#50 – Inside Our Industry – What Are Maquiladoras, and How Are They Used by U.S. Manufacturers?Posted on
If you are involved in manufacturing, you most likely are familiar with maquiladoras. NAFTA and USMCA have contributed to the boom of these manufacturing plants. Following is a great explanation of maquiladoras from thomasnet.com. Click on the Full Story link at the bottom for the entire explanation.
What Are Maquiladoras, and How Are They Used by U.S. Manufacturers?
Located in Mexico, maquiladoras are foreign-run assembly plants that import materials and machinery duty-free then export finished products to other countries.
Three key reasons U.S. companies make use of maquiladoras are:
- Inexpensive labor costs compared with the USA
- Low supply chain costs compared with using Chinese and other overseas factories
- Tax advantages.
- Between 2000 and 2020, the number of maquiladoras located in northern Mexico jumped from 2,000 to 3,000 factories.
- Nearly 90% of maquiladoras are in U.S.-Mexico border zone states including Baja California, Chihuahua, Coahuila, Nuevo León, Sonora, and Tamaulipas.
- Maquiladoras tend to be located near airports, railroads, shipping ports, and major roads.
- Maquiladoras are commonly paired with a U.S. city over the border, which is why the concept is also known as the “Twin Cities Program.” Most twin cities are within 20 to 30 minutes of each other.
- The industry employs more than 1.13 million Mexicans, accounting for more than 15% of Mexico’s manufacturing jobs.
- With hourly wages as low as USD $3.50, U.S. businesses save 40% to 50% in labor costs by using maquiladoras.
Brief History of the Maquiladoras System
The maquiladora system was created in response to the end of the Bracero program, which allowed Mexican agricultural workers to work in the U.S. seasonally. When the program stopped in 1964, the Mexican government created the Border Industrialization Program (now known as IMMEX) to attract foreign investment and address unemployment.
The maquiladoras system didn’t truly take off until tariffs were removed with the ratification of NAFTA in 1994. Under the conditions created by NAFTA, the number of maquiladoras boomed.
Industries serviced include aerospace, appliances, automotive, clean energy, apparel, consumer products, electronics, furniture, industrial, medical devices, metal mechanics, and textiles.
Approximately 90% of the policies under NAFTA have remained the same under USMCA, with the main change being that automotive companies must build vehicles with 75% of their parts made in North America (up from 62.5% under NAFTA). Other changes include higher wages to meet new labor requirements: 40% to 45% of vehicle parts must come from plants that pay $16 an hour or more on average.
Maquiladora status – which qualifies factories for foreign ownership and duty-free imports – is determined by the Mexican Secretary of the Economy.