"Maquiladoras" in Mexico
There has been much debate about the "maquiladora" assembly plants in Mexico. It is widely acknowledged that they have grown rapidly and generated a significant number of jobs. What is less widely known is that they are upgrading their production capacity and moving into integrated manufacturing activity. However, this growth does not appear to have been accompanied to the same extent by rising skills, incomes or local economic development, and it seems that further policy interventions may be necessary to secure those positive outcomes.
The maquiladora system was started in 1965 as an emergency measure to combat unemployment. The plan was for United States enterprises to set up assembly plants along the northern border of Mexico in order to absorb surplus labour. It was an in-bond system which allowed foreign (mainly United States) firms to have goods processed for re-export by twin plants in Mexico. No Mexican import duty was paid on the imported components and United States import duty on the returning goods was paid only on the value added. Interior areas of Mexico were added to the designated border areas in 1972, and in 1989 the export requirement was lowered from 80 per cent to 50 per cent. The 1994 North American Free Trade Agreement (NAFTA) has since liberalized the arrangement, extending the same advantages to all producers in North America in phases up to the year 2001. The rules-of-origin provisions of NAFTA will mean that inputs from outside North America will be liable for duty after 2001. This should favour the consumption of Mexican inputs and promote the formation of backward linkages, something which has not occurred to date.
Maquiladoras are clustered around cities such as Tijuana, Ciudad Juarez and Matamores, and each one is linked in a production chain to cities on the United States side of the border. The Tijuana area specializes in electronics, and it is now the most important television producing area in the Americas; many Japanese and Korean plants have established themselves there to penetrate the United States market. Production in Ciudad Juarez is mainly in the auto parts and auto assembly sectors; in Matamores the plants specialize in electronics components. The maquila industry produces exports worth US$5 billion net per annum. Exports from the 3,200 plants in the maquila sector represent over 30 per cent of total exports.