Volume 19, Issue 4 Page 1 nafta@naftamexico.net

Mexico’s Customs Reform for Trade Facilitation 

A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES

NAFTA Works April 2014 * Volume 19, Issue 4

INSIDE THIS ISSUE

1 Mexico’s Customs

Reform for Trade Facilitation

1 Trade Highlights

2 Mexico’s Services

Economy 3 NAFTA Related

Events 3 Diario Oficial

4 Success Stories 4 Selected Reading 4 Infrastructure

Projects in Mexico 4 Mexico Economic

Update 5 Profile of Wisconsin 6 Profile of Sinaloa

Mexico’s tax and customs reforms show the Mexican government’s strong commitment in boosting the country’s competitiveness, and improving its attractiveness for doing business. They also prove the country’s willingness to make North America the most prosperous and competitive region of the world and its determination to increase and facilitate trade with its world partners. Besides, these reforms will promote investment, and transparency, and the simplification of procedures related to foreign trade. Many of the changes entered into force on January 1st of this year while others will become effective by the end of 2014 or at the beginning of 2015. For example, the amendments consisting of allowing individuals and companies to import and export goods directly, without a customs broker, will come into force on January 1st, 2015. A central element of the customs reform is that hiring customs brokers for import/export activities will become optional. Considering that Mexico is among the world’s most active trading countries, with trade accounting for over 60% of its GDP, many businesses are already skilled to manage custom clearances procedures. The customs reform aims to reduce costs for hiring experts in such transactions, as well as ease administrative operations. Henceforth, if companies choose not to use the services of a customs broker, the importer/exporter may perform transactions through a legal representative. The companies and the legal representative must comply with certain requirements and get proper accreditations, such as having an electronic signature, and/or a digital seal. Overall, the reform promotes the use of electronic communications between companies

and customs agencies in order to facilitate and accelerate the exchange of information. The new legal framework also includes changes to the strategic bonded warehouses (SBW) that are similar to U.S. Free Trade Zones. Mexico will authorize SBW all around the country. These strategic bonded warehouses help to facilitate trade activities for Mexican importers. Through this major reform, SBW will also serve as a customs fiscal deposit, simplifying entry procedures. On the other hand, as part of the modernization of the system, the Mexican authorities will implement a Customs Electronic System, by which importers and exporters may fill electronic entry summaries (pedimentos), statements about the value of the goods, and payment forms, among others. Thus, all customs documents may be filled in electronic format in order to simplify the processes of clearance of goods. The electronic system allows traders to perform import and export operations on a more user-friendly electronic platform. In this regard, the Single Window for Trade System "Ventanilla Unica" creates a one-stop shop to comply with all requirements of foreign trade. It will be fully implemented by the end of 2014. This modern and simplified system eases information flows between businesses and authorities, and provides substantial benefits to all participants involved in cross-border trade. Additionally, the system facilitates making any changes or corrections to a customs declaration. Moreover, under the reform, the Servicio de Administración Tributaria (SAT) and the customs inspection authorities are merged into

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one entity in order to maximize the effectiveness of customs clearances. Thus, the SAT is now the sole agency responsible for inspection of merchandise. Furthermore, the second random inspection established in the Mexican Customs Law was eliminated. In the past, depending on the route or the customs checkpoint, goods were often inspected twice. In addition, the reform strengthens the use of nonintrusive technology for inspection purposes. The use of modern equipment will speed-up customs inspections, and avoid costly delays in shipments. Furthermore, the fiscal reform that recently came in force also contributes to significantly simplify the tax structure. The reform seeks to rearrange the Mexican tax system and broadening the country’s tax base. For custom issues, the Value Added Tax Law (VAT) has been amended to efficiently collect the tax. Under the reform, all temporary imports are subjected to the 16% VAT. However, in order not to hinder the operations of the maquiladora industry, the Mexican authorities will introduce a certification scheme that will categorize the companies into three types of certification: ‘A’, ‘AA’ and ‘AAA’. Companies that show a necessary level of compliance in tax and trade conformity substances will be eligible to obtain one of the certifications, depending on their capability to meet certain requirements. Thus, certified companies will not pay import duties on temporary imports unless maquiladoras change the regime of the imported merchandise. This certification program will allow maquiladoras to be more effective in their trade operations. For rail companies, the customs reform also includes the Single Rail Manifest, which allows rail enterprises to send their manifest to customs authorities of both countries electronically. This measure will accelerate the procedures for customs clearance. The customs and tax reforms are part of an active effort by the Mexican government to modernize Mexico’s customs infrastructure in order to promote and facilitate greater flows of trade. Mexican authorities are committed to strengthen the key role of Mexico, regionally and globally, and ensure the competitiveness of the country in the 21st century global economy.

Mexico’s Services Economy

The services industry is one of the most dynamic sectors in the world economy, and Mexico is undoubtedly a case in point in this trend. Mexico has a vibrant service economy in which the service sector contributes with 62% of the GDP and employs 58% of its workforce (INEGI). All sectors of the Mexican economy, including manufacturing and agriculture, depend on services. This fast-transforming sector has powered a steep increase in the overall growth of Mexican GDP in the last decades. In 2012, services grew 4.2% in comparison with the previous year, surpassing the manufacturing sector growth (3.9%) and GDP growth (3.8%) (INEGI). In the last decade, the telecommunications sector has been growing at a faster pace than the rest of the economy, with annual growth rates above 10% in 7 of the last 13 years, doubling its share in GDP from 1.5% in 2000 to 3.2% in 2012 (COFETEL). Domestic and foreign companies have invested an annual

average of $5 billion in the telecommunications sector in the last three years (from 2010 to 2012). Mexico’s IT services nearly doubled revenues from $7 billion in 2006 to $12.2 billion in 2011 (Nearshore Americas). Mexico has become the 3rd largest exporter of IT services globally with exports reaching $5.6 billion in 2011 (Promexico). E-commerce will continue its expansion as more Mexicans shop and do business online. In 2012, ecommerce’s sales in Mexico reached about $6 billion, an increase of 46% from 2011, spurred by widespread increases in Internet and mobile usage (AMIPCI). Travels, shows tickets, and hotel reservations are the most popular items for e-commerce purchases. Online services such as banking transactions, payments, cash on delivery and other non-banking operations as well as streaming video are also expanding businesses. Mexico has also world class professional services, such as engineering and construction services, as well as health care services, which are experiencing a growing inflow of medical tourism. As a result of its network of free trade agreements with 45 countries that include disciplines for trade in services, Mexico’s total trade in commercial services exceeded $41 billion in 2012, a 43% increase from 2002 (WTO). Over $16 billion of these are billed services, while Mexico demanded $25 billion in commercial services from abroad. The trade liberalization and deregulation policies implemented by the country have contributed to the services sector’s buoyant performance. Since NAFTA, US - Mexico trade in services has increased by 140%, reaching $43 billion in 2012 with Mexican exports surpassing $15 billion, while US exports of services to Mexico reached $27 billion. The services sector is one of Mexico’s highest priorities, so expanding and improving services supply is a key goal for the Peña Nieto Administration which. In the domestic field, Mexico has undertaken an ambitious economic reform agenda, including areas of telecommunications, competition, labor, taxes, financial, education and energy that will increase Mexico’s competitiveness and encourage more FDI. Internationally, Mexico has been working with its trading partners in promoting further trade liberalization in services worldwide in important plurilateral trade negotiations that include services such as the Trade in Services Agreement (TISA) and TPP. The successfully conclusion of these initiatives will result in job creation, greater economic efficiency, wider supply, and a lower costs of doing business.

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NAFTA Related Events

Fabtech Mexico / Metalform / AWS Weldex May 6th - 8th, 2014. Exhibition of welding and cutting products, tool and die, metal stamping, metal forming equipment, and related technologies and services. Location: Centro Banamex, Mexico City Phone: 52 (81) 8191-0444, 52 (55) 5543-0084 E-mail: dtrout@pma.org; marcela.ordaz@tradeshowconsult.com Jkrall@aws.org Website: http://fabtechmexico.com/ / http://www.metalform.com/mexico/english/exhibit/default.asp / http://www.aws.org/show/weldmex2014.html

COATech Mexico May 6th-8th, 2014 Trade Show specializing in painting, coatings and corrosion control industry. Location: Centro Banamex, Mexico City. Phone: 52 (55) 5543-0084 E-mail: mauricio.cadena@tsfactory.com.mx Website: http://coatechmexico.com/2014/index.php/en/

Expo AMPIMM México 2014 May 13th–15th, 2014 Event specialized in the furniture industry supply chain. Location: Centro Banamex. Mexico City. Phone: 52 (55) 5578-7820, 52 (55) 5442- 1234 E-mail: ventas@expoampimm.com Website: www.expoampimm.com

MDM MODAMA Guadalajara May 13th-15th, 2014 Fashion exhibition specialized in footwear, leather goods and accessories for women. Location: Expo Guadalajara. Guadalajara, Jalisco Phone: 52 (33) 1202-1818 E-mail: promocioncicej@gmail.com Website: http://modama.com.mx

Expo Agrícola Jalisco 2014 May 14th–16th, 2014 Machinery and supplies for the agricultural industry Location: Recinto Ferial Ciudad Guzmán. Ciudad Guzmán, Jalisco. Phone: 52 (34) 1413-4712 E-mail: dima_ac@hotmail.com info@expoagricola.com Website: http://expoagricola.org.mx

Expo de Viaje Monterrey 2014 May 17th-18th, 2014 Main hotels, airlines, travel agencies and providers of tourism services in Monterrey gather to showcase their commercial offers. Location: Cintermex. Monterrey, Nuevo León. Phone: 52 (81) 1351-9174 E-mail: info@arlam.org Website: http://www.arlam.org/start.php

Diario Oficial Notices http://dof.gob.mx

Notice of termination of the panel review of the final resolution of the validity and ex-officio review of the countervailing duties on imports of certain types of stearic acid originating from the USA regardless of the shipping country. Dec. 2nd.

Amendments to the General Rules for Foreign Trade 2013 and its annexes. Dec. 4th, 9th, 30th and Jan. 1st.

Amendment to the Decree whereby the Ministry of Economy issues General Rules and Criteria for Foreign Trade. Dec. 5th, 13th, and 31st

Amendment to the Customs Law and the Federal Fiscal Code. Dec. 9th

Amendment to the Mexican Tariff Schedule. Dec. 13th, 26th. Amendment to the Political Constitution of Mexico providing for

reforms to the energy sector. Dec. 20th Amendment to the tariff rate quota to import duty free

powdered milk originating from the WTO members. Dec. 30th Notice announcing the TRQ to export and import not

originating textile goods and apparel, with the NAFTA tariff preferential treatment. Dec. 30th.

Notice announcing the 2014 TRQ to import dairy products containing over 50% weight of milk solids (except products of Mexican tariff item 1901.90.04). Dec. 30th.

Notice announcing the legends, images, pictograms, health messages and information that must be included in all tobacco products packages of and all their outer packaging and labeling from March 24, 2014 onwards. Jan. 3rd.

Notice establishing measures for sale and production of ethanol and methanol. Jan. 6th.

Notice announcing Decision No. 73 of the Mexico-Colombia FTA Administrative Commission. Jan. 24th.

Notice announcing the implementation of a temporary waiver for the use of non-originating materials on certain textile and apparel goods to be exported under the preferential treatment of the Mexico and Colombia FTA. Jan. 24th

Official announcement to submit comments on the U.S.-Mexico High Level Economic Dialogue. Jan. 24th.

Amendments to the Decree that regulates the definite import of used vehicles. Jan. 30th

Mexican Official Standards

Official announcement to participate in the process for obtaining approval as a testing laboratory or certification body for the NOM’s: NOM-014-SESH-2013 and NOM-015-SESH-2013 related to LP Gas or Natural Gas. Dec. 10th.

Draft PROY-NOM-193-SCFI-2013, cream and prepared creams - specifications and test methods. Dec. 24.

NOM-001-SAG/PESC-2013, responsible tuna fishing. Specifications for purse-seine fishing operations. Jan. 16th

NOM-032-ENER-2013, maximum power limits for equipment and appliances requiring standby power. Test and labeling methods. Jan. 23rd.

NOM-165-SEMARNAT-2013, establishing the list of substances subject to reporting requirements for the Pollutant Release and Transfer Register. Jan. 24th

NEWS on the U.S.-Mexico Cross-Border Trucking Pilot Program

On January 13, 2014, the U.S. Supreme Court denied a plea by a group representing U.S. truck drivers to review the U.S. Court of Appeals for the District of Columbia’s decision that upheld Obama administration’s pilot program for long-distance trucking across the U.S.-Mexico border. This decision provides the legal certainty required to make this program a success.

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PepsiCo to Expand Investment in Mexico The U.S.-based PepsiCo, one of the world's largest drink and snack maker, will invest $5 billion over the next five years in Mexico. PepsiCo’s Chairman and CEO, Indra Nooyi, said that the firm saw tremendous opportunities for growth in the country. The corporation will invest in innovation, brand building, production, distribution network and the expansion of the range of products that PepsiCo sells in Mexico. PepsiCo employs 40,000 workers in Mexico and its new investments would create 4,000 new jobs.

Cisco Increases its Presence in Mexico Cisco Systems, the US networking equipment designer and manufacturer, will establish a Cisco Support Center (CSC) in Mexico City, increasing manufacturing of advanced technology products and expanding the Cisco Networking Academy program, with an investment up to $1.35 billion during this year. Cisco currently has sales, services, and support offices and manufacturing operations in Mexico City, Guadalajara, Monterrey and Ciudad Juarez, employing directly around 600 and indirectly over 5,800 Mexicans. The expansion of its manufacturing capacity in Mexico through contract manufacturers will deliver products for the IT market worldwide, strengthening Mexico as a global hub for advanced technology manufacturing.

Nestle Invests in New Factories Swiss company Nestlé will invest $1 billion within 5 years to build two factories, a new infant nutrition plant in Ocotlán, Jalisco, a pet food factory in Silao, Guanajuato, and will expand its cereal facility in Lagos de Moreno, creating 700 direct and 3,500 indirect jobs. Mexico is Nestlé's sixth largest global market and company’s factories will also produce goods for the Latin America market. Nestle CEO, Paul Bulcke, said: “This is a striking example of its commitment to Mexico, and its long-term vision in a market with high growth potential.

Schaeffler is Opening New Plant in Mexico Schaeffler, a German components manufacturing conglomerate, will invest in a new plant in Puebla. For 25 years, the supplier has a plant in Puebla that supplies dry clutches for DCTs to Ford. The new facility will manufacture torque converters for North America and will be an extension of Schaeffler’s Wooster, OH, facility, which serves as the supplier’s global center of expertise for torque converter design and assembly. The president and CEO of Schaeffler said that the new plant will add 400 jobs to its1200 current employees.

Virgin Mobile Launches Operations in Mexico British telecom firm Virgin Mobile has already started to expand its business structure in Mexico with a focus on MVNO service. Mexico’s growth in services such as satellite television and mobile broadband, the ongoing telecom reform and its growing thirst for bandwidth seem to have prompted the UK firm to expand in Latin America. Last November, Virgin Mobile purchased network capacity from Telefonica Mexico and will start providing its mobile services in the country over the next few months.

Opportunities from Mexico’s Energy Reform Author: BBVA Research. January 2014

The energy reform marks a major breakthrough in Mexico’s economic history only comparable to the signing of the North America Free Trade Agreement (NAFTA) in 1992. The amendments to the Constitution allow both domestic and foreign private investment in the energy sector. The liberalization of Mexico’s energy sector will also deepen the economic integration of North America and offer abundant opportunities to U.S. and foreign companies across energy and non-energy industries.

www.bbvaresearch.com/KETD/fbin/mult/140122_EconomicWatchEEUU_218_tcm348-419472.pdf

Infrastructure Projects in Mexico

Baja California III Gas Power Plant Sponsor: Federal Electricity Commission (CFE) Location: Baja California Project Value: $270 million

Spanish power giant Iberdrola has been awarded a contract to build and operate a $270 million, 300-MW combined-cycle power plant in Mexico which will feature one gas and one steam turbine, incorporating GE technology. The contract also includes the construction of associated facilities necessary for the connection of the plant to the country's electricity grid and a 25-year power purchase agreement with the CFE. Construction work will begin in April this year, while commercial operation is scheduled for August 2016.

Business opportunities: engineering, set-up equipment, turbines, generators, control and precision equipment, transmission lines. Guerrero Negro IV Thermo Plant Sponsor: Federal Electricity Commission (CFE) Location: Baja California Sur Project Value: $21 million

CFE awarded a consortium led by Aldesa, a Spain-based infrastructure-oriented company, a contract to build the 7 MW Guerrero Negro IV thermo plant in the state of Baja California Sur. Aldesa won the deal with a bid of $21 million and a levelized cost of energy (LCOE) of MXN 2.99 /kWh. The seasonal thermo facility will use diesel or a diesel-fuel oil combination.

Business opportunities: civil engineering, construction materials, turbines, generators, control and precision equipment, electrical equipment.

Success Stories Selected Readings

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Wisconsin

In 2013, Wisconsin's exports to Mexico reached $2.51 billion, up $2.22 billion from their level in 1993. Among all U.S. states, Wisconsin was ranked 14th as an exporter of goods to Mexico in 2013. In 20 years of NAFTA, Wisconsin's exports to Mexico have increased by 770%, while those to the rest of the world rose 200%. This means that the export growth rate to Mexico is 3.86 times higher than its export growth rate for the rest of the world. Since NAFTA was implemented, Wisconsin's sales to Mexico have grown at an annual average rate of 11.4%. Mexico is an important trading partner to Wisconsin. It was ranked as the 2nd largest export market for goods from Wisconsin in 2013, up from 7th in 1993, illustrating the impact of NAFTA for Wisconsin's growing businesses. Mexico accounted for 10.9% of Wisconsin's exports worldwide in 2013.

Exports to Mexico 1993 - 2013 (Millions of US Dollars)

Source: US Census with adjustments made by the World Institute for Strategic Economic Research (Wiser), and SE-NAFTA. 1993-1996 by SIC and 1997-2013 by NAICS.

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