Maquiladora

What is Maquiladora?

The twin plan or Maquiladora meaning is defined as one of the largest factories located near the Mexico and the US border. This Manufacturing company is a tariff-free organization. The parent factory of this Mexico-based company is in the US. The Maquiladora factory was built after the mutual agreement between the United States and Mexico.

It was established in the 1960s. One of the most interesting factors that make Maquiladora a lucrative option for businesses is the tax advantages it offers. This factory could take the advantage of the cheaper workforce in Mexico while operating in the United States. There is no denying that Maquiladora played a significant role in the construction of industries near the Mexico-US border.

Maquiladora - History

The Bracero program encouraged the Americans to hire Mexican labors in 1964. To deal with the highest unemployment rates, the Mexican government launched the Maquiladora program. As a result, the Mexican workers were hired by US organizations. It turned out to be a win-win for Mexico and America as the program reduced the unemployment rate in Mexico while providing the US companies with cheaper labor. During the 1990s, a large number of Maquiladoras were established near the US and Mexico border. During this time, these tariff-free factories started to grow. Note that the Parent Company of these factories is based in the United States.

Whether or not the plant will be considered as Maquiladora depends on the Mexican Secretary. If the plant is considered as Maquiladora, then it is open to foreign Capital investment. It will also qualify for tax-free imports. Mexico has a large number of twin plan that manufactures a broad Range of consumer goods ranging from electrical appliances to automobiles. They can also be used for the manufacturing of aircraft components. One special quality that sets Maquiladora apart from other factories is the lower production cost.

First of all, these plants and factories are not associated with tariff and Import duty. Besides that, they use Mexican labors that are comparatively cheaper than the US labors.

Why Maquiladoras are Located Near Mexico and US Border?

As mentioned above, the parent company of Maquiladora is based in the United States, whereas the production firm is in Mexico. These factories are established following the twin plan agreement between the Americans and Mexicans. While the agreement doesn’t make it mandatory for Mexicans to set up the Maquiladora near the US-Mexico border, building the factory near the border seems a logistically sound decision. Building one plant in Tijuana and the other one in San Diego is a better option than locating one factory in Mexico City and the other one in Detroit.

The closer these factories are to each other, the lower the transportation cost. After all, the Raw Materials and finished products are supposed to be transported from one factory to another for further production. That’s one of the reasons why a majority of the Maquiladoras are located near the airports, railways, and shipping ports.