What are Mexican Maquiladoras?
What is a Maquiladora?
A maquiladora, also known as a maquila, subscribes to preferential tariff programs agreed on by the U.S. and Mexico, and is identified as the legal entity in Mexico that manufactures goods in the country through a foreign company. The Mexican government recognizes the benefits derived from foreign companies establishing manufacturing operations in the country and extends certain tax and trade benefits to maquila operations. For example, manufacturing materials and equipment can enter into Mexico duty-free, while Mexican made products exported into the U.S. are at a lower tariff or free. To be eligible to capitalize on tax and trade benefits, Mexican legal entities must satisfy a number of conditions to be considered a maquila operation.
The Maquiladora Program
The Maquiladora Program was established in 1964 to enhance border employment and the border economy of Mexico and the U.S. The program is also meant to continue to attract foreign markets in conjunction with the National Border Industrialization Program - a program that encouraged foreign investment that helped stimulate Mexico's domestic market. In 1994, the Maquiladora Program was altered to fit the North American Free Trade Agreement (NAFTA), and began to work with companies investing in Mexico for its high skilled labor, proximity, and low costs.
Benefits of Maquiladoras in Mexico
With beginnings on the border, these facilities can be established virtually anywhere in Mexico, and the products manufactured must be sold outside of the country. Foreign companies must pay a customs tax if they wish to sell products inside Mexico - a relatively minor inconvenience when juxtaposed against the many other significant benefits that come with manufacturing in Mexico. Mexico also holds 13 Free Trade agreements that allow manufacturing items and finished goods to move in and out of the country without obtaining tariffs.