June 1, 2001
M E M O R A N D U M
TO:	Clients and Friends of the Firm
FROM:	Julia Padierna-Peralta
RE:	Keeping Track of Mexico's Sectoral Programs: An Update

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INTRODUCTION

     This memorandum is a follow up to our December 2000 memorandum in which we discussed major changes in Mexico's manufacturing landscape scheduled to occur in 2001, including the full entry into force of Mexico's Sectoral Programs.

     Mexico's Sectoral Programs (known in Spanish as Programas de Promoción Sectorial, PROSEC or PPS) were introduced by Mexico's Economy Secretariat (formerly SECOFI) in November of 1998. The Programs are of particular interest to manufacturers with domestic and North American export markets who now pay Mexico's General Import Tariffs or MFN duty rates. The Programs offer the same tariff preference to manufacturers for the domestic market. The Programs provide manufacturing companies with duty free or reduced import duty rates for a wide range of imported inputs (materials, machinery and equipment) used in the manufacturing of qualifying finished products. On average, Sectoral Programs duty rates are significantly lower than MFN rates. Our prior memorandums (www.npwtradelaw.com) explain how the Programs work and their potential impact on Mexico-based manufacturing companies, particularly those operating under a temporary importation program (e.g., maquiladora or PITEX).

     Thus far, Mexico has established a total of 22 Sectoral Programs to benefit well over 5460 products, identified by tariff item, to be imported and used for the manufacturing of specific, qualifying finished products.

     This memorandum provides an update on the Programs, highlights their structure and emphasizes the importance for manufacturing companies operating in Mexico to keep track of the continuous publication of Sectoral Programs decrees.

I.     Governing Sectoral Programs Decree

     A key feature of Mexico's Sectoral Programs is that they are policy instruments subject to almost continuous change. This particular characteristic has provided companies with the opportunity to seek the inclusion of their critical inputs in the Programs. However, the constant revision of existing Programs has also created uncertainty within Mexico's industrial sectors, as changes to their Programs could result in the elimination of tariff items or an increase in import tariff rates.

     The December 31, 2001 Sectoral Programs Decree¹ currently governs the operation of the Programs. This Decree superseded all prior Sectoral Programs decrees, and established two additional Programs.² Thus, bringing the total number of Sectoral Programs to 22.

     The number of qualifying inputs to benefit from Sectoral Programs duty rates in each of the 22 Programs is as follows:

Mexico's Sectoral Programs Decree
December 31, 2000

	Industry Program	0%	5%	Other
I.	Electricity	476	2,306	14
II.	Electronics	3,174	15	2
III.	Furniture	799	0	0
IV.	Toys, Games and Sport Goods	716	0	0
V.	Footwear	23	111	0
VI.	Mineral and Metals	100	626	0
VII.	Capital Goods	108	194	0
VIII.	Photographic Goods	267	15	5
IX.	Agricultural Machinery	258	0	0
X.	Miscellaneous	239	125	4
XI.	Chemicals	856	673	220
XII.	Rubber and Plastics	97	101	2
XIII.	Iron and Steel	334	427	7
XIV.	Pharmochemicals, Drugs and Medical Equipment	103	98	14
XV.	Transportation	275	18	1
XVI.	Paper and Cardboard	61	37	0
XVII.	Wood	--	--	--
XVIII.	Leather and Skins	--	--	--
XIX.	Auto and Autoparts	2,172	37	446
XX.	Textiles and Apparel	129	54	14
XXI.	Chocolate, Candy and Similar ("Like" Products)	1	--	--
XXII.	Coffee	57	84	0

Source: DGSCE, Mexico's Economy Secretariat.

II.     March 2001 Amendments to the Programs

     On March 1, 2001, Mexico's Economy Secretariat published a new Decree ³ amending existing Sectoral Programs. The new Decree added a total of 1084 new qualifying inputs; modified the duty rates of inputs in six industry sectors; and eliminated approximately 61 previously qualifying items. All Programs, except Programs XXI and XXII were affected.

The effect of the March 1, 2001 decree on existing Programs was as follows:

Tracking Amendments
March 1, 2001 Sectoral Programs Decree

	Industry Program	Addition		Elimination
I.	Electricity	22	2	1
II.	Electronics	43	- -	11
III.	Furniture	1	- -	--
IV.	Toys, Games and Sport Goods	15	- -	13
V.	Footwear	1	- -	9
VI.	Mineral and Metals	6	- -	1
VII.	Capital Goods	160	1	--
VIII.	Photographic Goods	2	- -	--
IX.	Agricultural Machinery	1	- -	--
X.	Miscellaneous	164	1	1
XI.	Chemicals	38	1	2
XII.	Rubber and Plastics	63	- -	2
XIII.	Iron and Steel	6	1	2
XIV.	Pharmochemicals, Drugs and Medical Equipment	60	5	5
XV.	Transportation	286	- -	--
XVI.	Paper and Cardboard	9	- -	--
XVII.	Wood	8	- -	--
XVIII.	Leather and Skins	28	- -	--
XIX.	Auto and Autoparts	53	- -	9
XX.	Textiles and Apparel	118	- -	9
XXI.	Chocolate, Candy and Similar ("Like" Products)	--	- - -	1

Source: DGSCE, Mexico's Economy Secretariat

III.     May 2001 Amendments to Sectoral Programs

     On May 18, 2001, Mexico's Economy Secretariat published new amendments to existing Programs. The May 18, 2001 Decree ⁴ added a total of approximately 584 new qualifying inputs; modified the duty rate of inputs in nine industry sectors; and eliminated a total of 77 previously qualifying items. The amendments introduced by this Decree were slightly less numerous than those of the March 1, 2001 Decree.

      The May 18 Decree affected the following industries:

Tracking Amendments
May 18, 2001 Sectoral Programs Decree

	Industry Program	Addition	Modification	Elimination
I.	Electricity	64	149	21
II.	Electronics	85	--	37
III.	Furniture	21	--	--
IV.	Toys, Games and Sport Goods	13	--	--
V.	Footwear	2	2	--
VI.	Mineral and Metals	0	1	--
VII.	Capital Goods	57	7	--
VIII.	Photographic Goods	16	--	--
IX.	Agricultural Machinery	50	--	3
X.	Miscellaneous	48	10	--
XI.	Chemicals	15	3	--
XII.	Rubber and Plastics	26	--	--
XIII.	Iron and Steel	29	6	--
XIV.	Pharmochemicals, Drugs and Medical Equipment	16	3	2
XV.	Transportation	47	1	1
XVI.	Paper and Cardboard	--	--	--
XVII.	Wood	8	--	--
XVIII.	Leather and Skins	--	--	--
XIX.	Auto and Autoparts	87	--	13
XX.	Textiles and Apparel	118	--	--

Source: DGSCE, Mexico's Economy Secretariat.

IV.     Why to Keep Track of Sectoral Programs Decrees

     Mexico's Sectoral Programs are instruments of domestic industrial policy established by Presidential Decree. The publication of subsequent decrees amending the Programs is permitted under the Mexican Constitution. ⁵ According to Economy Secretariat sources, new decrees will continue to be published approximately every three months.

     Careful review of amending Sectoral Programs decrees is critical because changes are sometimes accompanied by date restrictions. For example, the March 1, 2001 Decree added a total of 43 new qualifying inputs for the Electronics Programs to be imported duty free for the manufacturing of qualifying finished products. Of this number, 37 could be imported duty free only through December 31, 2001 (Art 5, II; Second, Transitory, March 1, 2001 Decree). The May 18 Decree also added new tariff items, whose importation is subject to date restrictions.

     Technical corrections could also be embedded in a decree and go unnoticed. For example, the May 18, 2001 Decree listed under the Textiles and Apparel Industry Program (XX.) the same 118 qualifying inputs that were added to the Program by the March 1, 2001 Decree. A technical correction to Art. 5, II, Program XX ⁶ led to the re-publication of the same qualifying inputs there under. The March 1 Decree, however, did not state or provide any indication that a technical correction was made. Without a careful reading of the text and knowledge of the content of the prior decree, one would have thought that new qualifying inputs were being added to the Program.

     Keeping track of Sectoral Programs decrees on a timely basis is also important since, as a general rule, Mexican decrees become effective a day after publication. This means, for example, that a company authorized to operate under the Programs may not be able to continue to import a product under a Sectoral Programs preferential duty rate if that specific product is eliminated by a new decree. Mexico's Economy Secretariat has an electronic system in place that immediately notifies Mexican customs ports of amendments to existing Programs.

CONCLUSION

     Companies currently operating under Mexico's Sectoral Programs or interested in benefiting from the preferential tariff rates available under the Programs are well advised to keep track of the continuous publication of Sectoral Programs decrees. Careful and timely review of the decrees is also highly recommended, since modifications to the Programs could have an immediate impact on a company's purchasing and sourcing strategy, as well as future manufacturing plans.

     Copies of Mexico's Sectoral Programs Decrees are available by e-mail or fax request.

     We stand ready to answer any questions and to assist your company in succeeding in operating under Mexico's new manufacturing regulatory environment. Please feel free to contact us.

1.     Decreto que establece diversos Programas de Promoción Sectorial [Decree establishing various Sectoral Promotion Programs], D.O., December 31, 2000.      Back

2.     Programs XXI - Chocolate, Candy and Similar ("Like" Products); and XXII - Coffee.      Back

3.     Decreto que modifica al diverso por el que se establecen diversos Programas de Promoción Sectorial. [Decree modifying established Sectoral Promotion Programs], D.O., March 1, 2001.      Back

4.     Decreto que modifica al diverso por el que se establecen diversos Programas de Promoción Sectorial. [Decree modifying established Sectoral Promotion Programs], D.O., March 1, 2001.      Back

5.     Art. 89, Sec. I of the Mexican Constitution vests in the President the power to issue, amend or repeal decrees. Presidential decrees are generally issued to enforce legislation that does not rise to the level of statutory treatment, as in the case of Mexico's Sectoral Programs. Presidential Decrees must be also signed by the head of the Secretariat or Department to which the subject matter of the decree relates. In the case of Mexico's Sectoral Programs, the decrees are being signed, in addition to the President, by both the Secretary of Economy and the Secretary of Treasury (Hacienda).      Back

6.     Reference to "a)" was added under the Textiles and Apparel Program, Art. 5, XX , May 18, 2001 Decree.     Back

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