Mexico is the second largest export market for U.S. goods and products. Like Canada, Mexico enjoys a special trade relationship with the U.S. that has grown substantially since the North American Free Trade Agreement (NAFTA) came into effect in 1994.
Economically, Mexico is a growing market with established industries and an upper middle-income population. The inflation rate is lower than that of the U.S. and the country is rebounding from COVID-19. Since NAFTA was enacted, the Mexican economy has become much more integrated with the U.S. economy, as well as with the Canadian economy. NAFTA was effective in easing trade barriers and reducing the cost of moving items across borders for all three countries. The United States-Mexico-Canada (USMCA) agreement, which replaced NAFTA in 2020 with minor changes, continues to ease trade between these three countries.
U.S. exports to Mexico accounted for $212.67 billion in 2020 and represented 14.9% of total U.S. exports. The Bureau of Industry and Security (BIS) reported that the U.S. exported $15.7 billion worth of base metal items to Mexico in 2020, representing 27.2% of total U.S. exports for those commodities. The U.S. exported $72.6 billion in machinery and mechanical appliances, 21.0% of total U.S. exports for that category, and $4.7 billion in textiles and footwear products, representing 19.1% of total U.S. exports for that category.
Leading U.S. export categories to Mexico included:
- Electrical and electronic equipment
- Machinery, nuclear reactors, boilers, and machinery
- Mineral fuels, oils, and distillation products
- Vehicles other than railway or tram vehicles
- Plastics
How Exporting to Mexico Differs from Exporting to Canada
Although both Mexico and Canada benefited from NAFTA, each country has its own unique trade relationship with the U.S. As we discussed in detail in a recent blog post on Canada, our northern neighbor enjoys special status with relatively few U.S. export control restrictions. This is due to the long history of security partnership between the U.S. and Canada, the high volume of trade conducted, and the extensive integration of U.S. and Canadian industrial bases across many sectors, importantly including defense.
To recap: The large majority of items subject to the Export Administration Regulations (EAR) can be exported to Canada No License Required (NLR). Under the International Traffic in Arms Regulations (ITAR) administered by the Directorate of Defense Trade Controls (DDTC), the export of sensitive military items identified on the U.S. Munitions List (USML) often require a license, but many items qualify for export under exemption to authorized Canadian government and private sector entities when intended for end use within Canada or the U.S. The Canadian government has secured this preferential ITAR treatment in part by extending its own export control list to cover defense articles subject to the ITAR.
Mexico does not share quite the favored status of Canada and thus, export controls are somewhat more restrictive. However, in recent years, Mexico has joined several multilateral groups or “regimes” as part of a process which included strengthening its own export control laws. As a result, the U.S. has relaxed some of its export controls for Mexico which makes it possible to export more items to Mexico without a license. The regimes enable various countries to work together to have similar export controls, making the controls more effective and consistent. They create a level playing field and make it harder for technologies to get into the wrong hands. They also reduce the possibility of a country using relaxed export restrictions to favor its own domestic industries and exporters. Each regime focuses on particular kinds of technologies. Specifically, Mexico is now a member of the Wassenaar Arrangement, the Nuclear Suppliers Group, and the Australia Group.
EAR and Mexico
In late 2020, BIS added Mexico to Country Group A:6, a shift which eliminated further license requirements. This change made Mexico an eligible destination under License Exception STA (Strategic Trade Authorization) for most items controlled for national security (NS) reasons only, increasing opportunities in which U.S. exporters may send items to Mexico without a license.
However, a fair number of items still require a license for export to Mexico. BIS reported that it reviewed 618 export/re-export applications in 2020 and approved 520 of them with a total value of $432.8 million. Four of the top licensed ECCNs were related to military aircraft: 9E610 for technology; production, test, or inspection equipment controlled by 9B610; materials controlled by 9C610; and software controlled by 9D610. Rounding out the top five was ECCN 3A981 polygraphs. Notably, BIS reported that it did not deny any applications for Mexico in 2020.
Mexico’s Maquiladora Program
Another difference between exports to Canada and Mexico is that a significant portion of U.S. exports to Mexico are raw materials, parts, and components that are used in the manufacture and production of goods for return to the U.S., or onward shipment to other countries. Labor costs are lower in Mexico, so many U.S. companies have built subsidiaries there or engage the services of a “maquiladora,” a factory or manufacturing facility focused on the export market.
Mexico’s maquiladora program, officially known as IMMEX, allows manufacturers operating in Mexico to import raw materials and equipment into the country as a “temporary” import that is both tax and duty free (including IVA, the value added tax). The materials being temporarily imported “must be used in an industrial or service process intended to produce, transform, or repair goods for subsequent export.” The final products are then exported back to the U.S. or other countries. Located primarily near the U.S.-Mexico border, maquiladoras offer companies cost effective production due to Mexico’s lower labor costs and the duty and tax advantages mentioned above. License Exception TMP authorizes temporary exports of most items to Mexico so long as they are intended for IMMEX factories and ultimately return to the U.S.
ITAR – Defense Material and Arms Export Controls for Mexico
A substantial amount of defense material is exported from the U.S. to Mexico – nearly $1.3 billion in defense articles and defense services were authorized for export to Mexico in 2020. The Mexican government is a customer of U.S. defense manufacturers and these kinds of products are subject to ITAR controls. ITAR does not impose any special restrictions on Mexico, but it also does not allow the country the special treatment that Canada receives.
One area of concern is the export to Mexico of small arms such as pistols, rifles, and firearms. Both governments are highly aware of the potential for these exports to be diverted to criminal or terrorist enterprises. Firearms used to be controlled almost exclusively under the ITAR, but since early 2020, many firearms are now subject to the EAR. The BIS is now processing more license applications for Mexico, including those for firearms. In fact, the number one BIS classification by value for export under license to Mexico was firearms (ECCN 0A501). The items controlled in this ECCN were previously covered by the ITAR.
Where to Get More Information
You can find more information on exporting to Mexico at these websites:
- BIS Office of Technology Evaluation – U.S. Trade with Mexico
- International Trade Administration – Mexico Country Commercial Guide
- Select USA: Mexico – U.S. Export Controls
U.S. export regulations are inherently complex and change frequently, even with longstanding trade partners such as Mexico. ECTI covers exporting to Mexico in all of our live seminars and many of our on-demand e-seminars. Non-U.S. attendees can access this material at our live seminars conducted outside the U.S. and through our non-U.S. e-seminars. Check out our latest tools & resources here.
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Scott Gearity is President of ECTI, Inc.