"Maquiladora" or  "maquila" is derived from the Spanish word "maquilar" which historically referred to the milling of wheat into flour, for which the farmer would compensate the miller with a portion of the wheat, the miller’s compensation being referred to as "maquila". The modern meaning of the word evolved from its use to describe any partial activity in a manufacturing process, such as assembly or packaging carried out by someone other than the original manufacturer.

Today, a "maquiladora" refers to a Mexican company operating under a special customs regime which allows the maquiladora to temporarily import into Mexico on a duty free basis, machinery, equipment, materials, parts and components and other items needed for the assembly or manufacture of finished goods for subsequent export.

The first maquiladoras were established in 1966 in Baja California and Ciudad Juarez in the State of Chihuahua under what was then referred to as the Border Industrialization Program. Initially maquiladoras could only be established in the border areas of Mexico, a strip of land 20 kilometers wide along the U.S. border, and in the Baja California free trade zone.

The original purpose of maquiladoras was to absorb excess labor in the border areas and to encourage Mexican exports. It was also hoped that maquiladoras would help develop the Mexican manufacturing base and lead to the transfer of technology to Mexico. Over time the maquiladora concept evolved so that maquiladoras could be established anywhere in Mexico and to permit the sale of a portion of the maquiladoras’s production in the Mexican domestic market on payment of import duties and other charges and Taxes on the imported materials, parts and components used in their manufacture.

The existence and development of the maquiladora industry in Mexico is due primarily to foreign investment. Foreign companies specially from the United States, but also Japan, Canada and other countries, have established assembly or manufacturing operations in Mexico to take advantage of relatively inexpensive Mexican labor and the close proximity to the United States market. Even before Mexico’s Foreign Investment Law was liberalized in 1993 in anticipation of the implementation of NAFTA, there were few restrictions on foreign investment in the maquiladora industry. Generally, maquiladora companies are 100 percent owned by their foreign parents.

The development of the maquiladora industry in Mexico was assisted by a U.S. customs program, still in existence, which allows goods "assembled" outside the United States from U.S components to be imported into the United States without payment of U.S. import duties on the value of the U.S. components; that is, import duties are paid only on the foreign value-added.

Source: BakerMcKenzie-Maquiladoras in the New Environment