This is the final installment  of an occasional series highlighting the findings of a recent report by the U.S. General Accounting Office on the maquiladora industry and its effect on the U.S. economy.

      The phasing out of maquiladora benefits as part of NAFTA was cited by industry associations as a major factor in the decrease in maquiladora production and employment.

      When NAFTA was signed in 1993, it envisioned fundamental changes to the maquiladora model. The most significant of these changes was embodied in Article 303 of NAFTA, which eliminated duty drawback (or refunds of duties) for inputs of non-NAFTA origin as of Jan. 1, 2001, if the final products incorporating these inputs are to be subsequently exported to another NAFTA country.

      For various reasons, notwithstanding the seven-year grace period provided, the maquiladoras did not develop a network of domestic suppliers in Mexico. As a result, implementation of Article 303 has adversely affected the competitiveness of maquiladoras that rely on non-NAFTA suppliers for inputs and resulted in closure of some maquiladora firms.

            According to officials with the Office of the U.S. Trade Representative, some aspects of the maquiladora program were not consistent with NAFTA’s trade objectives. For example, the duty drawback provisions of the maquiladora program were in conflict with NAFTA’s rules of origin requirements. Under NAFTA’s rules of origin, goods traded among NAFTA partners are allowed duty-free status only when the goods comprise a minimum percentage of North American content. However, the maquiladora program provided duty drawbacks for inputs imported to Mexico from any source, including non-NAFTA countries, undermining the duty-free benefits that North American products were to ...

 ...Continued in the pages of Twin Plant News, Subscribe Today!