2017 Investment Climate Statements: Mexico

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 recipients of FDI among emerging markets. Mexico’s macroeconomic stability, large domestic market, growing consumer base, rising skilled labor pool, welcoming business climate, and proximity to the United States all help attract foreign investors.

Historically, the United States has been one of the largest sources of FDI in Mexico. According to Mexico’s National Statistics Institute (INEGI), FDI flows to Mexico from the U.S. totaled USD 10.4 billion in 2016, nearly 40 percent of all inflows to Mexico (USD 26.7 billion). 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. Historically, southern states have been overlooked by foreign investors, although that may change with the launch of new special economic zones in late 2017 (see section five).

The 1993 Foreign Investment Law, last updated in December 2015, governs foreign investment in Mexico. The law is consistent with the foreign investment chapter of the North American Free Trade Agreement between the U.S, Canada, and Mexico (NAFTA). It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment. The Foreign Investment Law provides details on which business sectors are open to foreign investors and to what extent. 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.

Through its investment promotion agency, ProMexico (http://www.promexico.mx/ ), the GoM aims to coordinate federal and state government efforts, as well as related private sector activities, with the goal of harmonizing programs, strategies, and resources to support the globalization of Mexico’s economy. ProMexico maintains an extensive network of offices abroad and a multi-lingual website (http://www.investinmexico.com.mx ), which provides information on establishing a corporation, rules of origin, labor issues, owning real estate, the operation of bonded assembly plants, and sectoral promotion plans. Additionally, multiple government-led and public-private groups exist to facilitate dialogue between investors and the Mexican government. The government heavily prioritizes investment promotion and retention.

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 the 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.

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 four separate bid sessions allowing private companies to bid on exploration and development of oil and gas resources in blocks around the country. In December 2016, Mexico successfully auctioned eight of ten deep-water blocks, with significant interest from international oil companies. Further auctions are planned in 2017.

Telecommunications: Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.

Aviation: The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017. In December 2016, the Mexican Senate approved a decree to authorize foreign investment in airlines to a maximum of 49 percent. In March 2017, the Mexican Congress approved the Senate decree. The changes will be officially announced in the Mexican Federal Registry (DOF), although at the time of writing they had not yet been officially published. This major policy change seems to have been sweetened by an offer from Delta Air Lines, dating to 2015, to use a cash tender to increase its stake in Grupo Aeromexico to as much as 49 percent of shares. At the end of February 2017, anticipating Congressional amendment of the Foreign Investment Law, the Mexican Federal Economic Competitiveness Commission approved the Delta Air Lines acquisition. On March 13, 2017, Delta successfully completed its purchase of 36.2 percent of shares in Grupo Aeromexico, with share options for an additional 12.8 percent, making it the first foreign company to hold a major equity position in a Mexican airline.

Under NAFTA, U.S. and Canadian investors receive national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico. Exceptions exist for investments restricted under NAFTA. The United States, Canada, and Mexico have the right to settle any dispute or claim under NAFTA through international arbitration. NAFTA also eliminated some barriers to investment in Mexico, such as trade balancing and domestic content requirements. Local Mexican governments must also accord national treatment to investors from NAFTA 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

The OECD, World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD) have not undertaken investment policy reviews on Mexico in the past three years.

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days. President Pena Nieto signed a March 2016 law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS). Owners of SASs will be able to register a new company online in 24 hours. 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.

Outward Investment

ProMexico is responsible for promoting Mexican outward investment and provides assistance to Mexican firms acquiring or establishing joint ventures with foreign firms, participating in international tenders, and establishing franchise operations, among other services. Mexico does not restrict domestic investors from investing abroad.

NAFTA governs U.S. and Canadian investment in Mexico. In addition to NAFTA, most of Mexico’s other free trade agreements (FTAs) cover investment protection, with a notable exception being the Mexico-European Union FTA, which is currently being updated.

Mexico has signed 12 FTAs covering 46 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries. Mexico currently has 30 Bilateral Investment Treaties in force. A map of all countries covered by Mexico’s trade agreements can be found at: http://www.economia.gob.mx/files/gobmx/mapa_tratadosacuerdosMexico.jpg .

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. While taxation issues are currently stable, the GoM has threatened to retaliate should the United States implement a Border Adjustment Tax, currently under discussion in the U.S. Congress.

Transparency of the Regulatory System

The Federal Commission on Regulatory Improvement (COFEMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business. Mexican law requires Secretariats and regulatory agencies to conduct impact assessments of proposed regulations. Assessments are made available for public comment via COFEMER’s website: www.cofemer.gob.mx . The official gazette of state and federal laws currently in force in Mexico is publically available via: http://www.ordenjuridico.gob.mx/ .

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms. Unfortunately, corruption continues to affect the equal enforcement of some regulations. Most publically traded Mexican firms adhere to International Financial Reporting Standards, although listed financial services and insurance firms still utilize Mexican Financial Reporting Standards.

Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role protecting, promoting, and ensuring a competitive free market in Mexico. COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs. As Mexico transitions to a fully liberalized retail fuels market by the end of 2017, COFECE will gain further responsibility to ensure market pricing transparency and to thwart collusion among retailers.

In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technically-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors. CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels. CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.

The Secretariat of Public Administration has 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 four Internet sites to increase transparency of government processes and to establish guidelines for the conduct of government officials: (1) Normateca (http://normatecainterna.sep.gob.mx ) provides information on government regulations; (2) Compranet (https://compranet.funcionpublica.gob.mx ) displays federal government procurement actions on-line; (3) Tramitanet (www.tramitanetmexico.com ) permits electronic processing of transactions within the bureaucracy; and (4) Declaranet (https://declaranet.gob.mx/ ) allows for online filing of income taxes for federal employees.

International Regulatory Considerations

As a member of NAFTA, Mexico aims to harmonize regulations with the United States and Canada where possible while maintaining its sovereign right to maintain domestic regulations and standards. While Mexican regulations would appear familiar to U.S. financial services investors, there is significant potential for further harmonization in key sectors like energy/electricity, automotive, and agriculture.

Mexico is an active member of the WTO and works with the WTO Committee on Technical Barriers to Trade (TBT) regarding domestic technical regulations. According to the WTO’s March 2016 TBT implementation review, Mexico raised one new Specific Trade Concern (STC) and re-raised 33 STCs in 2015.

Legal System and Judicial Independence

Since the Spanish conquest in the 1500’s, Mexico has had an inquisitorial system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view. While the Constitution is the fundamental legal document, in 2014 Mexico passed a National Code of Criminal Procedure which is applicable to all 32 states. This code provides the legal framework for the new accusatory system, which involves open oral trials with cross examination of witnesses. The new accusatory system, fully implemented in June 2016, is intended to combat corruption and increase transparency and efficiency, while ensuring that fundamental rights of both the victim and the accused are respected.

Mexico’s Commercial Code, which dates back to 1889, was most recently updated in 2014. All commercial activities must abide by this Code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures. Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.

The judicial branch is nominally independent from the executive. Following a reform passed in February 2014, the Attorney General’s Office (Procuraduria General de la Republica or PGR) will become independent of the executive branch, as a fully autonomous agency call the Independent Prosecutor’s Office (Fiscalia General de la Republica or FGR). The legislation that will implement the transition was approved by the Chamber of Deputies in October 2014 and has been pending in the Senate since December 2014.

Laws and Regulations on Foreign Direct Investment

Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country. The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), Economy (SE), and Social Development (SEDESOL), establishes the criteria for administering investment rules.

Competition and Anti-Trust Laws

Mexico created two constitutionally autonomous regulators to govern matters of competition—the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE)—in 2013. IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors. For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: https://www.cofece.mx/ .

Expropriation and Compensation

Mexico may not expropriate property under NAFTA, 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.

Since NAFTA’s inception, there have been 14 arbitration cases filed against Mexico by U.S. and Canadian investors who allege expropriation and/or other violations of Mexico’s NAFTA obligations. Details of the cases can be found at: https://www.state.gov/s/l/c3742.htm.

Dispute Settlement

ICSID Convention and New York Convention

Mexico ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 1971 and has codified this into domestic law. Mexico is also a signatory to the Inter-American Convention on International Commercial Arbitration (1975 Panama Convention) and the 1933 Montevideo Convention on the Rights and Duties of States. Mexico is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention), even though many of the investment agreements signed by Mexico include ICSID arbitration as a dispute settlement option.

Investor-State Dispute Settlement

Chapters 11, 19, and 20 of NAFTA cover international dispute resolution. Chapter 11 allows a NAFTA Party investor to seek monetary damages for violations of its provisions. Investors may initiate arbitration against the NAFTA Party under the rules of the United Nations Commission on International Trade Law (UNCITRAL Model Law) or through the ICSID Convention. A NAFTA investor may also choose to use the domestic court system to litigate their case.

International Commercial Arbitration and Foreign Courts

The Arbitration Center of Mexico (CAM) is a specialized, private institution administering commercial arbitration as an alternative dispute resolution mechanism. The average duration of an arbitration process conducted by CAM is 14 months. The Commercial Code dictates an arbitral award, regardless of the country where it originated, must be recognized as binding. The award must be enforced after a formal written petition is presented to a judge.

The internal laws of both Pemex and CFE state all national disputes of any nature will have to be resolved by federal courts. State-owned Enterprises (SOEs) and their productive subsidiaries may opt for alternative dispute settlement mechanisms under applicable commercial legislation and international treaties of which Mexico is a signatory. When contracts are executed in a foreign country, Pemex and CFE have the option to follow procedures governed by non-Mexican law, to use foreign courts, and to participate in arbitration.

Bankruptcy Regulations

Mexico’s Reorganization and Bankruptcy Law of 2000 (Ley de Concursos Mercantiles) governs bankruptcy and insolvency. Congress approved modifications in 2014 in order to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors. Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner. Debtors, creditors, or the Attorney General can file a bankruptcy claim. Mexico ranked 30th out of 190 countries for resolving insolvency in the World Bank’s 2017Doing Business report. The average bankruptcy filing takes 1.8 years to be resolved and recovers 69.1 cents per USD.

Investment Incentives

ProMexico coordinates federal, state, and municipal investment incentives for foreign investors. 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.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Mexican government is set to roll out substantial investment incentive packages covering Mexico’s new special economic zones in mid-2017. Early announcements suggest Mexico will offer a 10-year, 100 percent federal income tax holiday and a multi-year tax deduction valued at up to 50 percent of required social security contributions, among other benefits. Mexico’s special economic zones will be located mostly in less-developed southern states in order to spur economic development and job creation in traditionally-overlooked areas in an effort to reduce income inequality throughout Mexico.

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 NAFTA if they wish to benefit from NAFTA treatment.

Mexico does not have any policy of forced localization for data storage, nor must foreign information technology (IT) providers turn over source code or provide backdoors into hardware or software. Within the constraints of the Federal Law on the Protection of Personal Data, Mexico does not impede companies from freely transmitting customer or other business-related data outside the country.

Real Property

Mexico ranked 101 out of 190 countries for ease of registering property in the World Bank’s 2017 Doing Business report, an improvement of five places versus 2016. Article 27 of the Mexican Constitution guarantees the inviolable right to private property. Expropriation can only occur for public use and with due compensation. Mexico has four categories of land tenure: private ownership, communal tenure (ejido), publicly owned, and ineligible for sale or transfer.

Mexico prohibits 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, “restricted zones” cover roughly 40 percent of Mexico’s territory. Foreigners may acquire the effective use of residential property in “restricted zones” through the establishment of an extendable trust (fideicomiso) arranged through a Mexican financial institution. Under this trust, the foreign investor obtains all property use rights, 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. In some cases, fideicomiso arrangements have led to legal challenges. U.S.-issued title insurance is available in Mexico and U.S. title insurers operate here.

Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico. The Public Register for Business and Property (Registro Publico de la Propiedad y de Comercio) maintains publically available information online regarding land ownership, liens, mortgages, restrictions, etc.

Tenants and squatters are protected under Mexican law. Property owners who encounter problems with tenants or squatters are advised to seek professional legal advice, as the legal process of eviction is complex.

Intellectual Property Rights

Intellectual Property Rights in Mexico are covered by the Industrial Property Law (Ley de la Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor). Responsibility for the protection of IPR is spread across several government authorities. The Office of the Attorney General (PGR) oversees a specialized unit which prosecutes IPR crimes. The Mexican Institute of Industrial Property (IMPI), the equivalent to the U.S. Patent and Trademark Office, administers patent and trademark registrations, and handles administrative enforcement cases of IPR infringement. The National Institute of Copyright (INDAUTOR) handles copyright registrations and mediates certain types of copyright disputes, while the Federal Commission for the Prevention from Sanitary Risks (COFEPRIS) regulates pharmaceuticals, medical devices and processed foods. The Mexican Customs Service’s mandate includes ensuring illegal goods do not cross Mexico’s borders.

The process for trademark registration in Mexico normally takes six to eight months. The registration process begins by filing an application with IMPI, which is published in the Official Gazette. IMPI first undertakes a formalities examination, followed by a substantive examination to determine if the application and supporting documentation fulfills the requirements established by law and regulation to grant the trademark registration. Once the determination is made, IMPI then publishes the registration in the Official Gazette. A trademark registration in Mexico is valid for ten years from the filing date, and is renewable for 10-year periods. Any party can challenge a trademark registration through the new opposition system, or post-grant through a cancellation proceeding. IMPI employs the following administrative procedures: nullity, expiration, opposition (new in 2016- see below), cancellation, trademark, patent and copyright (trade-based) infringement. Once IMPI issues a decision, the affected party may challenge it through an internal reconsideration process or go directly to the Specialized IP Court for a nullity trial. An aggrieved party can then file an appeal with a Federal Appeal Court based on the Specialized IP Court’s decision. In cases with an identifiable constitutional challenge, the plaintiff may file an appeal before the Supreme Court of Justice.

The USPTO has a Patent Prosecution Highway (PPH) agreement with IMPI. Under the PPH, an applicant receiving a ruling from either IMPI or the USPTO that at least one claim in an application is patentable may request that the other office expedite examination of the corresponding application. The PPH leverages fast-track patent examination procedures already available in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently. The PPH permits USPTO and IMPI to benefit from work previously done by the other office, which reduces the examination workload and improves patent quality.

IMPI published in the Official Gazette June 1, 2016 the framework for the new trademark opposition system, which went into effect on August 30, 2016. With this opposition system, rights holders have the opportunity to oppose trademark registrations pre-grant, thus reducing the number of cancellation proceedings.

After four full years in office, the administration of President Enrique Peña Nieto (EPN) has expended considerable time and political capital overhauling multiple industry sectors in Mexico, but has not focused on similar reforms on the intellectual property front. Legislative reform long identified by USG and others–such as granting customs effective ex-officio authority and providing the authority to seize suspected counterfeit and piratical merchandise in-transit–have been dormant, and there is reluctance on the part of the GoM to seriously address these issues sua sponte.

The Mexican government created the Digital IP Crime Unit in October 2015, and its prosecutors’ competency levels improved throughout 2016, but the Unit was effectively dismantled in December 2016 with 80 percent of its personnel reassigned or terminated. The Digital IP Crime Unit was created in part to overcome Mexico’s lack of: (1) a legal framework to address IP crimes in the digital environment; (2) expertise by law enforcement to investigate and prosecute digital crimes; (3) importance/priority placed on these types of crimes; and (4) judicial specialty and expertise to adequately address these cases. Mexico has still not implemented the World Intellectual Property Organization (WIPO) Internet Treaties (WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT)), even though it ratified both in 2002. Current laws do not adequately address new digital-based distribution methods such as streaming and the transfer of files via peer-to-peer networks. Industry has highlighted the failure of Mexican authorities to properly investigate these crimes and criticized the judiciary for their lack of technical expertise in these highly complex cases. Some experts note the Mexican government sees a political “cost” to combatting this type of crime while violent crimes go unsolved. Finally, the limited resources that are expended by the Government of Mexico on IP crimes are concentrated on hard goods and not online crimes. As broadband access increases, digital IP crimes will be at the forefront of IP violations.

Mexico is plagued by widespread commercial-scale infringement that results in significant losses to Mexican, U.S., and other IPR owners. There are many issues that have made it difficult to improve IPR enforcement in Mexico, including legislative loopholes; lack of coordination between federal, state, and municipal authorities; a cumbersome and lengthy judicial process; and widespread cultural acceptance of piracy and counterfeiting. In addition, the involvement of Transnational Criminal Organizations, which control the piracy and counterfeiting markets in parts of Mexico, continue to impede federal government efforts to improve IPR enforcement. Their involvement has further illustrated the link between IPR crimes and illicit trafficking of other contraband, including arms and drugs.

Mexico still relies on arrests and prosecutions of counterfeiters and pirates in flagranti, as opposed to mounting proactive investigations that seek to dismantle pirating and counterfeiting networks. Seizure of counterfeit goods is tracked by PGR, IMPI, and Customs. During 2016, Mexican Customs initiated 406 cases resulting in the seizure of 1,946,722 confiscated articles. The types of goods seized included apparel, caps, shoes, toys, video game controls, electronic devices, jewelry, watches, cell phones, cosmetics, pens, batteries, labels, USB devices, sunglasses, headphones, speakers, and shaving blades. According to data received from PGR’s Specialized IP Unit, there were 643,845 counterfeit and piratical articles seized in 2016 (significantly down from 8,969,929 seized in 2015). In that same period, PGR dismantled three (down from 65 in 2015) laboratories producing pirated movies, videogames, and music, seizing 76 disk burners. PGR commenced only 338 (down from 1,513 in 2015) preliminary investigations and made only one arrest. In 2016, IMPI conducted 4,527 inspection visits (2,867 ex officio and 1,651 ex parte) and seized 2,412,693 counterfeit and pirated goods worth USD 2,685,277. In addition, IMPI levied USD 3,191,846 in fines for IPR violations.

Mexico was listed on the Watch List in the 2016 Special 301 report. Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets. The 2016 USTR Out-Of-Cycle Review of Notorious Markets, listed two Mexican markets: Tepito in Mexico City; and San Juan de Dios in Guadalajara.

Mexico is a signatory to numerous international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

Resources for Rights Holders

J. Todd Reves
Intellectual Property Rights Attaché for Mexico, Central America and the Caribbean
U.S. Trade Center
Liverpool No. 31 Col. Juarez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189
E-mail: Todd.Reves@trade.gov

American Chamber of Commerce Mexico
Paseo de la Reforma 295, 3er piso
Col. Cuauhtemoc, 06500 Mexico City
Tel.: (52-55) 5141-3800
E-mail: amchammx@amcham.org.mx

National Institute of Copyright (INDAUTOR)
Puebla No. 143
Col. Roma, Del. Cuauhtemoc
06700 Mexico, D.F.
Tel: (52) 55 3601 8270
E-mail: mguerra@sep.gob.mx
http://www.indautor.gob.mx/ 

Mexican Institute of Industrial Property (IMPI)
Periferico Sur No. 3106
Piso 9, Col. Jardines del Pedregal
Mexico, D.F., C.P. 01900
Tel: (52 55) 56 24 04 01 / 04
(52 55) 53 34 07 00
E-mail: mmargain@impi.gob.mx
mvillelag@impi.gob.mx
http://www.impi.gob.mx/ 

Capital Markets and Portfolio Investment

The Mexican government is generally open to foreign portfolio investments, and foreign investors trade actively in various public and private asset classes. Foreign entities may freely invest in federal government securities. The Foreign Investment Law establishes 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. 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 one of Mexico’s six development banks. Finally, Mexico offers federal, state, and local governments bonds that are rated by international credit rating agencies. The market for these securities has expanded rapidly in past years and foreign investors hold a significant stake of total federal issuances. However, foreigners are limited in their ability to purchase sub-sovereign state and municipal debt. Liquidity across asset classes is relatively deep.

Mexico established a fiscally transparent trust structure known as a FICAP in 2006 to allow venture and private equity funds to incorporate locally. The Securities Market Law (Ley de Mercado de Valores) established the creation of three special investment vehicles which can provide more corporate and economic rights to shareholders than a normal corporation. These categories are: (1) Investment Promotion Corporation (Sociedad Anonima de Promotora de Inversion or SAPI); (2) Stock Exchange Investment Promotion Corporation (Sociedad Anonima Promotora de Inversion Bursatil or SAPIB); and (3) Stock Exchange Corporation (Sociedad Anonima Bursatil or SAB). Mexico also has a growing real estate investment trust market, locally referred to as Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS). FIBRAS are regulated under Articles 187 and 188 of Mexican Federal Income Tax Law.

Money and Banking System

Financial sector reforms signed into law in 2014 have improved regulation and supervision of financial intermediaries and have fostered greater competition between financial services providers. While access to financial services—particularly personal credit for formal sector workers—has expanded in the past three years, bank penetration in Mexico remains low vis-à-vis OECD and emerging market peers. Coupled with sound macroeconomic fundamentals, reforms have created a positive environment for the financial sector and capital markets. According to the National Banking Commission (CNBV), the banking system remains well-capitalized. Average capitalization ratios (capital/risk-weighted assets) exceed 14 percent, well above Basel III requirements. Non-performing loans have increased in the past 18 months, but CNBV notes the total value of non-performing loans is relatively small compared to total bank balance sheets.

Mexico’s banking sector is heavily concentrated and majority foreign-owned: 85 percent of system assets are controlled by the seven largest banks and foreign-owned institutions control 70 percent of total assets. 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.

Banco de Mexico (Banxico), Mexico’s central bank, maintains independence in operations and management by constitutional mandate. Its main function is to provide domestic currency to the Mexican economy and to safeguard the Mexican Peso’s purchasing power.

In September 2016, the Association of Mexican Banks announced all member banks will screen all transactions against the U.S. Office of Foreign Asset Control’s Specially Designated Nations List, a move that should further enhance anti-money laundering controls and reduce potential correspondent banking access concerns.

Foreign Exchange and Remittances

Foreign Exchange

Mexico maintains open conversion and transfer policies. In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Mexican Peso (MXN)/USD exchange is available on same day, 24- and 48-hour settlement bases. In order to prevent money-laundering transactions, Mexico imposes limits on USD cash deposits. Border- and tourist-area businesses may deposit more than USD 14,000 per month subject to reporting rules and providing justification for their need to conduct USD cash transactions. Individuals are subject to a USD 4,000 per month USD cash deposit limit. In 2016, Banxico launched a central clearing house to allow for USD clearing services wholly within Mexico, which should improve clearing services significantly for domestic companies with USD income, though adoption of this facility by banks remains low.

The government of Mexico maintains a free-floating exchange rate. The Mexican Peso lost more than 26 percent of its value against the U.S. dollar January 1, 2015- April 1, 2017. The Mexican government intervened in currency markets twice in 2016, selling foreign currency reserves to help offset sharp drops in the MXN/USD exchange rate due to weakening domestic economic fundamentals, Great Britain’s vote to exit of the EU, and the U.S. elections. Banxico created a non-deliverable forwards hedging program in February 2017 to further dampen the Mexican peso volatility and ensure local spot and futures markets continued to function properly.

Remittance Policies

There have been no recent changes in Mexico’s remittance policies. Mexico continues to maintain open conversion and transfer policies.

Sovereign Wealth Funds

The Mexican Petroleum Fund for Stability and Development (FMP) was created as part of budgetary reforms in 2013. Managed by Banxico, the fund distributes oil revenues to the national budget and a long-term savings account. The FMP incorporates the Santiago Principles for transparency, placing it among the most transparent Sovereign Wealth Funds in the world. Both Banxico and Mexico’s Supreme Federal Auditor regularly audit the fund. Mexico is also a member of the International Working Group of Sovereign Wealth Funds. The Fund received MXN 399 billion (approximately USD 21 billion) in income in 2015. The FMP is required to publish quarterly reports, the latest of which (Oct-Dec 2016) can be found at www.fmped.org.mx .

There are two main SOEs in Mexico, both of them in the energy sector. Petroleos Mexicanos (Pemex) is in charge of running 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. The Federal Electricity Commission (CFE) is the other main state-owned company and is in charge of the electricity sector. While the GoM 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. Additionally, Mexico is currently in the process of liberalizing the retail fuel sales market, a process which is slated to finish by December 31, 2017 and has created significant opportunities for foreign businesses.

Pemex reported total assets of over MXN 2.2 trillion pesos (USD 107 billion) as of December 31, 2016—a 25 percent increase year-on-year—and a total net income loss of MXN 296 billion (USD 14.325 billion). In June 2016, Pemex reported it employed 131,822 workers, down from over 140,000 in 2015. As Pemex implements a new business plan designed to consolidate losses and return the firm to profitability, the size of the company’s workforce is expected to reduce further. 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 nine-person Board of Directors contains five government ministers and four independent councilors.

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 held two long-term power auctions in 2016, in which over 30 contracts were awarded for energy supply and clean energy certificates. CFE will remain the sole provider of transmission and distribution services and will own all transmission and 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. Independent power generators were authorized to operate in 1992, but were required to sell their output to CFE or use it to self-supply. 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 Federal Electricity Commission (CFE) reported total assets of almost MXN 1.3 trillion (USD 64 billion) as of June 30, 2016 and net income of MXN 160.8 billion (USD 7.8 billion). According to the latest annual report available, CFE had a workforce of 93,942 employees of which 70 percent held permanent positions.

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 Ministry of Finance (e.g. the Mexican government made a USD 4.2 billion capital injection into Pemex in April 2016), 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.

Pemex and CFE also receive research and development benefits from public institutions, such as the Mexican Petroleum Institute (IMP) and Mexico’s National Science and Technology Council. For example, 208 of 211 research projects IMP conducted in 2015 were directly linked to Pemex. The total value of this research was USD 122 million, which was publically funded.

Privatization Program

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

Both the private and public sector have worked to promote and develop corporate social responsibility (CSR) during the past decade. CSR in Mexico began as a philanthropic effort. It has evolved gradually 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, created the Socially Responsible Business of Distinction award in 2001, which is given 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” ranking and Expansion magazine’s “Great Businesses” list. More than 100 domestic and foreign companies have received CSR awards for their work in Mexico, including: Bimbo, Nestlé, Coca Cola, Walmart, Hewlett Packard, General Electric, Pfizer, and Plantronics.

The government of Mexico officially issued CSR standard NMXSAST-004-IMNC in 2005 and launched in 2010 ISO 26000 Guidance on Social Responsibility, an international standard that offers guidance on socially responsible behavior. ISO 26000 does not contain requirements and, therefore, in contrast to ISO management system standards, is not certifiable. Responsible business conduct reporting has made progress in the last few years with more companies developing a corporate responsibility 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. Recognizing the importance of CSR issues, the Mexican Stock Exchange (Bolsa Mexicana de Valores) launched a sustainable companies index, which allows investors to specifically invest in those companies deemed to meet internationally accepted criteria for good corporate governance. Mexico’s 2014 financial services reform strengthened the National Commission to Protect the Rights of Financial Services Users (CONDUSEF), which will further improve transparency within the financial services sector.

The Mexican government restated its commitment to conforming to the Extractive Industries Transparency Initiative (EITI) in February 2016. Mexico’s National Multi-Stakeholder Group—consisting of government, civil society, and industry representatives—was formally established in November 2016 and is working to reach consensus on what data will be included in its EITI reporting to comply with the EITI Standard.

Corruption exists in many forms in Mexican government and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework. A significant concern is the complicity of government and law enforcement officials with criminal elements in certain cases. While public and private sector corruption is found in many countries, the collaboration of government actors (often due to intimidation and threats) with criminal organizations poses serious challenges for the rule of law in the affected areas in Mexico. The response of the current administration to recent scandals has been criticized as slow and ineffective. Some of the most common forms of official corruption involve government officials stealing from public coffers or demanding bribes in exchange for doing their work.

The Mexican Congress passed a Constitutional amendment May 27, 2015 creating the National Anti-Corruption System (SNA). Thirty-two secondary laws require revision in order to fully implement the system, seven of which were passed in an extraordinary Congressional session July 18, 2016. The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases. Once the new legal framework is fully implemented, it will provide the relevant courts with the autonomy to enforce administrative sanctions on public servants. The new laws mandate a redesign of the Ministry of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption.

The new Law of Administrative Responsibilities creates a unified regime of responsibilities for public servants at all levels of government including autonomous bodies, organizations, and institutions of the Mexican State. It also establishes an obligation for public servants to provide annual asset declarations, declarations of possible conflicts of interest, and proof of “fiscal standing”. The law establishes codes of ethics with specific legal implications and penalties for corrupt acts committed by politicians and private citizens as well as public servants.

The new National Anti-Corruption System calls for the establishment of a Special Anti-corruption Prosecutor and delineates acts of corruption which will be considered criminal acts under the new laws. The new legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials. The system encourages private firms to develop internal codes of conduct. Private firms are not yet fully aware of the new requirements and the potential for legal liability as implementation of the anti-corruption system has just begun.

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 Organization of American States (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.

Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in May 2015, which revised the existing legal framework to expand national access to information. 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 2017 Corruption Perception Index, Mexico ranked 123rd of 176 nations. Civil society organizations focused on fighting corruption are increasingly influential at the federal level, but are few in number and less powerful at the state and local levels.

The World Economic Forum (WEF) Global Competitiveness Report for 2016 found corruption is “the most problematic factor for doing business” in Mexico. For example, the WEF notes bribes to facilitate procurement of necessary permits or government contracts can increase business costs by 10 percent. Business representatives, including from U.S. firms believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials. The Gan Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.

The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement. Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative. In addition, USAID is working with SFP and Transparency International to drive adoption of the internationally accepted Open Contracting Data Standard (OCDS), as well as technical assistance to upgrade the Mexican government procurement system, CompraNet, to be based on OCDS and international best practices. (CompraNet is also described in the regulatory transparency portion of Section 3, above.)

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Mexico ratified the UN Convention Against Corruption in 2004. It ratified the OECD Anti-Bribery Convention in 1999.

Resources to Report Corruption

Contact at government agency:

Teresa Gomez del Campo Gurza
Head of International Cooperation and Transparency Policy
Secretariat of Public Administration
Miguel Laurent 235, Mexico City
52-55-2000-1060
tgomez@funcionpublica.gob.mx

Contact at “watchdog” organization:

Eduardo Bohorquez
Executive Director
Transparencia Mexicana
Dulce Olivia 73, Mexico City
52-55-5659-4714
info@tm.org.mx

Mass demonstrations are common in the larger metropolitan areas such as Mexico City, Guadalajara, and Monterrey, as well as in the southern Mexican states of Guerrero and Oaxaca. While political violence is rare, drug and organized crime-related violence has increased significantly in recent years in certain areas.

The United States is working with Mexico to combat organized crime and enhance rule of law through the USD 2.4 billion Merida Initiative, a partnership based on the principles of shared responsibility and mutual trust. The Merida Initiative has expanded significantly at the state and municipal level, with programs aimed at strengthening Mexico’s security institutions, promoting rule of law, advancing the protection of human rights, and preventing crime and violence. In addition to training and equipping Mexican security forces, Merida assistance also increasingly focuses on strengthening institutions and rule of law. Merida Initiative priorities moving forward include assisting Mexico’s judicial system following the transition to the accusatorial criminal justice system; training of state and local law enforcement entities aimed at adopting and implementing internationally-accepted standards for law enforcement officials; creating stronger oversight mechanisms that can deter corruption and misconduct; training and equipping Mexican officials to better secure their borders; and deepening our bilateral cooperation on combatting heroin, including enhanced cooperation on opium poppy eradication.

Though the violence is not political in nature, companies have reported 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 U.S. businesses operating overseas. OSAC constituency is available to any U.S.-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 https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html.

Mexico’s 57.4 percent rate of informality remains higher than countries with similar GDP per capita levels. High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth. Mexico’s efforts to increase formality over the past four years reduced the rate by 2.4 percentage points, a modest decrease given the scope of the problem. In the formal economy there is a general surplus of labor but a shortage of technically skilled workers and engineers. Manufacturing companies, particularly along the U.S.-Mexico border and in the “El Bajio” states, report labor shortages and an inability to retain staff.

Mexico’s labor relations system is widely criticized as skewed to represent the interests of employers and the government at the expense of workers. Mexico’s legal framework governing collective bargaining creates the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers. These are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between 5 and 10 percent.

The first element of a labor justice reform package was passed into law February 24, 2017, replacing biased tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies. In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. The recently passed constitutional labor reform requires complementary revisions to the existing labor law be passed within one year.

Mexico’s 2012 labor law reform encompassed major changes to make Mexico’s labor market flexible and incorporates modern statutes such as non-discrimination. Included in the 300 articles are provisions to ease hiring and firing of workers, establish an apprenticeship system, establish an hourly wage system (heretofore, there was only a daily wage), and regulate outsourcing. The full text of the reform law can be found at http://www.stps.gob.mx/bp/micrositios/reforma_laboral/ref_lab.html .

According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction. Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry. Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints. As a result, there have been several protests and boycott calls by farmworkers in northern Mexico, which have posed significant investment risks.

Mexico and Overseas Private Investment Corporation (OPIC) finalized in 2004 the agreement enabling OPIC programs and services within the country. Since then, OPIC has provided over USD 1 billion in financing and political risk insurance to support to more than 22 projects in Mexico. For more information on OPIC’s projects in Mexico, please consult OPIC’s website at www.opic.gov .

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Host Country Source: National Statistics Institute (INEGI); GDP figure from Ministry of Economy. Note: Mexico does not account for total inward FDI stock by country.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Source: IMF Coordinated Portfolio Investment Survey

Economic Section
Paseo de la Reforma 305, Colonia Cuauhtémoc, Mexico, D.F. 06500
52 55 5080 2000
PalomboJR@state.gov