4 Common Misconceptions about Mexico’s Maquiladora Program
03.28.19
Mexico’s maquiladora program, originally known as the Border Industrialization Program, has been in place since the 1960s. It’s now known as IMMEX, although the term maquiladora is still commonly used. Despite being around for so long, there are still many incorrect assumptions about maquiladoras in Mexico.
A maquiladora is a factory in Mexico that manufactures products to be exported out of the country (mostly to the United States, but thanks to Mexico’s many free trade agreements, maquiladoras export products all over the world). The IMMEX/maquiladora program provides favorable tax benefits to companies when they import equipment, machinery, and raw goods and materials.
Misconception 1: Maquiladoras can import and export materials and products duty-free.
Maquiladoras are exempt from paying the 16% VAT on imports, but not from other duties and taxes. Duties are based on the product’s origin and classification, so they will still apply to imports from certain countries, or those that aren’t covered under NAFTA or the USMCA.
Misconception 2: Companies can use maquiladoras to sell products in Mexico.
The IMMEX program is strictly for companies that manufacturing or assemble products in Mexico, but export them for sale in another country. Raw goods and materials that are imported must leave the country within 18 months or the company will have the pay the VAT.
Misconception 3: Mexico’s labor is low-skilled and produces low-quality goods.
Mexico’s labor force is actually highly skilled and experienced. The government has invested heavily in education and training programs for workers, especially in STEM fields, and thousands of students graduate with engineering degrees every day. Mexico has developed a strong reputation in industries that require skilled technicians and engineers, including aerospace, medical devices, and electronics.
Misconception 4: The maquiladora program hurts US workers.
Most companies establish manufacturing facilities in Mexico because of lower labor costs. However, instead of moving jobs from the US to Mexico, more often, this allows companies to expand and stay competitive in global markets. Also, because the supply chains in Mexico are not as well-developed, most firms continue to source equipment, supplies, and raw materials from the US.