VZCZCXRO3398
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #6362/01 3121450
ZNR UUUUU ZZH
P 081450Z NOV 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 4109
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 006362 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD ELAB PGOV MX
SUBJECT: NEW MAQUILA DECREE -- INCREASING MEXICAN 
COMPETITIVENESS 
 
REF: A. MEXICO 6217 
 
     ¶B. MEXICO 6067 
 
------- 
Summary 
------- 
 
¶1. (U) The revamping of the Maquila program is the latest 
step in the GOM's plans to encourage investment and increase 
Mexico's competitiveness in the global economy.  The new 
decree joins the Maquila and PITEX programs, allows for 
participation of the service sector, lowers certain 
participation requirements, facilitates the administrative 
processes involved, and better controls compliance while 
encouraging transparency. The decree will go into effect on 
November 13 but, despite a long approval process, certain 
elements of the decree will not be agreed upon on until early 
next year, particularly the requirements for the temporary 
import of inputs and activities covered as service exports. 
End Summary. 
 
----------------------------------- 
Maquila and PITEX - One in the Same 
----------------------------------- 
 
¶2. (U) On November 1, the GOM published the new IMMEX Decree 
(named for its Spanish language acronym - Decreto para el 
Formento de la Industria Manufacturera, Maquiladora y de 
Servicios de Importaci"n), to be effective November 13.  It 
will combine the current Maquila and PITEX programs into one 
regulatory scheme, and streamline administrative processes 
associated with the program.  Approximately 6,500 companies 
are included under the current Maquila and PITEX programs. 
They represent 2.4 million employees (54 percent of the total 
workforce employed in the manufacturing sector) and account 
for more than 85 percent of the country's exports. 
 
¶3. (U) Originally, the PITEX program was created to allow 
Mexican companies that did not qualify for the Maquila 
program to gain some maquila-like benefits.  Instead of 
linking duty-free import authorization to specific companies 
as under the Maquila program, PITEX program authorizations 
were linked to specific imports.  However, with changes 
implemented by the GOM in recent years to open its markets, 
the programs have become quite similar.  As a result of 
NAFTA, PITEX and Maquilas converged with respect to fiscal 
treatment, tariffs, and administrative procedures. 
Currently, the only small difference between the programs is 
that maquilas receive income tax benefits.  With the new 
decree, income tax benefits will still be provided to 
maquilas, but now the value-added tax treatment (VAT refund 
upon export of merchandise) will be the same for both 
programs. 
 
 
----------------------------------- 
Old Maquila Decree Behind the Times 
----------------------------------- 
 
¶4. (U) Another major change of the decree is the addition of 
export services.  Although there were reforms to the Maquila 
Decree in 2003, it was still considered "obsolete" because of 
its failure to include outsourcing and some services.  Both 
are included in the current decree to enable Mexico to 
develop a fourth-generation maquila sector able to compete 
with China and India in regards to value added products and 
services.   The new decree promotes and permits within the 
Maquila and PITEX programs: industrial 
transformation/processes (manufacturing, repair of 
merchandise that will exported); export services; and 
outsourcing.  In a meeting with EconOff, Adolfo Cima de 
Villa, the new Head of Advisors in the Economic Ministry's 
Undersecretariat for Industry and Commerce, explained 
Mexico's prospects in regards to business process outsourcing 
(BPO's).  He said that Mexico's proximity to the U.S. is an 
added benefit when it comes to outsourcing because "while the 
U.S. is awake India is asleep and vice versa whereas Mexico 
will be able to do business on the same schedule as the U.S." 
 
 
¶5. (U) The new decree also allows for submanufactures and the 
use of third parties ("terciarizacion") in the maquila 
process.  When a certifying company does not have adequate 
production facilities, a third company will now be able to 
perform the production under the same maquila program. 
Another concept, "shelter" allows a foreign company to 
provide maquilas with technology and imports, without having 
to operate under the same maquila program. 
 
--------------------------------------------- ------ 
 
MEXICO 00006362  002 OF 003 
 
 
Changes a Boon for Small and Medium Size Businesses 
--------------------------------------------- ------ 
 
¶6. (U) The decree additionally reduces the required amount of 
exports to qualify for duty free imports under the PITEX 
program from 30 to 10 percent.  This means more businesses 
will be able to participate in the program.  The lowered 
requirement is one of the recently enacted changes that have 
been promoted as helping small and medium sized enterprises 
(SMEs) become more competitive (ref A reported on recent 
tariff cuts for inputs).  In addition, SMEs are the most 
likely to benefit from the entry of submanufactures and 
"terciarizacion" in the maquila process, further allowing 
them the opportunity to participate in the global market. 
 
--------------------------------------------- - 
Administrative Requirements Simplified 
--------------------------------------------- - 
 
¶7. (U) By merging the Maquila and PITEX programs, the number 
of procedures will be reduced from the current 29 to 16.  The 
number of days to grant an authorization to operate under 
Maquila or PITEX will be reduced to between 10 and 15 working 
days.  One of the main cumbersome procedures eliminated from 
the previous decree was the requirement to register in the 
Importers Database for Specific Sectors.  Additionally, 
administrative procedures will be expedited thanks to 
installation of electronic controls and mechanisms. 
Although not a change, the new decree also continues the 
concept of a "holding" maquila, which allows a company to 
consolidate foreign trade operations of two or more 
subsidiaries in only one controlling company, allowing 
greater administrative efficiency. 
 
--------------------------------------------- - 
Discourage Contraband and Promote Transparency 
--------------------------------------------- - 
 
¶8. (U) To foster competitiveness, the new decree has tighter 
controls to prevent contraband, especially in the textile 
sector.  Maquilas will be required to present an import 
authorization, a valid RFC (federal taxpayer number), 
address, and an electronic signature.  To grant a Maquila or 
PITEX program, authorities will inspect the facilities 
registered in the system.  In addition, the authorities will 
cancel programs if a company has not exported during the past 
12 months or in the case of an unverifiable address.  This is 
an attempt to counter the previous practice of smugglers 
using fake companies' identities and addresses to illegally 
import products. 
 
¶9. (U) The new decree also includes an electronic inventory 
control requirement.  This is intended to give more 
transparency to the movement of inputs and finished products. 
 Maquilas and PITEXs will also have to hand in an annual 
report on sales and exports to the Economic Ministry (SE). 
 
--------------------------- 
Some Elements Still Unclear 
--------------------------- 
 
¶10. (U) Article 5 of the decree lists three details that are 
yet to be agreed upon by the Secretariats of Economy and 
Finance.  Agreement on these issues is to be achieved no 
later than February 26, 2007.  These include requirements to 
be compiled for temporary import of certain inputs, the 
maximum import number for certain inputs used in the textile 
sector, and the list of activities to be performed as 
services in the Maquila program. 
 
------- 
Comment 
------- 
 
¶11. (U) Economia Under Secretary Rocio Ruiz told us earlier 
that the changes in the Maquila Decree, finally enacted after 
years of discussion, reflect the GOM's strong interest in 
promoting Mexican competitiveness.  The Fox administration, 
as well as President-elect Calderon, have publicly noted that 
in order to increase Mexico's competitiveness and attract 
more investment, the GOM must reduce transaction costs for 
companies in Mexico.  In addition to the new Maquila Decree, 
Calderon transition figures and others have called for lower 
energy and labor costs to boost economic growth and 
generation of jobs.  The new Maquila Decree is a step forward 
in fostering exports and job creation, but its overall impact 
remains to be seen.  The GOM understands, however, that it is 
important to look for more value added in Mexican production 
and to include outsourcing services to keep pace with India 
and China.  As reported in ref B, it seems that the Calderon 
 
MEXICO 00006362  003 OF 003 
 
 
administration will continue current efforts of simplifying 
and reducing at least some procedures and regulations.  As 
always, the actual pace of implementation will be key to 
success and tangible economic results. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA