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Maquiladora Manufacturing 


PART I. 

 

International Production Sharing can be viewed as the value-added activity performed by an organization involving one or more parties located in different countries, each sharing the benefits of its participation. The "Maquiladora Program" is considered a successful example of international production sharing in which a country (Mexico) shares its resources, mostly labor with other international organizations (U.S. firms) in order to establish a linkage and become a participant in the "world economy." This paper uses statistics from the U.S. and Mexican sources and interviews with Maquiladora managers, consultants and development officials. It explains the origin of the program, its regulation as operationalized by the Mexican law with emphasis on its impressive growth and on the competitive advantages of the participating firms.

International Production Sharing

Industrialization has been considered one of the most significant aspects of wealth on a global scale. A special form of industrialization is International Production Sharing (IPS). This view of growth is an approach taken by many nations to foster their economic development. Under this concept, producers in one country share aspects of the production process with foreign subsidiaries, affiliates, contractors, or subcontractors in another country in order to achieve an improved competitive position. The principal measurement of improvement has been cost effectiveness. Production sharing, in particular, when realized between developed countries, often involves the combination of technologies and/or research facilities on an equal to equal basis. However, in situations involving advanced industrial economies with less developed countries like the case of the Maquiladora Program, IPS often involves the combination of very different resources. The developed country provides or performs the most sophisticated and capital-intensive functions while shifting or sharing the labor-intensive operations to the less developed counterpart. Under this type of arrangement, both countries benefit from their shared efforts. Employment is created or sustained in both countries. High value, high skill and high technology content jobs concentrate in the developed country while lower cost (labor) jobs are made available in the less developed country. This arrangement makes final products more competitive in the global market. The resulting improved competitive position stimulates markets, increases employment and per capita income for both parties. Besides, the less developed country acquires labor skills, and foreign exchange needed to purchase imports or to service its foreign debt. The U.S. uniquely contributes with leadership and access to its huge market when American firms get involved in production sharing relationships. To the extent that the future success of U.S. industry in the world economy lies in the increased use of its comparative advantage in high technology and advanced or sophisticated labor skills, the use of production sharing will continue to promote further U.S. affluence.

There is no universal and easy path toward industrialization; however in some parts of the globe, IPS has been a catalyst, a

stepping stone, or a mechanism used effectively to promote economic development. The newly industrializing countries of Asia (Korea, Taiwan, Hong Kong and Singapore) are prime examples. The fundamental reasons most frequently cited for the observed trends in international production sharing are:

1. the decline of U.S. corporate hegemony in the new world economy

2. the rise of foreign competition

3. the search for new competitive strategies

4. the change in the global political system. The overall objective and justification of production sharing is to increase total production efficiency through transnational operations.

Generalized System of Preferences (GSP)

The GSP is a program of duty-free tariff preferences granted by the U.S. to some countries in order to facilitate their development by encouraging diversification and expansion of their exports. The GSP is an option for production sharing to the extent that U.S. manufacturers either utilize imported components in the domestic manufacture of goods or send components abroad for assembly and re-export back to the U.S. under GSP provisions. Selected products from Maquiladoras enter the U.S. free of duty under the GSP for which Mexico is eligible as a beneficiary developing country.

Subheadings 9802.00.60 and 9802.00.80

Another major U.S. program that supports production sharing consists of Subheadings 9802.00.60 and 9802.00.80 of the Harmonized Tariff Schedule of the United States (formerly Tariff Schedules of the United States, items 806.30 and 807.00). These Subheadings allow for the duty free treatment of the value of U.S. materials and/or components sent abroad for processing or assembling and returned to the U.S. as articles for further processing or assembled and returned back as completed articles or articles partially assembled and returned back to the U.S. for further assembly. Most of the production sharing under HTS Subheadings 9802.00.60 and .80 takes place in the Mexican Maquiladora Program.

To be Continued


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