PROSEC

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SECTORAL PROMOTION PROGRAMS

Overview

Definition:
Sectoral Promotion Programs (Prosec) are aimed at legal entities that produce certain goods, allowing them to import diverse goods for use in the development of specific products at preferential ad-valorem tariffs (General Import Tax), regardless of whether the goods to be produced are for export or the domestic market.

Beneficiaries:
The beneficiaries of Prosec are legal entities that manufacture goods referred to in Article 4 of the Prosec Decree, employing the goods mentioned in Article 5 of that Decree.

Benefits:
Legal entities that manufacture goods referred to in Article 4 of the Prosec Decree may import, at the preferential ad-valorem tariff specified in Article 5 of that Decree, diverse goods to be incorporated and used in the productive process of specified goods.

Goods to be imported and goods to be produced are grouped by sector in the following way:

Electrical Industry
Electronics Industry
Furniture Industry
Toys, Recreational Toys and Sports Articles Industry
Shoe Industry
Mining and Metals Industry
Capital Goods Industry
Photographic Industry
Agricultural Machinery Industry
Miscellaneous Industries
Chemical Industry
Rubber and Plastic Goods Industry
Steel Industry
Pharmaceutical Products, Medications and Medical Equipment Industry
Transport Industry, except the Car Industry
Paper and Cardboard Industry
Wood Industry
Leather and Skins Industry
Car and Auto Parts Industry
Textile and Clothing Industry
Chocolates, Candies and the Like Industry
Coffee Industry, and
Food Industry

Benefits of the program only apply to import goods contained in the relevant sector: a good contained in one sector cannot be imported for the production of a good in another sector.

Holders of Prosec programs may request their incorporation into new sectors, as long as they produce evidence of the production of goods in the new sectors.

Program Types

Direct Producer:
The legal entity which manufactures the goods to which Article 4 of the Decree refers, starting with, among others, the goods mentioned in Article 5 of that Decree, according to the sector.

Duration:
The duration of the programs shall be one year and shall be renewed automatically when the producers submit the annual report of the operations performed under the program, to which Article 8 of the Prosec Decree refers.

Duration of Stay:
When goods are imported under an additional IMMEX program, they may remain in national territory for the periods established in Article 108 of the Customs Law.

When the import is made under a definitive import regime, the goods can remain indefinitely.

In both cases, the holder of a Prosec program must use the imported goods for the manufacture of goods included in the sectors that have been authorized.

Commitments:
In order to be able to benefit from a PROSEC Program, the terms set forth in the relevant Decree and the official communication containing the program's authorization must be complied with.

Authorization for the program will be given according to the following bases:

- Prior to the issue of a decision on the authorization of a program, an opinion must be requested from the Local Tax Administration of the SHCP corresponding to the company, to verify that the company is up to date with its tax obligations and whether it is subject to administrative enforcement proceedings for any tax credit.
- A program will not be authorized to a producer which is a related party to another producer which has previously obtained authorization for a program within the same sector and which has been cancelled for any of the following reasons:

Failure to comply with the provisions of the Prosec Decree or other provisions deriving from it;
Failure to comply with the conditions under which registration in the programs was granted or failure to comply with the terms established in the program for which it was approved; or
Failure to submit 3 or more provisional payment statements or Income Tax, Asset Tax and Value Added Tax declarations, or changing the registered address without due notification to the Secretariat of Finance and Public Credit, or not being up to date with their tax obligations; or
When the goods imported under the Decree have been assigned to purposes other than those established in Article 4 therein, without have been subjected to the disposition in the following article.

Reports:

The holder of the Prosec program shall inform the Secretariat of Economy of the foreign trade operations performed during the previous year under the program.

When the company fails to submit the report mentioned in the previous paragraph within the set period, its program will temporarily lose validity and the company will not be able to enjoy its benefits unless the omission is remedied. In the event that on the last working day of June the company has not filed the said report, the program will lose validity permanently.

Filing this report does not release producers from the obligation to use the stock control computer system registered in accounting, which meets the requirements established by the Secretariat of Finance and Public Credit.

For more information about this program, call 01 800 410 2000 throughout the country or write to the Secretariat of Economy at www.economia.gob.mx; or call, Sergio Manríquez Fernández, Subdirector of Tax Refunds on 52-29-61-00, ext. 34347.

REGULATIONS

Decree which Establishes Different Sectoral Promotion Programs.
Customs Law and its Regulations.
Federal Law of Administrative Procedure.
Foreign Trade Law and its Regulations.
Internal Regulations of the Secretariat of Economy.
Agreement by which the Secretariat of Economy issues General Rules and Criteria on Foreign Trade Matters, and their amendments.
General Rules on Foreign Trade Matters.

PROCEDURES

The procedures related to this program should be filed from 9:00 to 14:00 in the public service windows of the delegations and subdelegations of the Secretariat, according to the address of the plant where the production process is performed.

Should the company have several plants, it shall be filed in the office of its choice, providing it corresponds to one of its plants. Any subsequent procedure must be carried out with the office where the application was filed.

Interested parties may carry out the following procedures:

New Program

The application for a new program must be completed using PROSEC.EXE and be filed on magnetic disc and accompanied by a printed original and copy. The program can be obtained on this page or directly from the public service windows, presenting four, high density 3.5" magnetic discs onto which the program will be downloaded.

The application should be signed by the legal representative of the company and accompanied by the corresponding complementary documentation.

Companies with Sole Register of Accredited Persons (RUPA) should not fill out the following information: company or business name, address, telephone, fax, corporate purpose or main activity and name of the legal representative; nor should the following documents be submitted: articles of incorporation and amendments and the power of attorney of the legal representative.

The original documents or certified copies requested shall be returned at the time the application is filed, after comparison with the simple copy.

Attached Document:

1. Articles of Incorporation and related Power of Attorney; or show copy of the Sole Register of Accredited Persons (RUPA) or indicate at the time of filing the Tax Identification Number of the person registered.

2. Tax Identification Card (copy).

NOTE: Only applications which submit the PROSEC.EXE program will be accepted.

Extension

Submit a free-form letter accompanied by the corresponding annexes which should be completed using the PROSEC.EXE program, submitted on magnetic disc with a printed original and copy.

The application should be signed by the company's legal representative.

Attached Documents

Corresponding power of attorney; or show copy of the Sole Register of Accredited Persons (RUPA) or indicate at the time of filing the Tax Identification Number of the person registered.

NOTE: When completing the new program or extension application, only the sector should be indicated.

Amendment

For a change of company or business name, submit a free-form letter accompanied by the amendment or change of company name duly notarized and registered in the corresponding Public Registry of Property and Commerce, along with a copy of the new tax identification card.

For a change of registered address or plant address(es), submit a free-form letter indicating the new address including the street number (inside or outside, as is the case), neighborhood, postal code, city, municipality, state, telephone and fax.

The application should be signed by the company's legal representative.

Cancellation

To apply for the cancellation of a program, a free-form letter must be filed signed by the company's legal representative indicating the reasons for the request.

Steps of the Procedure:

For new programs and extensions, go to the aforementioned windows to obtain the PROSEC.EXE program.
For amendments and cancellations submit a free-form letter.
Fill out the said application form and accompany it with the corresponding annexes and complementary documentation.
For new programs and extensions, submit at the window the disc and the printed original and copy of the application and copies of the documents corresponding to the procedure requested.
One copy of the application will be stamped and numbered and will serve as proof to collect the authorization or denial which will be issued within a period of 20 working days for new programs and 15 working days for other procedures.

If the application is not properly completed or lacks some documentation, the Secretariat of Economy will issue and deliver to the interested party the resolution establishing the information required in order to pursue the application, and which shall be issued within a period not exceeding one third of those mentioned above.

NOTE: The application for extension can also be filed through the Internet page: http://www.economia.gob.mx/?P=55.

Sectoral Promotion Programs PROSEC

The creation of sectoral promotion programs reflects the need to raise the competitiveness of national production in international markets, to promote openness and trade competitiveness abroad with fundamental elements of a dynamic, progressive economy and establish instruments to encourage the integration of efficient production chains.

In recent years the Mexican manufacturing sector has become an important part of the economic globalization process enabling it to position as the eighth largest exporter in the world.

Furthermore, the NAFTA contemplates beginning in its eighth year, the modification of temporary importation mechanisms in effect in the member countries, for the purpose of avoiding the distortion of the preferential tariffs agreed upon in NAFTA. For this reason, beginning January 1, 2001, the tariff treatment by Mexico to non-North America originating raw materials and machinery, used for the production of goods for export to a NAFTA country must be homogenized with the said treaty.

Also, that the supply of non-North American inputs and machinery is critical for certain industries and that these require competitive tariff conditions for their supply.

In light of the above, the Federal Government decided to establish competitive conditions for the supply of inputs and machinery for the export industry and encourage greater national integration of inputs.