Executive Summary

Mexico is one of the United States’ top trade and investment partners. Bilateral trade grew 455 percent 1994-2017 and Mexico now ranks as the United States’ second largest export market and third largest trading partner. Investors in Mexico continue to watch the renegotiation of the North American Free Trade Agreement (NAFTA) and the July Presidential elections as potential challenges to the status quo. Uncertainty regarding the content of NAFTA discussions and the timeline for implementation of the prospective “rules of the game” may impact future foreign direct investment (FDI) flows, exchange rates, and relative competitiveness. Likewise, there is some concern the next administration may reverse or limit progress implementing significant energy, fiscal, social security, education, anti-corruption, security, political, and telecommunications reforms. Despite this uncertainty, net FDI inflows in 2017 were robust.

Mexico has benefited from credible economic management that has allowed the country to weather a period of low oil prices and significant currency volatility. Gross domestic product (GDP) growth, at 2.0 and 2.3 (est.) percent in 2017 and 2018 respectively (per the International Monetary Fund (IMF)), is relatively strong compared to Mexico’s G-20 peers. Compared to other emerging markets, however, Mexican growth over the past decade has been lackluster. Inflation rose to over 6.6 percent at year-end 2017 due to peso depreciation and a jump in retail fuel prices caused by government efforts to stimulate competition in that sector. The Bank of Mexico has undertaken orthodox policy measures to tackle inflation, which is many analysts expect to return within the 2-4 percent target range by the end of 2018.

The most significant changes in Mexico’s investment outlook have taken place in the energy and telecommunications sectors. Prior to 2013/2014 constitutional reforms, state-controlled oil company, Pemex, had a monopoly on all hydrocarbon activity in the country. Reforms have opened this sector, allowing domestic and international private firms to bid on hydrocarbon projects and partner with Pemex, creating significant new investment opportunities for Mexican and foreign investors in upstream, midstream, and downstream business lines. In telecommunications, reforms intended to improve competition and reduce concentration in the sector through the creation of a new, autonomous regulator. This regulator is empowered to order divestitures, enforce regulations, and apply targeted sanctions to companies it sees as overly dominant in the market. In addition to these growing sectors, the passage of legislation to regulate financial technologies (FinTech) in early 2018 should also create new opportunities within Mexico’s burgeoning financial services and technology sectors.

While 2013/2014 reforms improved the investment outlook in many sectors, impunity and corruption continue to hinder Mexican economic growth and contribute to rising insecurity. These factors raise the cost of doing business in Mexico significantly.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2017 135 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2017 49 of 190 www.doingbusiness.org/rankings
Global Innovation Index 2017 58 of 128 https://www.globalinnovation
index.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2015 USD 87.6 billion http://www.bea.gov/
international/factsheet/
World Bank GNI per capita 2015 USD 9,040 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

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 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 Secretariat of Economy, FDI flows to Mexico from the United States totaled USD 13.8 billion in 2017, nearly 47 percent of all inflows to Mexico (USD 29.7 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, foreign investors have overlooked Mexico’s southern states, although that may change if newly-created special economic zones gain traction with investors (see section five).

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico. The law is consistent with the foreign investment chapter of 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.

The government heavily prioritizes investment promotion and retention. Through its investment promotion agency ProMexico (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.

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.

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 2017, Mexico successfully auctioned 70 land, shallow, and deep water blocks with significant interest from international oil companies. Further auctions are planned in 2018.

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, when the limit was increased to 49 percent. 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 – a total of 49 percent.

Under existing NAFTA provisions, 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. Currently, the United States, Canada, and Mexico have the right to settle any dispute or claim under NAFTA through international arbitration. 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 World Trade Organization (WTO) completed trade policy review of Mexico in February 2017 covering the period to year-end 2016. The review noted the positive contributions of reforms implemented 2013-2016 and cited Mexico’s development of “Digital Windows” for clearing customs procedures as a significant new development since the last review.

The full review can be accessed via: https://www.wto.org/english/tratop_e/tpr_e/tp452_e.htm .

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days. In 2016, President Pena Nieto signed a 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.

Since August 2017, NAFTA, which, governs U.S. and Canadian investment in Mexico, has been under renegotiation.

Mexico has signed 12 FTAs covering 46 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries. Mexico has signed but has not yet ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Mexico currently has 30 Bilateral Investment Treaties in force. The Mexico-European Union FTA is also currently under renegotiation. 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. 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.

Transparency of the Regulatory System

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms. However, corruption continues to affect equal enforcement of some regulations.

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/ .

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.

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 the energy, electricity, automotive, and agriculture sectors.

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 April 2017 TBT implementation review, Mexico raised five new Specific Trade Concerns (STC) and made 41 new notifications and 16 addenda or corrigenda in 2016. Mexico was the seventh most frequent raiser of STCs in 2016 and was the fourth most frequent raiser of STCs from 1995-2016, behind the European Union, United States, and Canada.

Legal System and Judicial Independence

Since the Spanish conquest in the 1500s, Mexico has had an inquisitorial system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view. While its 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, intends 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 called 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 2014 and has been pending in the Senate since December 2014. The future Independent Prosecutor General (Fiscal) will serve a 9-year term, intended to insulate his or her office from the executive branch, whose members serve 6-year terms. However, the major political parties have thus far been unable to agree on a suitable candidate for the position, and it is now expected that the future Fiscal will not be named until after the July 1, 2018 presidential election, and possibly not even before the December 1 inauguration.

Despite efforts to reform Mexico’s judicial system, impunity is rife in Mexico. The 2018 Global Impunity Index ranks Mexico as the fourth worst nation in the world on various measures of impunity. According to the study, 95 percent of crimes go unpunished in Mexico. In 2017, only 17 percent of murder investigations resulted in conviction and incarceration—a fall from 27.5 percent in 2016. On a national level, impunity in Mexico worsened slightly in 2017, however this figure hides large increases in impunity in Mexican states with significant U.S. investment—Aguascalientes, Puebla, Guanajuato, Tamaulipas, and Coahuila. Mexico State recorded the highest levels of impunity of all 32 Mexican federal entities.

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 has two constitutionally autonomous regulators to govern matters of competition—the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE). Both were created under reforms 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: www.cofece.mx .

In November 2017, IFT ruled to allow predominant telecommunications firm America Movil to charge interconnection fees to competitors for connecting calls into America Movil’s networks. The ruling, based on a cost model analysis, provides an asymmetric fee structure with America Movil paying four times more per minute for connecting into its competitors’ networks than its competitors pay per minute for connecting into its own network. Competitors still see this IFT ruling favoring the local, predominant provider over foreign telecom firms and plan to file injunctions to block IFT from implementing these charges.

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.

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

Investor-State Dispute Settlement is a topic of the current NAFTA renegotiations. Chapters 11, 19, and 20 of the existing 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.

Since NAFTA’s inception, there have been 17 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.

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, or to participate in arbitration.

Bankruptcy Regulations

Mexico’s Reorganization and Bankruptcy Law (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 31 out of 190 countries for resolving insolvency in the World Bank’s 2018 Doing Business report. The average bankruptcy filing takes 1.8 years to be resolved and recovers 67.6 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 30.8 cents per USD. “Buró de Credito” is Mexico’s main credit bureau. More information on credit reports and ratings can be found at: http://www.burodecredito.com.mx/ .

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

To spur foreign investment in normally-overlooked regions of the country, the Mexican government announced in 2017 it 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, to foreign firms investing in newly-established Special Economic Zones (SEZs).

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 99 out of 190 countries for ease of registering property in the World Bank’s 2018 Doing Business report, an improvement of two places versus 2017. 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. “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.

Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments, which investors can access via the purchase/sale of Fideocomisos de Infraestructura y Bienes Raices (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.

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.

After five full years in office, the administration of President Enrique Peña Nieto has expended considerable time and political capital overhauling multiple industry sectors in Mexico, but has not focused on intellectual property reforms. 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.

Amendments to Mexico’s Industrial Property Law on geographical indications (GIs) and industrial designs were published in the Official Gazette on March 13, 2018, and will take effect on April 25, 2018. The GI amendments provide, inter alia, for the registration of foreign GIs, a two-month opposition period, and cancellation when the foreign GI ceases to have effect in its country of origin.

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 was listed on the Watch List in the 2017 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 2017 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 Attache for Mexico, Central America and the Caribbean
U.S. Trade Center
Liverpool No. 31 Col. Juárez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189
E-mail: Todd.Reves@trade.gov

National Institute of Copyright (INDAUTOR)
Puebla No. 143
Col. Roma, Del. Cuauhtemoc
06700 Mexico, D.F.
Tel: (52) 55 3601 8270
Fax: (52) 55 3601 8214
E-mail: mguerra@sep.gob.mx
Web: 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
Fax: (52 55) 56 24 04 06
E-mail: mmargain@impi.gob.mx
mvillelag@impi.gob.mx
Web: http://www.impi.gob.mx/ 

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

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 Raices (FIBRAS) as well as FIBRAS-E, which allow for investment in non-real estate investment projects. 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 four years, bank and credit penetration in Mexico remains low compared to 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 healthy and well capitalized. Non-performing loans have fallen sixty percent since 2001 and now account for 2.1 percent of all loans.

Mexico’s banking sector is heavily concentrated and majority foreign-owned: the seven largest banks control 85 percent of system assets 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 by gearing monetary policy toward meeting a 3 percent inflation target over the medium term.

Mexico’s Financial Technology (FinTech) law came into effect in March 2018, creating a broad rubric for the development and regulation of innovative financial technologies. Although investors await important secondary regulations that will fully define the rules of the game for FinTech firms, the law covers both cryptocurrencies and a regulatory “sandbox” for start-ups to test the viability of products, placing Mexico among the FinTech policy vanguard.

Foreign Exchange and Remittances

Foreign Exchange Policies

The government of Mexico maintains a free-floating exchange rate. The Mexican Peso has weathered significant volatility since 2016 due to both external pressures and a recent investor focus on upcoming Presidential elections. Banxico’s creation of a non-deliverable forwards hedging program in February 2017 has helped dampen volatility and ensure local spot and futures markets function properly.

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.

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 2013 budgetary reforms. Housed in 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 is expected to receive MXN 415 billion (approximately USD 20 billion) in income in 2018. The FMP is required to publish quarterly and annual reports, which 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 to about 15 percent. 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. 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 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 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. In 2017, the Mexican government announced the first tender for a privately owned and operated transmission line. 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. 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 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, 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.

Privatization Program

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

Mexico’s private and public sectors 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.

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.

In October 2017, Mexico became the 53rd member of the Extractive Industries Transparency Initiative (EITI), which represents an important milestone in its effort to establish transparency and public trust in its energy sector.

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 Mexico. Some of the most common reports of official corruption involve government officials stealing from public coffers or demanding bribes in exchange for awarding public contracts. The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors. However, Mexican civil society assert that the government must take more effective and frequent action to address corruption.

As described in Section 4, Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office in order to shore up its independence; however the implementing legislation and appointment of the prosecutor remain pending. In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts, however implementation of the SNA remains incomplete, including appointments of an anti-corruption prosecutor and special magistrates as well as revision of secondary laws. The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law. The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct. Implementation of the mandatory state-level anti-corruption legislation varies. According to the Mexican Institute for Competition (IMCO), only ten of 32 states have completed the required constitutional reform and only two states have developed local anti-corruption systems.

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 Law of Administrative Responsibilities, passed in 2017, 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.

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 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 135 of 175 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 2016-2017 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 and 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 USD 2.7 billion Merida Initiative, launched by Presidents Calderon and Bush in 2008 and supported by bipartisan leaders in Congress, remains our primary mechanism to support Mexico in addressing significant security challenges at an institutional level. Merida Initiative programs aim to strengthen Mexico’s security and judicial institutions by applying international standards of certification and accreditation to personnel and institutions across the criminal justice system, from the accreditation of police academies and corrections facilities to advanced training for judges, prosecutors, criminal analysts, and forensic lab technicians. In addition, Merida Initiative programs have expanded over the past year in the areas of border security and counternarcotics, in line with new priorities set out by the Trump administration.

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 United States (parent company, not subsidiaries or divisions) doing business overseas (https://www.osac.gov/ ).

The Department of State maintains a Travel Advisory for U.S. citizens traveling and living in Mexico, available at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.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 states of Aguascalientes, Guanajuato, Jalisco, and Queretaro, 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 constitutional labor reform requires complementary revisions to the existing labor law. A bill with the requisite revisions is expected to be approved in the first congressional session of 2018.

Mexico’s 2012 labor law reform encompassed major changes to make Mexico’s labor market more 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 in place of a daily wage system, 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.

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. OPIC has announced a drive to catalyze an additional USD 1 billion in investments in Mexico and Central America by 2021. 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 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) ($Billion USD)

2016

$1,075

2016

$1,047

www.imf.org 

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 ($M USD, stock positions)

2016

N/A

2016

$87,635

Bureau of Economic Analysis

Host country’s FDI in the United States ($M USD, stock positions)

2016

N/A

2016

$34,400

Bureau of Economic Analysis

Total inbound stock of FDI as % host GDP

2016

N/A

2016

36.7%

UNCTAD

*Host Country Source: National Statistics Institute (INEGI); FDI figures from Ministry of Economy. Note: Mexico does not account for FDI stock (inbound and outbound) by country.

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 473,512 100% Total Outward 149,178 100%
United States 198,867 42% United States 58,120 39%
Netherlands 88,032 19% Netherlands 36,591 25%
Spain 56,611 12% Brazil 12,033 8%
United Kingdom 21,575 5% United Kingdom 8,147 5%
Canada 17,749 4% Spain 6,947 5%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 66,929 100% All Countries 14,555 100% All Countries 52,373 100%
United States 46,448 69.4% United States 1,735 11.9% United States 44,714 85.4%
Brazil 2,423 3.5% Luxembourg 1,573 10.6% Brazil 2,383 4.5%
Luxembourg 1,537 2.2% Ireland 631 4.3% Spain 316 0.6%
Spain 743 1.1% Spain 427 2.9% Colombia 109 0.2%
Ireland 631 0.9% United Kingdom 365 2.5% United Kingdom 83 0.2%

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

2018 Investment Climate Statements: Mexico
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