An official website of the United States Government Here's how you know

Official websites use .gov

A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS

A lock ( ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Mexico

Executive Summary

In 2020, Mexico became the United States’ third largest trading partner in goods and services and second largest in goods only.  It remains one of our most important investment partners.  Bilateral trade grew 482.2 percent from 1993-2020, and Mexico is the United States’ second largest export market.  The United States is Mexico’s top source of foreign direct investment (FDI) with USD 100.9 billion (2019 total per the U.S. Bureau of Economic Analysis), or 39.1 percent of all inflows (stock) to Mexico, according to Mexico’s Secretariat of Economy.

The Mexican economy averaged 2 percent GDP growth from 1994-2020, but contracted 8.5 percent in 2020.  The economic downturn due to the world-wide COVID-19 pandemic was the major reason behind the contraction, with FDI decreasing 11.7 percent.  The austere fiscal policy in Mexico resulted in primary surplus of 0.1 percent in 2020.  The government has upheld the central bank’s (Bank of Mexico) independence.  Inflation remained at 3.4 percent in 2020, within the Bank of Mexico’s target of 3 percent ± 1 percent.  The administration maintained its commitment to reducing bureaucratic spending in order to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.  President Lopez Obrador leaned on these initiatives as it devised a government response to the economic crisis caused by COVID-19.

Mexico approved the amended United States-Mexico-Canada Agreement (USMCA) protocol in December 2019, the United States in December 2019, and Canada in March 2020, providing a boost in confidence to investors hoping for continued and deepening regional economic integration.  The USMCA entered into force July 1, 2020.  President Lopez Obrador has expressed optimism it will buoy the Mexican economy.

Still, investors report sudden regulatory changes and policy reversals, the shaky financial health of the state oil company Pemex, and a perceived weak fiscal response to the COVID-19 economic crisis have contributed to ongoing uncertainties.  In the first and second quarters of 2020, the three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) downgraded both Mexico’s sovereign credit rating (by one notch to BBB-, Baa1, and BBB, respectively) and Pemex’s credit rating (to junk status).  The Bank of Mexico revised upward Mexico’s GDP growth expectations for 2021, from 3.3 to 4.8 percent, as did the International Monetary Fund (IMF) to 5 percent from the previous 4.3 percent estimate in January.  Still, IMF analysts anticipate an economic recovery to pre-pandemic levels could take five years.  Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth.  Recent efforts to reverse the 2014 energy reforms, including the March 2021 electricity reform law prioritizing generation from the state-owned electric utility CFE, further increase uncertainty.  These factors raise the cost of doing business in Mexico.

Table 1:  Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 124 of 180 https://www.transparency.org/en/cpi#
World Bank’s Doing Business Report 2020 60 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 55 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2019 $100,888 https://apps.bea.gov/international/di1usdbal
World Bank GNI per capita 2019 $9,480 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s proximity to the United States and preferential access to the U.S. market, macroeconomic stability, large domestic market, growing consumer base, and increasingly skilled yet cheap labor combine to attract foreign investors.  The COVID-19 economic crisis showed how linked North American supply chains are and highlighted new opportunities for partnership and investment.  Still, recent policy and regulatory changes have created doubts about the investment climate, particularly in the energy and the formal employment pensions management sectors.

Historically, the United States has been one of the largest sources of FDI in Mexico.  According to Mexico’s Secretariat of Economy, FDI flows for 2020 totaled USD 29.1 billion, a decrease of 11.7 percent compared to the preliminary information for 2019 (USD 32.9 billion), and a 14.7 percent decline compared to revised numbers.  The Secretariat cited COVID’s impact on global economic activity as the main reason for the decline.  From January to December 2020, 22 percent of FDI came from new investment.  New investment in 2020 (USD 6.4 billion) was only approximately half of the new investments received in 2019 (USD 12.8 billion), and 55.4 percent came from capital reinvestment while 24.9 percent from parent company accounts.  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI.

Most foreign investment flows to northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region.  In the past, foreign investors have overlooked Mexico’s southern states, although the administration is focused on attracting investment to the region, including through large infrastructure projects such as the Maya Train, the Dos Bocas refinery, and the trans-isthmus rail project.

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico, including which business sectors are open to foreign investors and to what extent.  It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.  Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

The administration has integrated components of the government’s investment agency into other ministries and offices.

Limits on Foreign Control and Right to Private Ownership and Establishment

Mexico reserves certain sectors, in whole or in part, for the State, including:  petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry.  Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services) are reserved entirely for Mexican nationals.  See section six for restrictions on foreign ownership of certain real estate.

Reforms in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors.  While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.  Still, the Lopez Obrador administration has made significant regulatory and policy changes that favor Pemex and CFE over private participants.  The changes have led private companies to file lawsuits in Mexican courts and several are considering international arbitration.

Hydrocarbons:  Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories:  competitive contracts, joint ventures, profit sharing agreements, and license contracts.  All contracts must include a clause stating subsoil hydrocarbons are owned by the State.  The government has held nine auctions allowing private companies to bid on exploration and development rights to oil and gas resources in blocks around the country.  Between 2015 and 2018, Mexico auctioned more than 100 land, shallow, and deep-water blocks with significant interest from international oil companies.  The administration has since postponed further auctions but committed to respecting the existing contracts awarded under the previous administration.  Still, foreign players were discouraged when Pemex sought to take operatorship of a major shallow water oil discovery made by a U.S. company-led consortium.  The private consortium had invested more than USD 200 million in making the discovery and the outcome of this dispute has yet to be decided.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.  In January 2021, President Lopez Obrador proposed incorporating the independent Federal Telecommunication Institute (IFT) into the Secretariat of Communications and Transportation (SCT), in an attempt to save government funds and avoid duplication.  Non-governmental organizations and private sector companies said such a move would potentially violate the USMCA, which mandates signatories to maintain independent telecommunications regulators.  As of March 2021, the proposal remains pending.  Mexico’s Secretary of Economy Tatiana Clouthier underscored in public statements that President López Obrador is committed to respecting Mexico’s obligations under the USMCA, including maintaining an autonomous telecommunications regulator.

Aviation:  The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent.

The USMCA, which entered into force July 1, 2020, maintained several NAFTA provisions, granting U.S. and Canadian investors national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under the USMCA.  Currently, the United States, Canada, and Mexico have the right to settle any legacy disputes or claims under NAFTA through international arbitration for a sunset period of three years following the end of NAFTA.  Only the United States and Mexico are party to an international arbitration agreement under the USMCA, though access is restricted as the USMCA distinguishes between investors with covered government contracts and those without.  Most U.S. companies investing in Mexico will have access to fewer remedies under the USMCA than under NAFTA, as they will have to meet certain criteria to qualify for arbitration.  Local Mexican governments must also accord national treatment to investors from USMCA countries.

Approximately 95 percent of all foreign investment transactions do not require government approval.  Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved, unless the proposed investment is in a legally reserved sector.

The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward.  The Commission has 45 business days after submission of an investment request to make a decision.  Criteria for approval include employment and training considerations, and contributions to technology, 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.

Other Investment Policy Reviews

There has not been an update to the World Trade Organization’s (WTO) trade policy review of Mexico since June 2017 covering the period to year-end 2016.

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  Mexico ranked 60 out of 190 countries in the World Bank’s ease of doing business report in 2020.  In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS).  Owners of SASs are supposed to be able to register a new company online in 24 hours.  Still, it can take between 66 and 90 days to start a new business in Mexico, according to the World Bank.  The Government of Mexico maintains a business registration website:  www.tuempresa.gob.mx.  Companies operating in Mexico must register with the tax authority (Servicio de Administration y Tributaria or SAT), the Secretariat of the Economy, and the Public Registry.  Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Since October 2019, SAT has launched dozens of tax audits against major international and domestic corporations, resulting in hundreds of millions of dollars in new tax assessments, penalties, and late fees.  Multinational and Mexican firms have reported audits based on diverse aspects of the tax code, including adjustments on tax payments made, waivers received, and deductions reported during the Enrique Peña Nieto administration.

Changes to ten-digit tariff lines conducted by the Secretariat of Economy in 2020 created trade disruptions with many shipments held at the border, stemming from lack of clear communication between government agencies that resulted in different interpretation by SAT.

Outward Investment

Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs handle promoting Mexican outward investment and assistance to Mexican firms acquiring or establishing joint ventures with foreign firms.  Mexico does not restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Bilateral Investment Treaties

The USMCA entered into force on July 1, 2020, containing an investment chapter.

Mexico has signed 13 FTAs covering 50 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries.  Mexico is a member of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force December 30, 2018.  Mexico currently has 29 Bilateral Investment Treaties in force.  Mexico and the European Union finalized a FTA in May 2020, but it still must undergo legal scrub and translation.  Mexico and the United Kingdom (UK) also signed an agreement to continue trading under existing terms following the UK’s exit from the European Union in December 2020.

Bilateral Taxation Treaties

The United States-Mexico Income Tax Convention, which came into effect January 1, 1994, governs bilateral taxation between the two nations.  Mexico has negotiated double taxation agreements with 55 countries.  Recent reductions in U.S. corporate tax rates may drive a future change to the Mexican fiscal code, but there is no formal legislation under consideration.

In 2019, the administration approved a value-added tax (VAT) on digital services.  Since June 30, 2020, foreign digital companies are required to register with SAT and to collect VAT on the majority of goods and services customers purchase online and remit the VAT and sales reports to SAT.  SAT is authorized to block a foreign digital company’s internet protocol (IP) address in Mexico for non-compliance with tax requirements until the company complies.  The administration also introduced a series of fiscal measures in 2019 to combat tax evasion and fraud.

4. Industrial Policies

Investment Incentives

Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.  Additional federal foreign trade incentives include: (1) IMMEX:  a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax; (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs.  Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics.  Manufacturing and other companies report it is becoming increasingly difficult to request and receive reimbursements of value-added tax (VAT) paid on inputs for the export sector.

Foreign Trade Zones/Free Ports/Trade Facilitation

The administration renewed until December 31, 2024 a program launched in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border.  The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent; 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day; and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states.  The purpose of the BEZ program was to boost investment, promote productivity, and create more jobs in the region.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

On December 30, 2020, President Lopez Obrador launched a similar program for 22 municipalities in Mexico’s southern states of Campeche, Tabasco, and Chiapas, reducing the  VAT from 16 to 8 percent and ISR from 30 to 20 percent and harmonizing excise taxes on fuel with neighboring states in Central America.  Chetumal in Quintana Roo will also enjoy duty-free status.  The benefits extend from January 1, 2021 to December 31, 2024.

Performance and Data Localization Requirements

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals.  Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category.  Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology.  However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within USMCA if they wish to benefit from USMCA treatment.  Chapter four of the USMCA introduce new rules of origin and labor content rules, which entered into force on July 1, 2020.

In 2020, the Mexican central bank (Bank of Mexico or Banxico) and the National Banking and Securities Commissions (CNBV – Mexico’s principal bank regulator) drafted regulations mandating the largest financial technology companies operating in Mexico to either host data on a back-up server outside of the United States—if their primary is in the United States—or in physical servers in Mexico.  The draft regulations remain pending public comment and the financial services industry is concerned they could violate provisions of the USMCA financial services chapter prohibiting data localization.

Other Industrial Policy Aspects

Mexico’s government is increasingly choosing its military for the construction and management of economic infrastructure.  In the past two years, the government entrusted the Army (SEDENA) with building the new airport in Mexico City, and sections 6, 7, and part of section 5 of the Maya Train railway project in Yucatan state.  The government announced plans to give to the Navy (SEMAR) the rights for construction, management, and operations of the Trans-Isthmic Train project to connect the ports of Coatzacoalcos in Veracruz state with the Salina Cruz port in Oaxaca state.  The government is also in the process of transferring responsibilities for managing land and sea ports from the Secretariat of Communications and Transportation (SCT) to SEDENA and SEMAR respectively.

7. State-Owned Enterprises

There are two main SOEs in Mexico, both in the energy sector.  Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations.  Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent.  The Federal Electricity Commission (CFE) operates the electricity sector.  While the Mexican government maintains state ownership, the latest constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.

Pemex

As a result of Mexico’s historic energy reform, the private sector is now able to compete with Pemex or enter into competitive contracts, joint ventures, profit sharing agreements, and license contracts with Pemex for hydrocarbon exploration and extraction.  Liberalization of the retail fuel sales market, which Mexico completed in 2017, created significant opportunities for foreign businesses.  Given Pemex frequently raises debt in international markets, its financial statements are regularly audited.  The Natural Resource Governance Institute considers Pemex to be the second most transparent state-owned oil company after Norway’s Statoil.  Pemex’s ten-person Board of Directors contains five government ministers and five independent councilors.  The administration has identified increasing Pemex’s oil, natural gas, and refined fuels production as its chief priority for Mexico’s hydrocarbon sector.

CFE

Changes to the Mexican constitution in 2013 and 2014 opened power generation and commercial supply to the private sector, allowing companies to compete with CFE.  Mexico has held three long-term power auctions since the reforms, in which over 40 contracts were awarded for 7,451 megawatts of energy supply and clean energy certificates.  CFE will remain the sole provider of distribution services and will own all distribution assets.  The 2014 energy reform separated CFE from the National Energy Control Center (CENACE), which now controls the national wholesale electricity market and ensures non-discriminatory access to the grid for competitors.  Still, legal and regulatory changes adopted by the Mexican government attempt to modify the rules governing the electricity dispatch order to favor CFE.  Dozens of private companies and non-governmental organizations have successfully sought injunctions against the measures, which they argue discriminate against private participants in the electricity sector.  Independent power generators were authorized to operate in 1992 but were required to sell their output to CFE or use it to self-supply.  Those legacy self-supply contracts have recently come under criticism with an electricity reform law giving the government the ability to cancel contracts it deems fraudulent.  Under the reform, private power generators may now install and manage interconnections with CFE’s existing state-owned distribution infrastructure.  The reform also requires the government to implement a National Program for the Sustainable Use of Energy as a transition strategy to encourage clean technology and fuel development and reduce pollutant emissions.  The administration has identified increasing CFE-owned power generation as its top priority for the utility, breaking from the firm’s recent practice of contracting private firms to build, own, and operate generation facilities.  CFE forced several foreign and domestic companies to renegotiate previously executed gas supply contracts, which raised significant concerns among investors about contract sanctity.

The main non-market-based advantage CFE and Pemex receive vis-a-vis private businesses in Mexico is related to access to capital.  In addition to receiving direct budget support from the Secretariat of Finance, both entities also receive implicit credit guarantees from the federal government.  As such, both are able to borrow funds on public markets at below the market rate their corporate risk profiles would normally suggest.  In addition to budgetary support, the CRE and SENER have delayed or halted necessary permits for new private sector gas stations, fuel terminals, and power plants, providing an additional non-market-based advantage to CFE and Pemex.

Privatization Program

Mexico’s 2014 energy reforms liberalized access to these sectors but did not privatize state-owned enterprises.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2:  Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 MXN 23,122 billion 2019 USD 18,465 billion https://www.inegi.org.mx/
https://www.imf.org/en/Publications/WEO
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($billion USD, stock positions) N/A N/A 2019 USD 100.9 billion BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 USD 21.5 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2020 2.7% 2019 2.6% https://www.inegi.org.mx/
UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html
Table 3:  Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data* 2019
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 567,747 100% Total Outward 172,419 100%
United States 190,505 34% United States 74,854 43%
Netherlands 115,224 20% Netherlands 25,219 15%
Spain 96,146 17% Spain 13,171 8%
Canada 39,025 7% United Kingdom 12,729 7%
United Kingdom 23,648 4% Brazil 8,064 5%
“0” reflects amounts rounded to +/- USD 500,000.

* data from the IMF’s Coordinated Direct Investment Survey

Table 4:  Sources of Portfolio Investment
Portfolio Investment Assets, as of June 2020*
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 61,361 100% All Countries 42,877 100% All Countries 18,484 100%
United States 19,356 32% Ireland 8,256 19% United States 12,829 69%
Ireland 8,263 13% United States 6,528 15 Brazil 1,506 8%
Brazil 1,514 2% Luxembourg 781 2% Chile 65 0.4%
Luxembourg 793 0.5% Spain 266 0.6% Netherlands 62 0.3%
United Kingdom 109 0.2% China 91 0.2% United Kingdom 55 0.3%

* data from the IMF’s Coordinated Portfolio Investment Survey (CPIS)

Investment Climate Statements
Edit Your Custom Report

01 / Select A Year

02 / Select Sections

03 / Select Countries You can add more than one country or area.

U.S. Department of State

The Lessons of 1989: Freedom and Our Future