North American Free Trade: Issues and Recommendations

By Gary Clyde Hufbauer; Jeffrey J. Schott | Go to book overview

5
The Maquiladora Phenomenon

Maquiladoras are in-bond production facilities engaged in processing or secondary assembly of imported components for reexport, primarily to the United States.1 The term "maquiladora" derives from the Spanish word maquilar, which means to retain a portion of the flour in payment for milling wheat—by analogy, a maquiladora is thus any processor of goods to be returned to the original producer for resale. Under the "in-bond" arrangement, imported inputs enter Mexico duty-free, but the importer posts a bond to guarantee that the finished products will indeed be exported rather than sold on the domestic market; otherwise, appropriate duties are collected from the posted bond.

Traditionally, maquiladora operations have been highly labor-intensive, combining abundant low-wage Mexican labor with foreign capital and technology. In two respects, the US-Mexico maquiladora program has worked for Mexico much as the US-Canada Auto Pact worked for Canada: both allowed duty-free imports of components as an incentive for national production, and both served as foundation stones for wider free trade arrangements.

The first maquiladoras were established in 1965 under Mexico's Border Industrialization Program. In that year, 12 plants were opened; by March 1991 more than 1,900 plants were in operation (table 5.1; Giermanski 1991). The initial purposes of the program were to attract foreign investment and manufacturing facilities to the US-Mexico border region and to provide employment for Mexican farm workers disemployed by the end of the US Bracero Program.2

The maquiladora program was initially limited to the border zone, but with expanded authorization in 1972, maquiladoras have spread throughout Mexico. Nevertheless, about 80 percent of maquiladora operations remain in the border zone ( Chrispin 1990, 78-79). The greatest maquiladora employment is in the border cities of Ciudad Juárez and Tijuana (table 5.1).

____________________
2
The Bracero Program ( 1942-64) allowed migrant Mexican workers to enter the United States on a seasonal basis. An estimated 4 million Mexican laborers worked in the United States under this program between 1942 and 1960.

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North American Free Trade: Issues and Recommendations
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface xi
  • Board of Directors xiv
  • Acknowledgments xv
  • I - The Political Eonomy of a NAFTA 1
  • 1 - Nafta: Overview and National Objectives 3
  • 2 - The Substantive Agenda and Implications for Nonmember Countries 23
  • II - Economic Implications 45
  • 3 - Trade Effects of a Nafta: a Survey 47
  • 4 - Investment 71
  • 5 - The Maquiladora Phenomenon 91
  • 6 - Labor Issues 107
  • 7 - Environmental Questions 131
  • 8 - Rules of Origin 155
  • 9 - Intellectual Property Issues 173
  • III - Sectoral Analyses 183
  • 10 - Energy 185
  • 11 - Automobiles 209
  • Appendix - Motor Vehicle and Parts Manufacturers in Mexico 234
  • 12 - Steel 243
  • 13 - Textiles and Apparel 263
  • 14 - Agriculture 279
  • 15 - The Mexican Financial System 305
  • IV - Summary and Conclusions 327
  • 16 - Summary and Conclusions 329
  • References 345
  • Index 361
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