European Union - Mexico Free Trade Agreement, Suspension of taxs audits and acts, Resuming activities in Mexico, business sector versus covid-19, Digital currency in China

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Essential Businesses in Mexico – COVID Update – The Trading Room: An Economic Newsletter

8 May , 2020  

This week our newsletter addresses the issue regarding the essential businesses in Mexico, developments as to when economic activities for non-essential businesses in Mexico will resume,  proposals to reactivate the Mexican economy on behalf of the Business Coordinating Council, as well as VTZ alerts. Download our newsletter here.

Resuming Activities in Mexico

Last Friday and in the last days, news outlets reported that a group of senators submitted a letter to the Secretary of State, Mike Pompeo, so that the government of Mexico may clarify the definition of “essential businesses”. In the letter, the senators ask Pompeo to pressure Mexico to include food, medical, transportation, infrastructure, aerospace, auto, and national security as essential businesses. The food, medical, and national security sectors are essential activities in Mexico as we reported in our previous edition.

On Tuesday, the Motor & Equipment Manufacturers Association (MENA), for its part, also submitted a letter to the Secretary of State regarding resuming activities in the auto and auto parts industry in Mexico. Although to our knowledge Pompeo has not made any public statements on this matter these days, MENA appreciated the efforts of the Secretary and his team, including Ambassador Christopher Landau.

In this regard, MENA informs Pompeo that the majority of the assembly plants (OEMs) will resume operations in the US on Monday 18 May. Hence, MENA requests that the automotive sector in Mexico resumes operations by next Tuesday, 12 May. MENA acknowledges that,

“[w]ithout parts from Mexico, it will be virtually impossible for U.S. motor vehicle assembly plants to restart.” 

COVID and Mexico: What is the current status?

There is still no legal news about resuming activities for non-essential businesses in Mexico, but yesterday the Mexican President, AMLO,  pointed out that Mexico is preparing to return to normality regarding productive activities and “once we have greater control over the pandemic, all economic, social, and cultural activity will be opened, of course, in a careful, gradual, and responsible manner.”

In response to a question of a journalist, the President said that communities that have not registered COVID cases may resume activities on Sunday 17 May. The president also announced that a plan to resume activities will be presented the following week. In this regard, the President also raised the possibility of establishing a sort of “traffic light” mechanism to determine if sectors, such as manufacturing, automotive, etc., can resume activities.

Needless to say, the Mexican States with the highest COVID registered cases, according to the federal government statistics, are:

  • North: Baja California (2,097), Chihuahua (600), Nuevo León (511)
  • Center: CDMX (7,521), Estado de Mexico (4,661), Puebla (910), Veracruz (872), Morelos (612).
  • South: Tabasco (1,319), Quintana Roo (980), Yucatan (688).

*Figures dated May 6.

COVID Mexico , Secretaría de Salud, Mexican Ministry of Health

Fuente/Source: Secretaría de Salud

 

At a local level, we observe that cities or zones with a strong industrial activity register “considerable” COVID cases, which can be seen in the following mapMexico is one of the countries with the lowest number of COVID tests per million people and, therefore, Mexico has a “low” number of registered cases because it is using the “sentinel surveillance” methodology.

Taking into account the President’s public statements and the presence of COVID in industrial regions (such as Aguascalientes, León, Monterrey, Puebla, and northern border cities), we believe that it is extremely unlikely for the auto or manufacturing industry to resume operations the following week.

 

Business Sector vs. COVID-19 emergency

On May 6, the Mexican Business Coordinating Council (CCE) presented 68 recommendations to the Mexican President, AMLO, prepared by panelists from the private and public sectors. The recommendations aim to face the COVID-19 pandemic and its effects on the Mexican economy. The following three types of actions are submitted:

  1. immediate actions to solve the crisis,
  2. actions to reactivate the economy, and
  3. medium and long-term plans to trigger inclusive growth and social development.

 

Within this last category, a Policy for the Mexican Economy is developed that includes, among other matters, the following recommendations on Investment and Trade:

Investment Recommendations

  • promoting foreign direct investment, mainly through infrastructure projects;
  • minimizing the number of administrative procedures, reducing response times as well as requirements for the implementation of investment projects,
  • decreasing the benchmark interest rate of Mexican Central Bank to promote investment and expand access to financing.

International Trade Recommendations

  • promoting and coordinating the implementation of the USMCA, with an emphasis on supply chains and investment;
  • replacing imports from China and other Southeast Asian countries used in the global value chains with products from the region; and,
  • taking advantage of free trade agreements with Europe, Latin America, and Asia in order to diversify trade.

 

We emphasize that these proposals are not new. For example, adding more regional or domestic content to the global value chains and promoting export diversification has been a goal of past administrations; in fact, they are policy objectives of the current administration.

 

Text of the Modernization of the European Union – Mexico Free Trade Agreement

 

This week the European Commission published the “updated” texts of the EU-Mexico FTA modernization. These texts are preliminary and subject to a legal review known as “legal scrubbing”. Read the texts here.

 

Digital Currency in China

During this week, several news outlets reported incorrect information about the pilot test of a digital currency conducted by the People’s Bank of China. Our partner who heads the Chinese Desk, Susana Muñoz, prepared an alert where she clarifies the information about the digital currency in China, check it out here

 

Suspension of Tax audits and acts  

This week, the First Amendment to the Miscellaneous Tax Regulations was published, which provides for the suspension of certain tax acts due to the health emergency. Our partner, Jorge Montes, prepared a tax alert on such matters, visit here (in Spanish only).

 

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