Article published in Alliance magazine, edition no. 32. Alliance is a publication of the U.S.-Mexico Chamber of Commerce.
It is easy to agree with the idea that Mexico is a near-shore prime manufacturing location, that its products have preferential tariff access to the world ́s largest markets, and that its trade-facilitation programs enable a clear, worry-free path to import raw materials for processing in the country.
Yet, if you share the previous paragraph’s conclusion with your company’s compliance officer ([Mexico’s] trade-facilitation programs enable a clear, worry-free path to import raw materials for processing in the country), you are likely to receive a frown and a disapproving shake of the head.
This, as companies already doing business in or planning to reshore in Mexico ordinarily do not do their homework and, at the warrior scream of “Maquila,” typically go for this program, actually the most complex, burdensome and risk-filled of those available. (Note: All of the original Maquila programs have, by now, automatically been transformed into IMMEX programs).
Due to the breadth of this article, we do not have the luxury of describing in detail the pros and cons of each available trade-facilitation program in Mexico. Suffice it to say that, in addition to IMMEX, there are a number of trade-facilitation programs with varying degrees of complexity, namely PROSEC, Eighth Rule Permit, Drawback, Clearance Registry, and Certified Companies Registry1.
Even though your company should think long and hard as to what program is an actual fit to its operations, the following four items should always be on the top of your list when doing such an evaluation:
1) import duties;
2) value added tax;
3) antidumping duties; and
4) mandatory technical standards.
We will briefly deal with the nuances of their application while importing goods for processing in Mexico2.
1) Import Duties
Temporary importation of goods into Mexico, including raw materials, is subject to payment of import duties, to the extent that the resulting products are to be exported to a relevant Free Trade Agreement country (most importantly due to market-attractiveness, those in the USMCA, the European Union, and the European Free Trade Association3).
We should note that there is a means to end up receiving a refund for the lesser of the raw materials’ import duties or those of the resulting products.
2) Value Added Tax (VAT)
Goods that are temporarily imported for manufacturing purposes are subject to the payment of value added tax; however, companies can benefit from the Mexican government ́s fiscal credits in the exact same amount of such tax when they qualify for a VAT certification. Alternatively, this levy may also be avoided by posting a bond or letter of credit.
3) Antidumping Duties4
Temporary imports into Mexico are subject to antidumping duties, exclusively when the corresponding final determination of the relevant investigation expressly determines it; thus, thorough research should be performed in the historical records of the Mexican Diario Oficial.
4) Mandatory Technical Standards5
Until late 2020, the importation of certain materials to be utilized in production processes, or that would not be sold to the public in the same shape or form as imported, were permitted to enter under “exemption letters” that allowed them to be imported without proof of NOMs compliance.
As of today, importers must comply with relevant NOMs, either prior to importation through duly certified compliance evaluations or after the importation process through an existing contractual obligation with an authorized verifier, to finalize such process within 40 days.
Therefore, even though there are a number of trade-facilitation programs in Mexico that have been working as expected for a large number of years and virtually all manufacturing foreign investment in the country makes use of them on a regular basis, each program should be carefully analyzed before allocating time and resources into it. Treatment of the four items we have briefly described should always play a major role in such an evaluation.
Lastly, as the nature of this subject matter is inevitably technical and entails significant responsibility, the next time you run into your company’s compliance officers, you could very well give them a reassuring pat on the back.
1 They respectively stand for Manufacturing, Maquila and Export Services Industries Program (IMMEX Program); Sectorial Promotion Program (PROSEC); Eighth Rule Permit; Refund of Import Duties to Exporters (Drawback); Inspection at Origin (Clearance Registry); and Integral Companies Certification Scheme (Certified Companies Registry).
2 In addition to those briefly described in this article, there are other requirements that should be observed as per the specifics of each case.
3 The European Free Trade Association ́s members are Switzerland, Norway, Liechtenstein and Iceland.
4 Antidumping duties are imposed on a country-by-country basis, exclusively after a thorough investigation concludes that certain unfairly traded imports caused damage to the relevant domestic industry.
5 Known in Mexico as NOMs, for Normas Oficiales Mexicanas. NOMs are compulsory to a large number of goods, products and services in Mexico, when they may affect or pose a risk to the physical integrity and health of consumers, lives of laborers in their workplaces, food safety, the environment, and other legitimate policy objectives.