Frequently Asked Questions

COVID FAQs

The federal government, in addition to the publication of new protocols for the workplace and a check-list for operational compliance, has announced their intention to continue inspections, both random and through a community reporting process.

These inspections seek to protect employees by ensuring safe working conditions, contingency planning and documentation by the company. The government is taking the authority to demand closure of operations found in non-compliance of the protocols, or upon detection of a cluster of infected employees, and an ongoing discussion continues on possible sanctions.

The federal government has not given fiscal support to any type of company at the moment. However, they have granted credit through two programs.

  • Solidarity Credit in Good Faith, a personal credit through Social Security. It is necessary to not have been fired in the first trimester of the year.
  • Welfare, through the Secretary of Economy, is another personal credit, and the employee must be registered by the Census for Welfare.

In this sense, SMEs (small and medium companies) should look for options at the state level (each state has their own initiatives or support) or through private credits such as private credit institutions or chamber associations. It is important that the SMEs evaluate all options because the interest rates as well as the requirements vary in each case.

 

Monica Lugo

INSTITUTIONAL RELATION DIRECTOR

Whether an essential company currently operating in Mexico, or a non-essential company planning to re-launch their operations, it is important to comply with key protocols in order to be prepared for an inspection from the Mexican authorities.

First, it is necessary to develop an Infectious Disease Preparedness and Response Plan. This plan should aim to identify where, how and to what sources of the virus SARS-CoV-2 workers might be exposed. It is also important to identify non-occupational risk factors at home and in the community settings, including individual workers´ risk factors (i.e. older age, presence of chronic illnesses, pregnancy, etc).

Lastly, the plan must include the establishment of controls necessary to address each of the identified risks. In addition, companies should prepare and implement basic prevention measures in the workplace. From the way in which employees enter the facility, the frequency they are asked to wash their hands, their work stations and protective equipment, the prevention measures are the keystone to providing safe working conditions that allow employees to feel attended.

It is also important to develop, implement and communicate policies for workplace flexibilities and protections. Develop policies and procedures for the prompt identification and isolation of suspected cases of COVID-19.

It is important to plan alternative scenarios:

  • where will the sick individual be taken upon detection?
  • If an ambulance service is not available, does the company have a vehicle prepared?
  • How will we contact trace any contagions and what will be our isolation policy? Etcetera.

Lastly, it is important to implement workplace controls in the areas of engineering, administration, safe work practices and Personal Protective Equipment. Employees in the workplace should be reminded and guided to make healthy decisions that help to protect the entire workforce and their families.

David Antuñez

EHS DIRECTOR

It is recommended to create a multi-disciplinary Operations Relaunch Committee consisting of middle management and managers. This team will define the relaunch program along with the HR & EHS teams, and will lead the crucial ongoing communication plan.

 

  • The relaunch program should include a scaled plan to reincorporate workers: planning shifts to avoid an influx of people, defining priority positions that must return first, and maintain flexibility programs and tools to allow those that can work from home to continue to do so.
  • In compliance with new protocols, the plan should include detailed information regarding sanitization procedures in the facility. These procedures should be published and communicated with employees at least one week prior to their return by utilizing digital platforms (broadcast, email, WhatsApp, etc), and the committee should continue to reinforce the plan, the company´s commitment to employee safety, and the disposition for an open dialogue to freely express any concerns.

Lastly, it is important to share with the highest frequency possibly (preferably daily) the tracking of cases of COVID-19 in the community and state, and how the organization is preparing for what is happening. A solid program for the relaunch of operations, in addition to leadership, order and planning, is crucial in order to transmit the message that the safety of employees is the priority of the organization.

Elisa Villarreal

 

Benjamin Bocanegra

The law specifically mentions two scenarios that allow the legal reduction of salaries of employees.

 

  • In case of the declaration of a “sanitary contingency” by the Federal Government, it is possible to send workers home and pay 1 minimum salary for up to 30 days. This was not the case during the declaration of the Federal Government for the COVID-19 crisis at the beginning of April.
  • In case of a declaration of a “sanitary emergency” by the Federal Government, the current COVID-19 case, it is possible to make a salary reduction due to an emergency condition declared by the Federal Government, as long as:
    1. All of the employees and the employer agree to the terms and conditions for such a temporary salary reduction.
    2. The resulting written agreement (collective or individual) must be safely kept at the labor center and registered in front of the Labor Court as soon as it is open due to the COVID-19 crisis.

There are other interim mechanisms such as giving vacations in advance to somehow gain time whenever the activities return to “normal”, but this does not represent real cost reduction.

 

It is also very important to preserve the social mandatory benefits (such as Social Security) unchanged as much as possible, due to the risk of potential audits or affecting other current benefits or an employee (such as INFONAVIT loans for a particular employee).

 

In the case that an employee does not accept the salary reduction, the employer may proceed to full termination of the employee, incurring all corresponding payments of severance, as marked by law.

Jorge Ortega

ASSOCIATE AND STRATEGIC ADVISOR

The economic and pandemic crisis area creating delays at the borders, International Trade Compliance professionals must react and take action immediately, for example:

 

  • Streamline processes such as prior inspections at Customs Broker warehouse
  • Review customs clearance documents prior to importation
  • Evaluate cost-effective practices such as import duty rate analysis These practices can prove helpful to support the supply chain and avoid any risk or situation with Customs authorities and other federal authorities. From the import/export and trade compliance standpoint, it is important to consider the following topics:
    • Detect in real time the areas of opportunity through a root cause analysis before they appear
    • Measure and monitor in a standardized methodology the KPI´s of the operation including parts, HTS classifications, import/export data, regulations, etc
    • Create a continuous improvement culture in Trade Compliance. Remember: risk assessment, a formal writing compliance program, training, recordkeeping and audits are the best practices to ensure compliance!

 

Manuel Ponce

INTERNATIONAL TRADE COMPLIANCE DIRECTOR

The first step to protect your supply chain is to evaluate the health, considering the current situation as well as the future sustainability based on different scenarios.

 

 

How healthy are your supply chain partners?

  • Supply Base including capacity, 3rd tier suppliers, visibility and supplier alternatives
  • Transportation Partners including origin capacity, visibility, customs brokers and transportation partners Am I reducing risk in my supply chain with necessary adjustments and protections?
  • Demand Planning including pull/push/cancel of your customer forecast ensuring your minimum/maximum levels first
  • Safety Times with the reevaluation of ABC classifications and safety stocks
  • Ensure Inventory accuracy to avoid surprises
  • Consumables / MRO geared toward new demand including newly required PPE materials

Am I considering my supply chain blind spots?

 

Double-check your internal capacity considering an audit to identify any gap or weakness in inventory management, communication, errors, delays, planning parameters, lead times, etc. It is important to have visibility into every mode and stage of your supply chain.

Kurt Schmidt

CONSULTING DIRECTOR

The reputation of your company matters now more than ever! Strengthening your relationship with your workforce, community and the government is the key to success.

 

  1. Be the best place to work for your employees. Increase the wellness of your workforce. Your people need to know that you care for them.
  2. Be a socially engaged company. Identify the needs of your community and establish programs to help the community and the environment. By helping the community you can also reinforce your relationship with the government.
  3. Communicate internally. You need to constantly communicate with your people about internal programs. You can find many tools to communicate, the key is identifying the main message that is adapted to your audience.
  4. Choose your spokesperson wisely. Identify the most reliable and charismatic person in the company and work on a script. This person will represent your company in media interviews and Government Affairs.
  5. Pay attention to your social media. It is a good image of how your people and the community perceive your company. A crisis management plan must be developed that tailors specifically to your social media campaign and audience.

 

Yoelle Rojas

DIRECTOR OF PUBLIC AFFAIRS AND COMMUNICATION

Operations FAQs

Depending on your specific circumstances and business case, there are multiple options to operate in Mexico. You can partner with someone for manufacturing or shelter operations or you can start your own dedicated entity for production.

Partnerships, including Prodensa´s shelter and inshoring models, provide the least exposure and risk to operating in a foreign country. Stand-alone operations preserve your know how and give you the highest level of control and liability over your operation.

If you sell your product to the Mexican market or need to invoice in Mexico, you will most likely have a profit center operation. If you plan to have a “maquila” operation where the revenue of the finished export product will be paid by the parent company, you will most likely have a cost center. 

Give us a call and let us walk you through the pros and cons of the different operating structures in Mexico. We can provide you with comparative cost models so you can make the most informed decision for your future project in Mexico.


 

Ricardo Martinez, Business Intelligence Director 

With recent announcements to invest in infrastructure in Mexico, manufacturers can look forward to improvements in the systems that support their production.

  • Transport: Mexico is well connected through a national network of highways, with special focus on roads to export routes to the U.S. There are also many international airports and a rail network connecting Mexico to multiple border cities.
  • Industrial Parks: Mexico has the presence of large and professional development groups, from international firms to local players. These groups play a pivotal role in the industrial development. Options range from new “green” buildings to ones a bit older and basic. 
  • Electricity: Mexico´s state-owned company, CFE (Comisión Federal de Electricidad), is the largest generator and distributor of electricity in Mexico. There are international firms that support the generation of electricity through solar, geothermal, thermoelectric and other technologies, and CFE distributes. Electricity rates vary by state and are adjusted on a monthly basis.
  • Natural Gas: Mexico has natural gas infrastructure in most industrial cities, with presence of national and international firms that support the generation and distribution of natural gas. 
  • Water: water and sewage services in Mexico are managed by state-owned companies. The rates vary by state and are adjusted on an annual basis.
  • Communications: Voice/data infrastructure in Mexico is one major competitive advantage. There is a large presence of national and international firms that support voice and data services nationwide at competitive costs, with special focus in industrial areas for high-speed, satellite and fiber optic options.

Prodensa´s site selection analysis will narrow down the strategic options for establishment of your manufacturing facility, allowing a more in-depth comparison of regions and/or cities, which will allow you more detailed pricing data. Additionally a feasibility study will validate the business case, operating structure and cash flow, supply chain and eligibility of programs.

Carlos Loyola, Business Development Director

In Mexico, there are many ways in which the government can provide support for start up projects in manufacturing. Local governments understand that economic development in their region will attract new business. Foreign direct investment fosters the creation of new jobs, develops the local industry and attracts new technologies. As a result, this improves the quality of life among their communities.

Incentives may vary according to the level of government and also by region:

  • Federal: Decree for the Promotion and Operation of the Export Maquiladora Industry (IMMEX), Sector Promotion Programs (PROSEC)
  • State: Payroll Tax deductions, infrastructure support, cash, land, training scholarships, municipal lobbying
  • Municipal/City: real estate acquisition tax discount, real estate ownership tax discount, construction permit discount, reduction of municipal services payment fees

Read the local laws about incentives since they will give you an idea of what is possible and the best approach. Incentives negotiation requires strategy. It is important to define the right moment to approach the local governments and also to understand what is feasible. Express interest for your company to be a part of the community, and once established, plan to part of social programs and events.

Incentives are only one piece of the pie for launching operations in Mexico. Having a solid strategy for institutional affairs is a key aspect to business continuity. Prodensa has an executive team with a deep network to help you build competitive and sustainable operations in Mexico.

Nallely Garza, FDI & Public Affairs Consultant

The start up timeline for new manufacturing operations depends on many factors. First, the type of operational structure will determine the time required in the incorporation process. Next, different permits are required for construction or land use, international commerce programs and special industries. Last, you will need to adhere to local and federal compliance in labor, trade operations, health & safety, and day-to-day finance functions. 

In a good scenario, a standalone operation can be up and running in 6 months, although nowadays certain certifications and programs are taking up to a year. You may consider an inshoring operation where speed to operation can be greatly reduced.

Having a professional project management firm can achieve best results based on prior experience, professional network and a multi-disciplinary team made up of experts from all required compliance areas.

Cesar Hernandez, Project Manager Northwest

As a rule of thumb, we say you can hire general manufacturing labor for about $3.50 dollars an hour. Skilled and technical labor depend on the industry and location in Mexico. There are minimum employee benefits required by law and additional benefits driven by the market.

It is important to strive to be an Employer of Choice in your designated market as employee turnover can be costly and lower morale.

The EOC Program is aimed at promoting a positive employee experience and brand architecture built on company culture, improving engagement and retention of top talent. Understanding employee drivers in Mexico is the foundation to building a sustainable program and becoming an EOC.

In Mexico, manufacturing provides stable jobs with good benefits. Mexico has a young and sustainable population, with the average age just under 30 years old. There is a vast network of technical schools and a growing R&D industry in Mexico.

Prodensa has multiple tools focused on manufacturing operations that help you benchmark your industry as well as your location. Being competitive to attract and retain talent while protecting your bottom line is an essential decision for manufacturing operations in Mexico.

Robin Conklen, Manager Prodensa USA

Many manufacturing facilities in Mexico are unionized, although it is by will of the workforce to choose. Strictly speaking, no one is forced to join a union, but if workers wish to join one, the company would be required to sign a Collective Bargaining Agreement following a labor procedure. Unions typically only represent hourly employees, and salary employees must be expressly excluded from the CBA. 

The federal labor law defines a union as “the association of workers or employees for the study, advancement, and defense of their respective interests”. There are multiple types of unions in Mexico. Among other things, unions review contracts, verify annual tax declarations, initiate collective disputes, oversee the training system, negotiate salary increases, and deal with occupational safety and health measures.

In 2019, Mexico overhauled their Labor Law to align with the USMCA. One key aspect was the freedom of association and the free selection of a union by employees, aimed at ensuring that employees feel that their rights are represented. As depicted in the Federal Labor Law, workers are free to affiliate to the union of their choice. Companies will negotiate the Collective Bargaining Agreement with the union that represents the majority of the workers. 

The USMCA establishes a mechanism that allows the swift enforcement and action for non-compliance on labor and other issues in the agreement. Employers found in violation are subject to sanctions and penalties associated with the USMCA.

Prodensa plays a key role in the labor compliance of 65+ manufacturing facilities in Mexico. Each operation is unique and requires a thorough analysis to prepare the leadership and workforce for a healthy union environment. Contact us for more information.

Benjamin Bocanegra, Consulting Manager

The IMMEX Program (Manufacturing, Maquila and Export Service Industry) is an instrument which allows the temporary importation of goods that are used in an industrial process or service to produce, transform or repair the foreign goods imported temporarily for subsequent export. 

The primary goal of the IMMEX Program is to enable foreign companies to manufacture in Mexico through cost-efficient methods and incentives while still focusing on the quality of goods being produced.

“Maquiladoras” are factories in Mexico run by foreign companies, making goods for the export market. They operate under a preferential tax and fiscal program, giving them advantages for operation.

The main benefits to the IMMEX Program:

  • Temporary import of raw materials and fixed assets used in the production, transformation or repair of final goods for the export market
  • VAT Certification that allows a company to avoid paying value-added tax on temporary imports 

The main obligations to having the IMMEX Program:

  • Having an annual export of at least $500,000 USD or export at least 10% of the total invoice sale
  • Having an Inventory Control System for Temporary Imports (Annex 24)
  • Returning the raw material imported under temporary basis within the time frame allowed
  • Registration of all the establishments related to production process
  • Keeping the goods imported temporarily in addresses registered in the program
  • Annual Report of Foreign Trade Operations

Some of the top professionals in Mexico with direct experience in the IMMEX Program are part of Prodensa and provide top notch support and advisory to clients navigating this incentive. Reach out to us to take advantage of the know how and lessons learned over more than 35 years of serving the export manufacturing market in Mexico.

Ana Silvia Aguirre, Operations Manager

Import and export activities between Mexico and the world happen on a daily basis. Mexico is a large exporter of manufactured, agricultural and other products.

 

All companies in Mexico require an Importer of Record (Padrón de Importadores) to import or export. Typically, companies need to have a customs broker to handle the import and export. The basic Mexican import document is called  Pedimento, which is generated by the  customs broker for each import or export on behalf of the importer.  As a company, ahead of import and export you need to provide shipping documents such as bill of  lading, commercial invoice and packing list. Additionally, certificate of origin, phytosanitary and special permits may be required for certain products.  While importing, the importer will also need to pay document handling, custom usage and maneuver fee, applicable duties and value added tax…etc. 

 

For manufacturing companies, it is important to coordinate between the export party and import party. They need to communicate and correctly declare the imported or exported goods to the customs authorities on both sides of the border. It is crucial to have the correct information of the goods that will cross to avoid discrepancies between the paperwork and the physical goods.

 

Importers with products qualifying for preferential treaties such as USMCA, certificate of origin must be presented to ensure compliance.  Importers have sector or industry preferential programs such as PROSEC, RULE 8th can reduce import potential duties.   

 

It’s always advisable to have an insurance policy for all the shipments additional to all of the shipping documents

Xu Yu, Executive Director

Although there are many factors that could change the way in which you pay taxes in Mexico, the main taxation is summarized below:

  • Income Tax – Income tax is a federal tax payable at 30%, like a direct tax on the profit obtained by the operation. This tax must be paid monthly through provisional payments to the Mexican Tax Authority (SAT).
  • Value-Added Tax – VAT is payable at a general rate of 16% on sales of goods and services, import of goods and lease payments. VAT declarations have to be performed on a monthly basis in the subsequent month of the tax dispense. 
  • Payroll Tax – The ISN, or payroll tax, is a state tax that is paid when carrying out transactions in the company´s labor relations. The payroll tax is declared monthly before the Finance Secretariat of the corresponding state and must be paid before the 17th of each month.
  • Profit Sharing – Employers in Mexico are obligated to pay workers a share of the profits based on their annual tax declaration. It must be paid at latest 60 days after the payment or submission of the annual tax declaration.
  • Withholding Taxes – Mexican legal entities that distribute dividends or profits must withhold the tax obtained from applying the 10% rate on said dividends or profits. When the dividend is paid to a resident abroad, the Mexican legal entity must withhold it and pay to the Mexican tax authority.
  • Interests, Royalties and Technical Assistance Fees – Interests paid to a resident abroad with permanent establishment in Mexico are subject to a withholding tax rate of 4.9% to 35%. Royalties paid to a resident abroad are subject to a withholding tax of 35% and the rate may be reduced with a tax treaty. Technical Assistance paid fees are subject to a 25% withholding tax, unless the tax is reduced with a tax treaty. 
  • Property / Real Estate Tax – In Mexico, the acquisition is between 2-4% of the assessed value of the property at the moment of the purchase. Then it will be paid annually and is calculated at a fraction of the value of the property.

There are a number of tax incentives that exist for manufacturing operations in Mexico. Prodensa has the experience and know how to review your specific case and provide guidance and expert project management for the execution of strategies. 

Ernesto Mazzocco, Project Manager Central

Beginning with construction, you will need a license and permit to build or alter a facility, submitting all related documents to the local authorities. The main studies to be submitted would include topography land survey, soil mechanics study and hydrologic study. You will also need to submit project documentation in order to obtain utility service contracts.

You will need an Environmental Impact & Risk Assessment as well as a Land Use / Change Permit. Additional assessments in the pre-operative stage includes Fire Risk, Hazardous / Non-Hazardous Waste, Emissions / Discharge or others specific to your operation. The following graphic depicts the general Environmental Regulation required by a manufacturing operation in Mexico.

During the operative phase of your manufacturing facility, you will need to comply with the 41 official Mexican norms (NOMs). Each have various reporting requirements and deviation detection procedures. These norms generally address:

  • Establish safety and hygiene mixed commission
  • Training and materials handling procedures
  • Monthly inspection / audit visit report
  • Detect areas of potential risk to the environment and plant personnel
  • Monthly compliance report to authorities
  • Execute reporting requirements based on pre-operations permits
  • Deploy corrective actions

Prodensa has the experience of processing hundreds of permits in the last 35 years for our clients in Mexico. Contact us to learn more about how we can help to streamline your start up and get you operating in Mexico.

Sergio Vindiola, Operations Manager

USMCA FAQs

Under Annex 23-A of the USMCA workers in Mexico are encouraged to have a more active role in union matters that in the past were either conducted by union leaders or by a committee of designated workers. These rights are reiterated in the Mexican Federal Labor Law which came into effect in 2019 in alignment with the USMCA terms of labor. Additionally, new labor value content rules in the USMCA require changes to some automotive companies and suppliers.

 

Workers are expected to actively participate in key annual activities including voting for their leaders, approving the contents of the Collective Bargaining Agreement and approving subsequent negotiations. These newly established rights give workers a louder voice in Mexico, but also create risks for businesses, especially in the way they communicate new opportunities and protocols to employees. Relationships with union leadership will be of the utmost importance as well. The labor conciliation protocols have been a key focus as these new regulations are being implemented in Mexico.

 

Generally speaking, the USMCA shifts the burden of proof by stating that a panel shall presume a violation affects trade and investment unless otherwise demonstrated. Dispute settlement panels will investigate practices through on-site inspections and rules of evidence.

 

There are two new oversight bodies that will monitor the implementation of the Mexican Federal Labor Law:

  • Independent Mexico Labor Expert Board
  • Interagency Labor Committee for Monitoring & Enforcement

Read more about Annex 23-A in our blog.

 

 

 

 

Benjamin Bocanegra

 

 

 

 

 

Alvaro García

 

The labor value content creates opportunities and challenges for North America. The LVC requires that 40% of the value of automobiles and 45% of the value of light trucks are made by workers earning a wage of $16 US dollars per hour.

 

Passenger Vehicles

Light Trucks

Costs

2020

2021

2022

2023

2020

Materials & Manufacturing

More than 15%

More than 18%

More than 21%

More than 25%

More than 30%

Research & Development; Information Technologies

Up to 10% can be applied as LVC

Assembly Costs

Granted credit equivalent up to 5%*

 

 

 

 

 

 

Total LVC

30%

33%

36%

40%

45%

Sources in Spanish: (1) (2) (3) (4)

 

In the case of Assembly Costs, an organization has to comply with the condition that the automobile producer demonstrate that they have a motor assembly plant, transmissions (more than 100 million units) and lithium battery (more than 25,000 units).

 

*Example: An passenger vehicle assembly plant in Mexico should ensure that at least 25% comes from establishments where $16 US dollars / hour wage is paid to workers directly involved in the production, as long as they are taking maximum advantage of the 10% R&D and the 5% Assembly Costs and comply with the mentioned conditions.

 

The LVC is part of the automotive rule of origin that states that at least this percentage of labor value comes from operations where the wage is paid, being in North America. It therefore allows the United States and Canada to concentrate much of that value while for Mexico it would allow the analysis to contribute to this value in areas such as R&D. The LVC has a transition period for compliance. For passenger vehicles and light trucks it is a 3 year transition with a scheduled, gradual increase.

 

 

 

 

Alvaro García

 

 

 

 

 

Benjamin Bocanegra

 

The USMCA and especially the new Mexican Federal Labor Law require that unions equally permit the freedom of association of the workforce.

  • Unions must strengthen their internal practices of democracy, and
  • Workers must participate more actively in the decision related to their collective contract

Companies should establish solid relationships with the union in Mexico that the majority of the workers support and said relationships should be concentrated on the respect of the freedom of the workers to choose their representatives.

 

Challenges and opportunities for risk mitigation may include:

  • Employer branding and social media storytelling to promote positive market exposure
  • Management of the communication of the freedom of association to employees
  • Emotional compensation and wage analysis
  • Union relationships and negotiations

Prodensa´s Employer of Choice™ program provides the best practices for the USMCA transition with a focus on compliance in Mexico and employee satisfaction that promotes the retention of top talent.

 

 

Alvaro García

 

Benjamin Bocanegra

The USMCA includes two mechanisms to enforce the labor rights obligations of the agreement:

  • Chapter 23 – adds protection to workers from violence, and bans forced labor
  • Chapter 31 – adds a dispute resolution mechanism to cases on freedom of association as well as penalization procedures

Within the USMCA, the public can submit complaints in addition to employees, trade union, worker rights and other civil society organizations. Panels are responsible for carrying out independent investigations, including on-site verifications, resolutions, and the application of remedies or trade penalties. Sanctions could ultimately be placed on exported goods made at the facility under review, and last until the dispute has been resolved. These procedures, although mostly speculative at the moment, could easily amount to months of delays while the panel renders a verdict.

 

It is imperative that your organization in Mexico complies with the Mexican Federal Labor Law that came into force in 2019 as a precursor to the USMCA terms of labor. It is recommended to make an internal diagnostic analysis, or an auto-evaluation. This allows you to identify opportunity areas or in the case of non-compliance, take preventative measures to avoid being subject to complaints or labor claims in front of the USMCA dispute panel.

 

 

 

 

Benjamin Bocanegra

 

 

 

 

 

Alvaro García

 

At this moment during the implementation of the USMCA in Mexico, it is important for companies to be a proactive voice. Now more than ever they need to be a part of the solution, advocating for positive outcomes for the business sector, which has increasingly felt its vulnerability under the current administration.

 

It is time to design new strategies, build new relationships and find new ways to relate positively and honestly with this administration.

  1. Map out your stakeholders, considering all possible allies and detractors.
  2. Reconsider your Social Responsibility programs and practices, and understand how to be aligned to the vision of the current administration.
  3. Speak out against policies that may affect investors and that are contrary to the USMCA and Mexican Law, and when elaborating future laws and regulations. Ensure these new regulatory practices do not become trade barriers.
  4. Request that the government respect the policy space and independence of regulatory bodies such as COFECEIFTCONAMER and sectoral regulations such as CRE in Mexico.
  5. Revise all horizontal chapters that may have an effect on your business, not only to see if you are in compliance with the USMCA, but also because there are many benefits that businesses can take advantage of that you may be currently unaware.

An Institutional Affairs strategy as part of a greater Business Continuity strategy provides responsiveness and agility. Give Mexico´s current complex social and political scenario, companies should not see themselves as mere economic entities but public, active members well embedded within the communities they serve.

 

 

Mónica Lugo

First, it is important that you do not assume compliance under the USMCA automatically because your products were compliant under NAFTA. It is important to make a dedicated review of the rules of origin applicable to your products in the new agreement. The criteria is as follows:

  1. Goods wholly sourced or produced in the USMCA region
  2. Goods produced entirely in the USMCA region exclusively from originating materials
  3. Goods meeting the applicable requirements of Annex 4-B (Product Specific Rule Origin with HTS Code) while produced in North America territory using non-originating materials, and
  4. Goods classified with the materials/parts which do not meet Annex 4-B rule of origin, but that contain 60% regional value content using the transaction method, or 50% regional value using the net cost method.

If your final product includes materials/parts that are made outside of the North American region, a product-specific rules of origin analysis is recommended.

 

*Minimum North America regional content value is required for the automotive industry, please refer to special rule of origin for automotive.

 

 

 

 

Xu Yu

 

The former document referred to as “certificate of origin” under NAFTA rules is no longer needed. As stated in Annex 5-A of the USMCA there is no official template for certificate of origin, however there is a set of information that may be contained within another document such as a commercial invoice, or any other trading document. Invoices from other countries other than members of the USMCA are not allowed. The files and signatures can be produced and transmitted electronically, and can be produced in any of the three official languages of the USMCA (English, Spanish, or French).

 

The information requested in order to cohere to regional origin is as follows:

  • Declaration of origin by producer or exporter. Importer will be able to declare origin in 3 years
  • Information of the certifying body
  • Exporter data
  • Producer data
  • HTS Code of the product and description
  • Origin criteria
  • Coverage period (up to 1 year)
  • Authorized signature and date

Previous NAFTA certificates are no longer valid as of July 1st, 2020 and importers can always claim benefits of USMCA of imported goods not properly classified under USMCA with a grace period of up to 1 year.

 

 

Jorge Ortega

If the goods intended to be imported do not comply with the USMCA regulations, the tariffs that will come into effect are the ones of the General Importing Regime of each sovereign country.   Normally these tariffs are aligned with the tariff agreements on the World Trade Organization (WTO).

 

For instance, if an auto part or passenger car does not classify under the NAFTA regulations, the tariff that will apply are the ones of WTO, that for auto parts or passenger cars are 2.50% import duty tariff, but for trucks its 25% .  Bear in mind that there are non-tariff regulations and restrictions that importers must consider.

 

On the other hand each country has defined sensitive sectors or restrictions to protect its own industries or national security grounds, depending on the country of origin.   For instance, steel raw materials coming from China to the United States are subject to a 25% import duty.  Mexico charges for the same material 15% general import duty (IGI), a measure taken to protect the Mexican industry from the trade war , and that gradually will fade out by 2024.

 

 

Jorge Ortega

The USMCA has entered into force and is now a reality, which leads to various implications, opportunities and challenges for the industry in Mexico. Above all, it brings legal certainty with its specific rules for the region.

 

Mexican companies have the possibility of taking advantage of the opportunities this new commercial agreement has to offer. IMMEX is a program that previous Mexican government implemented to promote export and foreign investments. Companies in this program can make temporary importations and have other fiscal advantages but must thoroughly comply with payments of international trade fees in addition to all the applicable regulations as any other industrial sector in Mexico. The compliance of IMMEX under the USMCA is the same; temporary imports and normalities must continue as usual. Import duty rate impact, origin determination & origin certification remain, but with applicable adjustments from the implementation of the USMCA.

 

It is important to keep in mind that your products do not automatically qualify for the USMCA country of origin requirements if your company operates under the IMMEX program in Mexico. Most IMMEX companies import parts or materials from outside of the North American region, so it’s critical to understand the specific rule of origin that applies to your products. Finally, it is equally important to also comply with the EHS and Labor requirements stated in the USMCA.

 

Standardized international trade databases amongst other manufacturing systems (MRP) are key to identifying materials and part numbers for importation, costs and country of origin for a correct determination of origin analysis of your finished goods. Additionally, it is important to make a formal request for a certification of origin from your suppliers which must be properly documented and kept compliant under the USMCA.

 

 

Manuel Ponce

In all practical terms, although NAFTA obligated those that pollute to pay, the USMCA levels the playing field and unites North America in a common responsibility. Additionally, it includes new provisions related to protection of coastal and marine environments, air quality and conservation.

 

Although there are relatively few technical changes to the USMCA related to Environmental Health and Safety regulation for manufacturers, the compliance and enforcement arms of the agreement were completely overhauled. Whereas before, country-specific organizations held responsibility for compliance and reporting of their country´s compliance, now a regional panel is built under the USMCA to attend complaints and ensure accountability.

 

This provides a new aspect of compliance- the burden of proof. Simply being compliant is not sufficient unless your stakeholders trust that you are compliant. Inspections, fines or cancellation of preferential tariff treatment is at risk, and your employees, industrial neighbors, and community players are important stakeholders that will hold you accountable.

 

 

 

 

David Antuñez

 

The new USMCA, under Article 4.B-6, created the requirement for OEM automakers to comply with sourcing 70% of their aluminum and steel from North America, including direct purchases, purchases through service centers, and through suppliers. The requirement is applied on a fleet-wide company/account-basis for OEM automakers.

 

Although not implemented currently, under the USMCA the US continues to have the right to impose tariffs to steel and aluminum imports under Section 232 on the grounds of national security, and both Mexico and Canada will have the right for a consultation period of 60 days before tariffs are applied. Light trucks are exempt from this measure.

 

 

 

 

Carlos Loyola

 

 

Although there are relatively few technical changes to the USMCA related to Environmental Health and Safety regulation for manufacturers, the compliance and enforcement arms of the agreement were completely overhauled. Whereas before, country-specific organizations held responsibility for compliance and reporting of their country´s compliance, now a regional panel is built under the USMCA to attend complaints and ensure accountability.

 

This provides a new aspect of compliance- the burden of proof. Simply being compliant is not sufficient unless your stakeholders trust that you are compliant. Inspections, fines or cancellation of preferential tariff treatment is at risk, and your employees, industrial neighbors, and community players are important stakeholders that will hold you accountable.

 

 

David Antuñez

 

 

In order to provide flexibility to automotive companies to comply with the new rules of origin, the Alternative Staging Regime (Regimen de Transición Alternativo – RTA) was established. The alternative staging regime provides additional time and a different phase-in of the new requirements and rules of origin implementations for automotive companies. It provides an alternative to certain rules of origin requirements for passenger vehicles and light trucks, but does not replace any other rules of origin or any provisions of general applicability for these goods to claim preferential treatment under the USMCA.

 

Under the alternative staging regime, importers of certain passenger vehicles and light trucks will have an additional 2-5 years instead of 3 years to meet the requirements, and the vehicles will have different RVC (regional value content) and LVC (labor value content) thresholds.

 

 

 

 

Carlos Loyola

 

As the new USMCA became effective, there has been a good amount of information that has already been shared on the specific requirements for the automotive industry, both for the automotive OEM’s and its supply chain. These specific requirements are in line with the focus on this industry’s main contribution to the overall trade and economic activity, not only for Mexico, but to the three countries participating in this new trade agreement.

 

As many of our clients pertain to other industries, we continually analyze the applicable implications and requirements in the USMCA. There are additional industries or sectors that will have specific implications, or even their own chapter within the USMCA.

  • Electronic Industry, mostly flat screens and monitors
  • Chemical Industry
  • E-Commerce
  • Agriculture
  • Telecommunications
  • Textile

For non-automotive industries, I offer two main recommendations. First, take the time to thoroughly review the requirements of the USMCA and its corresponding Uniform Rules. This is a new trade agreement and there is a learning curve on the actual application of the new rules. Second, review your current supply chain. The USMCA has a focus on increasing regional content, and a localized supply chain will be advantageous in order to make the flow of materials more efficient among the members of the USMCA and comply with its requirements.

 

 

 

 

Carlos Alvarado