The Mexican Assembly Program was started over 25 years ago in response to a private sector initiative designed to alleviate a high unemployment problem along the border with the United States. This was a key component of the Mexican government’s Border Industrialisation Program.
The assembly line program has charted a notable pattern of growth and success for Mexico as well as for the numerous foreign manufacturing companies the program has attracted.
The assembly line industry (Maquiladora) has clearly demonstrated Mexico’s progress in export-oriented industry growth as well as the country’s competitive strength and investment advantages in an increasingly diversified international environment.
The assembly line industry in Mexico is governed by the Decree for the Promotion and Operation of the Export Oriented Industry of December 22, 1989 (the ‘Maquiladora Decree’ and its amendments). The assembly line is an important element in the globalisation of the Mexican economy. The industry has been able to grow tremendously because of the availability, trainability and productivity of Mexico’s young labor force.
This industry enjoys duty-free import of machinery, equipment, parts, raw materials and other components used in the assembly of manufactured or semi-finished or finished products. Finished products, once assembled or manufactured, are exported back to the country of origin or to a third country. Mexico’s assembly line industry is surging forward experiencing critically needed skilled employees and fast-pace industrialisation.
Plants are engaged in assembly and manufacturing of service activities, which generally combine Mexican labour and materials with foreign technology, components and capital.
Every month between 45 and 50 new assembly line industries begin to generate more production, reinforcing the manufacturing sector.
In 1997, 543 new enterprises were established, and 592 previously settled decided to expand their investments. Total investment on assembly line industry was US$ 998 million.
During the first semester of 1998 the Assembly-Line industry had a dynamic growth. All over the country, 1,003,918 jobs were created increasing 13.3% with respect to the same period of 1997. During the same period, the new establishments totaled 2,970.
Corporate Presence in Mexico
Under the Maquiladora Decree, a foreign investor may qualify to operate under maquiladora status only if it has a corporate presence in Mexico. An important exception to the rule establishes that foreign investors may not hold more than 49% of the stock of any Mexican company. A Mexican corporation that qualifies for maquiladora status may have up to 100% foreign ownership. The great majority of export oriented industries are wholly owned subsidiaries of foreign, especially US, corporations.
Operating and Import Permits
Once a company incorporates and wishes to operate under maquiladora status, it must receive Maquiladora Program approval from SECOFI. To obtain such approval, the company must submit certain information related to the operation to be established together with a list of machinery, equipment, tools and raw materials that will be taken into Mexico.
Once SECOFI approves the Assembly line Program, permits will be issued for the importation of machinery, equipment, components, raw materials and supplies. The Assembly Line Program approval is valid for an indefinite period and it is not subject to any renewal requirements.
Mexican Customs Law provides for two different methods of importing merchandise into the country: permanent and temporary. Under the permanent importation method, full payment of import duties must be made upon the importation of the item and in very specific cases, importation permits issued by SECOFI will be required.
Temporary importation allows an item to be imported without the payment of import duties, provided the item is eventually exported from Mexico. Such method of importation is only available under special circumstances and for specific purposes. One of those special circumstances is a maquiladora operation.
A temporary importation entails certain record-keeping obligations listed in the Maquiladora Decree. If such obligations are not fulfilled, the importer may be subject to the payment of permanent importation duties and penalties.
Sales in the Mexican Market
As noted above, customs regulations and the Maquiladora Decree require, as a rule, that the assembly’s total production be exported from Mexico. However, an export oriented industry may sell a portion of its output of a specific product within the Mexican market provided it obtains authorisation from SECOFI.
In most cases, the authorisation will be granted routinely if the importation of the specific product is not subject to an import permit requirement. Authorisations are valid for a two-year term, with a yearly review of compliance, which are subject to the following additional conditions:
- Duties must be paid on all imported materials or components contained in the finished product to be sold in Mexico.
- A favourable foreign exchange balance must be maintained and;
- Certain reporting requirements must be complied with.
NAFTA and Maquiladora
With the implementation of NAFTA, the industry will expand, as will the ratio of regional Canadian, US and Mexican inputs it utilises. Benefits have already been reaped by major foreign corporations operating in Mexico, due to economic restructuring programs and an ongoing program to enhance the nation’s infrastructure in such areas as telecommunications, roads and ports.
Exports from Mexico’s assembly plants grew at a rate of more than 20.0% in 1997.
Previously centred along the Mexican border with the US, 273 of the 465 new maquiladora plants established in 1995 are located outside the border region. In 1996, 285 new assembly line industries were settled in the country, while 483 new enterprises were established in 1997. Now, 67.3% of the assembly line industry is located on the border region and 32.7% in other regions.
The main aim in creating new export-oriented industry locations is to promote a more balanced transfer of manufacturing technologies across the country, while providing significant relief to the northern border infrastructure.
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