Maquiladoras

Introduced in the mid-1960s, maquiladoras are assembly plants that are located in Mexico and owned by foreign companies. These outsourcing mechanisms of globalization generate 40% of Mexico's exports and are the single most important factor in the Mexican economy. Maquiladoras have changed the geographic landscape and socioeconomic conditions of the U.S.-Mexico border region.

[Page 870]In the maquiladora industry, components, including machinery and nonprecious metals, are transported to Mexico duty-free, where labor-intensive assembly is performed by a low-paid Mexican labor force, and the finished product is then returned to the country of origin. In accordance with sections 806.30 and 807.00 of the U.S. tariff schedule, finished products that are transported back to the United States are taxed only on the value-added cost. Although many countries participate in the maquiladora industry, the United States enjoys the next-door-neighbor advantage of doing business with minimal transportation activity and expense.

Maquiladora businesses are also known as in-bond plants and twin plants. In-bond refers to the in-bond industry, in which components are brought into the country under bonded status, the finished product cannot be sold in Mexico, and reexporting of the product is required. The reexporting requirement was lifted in 1983, first allowing 20% of finished products to be sold within Mexico, and later increasing this allowance to 50% in 1989.

The term twin plant refers to the sets of twin cities on either side of the U.S.-Mexico border, where most of the maquiladoras operate. While the assembly work is done in Mexico, the administrative work, including capital and development, remains in the country of origin. Mexican foreign-investment laws limit foreign investors to minority ownership, but maquiladoras are exempt from these laws, permitting headquarters and ownership to reside outside of Mexico. The twin cities hosting maquiladoras are Mexicali, Baja California/Calexico, California; Nogales, Sonora/Nogales, Texas; Matamoros, Tamaulipas/Brownsville, Texas; Ciudad Juarez, Chihuahua/El Paso, Texas; Nuevo Laredo, Nuevo Leon/Laredo, Texas; Reynosa, Tamaulipas/McAllen, Texas; and Piedras Negras, Coahuila/Eagle Pass, Texas.

The term maquiladora comes from the Spanish word maquila, which is used in reference to the grinding of grain. When someone takes grain to the miller for grinding, the miller keeps a small portion of the resulting flour as payment for the grinding. That small portion is known as a maquila. In the scenario of maquiladoras, when foreign companies bring components to Mexico for assembly, the wages paid for the labor are, in essence, the maquila.

The maquiladora industry was part of the 1965 Border Industrialization Program (BIP), which was intended to raise the standard of living in the border regions.

The maquiladora program was expected to generate foreign exchange for Mexico by stimulating the manufacturing sector, create linkages with the national economy in the interior of Mexico, encourage technical transfer, and create new jobs and provide employment for displaced braceros returning from the United States. (Braceros were Mexican laborers who participated in the guest worker Bracero Program, in effect in the United States between 1942 and 1964.)

Maquiladoras host numerous and varied businesses, such as food packing, electronics, apparel, auto parts, furniture, toys, television sets, refrigerators, and computer keyboards, to name a few. Some of the companies represented include RCA, GE, Sylvania, Motorola, Zenith, Sony, and Samsonite. The industry, which began in 1965 with twelve plants and 3,000 employees, saw a 14% annual job growth rate between 1978 and 1993. By 2001, the industry had peaked, with 3,763 plants and 1.3 million employees. Originally confined to the border region, maquiladoras expanded into the interior of Mexico after 1972.

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