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AMLO’s energy reform, against all odds

In the post-World War II period, as globalization of companies and economies rapidly increased, countries started establishing incentives to attract foreign direct investment (FDI).

These incentives included offering tax breaks for foreign companies, free or subsidized government land, R&D allowances, and funds for training workers. By attracting FDI, countries benefited by having new development, new monies flowing into their borders, and the creation of good-paying jobs for their citizens.

In its quest to industrialize its northern border, and to employ citizens returning after the United States canceled the bracero agricultural labor program, which employed Mexican laborers on American farms, Mexico established its maquiladora program.

This program parlayed off of changes in the U.S. tariff code, which made it easier for companies to manufacture in foreign countries in order to better compete against foreign competition. Often referred to as the “twin plant program,” maquiladoras allowed foreign companies to manufacture in Mexico, with only the value added to the product in that country subject to tariffs.

In other words, if a U.S. company is manufacturing a cell phone using a Mexican maquiladora plant, and all the materials are exported to Mexico for assembly, only the value of the Mexican labor would be subject to taxation once the phone is shipped to the U.S. market.

Volkswagen Tiguan cars are pictured in a production line at company’s assembly plant in Puebla, Mexico, July 10, 2019. Picture taken on July 10, 2019. REUTERS/Imelda Medina – RC11796D4070

Programs such as Mexico’s maquiladora program have been wildly successful in attracting foreign direct investment. One only has to drive through border cities such as Juárez, Mexico, to see plants from Fortune 500 and Fortune 100 companies sprinkled throughout massive industrial

.

Today, there are more than 6,000 foreign companies operating in the Mexican maquiladora industry, employing approximately 3.2 million people. The maquiladora industry now accounts for 53% of Mexico’s total exports.

However, we have now entered a new era, in which a country’s policies and practices are just as important in attracting FDI as are established incentives. There are companies that won’t establish operations in Brazil, due to that country’s failure to address deforestation in its Amazon region. Other companies are refusing to expand operations in China because of that country’s human rights violations.

Source: El Economista

Mexico Daily Post

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