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Mexico's first Free Trade Zone - may help Mexico.
Mexico has taken another step toward becoming more competitive globally by establishing its first foreign trade zone. Mexico's first foreign trade zone is located in an industrial park located in the city of San Luis Potosí (with the state of the same name). It was established as part of a company's (Grupo Empresarial Logistik) industrial park, also locally referred to as the company's "integrated logistics center."
The center consists of about 1,300 acres located near a railroad line and the main trade highway that runs north and south on the eastern side of Mexico between Mexico City and Nuevo Laredo (across from Laredo, Texas).Since it is a multi-modal terminal, cargo can be switched between truck and rail containers.
The new foreign trade zone designation is allowed under a recent law that requires the zone to operate a Mexican customs office.
Just as foreign trade zones work in the United States, duties and tariffs are deferred until the merchandise is about to enter the local marketplace.The Mexico version of the foreign trade zone reportedly permits raw materials and components to enter Mexico duty-free for manufacturing, assembly and other services (similar to the Maquila industry in Mexico).
Reportedly, the key benefit under Mexico's new foreign trade zone law is that when finished merchandise is ready to leave the zone, taxes are paid only if the merchandise is to be released into the marketplace of Mexico. The merchandise bound for the United States or other foreign markets can leave Mexico free of duties or tariffs.
Also reported is the fact that Mexico's foreign trade zone law will also eliminate some red tape.
Now in Mexico as in China, raw materials and components can enter and leave in finished form without being touched by the Mexico or Chinese government.
Mexico needed to take this step for several reasons.
Mexico needs to match
China's low importation and exportation requirements in this type of scenario.
Mexico's maquiladora incentives and efforts to reduce duties and tariffs for inbound materials were running afoul of world trade rules.
and the foreign trade zones are acceptable to the World Trade Organization.
Mexico is becoming aware of the fact that collecting duties and tariffs may not be as good a strategy as allowing investments to come in freely and create jobs.
There is hope that more free trade zones will occur, still operating an on-site customs office can require a serious investment on the operators part.
A future network of inland ports may also include Toluca (north of Mexico City) and Puebla (south of Mexico City).
Also, if the U.S. and Mexican governments can agree to establish customs offices in each other's foreign trade zones, cargo can be inspected and released away from the border, thereby reportedly reducing border congestion.