No matter your politics if you’re a business owner, profits trump almost everything else. Lately, there has been a lot of discussion surrounding the fact that many U.S. businesses outsource a portion of their labor and manufacturing to Mexico in order to cut costs. From building a wall to reconsidering NAFTA, U.S.-Mexico relations are front page news, but few people are talking about the business benefits of the Mexico’s IMMEX Program.
Understanding the IMMEX Program
The IMMEX program, previously called the IMMEX maquiladora program, is designed to encourage outside businesses to manufacture their products in Mexico. IMMEX does this by allowing foreign companies to import all of their components and raw materials into Mexico duty free without paying any taxes.
However, there are caveats that make the program beneficial for Mexico as well. One of the stipulations of the IMMEX program is that 100 percent of the finished products must be exported out of Mexico. That means the manufacturing portion of the process must take place at a maquiladora in Mexico.
A maquiladora is a factory that’s foreign owned and operated. As part of the IMMEX program, maquiladoras enjoy special tax incentives, such as being able to bring in production materials and equipment tax free. The success of Mexico’s maquiladoras has been largely contributed to the NAFTA agreement that eliminated numerous limitations to the IMMEX program.
As a part of the IMMEX program, the government of Mexico set up safeguards to protect foreign companies. For one, the maquiladoras follow strict compliance guidelines that have been established by Mexican officials and foreign entities that own the facility. There are also few concerns over delays since manufacturing plants must finish products within a government mandated timeframe.
Through the IMMEX program American businesses get extremely competitive rates from a factory with oversight and regulation while Mexico benefits from more jobs and a more robust manufacturing industry.
The IMMEX program was established with the goal of making Mexico a bigger player in the global economy, and the plan appears to be working. It’s led to major innovation within Mexican manufacturing in recent years. Foreign corporations are investing in upgrading the maquiladoras with cutting-edge equipment and specialized technology so that more production is possible. As a result Mexican maquiladoras are now producing a wide range of products from textiles to medical devices.
As of 2014, there were 6,171 facilities within the IMMEX program. The program supports nearly 2.5 million jobs and is now the second largest source of foreign currency in Mexico. IMMEX has allowed Mexico to become an attractive alternative to using China as a manufacturing partner, particularly for American and Canadian businesses. The six Mexican states that border the U.S. are home to 60 percent of the IMMEX maquiladoras. Many U.S.-based businesses that take advantage of the program have operations just north of the border.
The strongest manufacturing sectors of the IMMEX program include computer and electronic products, transportation equipment (vehicles) and electrical equipment. It comes as no surprise that auto manufacturing is the main driver of the IMMEX program. Transportation equipment accounts for 16 percent of IMMEX establishments, employs 32 percent of the program’s employees and accounts for 44 percent of IMMEX revenue.
Many economists are paying careful attention to how the political rhetoric will affect auto manufacturing in Mexico. Since the start of the year, some automakers like Ford have made public statements about their plans to keep jobs in the U.S. instead of moving them to Mexico. However, the fact that many of the big name automobile makers are fighting the proposed border adjustment tax signifies that they don’t plan on pulling their operations out of Mexico anytime soon.