Maquiladora Manufacturing 



The Maquiladora Program began in September of 1965 when President Gustavo Diaz Ordaz announced a Border Industrialization Program (BIP) to address the serious problems of unemployment in the northern Mexican border region. Unemployment problems had intensified with the 1964 termination of the Bracero Program which had permitted Mexican farm workers to work in the U.S. The original objectives of the BIP program remain valid today and can be summarized as: 1) to solve the unemployment problem, 2) to generate foreign exchange to improve the Mexican balance of payments, and 3) to attract foreign capital and technology to expand the industrial base in Mexico.

A significant factor used by Mexico to promote the BIP was the waiving of several provisions of its strict foreign investment regulations to allow 100% foreign ownership of firms incorporated under this program. Mexican law also authorized the duty free importation into Mexico of all machinery, equipment, components and raw materials required by Maquiladora firms under the provision that all finished products be exported out of Mexico. In 1972, a presidential decree authorized the establishment of maquiladora plants anywhere in Mexico.

From its inception in 1965 until the 1982 Mexican economic crisis, the Maquiladora Program evolved and grew significantly although it was not well known or publicized. It was considered by some Mexican politicians as an "ideological embarrassment" and was scarcely mentioned, even in government documents. In 1982, as a result of the worldwide decrease in oil prices, Mexico suffered enormously. Severe reductions in foreign income occurred in the two major producers of foreign exchange, namely oil and tourism. The peso was allowed to float and had large devaluations in a few months. Industrial production dropped, and the banking system was nationalized. Mexico also experienced a significant reduction in its GNP.

In 1983, the new government headed by Miguel De La Madrid Hurtado recognized the importance of the Maquiladora Program in the recovery efforts of the nation. Although the Maquiladora Program represented a small part of Mexico's productive capacity it was a major sustaining element in the country's foreign currency income. In fact, in 1985 the Maquiladora Program replaced tourism as the second most important means of generating foreign currency income. In 1983 a major revision of the law authorized a maquiladora operation to sell up to 20% of its production capacity in the domestic Mexican market (subject to government approval). In 1985, President Miguel De La Madrid announced that since the Maquiladora industry had such a significant influence in the economic recovery efforts of the nation, it deserved the consideration of national priority.

Maquiladora Operations

Maquiladora is rooted in the Spanish verb maquilar, which means the portion of the flour retained by the miller in payment for grinding the wheat. The Mexican decree of August 15, 1983 describes maquiladoras as "operations related to the industrial process or services to be used in the transformation, manufacture, or repair of products of foreign origin, temporarily imported for later export." Most of the maquiladora plants are located in U.S. style industrial parks.

The Twin Plant concept consists of a maquiladora plant performing labor intensive operations in Mexico and a twin U.S. plant or distribution center that services or provides the inputs and receives back the outputs after the assembly/transformation process. The U.S. twin plant is sometimes located in a free trade zone to take advantage of favorable U.S. customs regulations, but may be located anywhere in the U.S., even hundreds of miles from the border.

To be Continued


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