A Guide to Enjoying Business and Culture in Tijuana, Mexico and Southern California
The benefits of cooperation
The maquiladora is an American or foreign-owned factory in Mexico, which is allowed to bring manufacturing equipment, materials and components for finished products across the border tariff free. The factories benefit from utilizing the highly skilled, affordable Mexican labor force. While many believe maquiladoras are a relatively new manufacturing option,born out of the NAFTA, they actually began to develop in increasing numbers way back in 1964, when the initiation of the Maquiladora Program allowed them to be 100% foreign owned. Aiming to foster border region employment rates as well as further attract foreign investment, the program was a great success. Although these programs encouraged foreign-owned production facilities, product sales to Mexican markets were controlled. A new maquiladora decree was issued in 1989, and further relaxed Mexico’s foreigninvestment laws, as well as allowing maquiladoras to sell up to 100% of their production to Mexican domestic markets.
While NAFTA actually eliminated some customs benefits enjoyed by maquiladora operators and defined strict “rules of origin” for products to qualify for preferential tariffs, the laws remain business friendly and hundreds of Fortune 500 to small and medium-sized firms continue to increase profit margins by manufacturing in Tijuana.
The Corporate Shelter
The Best Way to Cross the Border
The corporate shelter program has been in use since the 1960’s, and allows American-owned manufacturing firms to establish a maquiladora in Tijuana, Mexico without owning a Mexican business. The process is quite simple. The American company wishing to manufacture in Tijuana contacts Border Assembly inc., a firm specializing in providing shelter services. Based on the specific manufacturing or assembly needs of the client, the shelter firm looks for and leases an appropriately-sized building for them, and handles all of the real estate transactions, permits and legal work required to acquire the facility. The shelter service also acquires the maquiladora register, import permits, and local and federal licenses and permits. Bank accounts and an accounting and tax payment program are established, and employees are interviewed and hired. The foreign manufacturing firm moves equipment and machinery required for assembly or manufacturing to the facility, and designates a production supervisor to ensure quality control.
Once the operation is established and running, the shelter firm ensures compliance with all Mexican laws and regulations. Research and management required for fiscal compliance with transfer pricing, permanent establishment, safe harbor, asset taxes, and payroll, withholding and employee benefits packages are also handled by the shelter firm. Ongoing personnel management as well as compliance with labor laws and the labor board are performed as part of the shelter package as well.
Additionally, the shelter firm can handle all border crossing and transportation arrangements. The American firm maintains complete control of product quality while he shelter firm performs all functions required to keep the operation running smoothly.
The efficiency of Border Assembly, Inc.’s shelter services has advanced to a point where an American business could potentially establish a Mexican operation in as few as six weeks without even crossing the border. The American manufacturer profits substantially from labor costs cut in half, while bypassing any challenges associated with establishing a factory in Tijuana themselves.