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Expert Insight: Guest Contribution

By James Giermanski,

President

Powers International, LLC


Date: Nov. 4, 2014

Global Logistics Comment: Mexico Facilitates Trade Across Its U.S. Border Part 2

Inefficient Customs Clearance Monopoly Cost US Shippers Some $2 Billion Annually, but Relief May be in Sight

Last week, I described the almost complete control of goods going into and out of Mexico by licensed Mexican Customs Brokers and their tools, called the Relacion de Entrada (Mexican Inward Manifest) and Pedimento de Importacion and Pedimento de Exportacion (Entry and Exit Summary Documents).

These documents, which were needed to release cargo from the United States for entry into Mexic,o could only be executed by licensed Mexican Customs Brokers.

The result is a some $2 billion hidden tariff on US shippers that also results in needless delays and cargo security risks, while operating contrary to the NAFTA agreement. (See Global Logistics Comment: Mexico Facilitates Trade Across Its U.S. Border.)



NEW MEXIXAN INITIATEVE


It looked hopeless. However, while the U.S. government failed to address this trade issue, Mexico did, and in 2013 the Mexican Congress passed an amendment, repealing some and adding other provisions of its Customs Act. The notice was published on December 9, 2013 in the Diario Oficial de la Federation, the Mexican Federal Register.

 

The move fought by the Mexican Customs Brokers was made for the purpose of modernizing, facilitating, and improving trade between the United States and Mexico. Mexico, on its own, fundamentally changed the system to remove the Mexican Broker monopoly and through changing and improving its best practices, modernized the Aduana or Mexican Customs system.


Actual examples of these changes include:


• Flexibility on location of Customs Clearance.
• Direct clearance by companies and individuals.
• Increased requirements for carriers.
• Strategic bonded warehouses.
• Pre-validation of electronic import and export data.
• Electronic data transmission without paper documents.
• Electronic notifications.
• Customs clearance, risk analysis and non-intrusive inspections.

• Increased rights: (1) To establish the possibility of rectifying Pedimentos before and after customs clearance; (2) Allowing the change of customs regime for foreign goods without prior authorization; (3) Allowing the regularization of temporarily imported goods; as well as (4) Granting a discount for paying fines to be imposed for non-compliance with formal obligations, other than payment of duties and taxes.
• Customs broker reforms.
• Cooperation with Customs Authorities of other countries.

 

While these changes are positive and in many ways equal or exceed trade facilitation steps taken by CBP, one can expect clear opposition by the Mexican Customs Brokers who have been spoiled by this stream of controlled revenue.

UNDERSTANDING THE REALITY


.

Because of these impending changes, I asked five brokers, three Mexican Customs Brokers and two U.S. Customs Brokers working the Laredo POE, what they believed these changes really mean.

 

1. If the Mexican Customs Broker no longer needs to handle Mexican inbound shipments from the United States on the U.S side, why does the broker still cause southbound cargo movements into Mexico to stop in Laredo and wait for his Pedimento de Importacion to be issued releasing the cargo to cross into Mexico?

 

Broker Response: The new law goes into effect on January 1, 2015. Therefore, until it take effect, the normal process of stopping the southbound shipment on the U.S. side to wait for a Mexican Customs Broker to inspect the cargo and produce a Pedimento will remain in effect since the Broker, at this time, is still responsible for any discrepancies and fines that may be assessed by Aduana. The purpose of the law is to create options for qualified companies experienced in imports and exports to streamline the cross-border process to provide a more competitive business environment.

 

2. Is it true that the concept of "legal representative" of the importer or exporter is a realistic option of avoiding the use of a Mexican Customs Broker?

 

Broker Response: Yes, beginning on January 1, 2015 exporters and importers will have the option of avoiding the use of a Mexican Customs Broker. The Mexican Customs Broker has been eliminated only for cross-border purposes, however. In January, importers and exporters will have the option of continuing their use of a Mexican Broker or appoint an employee to serve in that function. The legal representative must be a natural person of Mexican nationality, be knowledgeable in foreign trade matters and pass the Mexican Customs examination.

 

Additionally, the company will be responsible for what its legal representative does on its behalf. Finally, Pedimentos will not disappear under the new law. Thus, the in-house legal representative will have to produce the Pedimento and be bound by its requirements and any potential consequence involved in its use such as fines regarding faulty classification, quantity of goods shipped and other information stated on the Pedimento such as HTS codes, weights, trailer/container number, seal number and more.


3. Since the Mexican Customs Broker can now file a Pedimento electronically, is there any impact on whether he actually inspects the cargo?


Broker Response: Electronic Pedimentos have been in use for several years now and Brokers should still examine all loads because they are responsible for everything stated on the Pedimento. However another Customs Broker said that in Mexican export process from Mexico, the Customs Broker does not have to see the cargo to file the Pedimento. Only the automotive industry and some "certified" maquiladoras can benefit from using the despacho en origin (shipped from origin) declaration and avoid inspections at the border because they are allowed to amend most discrepancies discovered.


4. What is the expected role of the drop lots or Pensiones under the new law?


Broker Response: It seems they will continue to serve as they do now, providing an area at the border on the Mexican side for motor carriers that do not have their own yard or facilities at the border.

 

5. Given the new law, is it reasonable to expect that a firm using an in-house legal representative would use and emphasize the importance of supply chain security, specifically container security like the new "chain-of-custody" system that identifies the person at origin certifying the proper cargo, its monitoring during its movement, detecting and reporting any openings of or breaches into the conveyance, and more, to include the identity of the person opening the conveyance at destination?


Broker Response: Yes, because the firm will now be responsible for any discrepancy as the Mexican Customs Brokers are today. Based on this, it is expected that more attention will be paid to supply chain security which would protect the legal representative and his or her firm.


CONCLUSION

Mexico has done what the United States could not do - streamline the cross-border commercial process, reduce costs for importers and exporters, and change NAFTA, making the commercial trade cross-border process more visible, less costly, and more secure.

 

The new law will provide options to facilitate trade by avoiding the current drop-and-wait system now prevalent along the southern border. It should reduce or remove current crossing charges and delays. It will also provide multiple benefits to numerous stakeholders such as shippers, consignees, motor carriers that may be able to eliminate empty backhauls from the border, and even benefits to border POEs through the reduction of traffic, and reduced environmental impact.


It is imperative that U.S. importers and exporters understand and take advantage of this change, and if it works, it may be a model for all U.S. commercial cross-border operations involving Customs matters.

Agree or disagree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website.

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About the Authors

Dr. James Giermanski is the Chairman of Powers Global Holdings, Inc. and President of Powers International, LLC, an international transportation security company.  He served as Regents Professor at Texas A&M International University, and as an adjunct graduate faculty member at the University of North Carolina at Charlotte.  He was Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University.

He has authored over 150 articles, books, and monographs with most focusing on container and supply chain security, international transportation and trade issues.



Giermansk Says:


Mexico has done what the United States could not do - streamline the cross-border commercial process, reduce costs for importers and exporters, and change NAFTA. 


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