Our third chapter of Doing Business in Mexico, International Trade, will provide a general overview of ton Mexican International Trade Policy considering international context, as well as customs aspects.
This chapter includes the following sections:
As a member of international organizations and Free Trade Agreements, Mexico has, to a certain extent, a predictable trade and customs policy. Mexican laws on customs and trade are normally compatible with international rules. The President and his ministers are not only in charge to apply these laws, but they also have powers to regulate international trade and customs, including emergency actions.
Since the inception of the World Trade Organization and the North American Free Trade Agreement, Mexico’s trade and customs legal framework has not been subject to a substantial overhaul; seldom reforms particularly to the customs law have occurred from time to time.
However, Mexico is currently embracing modern free trade agreements, such as the Comprehensive and Progressive Transpacific Partnership (CPTPP) or USMCA, that have and will bring certain legal changes in intellectual property, de minimis, e-commerce, etc.
Needless to say, trade and customs programs or regulations are subject to frequent changes that seek to adapt to new trends, risks, or policy objectives. Mexico has in place, for instance, duty deferral and tariff reduction programs that allow manufacturing or export-oriented industries to be more competitive. However, such programs are subject to strict government controls.
Mexico is a party to the World Customs Organization and to the International Convention on the Harmonized Commodity Description and Coding System (HS Convention).
As a result of the sixth amendment to the HS, Mexican congress discussed a new law that replaced its General Import and Export Tariff Act (LIGIE, acronym in Spanish), i.e. Mexico’s Harmonized Tariff Schedule. The Ministry of Economy conducted an exhaustive review and proposed to compact or unfold tariff items for statistical purposes into 10 digits that will be called Commercial Identification Number, instead of an 8 digit tariff item (known as fracción arancelaria). The new General Import and Export Tariff Act was published on July 1, 2020.
Mexico’s average WTO bound tariff is 35%, and duties rates vary from 0% to 100%. According to Mexico’s most recent Trade Policy Review (2017), the average MFN tariff on agricultural and non-agricultural products was 14.3% and 4.6%, respectively. The General Import and Export Tariff Act establishes the import tariff or “General Import Tax” (Impuesto General de Importación, or IGI) as well as the export tariff “General Export Tax” (Impuesto General de Exportación, or IGE).
Mexico has an extensive network of Free Trade Agreements (FTAs) with 50 countries and is also a party to regional agreements within the framework of the Latin American Integration Association (ALADI).
The main FTAs and trade agreements to which Mexico is currently a party are as follows:
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Long before NAFTA came into existence, Mexico had into effect duty deferral policies that allowed manufacturing companies, known as maquiladoras, to import goods, such as raw materials, parts, containers, etc., without paying import duties. The maquiladoras had to use said imported goods in the production of exported manufactured goods and, in turn, they could temporally import said goods and defer customs duties.
Eventually, NAFTA introduced drawback provisions to promote the use of regional goods and “to reduce the incentive for third countries to use a NAFTA country as an ‘export platform.” Article 303 NAFTA, replicated in article 2.5 USMCA, introduced a general prohibition on refunding or exempting customs duties owed on non-originating goods imported into the territory of a party.
In essence, these provisions have as a purpose to avoid double ‘taxation’ on non-originating materials that are used as an input in the production of a finished good subsequently exported to another NAFTA or USMCA party.
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As reported in a news portal, in 2019 Mexico surpassed China in the commercial exchange with the US, taking into account imports and exports according to US figures. As a result, Mexico became the main trading partner of the US in 2019; accordingly, since 2005 Mexico has not been in said position. Obviously, this displacement is due to the Chinese and US trade conflict, as well as the growth of the US economy.
This is not a novelty, UNCTAD conducted a study on the effects of the US-China trade war on trade flows last year. In short, several countries have occupied part of the “void” that China has left, including Mexico, Taiwan, Vietnam, among others. See our summary of the UNCTAD report for more details here.
According to the figures from the Department of Commerce, Mexico increased its exports to the US 3.47% in 2019 compared to 2018, while China’s exports decreased by 17%, the above is reflected in the following table:
In this regard, the president of the National Association of Importers and Exporters of the Mexican Republic (ANIEM), Gerardo Tejonar Castro, acknowledged that there was no way for the national industry to completely fill the void left by China and said that these results may be temporary because, on the one hand, China has already reached the Phase 1 Agreement.
Legal Amendments & International Trade
After a series of steps to reform Mexico’s Harmonized Tariff Schedule (MHTS) that included public consultations, yesterday the Commission on Economy, Commerce, and Competitiveness of the Chamber of Deputies discussed the new Law on General Import and Export Taxes (LIGIE), as well as reforms and additions to the Customs Law.
The new LIGIE will implement the sixth amendment of the Harmonized System of the World Customs Organization to improve the identification and classification of the goods. In particular, the sixth amendment addresses the classification of the following goods: fishery products, forest products, anti-malaria, chemicals, and technology advances.
Needless to say, the MHTS has not been revised comprehensively since its creation, therefore, the Ministry of Economy took the task of conducting an exhaustive review. In that sense, it is planned to eliminate tariff items by low trade and, therefore, to compact tariff items, and unfolding tariff items for statistical purposes into 10 digits, which will be called Commercial Identification Number, instead of the current 8 digits.
Nuestro Socio Jr., Emilio Arteaga y nuestra Asociada Senior, Mariana Malváez, participaron en la Conferencia Anual de la Barra de Abogados México-EE.UU. “New Realities, New Challenges; Law and Practice in the Era of Trump and AMLO” que se llevó a cabo los días 23,24 y 25 de octubre en la ciudad de Dallas, Texas. Además, este año se celebró el 25° aniversario de la Barra de Abogados México-EE.UU.
Emilio Arteaga participó como moderador en el panel “Threats and Challenges Towards the US-Mexico Trade Relations and USMCA” en el que participaron abogados especialistas en Comercio Internacional como Lawrence Hanson de The Law Office of Lawrence W. Hanson, P.C., Juan Carlos Partida de EC Legal Rubio Villegas, Michelle Schulz de Polsinelli y Carlos Vejar de Holland & Knight.
Los panelistas compartieron sus ideas sobre la aprobación del TMEC ante el panorama político en ambos países, los puntos sobre los que se podría negociar su aprobación y su impacto una vez que se apruebe el tratado.
Como cada año, esta conferencia reunió a profesionales de los sistemas judiciales de toda la región de Norte América. Los asistentes tuvieron la oportunidad de expandir sus redes profesionales y aprender sobre la evolución de la actual relación entre EE.UU. y México.
Legal 500, a legal guide, recently published its new ranking regarding law practice in Mexico. Our firm is ranked as one of the best law firms in International Trade & Customs Law, listing VTZ in Band 1. Legal 500 notes that the core of our practice is international trade & customs, covering the full range of IT&C matters from trade remedies, regulatory compliance, tax planning, etc.
At the same time, Adrian Vázquez, our managing partner, is classified as a leading lawyer in the international trade and customs practice.
Besides Adrián Vázquez, Legal 500 notes Eduardo Zepeda and Eduardo Gonzalez in Guadalajara, who co-lead the practice, as well as Verónica Vázquez, Emilio Arteaga, Mariana Rivera Gutiérrez and Alejandro Martinez.
We invite you to read Legal 500’s review about the international trade & customs practice in Mexico.