US Concerned About Mexico’s Stimulus Plan to Boost Nearshoring

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Mexico issued a decree establishing national tax benefits for investment in certain exporting sectors

In its 2024 Foreign Trade Barriers report, the White House Trade Representative expressed concern about the SHCP decree from last October, which proposes benefits for the relocation of companies across various industries.

The United States government expressed concern about the export subsidies granted by Mexico to promote relocation (nearshoring).

On October 11, 2023, Mexico issued a decree that establishes national tax benefits for investment in certain exporting sectors. Specifically, the decree provides for the accelerated deduction of expenses on certain new fixed assets and an additional deduction for training expenses.

“The United States has expressed concern about the granting of benefits that are contingent on the export or sale for export of products,” said the White House Office of the United States Trade Representative (USTR) in its 2024 Foreign Trade Barriers report.

In the considerations of that decree, the Mexican government presented as feasible that companies consider relocating part of their production to destinations close to the markets they operate with, a strategy known as nearshoring; a situation that places Mexico in a favorable condition to be considered as an attractive destination for foreign direct investment.

Taxpayers will be able to apply these tax incentives (which refer to benefits in income and value-added tax payments) as long as they are dedicated to the production, processing, or industrial manufacturing of the goods listed below and also export them:

– Products intended for human and animal consumption; fertilizers and agrochemicals, and raw materials for the pharmaceutical industry and its preparations.

– Electronic components such as simple or loaded cards, circuits, capacitors, condensers, resistors, connectors, and semiconductors, coils, transformers, harnesses, and modems for computers or phones.

– Machinery for watches, measuring, control, and navigation instruments, and electronic equipment for medical use.

– Batteries, accumulators, cells, electrical conduction cables, plugs, contacts, fuses, and accessories for electrical installations.

– Gasoline, hybrid, and alternative fuel engines for cars, vans, and trucks.

– Electrical and electronic equipment, steering systems, suspension, brakes, transmission systems, seats, interior accessories, and stamped metal parts for cars, vans, trucks, trains, ships, and aircraft.

– Internal combustion engines, turbines, and transmissions for aircraft.

– Non-electronic equipment and devices for medical, dental, and laboratory use; disposable medical material and ophthalmic optical articles.

The United States grants large amounts of subsidies to strengthen its industrial capacity and strategic value chains, such as semiconductor chip manufacturing, although these grants are not contingent on exports.

Subsidies in the US

In July 2022, the US Congress enacted the CHIPS and Science Act, which allocates $52.7 billion in subsidies to increase semiconductor manufacturing capacity in the United States through financial incentives to build, expand, and equip national manufacturing facilities and semiconductor supply chain companies.

Additionally, the law includes provisions that fund federal research and development activities on semiconductors at the National Institute of Standards and Technology, a National Semiconductor Technology Center (in collaboration with the American industry), a National Advanced Packaging Manufacturing Program, and the creation of up to three Manufacturing USA institutes.

This law also created and funded three additional funds intended to strengthen the capabilities of semiconductors produced on American soil for national defense, workforce development, and international cooperation.

China is closing in on the leading nations in both capacity and production of semiconductors, largely due to government capital disbursements that subsidize domestic companies, finance the purchase of imported equipment and software, and fund China’s acquisition of foreign semiconductor companies.

Source: El Economista