Free Essay Example: A Maquiladora

A maquiladora is a manufacturing operation or factory established in Mexico, usually near the border, that imports raw materials and equipment for assembly, processing, or manufacturing. Its products are then exported under a particular program that grants them tax breaks and other benefits.
Most maquiladoras in Mexico produce electronic equipment, clothing, plastics, furniture, appliances, and auto parts, with clothing being the top product. While these factories have lost some clothing work to cheaper locations in Asia, recent pay raises in Chinese factories have made the Maquiladora Program more attractive to foreign companies. Maquiladoras ranks second only to oil in Mexico's industrial sector.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

In 1964, Mexico launched IMMEX (Maquiladora, Manufacturing, and Export Services Industry), also known as the Maquiladora Program. It aims to attract foreign investment, create jobs, foster industrialization, and boost Mexico's economy, especially along the U.S. border. The program, jointly administered by Mexico and the U.S., offers foreign manufacturers tax incentives to invest in Mexico's production and labor.

The program appeals to manufacturing companies seeking to lower their production costs and to maintain control of their offshore production rather than having to create foreign legal entities or subsidiaries. Manufacturers must meet certain conditions to qualify as maquiladoras, and the imported raw materials and equipment are tax-free as long as the final products are exported. In the early years of the program, there were some 2,000 maquiladoras with 500,000 workers in Mexico. In 1994, the North American Free Trade Agreement (NAFTA) sparked the growth of Maquiladora plants, and within a few years, the numbers more than doubled. The proliferation of maquiladoras in Mexico has lowered the rate of unemployment in Mexico, most notably along the border, employing more than one million Mexicans.

Currently, about 80 percent of all goods produced in Mexico are shipped to the U.S. and maquiladoras are responsible for 65 percent of Mexico's exports, according to PricewaterhouseCoopers (Acrecent, 2019)

With a population of almost 130 million, a rich cultural history and diversity, and abundant natural resources, Mexico has the 11th largest economy in the world. The country has strong macroeconomic institutions, and it is open to trade and private investment. The authorities have implemented stable and sustainable monetary and fiscal policies, which have made the Mexican peso the most highly traded emerging market currency. Currently, it is the world's 15th largest exporter due to the strengthening of its productive capacities, diversifying away from raw materials such as oil, and deepening its production complexity on manufactured products that are integrated into regional and global value chains. (World Bank, 2019)

NAFTA was officially an agreement signed between three countries: USA, Canada and Mexico, with the central aim of removing the trade barriers, to facilitate easy trade transactions between them. The deal was institutionalized in 1994, and its formation meant that US-Canada FTA (CFTA) was to be abolished for refreshed trade talks and bilateral trade between three countries with Mexico inclusive. Tariffs refers to the specific trade restrictions that are associated with imports and exports of products. NAFT's main aim was to cut off half of such barriers on the US goods to Mexico and among other nations involved in the deal.

The North American free-trade pact was officially launched in the year 1994 when three countries signed the contract and agreement to foster bilateral trade between them devoid of challenges such as tariffs. There were anticipations during the launching year that NAFTA would highly improve the commercial links between the two countries, and this increases the need and importance of this research. Maquiladora refers to a multinational industry in Mexico that does the importation of war materials for the textile industries at comparatively lower prices. The production was formed on courtesy of NAFTA to help the manufacturing industries obtain their raw materials at lower prices.

Moreover, Maquiladora helped in the exportation of the textile products from Mexico to other nations, without incurring additional exportation costs. It is, therefore, undoubtedly that with the formation of Maquiladora, Mexico was beginning to realize its worldwide competitive advantage. Because Maquiladora was based in the US-Mexico, the significant interest and postulated benefits were: to improve international trade, to enhance the investment since the importation and exportation was generally low, hence the prices of goods and the actual capital would not have a wider margin often realized due to the additional costs of importation and exportation. Commercial banking was also a significant point of interest. Notwithstanding, NAFTA could improve and facilitate the smooth migration of goods and people between the two countries.

The NAFTA agreement also contributes to the significant importance of carrying out this research. Besides, the different rankings for the nations in terms of their economies makes it easier to quantify their economy. Mexico is comparably smaller but highly sensitive, so the impacts of NAFTA on its Economy through the textile manufacturing industries can easily be estimated. Another factor that makes motivates this research is the geographical locations of the two countries. All three countries that signed the entity typically form a single contiguous mass that can easily be studied and relevant data collected. In convention, the trade act was expected to result in more economic advantages between the USA and Mexico border, following the fact that several barriers and tariffs previously characterized the edge. Perhaps, the negative or positive changes in the economy of Mexico is predicted to be more visible so that the use of further quantitative research approach becomes essential and productive simultaneously.

I believe that research about how much NAFTA really impacted Mexico and most specifically the Maquiladora Textile industry would be very beneficial for not only an understanding of what caused the trade among the NAFTA countries to triple as mentioned by the International Monetary Fund but also to know precisely in which areas were affected by this free-trade agreement and to analyze how much these fields were impacted either positively or negatively.

In this paper, my study intends to find and identify the factors that influenced the Maquiladora Textile Industry growth, if it is possible to recreate in a way the benefits generated through this free-trade agreement and if a decrease or elimination of the factors that negatively impacted said industry through this agreement is possible.