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On March 19, the Cybersecurity and Infrastructure Security Agency (CISA) issued a non-binding guideline (guidance) considering 16 sectors considered “essential” for the US. The guideline identifies the manufacturing sector that includes the primary metals (e.g. steel mills, aluminum, non-mineral ferrous), machinery (e.g. motors and turbines, power transmission equipment, and agricultural, mining and construction equipment), electrical (e.g. electric motors, transformers, and generators), and transportation equipment (e.g. ships, aerospace, and rail).
On March 30, Mexico issued an Agreement (“COVID Agreement”) ordering the immediate suspension of non-essential activities until April 30 and listed as essential activities, among others, those related to health, pharmaceuticals, manufacturing of supplies medical and health technologies, security, fundamental sectors of the economy (e.g. financial, tax collection, energy, food industry, retail, agricultural production, fish, and livestock, chemical industry, steel, etc.).
In sum, Mexico did not include manufacturing activities as an essential sector, except those that are related to medical supplies and equipment, so non-essential factories and/or maquiladoras are (or in theory should be) closed.
Consequently, the US government has expressed its concern about supply chains, particularly those that concern inputs used for national security. The National Manufacturing Association of the United States (NAM) submitted a letter, dated April 15, to the President of Mexico calling to expand and clarify the industries that are essential and requesting to take into account CISA guidelines.
On Tuesday, April 21, the US Ambassador said on Twitter that he is doing everything he can to save supply chains between Mexico, the US, and Canada. The supply chains of the North American region have been interrupted, in part, because the countries have not harmonized the definition of what constitutes “essential activities”.
That same day, the Ministry of Economy issued a brief statement on Twitter. The Ministry recognized that it is in constant communication with the US Trade Representative (USTR) to protect the health of their fellow citizens and, at the same time, the productive integration of their economies.
The President of Mexico, for his part, approached this problem in his conference on Thursday, April 23, albeit superficially. He acknowledged that the automotive and other industries are closely interrelated, but he also pointed out that “an agreement will be reached at the time, when [USA] will resume activities. We have made a commitment… to analyze when to resume activities so that gradually production on the border returns to normality. But this has not been decided yet…”
According to recent reports, leaders of the Mexican manufacturing industry have stated that companies in the US will turn to local suppliers displacing Mexicans permanently and that contracts are at risk. Luis Aguirre Lang, president of INDEX, indicated to El Universal that options to resume activities at the work centers will be presented to the federal government to sustain the 3 million jobs generated by the export manufacturing industry or IMMEX.
In this regard, both the US and Mexican media have reported outbreaks of COVID in the workplace. For example, it is reported that the counties where the largest meat processing plants are located have a higher rate of COVID infection; it is also reported that there are more health risks in the food industry than manufacturing, so it is also likely that there are greater risks of COVID infection in the food industry. In Mexico, for example, outbreaks of COVID have also been reported in workplaces, including maquiladoras in Baja California (report April 22), Chihuahua (report April 20), Ciudad Juarez (report April 19).
On April 21, the Ministry of Health modified the “COVID Agreement” ordering to extend the suspension of non-essential activities until May 30. The modification to the COVID Agreement also orders state authorities to enact prevention and control measures pursuant to the “general criteria” issued by the Ministry of Health and in accordance with the magnitude of the COVID epidemic.
On Tuesday, April 21, the Mexican Central Bank’s Governing Board approved a package of measures with the objective to (1) promoting orderly behavior in the financial markets, (2) strengthening credit-granting channels, and (3) providing liquidity for healthy development of the financial system; among other measures, we highlight the “provision of resources to [development] banking institutions to channel credit to [SMEs] and individuals… ”; this program will benefit from 250 billion pesos. These actions seek to reduce the possibility that credit institutions have pro-cyclically behavior and that financial intermediaries can continue to provide financing to the economy in order to offset the adverse effects of the impact of COVID on financial markets. This decision was well received by the business community.
On Wednesday, April 22, the President in his morning conference detailed his “plan” to face the economic crisis, which was published as a Decree yesterday.
In essence, the plan emphasizes to continue with projects and programs considered as a priority and to adopt austerity measures, rejecting the idea to request debt. However, economists point out that Mexico’s public debt has increased due to the peso devaluation, the value of Mexican debt set in USD, the price of oil, among other factors.
Finally, on Thursday, April 23, the Ministry of Economy announced that it will give one million micro credits (25,000 pesos each) to small family businesses that are registered in the “Census of Well-being”. This census has been criticized because it has been used for political purposes. The micro credits announced by the Ministry of Economy are in addition to the Mexican Institute Social Security (“IMSS“) credits for the same amount to those SMEs that have not reduced their workforce or wages. Clearly, these programs are very limited and insufficient to face the economic consequences of COVID that will affect companies in all sectors of the economy.
So far, the only tax relief measure at the federal level is for individuals that consist of filing the annual tax return until June. At the state level, authorities have implemented relief measures for state and local taxes as a result of COVID.
COVID-19, everyone knows about it, but we are yet to find out the extent of the economic, social, and humanitarian consequences of this sanitary “tsunami”. Indeed, we live in extraordinary and complicated times caused by an unprecedented pandemic in recent history. From our perspective, the uncertainty persists and grows over the days, despite the fact that there is an abundance or excess of information, impossible to digest, produced by the digital age.
This pandemic puts the world to a test, including advisers to local and international businesses like us. Governments around the globe will react seeking to repair the damages or lessen the blow of this paralyzing wave. Businesses, meanwhile, will have to be alert and seek the relief measures available that are offered by governments in order to react in the best possible way to COVID-19’s effects. It is at this point where we and our colleagues of Alliott Group wish to offer our help in our capacity as key advisors for international businesses.
As a member of Alliott Group: Alliance of Accountants & Lawyers Worldwide, VTZ puts free at your reach relevant information on government relief measures, tax incentives or the like offered in countries due to the COVID-19 pandemic. We are convinced that having a global vision on relief measures in different parts of the world will undoubtedly help business rethink their plans and contractual commitments. To access the information, visit Alliott Coronavirus Global Resources.
In advance, VTZ prepared a summary of the following relevant events and measures that Mexico has adopted in response to COVID-19:
We, our colleagues of Alliott Group in 69 countries and VTZ, are ready to face and overcome the effects of this health crisis with you. So, tell us, how can we help?