Volume 5, Number 25, Page 1

Mexico Cushions the Impact of Year 2001 for Some Maquiladoras

by Michael E. Roll

On November 14, 1998, Mexico modified its maquiladora program to provide either duty-free or significantly reduced (i.e., 5 percent instead of 10-20 percent) duty treatment for many raw materials effective November 1, 2000. The November 14th Decree lessens the impact of the requirements of Article 303 of NAFTA for some maquiladoras. Article 303 of NAFTA requires Mexico to end the duty deferral program in the year 2001 with respect to exports to North America. In the absence of the Decree, 10 percent to 20 percent duties would be enforced on raw materials.

The new duty treatment is provided to maquiladoras and other companies in the Electric and Electronics Industries. These industries are defined in Article 4 of the Decree. That is, to obtain lower duties, raw materials must be imported for use in the production of goods classified in the tariff headings listed in Article 4(I) of the Decree, in the case of the Electric Industry, and Article 4(II), in the case of the Electronics Industry. The specific raw materials for which reduced duties are available are listed in Article 5. These raw materials may be used to produce goods for either the Electric or the Electronics Industries. In addition, the raw materials listed in Article 6 may be used by the Electronics Industry to produce the goods listed in Article 4(II).

To obtain the reduced duties, a maquiladora must complete an application (currently under development by SECOFI) containing the following information:

(a) the products that the maquiladora produces (i.e., a list of the goods in Article 4 produced by the maquiladora) and their quantities;

(b) the raw materials listed in Articles 5 and 6 that the maquiladora plans to import and the anticipated quantities of imports;

(c) the amount of Mexican raw materials used to produce the goods listed in Article 4;

(d) the amount of the products listed in Article 4 that are produced by the maquiladora and that will be exported; and,

(e) the location of the maquiladoras that will produce the goods.

A copy of the company’s articles of incorporation (acta constitutiva) and its tax returns for the previous three fiscal years also must be provided with the application.

SECOFI will grant or deny all applications within ten working days and will notify Mexican Customs within three days of its decision. If the applicant does not receive an authorization within the ten-day period, the application is deemed approved. A company not current in its tax payments to the Mexican government may not obtain the lower duty rates. Authorizations for the lower duties are valid indefinitely, but applicants must provide annual updates to SECOFI regarding their operations (on a form to be created by SECOFI). Low duty authorizations may be canceled if a company does not comply with the requirements of the Decree or fails to pay taxes for three consecutive years. Raw materials for which the lower duties are provided must be used for exported goods and may not be sold or provided to persons other than those entitled to receive the benefits of the Decree.

Michael E. Roll is a customs and international trade attorney with the law firm of Katten Muchin & Zavis in Chicago, Illinois. His practice focuses on U.S. and Latin American trade issues.