Mexico Maquiladora

Topics: Maquiladora, North American Free Trade Agreement, United States Pages: 5 (1563 words) Published: November 6, 2010
Maquiladora concept
One of the most famous foreign trade zones is Mexico. Decades ago, Mexico established such a zone along its northern border with the United States. Creation of the zone caused development of companies called maquiladoras along the border inside Mexico. The maquiladora import materials or part from the United States duty free, process them to some extent, and export them back to the United States, which charges duties only on the value added to the product in Mexico. The program has expanded rapidly over the five decades since its inception, employing hundreds of thousands of people from all across Mexico who move north looking for work. Maquiladora, derived from the Spanish term “maquiladora” (also written as maquila). It refers to Americas foreign companies operate in the duty-free and tariff-free areas; maquilas import duty-free machinery, equipment, parts and materials, and administrative equipments like computers, and communications devices. Cheap labour is produced as well to organize the plant. Generally, produced products is exported to the countries or region where provides the resources. Mexico's Border Industrialization Program (BIP) was introduced some 25 years ago. At that time, nobody could envisage the dramatic growth of Mexico’s economy. The North American Free Trade Agreement (1994) favourably impacted the growth of maquila plants. During the five years before NAFTA, the maquila employment had grown at the rate of 47%; this figure increased to 86% in the next five years. The number of maquila plants grew from about 2700 to about 3700 in 2001. In the 1970s, most maquiladoras were located around the Mexico – United States border. By 1994, these were spread in the interior parts of the country, although majority of the plants were still near the border. Although the maquiladora industry suffered due to the early 2000s recession, maquiladoras constituted 54% of the US-Mexico trade in 2004, and by 2005, the maquiladora exports accounted for half of Mexico's exports. The industry had become an important source of FDI and foreign exchange for Mexico. (Vietor, Richard, 2007) Advantage

Low costs
After Border Industrialization Program (BIP) was launched by the Mexican Government, one of the most important advantages of the maquila industry is cheaper costs. First, the labour wage is low than average comparing to that in other countries. For example, the labour rates are less than 25% of many U.S. loaded labour rates. Moreover, productivity is guaranteed even with lower cost. The workers who live along the U.S. –Mexico border are well-educated to meet the working requirement. Also, the raw materials to produce in the factories are cheaper whilst comparing to that in foreign production. Placing a production line in other countries, the companies probably need to pay a higher price to purchase the raw materials needed as the foreign investors. But maquila can transport the materials from the United States with low prices. Furthermore, the cost of utilities is relatively low which can save a lot of the operation costs. As a whole, it can increase profits. Tariff free

First, without paying tariff can help maquila saving a lot of money. It is one of the major reasons of attracting foreign investment to set up manufacturing production in Mexico. Also, in the past few years, the United States largely increased the tariff against Chinese products in order to protect the local economy. Furthermore, freight charges from China have significantly increased over the years, which make up for the difference in labour cost. This lead to a slight increasing of development of maquiladora. Close to US

Maquiladora can enjoy the geographical advantage as being a neighbour of the United States. To start with, maquilas have fast access to the United States based technical support like shipping terminal, ports, modern building infrastructure and so on. They are also benefited from a developed transportation and...
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