Historically, Los Pinos (the President's headquarters in Mexico City) has demonstrated it does not understand the border dynamic; nevertheless, during this six year term, this incomprehension preoccupies us less than the federal government's serious intention of weakening the border's economy. The harsh, constant, and visceral hits that the northern border has been faced with on behalf of the federal administration do not allow us to think differently.

The "Center" has decided to omit the northern border's geo-strategic character (including its binational aspect), its economic integration dynamic, main trends, and productive vocations. What will be the cost of this error? Only time will tell us.

This is confirmed by figures from National Institute of Statistics and Geography (INEGI) relating to the Quarterly Indicator of State Economic Activity (ITAEE), considers there to be an increase of the gross domestic product (GDP) in each state of the country.

According to the original series, the development of the economy of Baja California during the last quarter was positive, it grew 3.7% compared to the previous period; with this, a four trimester spell of negative results was broken.

Nevertheless, putting together the information for the entire year shows that the state economy had a negative growth of -0.6%, which confirms that 2014 was an economic recession. In this regard, the president of the Mexicali College of Economists, Enrique Rovirosa Miramontes, manifested that this result has been expected since the end of the previous year when the fiscal reform was approved, one of the measures was the standardization of the IVA from 11% to 16% at the border zones.

JANUARY - 2015

IVA PAYMENT FOR TEMPORARY IMPORTATIONS

Mexico has converted itself into the only country around the world, immersed in a globalized economy, which charges IVA to temporary importations.

According to the reasons that sparked the law change, certain contributors were abusing the system through inter-company transfers, and merchandise ended up in the national market, without the temporary importation IVA payment, the detriment went to the public government.

It is true that for years the fiscal authorities have detected these abuses, and even knew what kind of merchandise (textile, steel, and shoes, mainly) was involved in these fiscal evasion schemes.

Although they detected these operations, and which industry, or industries, was involved, the legislative power determined that all temporary importations under exportation companies would be subject to the tax payment.

Of course, this implies a hard hit to companies, which today are the productive motor of Mexico. If the tax they paid were deductible, and consequently potentially reimbursed; what would happen is that between the payment date and when it is reimbursed, various weeks and even months would pass, then the money would not be a capital for the companies.

It is maybe time to ask ourselves if we want a competitive country that offers legal certainty to those that risk their capital to invest. The authorities have the tools to punish tax evaders, and not necessarily close the door to everyone.

Who guarantees a good faith investor, who risks his capital in the country, that tomorrow the SAT (Mexican IRS) will not change the requirements that were established today, including exceeding the mandate that the legislator was given? That is not legal certainty.

*With information of KPMG Mexico's Area of International Trade and Customs

JANUARY - 2014

IVA HOMOLOGATION

The homologation of the value added tax in the border region has been a determining factor in the region's adverse situation. It has significantly impacted the price level, buying power, employment, and economic activity, and particularly the trade sector. To illustrate this, we will reproduce hard data shared by the Northern Border's College (COLEF), through the first bulletin of the "Observation of the Border's Economic Situation:"

• Extra spending for households increased 10% in Chetumal, 9.5% in Mexicali, 8.2% in Tijuana, 7.9% in Hermosillo, 7.2% in Ciudad Juarez, 6.1% in Matamoros, 5.8% in La Paz, and 5% in Ciudad Acuna over the past year. • In Tijuana, food spending per individual per month is above the national average at $364 pesos (about $23 dollars), for which the cost for a home of four is $1,456 pesos monthly (about $94 dollars). • The monthly balance of savings accounts in Tijuana fell from $20 million pesos to just $3 million pesos ($1.3 million USD), almost 90%, and in the main border region cities 71% (-68 million pesos or $4.4 million USD).

The scarce economic growth, on the other hand, demonstrates that Baja California's economy finds itself in a recession. According to the Quarterly Indicator of State Economic Activity (ITAEE, for its Spanish initials), the state's economic activity, during the third trimester of 2014, in comparison to the previous year, shows a negative growth rate.

The loss of competitiveness with regard to the American market is another of the factors that has accentuated this crisis. According to the average spending indicator of border excursionists and tourists abroad, provided by Banxico and the US Department of Transportation's register of border crossings, in 2014 consumer flight occured, resulting from the price increase in goods and services at the northern border.

It is estimated that only in Baja California, this translates itself to a loss of one billion dollars a year, which increases to $2 billion considering the indirect impact of international aerial visits.

DECEMBER – 2014

RESTRICTIVE MEASURES IN THE BUYING/SELLING OF DOLLARS

Arguing a fight on money laundering, on December 31st, 2014, the Ministry of Treasury and Public Credit (SHCP, for its Spanish initials), published in the Federation's Official Diary (DOF), changes in Article 95 of the General Law of Organizations and Activities Auxiliary to Credit, applicable to exchange houses, and adds the obligation to solicit official identification to all citizens that wish to exchange money starting from one dollar, while in the US, identification is only solicited for those who change more than one thousand dollars of foreign money.

The measure of the treasury authority contradicts itself. In September of 2014, the SHCP informed that it would remove the restriction on dollars in cash, which in its time affected Baja California's economic activity (the flow of American money diminished between 30% and 40% in banks), but later launched this measure to identify consumers asking them for personal information.

It is important to remember that on January 6th, 2015, the Secretary of Treasury, Luis Videgaray, met with the vice-president of the US, Joe Biden, where they agreed to a more competitive region between the two countries.

According to the deputy, Rene Mendivil Acosta, this provision has the goal of preventing crimes of operations with resources that are obtained illegally and finance terrorism, but, he insisted, "the border dynamic needs an exception to this provision."

SEPTIEMBRE - 2014

OPPOSITION TO THE IMPORTATION OF USED VEHICLES

The importation of.... Continue reading article here

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