Mexico: Foreign Trade Considerations - Rules Of Origin

Last Updated: 15 September 2019
Article by Luis Gerardo Ramirez Villela

The rules of origin are provisions that establish in which cases the goods of some country comply with a "substantial transformation", that is, with certain criteria and conditions in their production that give them the character of "original merchandise" of a country, called "country of origin".

A rule of origin seeks that the product be manufactured with raw materials from the same country or countries that are members of a trade agreement and procedures are negotiated that apply to products, have a rule that favors the country's production.

To ensure that countries comply with what was agreed in a commercial agreement, a mechanism called "Dispute Resolution" is established so that any problem that may arise is resolved in a friendly and expeditious manner. If the problem is not solved, then a commission is created that offers solutions to both countries.

If after the mechanism of mediation and conciliation, they cannot find a solution, a group of specialists is appointed to analyze the case. They give a final solution, which will be complied by the countries in dispute. If the country that did not comply does not apply the solution recommended by the group of specialists, the winning country may take measures that "punish" the country that has not complied.

There are two types of rules of origin, those of preferential origin and those of non-preferential origin.

The rules of preferential origin are those that are necessary to determine the country of origin for the purpose of applying the tariff preference that corresponds in the framework of a certain commercial agreement. In this case, the parties signing the commercial agreement are the ones that establish the criteria and conditions to determine that the goods that benefit from tariff preferences were obtained or produced in those countries.

The purpose of these rules is to avoid the so-called "commercial triangulation", that is, countries that do not meet the criteria and conditions that give the product originating in a commercial agreement benefit from the preferences of that agreement.

Non-preferential rules of origin are those that are necessary to determine the country of origin of a merchandise for reasons other than the application of a tariff preference, such as the application of trade defense measures or the application of tariff quotas.

These rules are used for any other purpose such as the marking of origin, labeling, misleading advertising, draw back programs, procurement and public works, process patents, antidumping duties, quantitative restrictions (quotas), embargoes, import permits, statistical purposes and services.

Article 9 of the Foreign Trade Law (Ley de Comercio Exterior) establishes the following:

"The origin of the goods may be determined for the purposes of tariff preferences, country of origin marking, application of countervailing duties, quotas and other measures established for that purpose. The origin of the goods may be national, if one country is considered, or regional, if more than one country is considered.

The origin of the merchandise will be determined according to the rules established by the Ministry or, as the case may be, for the effects that are determined in accordance with the rules established in the international treaties or agreements to which Mexico is a party."

From the analysis of the previous text, it must be understood that the compensatory quotas will be determined considering the origin of the goods, hence the importance of these for the determination by the Ministry of Economy (Secretaría de Economía) of compensatory quotas in terms of the provisions of the Foreign Trade Law.

Originally published May 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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