Exporting to

Mexico

The NAFTA Group, LLC. International Trade AdvisorsMexico, USA, Canada & China

Hispanic Metropolitan Chamber of Commerce

Portland, Oregon – March 15, 2007

General Background - Mexico

• Economic activity in Mexico decreased in 2006 with a GDP growth rate at 4% compared to a 4.4% in 2004. This situation is due to high oil prices and a relaxing monetary policy.

• One of the weakest points of the Mexican economy is its strong dependence to the American economy : 80%+ of Mexican exports and imports are carried out with the US.

• Mexico's three largest export destinations are the United States, Canada and Germany. Its three largest import countries are the United States, Canada and China.

How to export to Mexico

• To compete effectively in today’s business world it is imperative that local companies have means to address the global challenge and turn to international trade to diversify products, mitigate risk, and reap the benefits of globalization.

• Comparative advantage can be attained by finding the right product to satisfy clients needs.

• International trade agreements can increase the benefits of sourcing and sellingproducts in foreign markets.

Import regulations and duties

• Since Mexico joined the GATT in 1986, few goods have been subject to import license. For the products which are still subject to import licenses, the administration in charge of import license is the Ministry of the Economy.

• All import products have to handle a certificate of origin, and particularly strict requirements are demanded for textiles, toys, hydrocarbons, and other sensitive industries.

Import Process / Customs

• To be able to import or export merchandise it is required to present official approved document called "pedimento“ (or petition to import) and it has to be completed by a licensed Customs broker.

• The petition is filed at the port of import/export (air, land or sea port) and has a three day window for validation purposes.

• In the case in which the merchandise is subject to regulations and non-duty restrictions, the “pedimento” has to include the electronic signature that proves fulfillment of the same requirements.

Role of the Customs Broker

Foreign trade projects, public or private, require constant bringing up to date in different aspects such as codes regulations, custom formalities, duties and legal aspects and precepts.

Therefore, custom brokers more than just take the necessary steps to put the merchandise through customs, they became advisors in foreign trade and international logistics.

Result = clients not only obtain the best applicable tariffs, but through consulting and deliberating, work together with other areas of the enterprise in developing better products, system and strategies by devising leaner and more efficient international supply chains.

Import Requirements Check List

Before initiating operations:

• Have a Mexican importer of record – must be in the import registry and a Customs Broker assigned for import operations.

• Provide the documentation to the Mexican Customs Broker to begin the clearance process

• Check that the merchandise complies with all the non-duty requirements (registration in specific sectors, permits, labeling, packaging, etc.) in both the exporting and importing countries.

Import Requirements Check List

Document Requirements:

•Commercial Invoice (English, Spanish or French)•Airway bill, Bill of Lading or Cargo Manifest•Packing Lists•Certificates of Origin

•The document that proves the fulfillment of regulations and

non-duty restrictions that proceed

•Estimated price guarantee in case Mexican authority estimates

a higher than declared value on the merchandise being imported

•In case of it being merchandise that is identifiable by serial

number, make, model, and technical specifications.

Import taxes

• VAT (IVA) applied on imports:- standard rate: 15%- reduced rate: there are two reduced rates: 10% when the company's activities occur in a border region, and 0% in the case of some goods (bare necessities, food, books, medications, and agricultural products).

• Customs royalty (DTA): 0.8% on the declared value.

Customs duties

• As a WTO member, Mexico applies the Harmonized Tariff System. Customs duties are calculated Ad valorem on the value for customs of the goods and the terms of sale (Inco terms).

• There are customs duty discounts (and even exemptions) for products helping in the development of the local industry (“Maquiladora” program).

• Mexico signed a number of trade agreements resulting in the creation of free trade areas (NAFTA) and preferential tariffs for a broad array of products.

Maquiladora System Overview

• Manufacturing Companies that receive duty and tax exemptions on imported materials that are used for transformation and subsequently exported.

• Provides opportunity to North American companies for sourcing products that may have foreign components. After transformation through this program, these final or intermediate goods are classified as Mexican Origin (Annex 401 NAFTA).

• Products that meet the criteria may enter the U.S. and Canadian markets duty free.

Sample process for a Maquiladora

Lumber From

Indonesia

Hardware FromChina

Barnish andEnamel from

Mexico

Import duty &

tax free

Manufacturing ofFurniture – Product is

Mexican Origin (See Annex 401)

Maquila Mexico

Import duty &

tax free

Canada

Transportation of goods

• By road

The road network counts 310,000 km of roads. 50,000 km are federal roads, 60,000 km are State roads and the rest are countryside roads.

The State network is in bad shape because of the obsolescence of infrastructure and poor maintenance, despite the efforts made by the Ministry of Communication and Transport in recent years.

Transportation of goods

• By rail The rail network extends over 26,000 km and it mainly consists of three North-South routes: 1. Along the Pacific Coast2. Central region 3. Northeast region. A fourth axis connects Mexico City with Yucatán.

The network connects the 10 sea ports and allows 10 access points with the United States.

Freight represents 95% of the railway activity.

Transportation of goods

• By sea

Mexico has 22 commercial ports. Since 1995, the government decentralized the harbor administration and privatized the exploitation of terminal operations in certain ports.

The 4 main ports, which handle +60% of the traffic, are Altamira and Veracruz in the Gulf of Mexico and Manzanillo and Lazaro Cardenas on the Pacific Coast.

In 2006 29% of the goods imported to Mexico were transported by ocean.

Transportation of goods

• By air

Mexico has the most developed airport infrastructure in Latin America, with airports in every cities of more than 500,000 inhabitants.

Among the 83 airports of the country, 53 handle international flights and cargo.

Advantages to trade with Mexico

• Cheap labor force, skilled and non-skilled

• High levels of quality and production

• Rule of Law – International Property Rights

• Abundant resources and infrastructure

• International Trade Agreements

• Geographical location: proximity and faster

reaction times to problems or market

changes

5 Most Common Mistakes

1) Jump the gun and not have a registered importer with the necessary permits and registrations.

2) Forget to file for a licensed customs broker.

3) Expedite cargo without the proper documentation.

4) Cargo does not match or is not easily identifiable with importing documents.

5) Document errors:

- Incorrect information (invoice, certificate of origin)

- Incomplete forms (fields, stamps, signatures)

- Illegible documents or copies

- Unofficial formats and print outs

International Trade Solutions

Conduct your export activities with due diligence to avoid costly delays and potential loss of profits.

Choose your partners adequately. Create synergies between your customers, suppliers, and service providers.

Maintain an updated database of requirements for the products that you export or wish to export.

Communicate effectively and share information with all involved parties for a smooth customs clearance.

Important Contacts/Resources

Mexican Export Bank – Bancomextwww.bancomext.comNorth American Free Trade Agreement - TLCwww.nafta-sec-alena.orgMinistry of Economy – Secretaria de Economiawww.economia.gob.mxTreasury Department – S.A.T.www.sat.gob.mxMexican Customs – Aduanas Mexicowww.aduanas.sat.gob.mxMX Customs Brokers Association – CAAAREMwww.caaarem.org.mx

Questions ?

Thank you

www.naftagroup.com