October 17, 2000
M E M O R A N D U M
TO:	Clients and Friends of the Firm
FROM:	Julia S. Padierna-Peralta and John M. Peterson
RE:	Rules and Procedure to Register in Mexico's Sectoral Programs - SECOFI's October 13, 2000 Diario Oficial Notice

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I. INTRODUCTION
     This memorandum is a follow up to our May 30, 2000 memorandum in which we explained the key features of Mexico's Sectoral Programs: their origin, what they are, how they work and who can participate in the Programs.¹

     After a long wait, on October 13, 2000, Mexico's Trade Secretariat (SECOFI) published in Mexico's Official Gazette (Diario Oficial) the regulations governing the procedure for companies to register in Mexico's Sectoral Programs. The Programs, known in Spanish as Programas de Promocion Sectorial - PROSECs or PPSs, by their acronym - will allow Mexico-based manufacturing companies to import qualifying non-NAFTA inputs and machinery at reduced fixed duty rates ranging from 0%-5%, beginning November 1, 2000.²

     About 20,000 companies operating in Mexico are expected to register with SECOFI to rip the benefits of the Programs.³

     This memorandum highlights the key aspects of the SECOFI October 13, 2000 notice,⁴ which sets forth the specific rules and instructions to participate in the Programs.

II. KEY ASPECTS OF THE SECOFI NOTICE
     SECOFI's October 13, 2000 notice is essentially operational. It specifies who can participate in the Programs and the instructions to register or expand a company's participation in any of the given Programs.

     1. Who Can File an Application

     Only a direct manufacturer ["productor directo"] or an indirect manufacturer ["productor indirecto"] may submit an application to register in the Programs.

     The SECOFI notice defines "direct manufacturer," as "the business entity that manufactures the goods referred in Article 4 of the Decree." Article 4 of the Sectoral Programs Decree⁵ lists the qualifying goods (end-products) that companies are permitted to manufacture under each Program.

     An "indirect manufacturer" is defined as "the business entity that manufactures the goods using, among other things, the inputs listed in Art. 5 of the Decree and is a supplier of such inputs to direct or indirect manufacturers for the production of the goods listed in Art. 4 of the Decree." Article 5 of the Decree lists the qualifying inputs that companies may import and use to manufacture the specific qualifying end-products.

     2. Filing a PROSEC Application

     The application to register or expand a company's participation in a Sectoral Program(s) consists of a single questionnaire (SECOFI-03-025), accompanied by three Annexes.⁶ The Annexes must be completed depending on who the applicant is and whether the applicant has indirect manufacturer-suppliers. Supporting documentation must be attached to the petition.

     The PROSEC questionnaire is divided in four sections, requiring applicants to specify:

     I. The Sectoral Program in which they wish to participate;
     II. The location of the manufacturing plant(s);
     III. The program type (by direct or and indirect manufacturer); and
     IV. General information about the company's legal representative

     Both direct and indirect manufacturer applicants are required to list, by Mexican Tariff Schedule (HTS) number, the qualifying inputs to be used in the manufacturing of the qualifying end-products, and a brief description of such goods.

     Also, both direct and indirect manufacturers are required to register their own indirect manufacturer-suppliers of imported qualifying inputs.

     A direct manufacturer may submit an application directly to SECOFI. An indirect manufacturer, on the other hand, may only seek authorization to participate in a Program(s), if previously registered as an indirect-manufacturer-supplier by a direct manufacturer or another indirect manufacturer previously registered. In other words, indirect manufacturers must be sheltered by the registration of direct manufacturers or indirect manufacturers already authorized to operate under a Program(s).

     Companies seeking to register in a Program(s) are required to attach to the questionnaire the following information:

• The Company's Articles of Incorporation and corresponding Notarized Power of Attorney; or copy of record evidencing that legal status [registration] with SECOFI's Direccion General de Asuntos Juridicos (Legal Affairs Office) has been established; or the Federal Taxpayer Registration (R.F.C.) number of the person listed in the register;
  
  
• The Company's R.F.C. registration certificate (copy); and
  
  
• Tax documentation evidencing the company's compliance with its tax obligations during the last three fiscal years.⁷

     Companies seeking to expand their participation in a Program are required to attach to their application:

• A Notarized Power of Attorney; or copy of record evidencing that legal status [registration] with SECOFI's Direccion General de Asuntos Juridicos (Legal Affairs Office) has been established; or provide the Federal Taxpayer Registration (R.F.C.) number of the person listed in the register.

     If a company wishes to participate in more than one Program, it may do so by identifying the particular Program(s) and completing the applicable Annexes.

     The questionnaire and applicable annexes must be completed in the PROSEC.EXE program, which is available in electronic format at the following internet address: www.secofi-dgsce.gob.mx

     The application must be submitted in a diskette, ⁸ with an original printout and a hard-copy. The required additional documentation must accompany the application package.

     3. Timing for Review

     The October 13, 2000 notice specifies that SECOFI will begin the review of PROSEC applications filed by maquiladora and PITEX companies on Monday October 23, 2000. The review of applications filed by all other type of manufacturing companies will begin December 1, 2000.

     SECOFI has offered to adjudicate applications seeking to register in a Program(s) within 20 working days; and those seeking to expand a company's participation in a particular Program(s) within 15 working days.

     Authorizations to operate under the Programs will be effective three working days after their issuance.

V. COMMENTS
     We strongly recommend companies with manufacturing operation in Mexico that import non-NAFTA inputs and machinery to become familiar with the Programs. We would be pleased to assist you in reviewing the coverage of the various Programs to determine if your company is eligible to participate.

     The PROSEC application seeks key information that will determine whether your company qualifies or not to operate under a Sectoral Program(s). In this regard, we highly recommend that companies pay particular attention to the correct classification of their qualifying inputs and end-products and provide accurate information regarding their manufacturer-supplier(s), if they are not direct importers of the qualifying inputs.

     We expect SECOFI to receive thousands of PROSEC applications in the next couple of weeks. Thus, the sooner you file your application, the quicker it will be processed.

     Copies of the PROSEC application are available from NP&W by e-mail or fax request. As previously indicated, you may also wish to download the application directly from the following internet address: www.secofi-dgsce.gob.mx

     We stand ready to answer any questions and to assist you with the filing of your PROSEC application with SECOFI. Please do not hesitate to contact us.

     Thank you.

1.     As of October 17, 2000, Mexico had published two decrees establishing a total of ten Sectoral Programs, covering qualifying inputs and end-products for the following industries: Electricity, Electronics, Furniture, Toys and Games, Footware, Mineral and Metals, Capital Goods, Photographic Goods, Agricultural Machinery and Miscellaneous. See Decreto por el que se establecen diversos Programas de Promocion Sectorial [hereinafter "Sectoral Programs Decree"], D.O., May 9, 2000.

2.     As we indicated in our May 30, 2000 memorandum, in accordance with NAFTA-mandated changes on duty drawback and duty deferral, Mexico's Sectoral Programs will go into effect on January 1, 2001. For companies operating under maquila and pitex bond programs, the Mexican Government has discretionarily set November 1, 2000 as the effective date of implementation.

3.     Olga Ojeda Lajud, Maquiladoras piden prorroga a los cambios del TLCAN, El Financiero, Oct. 11, 2000.

4.     Acuerdo por el que se dan a conocer diversas disposiciones en materia de los programas de promocion sectorial y el formato de solicitud de authorizacion y ampliacion de programas de promocion sectorial [Agreement regarding the regulations on sectoral programs and the format to request authorization and expansion of participation in the programs], D.O., Oct. 13, 2000.

5.     Sectoral Programs Decree, supra note 1.

6.     SECOFI-03-025, Solicitud de Autorizacion o Ampliacion de Programa de Promocion Sectorial, PROSEC, [Application to request authorization to register or expand participation in a Sectoral Promotional Program, PROSEC], D.O., Oct. 13, 2000.

7.     New companies must submit evidence of tax compliance for the period they have been in existence.

8.     Companies may also bring three 3.5-inch HD floppy disks to SECOFI to have the PROSEC.EXE program downloaded.

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