GEORGE BAKER: HOUSTON — Juxtaposing exports of commodities and manufactured goods from assembly plants of the kind found in Mexico (and called maquiladoras) can be misleading, as their revenue and tax implications are different. Commodity exporters pay taxes on their gross margins (or so one would hope), while maquiladora exporters (who make up the “Mexico’s manufacturing-oriented economy”) pay taxes only on the so-called value-added in Mexico, which is determined by corporate rules of transfer pricing (and typically in the range of 2-5%), not by wholesale prices found in export markets.
Automobile and electronics exports from Mexico are entirely of this kind. A question that deserves attention in relation to Mexican exports in general concerns the percentage of Mexican intellectual property that is associated with a given export product or category. As for automobile and electronic exports, the value is likely to be 0%; for other exports, like beer and foodstuffs, the value may approach 100%.
As we know from the mind games of Apple, Inc., the location of intellectual property (as in Ireland) may have little to do with the facts on the ground in Palo Alto. By analogy, the equity, intellect and accounting rules of Mexico’s manufacturing-oriented economy are not very Mexican.
NOTE: This comment was posted in response to an article in The Wall Street Journal. Click Latin America Boom Starts to Fade in WSJ.