Foreign manufacturers in Mexico must be accurate in estimating value-added for maquiladoras for US Customs when determining the worth of goods manufactured in Mexico that are imported into the United States. It is important to understand this process to avoid overpaying any fees related to the importation of such items.
Value Added Variances
The cost reported by a maquiladora on an annual US Customs invoice for value-added purposes should reflect actual foreign expenses incurred by the maquiladora for the year. While this may sound straightforward, there are routinely variances between estimated and actual costs that may lead to trouble for manufacturers in Mexico should the variance between the two exceed 5% on the Value Reconciliation. The two types of variance that exist when estimating value-added for maquiladoras are:
Underdeclared is the most common. In spite of this fact, however, both of the aforementioned variances should be avoided. Typically a maquiladora will use a frozen standard cost for value-added for the year for US Customs purposes, rather than their internal accounting and estimations of actual expenses throughout the year. When this frozen estimate is not aligned with actual foreign costs, a variance in estimating value-added for maquiladoras occurs.
When actual costs exceed the estimate provided earlier to US Customs, this results in an underdeclaration. Underdeclarations can occur frequently due to failure to regularly monitor and update for fluctuations in real costs, or when an estimate is not sufficiently broad enough to allow for cost fluctuations throughout the year.
Less frequently, when the declared value-added cost exceeds the actual foreign costs, this is an overdeclaration. This can sometimes occur when the maquiladora includes costs incurred in the US in their estimate that are in support of maquiladora operations in Mexico. Only costs incurred in Mexico should be declared – with one exception.
Assists are costs incurred stateside, but nonetheless included in the calculation of value-added cost. Assists include equipment or machinery that is paid for in the US but used in Mexico. Since the equipment is part of the Mexican operation. Although it is not an expense incurred in Mexico, it must still be included for value-added estimates.
Implications of Overdeclaring
Even overdeclaring costs can cause problems such as following:
1. The US importer may be required to pay more duties than otherwise would be necessary on duty-eligible goods. A refund is possible, but the process to receive it is extensive, and may take up to two years to complete.
2. A variance against the actual foreign operating costs will occur when the US importer calculates the CBP Value Reconciliation.
To avoid troublesome inaccuracies and overpaying, maquiladoras should be careful to regularly analyze their costs, so as to be able to be accurate in estimating value-added for maquiladoras. Performing due diligence in this area will not only avoid the hassle of correcting paperwork, it will also assist corporate management in minimizing Mexican manufacturing costs.