Identifier
Created
Classification
Origin
06MEXICO6362
2006-11-08 14:50:00
UNCLASSIFIED
Embassy Mexico
Cable title:
NEW MAQUILA DECREE -- INCREASING MEXICAN
how-toVZCZCXRO3398 PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM DE RUEHME #6362/01 3121450 ZNR UUUUU ZZH P 081450Z NOV 06 FM AMEMBASSY MEXICO TO RUEHC/SECSTATE WASHDC PRIORITY 4109 INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS SECTION 01 OF 03 MEXICO 006362
SIPDIS
SIPDIS
E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD ELAB PGOV MX
SUBJECT: NEW MAQUILA DECREE -- INCREASING MEXICAN
COMPETITIVENESS
REF: A. MEXICO 6217
B. MEXICO 6067
-------
Summary
-------
UNCLAS SECTION 01 OF 03 MEXICO 006362
SIPDIS
SIPDIS
E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD ELAB PGOV MX
SUBJECT: NEW MAQUILA DECREE -- INCREASING MEXICAN
COMPETITIVENESS
REF: A. MEXICO 6217
B. MEXICO 6067
--------------
Summary
--------------
1. (U) The revamping of the Maquila program is the latest
step in the GOM's plans to encourage investment and increase
Mexico's competitiveness in the global economy. The new
decree joins the Maquila and PITEX programs, allows for
participation of the service sector, lowers certain
participation requirements, facilitates the administrative
processes involved, and better controls compliance while
encouraging transparency. The decree will go into effect on
November 13 but, despite a long approval process, certain
elements of the decree will not be agreed upon on until early
next year, particularly the requirements for the temporary
import of inputs and activities covered as service exports.
End Summary.
--------------
Maquila and PITEX - One in the Same
--------------
2. (U) On November 1, the GOM published the new IMMEX Decree
(named for its Spanish language acronym - Decreto para el
Formento de la Industria Manufacturera, Maquiladora y de
Servicios de Importaci"n),to be effective November 13. It
will combine the current Maquila and PITEX programs into one
regulatory scheme, and streamline administrative processes
associated with the program. Approximately 6,500 companies
are included under the current Maquila and PITEX programs.
They represent 2.4 million employees (54 percent of the total
workforce employed in the manufacturing sector) and account
for more than 85 percent of the country's exports.
3. (U) Originally, the PITEX program was created to allow
Mexican companies that did not qualify for the Maquila
program to gain some maquila-like benefits. Instead of
linking duty-free import authorization to specific companies
as under the Maquila program, PITEX program authorizations
were linked to specific imports. However, with changes
implemented by the GOM in recent years to open its markets,
the programs have become quite similar. As a result of
NAFTA, PITEX and Maquilas converged with respect to fiscal
treatment, tariffs, and administrative procedures.
Currently, the only small difference between the programs is
that maquilas receive income tax benefits. With the new
decree, income tax benefits will still be provided to
maquilas, but now the value-added tax treatment (VAT refund
upon export of merchandise) will be the same for both
programs.
--------------
Old Maquila Decree Behind the Times
--------------
4. (U) Another major change of the decree is the addition of
export services. Although there were reforms to the Maquila
Decree in 2003, it was still considered "obsolete" because of
its failure to include outsourcing and some services. Both
are included in the current decree to enable Mexico to
develop a fourth-generation maquila sector able to compete
with China and India in regards to value added products and
services. The new decree promotes and permits within the
Maquila and PITEX programs: industrial
transformation/processes (manufacturing, repair of
merchandise that will exported); export services; and
outsourcing. In a meeting with EconOff, Adolfo Cima de
Villa, the new Head of Advisors in the Economic Ministry's
Undersecretariat for Industry and Commerce, explained
Mexico's prospects in regards to business process outsourcing
(BPO's). He said that Mexico's proximity to the U.S. is an
added benefit when it comes to outsourcing because "while the
U.S. is awake India is asleep and vice versa whereas Mexico
will be able to do business on the same schedule as the U.S."
5. (U) The new decree also allows for submanufactures and the
use of third parties ("terciarizacion") in the maquila
process. When a certifying company does not have adequate
production facilities, a third company will now be able to
perform the production under the same maquila program.
Another concept, "shelter" allows a foreign company to
provide maquilas with technology and imports, without having
to operate under the same maquila program.
-------------- --------------
MEXICO 00006362 002 OF 003
Changes a Boon for Small and Medium Size Businesses
-------------- --------------
6. (U) The decree additionally reduces the required amount of
exports to qualify for duty free imports under the PITEX
program from 30 to 10 percent. This means more businesses
will be able to participate in the program. The lowered
requirement is one of the recently enacted changes that have
been promoted as helping small and medium sized enterprises
(SMEs) become more competitive (ref A reported on recent
tariff cuts for inputs). In addition, SMEs are the most
likely to benefit from the entry of submanufactures and
"terciarizacion" in the maquila process, further allowing
them the opportunity to participate in the global market.
-------------- -
Administrative Requirements Simplified
-------------- -
7. (U) By merging the Maquila and PITEX programs, the number
of procedures will be reduced from the current 29 to 16. The
number of days to grant an authorization to operate under
Maquila or PITEX will be reduced to between 10 and 15 working
days. One of the main cumbersome procedures eliminated from
the previous decree was the requirement to register in the
Importers Database for Specific Sectors. Additionally,
administrative procedures will be expedited thanks to
installation of electronic controls and mechanisms.
Although not a change, the new decree also continues the
concept of a "holding" maquila, which allows a company to
consolidate foreign trade operations of two or more
subsidiaries in only one controlling company, allowing
greater administrative efficiency.
-------------- -
Discourage Contraband and Promote Transparency
-------------- -
8. (U) To foster competitiveness, the new decree has tighter
controls to prevent contraband, especially in the textile
sector. Maquilas will be required to present an import
authorization, a valid RFC (federal taxpayer number),
address, and an electronic signature. To grant a Maquila or
PITEX program, authorities will inspect the facilities
registered in the system. In addition, the authorities will
cancel programs if a company has not exported during the past
12 months or in the case of an unverifiable address. This is
an attempt to counter the previous practice of smugglers
using fake companies' identities and addresses to illegally
import products.
9. (U) The new decree also includes an electronic inventory
control requirement. This is intended to give more
transparency to the movement of inputs and finished products.
Maquilas and PITEXs will also have to hand in an annual
report on sales and exports to the Economic Ministry (SE).
--------------
Some Elements Still Unclear
--------------
10. (U) Article 5 of the decree lists three details that are
yet to be agreed upon by the Secretariats of Economy and
Finance. Agreement on these issues is to be achieved no
later than February 26, 2007. These include requirements to
be compiled for temporary import of certain inputs, the
maximum import number for certain inputs used in the textile
sector, and the list of activities to be performed as
services in the Maquila program.
--------------
Comment
--------------
11. (U) Economia Under Secretary Rocio Ruiz told us earlier
that the changes in the Maquila Decree, finally enacted after
years of discussion, reflect the GOM's strong interest in
promoting Mexican competitiveness. The Fox administration,
as well as President-elect Calderon, have publicly noted that
in order to increase Mexico's competitiveness and attract
more investment, the GOM must reduce transaction costs for
companies in Mexico. In addition to the new Maquila Decree,
Calderon transition figures and others have called for lower
energy and labor costs to boost economic growth and
generation of jobs. The new Maquila Decree is a step forward
in fostering exports and job creation, but its overall impact
remains to be seen. The GOM understands, however, that it is
important to look for more value added in Mexican production
and to include outsourcing services to keep pace with India
and China. As reported in ref B, it seems that the Calderon
MEXICO 00006362 003 OF 003
administration will continue current efforts of simplifying
and reducing at least some procedures and regulations. As
always, the actual pace of implementation will be key to
success and tangible economic results.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity
GARZA
SIPDIS
SIPDIS
E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD ELAB PGOV MX
SUBJECT: NEW MAQUILA DECREE -- INCREASING MEXICAN
COMPETITIVENESS
REF: A. MEXICO 6217
B. MEXICO 6067
--------------
Summary
--------------
1. (U) The revamping of the Maquila program is the latest
step in the GOM's plans to encourage investment and increase
Mexico's competitiveness in the global economy. The new
decree joins the Maquila and PITEX programs, allows for
participation of the service sector, lowers certain
participation requirements, facilitates the administrative
processes involved, and better controls compliance while
encouraging transparency. The decree will go into effect on
November 13 but, despite a long approval process, certain
elements of the decree will not be agreed upon on until early
next year, particularly the requirements for the temporary
import of inputs and activities covered as service exports.
End Summary.
--------------
Maquila and PITEX - One in the Same
--------------
2. (U) On November 1, the GOM published the new IMMEX Decree
(named for its Spanish language acronym - Decreto para el
Formento de la Industria Manufacturera, Maquiladora y de
Servicios de Importaci"n),to be effective November 13. It
will combine the current Maquila and PITEX programs into one
regulatory scheme, and streamline administrative processes
associated with the program. Approximately 6,500 companies
are included under the current Maquila and PITEX programs.
They represent 2.4 million employees (54 percent of the total
workforce employed in the manufacturing sector) and account
for more than 85 percent of the country's exports.
3. (U) Originally, the PITEX program was created to allow
Mexican companies that did not qualify for the Maquila
program to gain some maquila-like benefits. Instead of
linking duty-free import authorization to specific companies
as under the Maquila program, PITEX program authorizations
were linked to specific imports. However, with changes
implemented by the GOM in recent years to open its markets,
the programs have become quite similar. As a result of
NAFTA, PITEX and Maquilas converged with respect to fiscal
treatment, tariffs, and administrative procedures.
Currently, the only small difference between the programs is
that maquilas receive income tax benefits. With the new
decree, income tax benefits will still be provided to
maquilas, but now the value-added tax treatment (VAT refund
upon export of merchandise) will be the same for both
programs.
--------------
Old Maquila Decree Behind the Times
--------------
4. (U) Another major change of the decree is the addition of
export services. Although there were reforms to the Maquila
Decree in 2003, it was still considered "obsolete" because of
its failure to include outsourcing and some services. Both
are included in the current decree to enable Mexico to
develop a fourth-generation maquila sector able to compete
with China and India in regards to value added products and
services. The new decree promotes and permits within the
Maquila and PITEX programs: industrial
transformation/processes (manufacturing, repair of
merchandise that will exported); export services; and
outsourcing. In a meeting with EconOff, Adolfo Cima de
Villa, the new Head of Advisors in the Economic Ministry's
Undersecretariat for Industry and Commerce, explained
Mexico's prospects in regards to business process outsourcing
(BPO's). He said that Mexico's proximity to the U.S. is an
added benefit when it comes to outsourcing because "while the
U.S. is awake India is asleep and vice versa whereas Mexico
will be able to do business on the same schedule as the U.S."
5. (U) The new decree also allows for submanufactures and the
use of third parties ("terciarizacion") in the maquila
process. When a certifying company does not have adequate
production facilities, a third company will now be able to
perform the production under the same maquila program.
Another concept, "shelter" allows a foreign company to
provide maquilas with technology and imports, without having
to operate under the same maquila program.
-------------- --------------
MEXICO 00006362 002 OF 003
Changes a Boon for Small and Medium Size Businesses
-------------- --------------
6. (U) The decree additionally reduces the required amount of
exports to qualify for duty free imports under the PITEX
program from 30 to 10 percent. This means more businesses
will be able to participate in the program. The lowered
requirement is one of the recently enacted changes that have
been promoted as helping small and medium sized enterprises
(SMEs) become more competitive (ref A reported on recent
tariff cuts for inputs). In addition, SMEs are the most
likely to benefit from the entry of submanufactures and
"terciarizacion" in the maquila process, further allowing
them the opportunity to participate in the global market.
-------------- -
Administrative Requirements Simplified
-------------- -
7. (U) By merging the Maquila and PITEX programs, the number
of procedures will be reduced from the current 29 to 16. The
number of days to grant an authorization to operate under
Maquila or PITEX will be reduced to between 10 and 15 working
days. One of the main cumbersome procedures eliminated from
the previous decree was the requirement to register in the
Importers Database for Specific Sectors. Additionally,
administrative procedures will be expedited thanks to
installation of electronic controls and mechanisms.
Although not a change, the new decree also continues the
concept of a "holding" maquila, which allows a company to
consolidate foreign trade operations of two or more
subsidiaries in only one controlling company, allowing
greater administrative efficiency.
-------------- -
Discourage Contraband and Promote Transparency
-------------- -
8. (U) To foster competitiveness, the new decree has tighter
controls to prevent contraband, especially in the textile
sector. Maquilas will be required to present an import
authorization, a valid RFC (federal taxpayer number),
address, and an electronic signature. To grant a Maquila or
PITEX program, authorities will inspect the facilities
registered in the system. In addition, the authorities will
cancel programs if a company has not exported during the past
12 months or in the case of an unverifiable address. This is
an attempt to counter the previous practice of smugglers
using fake companies' identities and addresses to illegally
import products.
9. (U) The new decree also includes an electronic inventory
control requirement. This is intended to give more
transparency to the movement of inputs and finished products.
Maquilas and PITEXs will also have to hand in an annual
report on sales and exports to the Economic Ministry (SE).
--------------
Some Elements Still Unclear
--------------
10. (U) Article 5 of the decree lists three details that are
yet to be agreed upon by the Secretariats of Economy and
Finance. Agreement on these issues is to be achieved no
later than February 26, 2007. These include requirements to
be compiled for temporary import of certain inputs, the
maximum import number for certain inputs used in the textile
sector, and the list of activities to be performed as
services in the Maquila program.
--------------
Comment
--------------
11. (U) Economia Under Secretary Rocio Ruiz told us earlier
that the changes in the Maquila Decree, finally enacted after
years of discussion, reflect the GOM's strong interest in
promoting Mexican competitiveness. The Fox administration,
as well as President-elect Calderon, have publicly noted that
in order to increase Mexico's competitiveness and attract
more investment, the GOM must reduce transaction costs for
companies in Mexico. In addition to the new Maquila Decree,
Calderon transition figures and others have called for lower
energy and labor costs to boost economic growth and
generation of jobs. The new Maquila Decree is a step forward
in fostering exports and job creation, but its overall impact
remains to be seen. The GOM understands, however, that it is
important to look for more value added in Mexican production
and to include outsourcing services to keep pace with India
and China. As reported in ref B, it seems that the Calderon
MEXICO 00006362 003 OF 003
administration will continue current efforts of simplifying
and reducing at least some procedures and regulations. As
always, the actual pace of implementation will be key to
success and tangible economic results.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity
GARZA