Western Economic Diversification Canada
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Mexico

General Description 180

Mexico's In-Bond (Maquila) program was established in 1965 and its primary aim at inception was to encourage foreign corporations to build factories along the U.S.-Mexico border 181 Currently, In-Bond Corporations (Maquiladoras) may engage in a wide variety of business activities, but their common characteristic is that they all operate under the Maquila regulations.182 These regulations allow for, among other things, temporary deferral and/or exemption of customs duties and VAT pending certain restrictions.183

In 2004, there were on average 2,810 Maquiladora plants established throughout Mexico that employed an average total of 1,115,230 individuals. During the same year, these plants generated approximately MXN 217 billion (approximately CAD $22 billion) in value add for Mexico.184

There appears to be no formal restriction on the geographical area in which a foreign corporation may establish a Maquiladora. Therefore, we believe that most of the descriptive factors in this section are equally applicable to all such plants. Accordingly, the continued discussion below shall not focus on a specific Maquiladora plant unless the factual circumstances require otherwise.

Infrastructure

Energy

Due to a change in the legal framework during 1992, the electricity generation market is currently open for private participation. However, the government-owned Comision Federal de Electricidad (CFE) was responsible for approximately two thirds of the Mexican electricity generation during 2005. In addition, CFE holds a monopoly on electricity transmission outside the Mexico City urban area and a few other municipalities. Most of Mexico's electricity generation comes from conventional thermal sources and in 2006 Mexico used approximately 735 trillion barrels Btu of natural gas.185

The national transmission grid in Mexico is comprised of 43,000 Kilometres of high voltage lines, 45,000 kilometres of medium voltage lines and 595,000 kilometres of low voltage distribution lines.186

Telecommunications

Deloitte could not locate reliable public information on the development status of Mexico's telecommunications infrastructure. However, during 2004 Mexico had a low telephone density of approximately 17 percent. During that year Mexico had approximately 18,000 fixed telephone lines and 117,000 Kilometres of fiber optic networks.187

Transportation

Road Transport
During 2004, Mexico had a total of 352,072 kilometres of roads, out of which approximately 34 percent were paved and the rest coated or rural.188

Sea Transport
Mexico has in excess of 100 maritime ports with a total of 36,000 meters of docking facilities.189

Rail Transport
During 2004, there was a total of approximately 26,662 kilometers of railway in Mexico, including 77.6 percent of main railway.190

Air Transport
Mexico had 85 airports in 2004, which included 56 international airports and 29 domestic terminals.191

Financial Sector

Corporations that operated within the Maquila program during 2007 had access to a network of 26 commercial banks, including a number of major international banks and local banks. As at December 2007, BBVA Bancomer had the highest market share of approximately 25 percent.192

Business Sectors

Deloitte did not obtain recent reliable data for the business sectors that utilize the Maquila program, but Table 12 below shows the share of value add by major industrial sectors relative to total value add during 1988. In addition, Table 13 below shows the FDI in Mexico by economic sector in 2004.

Table 12 Maquiladoras Share of Value Add by Industrial Sector 1988 193
Industrial Sector %
Electric and electronic goods 41.3
Transpotation equipment 25.5
Textiles and apperel 5.5
Wood and metal furniture 5.4
Food processing 1.0
Chemicals 0.8
Equipment and tools 0.2
Others 20.3


Table 13 Mexico Foreign Direct Investment by Economic Sector 2004 194
Economic Sector %
Manufacturing 52.2
Construction 0.7
Commerce 5.9
Transportation and communications 7.7
Financial services 29.5
Others 4.0

Incentives

The main incentives associated with operations within the Maquila program are noted below.

  • Customs duties exemption and deferral - Customs duties are exempt on goods imported for use by the Maquiladora plants for subsequent exportation of the final goods. In the event the final products are destined for the local market, duties are deferred until such time.195
  • VAT refund - Maquiladora plants may receive a refund on VAT payments that have been made on goods for use in their production. The quantum of the refund is based on their ratio of export sales over total sales.196

In addition to the incentives specifically applicable to the Maquila program, the Government of Mexico offers numerous other incentive schemes that are designed to boost export sales and attract and retain foreign business. These schemes, however, will not be discussed further in this report.

Business Inputs

Raw Materials

Raw materials for use by a Maquiladora plant may be imported without customs duties, Import Tax and VAT. Mexico is the world's largest silver producer and in 2003 its oil reserves were estimated at approximately 61,800 billion barrels.197

Labour

Mexico's workforce was comprised of approximately 74 million individuals in 2005. These individuals were mostly male and employed in the services industry.198

Investors

The Mexican Maquiladora plants are owned primarily by corporations in the U.S., but other geographical regions also have a presence including Japan, France, Canada and Korea.199

 


[180] The Maquila program in Mexico is not the equivalent of a Foreign/Free Trade Zone. However, it is a scheme designed to attract FDI and increase manufacturing activities in Mexico. It was, therefore, jointly chosen by Deloitte and Client for further review.

[181] Free Trade in North America: The maquiladora Factor, (http://dsppsd.tpsgc.gc.ca/CollectionR/LoPBdP/BP/bp247e.htm), July 30, 2008.

[182] Ibid.

[183] Page 43, Basic Guide for Foreign Investors, Mexican Bank for Foreign Trade, 2002.

[184] Page 32, Mexico at a Glance, Instituto Nacional de Estadística y Geografía, 2005.

[185] www.eia.doe.gov/emeu/cabs/Mexico/Electricity.html, July 30. 2008.

[186] Ibid.

[187] Page 34, Mexico at a Glance, Instituto Nacional de Estadística y Geografía, 2005.

[188] Id. at page 35

[189] http://www.investinmexico.com.mx, July 29, 2008.

[190] Page 35, Mexico at a Glance, Instituto Nacional de Estadística y Geografía, 2005.

[191] Ibid.

[192] Page 36, 2007 Annual Report, Comision Nacional Bancaria y De Valores, 2008.

[193] Free Trade in North America: The maquiladora Factor, http://www.investinmexico.com.mx, July 30, 2008.

[194] Page 40, Mexico at a Glance, Instituto Nacional de Estadística y Geografía, 2005.

[195] Page 43, Basic Guide for Foreign Investors, Mexican Bank for Foreign Trade, 2002.

[196] http://www.investinmexico.com.mx, July 29, 2008.

[197] http://www.investinmexico.com.mx, July 30, 2008.

[198] Page 23, Mexico at a Glance, Instituto Nacional de Estadística y Geografía, 2005.

[199] Free Trade in North America: The maquiladora Factor, http://dsppsd.tpsgc.gc.ca/CollectionR/LoPBdP/BP/bp247e.htm, July 30, 2008.