A Comprehensive Guide to the IMMEX Program
Manufacturing in Mexico has seen a huge rise in popularity in the last 20 years thanks in part to the economy’s growing globalization and the introduction of NAFTA. Mexico’s contribution of high quality at a lower cost has made it a primary source for manufacturing in a variety of industries, including electronics, aerospace and automotive. The IMMEX program enables foreign companies to operate in Mexico under a preferential, low-tax cost structure, while still taking advantage of Mexico’s lower-cost labor. Let’s take a closer look at Mexico’s IMMEX program.
What Are Maquiladoras: Understanding the IMMEX Program
What is the IMMEX Program?
The IMMEX program, formally known as the maquiladora program, allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100% of all finished goods will be exported out of Mexico within a government mandated timeframe.
The primary goal of the IMMEX program is to expand the Mexican economy by enabling foreign companies to manufacture in a competitive environment, which creates jobs throughout the entire socioeconomic spectrum. The program also aims to modernize the globalization of Mexico’s manufacturing infrastructure by bringing new, specialized technologies and knowledge to the region.
What Are Maquiladoras?
Maquiladoras are factories in Mexico that are owned and run by a foreign company. They manufacture the company’s products in Mexico and then export them to other countries. Maquiladoras operate under preferential tax and fiscal programs that are administered and established by Mexico and the foreign country, meaning that any most production equipment and materials that the maquiladoras use are allowed to enter Mexico, on a temporary basis, without needing to pay taxes.
Understanding the Maquiladora System
The maquiladora system originally began in 1965 by the Mexican government as a means of alleviating unemployment problems along the borders, while providing foreign companies various tax benefits, special customs terms and easy access to skilled, affordable labor. By 1985, maquiladoras became the largest source of foreign exchange in Mexico.
The maquiladora system truly boomed in 1994 with the approval of the North American Free Trade Agreement, which opened trade lines between Canada, the United States and Mexico by eliminating most tariffs and other barriers to free trade between the three countries. The agreement also removed quotas that prevented the U.S. and Mexico from fully sharing in their markets, while allowing maquiladoras to manufacture products without the previous limitations in place.
Why Have Some Companies Set Up Offshore Assembly Plants
Globalization and competition have forced some U.S. companies to set up offshore assembly plants, particularly in China and other Asian countries. Offshoring is a practice that has existed for decades and continues today. The main reasons for setting up these foreign assembly plants include:
- Inexpensive labor
- Fewer environmental regulations
- Reduced taxes
- Fewer government regulations (building and construction operations)
However, outsourcing to China has recently come with drawbacks. Significant wage inflation, rising transportation costs and a general shortage in labor in have made manufacturing in China more expensive than Mexico. Also, China is beginning to enforce environmental regulations more strictly, causing factories to upgrade their machinery and equipment and improve their environmental impact practices. Chinese assembly plants still often have poor employee safety standards, which is another issue being addressed by the Chinese government.
Fortunately, offshoring to Mexico has become more viable, especially for companies headquartered in the United States and Canada. Along with the added regulations and tax benefits provided by the maquiladora system and IMMEX, outsourcing to Mexico ensures lower shipping costs and easier factory visits thanks to the shorter distance.
Maquiladoras also offer greater efficiency and quality. This is partly thanks to Mexico’s experience in manufacturing, which spans over 60 years. Most workers are skilled, educated, and at least partially bilingual.
IMMEX Program Mexico
Maquiladoras initially focused on textiles, simple electronics and industrial products but by the 21st century, Mexico has quickly broadened its manufacturing to encompass a wide range of industries. The country is a major auto manufacturer, home to 89 of the world’s top 100 auto part makers. Other common industries include:
- Alternative energy
- Medical devices
- Metal mechanics
- General consumer products
For more information about maquiladoras and the IMMEX program or to learn more about us, contact us at (858) 794-7947.