DOING BUSINESS IN MEXICO

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DOING BUSINESS IN MEXICO

• EDMUNDO GONZALEZ
• TRADE COMMISSION OF MEXICO
• QUEENS LIBRARY, JANUARY 7, 2006

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BANCOMEXT-TRADE COMMISSION OF MEXICO

• The Mexican Eximbank
• An entity of the Mexican government
• Promotes Mexican exports
• Promotes and attracts foreign direct investment
  in Mexico
• 25 offices in Mexico, 31 trade
• offices abroad

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TRADE OFFICES ASSISTANCE SERVICES FOR U.S. FIRMS

• Identify Mexican suppliers
• Match-making with Mexican firms
• Subcontracting
• Buyers missions

Trade

• Legal and economic information
• Identify potential partners
• Contacts with government officials
• Business Tours to Mexico
• Investment- Industry Seminars
• Publications Industrial costs
• www.investinmexico.com

Partnerships Investment
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CONTENTS

• ECONOMIC AND POLITICAL ENVIRONMENT
• BILATERAL TRADE AND INVESTMENT
• MEXICAN MARKET
• SECTORS OF OPPORTUNITY
• DOING BUSINESS IN MEXICO
• LEGAL ASPECTS
• USEFUL WEBSITES
• QA SESSION

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THE MEXICAN ECONOMYIN A GLOBAL CONTEXT

• Twelfth in the world economy MEX. GDP 670 Bn
• U.S. GDP 11,750 Bn
• First Latin American Exporter
• Mexico 190 Bn
• Brazil 97 Bn
• Argentina 34 Bn

• 13th Exporter 190 Bn
• Total Trade 386 Bn
• 2nd largest recipient of FDI in Latin America
  17 Bn
• Note 2004 data.

2004 2005e 189b 200b
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Fundamentals of the Mexican Economy
Inflation Rate

• 1. ECONOMIC STABILITY
• Low Inflation
• Economic growth
• Investment grade status by SP, Moodys and
  Fitch.
• Strong domestic financial market
• Integration to the U.S. economy

Growth Rate
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Fundamentals of the Economy 2. Free Trade
Agreements
NAFTA Entry into force Jan. 1,
1994. Liberalization of automotive sector Jan.
1, 2004.
AELC FTA Switzerland, Liechtenstein, Norway
Island Negotiation November 1, 2000
UE FTA Entry into force July 1, 2000. Trade
liberalization in 2007
FTA Israel Entry into force July 1, 2000
FTA Bolivia Entry into force Jan. 1,
1995. Trade liberalization in 2002
NT FTA (North Triangle) Guatemala, Honduras El
Salvador Entry into forceJan. 1, 2001.
FTA Chile Entry into forcer Jan. 1,1992. Trade
liberalization in 1998
FTA Nicaragua Entry into force July 1,
1998. Trade liberalization in 2002
FTA Colombia Venezuela (G3) Entry into force
Jan. 1, 1995. Liberalization for heavy trucks and
buses will be 2007
FTA Japan 2005
FTA Costa Rica Entry into force Jan 1,
1995. Trade liberalization in 1999.
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Fundamentals of the Mexican Economy 3. The
Institutions

• Central Bank
• Electoral Institute
• Nafta
• More transparency and accountability of the
  government
• Free press
• Political balance

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RECENT ECONOMIC DEVELOPMENTS

• STRENGHTS
• High level of reserves 60 Bn
• No external debt service pressure
• The U.S. is to grow in 20063.5
• High oil prices
• High level remittances 20 bn 2005
• Deep financial market
• Inflation historically low 3
• RISKS
• Political uncertainty
• A slowdown of the U.S. economy

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BILATERAL TRADEAND INVESTMENT
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BILATERAL OVERVIEW

SECOND TRADE PARTNER OF THE U.S.
2004
267 bn

• 2ND LARGEST BUYER OF U.S. PRODUCTS 111 bn in
  2004
• FDI 1994-2005 90 bn / US COMPANIES IN MEXICO
  16,830

Mexico and U.S. Industrial Production
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NAFTA

• Most prominent trade agreement
• Signed in 1994
• Between Mexico, Canada and the U.S.
• By 2008, all products are duty free
• NAFTA FACTS
• The U.S.-Mexico border is the busiest in the
  world
• Two way trade has almost tripled to reach 232
  billion dollars annually
• Daily transactions average 640 million dollars
• Each year, around 90 million cars and 4.3 million
  trucks cross the border

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Mexico-U.S. Bilateral Trade
40 billion (1993) 155 billion (2004)
Exports
42 billion (1993) 110 billion (2004)
Imports
Source SE w/ BANXICO
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MEXICO IS THE 2ND LARGEST MARKET FOR THE U.S.
U.S. exports Billions of dollars 2004
Source SE with USDOC
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TRADE BETWEEN THE U.S. AND MEXICO
EXPORTS TO THE US

• Electrical equipment (TV, cables,)
• Vehicles and parts (cars, trucks, motor)
• Oil
• Machinery (computers and components, engines, air
  cond.)
• Medical Instruments
• Clothes
• Food and beverage
• Furniture (seats, lamps)
• Plastics
• Steel and Iron products

177
155
138
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TRADE BETWEEN THE U.S. AND MEXICO

• IMPORTS FROM THE US
• Electrical machinery (integrated circuits,
• transmission eq.)
• Machinery (compression, computers and components,
  parts of engines)
• Vehicles ( Autos, trucks, parts)
• Plastics
• Natural gas
• Iron and steel products
• Organic chemicals
• Medical instruments
• Paper (cardboard, etc)
• Food and beverage

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NAFTA BENEFITS

• MORE THAN A FREE TRADE AGREEMENT
• Liberalizes and protects investment
• Promotes fair competition
• Provides protection of intellectual property
  rights
• Mechanisms for Resolution of Disputes
• U.S. direct investments
• U.S. Mexico industrial integration

Encourage
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U.S. FDI IN MEXICO
Source Secretaría de Economía
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Recent Trends in Manufacturing in Mexico

• TRENDS
• Strong recovery of FDI in manufacturing in 2004
• 26 surge in new investments in the Maquiladora
  Industry in 2004
• Shift from labor-intensive industries to higher
  value- added products
• Clusters Development

• INCENTIVES
• Reduction in the income tax from 40 to 27 in
  2007
• Immediate deduction of new investments
• Special tax-reduction for Maquiladoras

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BUSINESS OPPORTUNITIES
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MEXICO STRONGCOMPETITIVE ADVANTAGES
Stable Economic Environment
Proximity to the U.S.
Competitive and skilled labor force
FTA with 43 Countries
Familiar Business Culture
Protection for investment and I.P. rights
Diverse Regions
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MEXICAN MARKET

• CHARACTERISTICS
• 100 million inhabitants
• Diverse
• Middle class growing
• Employment growth
• Consumer spending is growing
• Firms are spending
• GDP/capita
• 1995 6900 PPP
• 2004 9600 PPP

• MAIN DRIVERS
• OF DEMAND
• Strong remittances
• More consumer credit
• Mortgages available
• Lower interest rates
• High price of oil
• Growing pension funds available to financing
  projects

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OPPORTUNITY SECTORS IN THE MEXICAN MARKET

• Maquiladora (assembly) Industry
• Automobile parts and electronic components
• Housing construction
• Public Infrastructure
• Energy
• (Technology and equipment)
• Tourism
• Services
• Transportation Equipment

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RECENT ACTIONS TO INCREASE COMPETITIVENESS

• More efficient and secure border
• with the U.S.
• Reducing Income Tax
• Partial exemption for assembly plants
• Free Trade Zones

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DOING BUSINESS IN MEXICO
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DOING BUSINESS IN MEXICO

• SOME BUSINESS
• PRACTICES
• Friendly environment
• Business based on relationship

• LEGAL ASPECTS
• Legal system differs
• Foreign investment is allowed, with very few
  exceptions
• Common type of business form corporations
• Labor law minimum wages 2 2.4

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DOING BUSINESS IN MEXICO

• CUSTOMS
• No duties for NAFTA made products
• No duties under FTA
• if manufacturing in Mexico

• TAXES
• VAT 15
• Asset tax 2
• Payroll tax
• Income tax 29
• Real Estate tax
• Social Security
• Housing Fund

ESPECIAL PROGRAMS PITEX MAQUILA CUSTOMS Duty
Free Duty Free TAXES No VAT No
Vat Reduced Income tax
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BANCOMEXTTRADE COMMISSION OF MEXICO IN N.Y.

• Edmundo González
• egonzalez_at_nybancomext.com