On February 1, 2021, the government of the United Kingdom (UK) formally requested in a letter to New Zealand, the treaty’s depositary, its accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Yesterday, Wednesday, June 2, 2021, during the fourth ministerial meeting of the CPTPP Commission, ministers and officials from the countries of the free trade area, gave the green light to the start of accession negotiations with the United Kingdom.
It was therefore agreed that a working group would be set up to negotiate the terms of the UK’s accession to the Treaty.
CPTPP is a free trade agreement signed by 11 countries, however it only applies – for the moment – between Mexico, Japan, Canada, Australia, New Zealand, Singapore and Vietnam; while Chile, Peru and Brunei have not yet completed the process of adopting the treaty.
The CPTPP allows tariffs between member countries to be reduced by up to 95%, and with the admission of the UK, the nominal GDP of the area covered by the Treaty would be almost at the same level as that of the EU.
In this regard, UK International Trade Secretary Liz Truss said:
The UK government will publish its outline approach, scoping assessment and consultation response before negotiations start in the coming weeks.
Source: Noticias Bancarias, Reuters, El Universal, GOV.UK, Aristegui Noticias.
Following up with UK news, let’s not forget that Mexico and the UK signed the Trade Continuity Agreement and the Agreement relating to Article 12 of the Trade Continuity Agreement In December 2020.
The purpose of this agreement is to maintain preferential tariff preferences between both countries after the UK’s exit from the European Union.
As mentioned in our Legal Alert of April 30, both agreements had to be published in the Official Gazette of the Federation (DOF) in order to become legally binding in Mexico so that goods from the UK can benefit from tariff preferences.
Yesterday, Tuesday June 1, 2021, both Agreements were finally published in the DOF, as well as several instruments necessary to guarantee the preferential access of products between Mexico and the UK, including a mechanism to return tariffs paid on UK products as of January 1st. For more information, please see our Legal Alert of June 2, 2021.
This week, Index held the “third labor forum” event in which the Mexican ambassador to Canada participated. According to the media, the Ambassador said that the government of Mexico and Canada are planning to establish a working table to avoid conflicts that could trigger a USMCA dispute settlement mechanism.
More information: Milenio.
With the United Kingdom´s (UK) withdrawal from the European Union (EU), the need to sign a new transitional trade agreement between Mexico and the UK arises so that the rights and obligations, which established preferential trade conditions as well as a platform to promote greater trade liberalization between the parties, are maintained between the two countries.
On the one hand, the 1997 Economic Partnership, Political Coordination and Cooperation Agreement between Mexico and the European Community and its Member States (hereinafter referred to as the EU-Mexico FTA) ceased to govern trade relations between Mexico and the UK. On the other hand, the Withdrawal Agreement signed between the UK and the European Community, which extended the period in which the UK would be treated as a member state of the EU, ended on December 31, 2021.
Therefore, taking into account that the UK is Mexico’s sixteenth trading partner, the Ministry of Economy (SE) signed the Trade Continuity Agreement with the UK and Northern Ireland in December 2020 with the aim of maintaining and improving preferential trade conditions while these countries negotiate a new trade agreement, i.e., this agreement governs the relationship on a transitional basis.
The Senate of the Republic approved the Trade Continuity Agreement between Mexico and the United Kingdom, as well as the Agreement related to Article 12 of such agreement, which was published in the DOF on April 23, 2021.
However, both agreements have not yet entered into force in Mexico because the text has not been published in the DOF.
Agreement relating to Article 12 of the Continuity of Trade Agreement between Mexico and the United Kingdom.
The Agreement relating to Article 12 establishes that the United Kingdom will apply the provisions of the Continuity Agreement as of January 1, 2021. In other words, imports from Mexico into the United Kingdom enjoyed uninterrupted preferential access.
In Mexico, the situation for products from the United Kingdom is different. Per Mexican Law, the Continuity Agreement and the Agreement relating to Article 12 not only has to be approved by the Senate, but their text has to be published in the Official Gazette in order to produce legal effects.
Although the text of the agreement has not yet been published, the Trade Continuity Agreement at the time they are published in Mexico will have retroactive effects until January 1, 2021. In other words, during the period between January 1, 2021 and until the publication of the trade agreements in the DOF, imports originating in the United Kingdom have to pay the General Import Tax (IG).
That said, a Mexican importer will be able to benefit from the retroactive application of the Continuity Agreement in Mexico through a system for the refund of duties paid on goods that qualified as originating from the UK and that were imported into Mexico as of January 1, 2021. Such mechanism was announced by the Ministry of Economy (explanation in webinar) and will be subject to the provisions determined by the Ministry of Finance and Public Credit (SHCP) in conjunction with the Tax Administration System (SAT).
The Continuity Agreement establishes that the trade-related provisions of the EU-Mexico FTA will be incorporated into and be a part of this Continuity Agreement, with some changes. Therefore, its ratification and application in Mexico does not entail the modification of laws or regulations that are currently in force.
However, for the proper implementation of the Continuity Agreement, the publication of the following in the DOF is required:
Furthermore, as a result of the implementation of this agreement, it will be feasible for Mexican producers to expand preferential access for agricultural products such as bananas, asparagus, honey, molasses, among others.
Likewise, preferential access will offer a benefit to exports from the south-southeast of Mexico in states such as Tabasco, Chiapas, Veracruz and Yucatan.
On March 23, Tatiana Clouthier, head of the Ministry of Economy, met virtually with U.S. Trade Representative (USTR), Katherine Tai, to discuss the importance of the bilateral trade relationship and the full implementation of the USMCA.
Both sides committed to future engagement on shared priorities such as economic recovery in the context of the Covid-19 pandemic and the full implementation of Mexico’s labor reform. Both sides also agreed on the mutual benefit derived from strong bilateral agricultural trade.
One day before this meeting, a group of 27 U.S. agricultural associations sent a letter to Secretary of Agriculture Tom Vilsack and the USTR that is available on the National Potato Council’s website. In addition, the Alliance for Trade Enforcement also issued a letter to the USTR this Wednesday.
Both associations have expressed their concerns about certain measures issued by the Mexican government that has already or will negatively impact a portion of U.S. agricultural exports and other sectors.
VTZ has addressed some of these issues in our previous newsletters and /or digital content. If you have any questions, please let us know.
Prior to the Electrical Industry Law reform publication in the Official Gazette on March 9, 2021, some of Mexico’s trading partners expressed their concerns about the impact of said reform on energy investments. If you wish to know more about this controversial reform, we consider this content relevant: Wilson Center
The Vice President for the Americas of the U.S. Chamber of Commerce, Neil Herrington, expressed that the reform was deeply troubling because it would reestablish a monopoly in the sector and affect Mexico’s commitments to the U.S. under the USMCA.
Mary Ng, Canadian Trade Minister, expressed through a letter sent to the Mexican Ministry of Economy, emphasizing Mexico’s obligation to maintain a stable and predictable business environment for Canadian companies.
In the same vein, EU’s representatives in Mexico recognized Mexico’s sovereign right to define its energy policy. However, they pointed out that this could lead to international arbitration, as well as a loss of confidence on behalf of investors.
Meanwhile, some companies in Mexico filed a constitutional remedy (amparo) against the electrical reform requesting the suspension of the reforms effects. A couple of Judges have granted suspensions (injunctions) and with general effects. In other words, the suspensions protect all companies that may be affected by the electrical reform in order to avoid market distortions.
At VTZ, we certainly believe that this reform could eventually trigger Investor-State disputes per FTAs and/or BIT. Furthermore, we consider it possible that the U.S. and Canada could initiate a USMCA (State-State) dispute, so there trade retaliation is possible in the event that an international panel rules against Mexico.
During the inauguration of the 104th General Assembly of the American Chamber of Commerce (Amcham), the Minister of Economy, Tatiana Cloutier, mentioned that the Mexican Government has a list of 200 studies and projects in which U.S. companies will be invited to invest. These projects have been worked in coordination with international organizations and focus on nine states in the southeast of Mexico.
In this regard, the incoming president of Amcham, Vladimiro de la Mora, added that Amcham members are committed to Mexico; however, to continue being a reliable, attractive, and safe partner for investment, Mexico needs to ensure an essential level of security, respect for the law and legal certainty.
Eventually, the projects will be announced, and we deem that such projects will be open to all companies, regardless of their nationality or origin. We expect that some projects will be related to the Isthmus Corridor project.
Last week, the Ministry of Finance issued a statement to inform that as of April 1, Ernesto Acevedo Fernández will be appointed as Alternate Executive Director of the World Bank.
As of the 1st of April Ernesto Acevedo Fernández will represent Mexico before the World Bank (@BancoMundial) as Alternate Executive Director of that institution.
— Hacienda 🇲🇽 (@Hacienda_Mexico) March 18, 2021
— Hacienda 🇲🇽 (@Hacienda_Mexico) March 18, 2021
Ernesto Acevedo is currently acting as undersecretary of Industry, Trade and Competitiveness at the Ministry of Economy. Mr. Acevedo is going to be substituted by Héctor Guerrero. According to the declarations of the Ministry of Economy, Tatiana Clouthier, Mr. Guerrero has worked in the private sector for a long time and joined the public sector when Andrés Manuel López Obrador became president.
La secretaria @tatclouthier felicita al subsecretario de Industria, Comercio y Competitividad, Ernesto Acevedo, por su nueva encomienda como representante de México en el Banco Mundial, y da la bienvenida a Héctor Guerrero, quien asumirá el cargo de subsecretario el 1 de abril. pic.twitter.com/zzsyXa93AK
— Economía México (@SE_mx) March 18, 2021
At this time, Mr. Guerrero is the Coordinator of the National Council for Investment, Employment and Economic Growth (COFINECE, acronym in Spanish), which is chaired by the Head of the Presidential Office. During the announcement, the Ministry also mentioned Alfonso Romo, who used to be in charge of the Presidential Office and is currently a sort of liaison between the private and public sectors.
Last week, the Chamber of Deputies approved the Federal Law for the Cannabis Regulation project. This law will allow the recreational use of marijuana (up to 28 grams), and the possibility of self-cultivation, including importation, through permits.
The project-law will return to the Chamber of Senators for the approval of the changes made by the Chamber of Deputies in order to conclude the legislative process.
Source: El Economista
In line with our objectives, VTZ Law Firm has developed a Doing Business in Mexico Guide with a strong focus on foreign investment in manufacturing activities. It is our goal as trusted advisors and business facilitators to guide foreign investors, providing insights in a concise manner.
Before the coronavirus outbreak, economists predicted that Mexico was heading to be the seventh economy of the world in 2050. Mexico would be growing at a 3.5% annual average rate over the next three decades, a growth rate superior to that of developed economies. Mexico’s size of the economy, demographic, sound macroeconomics, stable public finances, as well as recent amendments to strategic economic sectors have contributed to a better economic performance according to the OECD.
Today, Mexico is one of the most attractive foreign investment destinations. Besides being the 15th largest economy in the world, Mexico is a “free market” economy that is opened to international trade and foreign investment. As a result, Mexico has a highly diversified economy, modern industries, and a developed financial market. This is the result of a shift from protectionist towards liberal economic policies since the beginning of the 1990s, particularly, with the North American Free Trade Agreement.
Needless to say, there is still much work to be done to improve the general conditions of life for Mexicans, as well as for the business environment. For instance, the World Economic Forum identifies Mexico’s five most problematic factors for business: corruption, crime and theft, inefficient government bureaucracy, tax rates, and tax regulations. However, there is hope. In recent years, business facilitation measures have been in the political agenda as well as tackling corruption, which is now more relevant than ever as a result of Mexico’s modern free trade agreements (FTAs). In fact, it is clear that Mexico’s competitiveness relies on its extensive FTAs network as a pivotal force for its economic development.
Therefore, the United States-Mexico-Canada Agreement (USMCA), which entered into force in July 2020, will continue to consolidate the country as an attractive business destination as long as Mexico successfully implements said agreement.
Mexico is living a historic moment. The political map changed significantly following the general elections held in July 2018. Mexico’s president, Andrés Manuel López Obrador (AMLO), and his party, the National Regeneration Movement (Morena), have continued the trend to promote, for instance, free trade agreements, but they have also adopted new and controversial policies. For instance, Mexico’s investment and trade promotion agency, PROMEXICO, was extinguished as result of “austerity” measures.
Vázquez Tercero & Zepeda (VTZ) seeks to fill that void and promote Mexico as a business destination for international companies and foreign investors in an honest and concise manner. This is why VTZ has developed Doing Business in Mexico 2020, which is divided into seven chapters:
In these executive guides, VTZ aims to help and to provide insights regarding relevant legal topics on business, trade, tax, and labor for potential investors, that seek to reap the best out of Mexico and the manufacturing industry.
(Please check your Spam, just in case)
Business Law, Creating a Company in Mexico, Doing Business in Mexico, featured, Foreign Direct Investment, Guide, International Trade, labor, Manufacturing Industry, Migration in Mexico, Taxation in Mexico
Our first chapter of Doing Business in Mexico, Why Invest in Mexico?, will serve as an introduction providing a general overview of the current economic and business environment.
VTZ Law Firm analyzes Mexico’s doing business rankings and economic indicators –positive and negative– from the World Bank and the World Economic Forum.
Also, we summarize trade and foreign direct investment statistics with a strong focus on the manufacturing industry, land in Mexico for industrial purposes, and security considerations.
Although Mexico is not one of the most competitive countries in the world, Mexico is the second Latin American most competitive economy according to the World Economic Forum (WEF) and the World Bank (WB). WEF’s Global Competitiveness Index 2019, a yardstick for policymakers, analyzes 12 “broad” pillars that shape an economy of a country. Meanwhile, the WB’s Doing Business gathers information regarding the regulatory environment and how it impacts in local firms, reporting 10 key indicators.
Mexico stands out in macroeconomic stability (41st) and market size (11th) pillars, which are very relevant indicators to invest or do business in Mexico. This is no surprise as Mexico’s inflation has been controlled, around 3% to 4% per year; its GDP has had a stable growth, about 3%, in the last decades; and, its public debt has been properly managed.
Needless to say, inflation has had few spikes, notably in 2017, as a result of the liberalization of energy goods; and, despite having the second largest market of Latin America (124 million people), Mexico has a low GDP per capita or purchasing power.
Furthermore, Mexico also stands out in the following specific indicators: budget transparency (6th), energy efficiency regulation (30th), renewable energy regulation (30th), road connectivity (22nd), airport connectivity (15th), liner shipping connectivity (34th), electricity access (% of population) (2nd), debt dynamics (36), trade openness (27), ease of hiring foreign labor (48), financial stability (30), cluster development (36), among others.
Mexico is ranked in 60th place overall, out of 190 economies, and is one of the top business-friendly environments in Latin America, only behind Chile that ranks in the 59th position. Mexico’s top three topics or indicators are getting credit (11th), resolving insolvency (33), and contract enforcement (43rd).
As a result of strong legal rights in relation to collateral laws (securities) as well as a robust credit reporting system, Mexico outperforms most economies in getting credit. Mexico also has a decent performance in the resolving insolvency and contract enforcement indicators, particularly, due to time to carry out a dispute in a court (under certain assumptions) and strength of insolvency framework index.
Unsurprisingly, Mexico underperforms in the Institution and Labor Market pillars of the WEF’s Global Competitiveness Index 2019. Although serious legislative steps have been made on security, corruption, and “regulatory improvement”, Mexico continues to rank particularly low in a handful of matters that fall under the Institution pillar such as security (138th), burden of government regulation (116th), judicial efficiency (116th), judicial independence (103rd), as well as incidence to corruption (116th).
Insecurity is a concern not only for foreign investors. We note that the new administration has pushed for constitutional and legal reforms that have overhauled security bodies, the attorney general’s office, and powers to the Tax Authority (SAT, acronym in Spanish) against tax evasion schemes. The Financial Intelligence Unit (UIF, acronym in Spanish) has been tackling high profile individuals and companies that are allegedly involved in laundering money or in corrupt practices.
As for the Labor Market pillar, Mexico underperforms in redundancy costs (e.g. severance of labor contracts) (103rd), as well as labour tax rates (116). Needless to say, Mexican Labor Law has undergone a significant overhaul as a result of USMCA’s Labor Chapter, which seeks to protect collective labor rights. However, neither redundancy costs nor labor tax rates (i.e. a state tax) were addressed in such reform.
Known to have a complicated tax environment, Mexico is ranked in the 120th position out of 190 economies in the Paying Taxes topic of WB’s Doing Business 2020. Under normal circumstances, a company would have to pay six taxes throughout the year, namely corporate income tax, value-added tax, security social contributions, payroll tax, property tax*, and vehicle tax*.
Despite a low number of tax payments as compared to other jurisdictions, Mexico’s tax environment is poorly ranked especially due to (1) total tax and contribution rate and (2) the post-filing index. For instance, Mexico’s statutory tax rates for the corporate income and VAT, which are the most time consuming and prone to tax audits, are set at 30% and 16% respectively. Furthermore, VAT refunds or income tax corrections take a considerable amount of time and effort.
Mexico’s also underperforms in Starting a Business (107th). Though starting a business is discussed in the Chapter – Creating a Company in Mexico, the process to incorporate a company appears, in its face, straightforward in Mexico. According to the guide, a non-foreign entrepreneur has to complete eight procedures to incorporate a company and to have all registrations in order; however, a significant practical hurdle is that concerning to the company’s registration before SAT.
Likewise, the number of procedures and time are factors that negatively affect Mexico’s score in Getting Electricity (106th), meanwhile the number of procedures, cost, among other matters, influence Mexico’s negative performance in Registering Property (105th).
Mexico’s foreign direct investment (FDI) and international trade are, to a great extent, attributable to the established manufacturing sector, which convinces foreign investors to invest in Mexico. According to UNCTAD’s World Investment Report 2020, Mexico is the 14th country with most FDI inflows in the world in 2019. In sum, Mexico is a top FDI destination.
As noted by the WEF, Mexico has a strong cluster development. This feature explains why almost half of Mexico’s FDI inflows are related to the manufacturing sector.
Investment Inflows in the Mexican Manufacturing Sector
The top five manufacturing sub-sectors that have attracted investment from 1999 to 2019 are (1) transport equipment (e.g. auto), (2) beverages and tobacco, (3) chemical, (4) computer, communication, and measurement equipment, and (5) the food industry.
For instance, FDI in the transport equipment (or auto sector) has amounted to 79,053 million USD since 1999, which represents 21% of Mexico’s total foreign direct investment inflows as noted in the table below:
Mexico has different levels of industrialization. In fact, most of the manufacturing sector has established itself in the north and the center of the country. For instance, the (passenger) auto industry and the OEM (Original Equipment Manufacturers) are located in the States as indicated in the image below.
International Trade and Manufactured Goods
Establishing itself as an important manufacturing hub, Mexico is an economy with a significant presence in international trade. Mexico ranks in 12th place among world economies in both exports and imports, its trade balance amounts to 916 billion USD in 2019. The World Trade Organization describes Mexico as:
“a ‘buyer’ in GVCs and therefore has a significant rate of GVC backward participation, standing at 36 percent in 2015. The economy imports inputs mostly from the United States and China to produce its exports.”
Mexico’s main exports include (1) manufactured goods, (2) fuels and mining products, (3) agricultural products that amount a total of 461 billion USD.
In 2019, Mexico exported 461 billion USD. Unsurprisingly, Mexico’s main export destination is USA exports amounting to $371 billion USD, followed by the European Union $24 billion USD, Canada $14 billion USD, and China $7 billion USD%.
As for import data, US imports amount to 205.733 billion USD, China 83.052 billion USD, European Union imports amount to 51.237 billion USD, Japan 17.963 billion USD, and Korea 17.649 billion USD
Comparing the US-China trade relations, US exports more goods in value to Mexico than to China. For instance, US exports to China amounted to $106 billion in 2019.
Land in Mexico may be purchased or leased for industrial purposes. Needless to say, Mexican law has restrictions as to the ownership of land when, for instance, it is located in the northern border strip or near the coastline (see our Foreign Investment Chapter)…..
To continue reading our Guide, please fill out the form below.For more information about VTZ Law Firm services, visit our website or contact us info[@]vtz.mx!
Mexico limps from security-related matters that affect its competitiveness indicators significantly, which may affect decisions to invest in Mexico. We cannot turn a blind eye on this fact, and foreign investors normally pose the question:
How risky is Mexico?
The American Chamber of Commerce in Mexico (Amcham), which we are members, published…
To continue reading our Guide, please fill out the form below.For more information about VTZ Law Firm services, visit our website or contact us info[@]vtz.mx!
 World Trade Organization, World Trade Statistical Review 2019, pg. 43
Our third chapter of Doing Business in Mexico, International Trade, will provide a general overview of ton Mexican International Trade Policy considering international context, as well as customs aspects.
This chapter includes the following sections:
As a member of international organizations and Free Trade Agreements, Mexico has, to a certain extent, a predictable trade and customs policy. Mexican laws on customs and trade are normally compatible with international rules. The President and his ministers are not only in charge to apply these laws, but they also have powers to regulate international trade and customs, including emergency actions.
Since the inception of the World Trade Organization and the North American Free Trade Agreement, Mexico’s trade and customs legal framework has not been subject to a substantial overhaul; seldom reforms particularly to the customs law have occurred from time to time.
However, Mexico is currently embracing modern free trade agreements, such as the Comprehensive and Progressive Transpacific Partnership (CPTPP) or USMCA, that have and will bring certain legal changes in intellectual property, de minimis, e-commerce, etc.
Needless to say, trade and customs programs or regulations are subject to frequent changes that seek to adapt to new trends, risks, or policy objectives. Mexico has in place, for instance, duty deferral and tariff reduction programs that allow manufacturing or export-oriented industries to be more competitive. However, such programs are subject to strict government controls.
Mexico is a party to the World Customs Organization and to the International Convention on the Harmonized Commodity Description and Coding System (HS Convention).
As a result of the sixth amendment to the HS, Mexican congress discussed a new law that replaced its General Import and Export Tariff Act (LIGIE, acronym in Spanish), i.e. Mexico’s Harmonized Tariff Schedule. The Ministry of Economy conducted an exhaustive review and proposed to compact or unfold tariff items for statistical purposes into 10 digits that will be called Commercial Identification Number, instead of an 8 digit tariff item (known as fracción arancelaria). The new General Import and Export Tariff Act was published on July 1, 2020.
Mexico’s average WTO bound tariff is 35%, and duties rates vary from 0% to 100%. According to Mexico’s most recent Trade Policy Review (2017), the average MFN tariff on agricultural and non-agricultural products was 14.3% and 4.6%, respectively. The General Import and Export Tariff Act establishes the import tariff or “General Import Tax” (Impuesto General de Importación, or IGI) as well as the export tariff “General Export Tax” (Impuesto General de Exportación, or IGE).
Mexico has an extensive network of Free Trade Agreements (FTAs) with 50 countries and is also a party to regional agreements within the framework of the Latin American Integration Association (ALADI).
The main FTAs and trade agreements to which Mexico is currently a party are as follows:
….. Read more
Long before NAFTA came into existence, Mexico had into effect duty deferral policies that allowed manufacturing companies, known as maquiladoras, to import goods, such as raw materials, parts, containers, etc., without paying import duties. The maquiladoras had to use said imported goods in the production of exported manufactured goods and, in turn, they could temporally import said goods and defer customs duties.
Eventually, NAFTA introduced drawback provisions to promote the use of regional goods and “to reduce the incentive for third countries to use a NAFTA country as an ‘export platform.” Article 303 NAFTA, replicated in article 2.5 USMCA, introduced a general prohibition on refunding or exempting customs duties owed on non-originating goods imported into the territory of a party.
In essence, these provisions have as a purpose to avoid double ‘taxation’ on non-originating materials that are used as an input in the production of a finished good subsequently exported to another NAFTA or USMCA party.
Thank you for your interest, if you wish to continue reading please fill out the form below or contact us.For more information about VTZ Law Firm services, visit our website or contact us info[@]vtz.mx
Customs is a source of concern for the current administration, which has had three customs directors so far. On Monday, the President recognized that his administration has not been able to control corruption at customs. According to his statements, synthetic drugs are entering through the port of Manzanillo, Mexico’s most important port, while “anti-corruption” actions are taking place in the Nuevo Laredo customs.
While visiting Manzanillo today, President AMLO made a “general” announcement in his daily press conference that the armed forces will be “in charge” of the customs located in land or ports because they have been poorly “managed”. The specificities of the plan as well as what will be the powers of the armed forces at customs are yet to be announced.
In the words of the president:
“We have taken the decision… that the land and sea customs will be in charge of the Ministry of Defense, and the Ministry of the Navy will be in charge of the customs in the ports.”
This is not the first time that armed forces have intervened in customs or ports. For instance, we recall that the Ministry of Navy took “control” of the Lazaro Cardenas Port and Manzanillo in 2013 and 2014 (news reports in Spanish), respectively. Furthermore, a decree was published in the Official Gazette that authorized the intervention of the navy in the ports in 2014, but their powers were limited to “policing in ports”. Nevertheless, we are aware that during this period international operations, such as exports regarding certain products (e.g. minerals), faced “difficulties” at customs.
Based on past experiences, we wonder whether importers or exporters in Mexico will face difficulties if the operation of customs or ports is indeed in charge of Mexican armed forces.
On Tuesday, Reforma published an article where experts called to review USMCA internally and periodically. Among the experts, Adrian Vázquez, our managing partner, considered that this review would allow to evaluate, for instance, if imports are integrating value chains or displacing national production.
The National Institute of Statistics, Geography, and Information (INEGI) released on Monday the data on Mexico’s trade balance during April 2020. According to the figures, Mexico’s trade balance had a trade deficit of 3,087 million dollars during April. Compared with the same month of the previous year, INEGI reported that Mexico had a surplus of $ 1.51 billion.
This negative monthly performance is, of course, explained due to the measures implemented by the COVID-19 pandemic, both nationally and internationally.
The monthly deficit of the Mexican trade balance is explained by the annual decline in exports of 40.9%, this has been the worst drop in the indicator since 1986. When comparing to April 2019, oil and non-oil exports decreased by 66.4% and 39.4%, respectively.
Among non-oil exports, the following data stand out:
Exports to the United States decreased by 40.7%, while those directed to the rest of the world decreased by 33.4%.
On this, Fernando Ruiz Duarte, general director of the Mexican Business Council of Foreign Trade, Investment, and Technology (COMCE), commented “the April figures were already expected since around 80% of sales abroad are directed to the United States and its economy was practically paralyzed, so it is logical that exports decrease. ” He also called for the need to diversify export markets.
The other noteworthy data is that exports from the manufacturing industry decreased by 41.9%, whereby 79.1% correspond to the automotive industry and 20.9 % correspond to non-automotive manufacturing exports decreased.
Imports decreased by 30.5% when compared to the figures in April 2019. According to the type of goods, consumer goods, intermediate-use goods, and capital goods decreased by 46.5%, 28.1%, and 26.7%, respectively.
Just another friendly reminder that on June 2nd, 2020, the free webinar on “Labor & Trade: Is Mexico ready for USMCA’s Labor Chapter?” will take place organized by the US-Mexico Bar Association, in conjunction with VTZ.
The Panel will be made up of Ricardo Aranda from the Ministry of Economy, Gabriela Peregrina from DeForest Abogados, Olga Torres from Torres Law and will be moderated by our Jr. partner Emilio Arteaga. The members of the panel will discuss the results of USMCA’s labor chapter, the rapid response mechanism as well as whether there is any other labor-related risk to Mexico-US international trade relation.
Register to the Webinar: https://docs.google.com/forms/d/e/1FAIpQLSfFxcD_hJCmCFAGuBhj2YdbYeHU8Gf6el5cKC67x1hYy-gslQ/viewform
This week on the Trading Room, we address the Mexican the weekly news that impacts international trade in Mexico: Mexican COVID-19 strategy to resume activities, changes to the essential activities, Director General of the WTO steps down and its implications to Mexico, as well as the G20 decision. Download our newsletter in the following link: Trading Room – May 15.
After requests from the US government and industry, the Mexican Ministry of Health finally published yesterday the decision that adds as an “essential activities” the transportation equipment manufacturing industry, as well as the construction and mining; the decision also establishes a three-stage strategy to resume educational, social, and economic activities.
However, the three aforementioned industries will be able to resume activities until June 1, so supply chains will likely be affected, particularly OEM plants in the US that will begin operations the following week, as we reported last week citing the MENA.
For more information on the stages, we prepared an Alert – COVID.
We consider it important to share that the General Health Council published a similar decision on Wednesday, May 13, however, it was suddenly and incredibly withdrawn during the day by the Official Gazette of the Federation. The department issued a statement with an explanation.
Importante: Aclaración sobre la publicación de la edición electrónica del DOF del día de hoy. pic.twitter.com/DFmTVAckCJ
— Diario Oficial DOF (@DOF_SEGOB) May 13, 2020
A retired supreme court judge, Mr. Cossío, stated in a tweet that the alteration of the Official Gazette was done because public officials realized that the General Health Council lacked powers to issue such a decision.
La publicación del acuerdo del Sec. de Salud en el Diario Oficial del día de hoy, demuestra que la grave alteración al Diario Oficial de ayer fue porque se dieron cuenta que el Consejo de Salubridad era incompetente para dictar tales medidas.
— José Ramón Cossío D. (@JRCossio) May 14, 2020
The Mexican Bar issued a statement regarding this event calling the government to protect the trustworthiness of the Official Gazette.
— BMA COLEGIO ABOGADOS (@BMA_Abogados) May 14, 2020
In VTZ we fully endorse the content of the letter.
Yesterday, May 14, Roberto Azevedo, Director General (DG) of the WTO, announced that he will step down from his position on August 31 of this year. Roberto Azevedo began his position in 2013, a mandate that was renewed in 2017, and that ended in August 2021.
Within his mandate, the Commercial Facilitation Agreement, the expansion of the Information Technology Agreement, among other decisions, were agreed; Also, Azevedo has been criticized for being passive in defending the multilateral trading system due to the constant attacks of the US against the Appellate Body (including on a budgetary basis).
According to his farewell speech, Azevedo explains that he is resigning because, in part, members will be able to choose a new director who will have the time to prepare for the next Ministerial Conference as well as to set a new path for the future of the WTO, taking into account the new post-COVID-19 realities.
The WTO is going through a critical time, as no consensus has been reached, notably, with regard to the selection of Appellate Body members. Without a leader at the head of the WTO, the multilateral system will be paralyzed because members will hardly be able to reach new agreements to renew the foundations of the WTO, such as new agreements on subsidies, dispute settlement, fishery subsidies, etc.
Lighthizer, the US Trade Representative, stated that he looks forward to participating in the selection of the new DG; however, if the members do not manage to choose promptly, the trade uncertainty will continue because it will be difficult to reduce the tensions of the US-China trade war, to return the “Rule of Law” to international trade relations punishing unilateral-protectionist actions, as well as to face the post-COVID effects.
The regional blocs will continue to take on greater relevance in international trade, fragmenting and rendering the multilateral system obsolete. Although Mexico is a strong supporter of the multilateral system, Mexico has established itself in various regional blocs, notably USMCA (with a renewed dispute settlement chapter), CPTPP, Pacific Alliance, and now modernizing its trade relations with the European Union, which may allow Mexico to become an attraction pole for new regional and global value chains.
On May 14, the Ministry of Economy reported that the Trade and Investment Ministers of the G20 agreed on a series of specific actions in the short and long term to counter the economic effects of the COVID-19 pandemic.
— Economía México (@SE_mx) May 14, 2020
The actions foreseen in the short term focus mainly on issues of trade regulation and facilitation, global value chains, strengthening of foreign investment, transparency, and operation of logistics channels. In the long term, members agreed to strengthen the multilateral trading system.
Finally, the Ministry of Economy’s statement indicates that the G20 Trade and Investment Working Group must report the status of implementation of the agreed actions.
Download our newsletter in PDF in the following link: Trading Room
Since the Canadian Parliament approved USMCA in March, it was thought that USMCA would enter into force on June 1, 2020, as long as all parties formally notified that they had concluded their internal legislative procedures. On Monday, however, it was reported that US congressmen sent a letter to Lighthizer, the US Trade Representative, requesting a new date to be set for USMCA’s entry into force due to the public health crisis and interruptions in the supply chain caused by COVID. The Congressmen pointed out that USMCA should not come into effect until Mexico and Canada have fulfilled their prior commitments (e.g. reforming laws) and until industries can effectively implement the new rules. The Mexican Association of the Automotive Industry (AMIA), for instance, to reconsider the date of entry into force until 2021.
Notwithstanding the foregoing, it is reported that yesterday (Thursday) Canada notified Mexico and the US the conclusion of its domestic USMCA approval process. A Mexican high-level official has called July 1, 2020, to be the entry-into-force since there are pending matters to be resolved.
¿Por qué la entrada de T-MEC el 1/7 nos favorece? Porque hay 2 temas vitales que se deben acordar ANTES de hacer la notificación (y 2+ meses después TMEC entra): reglas uniformes p/ vehículos consultadas c la industria Y listas de panelistas de socios comerciales aceptables p/ MX https://t.co/LWDo0Rx139
— Jesús Seade (@JesusSeade) April 2, 2020
The President of Mexico, AMLO, announced since last Monday, March 23, that there are no relief plans for companies, tax exemptions or other mechanisms. Also, AMLO stated the following:
“We are developing a plan, only that it is different from the recipes that were applied in times of crisis; for example, credit was always used, from the International Monetary Fund, fortunately, we have no need to do that, because we have reserves, we have savings, we can finance our development. “
This position has been reiterated in several of the president’s morning conferences, particularly in response to an economic plan presented by business associations to address the economic crisis; some of the proposals are reducing 5% the income tax, the government should facilitate payment regarding outstanding balances with suppliers, provision of loans from the Development Bank to SMEs. However, this Thursday the president, AMLO, announced that this Sunday he will present an “Economic Plan.”
In the face of the COVID-19 pandemic, the Federal Government has issued the following agreements and decrees published in the Official Gazette of the Federation on March 23, 24, 27, 30 and 31, respectively:
The most relevant agreement, so far, is that that Declares a Health Emergency due to force majeure caused by COVID-19 (highlighted above). The importance is explained, firstly, by the legal labor implications of the declaration; although the text is subject to interpretation, high-level authorities indicate that the declaration does not modify labor rights (e.g. reduction of wages) or suspend labor relations or rights.
As a result of the aforementioned declaration, the Agreement establishing extraordinary actions was issued and ordered the immediate suspension, from March 30 to April 30, 2020, of non-essential activities; thus, the agreement defined in “detail” those activities considered essential that will have to continue to operate.
Tax collection was considered as an essential activity for the performance of the Mexican economy. Therefore, the Mexican Tax Authority (SAT) is operating, and all its administrative procedures and procedures, including tax and international trade audits, are being carried out “as if in “normal” circumstances.
As a result of COVID, the Ministry of Economy suspended, as a general rule, all legal deadlines. However, some of its procedures and departments will continue to operate, e.g. international trade matters. The relevant department has issued facilitation measures, regarding certificate of origins, import licenses, quotas, etc., enabling electronic submissions as well as the issuance of e-government documents in order to avoid gatherings in government offices.
As a member of Alliott Group: Alliance of Accountants & Lawyers Worldwide, VTZ puts at your reach relevant information on government relief measures, tax incentives or the like offered in countries due to the COVID-19 pandemic. We are convinced that having a global vision on relief measures in different parts of the world will undoubtedly help business rethink their plans and contractual commitments.
We, our colleagues of Alliott Group located in 65 countries and VTZ, are ready to face and overcome the effects of this health crisis with you. So, tell us, how can we help?