The IMMEX Program: What it is and How it Benefits Non-Mexican Manufacturers

immex

Everyone researching how or why to set up manufacturing in Mexico encounters three acronyms: NAFTA, USMCA and IMMEX.

NAFTA is the abbreviation for the North American Free Trade Agreement. USMCA is its successor, the United States-Mexico-Canada Agreement.

But what is IMMEX?

Though less well-known, IMMEX is arguably at least as important for any manufacturer interested in taking advantage of Mexico's low production costs.

Here's an explanation of what it is, why non-Mexican manufacturers should know about it, and how they can use it to their advantage.


An Overview of the IMMEX Program

IMMEX refers to the "Decree for Development and Operation of the Maquiladora Export Industry." There have been several such decrees and amendments, and each has loosened regulation on, (or increased support for) manufacturers.
The intent of the IMMEX program, often called the "Maquiladora Program,' is to encourage development of the manufacturing industry in Mexico. It does this in three ways:
1. Allows foreign investment participation in Mexican manufacturing enterprises.
2. Provides preferential customs treatment for the import of materials and equipment used in those manufacturing enterprises.
3. In partnership with US authorities reduces, and in some cases eliminates, duties on the importation of goods into the US from Mexico.

Each of these points needs some further explanation.

1) Foreign Investment Participation

For manufacturers wishing to set up an operation in Mexico, the first challenge is usually to determine which of the three proven strategies to start manufacturing in Mexico to follow.

If the decision is to engage a contract manufacturer or to partner with a manufacturing services and shelter company, rules on foreign investment participation don't apply. However, they are relevant to any business wanting to establish a standalone operation. In this situation the IMMEX program eliminates many of the barriers some other countries impose.

2) Preferential Customs Treatment for Imports

Many countries impose duties on goods that importers bring in. Under the IMMEX program there are no such duties on anything required by a Mexican manufacturing operation - materials, tools or machinery. However, there was one restriction: items may only be imported duty-free if the finished products are subsequently exported.

That rule has been progressively relaxed and today manufacturers can sell 100% of their production into Mexico, as long as import duties are applied to imported goods subsequently sold domestically.

Complying with this aspect of the IMMEX program demands diligent record-keeping. This imposes a significant regulatory burden that can seem quite daunting to anyone not familiar with how import duties work in Mexico.

3) Preferential Customs Treatment for US-Bound Exports

While not explicitly part of the IMMEX program, the role of US Customs in exports from Mexico to the US must also be considered.

The point here is that the US levies duties only on the value-added in Mexico. (This is on the understanding/assumption that material was sent from the US into Mexico to be worked on by the low-cost labor.)

Remember that customs procedures and duties can change at short notice. Seek the advice of specialists such as those at IAI Mexico before taking any decisions based on what you read here.

Background to the IMMEX Program

Government support for manufacturers in the US-Mexico border states began in the mid 1960's. This led to the creation of so-called "maquiladora" manufacturing companies, with "maquiladora" derived from the Spanish word, "maquila." This was the term for the payment given to the miller for grinding corn into meal - a payment for value-added.

Today the IMMEX program covers manufacturers throughout Mexico - not just in the border states. However, as of 2019 some 90% of maquiladoras were in the industry clusters found from Baja California in the west across to Tamaulipas in the east.

Making IMMEX Work for You

Manufacturers in the US and elsewhere need to drive down costs. They can achieve that goal by moving some or all of their production to Mexico under the IMMEX program.

By doing so they will realize the benefits of lower labor costs, lower employee turnover, combined with a skilled, technically educated workforce.

In addition, and unlike some other low-cost manufacturing locations, they will remain close to their major end-markets and have the comfort of knowing their IP is safe.

As with any government program, IMMEX imposes some bureaucratic controls on companies seeking to benefit from it. Initial registration entails considerable paperwork, and once operational, it's important to keep appropriate records of all imports.

Some manufacturers contemplating a Mexican operation will have the resources to handle these issues themselves. For them, 100% ownership of a standalone business may be appropriate. Others will prefer to work with a manufacturing services company like IAI Mexico.

IAI Mexico can help non-Mexican manufacturers navigate the complexities of the IMMEX program. If it's appropriate, we can also provide shelter company services. These range from support with company formation and initial recruitment through to provision of a turnkey factory, equipped and ready to run.

In addition, IAI Mexico offers contract manufacturing, to those companies that do not want to own their manufacturing process any longer, and want to transfer additional risk.

Formed in 1992 and based in the border state of Tamaulipas, we help non-Mexican manufacturers transfer and launch manufacturing in Mexico. Contact Us for more information.

 

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About the author
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About Jorge Henrichsen

Jorge has been involved in cross-border business for almost 20 years, in activities ranging from M&A and investments, to supply chain and manufacturing. His current activities are centered on supporting North American-based manufacturing companies to transfer their production into Mexico.