Liberalization Stage — Public Policies for the Auto Industry in Mexico

(This article was originally written for my Ph.D. dissertation on Aug-2015)

A series of public policies started to change in the United States and Mexico in 1965. These policies started to allow exports of parts and components from the United States to Mexico. In the case of Mexico, these changes allowed its “Border Industrialization Program” take advantage of the possibility of establishing companies with 100 per cent foreign capital, as long as these companies only have the purpose of exporting to the United States. Subsequently, allowing assembled cars to be exported without tariff barriers to the United States. These policy changes lead to the creation of the maquiladora export industry in Mexico (Carrillo & Zarate, 2009).

However, not until late 1970s, the overall government policies were restructured towards neoliberalism. For instance, during the 1970s import barriers were eliminated in all the States in Mexico. Imports restrictions were eliminated, and local requirements were reduced to 36 per cent with the goal of increasing quality and exports (Barragan, 2005).

Additionally, an expansion of the maquiladoras program was implemented in 1977. This expansion gave more freedom to border states government officials in the United States and Mexico to approve maquiladora programs. Before this, the federal government approved all the maquiladora programs. This helped to increase the industrial development in states in the border with the United States (Carrillo & Zarate, 2009). As well, foreign ownership was also allowed for suppliers that exported autos (Barragan, 2005).

Mexico joined the GATT in 1986, and with this import tariffs were lowered. By 1989, the government were planning to show support to liberalize the industry even more. Nevertheless, automobiles import remained limited to 15 per cent of the local production. In 1993, this policy was increased to 20 per cent. In addition, 36 per cent of the local production value added needed to come from national suppliers (Fernandez Dominguez, 2005).

Reference:

Barragan, S. (2005). Assessing the power of Porters’ diamond model in the automobile industry in Mexico after ten years of NAFTA. Lethbridge, Alta.: University of Lethbridge, Faculty of Management, 2005.

Bennett, M. (1986). Public policy and industrial development: the case of the Mexican auto parts industry. Boulder: Westview Press.

Carrillo, J., & Zárate, R. (2009). The evolution of maquiladora best practices: 1965– 2008. Journal of Business Ethics, 88(2), 335–348.

Fernandez Dominguez, A. O. (2005). Explicando las exportaciones mexicanas de la industria automotriz. Un analisis de series de tiempo.