2013 Investment Climate Statement - Mexico

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013

Openness To, and Restrictions Upon, Foreign Investment

Mexico is open to foreign direct investment (FDI) in most economic sectors and has consistently been one of the largest recipients of FDI among emerging markets. Mexico’s macroeconomic stability and its proximity to one of the largest markets in the world have attracted investors. Mexico’s new PRI government, led by President Enrique Pena Nieto, will prioritize structural economic reforms and competitiveness. The new president signed the Pact for Mexico, an agreement that details 95 priority commitments, along with the leaders of the country’s three main political parties: the Institutional Revolutionary Party (PRI), the National Action Party (PAN) and the Party of the Democratic Revolution (PRD). On November 13, 2012, Mexico’s legislature passed a comprehensive labor reform, which was signed into law by former President Felipe Calderon on November 29, 2012. Mexico is currently looking at expanding trade with pacific countries. On October 6, 2012, Mexico formally joined the Trans-Pacific Partnership negotiations and in July it formed the Pacific Alliance with Peru, Colombia and Chile.

Foreign investment in Mexico has largely been concentrated in the northern states close to the U.S. border where most maquiladoras are located, and in the Federal District (Mexico City) and surrounding states, where most headquarters are located. According to the Secretariat of the Economy, Mexico is currently the top destination for aerospace manufacturing investments in the world. Financial services, automotive and electronics have received the largest amounts of FDI. Recently, Mexico’s auto industry gained attention from investors as Mexico became the eighth world producer of automobiles in the world. Historically, the United States has been the main source of FDI in Mexico. In the first nine months of 2012, U.S. investors accounted for 49 percent of all FDI in Mexico.

ProMexico is the country’s federal entity charged with promoting Mexican exports around the world and attracting foreign direct investment to Mexico. Through ProMexico, federal and state government efforts, as well as related private sector activities, are coordinated with the goal of harmonizing programs, strategies and resources while supporting the globalization of Mexico's economy. ProMexico maintains an extensive network of offices abroad as well as a multi-lingual website (http://www.investinmexico.com.mx which provides local information on establishing a corporation, rules of origin, labor issues, owning real estate, the maquiladora industry, and sectoral promotion plans. From 2011, ProMexico attracted 104 investment projects totaling $13.52 billion, a 27% percent increase from 2010. In the first quarter of 2012, ProMexico attracted 54 projects totaling $7 billion.

The Secretariat of the Economy also maintains a bilingual website (www.economia.gob.mx) offering an array of information, forms, links and transactions. Among other options, interested parties can download import/export permit applications, make online tax payments, and chat with online advisors who can answer specific investment and trade-related questions. State governments have also passed small business facilitation measures to make it easier to open businesses. In 2012, the Secretariat of Economy opened its International Trade Single Window to simplify import, export, and transit-related operations, increase efficiency, and reduce costs and time for international traders. The mechanism allows companies to send electronic information only once to a single entity to comply with all requirements of foreign trade. For more information on the Single Window please visit http://www.ventanillaunica.gob.mx/envucem/index.htm.

According to the most recent World Bank Study “Doing Business 2012”, Mexico succeeded in easing the procedure to start a business, and improving in trading across borders, enforcing contracts, and getting electricity. Mexico moved up five positions, from 52 to 48, scoring better than Brazil, India, China and Russia. More information on the ranking can be found at: http://www.doingbusiness.org/rankings.

The 1993 Foreign Investment Law is the basic statute governing foreign investment in Mexico. The law is consistent with the foreign investment chapter of NAFTA (the North American Free Trade Agreement). It provides national (i.e. non-discriminatory) treatment for most foreign investment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment. The Foreign Investment Law identifies 704 activities, 656 of which are open for 100 percent FDI stakes. There are 20 activities in which foreigners may only invest 49 percent; 13 in which Foreign Investment National Commission approval is required for a 100percent stake; five reserved only for Mexican nationals; and 10 reserved for the government of Mexico. Below is a summary of activities subject to investment restrictions:

Sectors Reserved for the State in Whole or in Part:

A. Petroleum and other hydrocarbons;

B. Basic petrochemicals;

C. Telegraphic and radio telegraphic services;

D. Radioactive materials;

E. Electric power generation, transmission, and distribution;

F. Nuclear energy;

G. Coinage and printing of money;

H. Postal service;

I. Control, supervision and surveillance of ports of entry

Sectors Reserved for Mexican Nationals:

A. Retail sales of gasoline and liquid petroleum gas;

B. Non-cable radio and television services;

C. Development Banks (law was modified in 2008);

D. Certain professional and technical services;

E. Domestic transportation for passengers, tourism and freight, except for messenger or package delivery services.

U.S. and Canadian investors generally receive national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico. Exceptions exist for investments in which the Government of Mexico recorded its intent in NAFTA to restrict certain industries to Mexican nationals. U.S. and Canadian companies have the right under NAFTA to international arbitration and the right to transfer funds without restrictions. NAFTA also eliminated some barriers to investment in Mexico, such as trade balancing and domestic content requirements. Local governments must also accord national treatment to investors from NAFTA countries.

Mexico is also a party to several OECD agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

Approximately 95 percent of all foreign investment transactions do not require government approval. Foreign investments requiring applications and not exceeding USD 165 million are automatically approved, unless the proposed investment is in a sector subject to restrictions by the Mexican constitution and the Foreign Investment Law that reserve certain sectors for the state and Mexican nationals. The National Foreign Investment Commission under the Secretariat of Economy determines whether investments in restricted sectors may go forward, and has 45 working days to make a decision. Criteria for approval include employment and training considerations, technological contributions, and contributions to productivity and competitiveness. The Commission may reject applications to acquire Mexican companies for national security reasons. The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.

Despite Mexico's relatively open economy, a number of key sectors in Mexico continue to be characterized by a high degree of market concentration. For example, telecommunications, electricity, television broadcasting, petroleum, beer, cement, and tortillas feature one or two or several dominant companies (some private, others public) with enough market power to restrict competition. The Mexican Congress passed some amendments to the law to strengthen the enforcement powers of the Federal Competition Commission (COFECO) in 2011, but COFECO remains weak relative to its OECD counterparts in terms of enforcement. President Pena Nieto has publicly committed his government to strengthening COFECO and to opening four key sectors (telecommunications, transportation, financial services and energy) to more competition. For more information on competition issues in Mexico please visit COFECO's bilingual website at: www.cfc.gob.mx.

Energy: The Mexican constitution reserves ownership of petroleum and other hydrocarbon reserves for the Mexican state. The energy reform package approved by the Mexican Congress in October 2008 made some progress but did not address this prohibition, and oil and gas exploration and production efforts remain under the sole purview of Pemex, Mexico's petroleum parastatal. President Pena Nieto plans to introduce a comprehensive energy reform to address these shortcomings. Many analysts believe the energy reform proposals outlined in the Pact will require constitutional amendments. While Pemex had previously contracted with foreign companies to perform specific tasks such as drilling wells, platform construction or equipment maintenance on a fee-for-service basis, the 2008 reform allowed some private participation in exploration and production of oil fields through so-called “integrated service contracts” (ISCs). In 2011, Pemex successfully completed its first bidding process for three integrated contracts for mature oil fields in Southwest Mexico. In 2012, Pemex announced its second round of ISCs. The list of companies included major oil corporations such as Chevron, Schlumberger, Halliburton and Baker Hughes. The third round of integrated service contracts is now in process, which will include the Chicontepec field. For most of the 20th century, Mexico figured among the world’s largest oil producers and has been a major exporter for much of that time. Currently, however, Mexico is facing the prospect of becoming a net importer of petroleum within a decade, according to the Energy Information Agency (EIA).

The constitution also states that most electricity service may only be supplied by a state-controlled company, the Federal Electricity Commission (CFE). Earlier reforms have led to some opening to private capital. Private electric co-generation and private or municipal power projects for self-supply are now allowed; companies involved in self-supply from renewable energy sources are also permitted to generate power to be fed into CFE’s grid at one location and take off the equivalent amount of power at different locations for a nominal “postage stamp” charge. Companies or households producing up to 15 kilowatts of energy are allowed to supply the excess to CFE’s grid and receive credit for the energy produced. Private investors may build independent power projects, but all of their output must be sold to CFE in wholesale transactions or for self-supply. Private construction of generation for export is permitted, including generation from renewable sources of energy, particularly wind. In 1995, amendments to the Petroleum Law opened transportation, storage, marketing and distribution of natural gas imports and issued open access regulations for Pemex's natural gas transportation network. Retail distribution of Mexico's natural gas is open to private investment, as is the secondary petrochemical industry. Pemex and CFE are also making plans to construct billions of dollars in new natural gas pipelines and are putting together tenders for financing and construction of these pipelines. In 2012, CFE awarded three pipeline contracts to U.S. companies to supply natural gas from Arizona to the western part of Mexico. Since the government's announcement in August 2001 that national and foreign private firms will be able to import liquefied petroleum gas duty-free, LNG terminals in Tamaulipas state and Baja California have begun operations, and a third facility in Manzanillo on Mexico's Pacific Coast was just completed in late 2012.

Finance Public Works Contracts (COPFs), formerly Multiple Service Contracts (MSCs) designed to comply with the country's constitution, are Mexico's most ambitious effort to attract private companies to stimulate natural gas production by developing non-associated natural gas fields. Under a COPF contract, private companies will be responsible for 100 percent of the financing of a contract and will be paid for the work performed and services rendered. However, the natural gas produced in a specific field remains the property of Pemex. Examples of work that contractors can perform include seismic processing and interpretation, geological modeling, fields engineering, production engineering, drilling, facility design and construction, facility and well maintenance, and natural gas transportation services. Some Mexican politicians still oppose COPFs as a violation of the Mexican constitution's ban on concessions. Some contracts have failed to attract any bids, demonstrating the limited success of COPFs.

Telecommunications: Mexico allows up to 49 percent FDI in companies that provide fixed telecommunications networks and services. A bill to completely open fixed telecommunications networks to foreign investors has been introduced in Congress, but the bill has been delayed several times due to a demand to include a “reciprocity clause” that would open the sector in partner countries to Mexican companies. This includes the Cable TV (CATV) industry, with one exception: companies can issue Neutral or "N" stocks up to 99 percent, which can be owned by a foreign company. In fact, one CATV company operates under this ownership scheme. There is no limit on FDI for companies providing cellular/wireless services. However, Telmex and Telcel (América Móvil) continue to reign as the dominant telecom fixed and wireless providers and wield significant influence over key regulatory and government decision makers. Mexico's dominant landline and wireless carriers are traded on the New York Stock Exchange

Several large U.S. and international telecom companies are active in Mexico, partnering with Mexican companies or holding minority shares. Following a 2004 WTO ruling, international resellers are authorized to operate in Mexico and some companies are also looking to sell wholesale minutes to resellers. Telcel (technically independent, but majority owned by Telmex owner's Grupo Carso - Carso Global Telecom) still retains a great majority share (over 70 percent) of the cellular market. However, Spain's Telefonica Movistar, among others, continues to grow and challenge the status quo, deploying extensive mobile infrastructure to increase coverage across the country. Telmex continues to dominate the market in Long Distance (domestic and international), Internet access through DSL, and bundle services. The Convergence Accord, published in October 2006, allowed Telmex to offer broadcasting or TV services. However, the Federal Telecommunications Commission ruled that Telmex must first comply with interconnection, interoperability and number portability requirements before receiving permission to complete its triple-play offering. The accord has elicited strong concerns from the CATV industry, which fears that it will push CATV operators to consolidate. Under the accord, CATV operators (including TV duopolist Televisa's Cablevision) are allowed to independently offer Triple Play Service (VoIP-Telephony, Data-Internet and TV-Video), which might increase competition in the telephony market.

As in telecommunications, there are concerns that the two dominant television companies -- Televisa and TV Azteca, who share duopoly status in the sector -- continue to exercise influence over Mexican judicial, legislative and regulatory bodies to prevent competition. However, in August 2007 the Mexican Supreme Court ruled against the most blatant anti-competition measures of the April 2006 Radio and Television Law. Among other decisions, the Court ruled that it was unfair for broadcasting companies to keep and use at no cost analog spectrum freed from the digitalization process. The Supreme Court mandated that the Mexican Legislature draft a new media law based on its ruling. At present, U.S. firms remain unable to penetrate the Mexican television broadcast market, despite the fact that both Televisa and TV Azteca benefit from access to the U.S. market.

In 2010, the Mexican government completed the much-awaited spectrum auction of the 1.7 GHz and 1.9 GHz bands. However, a domestic wireless operator aggressively challenged the Mexican courts on the awarding of the GHz band to a U.S wireless operator. The barrage of lawsuits delayed the company’s plan to expand its wireless services. However, at the end of 2011 both companies reached an out-of-court settlement.

Real Estate: Investment restrictions still prohibit foreigners from acquiring title to residential real estate in so-called "restricted zones" within 50 kilometers (approximately 30 miles) of the nation's coast and 100 kilometers (approximately 60 miles) of the borders. In all, the restricted zones total about 40 percent of Mexico's territory. Nevertheless, foreigners may acquire the effective use of residential property in the restricted zones through the establishment of a 50-year extendable trust (called a fideicomiso) arranged through a Mexican financial institution that acts as trustee.

Under a fideicomiso, the foreign investor obtains all rights of use of the property, including the right to develop, sell and transfer the property. Real estate investors should, however, be careful in performing due diligence to ensure that there are no other claimants to the property being purchased. Fideicomiso arrangements have led to legal challenges in some cases. U.S. issued title insurance is available in Mexico and a few major U.S. title insurers have begun operations here. Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico.

Transportation: The Mexican government allows up to 49 percent foreign ownership of 50-year concessions to operate parts of the railroad system, renewable for a second 50-year period. The Mexican Foreign Investment Commission and COFECO must approve ownership above 49 percent. Consistent with NAFTA, foreign investors from the U.S. and Canada are now permitted to own up to 100 percent of local trucking and bus companies, however, several companies have encountered long wait times and legal tie-ups when trying to obtain permits.

On July 6, 2011 SCT Secretary Perez-Jacome and DOT Secretary Ray LaHood signed an MOU creating the second Long-Haul Cross-Border Trucking Program. The program is an effort to end a bilateral dispute over the free access of U.S. trucks to Mexican roads and vice versa. The first Mexican truck crossed in October of 2011 and currently six Mexican companies and a similar number of U.S. companies participate.

CINTRA, the government holding company for the Mexican airline groups, Mexicana and Aeromexico, sold Grupo Mexicana to Grupo Posadas in December 2005. Grupo Aeromexico was sold to a consortium led by Citibank-owned Banamex in October 2007. In 2010, Mexicana filed for a bankruptcy process and suspended its flights. Grupo Posada was forced to sell the airline to a new group of investors, and although there have been several interested and potential investors, the airline and the government have been so far unable to close a deal. Aeromexico obtained almost the 50% of the market since Mexicana de Aviacion suspended its operations in 2010. The emergence of low-cost domestic airlines such as Volaris and Interjet have increased competition and led to lower prices. However, foreign ownership of Mexican airlines remains capped at 25 percent and foreign ownership of airports is limited to 49 percent. Foreign express delivery service companies continue to complain that Mexican legislation unfairly favors Mexican companies by restricting the size of trucks international carriers are allowed to use.

Infrastructure: Mexican infrastructure investment, with certain previously noted exceptions, is open to foreign investment. The Mexican government has been actively seeking an increase in private involvement in infrastructure development in numerous sectors, including transport, communications, and environment. Improving Mexico’s infrastructure is one of President Pena Nieto’s goals during his presidency. In 2011, the Public-Private Associations Law was approved by the lower house of Congress; the law had been approved by the Senate in October 2010. The Public-Private Partnership Law allows the government to enter into infrastructure and service provision contracts with private companies for up to 40 years. The law provides more legal certainty to private investors by equally distributing risks, facilitates access to bank loans, and harmonizes existing state public-partnership models under a single federal law. National and foreign investors alike will be allowed to participate in the bidding process, except in restricted sectors as set forth by the Foreign Direct Investment law. More information on the Public-Private law can be found at: www.infraestructura.gob.mx.

Conversion and Transfer Policies

Mexico has open conversion and transfer policies as a result of its membership in NAFTA and the OECD. In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Peso/dollar foreign exchange is available on same day, 24- and 48-hour settlement bases. Most large foreign exchange transactions are settled in 48 hours. The establishment of an automated clearinghouse for cross-border financial transactions between the U.S. Federal Reserve and the Bank of Mexico has facilitated payments between financial institutions in both countries. In 2010, in an effort to control money laundering activities, Mexico imposed limits on the deposit of U.S. dollars. This was extremely effective, reducing the quantity of dollars repatriated to the United States by over 50%. In a further effort to combat illicit finance, President Calderon introduced a series of laws which would establish reporting requirements for cash purchases of certain types of goods over specific monetary limits. The laws would also require “gatekeeper” professions, such as lawyers and notaries, to report on suspicious transactions. The laws have been passed by the Congress and are currently pending approval by the Senate.

Expropriation and Compensation

Under NAFTA, Mexico may not expropriate property, except for public purpose and on a non-discriminatory basis. Expropriations are governed by international law, and require rapid fair market value compensation, including accrued interest. Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of NAFTA.

There have been thirteen arbitration cases, of which six are still pending, filed against Mexico by U.S. and Canadian investors who allege expropriation, and other violations of Mexico's NAFTA obligations. Details of the cases can be found at the Department of State Website, Office of the Legal Advisor (2009-2017.state.gov/s/l).

Dispute Settlement

Chapter Eleven of NAFTA contains provisions designed to protect cross-border investors and facilitate the settlement of investment disputes. For example, each NAFTA Party must accord investors from the other NAFTA Parties national treatment and may not expropriate investments of those investors except in accordance with international law.

Chapter Eleven permits an investor of one NAFTA Party to seek money damages for measures of one of the other NAFTA Parties that allegedly violate those and other provisions of Chapter Eleven. Investors may initiate arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration (Additional Facility) Rules of the International Center for Settlement of Investment Disputes ("ICSID Additional Facility Rules"). Alternatively, a NAFTA investor may choose to use the registering country's court system.

The Mexican government and courts recognize and enforce arbitral awards. The Embassy has heard of no actions taken in the Mexican courts for an alleged Chapter 11 violation on behalf of U.S. or Canadian firms. There have been numerous cases in which foreign investors, particularly in real estate transactions, have spent years dealing with Mexican courts trying to resolve their disputes. Often real estate disputes occur in popular tourist areas such as the Yucatan Peninsula. American investors should understand that under Mexican law many commercial disputes that would be treated as civil cases in the United States could also be treated as criminal proceedings in Mexico. Based upon the evidence presented, a judge may decide to issue arrest warrants. In such cases Mexican law also provides for a judicial official to issue an "amparo" (injunction) to shield defendants from arrest. U.S. investors involved in commercial disputes should therefore obtain competent Mexican legal counsel, and inform the U.S. Embassy if arrest warrants are issued.

Performance Requirements and Incentives

The 1993 Foreign Investment Law eliminated export requirements (except for maquiladora industries), capital controls, and domestic content percentages, which are prohibited under NAFTA. Foreign investors already in Mexico at the time the law became effective can apply for cancellation of prior commitments. Foreign investors who failed to apply for the revocation of existing performance requirements remained subject to them.

The Mexican federal government has eliminated direct tax incentives, with the exception of accelerated depreciation. A fiscal reform package was passed in September 2007 that includes a Flat Rate Corporate Tax (IETU). This tax limits the deductions that companies are allowed, though changes made at the behest of the business community still allow some credits for previous inventories and investments, as well as for companies that fall under the maquiladora scheme. In 2010, the IETU increased to 17.5%. Investors should follow IETU developments closely.

Most taxes in Mexico are federal; therefore, states have limited opportunity to offer tax incentives. However, Mexican states have begun competing aggressively with each other for investments, and most have development programs for attracting industry. These include reduced price (or even free) real estate, employee training programs, and reductions of the 2% state payroll tax, as well as real estate, land transfer, and deed registration taxes, and even new infrastructure, such as roads. Four northern states --Nuevo Leon, Coahuila, Chihuahua and Tamaulipas -- have signed an agreement with the state of Texas to facilitate regional economic development and integration. Investors should consult the Finance, Economy, and Environment Secretariats, as well as state development agencies, for more information on fiscal incentives. Tax attorneys and industrial real estate firms can also be good sources of information. U.S. Consulates have reported that the states in their consular districts have had to modify their incentive packages due to government decentralization. Many states have also developed unique industrial development policies.

Mexico's maquiladora industry is governed by the Ministry of Economy’s, IMMEX program. Please refer to the Ministry of Economy's IMMEX program website at http://www.economia.gob.mx/?P=immex for more information. Companies interested in investing in industrial activity in Mexico need to follow the new IMMEX guidelines closely, preferably in close consultation with locally based legal advisors. The Mexican government’s recent modifications to the industry’s tax regime provide companies with financial and operational benefits, such as development of Mexico’s maquila-servicing and supply industries. Other modifications to the IMMEX Program include: reducing the grounds for which the government can terminate a company’s inclusion in the IMMEX Program (and exempts certain qualified companies from being excluded at all); eliminates the requirement that companies submit certain information to both the Secretariat of Economy and the Mexican Tax Service (companies will now only be required to submit the information one time); and extends the temporary importation term for raw materials from 18 months to 36 months for certified companies (or 60 months for companies registered in the Inventory Control System, SECIIT).

In order to maintain competitiveness of maquiladora companies and comply with NAFTA provisions, Mexico has developed "Sectoral Promotion Programs" (PROSEC). Under these programs, most favored nation import duties on listed inputs and components used to produce specific products are eliminated or reduced to a competitive level. These programs comply with NAFTA provisions because import duty reduction is available to all producers, whether the final product is sold domestically or is exported to a NAFTA country. PROSECs supported 24 sectors, including electronic and home appliances, automotive, and auto parts, textile, and apparel, footwear and others. However, since 2008, the government has eliminated some tariffs included in the PROSECs that have not been used for several years or that already have a most favored nation low import duty thanks to a new trade policy implemented by the government. The reduction of PROSECs concluded in 2012. In December 2008, former President Felipe Calderon issued in the Official Gazette (Diario Oficial) an immediate and gradual reduction of import duties for more than 10,000 tariffs in order for companies to obtain inputs at competitive prices. When the gradual elimination and reduction of import duties concludes in 2013, the tariff structure will have six basic rates: 0, 5%, 7%, 10%, 15% and 20%. On December 26, 2011 a decree was issued to eliminate 230 tariffs included in 21 of the 24 PROSECs since they already have an equal or higher most favored nation import duty. (http://www.economia.gob.mx/?P=944).

Right to Private Ownership and Establishment

Foreign and domestic private entities are permitted to establish and own business enterprises and engage in all forms of remunerative activity in Mexico, except those mentioned in Section One. Private enterprises are able to freely establish, acquire and dispose of interests in business enterprises. The two most common types of business entities are corporations (Sociedad Anonima) and limited partnerships (Sociedad de Responsibilidad Limitada). Under these legal entities a foreign company may operate an independent company, a branch, affiliate, or subsidiary company in Mexico. The rules and regulations for starting an enterprise differ for each structure.

To form a corporation (Sociedad Anonima), the rules are:

A) Can be up to 100 percent foreign-owned;

B) Must have a minimum of 50,000 Mexican pesos in capital stock to start;

C) Must have minimum of two shareholders, with no maximum. Board of Directors can run the administration of the company;

D) The enterprise has an indefinite life span;

E) Free transferability of stock ownership is permitted;

F) Operational losses incurred by the Mexican entity or subsidiary may not be used by the U.S. parent company;

G) Limited liability to shareholders.

To form a Limited Liability Company (Sociedad de Responsabilidad Limitada), the rules are:

A) Can be up to 100 percent foreign-owned;

B) Must have a minimum of 3,000 Mexican pesos in capital stock to start;

C) Must have a minimum of two partners to incorporate a corporation with limited liability. The partners must manage the company but 50 is the maximum number of shareholders;

D) Exists only when the business purpose and partners remain the same;

E) Restricted transferability of partnership shares. Any changes in the partnership composition may cause the partnership to be liquidated;

F) If structured properly, it may offer tax advantages by allowing operational losses incurred by the Mexican entity to be used by the U.S. parent company;

G) Limited liability is afforded the partners.

Protection of Intellectual Property Rights

Two different laws provide the core legal basis for protection of intellectual property rights (IPR) in Mexico -- the Industrial Property Law (Ley de Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor). Multiple federal agencies are responsible for various aspects of IPR protection in Mexico. The Office of the Attorney General (Procuraduría General de la Republica, or PGR) has a specialized unit that pursues criminal IPR investigations. The Mexican Institute of Industrial Property (Instituto Mexicano de la Propiedad Industrial, or IMPI) administers Mexico's trademark and patent registries and is responsible for handling administrative cases of IPR infringement. The National Institute of Author Rights (Instituto Nacional del Derecho de Autor) administers Mexico's copyright register and also provides legal advice and mediation services to copyright owners who believe their rights have been infringed. The Mexican Customs Service (Aduanas México) plays a key role in ensuring that illegal goods do not cross Mexico's borders.

Despite strengthened enforcement efforts by Mexico's federal authorities over the past several years, weak penalties and other obstacles to effective IPR protection have failed to deter the rampant piracy and counterfeiting found throughout the country. The U.S. Government continues to work with its Mexican counterparts to improve the business climate for owners of intellectual property.

Mexico is a signatory to at least sixteen international treaties that deal with IPR, including the Paris Convention for the Protection of Industrial Property, the NAFTA, and the WTO Agreement on Trade-related Aspects of Intellectual Property Rights. Though Mexico signed the Patent Cooperation Treaty in Geneva, Switzerland in 1994, which allows for simplified patent registration procedure when applying for patents in more than one country at the same time, it is necessary to register any patent or trademark in Mexico in order to claim an exclusive right to any given product. A prior registration in the United States does not guarantee its exclusivity and proper use in Mexico, but serves merely as support for the authenticity of any claim you might make, should you take legal action in Mexico. Mexico signed the Anti-Counterfeit Trade Agreement (ACTA) on July 12, 2012. It is still pending ratification by the Mexican congress.

Although a firm or individual may apply directly, most foreign firms hire local law firms specializing in intellectual property. The U.S. Embassy's Commercial Section maintains a list of such law firms in Mexico at: http://export.gov/mexico/businessserviceproviders/index.asp

Transparency of Regulatory System

The Federal Commission on Regulatory Improvement (COFEMER), within the Secretariat of Economy, is the agency responsible for reducing the regulatory burden on business. The Mexican government has been making steady progress on this issue in the last few years. On a quarterly basis, these agencies must report to the President on progress achieved toward reducing the regulatory burden. In December 2006, President Calderon replaced the Regulatory Moratorium Agreement, issued by the previous administration, to ensure agencies streamline their regulatory promulgation processes, with the Quality Regulatory Agreement. The new agreement intends to allow the creation of new regulations only when agencies prove that they are needed because of an emergency, the need to comply with international commitments, or obligations established by law.

The federal law on administrative procedures has been a significant investment policy accomplishment. The law requires all regulatory agencies to prepare an impact statement for new regulations, which must include detailed information on the problem being addressed, the proposed solutions, the alternatives considered, and the quantitative and qualitative costs and benefits and any changes in the amount of paperwork businesses would face if a proposed regulation is to be implemented.

The Mexican government, with the OECD, the private sector and several think tanks, has worked to streamline bureaucracy and procedures, with a particular focus on several Mexican states. Thanks to this effort, Mexico improved its ranking in the 2013 World Bank Doing Business Report going from 53 in 2012 to 48. Mexico made significant improvements in business registration and registration of new firms, such as the elimination of the requirement to have minimum capital to create a new business and the creation of a collateral registry. Although Mexico still needs to approve some legal reforms to make this registry stronger, it was a step in the right direction to unify information on collateral under some sort of centralized registry. Despite these measures, many difficulties remain. Foreign firms continue to list bureaucracy, slow government decision-making, lack of transparency, and a heavy tax burden among the principal negative factors inhibiting investment in Mexico, particularly in states and municipalities. However, the OECD and the new administration will continue working to improve the regulatory process at the subnational level. The Secretariat of Public Administration, which will disappear under the Pena administration to make room to a new National Anti-Corruption Agency, made considerable strides in improving transparency in government, including government contracting and involvement of the private sector in enhancing transparency and fighting corruption. The Mexican government has established several Internet sites to increase transparency of government processes and establish guidelines for the conduct of government officials. "Normateca" provides information on government regulations; "Compranet" allows for on-line federal government procurement; "Tramitanet" permits electronic processing of transactions within the bureaucracy thereby reducing the chances for bribes; and "Declaranet" allows for online filing of income taxes for federal employees.

Efficient Capital Markets and Portfolio Investment

The Mexican banking sector has strengthened considerably since the 1994 Peso Crisis left it virtually insolvent. Since the crisis, Mexico has introduced reforms to buttress the banking system and to consolidate financial stability. These reforms include creating a more favorable economic and regulatory environment to foster banking sector growth by reforming bankruptcy and lending laws, moving pension fund administration to the private sector, and raising the maximum foreign bank participation allowance. The bankruptcy and lending reforms passed by Congress in 2000 and 2003 effectively made it easier for creditors to collect debts in cases of insolvency by creating Mexico's first effective legal framework for the granting of collateral. Pension reform allows employees to choose their own pension plan. Allowing banks or their holding companies to manage these funds provides additional capital to the banking sector, while the increased competition permits fund managers to focus on investment returns. In December 2007, the Mexican Congress approved amendments to the Law of Credit Institutions (LIC) that included creating a new limited banking license and transferring power from the Mexican tax authority to the Banking and Securities Commission (CNBV), the primary banking regulator.

The financial profile of the banking sector has improved due to the reduction in the problem assets brought about by write-offs, problem loan sales, and the conclusion of most debt-relief programs. These developments, combined with more stringent capital requirements, have contributed to an improvement in the level and composition of capital across the banking system, particularly among the larger institutions. The banking sector remains highly concentrated, with a handful of large banks controlling a significant market share, and the remainder comprised of regional players and niche banks. The Mexican Tax Authority has approved the opening of several new banks since 2006, including Wal-Mart Bank and Prudential Bank, but the sector's competitive dynamics and credit quality are still being driven by six large banks (Banamex, Bancomer, Santander, HSBC, Banorte and Scotiabank)—five of which are foreign-owned. The newcomers are mostly focused on the unbanked population and will present only limited competition to the group of old banks. Bank lending, especially consumer lending and mortgages, grew rapidly in 2005 and 2006, fueled by lower interest rates and historically low inflation. However, the global financial crisis slowed down all types of lending in 2008 and 2009. According to the CNBV, total loan balances rose to 2.358 trillion pesos ($172 billion dollars) at the end of October 2011, a 13% increase from 2010. Businesses and consumers are demanding more credit as the economy enjoys an export-led rebound, with 2011 posting gross domestic product (GDP) growth of 3.9%. Economists widely expect an expansion of 3.9% for 2012. The Mexican Bank Association has forecast further double digit loan growth this year.

Small- and medium-sized businesses still complain of a lack of access to credit, but government-owned development banks have begun to expand their lending to this sector. Despite the expansion, such lending remains low 1 % of GDP, compared to 28% in Brazil. Private banks argue that due diligence in lending to such business is difficult given the large amount of revenue they keep off the books to avoid increased tax liability. This position may reflect the healthy profits the banks earn from existing business models, currently more than 8% return on assets compared to 2.5% in the United States.

Commercial loans to established companies with well-documented accounts are available in Mexico, but many large companies utilize retained earnings to fund growth. Supplier credit is the main source of financing for many businesses. The largest companies are able to issue debt for their financing needs on domestic markets, tapping into a growing pool of pension funds looking for investment options. Non-bank financing is generally available, however, to large companies with strong credit ratings and important commercial ties with their suppliers -- i.e., companies that could easily procure bank financing. The Secretariat of Finance and Public Credit sets regulatory policy and oversees the CNBV. Mexico's central bank, the Bank of Mexico (Banxico), also has a regulatory role in addition to setting monetary policy. The Institute for the Protection of Bank Savings (IPAB) handles deposit insurance for up to 400,000 Mexican pesos.

Reforms creating better regulation and supervision of financial intermediaries and fostering greater competition have helped strengthen the financial sector and capital markets. These reforms, coupled with sound macroeconomic fundamentals, have created a positive environment for the financial sector and capital markets, which have responded accordingly. The implementation of NAFTA opened the Mexican financial services market to U.S. and Canadian firms. Foreign institutions hold more than 70 percent of banking assets and banking institutions from the U.S. and Canada have a strong market presence. Under NAFTA's national treatment guarantee, U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico.

Foreign entities may freely invest in government securities. The Foreign Investment Law establishes, as a general rule, that foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under that law. Regarding restricted activities, foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American Depositary Receipts. They also have the right to buy directly limited or nonvoting shares as well as free subscription shares, or "B" shares, which carry voting rights. Foreigners may purchase an interest in "A" shares, which are normally reserved for Mexican citizens, through a neutral fund operated by a Mexican Development Bank. Finally, state and local governments, and other entities such as water district authorities, now issue peso-denominated bonds to finance infrastructure projects. These securities are rated by international credit rating agencies. This market is growing rapidly and represents an emerging opportunity for U.S. investors.

Competition from State Owned Enterprises

The Mexican Constitution constrains private investment in the hydrocarbon sector. Articles 27 and 28 specifically establish the monopoly control of the State. Mexico’s energy sector faces one of the most restrictive regimes in the world. During the past 15 years, there have been changes in the law to allow some private investment in electric co-generation and self-supply, as well as power generation for export, and, as part of the 2008 energy reform, to permit companies to enter into “performance-linked” contracts for hydrocarbon exploration and drilling. Amendments to the Petroleum Law opened transportation, storage, marketing and distribution of natural gas imports and issued open access regulations for Pemex's natural gas transportation network, as well as retail distribution of Mexico's natural gas and secondary petrochemical industry. Since 2001, the government allowed national and foreign private firms to import liquefied petroleum gas duty-free.

There are two main state-owned companies in the energy sector. Mexican Petroleum (Pemex) is in charge of running the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations, and is the most important fiscal contributor to the country. In 2011 and 2012, Pemex contributed 34% to the Mexican government’s budget, but current declines in productivity will have major consequences for the Mexican government as Pemex is Mexico’s largest taxpayer. The Federal Electricity Commission (CFE) is the other main state-owned company and is in charge of the electricity sector. As required by the Constitution, the electricity sector is also federally owned, with CFE controlling most of installed generating capacity. CFE also holds a monopoly on electricity transmission and distribution. It operates Mexico’s national transmission grid, which consists of 27,000 miles of high voltage lines, 28,000 miles of medium voltage lines, and 370,000 miles of low voltage distribution lines. It generates electric power for almost 33.8 million customers (or 100 million people). The infrastructure to generate electric power is made up of 177 generating plants, having an installed capacity of 51,081 megawatts. Reforms to the electricity sector now permit independent power producers to develop projects and sell their electricity to CFE, and for CFE to solicit bids from private companies for new power plant construction: 22.41% of CFE’s current installed capacity stems from 21 plants which were built using private capital by Productores Independientes de Energía (PIE). Attempts to reform the sector, including the subsidized rates provided to agricultural users and some consumers, have traditionally faced strong political and social resistance in Mexico, even though the existence of subsidies for residential consumers absorbs substantial fiscal resources.

The President of the United Mexican States appoints the Director General or Chief Executive Officer (CEO) of PEMEX. The Mexican Government closely regulates and supervises the operations of PEMEX through three Ministries and one Commission: The Secretary of Energy (Sener) monitors the company’s activities, and serves as the chairman of Pemex’s Board of Directors; the National Hydrocarbons Commission (CNH), which is independent but report to Sener’s Secretary of Energy, evaluates Pemex’s reserve estimates and provides regulations for Pemex’s operations in all areas, including deep-water exploration and drilling and gas flaring; the Secretary of Finance and Public Credit (SHCP) reviews and incorporates the annual budget and financing program of Pemex and its subsidiaries; and the Secretary of Environment and Natural Resources (Semarnat), in coordination with other federal and state authorities, regulates Pemex’s activities that affect the environment.

Pemex has a board of directors, which includes government representatives from the Secretary of Energy, Secretary of Finance, the Secretary of Public Function, and the Office of the President; four professional members; five representatives from the union; one commissioner; and one independent auditor, which in this case is the private consulting group, KPMG. Pemex’s accounting and balance sheets are subject to internal and external audits. The Audit and Performance Evaluation Committee of PEMEX’s Board of Directors appoints PEMEX’s external auditors. Pemex’s financial reports are issued in accordance with Mexico’s Generally Accepted Accounting Principles (GAAP), which differ somewhat from U.S. GAAP. PEMEX has registered bond issuances in the Securities and Exchange Commission (SEC). Thus, in order to maintain its registration with the SEC, PEMEX has the obligation to file several international standard forms, such as the Form 20-F, on an annual basis. Pemex has also issued bonds in the domestic market, and in accordance with the Stock Market Law, it also has to submit audited quarterly and annual reports to the National Banking and Securities Commission. These reports, along with the annual Hydrocarbons Reserves Report and the Primary and Financial Balance, are published on Pemex’s webpage. The state-owned oil company has moved forward in incorporating best corporate and social responsibility practices.

The CFE is a decentralized government agency, duly incorporated, and controls its own assets. Like Pemex, CFE has a Board of Directors, which includes representatives from the Secretariats of Energy, Environment, Social Development, Economy, Finance; Pemex’s CEO; and three representatives from the union. CFE’s books are also subject to domestic general accounting rules and are reviewed by independent auditors. The Energy and Finance Secretariats approve and submit Pemex’s and CFE’s budgets to the lower house for approval.

The Servicio Postal Mexicano (Sepomex), or Correos de Mexico, is the national postal service of Mexico and officially retains a monopoly on all mail items under one kilogram. The mail is regulated under Mexico’s Communications and Transport Secretariat, and postal service is reserved to the state under Mexico's Constitution. Private delivery under one kilogram is officially illegal, but loopholes in the law have allowed some domestic and foreign privately-owned shippers to provide some delivery services through certified delivery and other advanced-service options to differentiate their business from that of a standard postal delivery. In the past, there were calls for legal reforms that would give Correos de Mexico a strictly enforced monopoly on packages weighing 350 grams or less and require private couriers to charge up to seven times Correos de Mexico's prices, but the government has not moved ahead on this front.

Technically, Correos de Mexico is responsible for financing itself, but the government does subsidize the agency if there is insufficient revenue. Liberalization and privatization of postal markets are not currently on the agenda in Mexico. Correos de Mexico has a Board of Directors presided over by the Ministry of Communications and Transportation. Other members of the Board are: the Secretary of Foreign Affairs, the Secretary of the Economy, the Secretary of Finance, and the Under Secretary of Communications. The Director General is appointed by the President.

Corporate Social Responsibility

Both the private and public sector have taken several actions to promote and develop Corporate Social Responsibility (CSR) in Mexico during the past decade. CSR in Mexico began more as a philanthropic effort, but it has gradually evolved to a more holistic approach, trying to match international standards, such as the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact. The Mexican Center of Philanthropy (CEMEFI), a well-respected NGO for the promotion of CSR and philanthropy, was created in 1998, and among its achievements has been the creation of the CSR distinctive award in 2001 to those companies that comply with CSR best practices in Mexico and Latin America. Other awards that recognize companies’ CSR work in Mexico are the Great Place to Work rank and Expansion magazine’s Super Empresas list. Some of the domestic and foreign companies, of the more than one hundred that have received awards, are: Bimbo, Nestlé, Coca Cola, WalMart, Hewlett Packard, General Electric, Pfizer, and many more.

In 2005, the Mexican Standards Institute (IMNC) officially issued the CSR standard NMX-SAST-004-IMNC. On November 26, 2010, Mexico officially launched the ISO 26000 Guidance on Social Responsibility, an international standard that offers guidance on socially responsible behavior and possible actions; it does not contain requirements and, therefore, in contrast to ISO management system standards, is not certifiable. Corporate social responsibility reporting has made progress in the last few years with more companies developing a corporate responsibility performance strategy. The government has also made an effort to implement CSR in state-owned companies such as PEMEX, which has published corporate responsibility reports since 1999.

Political Violence

Peaceful mass demonstrations are common in the larger metropolitan areas such as Mexico City, Guadalajara, and Monterrey. While political violence is rare, narcotics- and organized-crime-related violence has skyrocketed since 2006. Transnational criminal organizations (TCOs) fighting each other and the government for control of drug smuggling routes have carried out violent acts unprecedented both in number and nature. 2012 saw more than 12,000 organized crime-related homicides, a similar level as 2011, according to widely cited press reports. Cartels use torture and the public dumping of bodies to intimidate their rivals. As the Mexican government increases the pressure, TCOs continue to expand their operations into any available money-making venture, including kidnappings, extortion, human trafficking, and hijacking cargo shipments, often targeting business owners and others innocent of any involvement in narcotics trafficking.

The United States is working with Mexico to combat organized crime and enhance rule of law through the Merida Initiative. This initiative is a three year-old program to provide equipment and training to support law enforcement operations and technical assistance for long-term reform and oversight of security agencies, as well as to build a 21stcentury border and help rebuild communities torn apart by violence. So far the U.S. Congress has appropriated over $1.5 billion USD for this initiative, which has provided, among other things, helicopters and surveillance aircraft, non-intrusive inspection equipment, technical assistance, and training to strengthen investigative techniques, prison systems, border management, and judicial practices. In addition, the Merida Initiative has supported Mexican investments in job creation programs, engaging youth in their communities, expanding social safety nets, and building community confidence in public institutions to create a culture of lawfulness and undercut the allure of the cartels. Though the violence is not political in nature, U.S. Embassy Mexico notes that general security concerns remain an issue for companies looking to invest in the country. Many companies choose to take extra precautions for the protection of their executives. They also report increasing security costs for shipments of goods. The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for American businesses operating overseas. OSAC constituency is available to any American-owned, not-for-profit organization, or any enterprise incorporated in the U.S. (parent company, not subsidiaries or divisions) doing business overseas (https://www.osac.gov/).

The Department of State maintains a Travel Warning for U.S. citizens traveling and living in Mexico, available at: http://travel.state.gov/travel/cis_pa_tw/tw/tw_5665.html


Corruption is pervasive in almost all levels of Mexican government and society. President Calderon pledged that his government would fight against corruption in government agencies at the federal, state and municipal levels. Aggressive investigations and operations have exposed corruption at the highest levels of government. President Pena Nieto through PRI lawmakers submitted to the Mexican congress proposals to reorganize his cabinet, among which is the creation of a National Anti-Corruption Commission, which will absorb the duties of the present Secretariat of Public Function/Administration, which currently has the government’s anti-corruption oversight role. The aim is to have an impartial and autonomous entity with full capacity to combat corruption.

Former president Felipe Calderon signed into law the Federal Anti-corruption law in June 2012 and the anti-money laundering law (or the illicit finance law) in October 2012. The anti-money laundering law obligates Designated Non-Financial Businesses & Professions (DNFBP) to identify their clients and report suspicious operations or transact ions about designated thresholds to the Secretariat of Finance (SHCP), establishes a Specialized Financial Analysis Unit (UEAF) in the Office of the Attorney General (PGR), restricts cash operations in Mexican pesos, foreign currencies and precious metals for a variety of “vulnerable” activities, and imposes criminal sanctions and administrative fines on violators of the new legislation. For more information on the anti-money laundering law, please consult http://www.dof.gob.mx/nota_detalle.php?codigo=5273403&fecha=17/10/2012

Mexico ratified the OECD Convention on Combating Bribery in May 1999. The Mexican Congress passed legislation implementing the convention that same month. The legislation includes provisions making it a criminal offense to bribe foreign officials. Mexico is also a party to the OAS Convention against Corruption and has signed and ratified the United Nations Convention against Corruption. The government has enacted or proposed strict laws attacking corruption and bribery, with average penalties of five to ten years in prison. The Transparency and Access to Public Government Information Act, the country's first freedom of information act, went into effect in June 2003 with the aim of increasing government accountability. Mexico's 31 states have passed similar freedom of information legislation that mirrors the federal law and meets international standards in this field. Transparency in public administration at the federal level has noticeably improved, but access to information at the state and local level has been slow.

According to Transparency International’s 2012 Index of Corruption Perception, Mexico scored 3.4 on a scale of 1 to 10 where lower numbers represent a greater perception of corruption. The tally places Mexico in 105th place out of 176 nations, a drop from 100th place 9out of 183 nations) in 2011. Local civil society organizations focused on fighting corruption are still developing in Mexico. A handful of Mexican non-governmental organizations, including Mexico Without Corruption and the FUNDAR Center for Analysis and Investigation, work to study issues related to corruption and raise awareness in favor of transparency. The Mexican branch of Transparency International also operates in Mexico. The best source of Mexican government information on anti-corruption initiatives is the Ministry of Public Administration (www.funcionpublica.gob.mx).

Bilateral Investment Agreements

NAFTA governs U.S. and Canadian investment in Mexico. In addition to NAFTA, most of Mexico's eleven other free trade agreements (FTAs) cover investment protection, with a notable exception being the Mexico-European Union FTA. The network of Mexico's FTAs containing investment clauses include Bolivia, Chile, Costa Rica, Colombia, El Salvador, Guatemala, Honduras, Japan, and Nicaragua. A Free Trade Agreement with Peru and also a combined agreement with Central America passed Mexico’s Congress in December 2011.

Mexico has enacted formal bilateral investment protection agreements with 27 countries: 15 European Union countries (Austria-Belgium, Luxembourg, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom and the Czech Republic), as well as Australia, Argentina, Belarus, China, Cuba, Iceland, India, Panama, Slovakia, South Korea, Switzerland, Trinidad and Tobago, and Uruguay. Mexico continues to negotiate bilateral investment treaties with Russia, Saudi Arabia, Malaysia, Singapore, Brazil and the Dominican Republic.

The United States and Mexico have a bilateral tax treaty to avoid double taxation and prevent tax evasion. Important provisions of the treaty establish ceilings for Mexican withholding taxes on interest payments and U.S. withholding taxes on dividend payments. The implementation of the flat tax on January 1, 2008 has led to questions as to whether the new tax meets the requirements of the bilateral tax treaty. The U.S. Internal Revenue Service presently allows businesses to credit flat tax against their U.S. taxes and has stated that it will issue a ruling at some future date. Businesses should continue to monitor this issue.

Mexico and the United States also have a tax information exchange agreement to assist the two countries in enforcing their tax laws. The Financial Information Exchange Agreement (FIEA) was enacted in 1995, pursuant to the Mutual Legal Assistance Treaty. The agreements cover information that may affect the determination, assessment, and collection of taxes, and investigation and prosecution of tax crimes. The FIEA permits the exchange of information with respect to large-value or suspicious currency transactions to combat illegal activities, particularly money laundering. Mexico is a member of the financial action task force (FATF) of the OECD and has made progress in strengthening its financial system through specific anti-money-laundering legislation enacted in 2000 and 2004. In 2010, Mexico implemented restrictions on U.S. dollar deposits which reduced by 50% the amount of bulk cash repatriated to the United States from the Mexican financial system. However, Mexico needs to approve the proposed Law for the Prevention of Illicit Finance Operations, pending in Congress, to limit peso cash purchases, give the Attorney General’s office sole jurisdiction over the investigation and prosecution of money laundering cases, and to oblige more economic agents, such as notaries, consultants, and attorneys to report suspicious operations.

OPIC and Other Investment Insurance Programs

In August of 2004, Mexico and the U.S. Overseas Private Investment Corporation (OPIC) finalized an agreement that enables OPIC to offer all its programs and services in the country. Since then, OPIC has pursued potential investment projects in Mexico, and the country rapidly became one of the top destinations for projects with OPIC support. OPIC is actively providing over $730 million in financing and political risk insurance support to 17 projects in Mexico. In addition, OPIC-supported funds are among the largest providers of private equity capital to emerging markets. OPIC’s current active projects in Mexico are worth $681 million. For more information on OPIC’s projects in Mexico, please consult OPIC's website at www.opic.gov.


After months of negotiations in the Mexican Congress, former President Felipe Calderon signed a sweeping labor reform bill into law on November 29, 2012. The new law encompasses major changes to make Mexico’s labor market flexible and incorporate modern statutes such as non-discrimination. Included in the 300 articles are provisions for the easing of hiring-and-firing of workings, establishing an apprenticeship system, establishing an hourly wage system, and regulating outsourcing. The labor reform also prohibits job discrimination based on sex, health, sexual preference, age, and disability. It makes it illegal for employers to require pregnancy tests of their female workers and job candidates. The new law also makes it a federal offense to employ children under the age of 14. The reform also restructures Mexico’s labor courts and incorporates the International Labor Organization’s (ILO) concept of decent work. The full text of the new law can be found at http://www.stps.gob.mx/bp/micrositios/reforma_laboral/ref_lab.html.

There is a large surplus of labor in the formal economy, largely composed of low-skilled or unskilled workers. On the other hand, there is a shortage of technically skilled workers and engineers. Labor-management relations are uneven, depending upon the unions holding contracts and the industry concerned. Many actors also note that the Mexican government wields veto power in the supposedly neutral and balanced tripartite arrangement of labor-business relations. Mexican manufacturing operations in the textile and garment sectors are experiencing stiff wage competition from Central America and India, but gaining relative wage competition with China in high technology sectors. Mexico’s minimum wage averages around US$5 per day and is less than a living wage in this OECD country. It is set by the tripartite National Commission for Minimum Wage each year.

Foreign Trade Zones/Free Ports

In addition to the IMMEX programs that operate as quasi-free trade zones, in 2002 Mexico approved the operation of more traditional free trade zones (FTZ). Unlike the previous "bonded" areas that only allowed for warehousing of product for short periods, the new FTZ regime allows for manufacturing, repair, distribution, and sale of merchandise. There is no export requirement for companies operating within the zone to avail themselves of tax benefits. Regulatory guidance for FTZs can be found under Mexico’s Customs Law, article 14-D. Most major ports in Mexico have bonded areas ("recinto fiscalizados") or customs agents ("recintos fiscal") within them. Mexico currently has four approved FTZ’s, located in San Luis Potosi, Mexico City, Monterrey, and Guanajuato.

Foreign Direct Investment Statistics source: Mexico’s Secretariat of Economy

Foreign Direct Investment in Mexico (USD Million)







Total FDI Inflow






New Investments






Earnings Reinvestment






Inter-company Investment






Foreign Direct Investment Realized in Mexico by Industrial Sector Destination (USD Million)







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Electricity and Water


















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Foreign Direct Investment Inflows Realized By Country/Economy of Origin (USD Million)







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The following chart summarizes well-regarded indexes and rankings (MCC refers to the Millennium Challenge Corporation).




TI Corruption Index



Heritage Economic Freedom



World Bank Doing Business



MCC Govt. Effectiveness



MCC Rule of Law



MCC Control of Corruption



MCC Regulatory Quality