronics assembly industries was considerable. (Reference; Lester, Mark, 1982. "Export Processing Zones and Technology Transfer in Malaysia." Journal of The Flagstaff Institute 6(1): 1-37.
78. The maquilas hire young women with little training and fire them after a few years. The Central American institute for labour research (ICAL) states quite clearly that "the export processing zones do not contribute to the industrial development of the countries in which they are established. These enterprises are characterised by their low level of technology transfer and by monotonous tasks that do not allow workers to develop new skills". (Instituto Centroamericano de Asesoria Laboral, ORIT seminar, Santo Domingo, February 1994).	78. At the Export Processing Zones at Kaohsiung, Taiwan, one can see 50,000 workers, all quite highly skilled, in three EPZs. They started sewing in the early 1960s (at wages of US$0.16 per hour) and grew out of it by about the mid-1980's (wages at $3.00 per hour). Since then, they have been requiring high levels of education to qualify for the high-tech factories in the zones (wages at $5.00 per hour). Each year they import US$2 billion of components and export $4 billion of product -- or value added and exported per worker of $40,000/year. The nature of garments is that value added and exported per year is closer to $5000/year per worker. Industrialization has to begin somewhere! The EPZs of Taiwan have produced net exports of about $30 Billion since their founding -- or about 1/3 of Taiwan's present positive foreign exchange position, one of the highest in the world. Pretty good for a population of 20 million!
79. Currency earnings are not particularly high. A study carried out by the ICFTU and its regional organisation for Asia and the Pacific (APRO) in six countries of Asia (Bangladesh, China, India, Malaysia, Philippines and Sri Lanka) found that in 1995 "export income is often exaggerated in official figures. In fact the statistics often ignore the large-scale importation of the products needed to assemble goods in the zones.	79. See our paragraph 78 for the current EPZ standard set by Taiwan over the past 30 years. All the countries in the ICFTU study are at the lower end of the EPZ learning curve. Taiwan does not ignore the cost of imports. The reader is referred to Taiwan EPZ statistics -- probably the best set in the world.
80. For example, while in one year Sri Lanka recorded a gross export income of 250 million dollars from its EPZs, on closer examination, it appears that at the same time its imports amounted to the equivalent of 174 million dollars". Bo Jonsson, an economist at the ICFTU, explains that "our research shows that net export income amounts to barely one third of their gross value. And from that you have to deduct the profits sent home by the companies."	80. The pioneering garment industry. See our paragraph 78. This is no great revelation since even in the industrial world the value added in a manufacturing facility is normally between 25% and 50% of the final selling price. This does not diminish the worth of the product or the activity.

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ICFTU:Behind the Wire

WEPZA:Comments and Questions

ICFTU:
Behind the Wire

WEPZA:
Comments and Questions