Editorial: What's Going on in Mexico? Maquiladoras ¿Comprende?

Nearly every major U.S.-based thermal equipment manufacturer is doing a brisk business in Mexico these days. What's driving this activity south of the border? It can be summarized in one word¿Maquiladoras. "Maquiladora" means "bonded assembly plant" and is derived from the Spanish term "maquila," the payment in corn that a miller keeps for milling corn. In modern day Mexico, the term refers to a factory that performs labor-intensive operations for foreign manufacturers. For example, a lawnmower manufacturer may ship loose parts into Mexico to be assembled and then ship back into the U.S. as a complete lawnmower. Why do maquiladoras exist? The simple answer: low labor costs.

Evolution of Maquiladoras
Maquiladoras originated in Mexico as "zona libres" or "free zones" located along the Mexican/U.S. border. Typical Mexican trade barriers (e.g., high tariffs, import permits, and restrictions on foreign investment) were all but ignored because they were too difficult to enforce. U.S. businesses located close to the border took advantage of zona libres to keep their labor costs down.