1. Legal Considerations for Operations in Mexico
Options for Operations in Mexico
Option A-1
Contract Manufacturing
Chinese Trading Company
Manufacturing Agreement
Mexican Manufacturing Company

2. Legal Considerations for Operations in Mexico
Options for Operations in Mexico
Option A-2
Contract Manufacturing
Chinese Trading Company
U.S. Manufacturing Company
Manufacturing Agreement
Manufacturing Subcontract
Mexican Manufacturing Company

3. Legal Considerations for Operations in Mexico
Options for Operations in Mexico
Options A-1 and A-2 - Continued
Contract Manufacturing
Chinese Trading Company provides raw materials, tooling, some or all equipment, manufacturing process and start-up procedures, production volume and price commitment, delivery schedule and material sourcing assistance.
Contractor/Subcontractor provides regulatory compliance, direct and indirect labor, customs and shipping, production control, finished goods to required specifications, materials requirements management planning (“MRP”) and distribution services.

4. Legal Considerations for Operations in Mexico
Options for Operations in Mexico
Option B
Joint Venture
Chinese Joint Venture Partner
Joint Venture Agreement
Mexican
Joint Venture Partner
Jointly Owned Mexican Manufacturing, Sales and Distribution Company

5. Legal Considerations for Operations in Mexico
Options for Operations in Mexico
Option B - Continued
Joint Venture
Example of strategic alliance with Mexican investor to share strengths.
Each partner contributes to capital of Mexican company and participate in administration.
Chinese partner provides know-how on production, productivity and quality.
Mexican partner provides expertise and resources for administration, operations, regulatory compliance, sales and distribution.

6. Legal Considerations for Operations in Mexico
I. Options for Operations in Mexico
Option C
Mexican Shelter Manufacturing Company
Chinese Trading Company
1. Chinese Trading Company delivers possession of parts, components and equipment under consignment
2. Temporary importation of materials, components and equipment
Shelter Contract / Bailment Contract
Mexican Shelter Manufacturing Company
3. Manufactures and export products

7. Legal Considerations for Operations in Mexico
I. Options of Operations in Mexico
Option C - Continued
Mexican Shelter Manufacturing Company
Designed for client to explore opportunities and minimize risk. Limited capital investment.
Quickly bridges cultural gap.
No learning curve.
Chinese Trading Company has no legal presence in Mexico.
Chinese Trading Company provides all materials, components, tooling/fixtures, production equipment, on-site technical training, and volume commitment.
Shelter serves as importer of record of all materials, components, equipment, etc. into Mexico.
Shelter provides start-up capital, direct/indirect labor, industrial facility with utilities, logistics support, regulatory compliance, MRO procurements and union/government relations.
Chinese Trading Company participates in manufacturing activities, directs production schedule, quality systems and MRP systems, and supervises quality and timeliness of production.
Service hourly rate fee based on direct labor count and space requirements, plus pass through of certain costs.
Shelter contracts subject to term limit. (Other options may be available after expiration of the term).
Provisions for transition to wholly owned operation or other operating structure required.
Customer requirements for sales in Mexico requires special planning including a AAA value-added tax certification and, possibly, a Client-owned Mexican sales and distribution company with a service IMMEX.

8. Legal Considerations for Operations in Mexico
Options for Operations in Mexico
Option D
U.S. Based Shelter Structures
Creation of a dedicated Chinese-owned Mexican maquiladora manufacturing subsidiary and use of U.S. shelter to administer Mexico Operations under shelter management contract.
Possible joint venture with U.S. based shelter operator.

9. Legal Considerations for Operations in Mexico
I. Options for Operations in Mexico
Option E
Wholly Owned Mexican Maquiladora Subsidiary
Chinese Entity
(1% owner)
Chinese or U.S. Trading Company
(99% owner)
1. Trading Company delivers possession of parts, components and equipment it owns to Mexican Maquiladora on consignment
2. Temporary importation of materials, components and equipment
Maquila Contract / Bailment Contract
Mexican Maquiladora Manufacturing Subsidiary
3. Manufactures products under IMMEX license

10. Legal Considerations for Operations in Mexico
I. Options for Operations in Mexico
Option E - Continued
Wholly Owned Maquiladora Subsidiary
Chinese Trading Company has full control over site selection, labor union selection, work environment, selection of all suppliers and service providers and all other aspects of the Mexico manufacturing operation.
Designed as manufacturing cost center in Mexico.
Requires compliance with Mexico’s transfer pricing rules applicable to related parties.
Benefit of favorable government regulations.
Chinese Trading Company fully controls directly or through a fully-owned U.S. subsidiary the Mexican Maquiladora Manufacturing Subsidiary.
Mexico Maquiladora Manufacturing Subsidiary exports products or delivers products to Chinese Trading Company’s customers in Mexico by virtual customs transfers or Certificates of Transfer of Material (“CTM”) issued by customers.
Chinese Trading Company may sell the products to customers in Mexico who receive products by virtual or customs transfers but may only issue invoices in China or otherwise outside of Mexico.

11. Legal Considerations for Operations in Mexico
I. Options for Operations in Mexico
Option F
U.S. Based Manufacturing, Sales and Distribution Company
May be better option depending on whether operations are capital or labor intensive and on production volume requirements.
Use of McAllen Foreign Trade Zone.
U.S. Immigration considerations.

12. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
Choice of Entity and Operating Structure
Parent Company’s Operating Structure
Chinese controlled Mexico operation
U.S. controlled Mexico operation
Type of Mexico Entity
S.A. de C.V.
S. de R.L. de C.V.
Structure of Mexico Operations
Required Registrations, Licenses and Agreements
Registration with Public Register of Commerce
Federal taxpayers’ identification number/electronic signature
Application for IMMEX Program license/Application for Sectorial Program
VAT Certification/bond
OEA Registration
Employer related registrations
Intercompany agreements
a. Maquila Services Agreement
b. Bailment Agreement

13. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
B. Mexican/U.S. Taxes
1. Federal Taxes
Income taxes
Value-added taxes
2. State Taxes
Payroll taxes
Property taxes
3. Other Fiscal Obligations
Social Security
INFONAVIT (Housing)
SAR (Retirement)
Taxation of foreigners
4. Taxation of U.S. Resident Employees

14. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
C. Customs
1. Temporary Importation
2. Permanent Importation
D. Immigration Authorizations
FMM (Multiple Immigration Form)
FMNI (Temporary Resident Card - Consulate/Immigration Department)
Training Visas
D. Real Estate
1. Purchase of Real Estate
Existing facility
Purchase of land/construction of facility
2. Lease of Real Estate
Build-to-Suit lease

15. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
E. Labor Considerations
Labor Reform
Registered unions
2. Workforce
Non-Union (confidential)
Union
Independent employee doing union employee’s work
3. Collective Bargaining Agreement
Registration with labor authorities
Internal Work Regulations
Individual Employment Agreements
Labor Terms and Conditions

16. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
E. Labor Considerations
5. Mixed Committees
6. Labor Wages/Benefits
Border minimum wages/ Interior Mexico minimum wages
Mandatory benefits
Discretionary benefits
Termination of Employment
Severance payments
Conciliation Center and Labor Registry

17. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
F. Environmental Considerations
1. Federal Laws and Regulations
Preparation of Environmental Impact Statement/Environmental Preventative Report
Environmental registration number before INE
Registration as a hazardous waste generator
Obtain permits from CNA, if will source water from wells or discharge into federal body of water
Filing of Annual Environmental Report (COA)
2. State Laws and Regulations
Preparation of Environmental Impact Statement / Environmental Preventative Report
State Environmental Registration Number (some states)
Registration with the State Environmental Registry (REA)
Registration as special waste generator
Registration with State residual water registry (REDAR)
Filing of Annual Environmental Report (State – COA)

18. Legal Considerations for Operations in Mexico
II. Maquiladora Manufacturing Start-up Considerations
F. Environmental Considerations
3. Municipal Laws and Regulations
Registration as disposer of solid non-pollutant waste
Registration with Municipal water department
Contracts with Service Providers
DISCLAIMER
THIS PRESENTATION IS INTENDED TO PROVIDE GENERAL INFORMATION REGARDING THE SUBJECT MATTER COVERED. IT IS PROVIDED WITH THE UNDERSTANDING THAT CACHEAUX, CAVAZOS & NEWTON, L.L.P. HAS NOT BEEN ENGAGED IN RENDERING LEGAL SERVICES HEREBY TO ANY PERSON. IF LEGAL ADVICE IS REQUIRED, AN ATTORNEY WITH CACHEAUX, CAVAZOS & NEWTON, L.L.P. SHOULD BE RETAINED SO THAT ADVICE RELEVANT TO SPECIFIC FACTS MAY BE RENDERED.
Adapted from a Declaration of Principles jointly adopted by the Committee of the American Bar Association and a Committee of Publishers and Associations.

19. Cacheaux, Cavazos & Newton, L.L.P.
Daniel Cavazos
Cacheaux, Cavazos & Newton, L.L.P.
1401 North Main Street 
McAllen, Texas 78501
Tel: (956)
Fax: (956)
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