Tax Treatment Of U. S. Companies Participating In The Maquiladora Industry: Recent Developments Involving The Intergovernmental Agreement On Transfer Pricing And Other Issues

Abstract

The relationship between U.S. companies and Mexican maquiladoras has been evolving for more than thirty years.  The original advantages of lower taxes, cheaper labor, quick delivery and special tariff treatments enabled U.S. companies to increase cost-effectiveness and remain competitive worldwide.  The arrangement also brought employment opportunities and prosperity to the border region of Mexico.  Over time, however, many of the original advantages for both the United States and Mexico have either eroded or disappeared completely.   As political and economic changes have occurred, so have changes within the maquiladora industry.  In addition, the maquiladoras now face increasing competition from other foreign countries for U.S. business once reserved for the maquiladoras.   This paper will examine these issues and the implications of recent changes for both the maquiladora industry and for the U.S. companies who use their services.