Neville Peterson LLP: Customs and International Trade Law

November 3, 2000
M E M O R A N D U M
TO:	Clients and Friends of the Firm
FROM:	Julia S. Padierna-Peralta and George W. Thompson
RE:	The Third Mexico's Sectoral Programs Decree: New Programs and Amendments to Existing Programs

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I. INTRODUCTION
     On October 30, 2000 Mexico's Trade Ministry (SECOFI) published in the Diario Oficial a third Decree instituting new Sectoral Development Programs (known in Spanish as Programas de Promocion Sectorial - PROSECs or PPSs). The Decree establishes ten new Sectoral Development Programs (hereinafter Sectoral Programs), covering over 5,450 qualifying inputs and end-products, listed by tariff item. The Decree also expands the list of qualifying tariff items for existing Programs, modifies some, and eliminates a significant number of previously eligible products.

      This memorandum is a follow up to our May 30, 2000 memorandum in which we reviewed the first ten Sectoral Programs, ¹ and our October 17, 2000 memorandum in which we discussed the rules and regulations for companies to register and participate in the Programs.² This memorandum highlights the key features of the October 30, 2000 Decree: the institution of the new Programs and amendments to existing Programs. It also addresses the new Decree's provisions concerning key operational aspects of the Programs.

II. THE NEW SECTORAL PROGRAMS DECREE
      After months of delay, on October 30, 2000, SECOFI published a third³ Sectoral Programs Decree, granting sector-based preferential duty rates on an extended list of qualifying inputs and end-products for various industries.

     1. The New Ten Sectoral Programs

     The October 30, 2000 Sectoral Programs Decree⁴ instituted new Programs for the following industries:

Chemicals
Rubber and Plastics
Iron and Steel
Pharmochemicals, Drugs and Medical Equipment
Transportation
Paper and Cardboard
Wood
Leather and Skins
Auto and Autoparts
Textiles and Apparel

     The Decree established a duty rate reduction over 4,500 inputs and machinery to be used in the manufacturing of close to 2,000 qualifying end-products. The import duty rates on most qualifying inputs are either 0% or 5%. However, unlike the prior decrees, the October 30, 2000 Decree establishes duty rates of 3% and 7% for a number of products, particularly belonging to the Chemical Industry and Auto and Autoparts Industry. The Decree also lists a total of nine inputs, belonging to the Textile and Apparel Industry, with a fixed duty rate of 25%.

     2. Amendments to Existing Programs

     The October 30, 2000 Decree also amended existing Programs by expanding their list of qualifying end-products and inputs, modifying the duty rate on some inputs, and eliminating a number of previously eligible tariff items. The Decree added approximately 845 new tariff items, eliminated nearly 225, and modified the duty rate of approximately 39 existing qualifying products.

Tracking Amendments to Existing Sectoral Programs

Industry	Addition of Tariff Items	Modifications to Existing Duty Rates	Elimination of Tariff Items
Electricity	X	X	X
Electronics	X	X	X
Furniture	X		X
Toys and Games⁵	X		X
Footwear	X		X
Mineral and Metals	X	X	X
Capital Goods	X		X
Photographic Goods	X
Agricultural Machinery	X		X
Miscellaneous	X	X	X

     We recommend that companies review the Programs carefully to determine whether the inputs critical to their Mexico manufacturing operations have been added, modified or removed from the Programs.

III. KEY OPERATIONAL ASPECTS OF THE PROGRAMS
     As we reported in our October 17, 2000 memorandum, the rules and procedure for participating in the Programs have been issued and registration for the Programs has begun.⁶

     The October 30, 2000 Decree provides three important guidelines regarding the operation of the Programs:

     (1) Authorization to operate under the Programs will be valid for a year, and automatically renewed upon compliance with certain reporting requirements. Among other things, manufacturing participants must submit to SECOFI an annual report regarding their manufacturing operations by the last day of April;

     (2) Companies found not in compliance with the referred annual reporting requirement will have until the last date of June to cure any omission. Otherwise, their authorization will be permanently revoked; and

      (3) The effective date for the end of Mexico's traditional duty drawback and duty deferral system and the beginning of the implementation of Mexico's Sectoral Programs for Maquiladora and PITEX plants ⁷ is delayed, from November 1, 2000 to November 20, 2000.

      The practical consequence of the November 20, 2000 date is that, from that day on, both Maquiladora and PITEX operations will have to pay either Most Favored Nation (MFN) rates or sector-based preferential duty rates on non-NAFTA originating inputs incorporated into products exported to the U.S. or Canada after January 1, 2000.⁸

     For all other manufacturing companies, the Programs go into effect on January 1, 2001.

IV. CONCLUSION
     It is clear that Mexico's Sectoral Programs will create both opportunities and challenges for companies with manufacturing operations in Mexico. We continue to recommend these companies to become familiar with the Sectoral Programs and Mexico's new import tariff conditions, which could have a significant impact on their operation costs and sourcing strategies.

     Copies of the October 30, 2000 Decree and prior Sectoral Programs decrees are available from NP&W by e-mail or fax request.

     We stand ready to furnish any additional information regarding Mexico's Sectoral Programs and assistance to ensure that your company is ready to face Mexico's new manufacturing and import tariff scheme.

     Please feel free to contact us if you have any questions.

     Thank you.

1.     The first ten Programs that were established covered the following industries: Electricity, Electronics, Furniture, Toys and Games, Footwear, Minerals and Metals, Capital Goods, Photographic Goods, Agricultural Machinery and Miscellaneous. See, Decreto por el que se establecen diversos Programas de Promocion Sectorial [Decree establishing various Sectoral Promotional Programs], D.O., May 9, 2000.

2.     See, Acuerdo por el que se dan a conocer diversas disposiciones en materia de los programas de promocion sectorial y el formato de solicitud de autorizacion 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.

3.     The first Sectoral Programs Decree was published on November 14, 1998 and subsequently revoked and superseded by the May 9, 2000 Decree.

4.     Decreto que reforma al diverso por el que se establecen diversos Programas de Promocion Sectorial [Decree amending and establishing various Sectoral Promotional Programs], D.O., October 30, 2000.

5.     The October 30, 2000 Decree added "y Articulos Deportivos" (and Sport Goods) to the name of the Program.

6.     SECOFI begun reviewing Sectoral Programs (PROSEC) applications filed by maquiladora and PITEX companies on October 23, 2000. The review of applications filed by all other type of companies will begin December 1, 2000. See, Acuerdo por el que se dan a conocer diversas disposiciones en materia de los programas de promocion sectorial [Agreement regarding the regulations on sectoral programs], supra note 2.

7.     Also, on October 30, 2000, SECOFI published, in separate decrees, amendments to the Maquiladora and PITEX programs. Both decrees make substantial changes to the existing in-bond programs, which we do not address in this memorandum.

8.     As we explained in our May 30, 2000 memorandum, no Mexican import duties would have to be paid on the inputs at the time of importation, but only when the end-product is exported to one of the other NAFTA countries.

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