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1 (Updated January 27, 1998)

handle is hein.crs/crsaayc0001 and id is 1 raw text is: 98-66 E January 27, 1998 Maquiladoras and NAFTA: The Economics of U.S.-Mexico Production Sharing and Trade J. F. Hornbeck Specialist in International Trade and Finance Economics Division Summary Debate continues over the benefits of U.S. trade with Mexico, the North American Free Trade Agreement (NAFTA), and particularly maquiladoras, or cross-border production sharing plants. Maquiladoras generate a large portion of U.S.-Mexico trade, yet the economic effects are not widely understood. Many believe there is no benefit to such trade because it leads to the loss of U.S. jobs, production, and wages. Maquiladora products, however, have a high U.S. content that in addition to fostering productivity gains in both countries, may actually minimize the loss of U.S. jobs by allowing the higher paying jobs to stay at home rather than be shipped entirely abroad, for example, to Asia. Still, adjustment to globalized production creates challenges, particularly in addressing the plight of low-skilled workers who become unemployed. Research, however, continues to point to domestic rather than trade policy for the likely solutions, particularly the emphasis on education and training programs. Mexico is the United States' third largest trading partner, accounting for 9% of U.S. world trade. The significance of these figures, however, rests not so much on the trade itself, but on the long-term economic integration that it reflects. The maquiladora program emerged in the 1960s to encourage such integration, a theme that was further embraced and broadened three decades later with passage of the North American Free Trade Agreement (NAFTA). Critics contend that both arrangements hurt the U.S. economy because they encourage businesses and jobs to migrate south of the border.1 This report examines the economics of maquiladoras, NAFTA, and deepening integration between the United States and Mexico, particularly the effects and implications of production sharing.2 1 For a current example of this thinking, see: The Economic Policy Institute, et. al. The Failed Experiment. NAFTA at Three Years. June 26, 1997. pp. 3-6. 2 For a broader discussion of U.S. trade with Mexico, see: U.S. Library of Congress. Congressional Research Service. NAFTA, Mexican Trade Policy, and U.S.-Mexico Trade: A Longer Term Perspective. CRS Report 97-811 E, by J. F. Hornbeck. Congressional Research Service oe The Library of Congress CRS Report for Congress Received through the CRS Web

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