Have you heard about the Mexican “Fourth Transformation (4T)”? Well, this is how Mexican President Andres Manuel Lopez Obrador (AMLO) wants his term in office to be known as. He says, throughout the course of the history, Mexico has gone through 3 important episodes: 1. Independence, 2. Reform, 3. Revolution, and 4…: the 4T. Because as he has said, he wants his term to be known for deep and big transformations, all for the benefit of Mexicans. However, his plans seem to be quite ambitious and rather hard to accomplish, especially those related to international business and trade related matters.
Last month, on July 1, 2020, the USMCA became effective, and in order for Mexico to implement and enforce this treaty, it needed to amend various laws and regulations, including the General Customs Rules (Reglas Generales de Comercio Exterior for 2020). Later, on July 8, 2020, the President of Mexico and the United States held a meeting which was viewed by many as a message about their willingness to strengthen their business relations and commitments under the USMCA. This gave foreign investors some level of certainty that their business would be protected within the North American territory.
A few days after that meeting, AMLO announced that in order to end corruption acts and organized crime, and also increase collection of taxes during customs clearance, the Mexican Army would now be in charge of safety guard, surveillance, and control of the 49 checkpoints and 116 sea ports located throughout Mexico. He instructed the correspondent officers to coordinate efforts in order for this to happen very soon. Nonetheless, this has raised concerns among customs and trade experts as to just how this could be achieved. Mainly because since 2009, one of the ports was already controlled by the Army, and this arrangement had not helped end corruption and crime there. Additionally, in order to have armed forces handle these duties, it would be necessary to amend the Mexican Constitution and the customs regulations, which basically state that Customs authorities are the only ones that can control customs checkpoints and that the Army could only do this if the country is in a war. On the other side, customs procedures in Mexico are a complex topic, and in order to have qualified personnel, it will be necessary to train the designated officers, which quite frankly could take a long time. Most importantly, one of the purposes of USMCA is to facilitate trade in goods. Thus, having armed soldiers inspecting and clearing goods might not necessarily mean a facilitation on customs clearance procedures.
On July 24, 2020, the Tax Administration Service (SAT) published the first amendment to the General Customs Rules for 2020 previously published on June 30, 2020. This amendment was unexpected by the trade industry because: 1) it amends the rules within less than 30 days after the initial publication, 2) SAT did not publish them as preliminary/advanced regulations (publicaciones anticipadas) as it had been doing so for any change since a few years ago, and as it is set forth under the rules 3) it contains major provisions that may affect some companies adversely. One of the amended rules is 7.3.1. This rule includes the list of benefits for companies having the VAT Certification such as IMMEX, fiscal deposits for automakers, bonded warehouse and strategic bonded warehouses. The new amendment abolishes the majority of the customs and administrative benefits for these companies. Under the new regulations, these companies will now be required to submit the value manifest, within 6 months must return or import consumption goods transferred to them, the VAT will not be refunded within 10, 15 or 20 days, the industry sector registration will not occur automatically, temporarily imported goods imported by an AAA cannot stay in Mexico longer than the 36 months’ period, identification number for each good imported into Mexico must be provided, among others. This amendment seems like a simple thing to accomplish, however, in practice it requires additional qualified personnel and days, if not weeks, to prepare and complete.
The benefits enumerated above are now given to companies having the Authorized Economic Operator (AEO). This means that if a company wants to receive all available benefits, it must first obtain and apply for the IMMEX program, then the VAT certification, followed by the AEO certification. The problem is that it takes months, if not years, to obtain and qualify for these programs or certifications.
Another relevant potential change for the trade industry is one regarding NOMs (Mexican Official Norms-Standardization Norms) – aimed to protect and inform Mexican consumers. On July 30, 2020, the Minister of Economy published a preliminary project to amend the General Rules and Criteria for Foreign Trade Matters (Reglas y Criterios de Carácter General en Materia de Comercio Exterior) regarding Annex 2.4.1 –which lists harmonized tariff codes of goods subject to NOM compliance at the time of importation and exportation. There are up to 15 different NOMs that might apply depending on the type of goods and that includes requirements of commercial, health, quality, human safety, hygiene and environment protection, among other information. Complying with these requirements is burdensome for companies, especially because of the associated costs and the times it may take to obtain the correspondent NOM approvals, certification, licenses, etc.
Currently, there are 16 scenarios where importers are not required to comply with the NOM. For example, if goods are imported by:
- Passengers, when the goods are part of their personal luggage,
- Companies that will use the goods to provide services to their customers or by companies that will re-sell them to service providers,
- IMMEX and other bonded warehouses, when the goods will be used to produce, manufacture or transform other goods,
- Other scenarios.
The proposed change will require importing companies to comply with stricter requirements and some of the exceptions will NOT apply until October 1, 2020. This project or proposed change got more attention when a high-ranking officer within the Minister of Economy tweeted this as a fact. Additionally, Mexican Official Norm NOM-051- SCFI/SSA1-2010, applicable to labels for food and non-alcoholic beverages was recently amended and the government has announced verification procedures in this regard.
Even though some experts have raised their concerns about how the changes above might affect international trade in Mexico, the truth is that something drastic needs to be done in Mexico. Every day we learn about unimaginable corruption acts that occurred in Mexico involving government officers and some private companies. To stop this, Mexico should make the required domestic changes and cut any other bureaucratic problems from the root so that law infringers with abusive or corruptive practices are sanctioned, punished, or prosecuted, thereby stopping them from harming the Mexican economy. Unfortunately, in the meantime good companies might also suffer the consequences because these changes apply to everyone regardless of if they are compliant or not. Therefore, in order to mitigate and reduce the impact that these changes may have on good companies, the Mexican government should implement a risk analysis assessment, look for strategies to accomplish its goals, and look to facilitate and expedite trade by eliminating unnecessary barriers to trade. At the same time, companies doing business in Mexico should be aware of all the changes that are taking place, increase their level of compliance, and ultimately find the best way to reduce any associated risks. The hope (and prayer) is that any change implemented in Mexico is with the best of intentions to accomplish the goals mentioned by the government, and at the same time be able to comply with its business commitments with other countries via protecting and promoting foreign investment.
This article was prepared on August 4, 2020. It is presented to you for information purposes only and is not intended to provide legal guidance or advise. Please consult with your attorney if you need specific information regarding the above or give us a call, we are happy to assist you.