Government Regulations And Logistics For Getting Started With Manufacturing In Mexico: Q&A with NovaLink Operations Manager Juan Cano
Juan Cano is the Operations Manager at NovaLink. We recently sat down with Juan to get his opinions and expertise on government regulations and logistics for Getting Started with Manufacturing in Mexico and how NovaLink can provide value to potential clients with our expertise in importing/exporting logistics.
In your experience, what is the most commonly overlooked aspect by companies when getting started with manufacturing in Mexico, as it relates to government regulations, both in the United States and in Mexico?
The most important thing that people fail to understand is that everything that goes into Mexico must have appropriate documentation, for example, certificate of origin.
Usually, when importing raw material into Mexico from the U.S., it is not a difficult process. If the value of the raw material exceeds $2500, a shipper’s export declaration (SED) must be created to notify the US government of raw material exiting the country. This process is done by our customs broker.
All raw material entering Mexico needs a certificate of origin, a value for all materials and description. They need, in essence, what we call a value statement, which describes more in detail everything that is going into the country. At which at this point material must be defined if it is exporting as a temporary or entering the country permanently. If materials for a product are going into the country permanently, there’s different duties. Temporary means it’s just going to be converted into finished goods and come back out.
A lot of things are going to change with the new USMCA treaty. There are some provisions that will expire 18 months from the implementation date. Once these provisions take in effect its country of origin may change. For example, even though a product is being converted/manufactured in Mexico, it will no longer be labeled a “made in Mexico” product. It will depend on the origin of key components that will define its country of origin as a finished product.
What would you say that is one of the things that potential manufacturers can do to better prepare themselves?
To begin their manufacturing operations in Mexico it is always a good idea to do a little research ahead of time and get that information together before they initiate any kind of contact with a manufacturing partner. The most important of these is to get an HTS code for your product. HTS stands for “Harmonized Tariff Schedule.” You can look up the HTS code in the U.S. International Trade Commission Government website (https://hts.usitc.gov/) and it will give you the HTS code for your finished goods. This code will tell you how much duties you are going to pay when your finished product comes out of Mexico.
The HTS code is important for many reasons: for example, if your finished product is not USMCA compliant, the HTS code will show if it is going to be affected by duties when it comes back into the U.S. depending on where the raw material is from. Now, if you are 100% sure that everything is USMCA compliant, then you have nothing to worry about because it is not going to pay any duties.
So, the HTS code will play a very large role in how expensive your finished product is going to be with import duties?
Yes, the HTS code has always solely determined its duties as a finished product. For example, it does not make sense to manufacture in Mexico if all your raw materials are coming from China, and you are going to pay a 28% duty to get it into the United States.
Even if you are paying low duties for your product, other factors should be considered, like extended lead times that would incur when imported from China. For example, if you are paying $3.50 for a product to be manufactured in China vs your cost to manufacture in Mexico, you need to consider the benefits from a logistics standpoint: high inventory impacts and warehouse costing. It might be a washout and you are better off manufacturing in Mexico.
You mentioned the USMCA treaty will change things dramatically for moving goods into the U.S. Can you elaborate on that?
Making sure that people have a very good understanding of USMCA, before they approach a partner like NovaLink would be a smart, important step for them to do. USMCA did not have many changes from the old NAFTA treaty with the exception of origins of the components especially in the textile industry. Going back to the final product: the HTS code is what is going to dictate everything on whether the decision is made to be manufactured in Mexico. You must understand what components will be USMCA compliant. I know that yarn is going to be one of them. Elastic is also another. This is important for our business due to the fact that 90% of the work NovaLink performs is textiles.
How can NovaLink help a company that wants to start manufacturing operations but does not know or understand the government regulations and logistics for Getting Started with Manufacturing in Mexico?
We can help in many ways with those not familiar with manufacturing in Mexico. Helpful attributes would be to give us information about your product and basic BOM (bill of materials). If not available, that is still okay, because we can go and research all of this for you.
We can help by defining your driving components that will determine the finished goods’ country of origin. For example, if your driving components are made in China, we can assist in sourcing in Mexico to make this product USMCA compliant and therefore avoid duties. In some cases, a tariff shift can occur. We can provide this service. That’s what we do.
What are Tariff Shifts? Why are they important?
A tariff shift is a way you might qualify your product under Rules of Origin for USMCA and pay less on import duties. This change occurs when non-originating components go through a significant transformation and will allow them to have a preferential tariff under the USMCA.
The impact of a tariff shift plays a major role and can be significant on how much duties a product pays.
Supported by over 30 years of experience, NovaLink has provided shelter or contract manufacturing services to a variety of industries. Whether it is a product that requires precision and high tolerance, or a product that has been commoditized, NovaLink operates at an advantage.
Do you need a nearshore manufacturing partner or solution for your business? Contact NovaLink today: 956-621-7362 or visit our website: www.novalinkmx.com