Exporting to Mexico: What You Need to Know (2022)

International Trade Blog Exporting to Mexico: What You Need to Know (1)

On: September 9, 2020 | By:Exporting to Mexico: What You Need to Know (2)David Noah | 12 min. read

Exporting to Mexico: What You Need to Know (3)The relationship between Mexico and the United States has been highly publicized as of late—from border walls to drug cartels to the USMCA. Despite the sometime contentious relationship between the two countries, U.S. exporters should still consider Mexico an exciting growth opportunity.

This article looks at the history of U.S. trade with Mexico; how the USMCA has altered 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.

The USMCA and Exporting to Mexico

On July 1, 2020, NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA). This means that companies that utilized the benefits of NAFTA when exporting to Mexico must review their products to make sure they qualify under the terms of USMCA; while many products don’t have significant changes, certain key industries in Mexico, like agriculture and automobiles, do have significant changes.

The USMCA modernizes and balances U.S. trade relations with Mexico (and Canada) and reduces incentives to outsource by providing labor and environmental protections, innovative rules of origin, and revised investment provisions. The Agreement also brings labor and environment obligations into the core text of the agreement and makes them fully enforceable.

Here are some of the highlights:

  • Under USMCA, Canada and Mexico agreed to strong enforcement provisions against counterfeiting and piracy, ensuring protection of trade secrets, and ex officio authority for law enforcement officials to stop suspected in-transit counterfeit goods.
  • USMCA contains the strongest disciplines on digital trade of any international trade agreement, including rules to ensure that data can be transferred cross-border and minimizing limits on where data can be stored and processed.
  • The agreement requires parties to adopt and maintain labor rights recognized by the International Labor Organization, an Annex on Worker Representation in Collective Bargaining in Mexico, and new provisions prohibiting importation of goods produced by forced labor as well as violence against workers exercising their labor rights. (See, USMCA Aims to Help Workers with New Labor Provision.)
  • The USMCA also supports Mexico’s historic labor reform, which creates a whole new labor justice system that will be phased in by states through May 1, 2022.
  • In order to stimulate more North American auto production through updated automotive rules of origin, the agreement increases regional value content for passenger vehicles and light trucks from 62.5% to 75%, phased over three years.

Under USMCA, importers are now the party to make the claim to the appropriate customs authority for preferential duty rates under the agreement based on certification that the goods qualify from the producer, exporter or importer. Under NAFTA, the exporter made those claims.

While there is no longer an official certificate of origin form, whichever party is certifying that the goods meet the rules of origin must provide, at minimum, certain data elements as outlined in the agreement to support the claim. That information can be provided on the invoice or on a separate attached document—a certificate of origin. That document can be a hard copy or digital.

Facts and Figures on Trade and Exporting to Mexico

Mexico's $2.4 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 2020, Mexico was ranked the 12th largest economy 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. As of 2018, Mexico is also our third-largest trading partner (after Canada and China).

Data from 2019 the U.S. Commercial Service’s Mexico Country Commercial Guide shows that Mexico imported $265 billion of U.S. products and $34 billion in U.S. services, for a total of $299 billion in U.S. sales to Mexico. Mexico is the first or second-largest export destination for 27 U.S. states.

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: $46 billion
  • Electrical machinery: $43 billion
  • Mineral fuels: $35 billion
  • Vehicles: $22 billion
  • Plastics: $18 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 COVID-19 pandemic has created significant uncertainty for Mexico’s economy, as potential deals, purchase orders, and projects have been put on hold indefinitely. Government orders to stay-at-home have made communications difficult with business partners, buyers, regulators, and government agencies.
  • 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.)

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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.

First, the positive impacts of the USMCA mean that Mexico may be a better option for exporting than other countries. The USMCA improves market access for U.S. companies in several important ways, specifically through intellectual property rights, digital trade, labor obligations, environmental obligations, and automotive manufacturing.

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 to 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 the ITA, 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
  • USMCA Certification of Origin
  • Packing List
  • Sales contract
  • Proforma invoice
  • AES filing
  • Customs declaration
  • Insurance policy

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Export Compliance Issues When Exporting to Mexico

It’s important to understand the regulations covering what the U.S. 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, Export Codes: ECCN vs. HS, HTS and Schedule B.

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.

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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 refers 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.

Export Documentation and Compliance Software

If you’re considering exporting to Mexico, Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Click here to register for a free online demo of the software.

This article was first published in December 2017 and has been updated to include current information, links and formatting. It is one in a series of articles exploring exporting to specific countries across the globe, including China, Canada, India, Japan, Brazil, and the United Kingdom.

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