MEXICO CITY — A newly enlarged list of Mexican reference prices is causing concerns among U.S. apparel manufacturers, who claim the list is hampering trade at a time when Mexico continues to lose market share to the U.S. The measure adds salt to a wound caused by a textiles aid package to cut sub-valued imports and shore up the industry, said executives and trade lawyers.
The scheme launched in December 2014 and set base prices for 413 and 317 textile and garment tariff categories, respectively. But it was expanded to 662 and 480 categories, respectively, on May 16.
Soon after Mexico unveiled the plan, U.S. brands complained the rules were difficult to navigate, triggering complaints and delaying merchandise imports into Latin America’s second-biggest clothing market. Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said matters haven’t improved much, adding that the new prices are unwelcome non-tariff trade barriers.
“I have not heard of any improvement,” he said. “Maybe some people have gotten used to them and perhaps that passes as improvement but my members are not telling me this program supports their business in Mexico or helps them create jobs. It’s a barrier, a continuation to something that has been a problem.
“Mexico tops the list of countries that instituted non-tariff trade barriers and reference prices are right up there,” he added.
The rules remain ambiguous with unclear reference-price definitions, Lamar said.
Thomas Travis, managing partner at trade law firm Sandler, Travis and Rosenberg, said the expanded rules could prompt American producers to source elsewhere.
“It’s unfortunate,” he said. “The program represents a significant disincentive for global companies doing business in Mexico. If you have time-consuming, unnecessary procedures, why should you expand in Mexico?”
If a shipment arrives below a reference price, firms must undergo a lengthy procedure to justify the lower import price or have them appraised, Travis added.
Mexico should be using regular World Trade Organization custom valuation tools instead of reference prices to stem the entry of underpriced apparel, Travis said. He rejected views that the measures are needed to tackle widespread customs corruption instead of toughening the rule of law.
“Corruption is not global companies’ responsibility,” Travis charged, adding that other countries have effectively tackled corruption through customs investigations and tighter merchandise controls. “You don’t stop commerce to control undervaluation. Why does Mexico want this? They don’t want any more competition but they are solving the problem with a sledgehammer.”
Arturo Vivanco, president of top trade lobby Canaive’s Jalisco State division, said the new rules may be causing delays but that these have declined from higher levels when the package was introduced. He added Mexico City is working to raise the measure’s original reference prices after a review showed some were too low, blocking much-needed specialized fabric imports. The changes are set to be revealed later this month.
The current import system is also being reviewed. Currently, a firm bringing merchandise priced below the reference threshold must either pay tax on it or file a valuation dispute with the SAT tax authority. As part of the process, the company must pay a provisional amount or bond that the government returns after it investigates the claim.
Vivanco said duties can range from 5 percent to 30 percent depending on whether a fabric or garment’s composition involves basic cotton or synthetic fibers.
He said the rescue package’s requirement that importers become part of an official registry has also been streamlined, eliminating many rogue enterprises funneling illegal goods.
The scheme has slashed sub-valued cargoes to 6 percent of total trade in the first quarter of this year, down from 60 percent in 2014, economy minister Luis Videgaray said recently.
Vivanco, however, agreed Mexico could step up anticorruption measures to eliminate reference prices, adding that Canaive is working with the administration to find new ways to fix the problem. Currently, six out of 10 garments sold in Mexico are contraband items sold in flea markets while rising fakes and merchandise theft along key trade routes continue to hurt the industry.
“We are the world’s second-most corrupted country,” Vivanco said. “That should tell you something. The government has not killed corruption because many elite politicians and bad business people could be harmed. This cannot continue. We need to do something.”
Adrian Vazquez, a trade lawyer with Vazquez, Tercero & Zepeda in Mexico City, said U.S. importers have had 18 months to adapt to the regulations so adding new reference prices to their catalog should no longer be complicated. “They are used to it and most of them already have products covered in the regulation,” he said. “Companies that do ordinary business with Mexico have sophisticated programs that have already been tweaked” for the new business landscape.
That said, he agreed the non-tariff barriers violate WTO rules (though he hasn’t yet heard of any litigation) and Mexico could explore other options, such as creating a special regime for formal textile and apparel distributors that pay taxes and are in good standing with the government. Already, export maquila manufacturers enjoy a flexible regulatory framework (including expedited customs procedures) through a special “certification” process, Vazquez claimed.
While Mexico’s textiles and apparel industry is seen growing 5 percent in 2016, its U.S. market share has declined sharply in recent years, especially as Central American and Asian rivals have won new orders.
“We used to export $10 billion annually and employed 1 million people,” Juan Alfonso Ayub, president of textiles lobby Canaintex, recently told an industry conference. “Now we are exporting $6.5 billion and employing 450,000.”