From my house in San Antonio, it’s an easy hour’s drive up Interstate 35 to San Marcos, Texas, home of the San Marcos Premium Outlets. The sprawling complex offers a bevy of shopping options to discerning consumers. The stores there attract shoppers from all over South Texas and even from south of the border, where word has spread about the great deals and sought after brands. The holiday season was a busy time in San Marcos, as evidenced by parking lots full of cars with license plates from Coahuila, Nuevo León and beyond.
While simplifying a tax system is laudable (...) the country is seeing firsthand that raising taxes can and will cause a shift in consumer behavior as shoppers search for a better deal.
- Nelson Balido
But the 2013 Christmas shopping season was a success not just in San Marcos and South Texas but all across the border region, thanks to a looming tax change in Mexico.
The Mexican Congress this fall increased its country’s border region sales tax rate from 11 percent to 16 percent, a reform that brought the border region into alignment with the rest of the country beginning New Year’s Day. As a result, it has put its northern retailers at a distinct disadvantage as they struggle to compete with their neighbors.
As you would assume, business groups in Mexico have protested the tax hike, prompting even a grassroots secession movement to sprout in Baja California. The tax hike is already bearing fruit on the U.S. side of the border, where sophisticated retailers have courted the Mexican shopper for years. Mexico’s move to increase its sales tax makes U.S. border state shopping destinations like Las Americas, an outlet mall just beyond the San Diego and Tijuana border crossing that is managed by Simon Malls – the same company that manages the San Marcos center – even more attractive.
This mini-windfall to U.S. border retailers is a reminder of the importance for U.S. retailers, restaurateurs and tourism professionals not to lose sight of what’s happening in Mexico or along the border and playing their cards right means additional sales in the foreseeable future.
Southern New Mexico businesses last year became the beneficiary of a Department of Homeland Security policy change that will allow Mexican nationals with a valid Border Crossing Card (BCC) to travel as far north as Las Cruces and Deming without having to pay for additional documentation. Before the policy change, border crossers were limited to a 25-mile zone unless they paid an additional fee and went through additional screening.
But there have been anecdotal reports of delays in Mexicans’ ability to renew their expired BCCs, thus cutting off their access to U.S. destinations, which means border businesses are losing access to their customers.
And of course there are always the ports of entry themselves, which are unfortunately consistently characterized by congestion and long lines. Advocates of improved border crossings have usually been industries with large cross-border logistics operations, but border state retailers and others dependent on travelers also have a vested interest in ensuring that our ports are working efficiently. Yet little is being done to improve trade and travel facilitation due to the lack of verifiable data and understanding of metrics per the Government Accountability Office (GAO) available to CBP to implement real change. Let’s hope that will change soon.
Finally, there’s a deeper economic lesson here that Mexico is learning firsthand. While simplifying a tax system is laudable, and while many of Mexican President Enrique Peña Nieto reforms deserve applause, the country is seeing firsthand that raising taxes can and will cause a shift in consumer behavior as shoppers search for a better deal. Mexico has taken big strides to increase its competitive standing internationally, but it should be careful not to hurt its own domestic job creators.
Nelson Balido is the managing principal at Balido and Associates, chairman of the Border Commerce and Security Council, and former member of the Homeland Security Advisory Council. Follow him on Twitter: @nelsonbalido