Maquiladoras in Mexico

What are Maquiladoras?

Maquiladoras in Mexico are factories that operate under preferential tariff programs established and administered by Mexico and the United States. Also known as a maquila, foreign companies that produce goods receive special tax breaks on certain imported goods and raw materials from Mexico’s government when they establish a maquiladora. In other words, assembly components, materials, machinery and equipment for production purposes used in maquiladoras are allowed to enter Mexico duty-free.

The Maquiladora Program, now referred to as the Immex program was introduced to improve the border region’s employment rates as well as attract foreign investment, mostly for manufacturing operations. However, constant changing Mexican laws, in addition to the current reconsiderations of NAFTA (North American Free Trade Agreement) or its pending pivot to USMCA (United States Mexico Canada Agreement) continue to make management of a maquiladora in Mexico confusing. Labor in Mexico is inexpensive and courtesy of NAFTA, custom fees, tariffs and taxes are a much lower cost, which helps benefit the profits of corporations.

A Brief History of the Maquila Industry

The history of the Maquila Industry is a byproduct of the Bracero Program, which allowed millions of Mexican male workers to come to the United States on short-term, seasonal labor contracts, primarily in the agriculture sector. Created in 1942, this program was conceived as a solution to the labor shortages due to World War II. Between the years 1942 and 1964, there is an estimated 4.6 million signed contracts making it the largest U.S. contract labor program.

When the Bracero Program ended in 1964, the Mexican Government launched the Border Industrialization Program (BIP), also known as the Maquiladora Program, to combat rising unemployment along the U.S. and Mexico border. In the early 1980’s, U.S. businesses were beginning to lose the competitive advantage over their Asian competitors, forcing many U.S. based manufacturers to seek lower labor costs.

While U.S. companies considered investing options in Asia during this time, the devaluation of Mexico’s currency, growing economic crisis and close proximity presented an opportunity for U.S. investors to establish offshore manufacturing operations in Mexico’s border regions.

About two decades later, the Maquiladora Program became the second largest industry in Mexico, surpassing tourism and coming second to the petroleum industry. The creation and implementation of NAFTA in 1994 boosted the number of maquila plants, especially in US-Mexico border regions like Ciudad Juarez and Tijuana. Then, in 2006 the Mexican Government transformed the Maquiladora Program into the Immex Program.

Maquiladoras (IMMEX) Program Outcome

The fast growth of the maquiladora industry has created over one million jobs, established over 3,000 manufacturing or export assembly plants and has lowered the unemployment rate significantly in areas along the United States-Mexico border. Additionally, maquiladoras in Mexico also comprise fifty percent of all exports from the country. This ensures that manufacturing in the Mexico market will be an integral aspect of the global economy for the foreseeable future.

A shelter program is another way to test manufacturing in Mexico through maquiladora factories. This can create highly efficient and cost effective operations for foreign companies seeking solutions to rising wages and labor costs. As a result of manufacturing goods in Mexico, companies can continue to cut some of the unnecessary costs while still offering quality products to the consumer at low cost pricing.

NAPS is the leading outsourced administration and compliance management company in Mexico helping maquiladoras manufacture in Mexico for over 25 years.