Boosting Manufacturing Efficiency in Mexico
Maquiladoras, originating in Mexico, are manufacturing plants primarily owned by foreign entities and mainly situated near the U.S.-Mexico border for easier importation of raw materials and export of finished products1. Established under the Twin Plant Agreement, these factories are favored by U.S. companies due to inexpensive labor costs, low supply chain expenses, and certain tax advantages1. They function by importing materials and equipment on a duty-free and tariff-free basis, which are then assembled into semi-finished or finished goods2. The finalized goods are exported primarily to the U.S., leveraging the benefits of the free trade agreement between Mexico, Canada, and the United States3.
Maquiladoras engage in business with U.S. companies following an established legal framework and certain duties. When a U.S. company imports a finished product assembled by a maquiladora, the company pays duties only on the value-added portion, not on the raw material value previously exported2. The Qualified Maquiladora Approach Agreement (QMA), renewed in 2020, provides a framework to avoid double taxation and ensures the stability of this supply chain2. To receive the benefits of QMA, a Mexican taxpayer has to enter into a unilateral Advance Pricing Agreement (APA) with the Large Taxpayer division of the Mexican tax administration service2.
Furthermore, U.S. companies operating maquiladoras have to deal with certain conditions and stipulations under NAFTA's successor, the United States-Mexico-Canada Agreement (USMCA). Notably, automotive companies are required to build vehicles with 75% of their parts made in North America, an increase from the previous 62.5% requirement under NAFTA1. Additionally, a stipulation requires that 40% to 45% of vehicle parts must come from plants paying $16 per hour or more on average1. The maquiladora status qualifying factories for foreign ownership and duty-free imports is determined by the Mexican Secretary of the Economy1.

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