The Impact of the 1985-2000 Trade and Investment Liberalisation On
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GRADUATE INSTITUTE OF INTERNATIONAL STUDIES THE IMPACT OF THE 1985–2000 TRADE AND INVESTMENT LIBERALISATION ON LABOUR CONDITIONS, EMPLOYMENT AND WAGES IN MEXICO Ph. D Thesis grade of Doctor in International Relations Gloria Moreno-Fontes Chammartin (MEXICO) Thesis no. 675 Geneva 2004 i Copyright 2004 by Gloria Moreno-Fontes Chammartin Gloria MORENO-FONTES CHAMMARTIN Sur le préavis de M. Richard Blackhurst, Professeur associé, de M. Pierre Du Bois, Professeur à lInstitut, et de M. Claude Auroi, Professeur à lInstitut uni- versitaire détudes du développement (IUED), le Directeur de lInstitut univer- sitaire de hautes études internationales de Genève, agissant au nom de la Commission mixte de lUniversité et de lInstitut, composée des Doyens des Facultés de droit, des lettres, et des sciences économiques et sociales, autorise limpression de la présente thèse sans entendre par là exprimer dopinion sur les propositions qui y sont énoncées. Genève, le 4 octobre 2004 pour la Commission mixte: Professeur Philippe Burrin Directeur Thèse N° 675 ii FOREWORD The process of trade and investment liberalization in Mexico, especially since December 1989, placed considerable pressure on Mexican employers and labour force to adjust to new international competitive trends. The present report covers the period 1985-2000 and concentrates on providing information on how the Mexican labour force fared after the trade opening. It presents information on how liberalization affected the different economic sectors, how employment fluctuated with the opening of the economy, how firms were changing in terms of economic performance and how firms responded in terms of wages and employment status adaptation to the trade liberalization process and movement in the economy due to the structural adjustment process. It also addresses questions on Mexico’s strategy to lower labour costs through greater labour flexibility in order to obtain a comparative advantage in the creation of a more liberal trade environment. Acknowledgements are due to my husband, Eric Chammartin, and daughter, Nylsa Darlène Chammartin, for their supporting care and loving patience in providing me the necessary time free to achieve this work. Special thanks are also due to my family in Mexico, Mother, Father, brothers and sisters for their valuable moral support. Without my family’s encouragement to continue, I would have probably given up since during most of the writing of the thesis I was working full time, and I really had moments where I thought that I just could not continue with such a heavy workload. Gloria Moreno-Fontes Chammartin KKK Table of Contents I. Introduction............................................................................................................... 1 II. Pre-Trade Liberalisation Period........................................................................... 4 A. Before August 1982 ........................................................................................................ 4 B. End of 1982–June 1985 ................................................................................................ 14 III. Post Trade-Opening: Joining GATT and NAFTA ........................................... 17 A. July 1985 and Mexico’s accession to GATT............................................................... 17 B. The consolidation of trade liberalisation policies (December 1988- December 1994) . ....................................................................................................................................... 28 1. NAFTA’s birth (January, 1994) ............................................................................................ 34 2. NAFTA’s labour parallel agreement and complaints presented ............................................. 40 3. The New 1993 Foreign Investment Law and the December 1994 Crisis ................................ 46 C. Economic Recovery and Trade Diversification until December, 2000..................... 51 1. Another difficult adjustment process ..................................................................................... 51 2. Trade and foreign investment agreements with the rest of the world...................................... 54 IV. Effects on the Labour Force of the Trade Liberalization of Goods, Investment and Services ............................................................................................................................. 57 A. Total employment......................................................................................................... 58 B. Formal Employment .................................................................................................... 62 C. Informal Employment.................................................................................................. 68 D. Employment flexibility levels....................................................................................... 76 1. Unemployment, underemployment and other indicators........................................................ 77 2. Levels of employment flexibility in trade-related sectors....................................................... 83 V. Manufacturing Goods and Foreign Investment as a Substitution to Agricultural Goods and Oil’s Income?........................................................................................................ 91 A. Imports-exports of goods and services’ growth ......................................................... 91 B. Direct foreign investment absorption ....................................................................... 102 VI. Other Important Employment Issues...................................................................... 108 A. Total employment distribution by size of establishment ......................................... 108 B. Women’s participation in export-oriented employment and child labour............. 111 VII. Employment Fluctuations per Sector and Subsector according to Growth in Exports-Imports and Foreign Investment............................................................................ 116 A. The primary or agricultural sector........................................................................... 116 1. Introduction .........................................................................................................................116 2. Before 1992 .........................................................................................................................117 3. The law reform ....................................................................................................................122 4. The agromaquila and U.S. main advantages .........................................................................126 5. NAFTA’s main provisions concerning the sector .................................................................127 6. Agricultural wages...............................................................................................................129 7. Who have been the winners of the game?.............................................................................130 8. What could have been done better? ......................................................................................130 B. The secondary or industrial sector............................................................................ 132 1. General trends......................................................................................................................132 KX 2. Maquiladoras .......................................................................................................................140 3. Evolution by Subsector ........................................................................................................147 a) Metal products, machinery and equipment.......................................................................147 (i) Automobiles, trucks and auto parts...................................................................................149 (ii). computer industry and other electric and electronic goods..............................................152 b) Chemicals, rubber and plastics subsector.........................................................................154 c) Food, beverages and tobacco ...........................................................................................155 d) Textiles, clothing and leather...........................................................................................157 e) Basic metals ....................................................................................................................161 f) Four other manufacturing subsectors ...............................................................................162 C. The tertiary or commerce and services sector.............................................................. 164 1. Some facts ...........................................................................................................................164 2. Trade Development of Services............................................................................................167 VIII. The Impact of Trade Liberalisation on Wages, Income Distribution and Poverty ............................................................................................................................ 171 A. Liberalization effects on wages.................................................................................. 171 1. General ................................................................................................................................171