The relationship between Mexico and the United States has been highly publicized as of late—often negatively. However tense our trade relationship may seem, U.S. exporters should still consider Mexico an exciting growth opportunity.

This article looks at the history of U.S. trade with Mexico; the process of exporting to Mexico, including documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Mexican market.

Facts and Figures on Trade and Exporting to Mexico

Mexico's $2.2 trillion economy has become increasingly oriented toward manufacturing since the North American Free Trade Agreement (NAFTA) entered into force in 1994. Per capita income is roughly a third that of the U.S., and income distribution remains highly unequal. (CIA World Factbook)

As of 2016, Mexico was ranked 12th in the world as measured by a Purchasing Power Parity (PPP) basis that adjusts for price differences. Mexico has free trade agreements with 46 countries, putting more than 90% of the country’s trade under free trade agreements.

So what does Mexico’s trade relationship with the U.S. look like today? Mexico is the United States’ second-largest export market and third-largest source of imports; it is also our third-largest trading partner (after Canada and China).

Data from 2016 the U.S. Commercial Service’s Mexico Country Commercial Guide shows that Mexico imported $231 billion of U.S. products and $31.1 billion in U.S. services, for a total of $262 billion in U.S. sales to Mexico.

According to the Office of the U.S. Trade Representative, the top U.S. export categories to Mexico in 2016 by two-digit HS numbers were:

Machinery: $42 billion

Electrical machinery: $41 billion

Vehicles: $21 billion

Mineral fuels: $20 billion

Plastics: $16 billion

Exporting to Mexico: The Challenges

U.S. exporters must be aware of certain barriers when exporting to Mexico; however, none are insurmountable. With careful planning and assistance from agencies like the U.S. Commercial Service, exporters of all sizes can be successful in the Mexican market. According to the Mexico Country Commercial Guide, challenges include:

Mexico’s size and diversity may make it difficult to find a single distributor or agent to cover this vast market.

The Mexican legal system, which differs in fundamental ways from the U.S. system. U.S. firms should consult with competent legal counsel before entering into any business agreements in Mexico.

The banking system in Mexico has shown signs of growth after years of stagnation, but interest rates remain comparatively high. In particular, small- and medium-sized enterprises may find it difficult to obtain financing at affordable rates despite the Mexican government’s efforts to increase access to capital.

Mexican customs regulations, product standards and labor laws, which may present challenges for U.S. companies.

Continued violence involving criminal groups has created heightened insecurity in some parts of Mexico, including some border areas.

U.S. companies need to conduct thorough due diligence on who they partner with, and should be conservative in extending credit and be alert to payment delays. (The U.S. Commercial Service offices in Mexico can conduct background checks on potential Mexican partners to help in this process.)

Exporting to Mexico: The Opportunities

In many situations, the potential rewards of exporting to Mexico outweigh any challenges exporters may face. Exporters should identify and cultivate business opportunities while building a strategy to minimize the risks.

According to the Mexico Country Commercial Guide, the current administration’s reform and development platform promised, in part, to expand strategic public infrastructure and industrial development nationwide, proposing an anticipated total investment of $586 billion on transportation, water, energy, health, urban development, communications, and tourism. There are still many business opportunities for interested U.S. exporters.

Because of the two countries’ shared Western and Hispanic culture, it’s fairly straightforward for U.S. producers to market and sell their services and products in Mexico.

Mexico’s most promising sectors include the following:

Agriculture

Agribusiness

Auto parts and services

Aerospace

Education services

Energy

Environmental technology

Franchising

Housing and construction

Packaging equipment

Plastics and resins

Security and safety equipment and services

Information technology

Transportation infrastructure equipment and services

Travel and tourism services

Export Assistance

The best thing about exploring the opportunities to export to Mexico is knowing you don’t need to go it alone. If you’re wondering how to export to Mexico, you can rely on assistance from your in-country allies, including the U.S. Commercial Service office, trade missions, and chambers of commerce.

U.S. Commercial Service Offices

One of the first places to consider are your local and in-country U.S. Commercial Service offices. The Commercial Service in-country offices offer U.S. exporters business partners in Mexico—boots on the ground in the country—and include representation by an agent, distributor or partner who can provide essential local knowledge and contacts critical for your success. You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service's In-Country Offices.

District Export Councils (DECs)

DECs across the U.S. help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth, and create jobs. DEC members also serve as mentors to new exporters and provide advice to small companies interested in exporting to Mexico.

Trade Missions

Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to meet new business contacts and network.

International Trade Administration (ITA)

The ITA is an excellent resource to help you combat problems. Staff at the ITA are resident experts in advocating for U.S. businesses of all sizes, customizing their services to help solve trade dilemmas as efficiently as possible. The ITA makes it easy to report a trade barrier, even allowing you submit your report online.

U.S.-Mexico Chambers of Commerce

Chambers of commerce may be a way to help you when exporting to Mexico. You can learn more about various chambers and how they can help smooth the way for your export activities in our article, The Chamber of Commerce Role in Exporting.

Export Document Requirements for Mexico

Export documentation and procedures for Mexico are as critical as they are for any other country. According to Export.gov, Mexico is not subject to any special U.S. export control regulations, and it is designated as a Category I country (the least restrictive) for receipt of U.S. high-technology products. Other documents you need to export to Mexico from the U.S. will vary depending on your products, but may include:

Bill of lading

Commercial invoice

NAFTA Certificate of Origin

Packing List

Sales contract

Proforma invoice

AES filing

Customs declaration

Insurance policy

Export Compliance Issues When Exporting to Mexico

It’s important to understand the regulations covering exports to Mexico. You must be concerned with complying with export regulations no matter where you ship, but, fortunately, understanding regulations in Mexico is easier to do than, say, if you were exporting to China.

However, this doesn’t mean you can take export compliance lightly. You need to understand what is required of you and what’s at risk if you don’t do your job in complying with those regulations.

Product Classification for Export Controls

The first step in ensuring export compliance is determining who has jurisdiction over your goods: Is it the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department's Directorate of Defense Trade Controls (DDTC)?

If they fall under the jurisdiction of the Commerce Department, which most products do, you must determine if your export requires authorization from the Bureau of Industry and Security (BIS, part of the Commerce Department). To do so you need to answer the following questions:

What is the Export Control Classification Number (ECCN) of the item?

Where is it going?

Who is the end user?

What is the end use?

To determine jurisdiction, you must know how to determine the correct classification of your item, also known as determining the Export Control Classification Number (ECCN). There are three ways to classify your products for export controls: You can self-classify your products, submit a SNAP-R request for a ruling, or rely on the product vendor to provide the information. You can learn about that process in our article, 3 Ways to Classify Your Products for Export Controls.

By classifying your product correctly, you’ll be protecting the U.S. from threats abroad and protecting yourself from severe fines, penalties and even jail time.

Export License Determination

Companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.

Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. Countries fitting that bill are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.

The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that will use the ECCN code for your product(s) and the destination country and tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before you can export your products.

There are export license exceptions, like low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce, not items controlled by the State Department or some other agency.

Deemed Exports

Surprise! You May Be an Exporter without Even Knowing It! A sometimes overlooked compliance issue for exporting to Mexico is deemed exports, or exporting without shipping a product. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR under 734.2(b)(9)), is released to a foreign national within the United States.

Sharing technology, reviewing blueprints, conducting tours of facilities, and other information disclosures are considered potential exports under the deemed export rule and should be handled accordingly. You can learn how to apply this principle here.

Restricted Party Screenings

Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with.

There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization, they may have a history of corrupt business practices, or they may otherwise pose a threat to national security.

Restricted party screening efers to the process in which a company checks a potential customer or business partner against one or more restricted party lists to ensure they are not doing business with a restricted party.

The primary restricted party lists in the United States are published by the Department of Commerce, Department of State and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.

When exporting to Mexico, it’s imperative you check every restricted party list every time you export.

Fines for export violations can reach up to $1 million per violation in criminal cases. (Bureau of Industry and Security).

Administrative cases can result in a penalty amounting to $250,000 or twice the value of the transaction, whichever is greater.

Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.

( Melissa )14 Dec,2017