In the mid-1960s, Mexico created the maquiladora program to help develop the infrastructure along its northern border, to create employment and to facilitate the transfer of technology into the country. This program was aimed at allowing foreign manufacturers to temporarily import duty-free equipment and materials required to assemble and manufacture products for export. Domestically, a second program, the Temporary Import Programs to Produce Export Articles program (or “PITEX”) was developed to provide incentives to manufacturers selling in the domestic market. In 2006, the Mexican government merged the two programs under the term, IMMEX, an acronym for Decreto para el Fommento de la Industria Manufacturera Maquiladora y de Servicios de Exportación.
Subsequent to the aforementioned, the system was further modified and strengthened by the ratification of NAFTA. The new hybrid system retained the name of the original maquiladora program in common use. Basically, a maquila (or IMMEX) operation is a Mexican manufacturer that is wholly-owned by a foreign parent, which allows the foreign company to import inputs needed for duty free production activities, conducting manufacturing on site in Mexico, and then exporting the goods abroad.
This allows foreign companies to partner with their own Mexican entities, or with third-party shelter service providers in Mexico, to lower the cost and price of their exported finished goods.
Requirements for companies to take advantage of the IMMEX program are relatively easy to meet, though somewhat complex. Authorizations are typically granted if the applicant commits to annual sales abroad of at least $500,000USD, or invoiced exports accounting for at least 10% of total invoices. Much operational data is required, such as the materials intended for import, how long imported equipment will be used, copies of purchase orders, formation documents of the Mexican entity, the inter-company maquila agreement, etc.
Because getting IMMEX authorization does fall under the purview of several regulatory agencies and regimes (including NAFTA), companies applying for recognition under the IMMEX program should seek out legal advice from attorney that deal specifically in cross-border compliance issues.
Advantages and benefits for using the IMMEX program are obvious. Manufacturers enjoy a streamlined system for importing goods, avoid Mexico’s general import tax, and are subject to low or no import duties on equipment and materials used for the manufacture of products in Mexico. Additionally, they avoid paying compensatory quotas and taxes for domestic purchases incorporated into products for export. When the manufacturing process is completed, the goods that are exported from Mexico into other NAFTA countries are not subject to duties. The IMMEX program as it has been operating has been a significant draw in terms of attracting FDI into the country. For example, the Mexican aerospace industry received more than $4.2 billion in foreign direct investment between 2008 and 2012, according to the Mexican Aerospace Industry Federation. Between 1999 and 2011, vehicle production in Mexico registered an increase of 65%. Other sectors, from biomedical to appliances, are also enjoying significant benefits from Mexico’s IMMEX program.
As far as the future is concerned, Mexico watchers will have to wait to see how any fiscal reform passed by the Mexican Congress in 2014 with affect the IMMEX program.
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