Also known as “in-bond” plants, maquiladoras were  allowed to import temporarily, on a duty–free basis, raw materials and  components for processing or assembly by Mexican labor and to re-export  the resulting products, primarily to the United States. 2). Within the diverse  maquiladora sector, the decline was particularly steep in certain industries  and in some border cities. At the  same time, U.S. border employment in manufacturing and certain other  trade-related sectors contracted. Maquiladora production declined about 30  percent from late 2000 to early 2002. During the maquiladora decline, exports, imports, and overall trade  through U.S.-Mexico land border ports also dropped. U.S. Border Employment in Manufacturing and Transportation Services Fell, but Overall Employment Growth Continued

The decline in Mexico’s maquiladoras was also felt on the U.S. side, as  manufacturing employment in border municipalities declined by 6 percent  overall from 2000 through 2002. However, industry sources and other  experts emphasized that the maquiladoras have also been adversely  affected by structural factors, such as increased competition in the U.S.  market, particularly from China, Central America and the Caribbean, and  by the strength of the Mexican peso, which has further eroded the  maquiladoras’ competitiveness. Although many government, academic, and industry sources  generally refer to the cyclical downturn in the U.S. economy as a principal  factor in the decrease in maquiladora employment and production since  the last quarter of 2000, there is no such agreement on the relative  importance of other factors associated with the decline of the  maquiladoras. Some of these industries represent significant  sectors of maquiladora production. Other changes in Mexico’s tax regime have contributed to  the climate of investor uncertainty. However,  maquiladoras still face fundamental challenges. The challenges still confronting maquiladoras and the  pressure from U.S. trade and homeland security policies lend urgency to  Mexican efforts to create an environment where cross-border links  between U.S. and Mexican firms and communities can continue to prosper. Structure of Employment Growth in the U.S.- Mexico Border Area

This appendix examines U.S. employment changes along the U.S.-Mexico  border and explores whether employment in the border areas of the United  States has been disproportionately affected by the recent slowdown in U.S.  economic activity and the associated decline in cross-border trade between  the United States and Mexico. 1. 3. As a  result, the maquiladoras are partly independent of Mexico’s internal  economic trends. Maquiladora Employment Statistics

After growing rapidly throughout the 1990s, Mexican national maquiladora  employment peaked in October 2000 and declined sharply through March  2002.
Why GAO Did This Study

Mexico's maquiladoras have evolved into the largest component of U.S.-Mexico trade. Maquiladoras import raw materials and components for processing or assembly by Mexican labor and reexport the resulting products, primarily to the United States. Most maquiladoras are U.S. owned, and maquiladoras import most of their components from U.S. suppliers. Maquiladoras have also been an engine of growth for the U.S.-Mexico border. However, the recent decline of maquiladora operations has raised concerns about the impact on U.S. suppliers and on the economy of border communities. Because of these concerns, GAO was asked to analyze (1) changes in maquiladora employment and production, (2) factors related to the maquiladoras' decline, and (3) implications of recent developments for maquiladoras' viability.

What GAO Found

After growing rapidly during the 1990s, Mexican maquiladoras experienced a sharp decline after October 2000. By early 2002, employment in the maquiladora sector had contracted by 21 percent and production had contracted by about 30 percent. The decline was particularly severe for certain industries, such as electronics, and certain Mexican cities, such as Tijuana. The downturn was felt on the U.S. side of the border as well, as U.S. exports through U.S.-Mexico land border ports fell and U.S. employment in manufacturing and certain other trade related sectors declined. The cyclical downturn in the U.S. economy has been a principal factor in the decrease in maquiladora production and employment since 2000. Other factors include increased global competition, particularly from China, Central America, and the Caribbean; appreciation of the peso; changes in Mexico's tax regime for maquiladoras; and the loss of certain tariff benefits as a result of the North American Free Trade Agreement. Maquiladoras face a challenging business environment, and recent difficulties have raised questions about their future viability. Maquiladoras involved in modern, complex manufacturing appear poised to meet the industry's challenges. Still, experts agree that additional fundamental reforms by Mexico are necessary to restore maquiladoras' competitiveness. U.S. trade and homeland security policies present further challenges for maquiladoras.