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| Africa | |
| 101. There are barely thirty export processing zones in Africa. The fact that there are so few reflects the economic isolation of the African continent. Left on the sidelines of world trade, crippled from decades of kleptomaniac political regimes, Africa today attracts barely 5 percent of foreign investment. Yet the continent provides interesting examples of the export processing zone phenomenon. | 101. There are only thirty or so, but the countries that have them are among the most rapidly developing countries of Africa. Too bad there are not more. |
| 102. The case of Mauritius is in a sense a model example, because it has enabled a small isolated island in the Indian ocean to develop an industrial basis that has virtually wiped out unemployment in the country. The Mauritius Labour Congress sees the contribution of the export processing zones as a positive one, even if some of the provisions in the EPZ law are incompatible with the country's labour legislation, such as compulsory overtime, or the low health and safety standards in certain plants. The Mauritian export processing zones a status granted to all enterprises producing solely for export were first created in 1970 and by 1990 employed 90,000 people, bringing 738 million dollars into the country, accounting for 60 percent of total exports. | 102. See Endnote 2 section on Mauritius. |
| 103. Between 1970 and 1990, unemployment fell from 20 to 3 percent. Although some studies point to the fragility of a development model based on exports and the use of cheap, unskilled labour, Mauritius has inspired several other African countries to follow suit. In 1995, the Zimbabwe Congress of Trade Unions (ZCTU) used the Mauritian model, in which trade union rights and national labour legislation are generally respected and wages are higher than the national average, to convince President Mugabe's government not to exempt the Zimbabwean export processing zones from respect of the labour code. | 103. Good policy for EPZs to have brought the lowest unemployment in all of Africa. Below all of Europe too. Also this example proves that the claim that "exploitive conditions is the only advantage" is a lie. Labor rights are respected and wages are above the national average. As we have been saying the EPZ is not the problem. |
| 104. Promoters of export processing zones in Mauritius seek to improve the skills and thereby the working conditions and pay of the workforce. Analysing the social history of the Mauritian EPZs and the protest movements that were active between 1970 and 1979, the ZCTU mission report concluded "at that time, bad working conditions led to a fall in productivity, a fall in quality and a lack of motivation, and consequently a drop in profits for the enterprises who failed to meet the needs of international competition." | 104. Happens all the time. This is what modern management is
all about, and why the Trade Unions who maintain 19th century economics fail to
flourish. The workers know better. Unions leading the protest movements almost
cost workers the chance to have jobs, higher wages and better working
conditions.
It is clear to see that the EPZ is not the institution that is causing problems for workers. |
| 105. "It is not our aim," said Mrs. Wong Ng, director of a promotional agency for the zones, "to attract foreign investors with cheap labour. In the long term, it is always counterproductive, because unskilled workers produce goods with no valued added which do not sell well on the export market. "There are nearly 300 trade unions active in the export processing zones of Mauritius, representing 22 percent of workers. | 105. Mrs. Wong Ng directs MEPZA, the Mauritius Export
Processing Zones Association, charged with improving the efficiency of the Free
Zone as well as promoting it.
About 20,000 workers were thus said to be organized into 300 unions in 1990. This means an average of 66 workers per union. One out of five workers was in a union. |
| China | |
| 106. China is the country that perhaps best illustrates the negative aspects of the export processing zone phenomenon, combining as it does economic exploitation and political dictatorship. Since the introduction of economic reform, nearly 20 million people have been employed in subcontracting firms in small towns and in village enterprises, the four "special economic zones" and the export processing zones along the southwest coast of China. | 106. Do not make the mistake of calling the Chinese Special
Economic Zones (or SEZs), "Export Processing Zones" -- They are not, with few
exceptions. Conceived as whole cities along the coast of China and granted free
zone status, they include the entire population of the city. Three factors
differ them from EPZs:
The original intent of the SEZ was to limit the foreign managers' influence on China's population, and to isolate foreign contact. China recognized these defects and began the creation of a few smaller fenced EPZs within such city zones as Guangzho, Dalian and Shanghai in the 1990s. Also, in the 1980s, it created new Economic-Technological Development Areas, such as TEDA at Tianjin, which are large extensions of open land near cities, but dedicated to industry and eventually to housing workers -- they are the extensions of cities for industry under close supervision. These latter employ highly qualified specialized management for industry attraction and the provision of infrastructure and services. TEDA attracted over US$ 6 billion of investment by 1996. |
| 107. China has converted to a market economy at breakneck speed. Between 1979 and 1992, the number of enterprises financed by foreign capital reached 26,365 in the Guangdong province alone. Nearly 30 sectors are involved: electronics, clothing, toys, shoes, pharmaceuticals... Textiles and clothing still play a predominant role, with vast numbers of subcontracted village workshops springing up: In 1992, there were no less than 20,868 village enterprises employing 1.17 million workers, between 70 and 80 percent of whom are women. Exploitation is the rule. | 107. ICFTU's data must be based on the large city SEZs discussed in our
106. Therefore, they do not apply to the later developments of
true EPZs and the separate industrial zones, such as TEDA. The rule for
deciding which are EPZs and which are not is that "nobody sleeps in an EPZ"
while many people live and sleep within SEZs.
Do not blame EPZs for the alleged problems in SEZs, and particularly not for the general problems of the way labor is treated in rural China. |
| 108. Most research, even that carried out by the official trade union, the All China Federation of Trade Unions, confirms the practice of low wages, often below the legal minimum. Very often, employers do not content themselves with paying very little; they also seek every possible excuse for paying even less. A worker who makes a mistake clocking in is punished by having two days wages deducted. Spending more than 15 minutes in the toilet means a loss of one day's pay. Some enterprises also choose to pay their staff in kind, often in the form of unsold stock. | 108. This was not a problem in the initial SEZ where most workers were employed only indirectly by the foreign investors. The true employer was a Chinese Labor Agency that overcharged the investor by as much as 500% and more by setting the wage rate in the zone at 85% of the prevailing Hong Kong rate. They then paid the local worker at the prevailing China rate, and pocketed the difference for use by the local government. This board was charged by China with "protecting the interests of the workers." Few foreign investors entered the SEZs until this practice was changed. |
| 109. Overtime is very common. Although legislation clearly stipulates that the working week should not exceed 44 hours and that the working day cannot be extended by more than three hours, to a maximum of 36 hours per month, violations are the norm. It is not unusual for workers to regularly work 10 to 14 hour days, for several months. The record for exploitation was reached when workers had to stay in their workshop for three days and three nights without rest. Health and safety conditions are badly neglected by employers. | 109. This has no relation to the EPZs. |
| 110. Despite the censorship imposed on social information, the wall of silence is regularly broken by the announcement of serious accidents in factories in the zones. According to the Statistical Yearbook of China, there were 38,000 fires in 1993, killing 2,496 people and injuring another 5,997. In November 1993, for example, 87 workers were killed in a toy factory in the Shenzhen zone. The owners of this Hong Kong registered enterprise producing goods under the Chicco label had violated nearly every rule in the book: a makeshift electrical wiring system, blocked emergency exits, and no separation between the workshops and warehouses. | 110. Most of these problems are not in EPZs. Modern management recognizes that having a factory burn down is bad business. There are no advantages to this type of practice. At times there are bad managers, and we can cite problems such as this in a North Carolina chicken factory, but it has nothing to do with EPZs. |
| 111. In June 1994, employers at Yuexin Textile had insisted that their workers go into a factory where there had been a fire. 93 of them died when the remainder of the building collapsed on them. The nature of the Chinese political regime is a fundamental aspect of the exploitation suffered by workers in the EPZs. The official trade unions simply obey party orders and impose government policy on workers, a policy based on the oppression of the workforce. Added to this is the corruption of the "trade union representatives" who close their eyes to the most serious violations of laws and regulations in return for bribes or promotion. Often the trade union delegate moves over to the "other side" and is offered a management post. Despite these control mechanisms, indoctrination and intimidation, Chinese factories are far from being havens of social peace. In 1993, according to official figures, there were nearly 10,000 "social incidents" in China, including strikes, demonstrations and protests. | 111. According to China's Economic Reforms, edited by
S.P. Gupta, Yuexin is neither an SEZ nor EPZ.
It is preposterous to claim that the EPZ is responsible for "nature of the Chinese political regime" or for the alleged dysfunctional nature of Trade Unions in China. In fact a focus on EPZs under the circumstances described here is misplaced and counterproductive. A proper focus of the ICFTU would be on corrupt Union officials, politically compliant unions, and perhaps the labor structure of China, and not on institutions that are bringing in world class employers who improve the working conditions of their employees. |
| 3. Mexico: The Maquiladoras | |
| 112. "Every morning, every employer and every owner gets up and asks themselves "how can I get the most out of my workers today?" instead of thinking "how can I increase my productivity today?" -- Enrique Mier y Teran, Director of the Tijuana Economic Development Corporation | 112. This is a statement taken out of context. As shown in paragraph 105, such an attitude is just not true. Enrique's father pioneered Mexican-owned maquiladoras in Tijuana -- exporting pin-curlers to the USA long before there were any industrial parks at Tijuana -- the early 1960s. He did not develop his business by torturing workers and he used the latest machines to improve their productivity. He invested in the workers of Mexico when many would not. |
| 113. The border between Mexico and the United States has its own unique synergy. The 3,000-km "Frontera" has nearly 12 million inhabitants across a 100-km wide strip, in 22 "twin" towns housing the infrastructure needed for the development of maquiladoras such as Tijuana and San Diego, Ciudad Juarez and El Paso. In this desert-like terrain, the maquiladora boom of the '80s gives rise to a 70 percent increase in the population. | 113. The Mexican side of the border increased by more than 70% in population while the US side did not grow nearly as much. This must be a "both sides" estimate. The rate of growth is also similar to the growth of Mexico City and other urban sites in Mexico. The maquiladoras were relatively insignificant except at the US border where they dominated the labor market. |
| 114. The Mexican side has the highest per capita product in the country, while the US side is called "the Third World of the United States": 75 percent of the population in this zone lives below the poverty line (US$ 13,359 per year, per family of four). On the Mexican side, such sums can only be dreamt of. | 114. It is of course important to know that in 1994 poverty level for the USA overall was 14.5%, for California 17.9%, Arizona 15.9%, New Mexico 21.1%, and Texas 19.1%. The poverty level for 1994 for a family of four was US$ 15,141. Source: Tables 730 and 735, Statistical Abstracts of the United States, 1996. |
| 115. The minimum wage calculated in January 1996, on the basis of the daily minimum wage of 20.15 New Pesos, amounts to barely US$ 1,000 per year. The assembly industries along the Mexico-US border, the only place where the first world touches the third, are some of the most significant examples of the export processing zone system. Their origins are fairly unique: the aim was to compensate for the unilateral decision by the United States in 1964 to end the "braceros" or "manual porters" seasonal workers programme, established between the United States and Mexico in 1952. Nearly 4 million Mexicans who crossed the border to take advantage of the US's seasonal demand found themselves out of work. | 115. Union figures on wages in developing countries almost
never include the fringe benefits such as those in Mexico: Social Security
(pension, health care, wedding dowry, funeral expense, etc.), industrial
accident insurance, housing contribution (INFONAVIT) and direct food supplies
which are paid by the manufacturer to the benefit of the worker. In Mexicali in
1997, the total including fringes is US$2400 per year for 1st year workers and
US$3200 for 2nd year (see our paragraph 2).
It was not US$1000 per year in 1996 anywhere in Mexico.
The braceros were Mexican agricultural workers contracted by the U.S. in World War II to work on farms. "Manual porters" is the most quaint translation by an academic from a Spanish Dictionary we ever heard -- it was never used in practice. The AFL-CIO was responsible for the termination of the bracero program in 1964 through lobbying the US Congress-- its last "successful" action against Mexican workers, although it keeps on trying as the reader sees in "Behind the Wire". |
| 116. The "braceros" programme gave way to the "Border industrialisation programme" the first Mexican maquiladora project. The new programme allowed for the import, duty free, of all equipment and manufacturing materials and permitted 100 percent foreign ownership. Following the example of the Asian export processing zones, these new structures were intended to be both a response to the underutilisation of the labour force, an effective means of bringing in currency and in the longer term a structural solution to the problem of unemployment, underpinning the transition from an import substitution strategy to an export-oriented economy. | 116. There goes ICFTU again! -- Academics reading and copying
wrong information from other academics. Mexico had no rule against 100 foreign
ownership of manufacturing companies in 1965, so this was not an element of the
program. The Mexican program followed the Puerto Rican experience more than
Asian that had not reached prominence by 1965. (Note ICFTU's
paragraph 46,
where it states the first zone in Asia was Kandla, which did not start until
1965. Examples usually precede the events they cause!) Mexico pioneered the use
of private EPZs or industrial parks. Asia began to use
private EPZs only in the 1990s. Mexico has never offered exemption from income
taxes, as has all of Asia. The program was aimed at solving a local border
unemployment problem and was not envisioned as a solution to general
unemployment of the country. Later, it forced itself on the political mentality
of Central Mexico by its success.
It is very important to point out that Mexico in over 100 years had no plan nor interest to convert to an export-oriented economy and was unaware in 1965 that in 25 years' time it would be driven to such a policy. The maquiladoras showed the politicians that Mexican workers, Mexican engineers and Mexican managers could compete in world class export industry and caused the change of policy. ICFTU's use of the phrase "underpinning the transition from an import substitution strategy to an export-oriented economy" implies that the government was planning this during 1965-1985 -- it was not. This is very sloppy 20/20 hindsight. |
| 117. There was little foreign enthusiasm until 1971, when new legislation, under President Luis Echeverria, clarified the operating conditions for the maquiladoras, helping to attract the multinationals. The law allowed foreign enterprises to keep control over 100 percent of capital while the domestic market still required a 49-51 percent minimum co-ownership in favour of the Mexican firm. | 117. It took time to build the first private industrial parks at Juarez, Nogales and Matamoros from 1965-1970 and begin serious promotion. But enthusiasm was considerable - reaching 20,000 employees by 1970, 42,000 by 1972 and 100,000 by mid-1974 when a recession occurred cutting employment by year end to 60,000. The "Foreign Disinvestment Law," as it was labeled by Oxford Don Dr. Redvers Opie in Mexico, made an exception to President Echeverria's decreed 51% Mexican majority in all industry and allowed 100% foreign ownership of maquiladoras. It did little to assist maquila development as it merely maintained the existing status for maquila. It did show that Mexico was not planning an export-led growth strategy at that time. |
| 118. The prolongation of the Mexican economic crisis of 1982 led to a gradual relaxation in the laws on foreign investment and a revision of Mexico's development strategy. In 1983, in addition to the usual fiscal advantages (for example, exemption from tax on income), the maquiladoras were given the right to sell up to 20 percent of their production on the Mexican market. | 118. Wrong again! There never was, and there is not
now, any exemption from income taxes granted to the maquiladoras, nor to the
investors in industrial parks housing them.
The 20% import rule was based on paying duty either at the raw materials duty rate on the value of materials actually imported, or at the finished product duty rate with allowance for value added in Mexico -- both good provisions. Second, it was limited to 20% of last year's production. Third, it required a permit in each case from government, which could set the top limit at any percentage up to the 20%. In practice it was a tragedy. The government invited proposals -- received them from 800 maquiladoras -- and after three years delay, granted 2 maquiladoras permission to sell a maximum of 3% of last year's production in Mexico! It is a good example of how government bureaucrats can impede development and reduce employment. |
| 119. The procedure for registering multinational companies was simplified and in 1989 the government of President Salinas de Gortari agreed to the sale of up to 50 percent of the maquiladoras' production on the domestic market, in exchange for the payment of normal duty on imported components. | 119. It was not difficult to register a foreign company in
Mexico in 1960. What was improved?
It would be useful if the Mexican government would publish a listing of which maquiladoras were granted which percentage of access on which product up to 50% after what period of time. NAFTA's arrival wiped out the need for granting such permission. |
| 120. From the beginning of the maquiladora programme, US investors enjoyed considerable comparative advantages: the proximity of one of the most powerful markets in the world; assembly costs at only 10 to 30 percent of US prices; the reduction in the cost of managerial staff, given that the same person can manage a factory on either side of the border; the performance and high productivity of the Mexican workers; a relatively stable political and trade union environment; low wages; the availability of industrial sites with all the necessary services; exemption from direct and indirect taxes, as well as the removal of customs duty. | 120. Japanese and European investors enjoyed the same benefits
with respect to their US markets.
ICFTU left out the most important advantage: the tremendous US infrastructure of West coast ports, road, rail and air along the Mexican border. This gave Mexico access to modern logistics without having to invest in this infrastructure. There is still no road or railroad the length of the border on the Mexican side and only a few flights daily to key cities. (e.g. Monterrey/Tijuana) Regarding union activity, the Massachusetts firm, Transitron, at Nuevo Laredo, Tamaulipas, Mexico, with 1500 workers, was struck in December 1969 for failing to pay the Christmas bonus on time -- a mistake made by a new Massachusetts manager who did not understand Mexico. This gave the AFL-CIO ammunition to use with the US Congress which almost resulted in killing the (806/807) export and return tariff provisions under which maquiladoras operated. Fortunately they failed. Transitron went out of business a few years later and Nuevo Laredo found it difficult to attract maquiladoras for the next two decades. And we repeat: NO EXEMPTIONS FROM TAXES, DIRECT, INDIRECT, INCOME OR WHATEVER WERE GRANTED TO MAQUILADORAS! Normal exemption from customs duties on imported materials destined for export was granted and no export taxes were imposed... ...rights which every country grants to enterprises in Free Zones and Export Processing Zones by definition and by duty drawback for exports in most other cases. Value added in Mexico was dutiable upon entry into the US. |
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