Frequently Asked Questions About Navojoa and the Mo-Mex Shelter Plan.
1.-Determine the size of the operation, the number of employees, the space required and its configuration.
2.-Prepare a contract setting forth the responsibilities of the Shelter and the client.
3.-Have the client prepare a list of machinery, tools, equipment, components and raw materials to be imported into Mexico.
4.-Have the Shelter secure permits from the Mexican government to establish the operation and to import duty-free everything which the client expects to import into Mexico for the startup of its manufacturing operation.
5.-Arrange for U.S. and Mexican customs brokers to handle and document cross-border shipments.
6.-Have the client ship goods required for start up to the Mexican port of entry and/or have the
7.-Shelter make local purchases within Mexico of goods and services required for startup.
8.-Have the Shelter prepare space, select (and with client’s approval hire) employees to staff the operation.
Which costs does the client pay prior to starting manufacturing?
The client pays for construction or installation of any special facilities required for the manufacturing operation. This will include such things as building partitions, industrial piping, wiring and venting, special foundations for large equipment, etc.
The client pays for the cost of freight within Mexico, which includes the delivery of all goods which the client imports into Mexico.
The client pays for services of U.S. and Mexican Customs brokers performed in conjunction with the import of goods and services.
The client pays for any services required to install and set up the client’s equipment within the manufacturing area.
The client pays for any personnel employed at the direction of the client prior to the startup of operations.
Does the Shelter charge rent and/or service fees prior to the start of manufacturing?
No, charges to the client for rent and service fees begin only at the time that manufacturing commences.
What services are covered by the Shelter Plan Fee at no additional charge to the client?
Hiring workers and human resources administration. The Shelter handles all recruiting and testing of personnel. Candidates are presented to the plant manager or his deputy for approval before hiring. All plant personnel are legally employees of the Shelter. Human resources administration, including labor relations, is handled by the Shelter. A human relations specialist, employed by the Shelter, is assigned to each plant to deal with all personnel matters. The Shelter calculates payrolls, and makes payments to employees. Actual payroll costs are billed to clients on a weekly basis.
Building maintenance. All building maintenance, including repair and replacement of mechanical systems is handled by the Shelter.
Cleaning, exterior maintenance and guard services. The Shelter is responsible for cleaning and trash removal from offices, bathrooms and cafeteria areas. The client is responsible for cleaning and trash removal from production areas. The Shelter is also responsible for care and upkeep of exterior areas, and provides 24 hour guard service.
Transportation of workers to and from their work locations. The Shelter provides transportation for workers on each shift between the residential areas in which they live, and the factory locations where they work. (The cost of transportation is included in the hourly cost of labor rather than the Shelter fee.)
Accounting and government compliance. The legal entity in Mexico is the Shelter, and each client operates as a division of the Shelter. The Shelter provides accounting services to comply with both Mexican and U.S. government requirements including taxes and Customs. The Shelter also prepares and keeps the records required by the North American Free Trade Agreement. Because the Shelter does all of the required accounting, clients are not required to do any accounting themselves.
Local purchases of goods and services. The Shelter makes local purchases of goods and services at the request of clients, and bills clients for the cost of such purchases at bank exchange rates without markup .
Do clients have to incorporate in Mexico?
Because each client operates as a division of the Shelter’s Mexican corporation, it is unnecessary for any client to incorporate in Mexico. Relations between each client and the Shelter are governed by the aforementioned contract which specifies the rights and responsibilities of the Shelter and the client. Each contract is individually negotiated to meet the special needs of any individual client. Each agreement provides for settlement of disputes by arbitration, but in over 25 years of operation, there never has been a need for arbitration.
Do shelter clients need to open a Mexican bank accounts?
No, because the Shelter makes all payments to vendors which require Mexican Pesos, and then bills the clients in equivalent U.S. Dollars, Canadian Dollars or Euros.
Who handles the paper work required for imports and exports?
All import/export administration ishandled by the Shelter. Clients prepare invoices (in English) for goods shipped to Mexico, which the Shelter translates into Spanish for preparation of Mexican Documents. Clients also prepare documents required by the North American Free Trade Agreement, as well as bills of material and packing lists for goods shipped out of Mexico. Mexican and U.S. Customs authorities require that certain trans-border shipment documents be prepared by licensed Customs brokers, who impose a charge for each shipment which they document.
How do labor costs in Navojoa compare with costs in Central Mexico?
Labor costs are substantially lower in Navojoa than in the Central Mexico area of Mexico City and the surrounding states of Mexico, Queretaro, Tlaxcala, Puebla, Hidalgo and Morelos. Here are some comparisons of fully loaded labor costs per hour in the Shelter in Navojoa and the average fully loaded labor cost per hour in Central Mexico for comparable positions.
Cost in U.S. Dollars Cost In Euros
Navojoa Shelter Central México
Average Navojoa Shelter Central México
Production worker New Hire $1.58 $3.52 1.15€ 2.58€
Production worker 3 years’ service $2.63 $4.09 1.91€ 3.00€
Special Production worker $3.29 $5.47 2.39€ 4.01€
Quality Inspector $3.38 $6.93 2.45€ 5.80€
Production Supervisor $5.76 $8.42 4.18€ 6.17€
(Cost in U.S. Dollars calculated at 13.132 Mexican Pesos per U.S. Dollar. Cost in Euros calculated at 1.3773 U.S. Dollars per Euro.) Fully loaded costs include direct wages, employer taxes and benefits.
Do Shelter clients pay Mexican Income Taxes?
Shelter clients pay no Mexican income taxes for the first four years of operations. After that they must pay taxes under “safe harbor” rules, which currently calculate taxes at the higher of 30% of 6.9% of assets or 30% of 6.5% of expenses. The four year exemption is available only to operations in a shelter plan.
Do Shelter clients pay the Mexican 16% Value Added Tax (VAT) on goods imported into Mexico?
If goods are imported on a temporary basis, such as raw materials and components imported for processing and export, they are not subject to the VAT. However, if such imports are processed into products for the Mexican domestic market, they are subject to the VAT.
How are clients billed?
At the option of each client, billing can be in U.S. Dollars, Canadian Dollars orEuros. Clients are billed weekly for labor, space rental and the Shelter Plan Fee. The Shelter Plan Fee is based on a sliding scale per hour worked, which declines as the number of hourly employees increases. For a plant with 25 hourly employees it is US$2.37 (1.72€) per hour worked. For a plant with 300 hourly employees it is US$1.484 (1.08€) per hour worked, and for a plant with 500 hourly employees it is US$1.030 (0.75€) per hour worked. Local purchases of goods and services, including utilities, are billed as invoices are received from Mexican vendors.
Each week clients receive an invoice charging them for labor, space rental and the Shelter Plan Fee. The Shelter Plan Fee is based on hours worked in that week. It covers all of the services described above and provides the shelter’s profit. There is never a mark-up on labor, rent or any purchases which the shelter makes for clients.
Clients also receive invoices for purchases which the Shelter has made for them from Mexican vendors. Such purchases include utilities, freight charges, customs brokerage, and miscellaneous goods and services. Invoices for purchases are in English and show the conversion of vendor charges from Mexican Pesos to the billing currency specified in the contract between each client and the Shelter at the bank exchange rate on the date the English invoice was prepared for the goods and services. The Mexican vendor’s invoice(s) in Spanish and Pesos will be supplied to support the English invoice.
Can Shelter clients benefit from the North American Free Trade Agreement known as NAFTA?
Yes, they can if they are manufacturing products in Mexico and shipping them to the United States and Canada. The NAFTA treaty, went into effect in 1994, and virtually eliminated customs duties and quotas on goods originating in any of the three member countries: Canada, Mexico and the United States. The NAFTA treaty established rules of origin to implement duty-free movement of goods among the member countries. With the assistance of clients, the shelter makes all the calculations and maintains all the records necessary to meet NAFTA rules of origin requirements. Details are set forth below:
Because manufactured goods frequently are made of materials which originate in countries which are not members of the NAFTA Treaty, the Treaty established rules to determine the country of origin for any product which contains materials which do not originate in a member country. The rules most generally applicable to manufactured goods are 1) Goods resulting from a customs tariff shift in one of the member countries, and 2) Goods originating in a member country with a minimum regional value (U.S., Canadian, and Mexican) content of at least 50% of the cost of the finished product.
For a tariff shift, the product must consist of materials or components which by themselves are classified under different harmonized tariff classifications than the tariff classification of the finished product. For example, a set consisting of 6 guitar strings is classified under the Harmonized Tariff System as HTS heading 9209.30. The material in the set consists of (a) nylon cores of various thicknesses (all classified as HTS heading 5402.10, some of which come from the United States and others from Argentina, (b) brass wrap wire (classified as HTS heading 7409.21) which originates in the United States, (c) brass ferrules (classified as HTS heading 7419.99) which originate in Switzerland, and a nylon ball end (classified as HTS heading 3926.90) which originates in the United States. The materials from the various countries are processed in a Mexican plant to produce a set of musical instrument strings which has a different HTS heading (9209.30) than any of the materials. So under the NAFTA rules of origin, a tariff shift has occurred in the Mexican plant, with the resulting string set deemed to be of Mexican origin.
If the materials had been processed in the United States or Canada, the resulting string set would have been deemed to be of U.S. or Canadian origin. There is a limitation, however. If there are any goods in the final product from non-member countries which have the same HTS heading as the final product itself, their value cannot exceed 5% of the final product’s value. If the materials going into a product do not qualify for a tariff shift, then the product will qualify for North American origin if at least 50% of its costs consist of North American material and manufacturing costs. For example a certain model of guitar is classified under the Harmonized Tariff System as HTS9202.90.0000. A tariff shift cannot be used because tuning machines and a truss rod incorporated into the product originate in non-North American countries and both have an HTS 9202.92 tariff classification which does not qualify for a tariff shift on a 9202.90 product. So a calculation can be made to see if at least 50% of the cost of the product consists of North American materials and manufacturing costs. In this model of guitar US$46.48 of the materials are of non-North American Origin, US$44.58 of the materials are of North American Origin, and the Mexican manufacturing costs are US$35.28. The North American materials and the Mexican manufacturing costs together are US$79.86 which is 63.21% of the total product cost, so under the NAFTA Regional Value Content rule of Origin, this model guitar is a product of Mexico.
Do these calculations have to be made for each product to be exported from Mexico to the United States and Canada?
Yes, they do. The shelter makes the calculations, keeps them current as costs change, and prepares Certificates of Origin for each product as the NAFTA Treaty requires.
Does anything have to be prepared by Shelter clients?
Yes, clients must supply the Shelter with a bill of material for each product which they intend to produce in Mexico, along with standard manufacturing hours for that product.
Can Shelter clients benefit from the free trade agreements which Mexico has with the European Union and other countries?
Yes, goods imported from those countries may enter Mexico duty-free, and in most instances goods produced in Mexico can be exported to those countries duty-free. This can provide substantial cost savings, particularly on big-ticket items. For example, expensive machinery, manufactured in European Union countries can be imported duty-free into Mexico at substantial cost savings.
How safe are the Shelter’s factory buildings?
Factory buildings are all of fireproof construction, built and maintained in compliance with Mexican national and local codes and ordinances. Where required, fire suppression systems are installed in the factory buildings. Each building with a fire suppression system requiring water has its own cistern to provide an on-site water supply, and one or more electrically powered pumps with backup gasoline engines.
What security does the Shelter provide for clients’ plants?
The Shelter provides 24/7 guard service for the plants. In addition, there is a security guard at each plant entrance during all shifts when the plant is in operation. All employees must present Shelter-issued identification to enter or exit the plant where they work, and all visitors to plants must be approved for entry in advance of their visit.
How safe are shipments over Mexican highways?
Mexican highways are patrolled by Federal and State Police. All trucking companies which the Shelter uses have security systems and practices to safeguard shipments. During the 25 years that the Shelter has been in operation, there has been only one incident where goods were stolen from a shipment. That occurred many years ago when one box of goods was stolen from a truck which was parked in the Customs compound on the Mexican side of the border in Nogales.
How safe is the City of Navojoa?
Crime and police protection: For 2013 the Mexican Federal Crusade for Safety reported a total of 256 crimes in Navojoa, of which 119 were auto thefts. 75 were crimes against persons, and 31 of those were cases of domestic violence. The Navojoa municipal police force has 284 officers and civilian employees working out of two police stations, utilizing 34 patrol cars and 9 motorcycles.
Fire protection and emergency response: The Navojoa fire department has a force of 36 paid firemen, 28 volunteer firemen 10 paramedics and 6 firemen/paramedics. Fire-fightingequipment includes 4 pumpers, 1 ladder truck, 4 ambulances (equipped for trauma cases), 2 pickup trucks, 2 boats and 2 jet skis.
Ambulance Service and emergency response: The Red Cross, which is partially funded by the City of Navojoa and the State of Sonora, has four ambulances and 60 professional and volunteer workers.