Keller-Koch Realtors LLC
The Maquiladora Program
The Mexican Government began the maquiladora program in the mid 1960's to increase employment along Mexico's northern border. The maquiladora program allows companies to incorporate on the Mexican side of the border, import components for assembly or manufacturing and export them to the US. Duties are paid only on the value added to those goods in Mexico. Tax regulations on Maquiladoras are undergoing constant change as they shift in status from special projects to regular Mexican companies.
The North American Free Trade Agreement (NAFTA)
NAFTA reduces tariffs on goods that originate in Canada, Mexico, and the US, when the goods are traded between those countries. NAFTA, enacted January 1, 1995, will be implemented over a 15 year period, with more goods becoming duty-free each year.
Under NAFIFA regulations, the tax structure on goods from non-NAFTA countries is scheduled to change in 2001. Currently, the maquiladora program allows component parts from non-NAFTA countries to be taxed at the rate of the final product. In 2001, each part will carry its non-NAFTA tax. Example: Today, if a computer chip is imported from Japan and used in a computer made in Mexico, the chip is taxed at the rate of the finished computer - under NAFTA, this is or will be 0%. After 2001, each component in the computer not originating from a NAFTA country, including the chip, is taxed at its non-NAFTA importation rate. This will cause goods made outside of NAFTA countries to be more expensive than goods made in the US, Mexico, or Canada (tariffs range greatly, on many electronic parts they are are 16% or more). The end result is that many Asian and European companies are expected to establish facilities in NAFTA countries in the next few years.
While severely hurting retail sales in the border region, the peso devaluation has been very good for manufacturing. In December 1994, the peso fell from 3.5 pesos to the dollar to 7. It is currently near 11.0 pesos to the dollar. Correspondingly, Mexican manufacturers have seen their labor bills cut drastically. Although Mexican labor is still more expensive than labor in some Asian countries, Mexico's higher productivity rates and proximity to the US boder are contributors for a continued increase in manufacturing.
Top Ten Materials Purchased by Maquiladoras: