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Q:
What is a maquiladora?
A:
The short answer is a maquiladora is a factory or assembly plant
operated in Mexico under preferential tariff programs established
by the U.S. and Mexican governments to encourage the development
of industry in Mexico. Mexico allows materials to be used in
maquilas to enter duty-free, provided the finished product is then
immediately exported out of Mexico. The U.S. in turn charges these
products a much lower tariff than products from other countries.
The long answer is that the Maquiladora program was created on
Sept. 1, 1965, when Mexico President Diaz Ordaz initiated the
Border Industrialization Program, which had been developed by the
Arthur D. Little Co. The program was patterned after a
production-sharing model in use in Portugal. The concept is
simple: each factory would be treated as an individual foreign
processing zone, thereby allowing the plant to import duty free
into Mexico all equipment, machinery and materials that were
production related.
The program coincided with a 1964 ruling by the U.S. Congress
that established a preferential tariff for U.S. made components
that were sent offshore and assembled into finished goods that
were subsequently exported to the United States. Upon their export
back to the United States, export duties would be assessed only on
the value of the imported good, minus the value of the U.S.-made
components (value added).
Specifically, a maquiladora is a status granted by the Mexican
government to an assembly or production plant that exports its
work product out of Mexico. Under NAFTA, however, requirements on
the amount of work product that must be exported out of Mexico
have been removed.
Q:
How do they work?
A:
A
maquiladora typically performs assembly, or sub-assembly,
operations. Components are imported duty free to Mexico, whereupon
a maquiladora performs the assembly needed to complete the work.
The finished product is then exported out of Mexico, or in some
cases to other maquilas where it is used in another assembly
operation. (For example, a wire harness is assembled in Juarez and
then sent to auto assembly operations in Hermosillo or Saltillo
where it is installed in cars and trucks. The finished cars and
trucks are then exported out of Mexico.
Before NAFTA, maquilas were required to export all of their
production out of Mexico so as to avoid creating unfair
competition for Mexican industry, which wasn’t able to compete
globally. However, NAFTA eliminated requirements on how much
production must be exported. Today’s maquilas can sell their
product into the Mexican market, if they choose.
Q:
How many U.S. companies run maquiladoras?
A:
The statistics can be deceiving. About 40 percent of the more than
3,000 maquilas are U.S.-owned. Another 47 percent are
Mexican-owned, however, most of those companies are subsidiaries
of U.S. corporations. It is safe to say about 90 percent of the
maquilas trace their parentage to U.S. firms.
Q:
How do maquiladoras benefit U.S. companies?
A:
The primary advantage for a U.S. company to operate a maquila is
the lower cost of labor in Mexico. Labor typically costs about $21
an hour in the United States, compared to about $5 an hour in
Mexico. Other advantages include more favorable labor law in
Mexico and fewer union-driven work rules.
In other instances, maquilas fill jobs that U.S. workers are no
longer willing to work. Assembly line operations that require
nothing more than simple hand work for eight hours a day
frequently go unfilled in the United States.
Q:
What are the effects on the economies of the United States
and Mexico?
A:
The maquila sector is Mexico’s number two source of jobs. There
is no question that the growth of the maquila industry has been
responsible for the growth of Mexico’s middle class and Mexico’s
ability to recover from the 1994 peso devaluation.
In the United States, the maquila industry has allowed U.S.
businesses to remain competitive with Asian (China, South Korea,
Malaysia) companies offering the same goods for less. Without the
maquila industry, many U.S. companies would have lost the battle
against Asian imports and had to close. Instead, shifting
production to Mexico allows U.S. companies to stay competitive and
expand in other areas. For example, in the years since NAFTA went
into affect, the U.S. auto industry has actually expanded
employment in the United States, while also growing in Mexico.
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