COVID-19 and USMCA: Automotive Industry’s Perfect Storm

Q: How does Corporativo Enciso support Mexican automotive companies?

A: It is difficult to talk about Mexican companies because there are almost none in the market. Generally, foreign companies establish in Mexico to participate in this industry. However, they all have to comply with the laws and regulations of the country. At the moment, 95 percent of automotive companies in Mexico work under the Manufacturing Industry, Maquiladora and Export Service (IMMEX) program but its benefits have been gradually disappearing due to the modifications made by the federal government. Among the main benefits offered by IMMEX is that companies can import goods without paying VAT and taxes since they are considered materials that are used for the assembly of products that will later be exported.

Through information technologies, we can provide the information necessary for these companies to fill out Annex 24 regarding customs operations, which is a tool that allows them to consult, in an automated way, basic information about a company's inventories. Our main strength is the use of information technologies so our customers successfully use Annex 24.

Q: How have the requirements of automotive companies changed given the modifications to the IMMEX program?

A: Automotive companies still enjoy VAT payment deferrals. However, there are other types of benefits that have disappeared. When a company brings merchandise to the country, it has a defined period of time before the materials are sent abroad again. Now, that period of time is shorter. Likewise, IMMEX companies previously had preference in VAT recoveries and that no longer exists.

The industry is still transitioning toward UMSCA and modified rules of origin, which has impacted companies. They are still adjusting to certify their products as Mexican-origin merchandise. I believe the sector will experience changes and new challenges until December. The most important thing for companies is to have control of their files, inventories and supplies.

Q: Uniform Regulations presented in June give very little time for companies to be aware of calculation specifics. Will some automakers prefer the tariffs over the necessary adjustments?

A: At least for now, they have little choice but to make the payment. That does not mean that eventually they will not be regularized and comply with USMCA’s rules of origin. The alternative for many companies today is to pay while they regularize and analyze how to get the certification of origin for their products. At some point, they will stop paying but they need to organize themselves very well.

This is one of the main challenges posed by USMCA, which adds to the health and economic crisis due to COVID-19. Many companies have been working from home for five months and in many ways, the work cannot be the same. Operations were reduced and many automotive companies implemented forced vacations, while the treaty was implemented without delay.

In July, we organized a webinar where we had almost 500 attendees to whom we gave a broad overview of the new rules included in USMCA. At Corporativo Enciso, we have a legal area that is at the service of our clients to offer the necessary guidance so they can make this transition successfully. However, as each case is different, there are clients who need to start from scratch and there are clients who only need slight coaching.

Q: How has COVID-19 impacted customs operations in Mexico?

A: The huge drop in operations was very evident. Data shows that Mexico's trade balance reached a historic surplus in June. This is obvious since exports were greater than imports because companies closed or stopped their operations, stopped consuming and producing. The loss of work has been the main challenge and it has not been easy to support our clients. Part of the challenge was to be able to work from home without affecting the quality of our service. For more than four months, we have communicated with each of our clients to understand their situation and offer them a tailored solution.

We are proudly one of the companies that has not fired anyone due to lack of work and we have had slightly positive results this year. This means that we were able to reorganize ourselves to face this pandemic.

Corporativo Enciso is one of the main customs agencies in Mexico. The company was founded in 1951 and has operations in the country’s main points of entry