Relevance of inputs of the Maquiladora industry
A maquiladora is a Mexican corporation which operates under the maquila program approved by the Ministry of Economy. The maquila program entitles the company to foreign investment and allows it to temporary duty free import of machinery, equipment, parts and inputs. Then, maquiladora's products are exported (directly or indirectly) through sale to another maquiladora or exporter. Among most frequent maquiladora's production is the manufacture of a product using various countries' materials (including Mexico) and/or the assembly of temporarily imported parts. Any conceivable combination of the various phases involved in manufacturing could be done, even non-industrial operations, such as data-processing and packaging.
The maquiladora industry has played an important role in Mexico's economic growth for more than three decades. The program was created as an effort to industrialize the northern Border States in 1965, and since its implementation, it has been an important source of technology development and job creation. Currently, 3,665 plants generate more than one million jobs.
Since NAFTA's implementation in 1994, maquiladora's exports have almost quadrupled, going from $21.8 million to $76.8 million in 2003. This industry accounts for 48.5% of Mexico's total exports, being the U.S. its main destination. This can be attributed, among other important factors, to the reduced freight cost and turnaround short time between both countries.
The Mexican maquiladora industry experienced a temporary set back in 2001, as a consequence, among others, of the U.S economic slowdown. Production of manufactured goods in the United States depends on the performance of domestic consumption; thereby Mexican exports are affected by North Americans spending behavior.
From October 2000 to February 2002, employment fell, in average, 1.48% per month, accumulating 21.3% in that period. During the previous sixteen months, employment had grown 18.8%. Additionally, the number of establishments from July 2001 to April 2002 fell 14.8% compared to the growth of 3.7% from the previous ten months.
The Ministry of Economy, in an effort to offset the economic worldwide recession consequences, is supporting the Mexican exporting sector through promotion, deregulation and simplification of administrative procedures.
In order to consolidate the export maquiladora industry, Mexican authorities have defined several strategies to promote productivity and competitiveness in the manufacturing sector. Among them:
Article 303 regulates duty drawback programs that refund or waive customs duties on materials used for the manufacture of goods subsequently exported to a NAFTA party. PROSEC gives preferential tariffs on key production materials used for manufacture in 22 sectors: electrical, electronics, furniture, toys, footwear, metals and mining, machinery and equipment, photography, agricultural machinery, chemicals, rubber and plastics, steel, pharmochemical, pharmaceuticals and medical equipment, transportation equipment (not cars), paper and cardboard, wood, leather and leather products, automobiles and auto parts, textile and apparel, candies and chocolates, and coffee, as provided in the Decree that Establishes Sectorial Promotion Programs (December 31, 2000). The programs, which are modeled after the “end-use tariff provisions” in U.S. and Canadian law, will allow maquiladoras to import inputs paying duties that in most cases will not exceed 5%.
The programs are sector specific and imports can only be used to produce goods contained in a specific program. The programs are flexible because import duty levels and products included can be modified. Firms should register in one or more programs that include inputs used in their production of final goods. Participants registered in each program will only be able to import inputs listed in that specific program paying lower duties.
2002 pointed out the recovery of the maquiladora industry. Employment increased in 3.6% and the number of establishments in 0.8%. Some of the states that have experienced an increase in their production volume were Durango, Tlaxcala, Jalisco, Coahuila; Morelos; Nuevo Leon, San Luis Potosí, Queretaro and Yucatan.
On October 2003 changes to the Maquiladora decree were published on Mexico's Official Gazette. The new decree pretends to impel the industry through different incentives for maquila and export corporations, including tax incentives, expediting processes and procedures with more efficiency, such as giving up to 15 days for maquilas authorization. It is also looking for maquila to become more competitive by reducing operative and administrative costs of corporations.
The reforms in the maquiladora industry will reinforce small and medium Mexican based corporations, integrating them to the chain of suppliers of export corporations, allowing maquiladora to increase its added value and to contribute with the country's competitiveness.
Mexico offers for the establishment of maquiladoras a fundamental and unique comparative advantage which derives from its geographic location, which allows to supply “just in time” to the North American market, with easy access to high quality inputs at competitive prices and to a young and skilled labor force. Its unique broad network of free trade agreements, securing free access to the markets of North America, the European Union, the countries of the European Free Trade Association, Israel, and ten countries in Latin America, provides additional advantages to invest in Mexico.