The word "maquiladora" is from colonial Mexico when "maquila" was the charge that millers collected for processing other people’s grain. Today, the term applies to companies that process or assemble components imported into Mexico that are then re-exported.

The beginning of the maquiladora program can be traced to the ending of the Brazero Program by the United States. This program had allowed Mexican nationals to work temporarily in the U.S. agricultural sector. This resulted in a huge influx of Mexican workers from the interior of the country to the border cities seeking employment. In 1964, the United States government ended the Brazero Program due to domestic political pressures. Many of the workers stayed in the border cities hoping the program would be reinstated and continued looking for jobs. The Mexican government responded in 1965 with the Border Industrialization Program to alleviate the high unemployment in the region and attract foreign investment and technology to Mexico. The maquiladora program was born out of this in 1966. (Gruben)

Under the program, foreign companies could construct factories in Mexico and import machinery and materials duty-free. Finished products from those factories could then be exported back out of Mexico, with a duty-paid only on the "value-added" during manufacture or assembly. The fundamental ideas of the maquiladora industry is to create jobs, to fortify the trade balance, to contribute to greater inter-industry integration, and to increase worker training. (Riley, 16)

The maquiladora industry is currently governed by the Decree for the Promotion and Operation of the Export Oriented Industry of December 22, 1989 (the ‘Maquiladora Decree’ and its amendments). A company that wishes to operate under maquila status must receive approval from SECOFI. To obtain approval, the company must submit information related to the operation to be established with a list of machinery, equipment, tools, and raw materials that will be brought into Mexico. Upon approval, permits will be issued and the approval is valid for an indefinitie period. (SECOFI)

There are now four types of maquiladoras. The first is devoted solely to export. The second both exports and sells product in Mexico. The third type are shelter operations controlled by Mexicans on behalf of foreign companies. In a maquiladora for export, the foreign company is in contol while in a shelter operation they are only contracting with a Mexican party. The fourth, and newest, form of maquiladora has the sole purpose of providing services to other maquiladoras. (Riley, 16)

Maquiladoras classified by output fall into a number of categories. Textiles and clothing are the largest category, followed by electric and electronic materials and accessories. After that, the categories are highly fragmented. See Figure 1.

Every month almost 50 new maquiladora companies begin production. In 1997, 543 new enterprises were established and 592 existing companies expanded their operations. The total investment in the maquila industry was US$998 million dollars. The exports from these plants grew more than 20% in 1997. The maquila industry had tremendous growth in the first eleven months of 1998. Production rose 10.7% and employment rose 12.3%. In November 1998, there were 3107 establishments employing 1,056,284 workers. (SECOFI)

In 1997, the maquiladora industry accounted for 15 percent of Mexico’s gross domestic product. Maquiladoras had more than US$45 billion in Mexican export sales in 1997. Now that oil prices have dropped, the maquiladora industry is expected to become the leading source of foreign revenue. (Rangel, H1) Mr. Marco Antonio Valenzuela, president of the National Council of the Maquiladora Industry for Export, estimated that by the end of the century, the assembly plants will employ 1.5 million workers in Mexico and contribute 20% of the gross domestic product. (Rangel, D3)

Previously, maquiladoras were centered along U.S.-Mexico border. The border area is formerly defined as the area lying within 100 kilometers of the border. Today, two-thirds of maquiladoras are in this area while one-third are in other regions of Mexico. (SECOFI)

About 95% of maquiladora plants are of either Mexican or U.S. origin. See Figure 2. Many of the largest U.S. corporations have maquiladora plants including: AT&T, Cooper Industries, Ford, General Motors, General Electric, Johnson & Johnson, Zenith, Chrysler, DuPont, Eastman Kodak, IBM, Kimberly-Clark, PepsiCo, and Xerox.

According to the Center for Private Sector Economic Studies (CEESP), maquiladoras set up in Mexico due to one major factor – inexpensive labor. U.S. owned manufacturing companies have reported savings up to US$30,000 per direct labor employee per year. (Burke, 5)

There were conflicting views between the critics as well as members of the maquiladora industry whether the North American Free Trade Agreement would be advantageous or disadvantageous to the maquiladora community. The supporters of NAFTA and maquiladoras saw social costs and disadvantages as a temporary evil that was an inevitable step towards development. There were criticisms from outside sources, mainly in the United States, regarding how the maquiladora industry would compound the problems of the infrastructure of the border area, decrease jobs and wages in the United States and Canada, and cause more environmental damage through increased pollution and toxic waste. These critics also were upset with the current conditions for the work force in the maquiladoras.

The members of the maquiladora industry that perceived NAFTA advantageous focused on the areas of better production, economic development, and investment. The people who were interested in more advanced and efficient production noted that the maquiladora program was evolving and beginning to change. They stated that more advanced forms of production, specifically in the automobile and electronics assembly, and technology were being attracted into Mexico through the maquiladoras. This was leading to changes in the composition of the Mexican work force. There was an increase in the number of males hired and they were also becoming better educated and skilled. The proponents of the maquiladora saw this as a manner to portray to the rest of the world that more sophisticated and high quality items could be produced in Mexico to export around the globe. They perceived these changes to enable Mexico to move to a higher level of economic development, which in turn would improve the competitive position of Mexico in regards to the rest of the world. (Lusting, 203)

These views towards increasing economic development were shared by President Salinas. He argued, "...that his goal was an agreement that would promote maquiladora diversification on a sectoral and geographical level, integrate it into the Mexican economy, transfer more technology, and create skilled jobs." (Grinspin, 144) He believed that the maquiladoras were a necessary step towards more value added, the transfer of more advanced technology, and the increase training of employees. Some critics were not sure if the changes in the maquiladoras would lead to a higher level of economic development, but they believed that it could foster a larger transfer of technology and increase the skills and education of the work force.

The proponents perceived that the NAFTA agreement would increase the levels of investment, both from the United States and Canada as well as from abroad, into the maquiladora areas. The 1992 annual maquiladora report from Ciemex-Wharton predicted that the NAFTA agreement would cause an increase of foreign investment in maquiladoras. (Grinspin, 144) The maquiladoras were perceived as having certain comparative advantages that would make investment more attractive. These included the following: access to lower tariffs, Mexico’s low labor wages, transportation advantages, less strict and enforced economic legislation, and a relatively stable political system. Foreign firms, as long as they met the regional content and rules of origin rules, could have access to the U.S. market duty free. This was a fear of the U.S. during the NAFTA talks and will be discussed later.

The opponents that felt that NAFTA would be disadvantageous focused on the areas of comparative advantage and economic identity and independence. The maquiladora program was perceived to have a comparative advantage because of the rules regarding duties and duty drawbacks before the NAFTA agreement. The Mexican Government allowed imports into Mexico duty-free on a temporary in-bond basis, which included machinery, equipment, parts, raw materials and other components that were used in the assembly or manufacturing of semi-finished or finished products. Once the product was assembled or manufactured it had to be exported, unless they received special permission to sell limited amount in the domestic market. In the case of goods exported to the United States, taxes were only paid on the value added. If the products remained in Mexico they were subject to the applicable Mexican duties. The maquiladoras also received duty drawbacks, which were duties on imported inputs that were refunded if the inputs were used in maquiladora production and were exported afterwards. They believed that the NAFTA agreement would cause them to lose this comparative advantage because tariffs would be eliminated, with certain industries receiving protection, and the duty-drawbacks would be phased out. They felt that they would be integrated into the mainstream Mexican manufacturing industry.

Some opponents felt that maquiladoras made the Mexican economy too dependent on the rest of the world. They believed that the maquiladora program was not an important part of Mexico and that the foreign control of maquiladoras was a threat. If the wages in other semi-developed countries were lower than the wages in Mexico, these opponents believed the foreign firms could possibly move their manufacturing and assembly operations abroad. The financial health of the parent company played an important role in the operations of the maquiladoras and employment. They also feared the repercussions that could be brought about by a recession in the United States. (Hufbauer, 101)

The infrastructure of the border areas, where the majority of the maquiladoras were located, was an area that the critics focused on. They believed that there was not a sufficient infrastructure in Mexico that would allow them to support the increasing families and employees in the border areas. They stated that areas such as the sewer systems, schools, roads, and housing had in the past been unable to keep pace with accelerated development and increasing the number of maquiladoras in the border area would worsen the plight of the people in these areas. These opponents used the examples of slum area conditions that were prevalent around maquiladora facilities to help support this point. (Greenfield, 4)

The most vocal groups against the maquiladora programs were the unions in the United States and to a lesser extent the unions in Canada. Unions in the US feared that maquiladoras would reduce employment, because multi-national corporations would be more willing to move their production and assembly southward because of lower wages for Mexican laborers. See Figure 3.

They claimed this was already occurring in industries such as garments and automobiles, but proponents of NAFTA stated that these jobs would have been otherwise lost to the Pacific Rim countries. They also believed that these jobs being lost were not the kinds that were appealing to Americans. The organized labor in Canada and the United States were also fearful of NAFTA and maquiladoras because they perceived them to be "a frontal attack on unionized labor". (Grinspin, 114) They feared that "capital moving south will not only shift jobs but also create pressures to lower wages and erode the labor contract in the larger economies." (Grinspin, 114)

Environmental groups were a big opponent against the maquiladoras. They believed that there were already poor environmental conditions in these border areas and the NAFTA agreement would worsen these problems. A statement from Reyes, the deputy environment and urban development minister, on October 3, 1991, "said that the Mexican government’s environmental agency had acknowledged that 50 percent of the maquiladora plants near the U.S. border were producing toxic waste....He also said that many maquilas currently lack necessary equipment to safely dispose of the toxic wastes they generate" (Grinspin, 154-155) These environmental agencies believed there should be a large investment and increased legislation and enforcement regarding these border areas to increase the plight of the people in these areas. There were some experts that perceived NAFTA as being beneficial, regarding the pollution problem, in the border areas. They believed that NAFTA would decrease tariff-related location advantages of maquiladoras, which would lead to more investment into the interior of Mexico. The companies would be more willing to focus on the domestic market and because the maquiladora employment is perceived to be transient, there would be less pressure on the resources in the border areas. These firms located in the interior would need to look for areas with a local transportation network, skilled labor market, and a friendly government.

The critics felt that changes should be made as well to improve the working conditions of the employees. Experts believed that the jobs in the maquiladoras were highly competitive, mind-numbing, boring and harmful to the employees. These are problems located all around the world, but critics noted that nations that were more industrialized were addressing these concerns through education and better health care. The majority of the employees in maquiladoras at this time were females and there was a large turnover rate inside maquiladoras, which led to problems with child care and transportation. Groups located in the United States complained about continuous abuses of child labor laws and sweatshop conditions in the maquiladoras. The proponents saw increasing trends in male employment and technology transfers that would lead to a better educated and skilled work force.

The National Maquiladora Association pressed the Mexican government to maintain the current conditions of the maquiladora program. The maquiladoras believed that they already had their own NAFTA agreement and were afraid of changes to their current conditions. They were afraid of losing their comparative advantage through the elimination of tariffs and full-duty drawbacks. According to Ashlan Cohen, the negotiator for the Mexican government in charge of rules of origin, the Mexican government wanted to keep full-duty drawbacks but the United States government took the opposite side of the argument. Cohen said, "The U.S. wanted to eliminate the full duty drawback program altogether and immediately, because it would have given a differential incentive for firms in Mexico to sell into the U.S. market, despite the fact that most firms doing that today are U.S. maquilas." (Silverstein, 2) The United States was fearful of export platforms for Japanese firms. Eventually there was a compromise made that allowed for a gradual phase out of full-duty drawbacks.

The Mexican government also pushed for certain concessions regarding maquiladoras during the NAFTA negotiations. "Mexico’s goal was to get the U.S. tariffs on the value added to maquiladora products dissolved, so that companies in Mexico can supply more that the 1.5 percent of the input maquiladora production that they now supply." (Grinspin, 153) This was important to Mexico because it would allow maquiladoras to contribute more to Mexico’s gross domestic product and manufacture more finished products. The Mexican government was interested in keeping the maquiladora program, because they saw it as a manner to attract more foreign investment into Mexico. 

The environmental groups that were against NAFTA and the maquiladoras programs foresaw increasing problems regarding pollution and health problems and are still unhappy five years after the implementation of the NAFTA agreement. These groups claim that the boom in maquiladora plants has compounded problems because these plants still do not dispose of their toxic waste properly. The Public Citizen’s Global Trade Watch points to a twelve-year border study showed a correlation between the growth of maquiladoras and severe birth defects. The study showed that the "neural-tube-tube-defect rate for babies born in the Brownsville, Texas-Matamoros, Mexico, area has risen to 19 per 10,000 babies, almost twice the national average." (Wallach, 1) They also feel that the infrastructure problems have been compounded through the fact that there are insufficient sewage and water systems. They feel that the border cleanups that were promised during the NAFTA negotiations have not materialized.

The periods following the implementation of the NAFTA agreement has seen a boom in the number of maquiladoras and the employment that they provide. The number of maquiladoras has increased by November 1998 to 3107 establishments that employ 1,056,284 workers. The four year period of December 1993 to December 1997 saw an increase in employment for maquiladoras of 71.5 percent. See Figure 4. This is more startling when compared to the maquiladora growth from the four year period preceding December 1993. In this period there was an increase in maquiladora employment of only 25.1 percent. (Gruben) These numbers may be a little misleading because there are other factors that have contributed to the growth of employment. These include devaluations of the pesos, fluctuations of the U.S. industrial production industry, and global economic factors.

One trend that was foreseen during the NAFTA negotiations and that has shown some signs of becoming true is the transfer of maquiladoras from the border areas to the interior of Mexico. National Maquila Association President Marco Antonio Valenzuela Herrera stated, "We want to promote throughout the interior of the country." (Ben Fox Dow Jones News Service, 1) He stated that 37 percent of maquiladoras were located outside of the border regions in 1998, in contrast there was 31 percent in 1997. There are varying opinions on why this phenomenom has occurred. One explanation includes increasing aggressiveness by interior states to recruit maquiladoras. The better social conditions of the interior states, such as better housing, education, and worker training, less crime, and more adequate urban infrastructures may be part of the cause. Many experts contribute this trend to the fact of increased competion and saturation of the maquiladora industries in the border areas. NAFTA may have played a role in these factors by decreasing the perceived comparative advantages of the maquiladoras by the phasing out of tariffs and full-duty drawbacks.

Señor Herrera also sees NAFTA being a manner to help increase foreign investment into the maquiladoras. He believes that the manufacturing activities in Mexico have become a more important option for foreign firms. He feels NAFTA has aided foreign investors who seek access to the North American market under more privileged terms to give preferential preference to Mexico, particularly the maquiladora industries. The maquiladora industry has seen an increase of foreign direct investment since the implementation of the NAFTA agreement.

The maquiladora program has become an important part of the Mexican economy as a part of Mexico’s gross domestic product, gross value of production, and number of exports. In 1997, the maquiladora production accounted for 15 percent of Mexico’s GDP. "The economic forecasting firm Ciemex-WEFA Inc. says the gross value of production in Mexico’s maquila industry reached 54.8 billion in 1997, up 30 percent from the year before. It projects maquiladora production will rise 13 percent to $62 billion in 1998 and, barring a U.S. recession, an additional 13 percent in 1999." (Ben Fox Dow Jones News Service, 1) Ciemex-WEFA also stated that 37.5 pecent of Mexico’s trade in 1998 between the months of January and August was due to maquiladora production. This prompted Señor Herrera to say, "I think the government now recognizes that the industry is extremely important to Mexico." (Ben Fox Dow Jones News Service, 1)

It will be very interesting to see what occurs in the maquiladora industry in the year 2001. This is the year that the full-duty drawbacks will be phased out completely and the maquiladoras will be able to sell 100 percent of their output in the domestic market. Many experts believe in the year 2001 that the maquiladoras, in the sense seen now, will be integrated completely into the Mexican manufacturing industry. Some of these experts also believed that the number of maquiladoras and their employment would start to decrease with the implementation of NAFTA, but statistical data shows the opposite to be true. There has been a rapid increase of maquiladoras and their employment, part of which could be attributed to NAFTA. One area of maquiladoras that must be continuously looked at and discussed are the environmental areas. The governments need to continue to search for an answer to these problems and take real measures to solve these problems.

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