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L
ately, there has been a lot of worry about how the new regime
of President Peña Nieto will view and treat maquiladoras
in the context of the country’s re-engineering.
The newly inaugurated presidency started in a very positive
gang-ho move with the famous “Pacto por Mexico”, achieving in
a few months what the twelve-year conservatives’ regime (PAN)
of Presidents Fox and Calderon were not able to obtain: The badly
needed “structural changes” that Mexico craves to catapult its
economic growth, taking advantage of its strategic location, export
industry power house, and the globalized economy, where China
has become a major player, Brazil is loosing its charm, and the
U.S. and Europe are struggling to get their economies in shape.
Since the mid-nineties, there has been a powerful group of
bureaucrats in Mexico, principally at Hacienda (Mexico Treasury
Department), that have been fighting the special rules that Mexico
has establish to nurture its maquiladora industry. This economic
sector has in one way or another spearheaded Mexico to become
a major player in the export industry of the global economy.
These feds view maquiladoras as a cost for Mexico, with a very
narrow perspective, alleging that maquiladoras only contribute to
create cheap, unskilled jobs with a high cost of Mexican tax re-
sources such as the employment subsidy, generating very little tax
revenue income and not adding value to the Mexican economy.
The good news is that since the years of PRI’s Presidents
Salinas and Zedillo, and PAN’s Presidents Fox and Calderon,
these maquiladora opposing voices have not been heard. The
Mexican government, has clearly understood that maquiladoras
have contribute to the generation of the principal flow of foreign
currency into the country, by being the most important factor of
the development of the non-petroleum related exports. And with
its two million plus work force, they have indirectly created a lot
of supporting jobs that have helped the Mexican economy cope
with the biggest financial crisis of this century.
So far, the government has understood that maquiladoras are
a key component for the development of the fast growing auto-
motive industry in Mexico, and are very important in the growth
of the aeronautics industry among others, providing skilled and
productive labor with a long industrial culture and experience that
has become part of the overall landscape of Mexico.
Today, through the “Pacto por Mexico”, which is an
agreement that involves the three major political parties of the
country and the newly elected President Peña Nieto, Mexico is in
the process of making deep economic transformations necessary
for the development of education, government, elections, political
structures and the economy.
These main reforms have been in:
• Labor law, making more flexible labor contracts, labor litiga-
tion less tortuous and opening labor union to scrutiny and
democratic procedures of its members.
• Education, by establishing a wide range of education evalu-
ation system, with direct intervention of government and
parents.
• Antitrust, by granting wide regulatory powers to the author-
ity, to split a number of monopolies that have badly harmed
consumers and impeded the growth of the Mexican economy
by preventing more players to come into the market.
• Telecommunications, by developing regulations to promote
new players to come in to the open television market, brak-
ing out telecommunications monopolies and opening these
markets to foreign investment.
• Government accounting, by harmonizing and modernizing
government related accounting at the Municipal, State and
Federal levels, helping with budget controls and making ex-
penses transparent.
These past weeks, the parties in Congress have announced
that two special congressional sessions will be held to carry out
further structural reforms in:
• A national transparency system.
• Anti-corruption reform.
• A National criminal procedure system, to move forward with
the establishment of the adversary oral procedural system,
similar to the existing one in the U.S.

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july - august 2013 MEXICONOW 45
• Municipal and State debt controls, to
avoid over exposure of Municipal and
State revenues due to uncontrolled
government borrowing.
• Establishment of an Education Evalu-
ation Institute, and
• Electoral and political reform, to widen
the scope of Mexican democracy.
The last reform above mentioned is
a key factor for the continuation of the
“Pacto por Mexico”, because is the “con-
sideration” that the opposing parties PAN
and PRD will get, for making the structural
changes that Mexico needs. This will es-
tablish a fair and level political playing
field for democracy to flourish in Mexico,
securing that the old PRI authoritarian
system does not come back.
With this political background, maqui-
ladoras could expect that their business
will continue to flourish. However, there
is a cloud in the sky that most maquila-
dora planners have in their radar scope.
This is the most recent OECD report that
has been published as “Getting it Right,
OECD Perspectives on Policy Challenges
in Mexico”. The report makes a series of
recommendations to the Mexican gov-
ernment related to the structural changes
needed for the development of the econ-
omy. The worries of maquiladoras start
when the OECD states in its document
the following:
“Mexico should also make an
additional assessment of the costs and
benefits of its numerous special tax
regimes. There are special regimes
for maquiladoras, agricultural and
transportation businesses, cooperatives
and medium and small business, which
benefit on reduced rates, simplified
accounting, differed tax payments,
accelerated depreciation and other forms
of fiscal reductions. These regimes, in
addition of causing a direct reduction
of tax revenues, complicate the tax code
and facilitate companies to enter into
aggressive tax planning skims or tax
evasion, by unlawfully declaring less
income. Special regimes also distort
allocation of resources to areas or sectors
which do not benefit with these regimes.
The cost and benefits of all special tax
regimes for commercial activities should
be carefully evaluated, and maintain
only those which effectiveness has been
proven.
In particular, the maquiladora regime
(IMMEX)shouldbelimitedandevaluated,
because it is probable that some of its
tax concessions may now be excessively
generous. In addition of correcting some
Lear, Ciudad Juarez

3. business
MEXICONOW july - august 201346
faults in the system, an option could be
to establish a set expiration date of these
regimes,andreconsidertheamountofthese
tax concessions. However, this should be
done as soon as possible so that businesses
canhavecertaintyovertheamountoftaxes
that potentially should be paid. In addition,
the extension of these regimes could have
opened opportunities of abuse, such as,
the VAT fraud known as “carrousel”, in
whichmaquiladorastransferthetaxbenefit
derived from importations to goods sold
in Mexico that should be paying VAT. To
correct the foregoing, VAT should be paid
in all importations and rapidly reimbursed
upon re-exportation thereof. Although
some justification may exist to maintain
such regime, the double taxation issues
that existed with the United States are not
present anymore, and the international
competitiveness position that Mexico has
with respect to costs has improved. More
so, import duties have been reduced for all
kind of businesses.”
As it can be seen, OECD analysts are
putting maquiladoras in the same level as
other special tax regimes existing in Mexico
that apply to business activities that are car-
ried out within the Mexican economy.
We believe that this view is bluntly
wrong, for many reasons. First the OECD
over dimensions the increase in maquilado-
ra competitiveness, not making a complete
analysis of the fact that maquiladoras are
competing in a world wide basis and the
United States is a partner of Mexico and
not a competitor of Mexico, neglecting the
high sensitivity of maquiladoras total cost
of doing business, that when a cost increase
occurs, a number of worldwide locations
enter into play to relocate the maquiladora
activities elsewhere and out of Mexico.
Also the OECD over states the im-
pact of companies abusing the exempt
VAT status of maquiladora temporary
importations. We believe that compa-
nies that bluntly are breaching the law
using the maquiladora regime to avoid
payment of VAT upon selling into the
Mexican market, are a lot more exposed
to scrutiny of the tax and customs au-
thorities than pure contraband, and that
there is no hard evidence to consider
that companies that have abused the
system are in a number that would jus-
tify changing the VAT free system of
temporary importations.
An area where there may be some need
in having to review the tax benefits related
to maquiladoras to avoid the danger of hav-
ing the government over react to an issue
that exists, is related to the income tax
structure, that the OECD did not expressly
addressed.
Ford plant, Hermosillo, Sonora

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july - august 2013 MEXICONOW 47
This is the special system estab-
lish by law for maquiladoras that in
combination of several Presidential
decrees, many maquiladoras may
end up paying non or small amounts
of income taxes, in detriment of the
Mexican tax revenues, and having
the lions share of maquiladora busi-
ness benefits located in the countries
where the goods assembled/manufac-
tures by maquiladoras are sold. Thus,
a thorough review of the necessary
fair bottom line rate applicable to
maquiladoras should be done, by
legislating in a definitive basis on the
special income tax regime applicable
to maquiladoras, upon expiration of
the Presidential decrees.
In conclusion, maquiladoras should
carry out a high profile approach before
the Mexican government and legislators,
as well as with the general pubic, of the
virtues that this industry has brought
to Mexico, and the great opportunities
that exports represent to maintain the
Mexican economy stable and to connect
Mexican small and midsize businesses
to the global economy.
The threat that exists of having ma-
quiladoras just wait and react, like in the
past, is high. The leadership of maquila-
doras is mature enough to design and act
upon, with profound vision to expose to
the Mexican government at all levels and
to the public opinion, that maquiladoras
are a reality that has represented one of
the most successful programs in Mexican
history, that have generated millions of
jobs, has created a technological basis
that has permeated to the maquiladora
workers, and is the biggest opportunity,
combined with the other political and
economic structural changes, to spear-
head Mexico to full development in the
twenty first century.
Most of all, we have the needed
human capital to make it happen, en-
compassed by good trained people that
is in its second generation of industrial
experience. If this is combined with the
capital investment opportunities for both
foreign capital and repatriated Mexican
capital, resulting from the eradication
of private and public monopolies, the
positive consequences on the economy
of Mexico can be enormous.
However the risks of derailing this
opportunities are high if we do not act
immediately in the political and eco-
nomic arenas. Maquiladoras now have
not only a business responsibility; ma-
quiladoras have an historic duty for mak-
ing the NAFTA countries the strongest
economic block of the world.