THE BORDER BABIES

The photo is at once sad and gruesome, but Janet Ramirez treasures it. Dressed in a white hospital gown, an IV hooked up to her arm, the mother clasps her newborn baby, Maria Guadalupe. Only if you look closely can you see that the baby's face is a death mask; a white cap discreetly covers the gaping hole in the back of her skull.

It has been more than five years since a ghastly plague passed through Brownsville, Texas, crippling and killing dozens of newborn babies. From 1988 to '92, 25 children were born with the spinal-nerve defect called spina bifida; more than 30 others had almost no brain at all--a related and fatal neural defect called anencephaly. "It would look like somebody took a knife and just whacked the top of their head off," said Brownsville physician Manuel Guajardo.

Despite a massive investigation by the U.S. Centers for Disease Control and the Texas Department of Health, the cause of this epidemic was never identified. But families of the dead and deformed babies filed a lawsuit blaming pollution from U.S.-owned factories located just across the Rio Grande in the heavily industrialized Mexican town of Matamoros. The defendants all denied causing the epidemic of birth defects. But just days before the case was scheduled for trial in 1995, the last of the companies agreed to settle the lawsuit. Dozens of companies paid a total of $17 million to the families--the price, said Jeff Roerig, an attorney for several border factories, of avoiding an emotional jury trial that could have cost them millions more.

Many of the companies maintained that they have followed U.S. environmental laws, even when operating outside U.S. borders. As a corporate manager put it when he was deposed in 1994, "Our instruction was to run our plant based on...U.S. environmental standards." That may be true now, since many companies cleaned up their worst environmental excesses after the outbreak of fetal deformities, which ended as suddenly as it began. But internal corporate documents and previously unreported pretrial testimony obtained by CNN's Impact suggest that these corporations were using Mexico's border region as a private dumping ground.

Nearly 100 U.S. corporations--so-called maquiladoras--opened factories in Matamoros to take advantage of Mexico's cheap labor and special U.S. tax breaks. It appears they also took advantage of Mexico's lax environmental enforcement to contaminate the region with hazardous waste. Among the defendants in the case:

GENERAL MOTORS The automaker moved three of its factories to Matamoros, where, a GM manager admitted in a 1989 internal memo, the company sold barrels contaminated with toxic residues to a metal recycler. "This is in direct violation of the law," the manager wrote. A GM study found solvents, which can be carcinogenic and may damage developing fetuses, in GM's wastewater discharge. Still other documents show that GM used three and four times the amount of solvents in Mexico as it did at a comparable plant in Dayton, Ohio. "Not allowed in Dayton," noted a handwritten GM memo. The automaker said in a 1995 deposition that this was allowed along the border because the air was considered cleaner there and so didn't require special pollution-control measures.