Carta Porte: What you need to know if you are shipping products to Mexico

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Andy 0:00
All right, Hey, folks, we are back for another show of simply trade and we are so thankful for your listenership, and you’re been so supportive. And again, as you it’s like a broken record, Lila, we just keep saying it. We appreciate everybody sharing our show and passing around and whatnot. So I’m looking forward to today’s show, this is gonna be a good one, we’re gonna jump right in here in just a moment. But some of the things have been going on of late is that, you know, with the horrendous hate for the summer and storms and whatnot, we’ve all had our challenges. And then you’re trying to take a vacation and trying to do those kinds of things. And then oh, yeah, by the way, when you get back, you gotta get caught up. And he’s like, Oh, my gosh, how are we doing that? So? Well, I just, I know that I have been getting busy for some trips coming up and all that, but how about you have Are you and also like, curves there? And now paths are

Lalo 0:57
doing. Everybody’s doing good here. And, yeah, we’re just excited to to continue what we’re doing here with a with a simply trade podcast. And so we have quite a few different ideas and plans. So we hope to let everybody know, about, you know, just different things that we want to do, and that we’ve heard that people want to see, including this one. So this is one of the shows in a series that as everyone knows, by now, that we have recorded for forced labor. So this forced labor series is going to cover pretty much everything that we can get our hands off on for now anyway, on on, on the on the different, like rules, regulations, resources, vendors, I mean, just people that can help for on and people that can help, you know, with with this initiative. So today’s episode is going to be the Mexican side of forced labor. So as we all know, us MCA had a provision on there that that required for both Canada and Mexico to also start a forced labor program. And so that’s, that’s what we’re doing now. And today, we have a guest that is coming back from a previous episode. Francisco, and Francisco was with us, for the carta party episode, if y’all haven’t heard it, we recorded that in both English and in Spanish. But he is also just to refresh everybody. His bio is on the show notes. But just to refresh everybody, he is former Mexican customs site. I always get confused whether secretaria well, we’ll let him say it. We always get confused with the hierarchy and everything how that works. It’s a BITSAT is who I think that’s what we work for, for not mistaken. And then he’s now a practicing a private practicing private law with with Brenda Cordova who’s also been on our show. So, Andy, anything else you might have to add? Well, no, it’s

Andy 3:21
this. I’m looking forward to this. Francisco is one of those guys, folks that, you know, he, he knows his stuff. So it’s very, I have a lot of respect for him. And let alone I had a good show on the last go round. So with that, Francisco, welcome to our show. I appreciate it. And once you again, give a little bit of background for your folks, so they understand where you’re coming from on your experience.

Speaker 1 3:45
Yes, thank you. Hello. And hello, Andy, thank you for having me here again. Yes. As land already mentioned, I worked for the tax administration service, which is like the similar to the IRS in the US. I worked for the government, like let’s say more than 15 years in different areas of tax administration service. In these areas was of course the NAFTA audit area. I was NAFTA auditor. I think the last seven years I worked for the tax administration service then now I’m working for the for in the private sector, advising companies from all over the world in how to import and export goods into Mexico and mainly in the compliance of relations and also in in tax and those models. And, by the way, Lando justice, as, as I knew regarding the Carter portal, the Mexican government has issued a decree onto which the Carter party is not going to be in force until the next first January of 2024. So again, again, we will see what happens then.

Lalo 5:04
So that’s, that’s another delay, I guess it’s been like three years more or less more than

Speaker 1 5:11
I think like three years from now. Mexico, Mexican companies doesn’t like this kind of partly because it’s a bunch of stuff to do and a lot of things to, to move in the, you know, in the systems of the company, the logistics and all this stuff. But the government wants to I don’t know what I don’t know why the Gulf Mexican government is insisting so much on this topic, but when we will see what happened the next year.

Lalo 5:41
Okay, we’ll get another update as it as it gets enforced, and we’ll see how they’re enforced. The name will bring you back on. Yes.

Andy 5:50
So let’s talk a little bit about the forced labor prevention. Alright, folks, you know, remember this has been one of those topics, that there has been legislation has gone out and the US has had the Uyghur forced labor Prevention Act, then Canada had, has got a force prevention forced labor Prevention Act of some kind, that is in effect, as well as Mexico. With that, one of the things that I see is coming up is where there have been cases where US Customs or Customs and Border Protection CBP has seized goods at the border that when they have come in, and there’s in particular, there was an example. I’m sure it’s not unique to just clothing. But there was an example of, I believe, a large shipment of men’s shirts that came in made over 100% cotton. CBP did a sample of that fabric and determined it was the cotton itself was grown from the northwest region or quadrant of China, which is the Uighur region. And even though the cotton had been grown, harvested and made into bolts of fabric, that bolt of fabric was sent down to Mexico to a factory, who then obviously, you know, cut it up and manufactured men’s shirts, and then it was imported to the US at the border since it was determined to be Uyghur grown cotton. The shipment was then subsequent to being seized, it was held up. And it’s my understanding that the importer could not trace it back the the efforts to say it was not done with forced labor, and therefore it was seized. So with that Francisco, have you seen or heard other situations like that that had been coming up? That may maybe that’s what has generated the intent behind the efforts in Mexico for the new laws and in on the forced labor provision?

Speaker 1 8:03
Yeah. This this, this topic and is fairly new for Mexico. I’m going to try to to present you very briefly our legal frame, which is really visually new, as you might see in a moment. And I think it only starts with with an amendment to our Mexican Constitution. Back in June 2011, an important amendment to our constitution was made. In Article One of our Mexican Constitution was incorporated a provision or a disposition that establishes that all human rights including the labor rights, of course, from international treaties, are going to be considered as part of our own constitution. So in this sense, the Human Rights became constitutional rights in the Mexican legal firm. Then, in a since year 2020. Within the USMC, the US MCA, a new chapter was included. If you remember, the North American Free Trade Agreement, NAFTA does not include a chapter related to labor forced. And now with the US MCA, we have this chapter 23, which actually eats coal or the slaves labor. And in the preamble of the usmca, it is established that one of the main purposes of this treaty is to promote the protection and enforcement on enforcement of labor rights. Also the improvement of working conditions and the strengthening of cooperation and the police capacity on labor issues based on that based on this a constitutional amendment and based on this chapter three of the Mexican labor labor force provision. Let’s say that we have two main authorities in Mexico which are which are going to be in charge of the enforce of this chapter. We have a in one side, the Minister of Labor and Social wafer, which is entitled to determine and enact non tariff regulations and other provisions according to international treaties. And this is going to be important because as we are going to see in a while this Minister of Labor in recent days, issued a decree which we’re going to come up very briefly, just right now. Then in the other side, we have the Minister of Economy, which actually is entitled to privilege the the no regulations applicable to the goods that are going to be imported into Mexico. So these two authorities, the Minister of Labor, and the Minister of Economy together, published recently, a decree that establishes that the goods imported into Mexico will be subject to non regulation at the time, they are going to be imported into Mexico. And it let’s say very briefly, what establishes this decree, I’m going to try to say it in very briefly words, this decree establishes that or the main purpose of this decree is to identify, you know, the tariff codes that are out there the of the Harmonized System that will be subject to regulation by the Minister of flavor. Regarding its production, it is entirely or in part, so the use of labor of workers in a situation of forced or compulsory labor, including, of course, the child labor. The funny thing or the or the phony factor basically, is that it establishes that the main purpose of the decree is to identify genotype calls of the Harmonized System, which will be subject to this regulation. But he doesn’t mention any tariff code, what it says that he creates the decreases, all the tariff codes are going to be subject. So that means that in the first place, all the goods that are coming into Mexico, it doesn’t matter a the tariff code are going to be subject to this regulation regarding the labor force or compulsory labor. And then also this, this decree issued by the Ministry of Labor, and the Minister of Economy establishes the procedure that is going to be or that must be followed, when company or when someone wants the authority to initiate or to begin a procedure to investigate the use of labor force. I’m going to talk about this procedure because it’s like, it’s like a very long procedure and very detail, I’m just going to say that only companies or any person can go in person to the Minister of Labor and and request for a review of the use of, of labor, forced labor in any any good. The requirements, it’s like, it’s like very simple, you just need to file a letter in to the Minister of Labor. You just need to present the facts, the evidence, of course, and the tariff codes, you need to identify the tariff codes of the of the goods. Also, of course, you need to provide a name of the producers, which you think are using for forced labor. The Minister of Labor in Mexico has 22 requests for additional information and evidence DO NOT TODAY requested. Also, if the Minister of Labour considers that evidence is not enough, were dismissed immediately the case the case or to request you know, but if the Minister of Labour considers the evidence is enough, the minister will initiate the procedure. And once all these stages of the procedure have been done, the Minister of Labor will issue a ruling or a final determination. The Minister of Labour has 2090 days to issue any positive or negative determination, this final determination Lalo and it’s like a like Final Rule in which the Minister is going to determine if the use of labor force was proof or not. If they if the Minister of Labor considers that use of labour force is proof then is going to issue a final resolution. And once the company has a final resolution is not allowed to report Okay, goods into Mexico. So that’s in very general terms, what what our disposition say, also the Minister of Labor, together with the Minister of Economy, in last May 23, released a guideline, which, which includes, let’s say, this document, it’s important to say that these guidelines is not a permission or a revelation. It’s it only offers like information, you know, for the, for the Foreign Trade actors, about the different topics, the legal frame, the procedure for a similar review request, the revision procedure do not different stages, the criteria to determine the existence or not of forced forced labor, which, you know, is actually the same of the international standards on forced labor of the International Labor Organization. And, of course, includes also the international due diligence tools to combat forced labor. As of today, I can say that no review process has been initiated by the Minister of Labor, nor has any resolution been issued, because as I already mentioned, last, may we, the cost, the Mexican authorities released this guideline. So we are barely new in this topic. It is supposed to once the Minister of Labor issues, determination, let’s call it negative resolution, it’s obliged to publish on the on the webpage. So as far as we know, as of today, there is the Minister of Labor hasn’t initiated any procedure hasn’t received any requests. And of course, hasn’t issued any resolution yet. So this is like, like the general view we can have here in Mexico regarding the forced labor. And as you can see, we’re barely new in this in this topic.

Lalo 17:07
And Francisco with the US, they have the Uighur force, you know, Labor Act, which is UFL UFL. Pa you flipper. There’s something in there that talks about rebuttable presumption. So what you’re telling me it’s a little different. So rebuttable presumption with the US is, if it comes from the Chang Jiang region, it’s automatically flagged as forced labor. So it’s up to you to refute that to their presuming it’s, it’s forced labor. So it’s not that way in Mexico, they’re they’re not they’re gonna leave it up to the importer to say, here’s my evidence, without them holding it up. I don’t know. It’s how is that? Is that how it’s gonna be different? Or?

Speaker 1 17:58
Yeah, yeah, la La Jolla, right? That presumption does not exist in Mexican relations. Here the Mexican Mexican customs cannot stop the goods in the port of entry, for example, and the mentioned that the CBP or US Customs sometimes sees the goods in the in the in the port of entry, you know, that is that is not established in our in our Mexican provisions,

Andy 18:29
which were to Alright, so to your point, I want to stop there for a second because what we’re saying in the US is the terminology that they say in the US is assumable presumption, which is it refutable

Lalo 18:44
reputable rebuttable presumption, but

Andy 18:46
I tell you what, I’d screw up to cooperate on this. I’m sorry, folks.

Lalo 18:50
Well, and don’t worry, I had it on your notes. It’s not like off the top of my head.

Andy 18:56
presumption. Yes. All right. So which means basically, that CBP has taken the position they’re assuming that it was made with forced labor and the importer has to prove otherwise. So what you’re saying Francisco is that Mexican customs are taking the scenario that they’re going to take the declaration that if something comes into the country, or for that matter is exported, because you still have to file the pentimento for exports, right? That if the importer or exporter declares this was made without forced labor, Mexico customs is going to take that and hold them accountable. Now, they find in their investigation after the fact that they confirmed that it is was done with forced labor, I would assume that they are in big trouble. But that’s a that’s an important difference. Where as this stuff is moving through in these components, um that that’s I just see where Mexico there’s a lot of Chinese components made, again, out of the Tibetan region, the the Uighur li region, and the Mongolian regions, which all have forced labor camps and whatnot, are those goods are being manufactured. And then they’re sent out to other countries to be components of a bigger widget, if you will. And that’s where I see that the vulnerability with Mexico is it’s coming in and all of that. So that’s interesting as far as the point on that, but anyway, continue on. Sorry, I’m sorry. But that’s, I thought that’s an important difference of delineation for our listeners,

Speaker 1 20:45
generally. Right? Andy, and actually, that’s gonna be a big problem to deal with, I think, because according to our Mexican legal system, the goods the poor, the poor, the the input of goods cannot be restricted or denied based on preset assumptions. This is how our legal system is designed. No one can apply the law based on presumptions or hypothetical facts. So we will need to prove or the companies we will need to prove that the labor force is being used to produce that specific good. So I agree with you that there’s going to be a big problem maybe because all in that in that sense of the goods coming from China or Asia or Vietnam, I don’t know. They are coming into Mexico, and they are not going to be there won’t be a way to stop them at the port of entry.

Andy 21:54
What do you think as far as where we’re at today, on this is, as far as if I’m a, you know, non Mexican buyer, in this case, obviously, I’m thinking us but I mean, it could be anywhere else in the world that is deciding they’re moving away from China as their source for manufacturing of goods, and they are reaching down to Mexico. And quite frankly, I mean, the statistics have shown where Mexico now has become the number one country exporting goods from Mexico into the US. So in other words, from a US perspective, Mexico now is the top trading partner with the US as far as imports go, Canada second, and China dropped from number one down to number three. So there is I believe, you know, people can say what they want as far as the in the US we, you know, when Trump was in office, he put in the China tariffs, and they have continued on under the Biden administration. And with that, there’s been this talk where well, that’s, you know, really negatively impacting things. I think, personally, that the forced labor prevention acts, anti slavery acts of the US, Mexico, China, Europe, have probably done more to deter people from continuing to use China than anything else. That said, there’s been a 25% reduction in the volume of goods coming out of China into the US and has been spread out, like I said, to other countries. So back to my original question here is that if I am in the US or some other country, and I’m looking at a business entity in Mexico to manufacture my goods, what do you think I should be doing? Or is there any recommendations I should be doing? You’re asking questions, ask or whatever. As I reach out to my the Mexican counterpart there to say, Hey, I would like to use you, but how do I know that? You know, you’re going to cross the t’s and dot the i’s as we would say, How do I know that you’re going to make sure you’re going to be compliant with IX?

Speaker 1 24:14
Yeah, I think we can I can mention two important facts here. Andy, Regarding your question, I think the first thing is that many companies from the US and from other parts of the world are looking to establish its production or its production process in Mexico precisely because of this act. They are they are like looking the way to to avoid or to, to not comply or not to be in the in that presumption. I mean, if the goods are coming direct from China to the US, they can up or from Vietnam, for example, the US Customs can apply the assumption and seize or stop the goods at home. Order. But if they are a coming from Mexico and then to the US, maybe that’s going to be different. That’s why many companies are looking for advice to establish manufacturers in Mexican territory in order to import the goods from China, and then to produce a different goods or to transform the goods, or the raw materials and send the goods to the US today, importer in the US. So what I will recommend answering your question and the is, for the importers in the US or the customers in the US is a request for the IMAX company in Mexico for the provider in Mexico to request the Minister of Labor to initiate procedures in order to verify if the goods are free of labor forced or are in compliance with the labor force provisions. That’s what I will recommend and doing as soon as they can. Because as you can see, the according to our Mexico regulations, the the different stages of the procedure is going to be quite long. So if the answer, or in order to have a positive or a negative resolution from the Minister of Labor, is not going to be that easy. And this one is not going to be that quick or fast, it’s going to take time. So my recommendation is if you have a dat there, or do or do are not sure that your goods comply with the labor force provisions as soon as you can request to the Minister of Labor to initiate an investigation.

Andy 26:48
Okay, so that would be from a competitive standpoint. If you feel like if I feel like I’ve got a competitor, this use and somebody in Mexico or somewhere else to reach out in requesting an investigation, if it’s a scenario Other than that, I guess I would be real cautious other than if you think there’s just a blatant infraction. But I’m looking at it from the standpoint that if somebody’s engaged, and you come across that one of the best things you can do is just stop your orders, I would assume. But I don’t know if you agree with that. But that’s

Speaker 1 27:31
yes, yes. Yes. Yes, I agree. I agree. And I think also, and it is important to mention that our Mexican provisions and regulations in the field of labor force, are are still developing, where as I can see, or in my opinion, the provisions are not yet complete. They need to develop some topics more, for example, this is the situation if, if the authority is going to be entitled to seize the good in the ports of entry, or what’s going to happen, or I think we are fairly new in this topic.

Andy 28:12
Yes. Everybody’s break, as we would say, We’re everybody’s breaking new ground. It’s just like, how’s this gonna work? And you know that yeah,

Speaker 1 28:20
there’s a lot of stuff to learn and yet.

Lalo 28:24
And Francisco, have you seen, we were talking a little bit about this before we were recording, but have you seen as a result of this, that Asian countries, maybe not only Asians, but in all other countries, other countries starting to try to, like visit Mexico and be an established business in Mexico, because they know that if they manufacture their stuff there, maybe the cost is going to be a little higher, but it’s actually maybe offset by the fact that they don’t have to ship it across the ocean. But whatever the fact, but they know that it would be easier for their products not to get flagged as forced labor, because they’re, they’re being made in Mexico. I don’t know. Have you seen an uptick on that? Or is it still the same? I mean, I used to be, I used to call him a lot of Mikey Loras. And, of course, there was a lot of Japanese, Chinese, Korean, lots of manufacturing in Mexico when I was, you know, doing it a few, you know, 1015 years ago, but what have you seen on that it has that affected that?

Speaker 1 29:32
Yes, I think so. I think so. No, I think it that’s a very good question. Because since 2020, since 2020, that the US MCA came in force. For example, I can tell you we as as as a law firm, as we receive a lot of requests from companies asking for these kinds of strategies, or they simply They simply are asking how, how can they avoid to send directly the probes from China to the US. And they are exploring different means of, of doing. So like, for example, they ask if they can establish some Akela Laura in Mexico to import a temporary those raw materials and then send the final product to the US or even a even not using an IMAX program even they just want to do so bring the raw materials into Mexico and transform or produce different probes and then send them into the US. But what I can tell you is yes, the companies who actually are looking for this type of strategy are increasing in the last two years. Importantly,

Lalo 30:51
interesting. Yeah, so I can affect, you know, what? Yeah, that would I kind of figured that would that might happen, but yeah,

Speaker 1 31:01
it’s happened a lot, I can see it because we, as a law firm, for example, in a normal year before to 2020 20, we receive like, I don’t know, in a year like 20 companies asking for a strategy or, or something. But after 2020, with this labor force act, we receive like 150 companies asking for these kinds of things. So and this is just in a law firm, I can imagine in the in the other law firm, so I can I can for sure, tell you that the this is increasing the companies who wants to bring the raw materials into Mexico in order to then send them abroad.

Andy 31:50
Sorry about that. Alright, so the main thing that is we’re looking at is that even after you have established a relationship, a business relationship, the other question would be how to continue on so that, you know, your you’re checking, if your manufacturer is continuing that, obviously, they’re going to continue to try and source the raw goods for anything they’re manufacturing. So they’re constantly looking out there. And as sourcing who’s going to do they’re looking for bigger, better and cheaper all the time. So all that to say is that it’s I guess one of those things is that how open Do you think people are in Mexico to share when they’re sourcing? You know, well, we’ve got another source from another location. I mean, part of the problem with this anti slavery legislation, is that it pretty much requires the manufacturer to show their sources for the raw goods. Well, who wants to do that? Because you don’t want to be circumvented. Right. So any suggestions along that way?

Speaker 1 33:06
Oh, have complicated and complicated sorts. And it’s always, it’s always complicated, but no, I cannot think of something right now. But as you as you, as you may know, in Mexico, our, our main, or one of the most important things that we have in Mexico is a labor force precisely. So our problem is not a it’s not a tool related to the, to the sourcing of the raw materials, or where are they coming from, but about the labor, the labor force about the workers and, you know, social security and best conditions for the workers in?

Andy 33:55
Well, I will say, though, that, you know, Lau and I were looking at let me kind of shift gears here a little bit because I know the forced labor is is a big issue. However, at the same time. A while back, we were looking at some news articles, and there were reports that it appears the US MCA or US Mexico, Canadian trade agreement has really been a a strong benefit to Mexico and the in the workforce there with better wages, better work conditions, especially in the automotive industry, but across the board. Are you seeing that from your perspective? Yeah, of

Speaker 1 34:37
course. Of course. Absolutely. And definitely that the incorporation of chapter 23 In the US MCA is something really good for the Mexican workers. And the Mexican workers are now looking for better conditions, you know, in general in general Birkbeck. better conditions in the daily work. What I mean is that the in the in Mexico, the workers have received this chapter of the usmca as a very good thing for them.

Lalo 35:17
I mean, for sure, we’re gonna have to have you back. I mean, not only you, but like the Canadian counterparts, you know, whenever the EU started enforcing it, we would love to see how Mexico is enforcing it, and what they’re doing, you know, once it’s in practice, you know, and, and give us an update. But any last words or anything that you might want to say, so we can wrap up the show?

Speaker 1 35:39
Well, my best recommendation or, or my final words would be just to be aware of the new provisions that the Mexican government is going to issue in the coming days. Because as I already mentioned, a Mexican government is still working with the design and of these provisions and regulations. So as I already mentioned, the last guidelines were issued last May, that means two months ago, so we are Mexican government is still working. So my recommendation is to be aware, to read the news or to listen, you simply trade a podcast to be updated on this and other topics.

Lalo 36:26
Awesome. Well, thank you for

Andy 36:30
appreciate your my friend. Well, folks, I will say that it’s kind of on the Mexico side, what we’re looking at, it’s almost like hurry up and wait, it seems like with some of this, but it’s like everybody’s in that same boat. So as we’re looking at if anybody comes across any examples, or has any questions that you would like for us to address on our shows, please, please, please make some comments, send us some emails or make some comments and LinkedIn and whatnot. Because we got some fine folks like Francisco that we got from other contacts that we’re gonna be reaching out to from Canada. here pretty soon and, and whatnot. So looking forward to talking into this a little bit more detailed. As we get into the actual practicality. Everybody knows about the regulations, everybody’s scared to death. Well, you better you know, you want to cut it short. If you wait till after the fact, there are people that have software programs, which I from what I’m gathering, when you’re vetting a vendor in Mexico or dealing with an exporter or importer out of Mexico, you better start vetting in and putting that information in and use a system to keep up with so that you guys can share data. It’s the only way to keep up with this and be proactive, not reactive and go from there. So, Francisco, thank you for my friend. It’s been a great discussion. And, and I’ll Lalo any last words from you

Lalo 37:59
know, that’s it. I’m just happy that Francisco was able to join us. And next time around, we’ll have his partner, Brenda Cordova as well, because we’ll have more, more details as it goes along. I’m some I’m sure sometime in 2024. So

Speaker 1 38:14
yeah, thank you guys for having me here. And I look forward to see you in another podcast.

Andy 38:20
Folks. Have a great day. Bye bye. Thank you.