Index President Completes Term

INDEX, the new acronym for the national council of maquiladora and manufacturers in Mexico (CNIMME), represents more than 80 percent of the labor force in the country’s export industry -approximately 2,250,000 workers -in more than 1,200 export companies in nearly 20 cities.

Outgoing INDEX president Luis Aguirre took office three years ago as the effects of the “Great Recession” plagued business levels, employment and profitability levels.

Leading the organization and its membership through the downturn and back into the upturn has been challenging for Aguirre who soon completes his term. He continues to seek business certainty to solidify his country’s competitiveness.

YOU HAVE BEEN PRESIDENT OF INDEX FOR ALMOST THREE YEARS. WHAT HAVE BEEN YOUR MAIN ACCOMPLISHMENTS?

Internally, we have advanced in many aspects. One of them is the unification of the identity for the 24 associations comprising the National Council. We today are all “INDEX.” This is a great tool in lobbying to work and improve the regulatory conditions. Simultaneously this action has allowed us to continue being the champions in the international trade of Mexico in a platform of greater understanding. This also helped to unify the national agenda with specific variations to each region.

We are systematizing and standardizing processes and good practices among associations.

Also there is the creation of the new association based in Queretaro and the permanent presence of the INDEX Occidente Association with offices in the port of Manzanillo to support the large volume of transactions made in that port. The expansion of the logistics infrastructure of the port of Manzanillo includes a special rail for certified companies.

On the public and external agenda, there have been the important recent alliances with business organizations. We are exploring more opportunities.

WHAT ABOUT WORKING AT THE GOVERNMENTAL LEVEL?

We interact with governors and secretaries of Economic Development to strengthen the consolidation of the industry. For example, the implementation and activation of the “Ventanilla Única” (Single point for procedures) of Foreign Trade has digitized all the procedures of import and export in Mexico. The National Council has been proactive for continuous improvements that have been implemented.

Another success is the “New Scheme of Certified Companies” or NEEC which is a program to strengthen the safety of the supply chain logistics. This comes through the implementation of internationallyrecognized standards of security in coordination with the private sector. INDEX is a pioneer in programs of foreign trade.

WHAT DO YOU SEE THROUGH 2015 FOR THE MAQUILADORAS IN TERMS OF GROWTH AND EMPLOYMENT?

This type of projection is very hard right now because we are in the middle of important definitions of the legal environment, especially with initiatives that are still under definition for this year in the Congress of Mexico. We made our projections at the beginning of this year to grow in foreign investments, employees and exportations between 3 percent and 5 percent during 2013.

To make a projection for 2014 and 2015 is contingent upon two reforms that are going to be submitted to Congress in the coming weeks. The energy law and the fiscal or tax reform are going to be submitted in September.

WHAT INDUSTRIAL SECTORS LOOK TO BE THE MOST PROMISING IN MEXICO IN THE NEXT DECADE?

We have several promising sectors: automotive; energy; aerospace; medical; agro-industrial; electrical and electronics; mechanical, telecommunications, IT, personal care, truck machinery, and global logistics services. There is also the development of software and design applications.

WHAT IS THE ATTITUDE OF THE NEW FEDERAL ADMINISTRATION TOWARD INDEX?

In INDEX we celebrate the efforts of high international diplomacy of the new Federal Government for the commercial promotion of our country and companies. We celebrate inclusion and correlation of political forces and business in the “Pact for Mexico” and the National Committee of Productivity initiatives.

We have initiated joint activities with the federal executive branch related to import substitution, deregulation and facilitation for foreign trade with the SAT (Mexico’s Treasury) and Customs for a more efficient supply chain.

Our shared agenda highlights actions and ongoing communication with Congress. In addition we work with the committees on the analyses and responses to initiatives of modification of laws related to environmental protection, intellectual property and foreign trade, among others. The work with the Commission on Competitiveness is relevant, as they seek ways to increase productivity and leverage the expertise of highly competitive companies.

WHAT IS THE MOST DIFFICULT CHALLENGE IN ORIENTING THE LOCAL, STATE AND FEDERAL GOVERNMENTS IN MEXICO AS TO UNDERSTANDING THE MAQUILADORA CONCEPT?

One of the sector difficulties occurs cyclically with the arrival of new government administrations. We have the need for new officials and legislators to understand that this industry can’t stop. It depends on deliveries “Just in Time” of our goods to export.

Every three to six years, the maquiladora sector, being the main generator of foreign currency of the country in the private sector for more than 48 years, must make a big investment of time and resources to present the benefits and the greatness that this sector generates income for more than 2.3 million families directly and 6.5 million indirectly in 24 states of the republic.

Our companies daily compete with other regions of the world in quality, time and cost in order to serve the global manufacturing multinationals. Therefore we must go a step ahead of our competitors which are countries like Mexico seeking to attract national and direct foreign investment for quality products. This calls for a logistics export platform that will allow us to fulfill deliveries on time and competitively priced.

WHAT DO YOU SEE AS MAJOR NEEDS OF THE MAQUILADORAS IN MEXICO IN THE NEXT FIVE YEARS?

We need legal certainty in tax benefits; validity in the temporary import of goods free of VAT; public safety for the attraction of new investment. Also there must not be an increase in the taxable base for purposes of social security in order to ensure more contracts and formal jobs. There must be developed safe land corridors – electronically-controlled — to ensure the security of goods.

WHAT OPPORTUNITIES EXIST THAT WILL HELP REDUCE THE TOTAL COST OF DOING BUSINESS IN THE MAQUILADORA SECTOR?

A success story is in the INDEX Western Association. We are soon to launch from the port of Manzanillo a plan in which certified companies may dispatch shipments, in an express way, between 12 and 36 hours. They will have logistics savings in time and money.

Something similar happens with customs at Guadalajara where we ship goods in three hours after their arrival at the airport with 70 percent in logistics cost savings.

Other opportunities include simplifi- cation; safety; the supply chain; patents; public-private investment in logistic infrastructure in ports, airports, logistic nodes, roads and rail. Customs needs to be more automated. Energy and telecommunications must be at competitive prices with the highest quality. We need improvement in education and more resources for the training of talent for innovation and technology.

PLEASE COMPARE THE CHANGES IN THE PERCEPTION OF TOTAL COSTS IN MEXICO VERSUS TOTAL COSTS IN CHINA.

Mexico has increased its participation as a supplier for manufacturers in the United States market while China has reduced its sales in this area. This is notable if we compare the figures of 2009 against 2012.

Mexico lost participation in the market of the United States as a result of the incorporation of China in the WTO. However, with the passage of the years, Mexico has been recovering a portion of imports share by the United States, primarily by several factors which have been restoring competitiveness to our country as a whole.

One of them, but not the main one, is the geographic location that allows you to be the neighbor of the world’s leading consumer. Another element is the flexibility of the Mexican labor, which, together with its commitment and philosophy of teamwork, resulted in higher productivity with trained personnel. A third factor is certainly the distance and transport costs. You can manufacture it in Mexico with potential delivery in three or fewer days.

An additional factor is the cost of fuels, which make transportation cost a factor that Mexico wins for competitiveness. This combination of factors makes it possible to manufacture higher value-added and higher volume products in Mexico instead of in China and other Asian nations. Think of bulky items such as automobiles, trucks, tractors, appliances, aircraft parts, televisions, among others.

MEXICO VIEWED THE MAQUILADORAS AS AN INDUSTRIALIZATION ENGINE; A FOREIGN DIRECT INVESTMENT SOURCE; AN ENHANCER OF TECHNOLOGY; A SKILLED LABOR GENERATOR AND A VALUE CHAIN GENERATOR. LOOKING TOWARD 2020, WHAT VIEW OR ATTITUDE SHOULD MEXICO TAKE TO OPTIMIZE THE ECONOMICS ASSOCIATED WITH THE MAQUILADORAS?

The outlook for 2020 is: “Mente-factura” (Brain-facturing), it means manufacturing and software development in addition to patents from Mexico to the world. For this we need a more innovative vision based on confidence and legal certainty, with long-term vision and a mutual commitment to generate action plans that spark growth and the consolidation of the global industry of Mexico.

HOW WOULD YOU DESCRIBE INDEX’S ROLE IN TERMS OF CHANGES IN MEXICO’S TAX AND LABOR LAWS?

In the framework of the National Development Plan for 2013-2018 we proposed an industrial policy which encourages fiscal certainty, particularly with the benefits of the “Maquila regime.”

First, remove the obstacles of competitiveness in IETU tax. The decree which granted various tax benefits for exporting companies is only valid until the end Fiscal Year 2013. It is in the national interest to extend the benefit indefinitely.

Second, obstacles for competitiveness in the area of income tax must be removed. Since the year 2002, for the purposes of the law on income tax, residents in foreign- related companies of IMMEX which operate under “shelters,” can be considered to have non- permanent establishment in the country. This treatment also applies to FY 2013. We consider this a priority to be extended indefinitely. The shelter industrial model is the first step for many foreign investors that come to Mexico.

An industrial policy that encourages exports and legal certainty is vital to take advantage and generate comparative advantages. We need a competitive fiscal policy in principle to bring the benefits of globalization to Mexico. The INDEX National Council sponsored an international fiscal competitiveness study for the maquiladora industry, which was prepared by the international firm KPMG. This study showed Mexico as a less competitive country in its fiscal regime, followed by Costa Rica, Brazil, China and Thailand. The most competitive market, from the fiscal point of view, turned out to be South Korea.

YOU REPEATEDLY SPEAK OF THE NEED FOR FISCAL CERTAINTY IN MEXICO. HOW WOULD YOU RATE MEXICO IN TERMS OF PROGRESS IN THAT AREA?

We have done all the papers and presentations needed. This is reflected in the recent proposal to the new Federal Executive Branch. We trust that this economic model that today represents the maquiladora and export manufacturing is and must remain one of the main generators of social well-being, economic development and be a pillar of productivity in the country.

We have also done a great job with the Mexican Congress, with deputies and senators and the governors of the states where we have a strong presence. We have obtained their commitment and support for our proposals for this tax reform that our country needs to promote the creation of jobs.

WHAT ADVICE WOULD YOU GIVE YOUR SUCCESSOR?

The maquiladora industry will play an important role in the six-year term of President Enrique Peña Nieto. We must enable and reinforce all avenues of communication to remain champions in exports to the world. That’s why we must continue working on the simplification of the regulation for foreign trade, generating competitive advantages, making diversification of exports to other destinations, more specialized logistics and shared services. A key aspect will be the integration of major national suppliers in our export products. It means an ecosystem that provides real growth for manufacturing and export services. One of the biggest challenges is to form alliances and productive services to strengthen the regional concept of the NAFTA.