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Maquiladoras and the NAFTA

 

Maquiladora plants (also known as "maquilas" or in-bond plants), in existence for the past quarter century, operate under special Mexican customs treatment and preferential Mexican foreign investment regulations. While NAFTA does not address the maquiladora program wholesale, it will change some unique features of maquila operations that have fostered their export orientation. These include modifications to the existing duty drawback1 on fourth-country inputs to maquila operations and current investment performance requirements that limit maquila sales into the Mexican market. Following is information about how maquiladoras operate now; the table below summarizes key NAFTA provisions.

The Mexican Government currently allows maquilas to import into Mexico duty-free on a temporary "in-bond" basis machinery, equipment, parts, raw materials and other components used in the assembly or manufacture of semi-finished or finished products. Once assembled or manufactured, maquila products must be exported unless special permission is obtained to sell a limited amount of output in the Mexican market. If maquila products remain in Mexico, they are subject to applicable Mexican duties.

Most maquiladoras export their goods to the United States under a special program whereby U.S. import duties are levied on the foreign (Mexican and other) value-added only. The value of U.S. components in the final good is not dutiable upon re-entry into the United States. This favorable tariff treatment of goods made abroad with U.S. components is granted under U.S. customs law through the "9802 program" (formerly known as the 806/807 program, both names derived from the applicable U.S. Harmonized Tariff Schedule provisions). The 9802 provisions are also known as "production sharing;" the intent is to preserve and create competitive U.S. jobs by encouraging the use of U.S. components when assembly operations take place abroad. According to the U.S. International Trade Commission, Mexican producers participating in the 9802 program tend to use a much higher level of U.S. components — 52% of the value of goods returned in 1992 was U.S. content — than producers in other countries. Since the 9802 program is available to imports from all countries, this aspect of maquiladora operations is not affected by NAFTA.

For more information on the effect of NAFTA on maquiladoras, please contact the Office of NAFTA at (202) 482-0305. For further information on organizations providing U.S. and Mexican border regional commercial assistance, please order NAFTA Facts document #8203.

How Maquiladoras are Affected by NAFTA*

Program Element NAFTA Treatment

Export-conditioned duty drawback, waivers and remission (duties on imported inputs refunded or waived if used in maquila production and subsequently exported)
  • Existing programs eliminated on Jan. 1, 2001 for U.S.-Mexico trade and January 1, 1996 for U.S.-Canada trade; drawback curtailment plan kicks in on same dates.
  • Curtailment plan allows for a limited refund of duties actually paid, up to the lesser of the duties paid on non-NAFTA inputs and the finished good that is exported to another NAFTA country. NAFTA-originating inputs may continue to receive full drawback, to the extent duties still remain.

Maquila sales in the Mexican market (currently limited to a maximum of 50% of the previous year's production, case-by-case approval required)

  • Restriction phased out over seven years, at rate of 5 percent per year (15% jump in final year). Guaranteed access at 50% level in year 1; by Jan. 1, 2001, all maquila production may be sold in Mexico.

Other export performance requirements (e.g., trade and foreign exchange balancing)

  • Eliminated Jan. 1, 2001

*Additional provisions apply in the automotive sector

 

1 "Duty drawback" refers broadly to the refund, waiver or reduction of customs duties owed on imported goods on condition that the good is subsequently exported.