Trade and the Environment: The case of Mexico's Maquiladora

Regulations

The regulations that permit Maquiladoras can ultimately be linked to the Bracero Program, which lasted from 1951 to 1964. This program provided Mexican citizens with temporary visas to the United States to take part in agricultural harvests. These employment opportunities drew tens of thousands of Mexican citizens towards the Mexican-U.S. border. However, due to high application numbers, there were not enough spaces for all applicants to be accepted. As a result, unemployment and population rates jumped in the areas near the border.

In 1964, the Bracero program was eliminated in the United States, generating border unemployment rates between 40 and 50 percent. The Mexican government determined that there would need to be an international connection to address the unemployment and population issues. Mexico looked outwardly to foreign companies as potential sources of revenue and employment. Up until this point, these corporations had avoided Mexico due to high import taxes and foreign ownership problems.

However, these problems were addressed in 1965 by the Border Industrialization Program. Foreign-owned companies no longer had to pay taxes to import materials or equipment into Mexico. The main requirement was that all produced goods would be exported from the companies, thereby creating a source of revenue for the country. However, in the late 1980’s, Mexico revised this rule, allowing companies more freedom. Finally, in the mid 90’s, Mexico established agreements with Brazil, Paraguay, Argentina, and Uruguay allowing Mexican export to enter the countries without taxation. However, the United States exports to these countries are still taxed, making it desirable for American corporations to export directly from Mexico. The final changes in regulation came in 2000 with the North American Free Trade Agreement (NAFTA) among Mexico, the United States, and Canada. This agreement allowed raw materials and equipment to enter Mexico free of tax only from participating countries.