Maquliadora Definition, History, Benefits, Worker Exploitation

What Is a Maquiladora?

A maquiladora is a factory or manufacturing plant in Mexico owned by a foreign entity. These corporations are approved for operation by Mexico’s Secretariat of Commerce and Industrial Development under a decree established in 1989.

Maquiladoras were developed in the 1960s to encourage foreign investment and address unemployment, mainly near the U.S.-Mexico border. They take advantage of numerous benefits and export their products beyond Mexico.

Key Takeaways

• A maquiladora is a low-cost foreign-owned factory in Mexico.
• Facilities are usually located near the U.S.-Mexico border.
• Maquiladoras assemble and export products back to the United States and other countries.
• Companies benefit from cheaper labor in Mexico and tax advantages under trade agreements like the USMCA.
• Maquiladoras have faced criticism for exploiting their labor force.

Understanding a Maquiladora

A maquiladora is a factory located in Mexico but owned and run by a foreign entity. The first maquiladoras were established in 1961 to stimulate the domestic market and attract foreign investment. Many are located along the United States-Mexico border. The parent company is in the United States, while the manufacturing operation or factory is in Mexico.

A plant is officially designated as a maquiladora if approved by the Mexican Secretary of the Economy. Such designation allows unlimited foreign capital investment and duty-free imports of raw materials, machinery, and semi-finished goods.

Maquiladoras, also known as twin plants, manufacture a variety of goods, from clothing to electronics and aerospace components. Export can be direct or indirect, through sales or shipping via other factories or export companies.

These factories benefit from tax advantages, lower labor costs in Mexico, and access to doing business in the U.S. They have contributed significantly to the industrialization of the Mexican-American border.

Maquiladoras cannot operate in highly congested parts of Mexico, including Guadalajara, Mexico City, and the Monterrey urban areas.

Benefits of a Maquiladora

Establishing a maquiladora comes with various benefits, including:

Economic Benefits

Maquiladoras provide a source of labor for local residents, boosting the local economy. These factories help industrialize border cities with high unemployment rates. They also create administrative centers and transportation services on the U.S. side.

Costs and Incentives

Operating maquilas in Mexico offers savings on labor costs and tax benefits. Mexico has a larger labor pool, making production cheaper. Companies enjoy exemptions from certain taxes and duties through agreements like the USMCA.

Access to Labor

Setting up a maquila in a Mexican town provides access to a cheaper labor pool. It also allows unskilled workers the opportunity to transition to skilled categories.

Location

Maquiladoras can be established anywhere in Mexico, but it is more logical to set them up along the border with the United States. Proximity to transportation infrastructure reduces costs and improves supply chain management.

Maquiladoras and Labor Exploitation

Despite their economic benefits, maquilas have faced criticism for exploiting their labor force. Workers receive competitive wages but often below the poverty line. Pay is usually based on daily rates, and employment conditions may be unsafe.

Migrants seeking employment in the United States often work in maquiladoras, allowing companies to pay them lower wages. Housing conditions may be inadequate, and worker representation is lacking.

History of Maquiladoras

Maquiladoras were established after the end of the Bracero program in 1964, providing U.S. corporations with cheap labor to address unemployment. NAFTA’s ratification in 1994 eliminated tariffs, leading to a surge in maquiladora numbers and economic growth.

The IMMEX program, formerly known as the Maquiladora Program, improved the industry by reducing costs, increasing operational efficiencies, and modernizing the establishment process. The program offers different registration entities, contributing to significant export growth.

Maquiladoras FAQs

How Have Maquiladoras Impacted the Mexican Economy?

Maquiladoras employ millions of workers, help them transition from unskilled to skilled labor, and contribute to Mexico’s exports.

Are Maquiladoras Similar to Sweatshops?

Maquiladoras, although sometimes associated with unsafe working conditions and low wages, are not the same as sweatshops. Sweatshops lack adequate pay and safety conditions and often employ children and women without job security.

Where Are Maquiladoras Generally Located?

Maquiladoras can be located anywhere in Mexico, but they are commonly found along the U.S.-Mexico border.

Who Benefits the Most from Maquiladoras?

Border cities and states benefit the most from maquiladoras, improving labor, employment, and reducing production costs for both Mexican and American companies.