In fact, the Maquiladora Industry in Mexico is alive and well and is expected to prosper into the next millenium. Since its modest beginning in 1965, the industry has grown to over 3,500 registered companies. In 1996, these Maquiladoras imported over 29 billion dollars worth of raw materials, components, equipment and supplies to support and fuel their manufacturing and assembly operations. Under the Maquiladora Program all of these materials and components are exempt from Mexican import duties, if exported from the Maquiladora within two years.
On January 1, 2001, courtesy of the North American Free Trade Agreement (NAFTA) the Maquiladora Industry is scheduled to experience one of its most significant changes in its 35-year history. When the United States, Canada and Mexico signed the NAFTA in 1994, one of the primary goals was to encourage and promote the use of NAFTA originating materials and components in their manufacturing and assembly operations. However, the current Maquiladora program was poorly structured to advance these goals. In fact, under the current program non-NAFTA originating materials and components freely move in and out of a Maquiladora with no duty implications. Consequently, in less than three years, all non-NAFTA originating materials and components imported into a Maquiladora for use in finished goods for exportation to the United States, Canada or Mexico will no longer be free of duty. These materials and components will be dutiable in either Mexico, United States or Canada.
A major exception to the new rules applies to finished goods, which are exported to non-NAFTA countries (Europe, Asia and Latin America). Materials and components used to produce these products will continue to enjoy duty free status in a Maquila, whether they are NAFTA originating or not.
The determination of whether a material or component is NAFTA originating is based on the articles Harmonized Tariff Schedule classification and its corresponding NAFTA Rule of Origin.
The following two examples, which are for illustration purposes only, should be helpful in understanding the potential duty impact, both before and after 2001.
Example 1
Cordless Power Tool
Product is manufactured and assembled in Mexico from a combination of NAFTA originating and non-NAFTA originating materials and components. The finished power tool qualifies for NAFTA preferential treatment and is NAFTA originating. It is duty free when imported into the United States or Canada.
Before 2001
|
Component Plastic Housing |
Origin
China Japan Canada |
NAFTA Status
Non-NAFTA Originating Non-NAFTA Originating NAFTA Originating |
Total Duty Payable to
Mexico............................................................0
|
Component Plastic Housing |
Origin
China Japan Canada |
NAFTA Status
Non-NAFTA Originating Non-NAFTA Originating NAFTA Originating |
Total Duty Payable to Mexico within 60 days
after product is exported to the United States or
Canada.............................$3.50
Total Duty Payable to Mexico when product is exported to a non NAFTA country..................................................................0
Example 2
Wooden Chair
Product is manufactured and assembled in Mexico from a combination of NAFTA originating and non-NAFTA originating materials and components. The finished wooden chair does not qualify for NAFTA preferential treatment and is not NAFTA originating. The chair is dutiable at $1.50 when imported into the United States.
Before 2001
|
Component Cut Wood |
Origin
China Taiwan United States |
NAFTA Status
Non-NAFTA Originating Non-NAFTA Originating NAFTA Originating |
Total Duty Payable to
Mexico............................................................0
|
Component Cut Wood |
Origin
China Taiwan United States |
NAFTA Status
Non-NAFTA Originating Non-NAFTA Originating NAFTA Originating |
Total Duty Payable to Mexico within 60 days after
product is exported to the United
States................................................. .75
(Calculation: Mexico Duty($2.25) less Duty already paid
in United States ($1.50) equals duty payable in Mexico (.75)
Total duty payable to Mexico when product is exported to a non NAFTA country.........................................................0
MAQUILADORA 2001/SBZ
Under both examples, no duty would be owed to Mexico if all materials and components were sourced from a NAFTA country and qualified as NAFTA originating. Under the new rules, purchasing NAFTA originating materials and components can result in significant cost savings.
Beginning January 1, 2001, all Maquiladora operators must prepare to track, monitor and verify their materials and components imported into the Maquila. Management must be ready to implement compliance guidelines and recordkeeping procedures to insure maximum conformity with the new rules. The failure to properly track and document components could result in substantial duty liabilities and penalties. The time to prepare is now. Companies should immediately begin the process of reviewing their bill of materials to determine possible duty exposure and origin certification requirements.
TIPS ON HOW TO PREPARE FOR 2001
* Prepare Bill of Materials for all products.
* Classify all materials and components under the HTS
* Determine and understand the applicable NAFTA Rule of Origin
* Gather and maintain Certificates of Origin
* Develop and implement inventory and tracing controls
* Perform regular self-audits and verifications
* Prepare written internal compliance manuals and guidelines
The actual rules and regulations necessary to implement Maquiadora 2001 are still under consideration and development by the Mexican government. Specific details, procedures, enforcement mechanisms and forms are not yet available. However, the general principals are clear enough. The advantages to NAFTA sourcing are obvious and the time to prepare is now.
Steven B. Zisser is an attorney in Otay Mesa specializing in the practice of U.S. Customs and International Trade Law. He regularly advises U.S. importers and Maquiladora operators on understanding, managing and complying with the U.S. Customs Rules and Regulations, including the NAFTA. He can be reached at (619)671-0376.