The maquiladora effect: the opportunities for recyclers in Mexico's maquiladora plants are numerous. (International Report).

Maquiladoras (pronounced makeeladoras) are assembly plants that are located both in the U.S.-Mexican border zone as well as in the Mexican interior. The plants manufacture finished goods specifically for export to the U.S.

Non-Mexican corporations generally own the maquiladoras. They take advantage of lower cost Mexican labor, favorable tariff regulations and proximity to the U.S. markets. The maquiladoras are the product of global competition. They put together such items as home appliances and automobiles.

Having started on a small scale in the mid-1960s, the maquiladoras grew dramatically after Mexico revised its economic regulations and signed the North American Free Trade Agreement (NAFFA). Because of special U.S. regulations, American firms pay tariff only on the value added by the assembly of the product re-exported to the U.S. Under NAFTA, the value added to maquiladora outputs typically excludes custom duties, while incoming components and materials have to be of North American origin to be duty-free.

From 1983 to 2000, the maquiladora industry grew at approximately 14 percent annually, and it grew even more sharply with the U.S. economic boom in the late 1990s, according to the Mexican Institute of Statistics and Geography (INEGI).

Last year, 3,527 maquiladora plants employed about 1.2 million workers, accounting for more than $40 billion of finished products shipped out of Mexico. This production accounted for 47 percent of total Mexican exports and consumed more than $30 billion in U.S. made components and supplies. Before the terrorist attacks of September 11, the near-term outlook for the maquiladora industrial activity was for weak growth. Instead, the slumping economy that followed has caused the liquidation of 300 maquiladoras, the loss of 204,000 jobs and the slowdown of Mexican economic growth. However, the long-term prospects for the maquiladoras remain favorable, according to INEGI.

TRADE FLOWS

The changing nature of U.S.-Mexico trade, as well as the concentrated growth of the maquiladora industry in certain areas, determines the nature of the cross-border trade flows.

Where the maquiladora industry is heavily concentrated, as it is in Ciudad Juarez (across from El Paso, Texas), maquiladora trade accounts for as much as 80 percent of import trade with Mexico. Laredo, where 40 percent of the total value of U.S.-Mexico (maquiladora and non-maquiladora) overland merchandise passes, has always been a vital cross-border trading site.

The types of industrial activity in different cities determines both the volume and type of trade through their corresponding ports of entry. For instance, in Ciudad Juarez, where more than 400 maquiladoras are part of the auto, electronic and apparel industry, maquiladora trade consists of motor vehicles, vehicle parts, electronics, clothing and the printing associated with manuals and marketing materials enclosed with the assembled products.

To the east, the Laredo, Texas, U.S. Customs district is one of the busiest land crossings for iron and steel scrap, according to U.S. Census Bureau statistics.

In the first seven months of 2001, $13.9 million worth of ferrous scrap crossed the border in the Laredo region, nearly matching the $15 million export totals in the Buffalo and Detroit customs districts.

MAQUILADORA SCRAP

According to the Ciudad Juarez-based Tarahumara Recycling Association, more than 73,000 tons of recovered materials were collected, processed and recycled from Ciudad Juarez maquiladoras during 2001.

The association's president and legal advisor, Alma Ivon Limas, now prides herself for being at the leading age of maquiladora recycling activities. Founded in 1968 by her father, the association now includes 18 companies collecting ferrous and nonferrous metals, paper, plastics, electronic scrap and other materials. Limas, who used to be a public relations executive, now also manages the association's legal and commercial aspects of recovered materials.

Productos Secundarios Reciclables, a 4,000-tons-per-month recycling company, is one of the top companies providing full services to maquiladoras, including recycling, collection and solid waste disposal. According to president Luis Enrique Valles, for his company to successfully compete for the business opportunities that the maquiladoras offer, he has been driven to become more sophisticated in the way he operates. "Due to privacy concerns and for business compliance, my company currently disposes of a large majority of the solid waste that the maquiladoras from Juarez generate at the New Mexico Camino Real landfill," says Valles. (Many landfills in Mexico are scoured by scavengers, who could conceivably make off with documents that were meant to be disposed of securely.)

Evidence of cross-border recycling activity can be found at El Paso-based EPG Recycling. According to its president Octavio Benitez, "The cross-border recycling activity of the region has allowed me to now be in a position to purchase a top-of-the line, fully automated baler. I need higher efficiencies to bale the different types of scrap the maquiladoras generate."

With the purchase of the baler, Benitez becomes "the top new U.S. client for Spanish baler manufacturer Imabe Iberica," says Luis Miguel Benitez, International Manager for Imabe.

"Historically, Spanish equipment manufacturers like Imabe profited from the growing Mexican recycling industry, now sales have followed [in the U.S.] with the maquiladora equipment needs", says Valles, who also owns Imabe equipment.

Recycled scrap from well-known manufacturers such as Johnson & Johnson, Thomson Electronics, IBM, Dell, KeyTronic, Nokia and others, as well as plastic injection molding components for Toro, Delphi Automotive Systems, Hewlett-Packard, Eureka, RCA Satellite Dish and others, are part of the Ciudad Juarez global recycling business activity.

THE PRINT SIDE

According to the Texas Department of Economic Development, Texas paper merchants and distributors exported more than $1 billion of publishing papers to Mexico during 2000 (excluding packaging paper grades). Even though early figures for 2001 suggest a 4 percent decrease in paper exports into Mexico, mainly due to the slow down in the U.S. and Mexican economies, the scope of the maquiladora-related printing industry is impressive.

Figures from the Mexican Printing & Publishing Industry trade group show that there are 11,383 print shops in Mexico, of which 45 percent are formally engaged in the Maquiladora printing sector. In 2000, they exported $423 million worth of products, 7 percent growth over 1999. Commercial printers serving the maquiladoras produce appliance manuals, computer guides, magazines, retail inserts, catalogs, direct mail, promotional brochures, clothing tags, etc., many of which do not have a stated export value.

But publications such as Newsweek, Reader's Digest, Scholastics children books, and Avon catalogs are also printed in maquiladora plants. "Global printers like Monarch, RR Donnelly, Avery, Transcontinental, etc. are first-class acts and examples of what globalization represents," remarks Marilu Herrera, president of Mexico City-based Recycle de Mexico, perhaps Latin America's largest high grades paper recycling firm.

Since Recycle de Mexico's global clientele requires a total approach to service, the company has acquired the technology, built the infrastructure and provided the training so they can execute the recycling services they have been asked to provide. "We see ourselves as part of the global symphony of recycling markets" Herrera comments.

THE VALUE OF PROXIMITY

Its advocates say Mexico will always have one major advantage over global competitors as a location to manufacture or assemble goods for U.S. consumers. Goods stamped "Hecho en Mexico" (Made in Mexico) are not seaborne for a month while technology changes, as can be the case for Asian or Eastern European imports.

Even though Chinese hourly labor is usually much lower (as much as 85 percent) than Mexican maquiladora labor costs, other factors still work in Mexico's favor. As a result of the growing trade, the transportation, distribution, warehousing and federal customs infrastructures have expanded rapidly on both sides of the border. Bilateral government reports show that along the 2,000 miles bordering the U.S. and Mexico from Tijuana, Mexico to Brownsville, Texas, the population nearly doubled during the 1990-2000 decade. Other studies suggest that an average of 80 percent of the border region economy is maquiladora-related.

For those companies wishing to explore the scrap opportunities of the maquiladoras, the most important asset is flexibility, including adjusting business protocol to get to know and develop partners with local firms that are already recycling successfully.

Keep in mind what Alma Lima and her father have discovered: When maquiladoras entered Juarez, things began to change for the manufacturing world. Labor costs went down. Transportation costs became competitive. Now, American suppliers are closer, productivity is up, product quality is great, communication lines have been enhanced and customers and distribution centers are closer.

With this massive industrial infrastructure built up seemingly overnight, now the recycling infrastucture to serve it is beginning to take shape.

The author, who has worked in the recycling industry on both sides of the U.S.-Mexican border, lives in the Dallas area and is an appointed member of the U.S. Department of Commerce Export Advisory Council and a board member of INARE, the Mexican Recycling Association. He can be reached at [e-mail].