NAFTA and CAFTA
Multinationals and the maquila mindset in Mexico’s Silicon Valley
The damage of NAFTA for Mexico and how to increase benefits from FDI
Authors:
L. Zarsky; K.P. Gallagher
Publisher:
Global Development and Environment Institute, Tufts University, 2007
In joining the North American Free Trade Agreement (NAFTA), Mexico expected a rise in foreign direct investment (FDI) that would bring environmental benefits through the growth of cleaner industry sectors, transfer of technology, and better management practices. This article examines why this was not the case.
Mexico’s trade policies favoured foreign investors and the government put blind faith in market forces. Authors outline four major pitfalls of this approach:
- the information technology industry is highly concentrated creating barriers to entry for newcomers such as Mexico
- intense cost pressures inside the industry undermine the sustainability of low-wage assembly work
- there is little skill acquisition in assembly work
- small profit margins imply that firms few resources for technological upgrading
Policy recommendations for increasing benefits of FDI are provided, they include:
- set national development goals that integrate FDI into overall development policy
- adopt policies to build the capacity of domestic firms to form part of supply chains
- to encourage long-term commitments from multinational corporations to link the local supply base and markets to their production processes
- develop proactive environmental policies that ensure compliance and adoption of best practices
- encourage domestic IT capacity-building rather than relying exclusively on FDI and technology transfers
