There are good opportunities for U.S. companies manufacturing metal forming equipment.

      The Mexican manufacturing sector accounted for 19 percent of total Gross Domestic Product during the period 2002 - 2004. The metal mechanic industry’s participation in the manufacturing GDP was 29 percent during the same period. The manufacturing sub-sector with the most substantial growth to October 2004, on a year-to-year basis, has been the metal mechanic industry, with a 15 percent increase. The GDP growth projection for 2005 is estimated to be 4 percent. The purchase of machine tools and metalworking equipment by large household appliance and automotive manufacturers is the most important sub-market. According to the Asociación Mexicana de Distribuidores de Maquinaria (AMDM) (Mexican Association of Machinery Distributors) the demand outlook for 2005 is encouraging, given the amount of outstanding projects, mainly in Central and Northern Mexico.

      Also, the National Council of the Maquiladora Export Industry, (CNIME – Consejo Nacional de la Industria Maquiladora de Exportación) estimates that in 2005 and beyond, sales are bound to get a boost from changes in the maquiladora industry. This is because of the elimination of domestic market access-restrictions that will provide an internal demand-pull factor to stimulate production. This integration with the national market could shift operations to more integrated and automated production methods.

Machine tools up-grading

      The lack of capital and overly expensive credit, when available, to buy new capital equipment, has forced many Mexican manufacturers to look for alternatives such as upgrading their equipment. In some instances the alternative has been to buy used equipment and refurbish it, or buy refurbished machines from U.S. dealers. According to the Mexican Association of Machinery Distributors  estimate, the ratio of used to new equipment is 40 percent used to 60 percent new.

      This has been possible mainly due to the availability of spare parts and technology that facilitate conversions. Imports of parts, whether mechanical, electrical or electronic, thanks to NAFTA, have become much easier and faster.

      Mexico’s exports of manufactured products of the metal-mechanic industry, in relation to total exports have grown steadily. Two thirds of this growth is due to the automotive and home appliance industries. The other third is composed of various industries such as metallic structures, fired and unfired pressure vessels and containers, agricultural equipment, office furniture and equipment, electricity transmission and control equipment, materials handling equipment, among others.

      Mexican imports of metal-forming machine tools and related equipment have been central to this growth, and are still dominated by U.S. products, whose market share averaged 48 percent in 2003 and 2004.

      The main third country competitors are Germany, Japan, and Canada. One reason for the market share increase of third country imports, mainly from Japan and Germany, was the massive demand for machine tools generated by the establishment of automobile factories from these countries. Taking advantage of this situation, machine tool manufacturers opened representative sales offices, integrating them with home country plants.

      The automotive industry and home appliance industries represent the largest and fastest growing manufacturing sectors in Mexico. The location of these industries in Mexico has adopted a geographical diversification that promotes regional development.

      The automotive and home appliance industries are located in three areas forming clusters. There are 532 automotive and home appliance related firms in all three clusters. The location of these clusters is:

      Cluster 1: Mexico City’s area of influence. It comprises the states of Mexico, Puebla, Morelos, and Tlaxcala. This area of influence represents 60 percent of the total Mexican GDP. The following companies are located in Cluster 1: Volkswagen, Nissan, DaimlerChrysler, Volvo, BMW, Mercedes-Benz, Ford, MASA, and Mabe.

      Cluster 2: Central Mexico. Comprises the states of Aguascalientes, San Luis Potosí, Guanajuato, Jalisco, and Querétaro. The following companies are located in Cluster 2: General Motors, Nissan, Honda, Scania, Mabe, and LG.

      Cluster 3: Northern Mexico. Comprises the states of Sonora, Chihuahua, and Nuevo León. The following companies are located in Cluster 3: General Motors, Ford, Kenworth, Navistar, Daimler-Chrysler, CINSA, and Mabe.

Market access

      While imports of machine tools from NAFTA countries are free of any tariff, non-NAFTA countries have tariffs ranging from 3 to 18 percent. Mexico is pursuing free trade agreements with other countries in order to reap the benefits of NAFTA.

      Mexico has free-trade agreements with the United States, the E.U. and the European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein), and has signed one with Japan in 2004.

      Since 1996, the U.S. imports share of the items object of this report has had an average of 47 percent. This is expected to hold or vary slightly in 2005, due mainly to the increase in two-way trade generated by NAFTA. Third country imports have varied between 47 percent in 2000 to 53 percent in 2004.

      There are virtually no import barriers for metal forming equipment. The general import climate for capital goods in Mexico is favorable. NAFTA has made U.S. imports into Mexico even easier by eliminating all tariffs.

      Mexico uses the Harmonized Tariff System (H.T.S.), the same classification system used in the U.S. Mexico’s imports are classified only up to eight digits, and exports up to only six digits. The U.S. uses up to 10 digits. The first six of the 10 digits used under the HTS system are identical for all countries, the rest may vary.

      The Mexican government requires various certificates for importing certain products into Mexico. Included among the certificates that may be required for machine tools are a Certificate of Origin, Free Sale Certificate, and NOM Certification.

Certificate of Origin

      A Certificate of Origin is required from all foreign suppliers or exporters. If the product qualifies as North American in content, the exporter must use the NAFTA Certificate of Origin in order to benefit from preferential treatment under NAFTA. This is the responsibility of the exporter and the forms are available from the U.S. Customs Service, freight forwarders, or local U.S. Chambers of Commerce. The certificate should contain at least the following:

      •Name of exporter.

      •Name of producer.

      •Tariff classification of product.

      •Description of goods (similar to invoice).

      •Number of the official invoice.

Free Sale Certificate

      This certificate is required for all products entering Mexico. This certificate proves that the imported goods are also sold in the country of origin. A letter from the local Chamber of Commerce is sufficient proof and the importer would present it at the time of importation.

Labeling

      According to Mexico’s Federal Law on Metrology and Standardization, machine tools sold in Mexico are exempted from having a label in Spanish affixed to each. Listing the required information in Spanish on the shipping container will satisfy the labeling requirement. The Spanish information on the box must contain, at a minimum, the following information:

      •Name and address of the importer.

      •Importer’s Ministry of Finance taxation number (RFC number and/or their Industry Association registration number).

      •Exporter’s name and address.

      •Trademark or commercial brand name of the product.

      •Product description whenever the product is packed in such a form that it is not visible.

      •Use, handling, and care instructions for the product, as required.

      •Country of origin.

      •Warnings or precautions on hazardous products.

      •Size, if applicable. Mexico’s Federal Law on Metrology and Standardization stipulates that all weights and measures must be in the metric system.

Import duties and taxes

      The participation of a customs broker is not obligatory for imports if all legal and technical requirements are met. It is required that the importer be registered as such with the Secretariat of Treasury and Public Credit. The participation of a customs broker is suggested when the exporter is not familiar with the Mexican standards and customs processing procedures.

      The import duty is calculated on the U.S. plant value (invoice) of the product(s) plus the inland U.S. freight charges to the border and any other costs listed separately on the invoice and paid by the importer such as export packing. A 15 percent Value Added Tax (IVA) is assessed on the cumulative value consisting of the U.S. plant value (invoice) of the product, plus the inland U.S. freight charges; and any other costs listed separately on the invoice such as export packing plus the duty. The importer will pay other IVA fees for such services as the inland Mexico freight and warehousing. The IVA tax is 10 percent for border area destinations. The IVA is recovered at the point of sale.

Market entry

      Often, the decision to select a machine tool supplier depends on the demonstrated commitment to service after the sale has been made. This has been the most effective tool that third country manufacturers, mostly Japanese, have used to penetrate the market. They offer to have their maintenance personnel at the clients’ plant in no more than 48 hours after a service call is made. The availability of required spares is the natural complement to the presence of their technicians.

      Customers in the metalworking market are demanding uniform quality control, compliance with international standards, productivity, lower production costs, Just-In-Time deliveries and above all, reliable local service and maintenance programs. This last factor has become, in many instances, even more important than pricing or financing in the machine tool purchasing decision.

      The Association for Manufacturing Technology (AMT), headquartered in McLean, Va., has established an office in Monterrey, N.L. to assist U.S. machine tool builders. This office works very close with the Technological Institute of Higher Studies of Monterrey (ITESM), and the National Autonomous University of Mexico (UNAM).

      ITESM created the Center of Integrated Manufacturing Systems (CSIM) devoting efforts to solving production automation problems services to Mexican industries. Main applied research areas include design of manufactured products, flexible automation, industrial materials, production engineering and manufacturing systems administration. With UNAM the cooperation work is through the Center for Technological Innovation (CIT), a non-profit technological development organization to channel industrial projects to the related faculty or university department.

      Through these cooperation programs, U.S. machine tool builders can find very appropriate venue to demonstrate and teach the operation of their products. The potential benefits of this association are significant to the U.S. machine tool industry as member companies struggle to find an answer to establishing a technical and customer service presence in export markets.